{"id":16980,"date":"2019-03-01T04:35:50","date_gmt":"2019-03-01T04:35:50","guid":{"rendered":"https:\/\/www.dfcint.com\/dossier\/?p=16980"},"modified":"2019-03-01T00:00:53","modified_gmt":"2019-03-01T00:00:53","slug":"digital-lego-can-lego-remain-relevant-in-the-digital-age","status":"publish","type":"post","link":"https:\/\/www.dfcint.com\/dossier\/digital-lego-can-lego-remain-relevant-in-the-digital-age\/","title":{"rendered":"Digital Lego: Can Lego Remain Relevant in the Digital Age"},"content":{"rendered":"

In recent months, a major question being asked of DFC Intelligence is the impact of Fortnite on the overall video game industry.\u00a0 Our overall take has been that Fortnite is not taking away business from most other companies in the industry<\/a>.\u00a0 However, there are exceptions.\u00a0 Toy manufacturer Lego is an example of a company potentially being impacted by products like Fortnite.\u00a0 So it is worth asking if there is a future for a digital Lego?<\/p>\n

A year ago, this March, Lego announced 2017 saw its first sales decline in 13 years.\u00a0\u00a0 In late 2017, over 1,400 employees were laid off.\u00a0 Revenues were up in 2018, but still below the levels of 2016.<\/p>\n

\"Digital<\/p>\n

Of course, much of the blame was laid on the growing use of digital devices among children.\u00a0 The reality is slightly more complicated.<\/p>\n

Lego is a Danish toy company that has enjoyed tremendous success in recent years.\u00a0 Any decline must be measured against stellar performance in an era when consumers increasingly flock to digital entertainment over physical products.<\/p>\n

The first part of the 21st<\/sup> century saw enormous growth for Lego.\u00a0 There have been several books written about how Lego came back from the brink of bankruptcy in the late 1990s.\u00a0 This Business Insider article<\/a> provides a great look at Lego\u2019s comeback at the time of the 2014 launch of the Lego Movie.<\/p>\n

The initial Lego Movie was a huge success.\u00a0 Five years later, the early 2019 launch of Lego Movie 2 was a major box office disappointment, despite strong reviews.\u00a0 In our view, this is a sign that Lego has simply not kept up with its audience as they have aged.<\/p>\n

The challenge with being a toy company is that every few years you lose your audience as they grow out of your product.\u00a0 Lego was unique in that they have now grown a large adult audience.\u00a0 This demographic even has a name, Adult Fans of Lego (AFOL).<\/p>\n

If you look at the Lego line you will notice a large number of sets in the $200 to $800 price range.\u00a0 By and large, these are targeted towards AFOLs.\u00a0 A problem Lego faces is it is becoming clear they are not keeping their audience as they become teenagers.<\/p>\n

Surveying consumers under 13 is always problematic due to legal restrictions.\u00a0 DFC Intelligence has always kept an ongoing focus group of children in the 7 to 12-year old age bracket.\u00a0 Going back over 20 years we have kept up with some of our consumers as they now are approaching 30.<\/p>\n

Twenty years ago, it is safe to say Lego had limited appeal to children.\u00a0 Back then, Nintendo with products like Pok\u00e9mon were all the rage.\u00a0 In the early 2000s we could see a change as Lego licensed IP like Star Wars and Harry Potter.<\/p>\n

By the 2014 launch of the first Lego Movie, Lego was all the rage among the 7 to 12-year old audience.\u00a0 The issue is that by the time the Lego Movie 2 came out five years later that 7 to 12-year old group is now 12 to 17-years old.\u00a0 We found that only a handful were still interested in Lego.\u00a0 Of course, Fortnite is huge with this demographic.<\/p>\n

Among current the 7 to 12-year old demographic, there was surprisingly little interest in the Lego Movie 2.\u00a0 When you realize the Lego Movie 2 was a direct continuation of the first movie the apathy is not so surprising.\u00a0 The new Lego movie makes little sense to the young generation that did not see the first movie.<\/p>\n

Remaining relevant to a maturing audience is tricky for any toy company.\u00a0 Lego now seems to be more aware of the issue, but efforts in the past few years have been limited.\u00a0 It is hard to erase a past failure in marketing to a generation and the question becomes what will Lego do to ensure success with future generations.<\/p>\n

As far as digital products go, Lego has a long and mixed history.\u00a0 Over the past 15 years, the company has had tremendous success with Lego games developed and published by Warner Bros (via the Traveller\u2019s Tales development subsidiary).<\/p>\n

The problem with the Traveller\u2019s Tales games is that they have pretty much repeated the formula over many years.\u00a0 These games still appeal to a younger audience.\u00a0 However, they have little appeal to a teenage demographic.\u00a0 Furthermore, there is some indication their appeal is wearing off even among the core audience.<\/p>\n

This brings us back to Fortnite.\u00a0 Of course, Fortnite is not to blame for Lego\u2019s problems.\u00a0 It is more a sign of the issue.\u00a0 Before Fortnite there was Minecraft, which had a great impact among the Lego demographic. Lego eventually got involved with Minecraft with an entire line of Lego sets.<\/p>\n

The thing about products like Minecraft and Fortnite is they seem like perfect crossovers with the Lego brand as they both are about building Lego-like structures.\u00a0 Of course, these games are also big on combat.\u00a0 Lego, historically, has made a point about its focus on non-violence.<\/p>\n

Unfortunately, times have changed and a 100% pacifist attitude probably no longer makes business sense.\u00a0 This article from the Atlantic<\/a> discusses how Lego\u2019s have become more violent over the years, in part to compete with video games.\u00a0 The Traveller\u2019s Tales video games feature combat.\u00a0 So, it seems Lego could compete directly with Minecraft and Fortnite if it wanted to.<\/p>\n

Over the years, Lego has had all kinds of forays into the video game market.\u00a0 This even included the MMO game Lego Universe which lasted for about a year in 2011. Unfortunately, outside of its partnership with Warner Bros\/Traveller\u2019s Tales, most products have been flops.<\/p>\n

It seems Lego\u2019s current efforts are mostly into augmented reality (AR) where you can interact with physical bricks in a digital environment.\u00a0 There is already an established history with AR via the toys-to-life category.<\/p>\n

Lego Dimensions was an AR video game\/brick building set that launched in late 2015 for an initial three-year run.\u00a0 However, after only two years Lego shut it down.\u00a0 A planned Dimensions Minecraft version was never launched.<\/p>\n

The problem Lego Dimensions faced was inventory issues.\u00a0 With physical products, you need to plan in advance, or you will not have an adequate supply.\u00a0 With the case of Lego Dimensions, there were too many poor selling, high production cost units sitting on store shelves.<\/p>\n

Before Lego Dimensions, there was Lego Fusion.\u00a0 This combined building a Lego set with digital play on a tablet.\u00a0 Our young users gave us a mouthful about what was wrong with this product.\u00a0 Reviews on Amazon seem to bear this out.<\/p>\n

\"Digital<\/p>\n

Going forward, Lego is sticking with it.\u00a0 Lego Hidden Side is an upcoming AR mobile-based product with a ghost theme.\u00a0 Lego is partnering with mobile developer Gameloft to develop mobile products based on Lego minifigures.\u00a0 In China, Lego is partnering with market leader Tencent on Lego Cube (China is seen as a major growth market for Lego).<\/p>\n

\"Digital

Lego’s strict age limits on many sets was of particular frustration to kids we talked to<\/p><\/div>\n

\"Digital<\/p>\n

In short, Lego is continuing its strategy of throwing a lot of things against the wall to see what sticks.\u00a0 The issue is most of these products seem to be targeted at the 7 to 12-year-old demographic.\u00a0 It raises the question of why Lego is not doing more to keep the teen demographic around, at least in mindshare.\u00a0 This is especially true when there is a legitimate question about whether kids under 12 even have a major demand for AR-like products.<\/p>\n

Teenagers may not play with Legos, but adults are an important part of Lego\u2019s business and a major growth area.\u00a0 Keeping culturally relevant is crucial for a company like Lego.\u00a0 Right now, Lego is barely trying in the 13-17-year old demographic.\u00a0 Some sets specifically exclude this demographic by saying they are only suited for 12 and under or 16 and older.\u00a0 Lego ignores teens at their own peril.<\/p>\n

\"\"<\/p>\n

In February 2019, Lego released financial results for 2018.\u00a0 Consumer sales were up 3% versus 2017 (but still less than 2016).\u00a0 Much of this growth (9% versus 2% for Americas) came from Asia where Lego stresses China is a major growth market.\u00a0 However, Lego also released an infographic that once again focused on children.\u00a0 Mainly it quoted how parents think Lego\u2019s are educational.\u00a0 That is commendable but probably not the best message for older kids.<\/p>\n

\"Lego<\/p>\n

Long-term we think Lego will comeback.\u00a0 We compare Lego to Nintendo, a company that has been cyclical.\u00a0 Nintendo has been conservative and focused on quality and it has served the company well, even has it has limited growth.\u00a0 Adults often come back to Nintendo when they start having children.\u00a0 The same is likely to continue to occur with Lego.<\/p>\n

We are the first to admit that headlines about the decline of Lego are somewhat misleading.\u00a0 Lego is a private toy company with strong sales and a healthy balance sheet.\u00a0 It has more room to take a limited growth strategy and stick to its core ideals.\u00a0 The actual decline has been fairly minimal and subtle.<\/p>\n

Nevertheless, Lego does need a strategy if it wants to grow.\u00a0 This is true in all aspects, but especially when it comes to growth in digital areas.\u00a0 Partnering with major distributors to release half-baked digital products is clearly not working.<\/p>\n","protected":false},"excerpt":{"rendered":"

In recent months, a major question being asked of DFC Intelligence is the impact of Fortnite on the overall video game industry.\u00a0 Our overall take has been that Fortnite is not taking away business from most other companies in the industry.\u00a0 However, there are exceptions.\u00a0 Toy manufacturer Lego is an example of a company potentially […]<\/p>\n","protected":false},"author":4,"featured_media":16982,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[49,137,313,57],"tags":[],"_links":{"self":[{"href":"https:\/\/www.dfcint.com\/dossier\/wp-json\/wp\/v2\/posts\/16980"}],"collection":[{"href":"https:\/\/www.dfcint.com\/dossier\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.dfcint.com\/dossier\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.dfcint.com\/dossier\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.dfcint.com\/dossier\/wp-json\/wp\/v2\/comments?post=16980"}],"version-history":[{"count":7,"href":"https:\/\/www.dfcint.com\/dossier\/wp-json\/wp\/v2\/posts\/16980\/revisions"}],"predecessor-version":[{"id":16995,"href":"https:\/\/www.dfcint.com\/dossier\/wp-json\/wp\/v2\/posts\/16980\/revisions\/16995"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.dfcint.com\/dossier\/wp-json\/wp\/v2\/media\/16982"}],"wp:attachment":[{"href":"https:\/\/www.dfcint.com\/dossier\/wp-json\/wp\/v2\/media?parent=16980"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.dfcint.com\/dossier\/wp-json\/wp\/v2\/categories?post=16980"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.dfcint.com\/dossier\/wp-json\/wp\/v2\/tags?post=16980"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}