Monopoly, one of Hasbro's best-known games. (Photo/CNS)
Guangdong Alpha Animation and Culture, the largest toy and animation company in China, signed a letter of intent a month ago to set up a joint venture with global toy brand Hasbro. The deal is expected to usher in an era of rapid development at Alpha Animation, the Chinese-language Global Entrepreneur magazine reports.
The main driver for Hasbro's participation in the joint venture is the business potential offered by the sizeable Chinese market. Thanks to government support and market demand, the market for animation production and derivative product development in China is expected to grow by 25% to 32.1 billion yuan (US$5.15 billion) in 2012 and could even expand tenfold during the next 10 years.
The two companies will each own a 50% stake in the joint venture for the development of toys and games and other products, as well as the distribution of products around the world and brand authorization.
A lack of distribution channels and high production costs have been barriers for Hasbro's expansion into the Chinese market since it tried setting up a branch in China a decade ago.
With 80% of the Chinese toys and games market crowded by smaller companies, Hasbro also faced challenges in boosting its market share, as its distribution network was limited to the country's largest cities and was unequipped to effectively reach second- and third-tier markets.
Alpha Animation plans on entering similar agreements that would mainly focus on developing independent brands, the magazine said.
According to the deal, Alpha Animation will focus on the promotion of its popular yo-yo brand Blazing Teens — based off the popular Chinese cartoon series about high school yo-yo competitions — during the initial phase. The two companies will then team up to develop games and movies for China and international markets. The first batch of these products will be jointly developed by the two companies and is expected to hit the market in 2014.
The magazine said that selling derivative products, particularly toys, in global markets is not Alpha Animation's strength. Its 2012 financial report showed that, of the 490 million yuan (US$78.7 million) in revenue generated in the first half of this year, sales for toys were pegged at 270 million yuan (US$43.35 million), accounting for 55% of the company's total revenue. Its international toy sales accounted for only a small portion of the revenue at 87 million yuan (US$14 million).
The partnership with Hasbro is expected to help expedite Alpha Animation's overseas development. By using Hasbro's international distribution network, which spreads across 14 countries, and its brand management expertise, Alpha Animation's Blazing Teens is expected to see higher demand in more countries, in addition to the already existing markets for the product in South Korea, Southeast Asia and Russia. The company is also expected to take advantage of Hasbro's product research and development, as well as its sales channels.
The newspaper said that China's animation industry is currently in its fledgling period. Statistics showed that China has 8,500 companies that produce games and toys, including 390 that have been certified by the government. While the number and size of domestic animation enterprises has been on the rise, more than 90% of such companies are small and medium enterprises.