David Gardner: Welcome to the Motley Fool Radio Show. I'm David Gardner broadcasting from Fool Global Headquarters here in Alexandria, Virginia, here each week to talk about the Motley world of money and investing. And on today's show, we'll talk to a fund manager who's beaten 99 percent of all managed mutual funds over the last 20 years. Well, I'll soon introduce some tips on getting organized to play our game which is smaller, but we begin this week's show by talking toys. Mattel and Hasbro just released earnings. The toy industry is gearing up for the holidays. So we wanted to once again check in with Chris Byrne, the editor of the Toy Report, is perhaps better known as the "Toy Guy." He joins us from his office in New York City. Chris Byrne, welcome back to the Motley Fool Radio Show.

Chris Byrne: It's a pleasure to be with you.

David Gardner: Chris, let's start by talking about Mattel, the world's largest toymaker just announced that its quarterly profits fell because of slumping Barbie sales. What's the story with Mattel and Barbie?

Chris Byrne: Well, I think, you know, Barbie, when you look at Barbie, she's down 18 percent in the 3rd quarter over the year before, and we sort of all knew that was coming. It's--Barbie is really in where she is cyclically. She is needing to be reinvented, and they've had a big management shakeup at Mattel in recent weeks. And I think they've brought in some people who are really product-driven. But, really, the need for Barbie to redefine herself as completely relevant to today's girls is a challenge that she's faced and met again and again in the early '70s, in the late '80s, in the mid '90s. And, you know, it's about time for them to redefine the brand for today's girls.

David Gardner: Do you have confidence that they will? Hasbro seems to have done pretty well with a lot of its long-term properties. How many different versions of monopoly can I possibly see on the store shelves? Does Barbie still have that potential?

Chris Byrne: Barbie does have that potential, and if you look at the way they segmented the brand in the last two years, they've done this thing that they called "Worlds of Barbie," and where there's a lot of strength is in the young girl arena where the four to six-year old where Barbie is still a magical princess to see if she's in her fifth full-length feature movie, Barbie and the Magic of Pegasus, it's called. And those do really well because at that age, girls are still very much into dolls and princess play where they get a little bit more--have a little more trouble as when they get into that competing with brats arena, that whole fashion area, that they haven't done quite as well in recent seasons.

David Gardner: From the Mattel, we go to Hasbro. Let's talk about the big toymaker. Hasbro said earnings grew four percent thanks in part to its games business and its Star Wars toys, maybe Star Wars monopoly part of that. What is your take on Hasbro?

Chris Byrne: Oh, I think they've done a great job recently with their reinvention of themselves. If you look at where their strength is, yes, they've got good performance in their core brands, Play-Doh, Lite-Brite, Easy-Bake Oven, things like that, but where they really define themselves is on a leading edge of these new technology toys and this emphasis between what is a play thing and what is a technology item. They've got things like a video camera for 79 dollars, a handheld entertainment device, projectors, all kinds of stuff that really is when it's really on the cutting edge, it does very, very well. Plus they've got, you know, just real strength in things like their FurReal Friends line, something called iDog which is an accessory that works on your iPod. So they're really trying to look at where are kids spending their leisure time in direct product against it.

David Gardner: It's fascinating. It seems like a lot of today's toys are increasingly of the high-tech variety and almost seem like adult toys in a way, Chris, I mean, it seems like if there's now the iPod for kids, I don't know, cell phones for kids, what is the definition of a toy anymore?

Chris Byrne: Well, it's a great question. It really is changing. It used to be very clear. Toys have always reflected the adult world. So they've always been kid versions of what adult have and, for example, you don't give an eight-year old a steam shovel, a real steam shovel, so there's a reason for Tonka Trucks to exist. But with technology, we've seen the disappearance of the division between an adult product and a child product. The child probably has more facility with an iPod than the adult does. So there's no need for a toy iPod. The child can work the real thing, and that's what technology has done, it's leveled the playing field between adults and children, between the genders. It's really transforming the toy industry overall.

David Gardner: On the low-tech front, we know there's still some classic toys that do well. We've talked about Barbie already. What are some other classic toys that are doing well in this high-tech world?

Chris Byrne: Well, a company called Play Along which is now part of Jakks Pacific, a publicly traded company, has been doing great numbers with things like Care Bears. I believe they're first introduced in 1983. They brought them back a couple of years ago. They did about 400 million dollars in Care Bears last year, Sky Dancers, Doodle Bear, all of these very, very strong play things that have lot of appeal to preschoolers generating piles of cash and sort of under the radar.

David Gardner: What about My Little Pony?

Chris Byrne: My Little Pony is still are out and still doing well. Nothing like ponies that can sleep in, you know, human beds. I mean, to a child's mind, that makes perfect sense.

David Gardner: Toy Wishes Magazine just released a list of 12 hot toys for the holidays. I want to spot Jeff in closing with a couple of these, get your thoughts Chris.

Chris Byrne: Okay.

David Gardner: Let's kick it off with Dora's Talking Kitchen.

Chris Byrne: This is great. This is from Fisher-Price. It'll probably--now this is one that's going to be sold out pretty soon. Last year, the dollhouse was sold out by mid November. This one looks like it's tracking along that way. Dora the Explorer is probably the hottest preschool property out there right now. It's a kitchen set that allows kids to go on adventures with Dora. It's a standup kitchen, you know, the type that kids actually play at. It's got a big cutout Dora right next to it and, you know, it uses Map and all of the different characters from the show.

David Gardner: I can't believe it's back also in the list of Furby?

Chris Byrne: Furby is back and Hasbro has--he looks similar to the original one. You have to look at the two together to see the differences. But they've reengineered him from the ground up. It's a better toy than it was last time. Last time, it was a fad but it was very frustrating for kids to play with. This time, it's a real--it's a real toy. It's got real voice recognition, it's got real responses. It's also at a real deal at Walmart right now. It's about 10 dollars below the suggested retail price, about 29.88 there.

David Gardner: You mention it earlier, the iDog.

Chris Byrne: Yeah. This is one that is a--imagine the white and silver iPod, and if you could, you know, mold that into something that look like a dog and had lights, it's a speaker, kids can play music through it, it responds to the music. It's very cute. It's an accessory and it's, you know, when people are spending 300 bucks for an iPod, 30 dollars is almost an impulse sale and accessory.

David Gardner: Finally, iZ.

Chris Byrne: iZ, they call it. This is from a company, Roger Shiffman who was actually the genius behind the original Furby. It's a--it looks kind of like a little space creature from the Sputnik era. He's blue, red or green. He plays different music. Kids actually play with him to create sounds. You can also play music through him. Just very, very unusual kind of a breakthrough not sophisticated technologically, but a lot of depths for the play. So kids, really, when we played with them, get really engaged in making the different sounds and they love the character.

David Gardner: And how about one toy company to keep an eye on?

Chris Byrne: Jakks Pacific. You know, they continue to grow. They had grown through acquisition for a long time. They've done a lot in terms of product. These are guys that really understand the products and the individual product nature of this business. They're not always innovating, but they're always delivering good play value. And I think that that's a consistent [background music] that kids look for year after year.

Based off of the above, consider the implications for new product development in this category. What is the effect on the new product idea generation process and your understanding of market trends? Would you consider the above conversation an example of incremental, semi-radical, or radical innovation?

Answer rating: 100% (QA)

The conversation between David Gardner and Chris Byrne provides intriguing insights into the toy industry its trends and new product development strat... View the full answer