Licensing for toys and movies are ‘out of sync’ due to production delays: Expert

Movie production delays continue amid the coronavirus pandemic, but toy licensing has not, including Disney's coveted Baby Yoda. Toy Insider’s James Zahn joins Yahoo Finance to discuss why the two are out of sync and what to expect as we begin to recover.

Video Transcript

BRIAN SOZZI: Switching gears, the toy industry has taken a big hit during the coronavirus pandemic, as most of the supply chain is in China. Those factories are coming back online, but with some major action movie blockbusters on hold, toy industry could stay under pressure. Joining me to break it all down is James Zahn from "Toy Insider." James, good to see you again. I think the last time we saw you was in the studio. Time flies when you're having fun. But take us through the state of the industry. I think a lot of toy folks that we've talked to, toy industry folks, are worried that there are not major movie releases to drive toy sales, more specifically around the holiday shopping season.

JAMES ZAHN: Absolutely. Thanks for having me back. And yes, the licensing is now out of sync. So what we're seeing, is a lot of toys that are based on all of these big movie and film projects, movies, they're just not coming out. The movies aren't coming out, but the toys, the train is rolling. So we saw Universal put out "Trolls World Tour" direct to digital, because the product from the likes of Hasbro and whatnot, had already hit stores.

What we're seeing as we go into summer, Scooby-Doo, the new "Scoob!" movie was supposed to be out May 15 in theaters. They've got a toy line from Basic Fun. They've got collectibles from Funko. Those toys are out already. So that movie is going direct to digital. But where we see a bigger problem now again, is the three, six, 12-month cycle. "Fast and Furious" has been pushed back a year. "Minions: Rise of Gru" has been pushed back all the way to July of 2021. And there's product hitting stores already. So it's an interesting thing. And the industry has never dealt with this before.

ALEXIS CHRISTOFOROUS: James, before I ask my question, I have to ask where you are. Because I just see your background, and I know right away you're in the toy industry. I take it this is your home?

JAMES ZAHN: This is my home. I'm in Illinois, and this is my office. So when I come into New York, our company's office is there in Manhattan. So last time we got together, we were in the studio. Now I'm in Illinois, and this is where I work on a daily basis.

ALEXIS CHRISTOFOROUS: I would love to hang out in your home for a little while, because you have some really cool toys behind you. But I want to ask about some earnings from toy companies that we're going to be getting this week. Mattel out this week, Funko later in the week. What are you expecting from these companies as we start to now understand consumer behavior as it relates to toys during this pandemic?

JAMES ZAHN: They're going to be taking a hit. And we saw the first taste of it when Hasbro reported last week. Certain categories, like games and puzzles, have been just doing huge business. So that is driving, but it's really just making up for other losses. And the overall loss is still going to be there, despite a slight uptick in the first quarter sales. Retail was showing about a 4.6% sales growth via MPD.

That was counting a lot of times when the stores were still open. So now we're going to start seeing bigger challenges as we go into the second quarter. And some of these, Mattel is fairly diversified. But Funko is concerning, because they're are so tethered to the live event space. And they do like San Diego Comic-Con, for example. I believe last year they had 75 exclusive items that you could only buy there. They had two massive booths set up. And the line was just extensive through the entire event. I was there, I saw it. Their fan base buys a lot of stuff in person.

And with these events collapsing one after another, we're looking at Star Wars Celebration. They're still in a wait and see right now. But that'll probably be canceled or postponed. Funko moves product there. So does Hasbro. Those in-person sales are going to go away. And when we start looking at the back half with fall, will New York Comic-Con take place? That's another area where these companies are selling a ton of merchandise. And we're talking in the tens of millions of dollars direct to consumer, and that has just vaporized. So they're trying to take it online, but we don't know how it's going to shake out. I think Funko's going to take a huge hit.

BRIAN SOZZI: James, real quickly before we let you go, toy prices. Do you think toy prices are about to go up significantly, given what we saw, what we've been seeing with the supply chain coming out of China?

JAMES ZAHN: I actually don't. And this is something I think we discussed a little bit a couple months ago. The toy makers as a whole, they're not looking to stick it to the consumer. They're looking to spread joy and be there for the families. So they're going to eat some of that. And we have not seen prices increase at all. And then there is also a little bit of rumbling going on in the industry, and this is something long-term, that if oil prices stay low, that could affect plastics and whatnot, which could in essence, bring this down when we look out into the future.

BRIAN SOZZI: James, what do you think will be the holiday season toy of the year?

JAMES ZAHN: Right now, depending on, some of the stuff got bumped to 2021, so there's some products that I would have pegged for 2020 that aren't going to be out now. But I'm thinking Baby Yoda, the child, is still going to be hot. Those products just shipped to stores starting last week. And they are selling out. And "Mandalorian" season two is going to come out this fall on Disney Plus. If folks are still stuck at home, that's going to drive that. So the little green guy is my pick right now.

BRIAN SOZZI: Yeah, it's a Baby Yoda world, we just happen to live in it. James Zahn.

JAMES ZAHN: Absolutely.

BRIAN SOZZI: Good to speak with again, stay safe, we'll talk to you soon.

JAMES ZAHN: Absolutely, you too.