The following is the unofficial transcript of a CNBC interview with Mattel Inc (NASDAQ:MAT) CEO Ynon Kreiz from the CNBC Evolve Global Summit, which took place today, Wednesday, July 13th. Video from the interview will be available at cnbc.com/evolve.
Interview With Mattel CEO Ynon Kreiz
JULIA BOORSTIN: Tyler, thank you so much. And Ynon, thank you so much for joining us today for this interview from your phenomenal offices that are just jam-packed with toys. We really appreciate you helping us here.
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YNON KREIZ: Thank you, Julia. It's great to finally have you here.
JULIA BOORSTIN: Yes, great to be here in person. Now, I want to talk about the evolution that you have led of Mattel just in the past several years and this new path that the company is on. First, I just want to talk about some of the macro issues that so many different leaders are focused on right now across industries. We just got these new inflation numbers this morning. I know there's a big question about whether the country is going to be going into a recession and the impact on consumer spending. I know you have your earnings next Thursday, so you're in a quiet period. But speaking broadly, what are you seeing right now?
YNON KREIZ: Well, like all companies, we are following closely developments at the macroeconomic level. As a company, we have been working through inflation for several quarters now, and we're factoring into our planning. The company is flexible, and we designed an organization that is able to face challenging economic conditions.
JULIA BOORSTIN: Now, of course, in addition to consumer spending, another issue you have to reckon with is supply chain constraints, which you managed last year, but I'm just curious, as you think about shipping all of these objects all around the world and getting them into consumers' hands, how optimistic are you this year that the key holiday season is going to be better in terms of some of those supply chain issues?
YNON KREIZ: Well, as we said before, supply chain is now one of our core strengths, it's a competitive advantage for Mattel, and we've been able to navigate through supply chain issues for two years now. It's not that we have not been impacted, but we've been able to work through these issues and achieve a record growth year for Mattel in 2021. And supply chain was a key factor of that success.
JULIA BOORSTIN: Well, I'm sure we'll be hearing a lot more in your earnings next week, but just to return to the evolution that you have led of Mattel, you became CEO in 2018 and, since then, you led a full turnaround of the company, which you said you completed in 2021, and now you're in this next phase. Just to take a step back, when you started the company, you were the fourth CEO in four years; there had been a huge amount of turnover. What was the opportunity you saw as someone who came from the entertainment industry -- Maker Studios, Endemol -- what was the opportunity you saw in taking on the role? First you accepted the role of chairman, then the role of CEO of this company.
YNON KREIZ: Well, I always admired Mattel from afar, as the owner of one of the strongest portfolios of children and family entertainment franchises in the world, and I was attracted by the quality of the assets that the company owns. But the capabilities, yes, it went through a period of decline, but I believe we can turn it around. And the thesis was, fix the core toy business, knowing that if we can do that well, there's tremendous opportunity to grow on the toy side. And on top of it, if we're able to capture the full value of our intellectual properties, that can be transformative.
JULIA BOORSTIN: So, walk us through how you approached that restructuring process that began in 2018 and ended in 2021. I mean, you wanted to streamline it, focus on the toys, but what did you have to do to get the company there?
YNON KREIZ: Well, the fundamental change was to change the company from being a manufacturing company that was making items into an IP company that manages franchises. And that's been a pretty comprehensive change, operationally, culturally, how we think about our product and how we engage and connect with consumers. And in the course of those four years, we took our EBITDA from 126 to over a billion dollars. And, with that, we reached -- and we took also our leverage ratio down from 25 times debt-to-EBITDA to 2.6 times in Q4 of last year; and in the first quarter of 2022, it was down to 2.4. So we dramatically improved and strengthened our balance sheet and positioned the company for growth that we now believe we are entering an exciting phase of.
JULIA BOORSTIN: Before we get to this growth phase now, I'm really curious about how you approached this idea of streamlining the business. You cut your workforce. You also reduced the number of items you produced. How did you figure out where it made sense to cut back on those SKUs, as they're called?
YNON KREIZ: Yeah, we made significant changes in the way we operate. We reduced our workforce by more than a third globally. Not on the manufacturing side. On the manufacturing side, we exited five factories and focused on the productive items we were making. About 35 percent of the items we were making were not productive, and we cut that long tail and focused on the more productive, profitable items that we manufactured. And, with that, we improved our profits dramatically.
JULIA BOORSTIN: So, is that, effectively, about reducing the number of items in each category so you have fewer Barbies or fewer Hot Wheels, or is it about eliminating categories entirely?
YNON KREIZ: It was mostly a broad horizontal optimization of the items we were making. So we did cut across all categories, and we're focusing on items that were more profitable, more in demand, that have a higher growth potential. And that focus was fundamental in how we simplified the world we operate, so you focus on the items that are actually productive and profit-generating.
JULIA BOORSTIN: So, it seems like you must have had to use a lot of very precise data to understand exactly what was working and what wasn't. Tell us about what you call the "Mattel playbook," to really strip out some of the distractions and focus on the key brands.
YNON KREIZ: Yeah, the Mattel playbook speaks to how we manage our franchises. It's about cultural relevance, design-led innovation, execution and excellence, and a very clear brand purpose that we infuse in each and every one of our products. And that was really important to connect with consumers, whereby each of our product -- each of our brands and franchises has a reason to be. Beyond being a toy -- of course, we're now making play systems -- but when people, parents, families, consumers, engage with our product, there is a purpose, a clear purpose that elevates the play system and gives people an exciting reason to engage with that product.
JULIA BOORSTIN: So, give us an example of that. What do you mean by a "play system"? I mean, many of us may have these toys in our homes, but what do you mean by a "play system," and how did you figure out how to give a brand purpose or what purpose might be appropriate for each brand?
YNON KREIZ: Take Barbie as one example, obviously, a headline franchise for Mattel. Barbie's purpose is to inspire the limitless potential in every girl. The Barbie play system is not just the doll; it's also the Barbie Dreamhouse, it's the camper. It's an entire experience, a holistic experience of how we reach and engage with consumers. Toys are not just a form of play. Toys are things that consumers hug, they touch, they go to bed with them, and the emotional connection with the consumer is very high. If you're successful in establishing that relationship, then you can grow the brand and extend it into other verticals, which is exactly the journey we're on. As a company, we also define a very clear mission, which is to create innovative products and experiences that inspire, entertain and develop children through play. And if we do that well and make sure that each of our products does that, we're ahead of the game, and this is what really established Mattel and put it on such a growth trajectory.
JULIA BOORSTIN: I want to talk to you a little bit about the focus on the entertainment industry. Obviously, there's been a huge amount of attention on the Barbie movie that's in production. But just revert back to what you were saying about the brand itself and the way you've been involving the Barbie brand. For many years, people said the Barbie brand was not good for little girls because it gave little girls who played with the toys a false image of what they should aspire to. And you've really worked to change that by taking so many inspirational characters and also adding to the diversity of the dolls themselves. Tell me about how you've been approaching that process which seems to be a priority, at least walking around here, you see a lot of examples of that.
YNON KREIZ: Of course. As a company, our goal is to contribute to a more diverse, equitable, inclusive and sustainable future, and this is what we infuse in all of our brands. Barbie is ahead of the curve, really the flag carrier for diversity and inclusivity, and the approach is to really represent the world in the way children see it. When we talk about cultural relevance, it's about being current, being timely as much as Barbie is timeless. And that combination and how you create and embody that, represent that, those values into the product, is really a combination of art and science, but it's something that is a core competence for Mattel. If you look at how we bring culture into our brands, whether it's Barbie, also Hot Wheels or Uno, it's all around. Everything we do is making our product, brands and play systems current and relevant to today's consumers. And this is really about taking brands that have been around for, in the case of Barbie, 63 years; Hot Wheels has been around for 52 years; Thomas has been around for more than 75 years.
JULIA BOORSTIN: Thomas the Tank Engine. You're on a first-name basis with Thomas the Tank Engine.
YNON KREIZ: Thomas the Tank Engine. So, it's how do you take these heritage brands that have such a strong connection with consumers, a built-in fan base, in some cases going back two and even three generations, and make it relevant to today's consumers? And our ability to do that so well has been a key part of our success.
JULIA BOORSTIN: Yes, and I see Barbies all around your offices here. Very diverse range of dolls, then also dolls that are the doll version of a lot of inspirational women, in particular, which I know has been a big part of that strategy. So, as you focus on building out these brands, talk to us about the importance of entertainment. We can start out the conversation talking about IP. Your background is in entertainment, and now you are investing so much in film, television, games. Explain to us the overall strategy, and I want to dig in more to the movie business.
YNON KREIZ: Yeah. As the owner of one of the strongest portfolios of children and family entertainment franchises in the world, we have a tremendous opportunity to capture significant value outside of the toy aisle. This is not instead of what we're doing on the toy side of the business, this is in addition to all of our success on the toy side of the company. When you talk about capturing value from our IP, think about content, licensing and merchandise, including consumer product, as well as digital games and digital experiences. On the content side, it's about films, television; and there alone, these are big verticals that, in success, can be very transformative. The opportunity is not to create content in order to sell more toys. This will happen. But the opportunity is really to participate in these verticals and build accretive businesses in these areas that in some cases are actually bigger than the toy industry. In today's world, everyone is looking for big franchises, big IP that rises above the noise level, and it's about a built-in relationship with consumers, high awareness and clear brand representation that defines a story. We have never done it as a company. We've never released a major movie. Theatrically, when we did television shows, it was more with the orientation of marketing and promotion of our toys. Today, our movies, our television content is about building accretive verticals, and the approach is to make great quality content that people want to watch. This is our mandate to our creative teams and a mandate to -- and the relationship that we develop with creative talent around the world.
JULIA BOORSTIN: What I think is so interesting, though, is you're talking about making the content, you're not talking about licensing these brands. There are plenty of big iconic brands that license -- in the same way that Jurassic World licenses its toy rights to you, you could license your rights and just sell the rights to a film studio. Why is it so important for you to be and your company to be so closely involved in the actual production of this content?
YNON KREIZ: Well, it's a hybrid approach. We do partner with creative talent -- in fact, the best, we believe, creative talent in some cases; in most cases, these are the leaders of the industry -- to collaborate with us and imagine our brands and transpose it to the big screen or television screens. In the case of Barbie, which is currently in production and about to finish principal photography, we partnered with Warner Bros., but obviously brought in top creative talent Greta Gerwig to write, together with Noah Baumbach, and for Greta to direct the movie. Greta is one of the most prolific filmmakers of our time, and it's very exciting to have her on board and really put together how she envisages Barbie and translate it or communicate with the next generation with her vision. And, of course, Margot Robbie, who is a co-producer or producer on this movie, and our partner, and Ryan Gosling, Will Ferrell, Simu Liu, America Ferrera, such top talent, we could not be more excited about the way the movie is coming together.
JULIA BOORSTIN: Right now we've been showing some stills from the movie that have set off a firestorm of interest, this new concept of Barbiecore fashion, as people have been so excited to get a peek at this movie that's coming out next summer. What I think is so interesting about the choices you made with this Barbie movie is that you're clearly not making a movie that is just for the little girls who play with the toys. Yes, you have collectors of the toys, but this idea of you're not making this movie for a very young child audience. You have sophisticated filmmakers who make movies for adults, and it seems, based at least on the costumes and the approach, like you're going to have fun with this. You're going to allow Barbie to laugh and have a sense of humor about some of that iconography. So, I'm curious how that plays into the whole vision. If you were just making a movie to sell toys, maybe you would just be marketing a movie to 4- and 5-year-old girls; but, instead, you're really thinking about this as reaching a very different kind of audience, including adults.
YNON KREIZ: Well, Barbie is very much more than a toy and more than a doll. Barbie is a cultural icon, a pop icon. And this movie is really shaping up to be what we believe will become a societal moment. It's going to be a cultural event. And the way Greta is creating this work of art, with this incredible talent and the approach that is very different, very unique, not something that you've seen before, is going to be very exciting.
JULIA BOORSTIN: But what is interesting is you're going to try to recreate this with many other properties. I mean, I believe you have 19 films in production; is that right?
YNON KREIZ: Well, we currently have -- we've announced 14 movies in development, including the Barbie movie. And yes, we do collaborate and partner with innovators, with creative filmmakers. And much like I said earlier, the request, the partnership, the basis of this relationship is about please make great quality content that people want to watch.
JULIA BOORSTIN: Yeah.
YNON KREIZ: This is the relationship. Don't try to sell toys. We know that in success, if people watch a movie and there's high engagement, good things will happen. We know how to sell toys. But the opportunity is really about quality entertainment, based on our IP.
JULIA BOORSTIN: So, another piece of the quality entertainment strategy here is games. You have mobile games, which you're making through your own division, and then you have the licensing of traditional -- to console games, and then you also have Roblox, where you have two Mattel worlds within Roblox. Lay out how the strategy here sort of establishes the groundwork for more expansion into that space.
YNON KREIZ: The opportunity around video games, games in general, digital experiences is to really leverage the relationship we have with consumers. This area is fast growing. And we all know the amount of time that children spend in front of screens. As the owner of the underlying IP, we have the opportunity to reach, engage, connect with consumers wherever they are. And we know that children, and consumers in general, even older consumers, do engage with our product, and the opportunity for us is to do it through licensing arrangements. Being a first-party publisher on Mattel 163, which is our mobile game studio where we focus on mobile games, as well as on a children-oriented platform such as Roblox, with two games, Hot Wheels and Masters of the Universe, we've already published. So significant opportunity there.
JULIA BOORSTIN: And looking forward at, you know, this conversation about the metaverse, I know that you've been doing NFTs, and the Roblox worlds are a part of that metaverse conversation. But how do you see the NFT business growing and perhaps intersecting with some of your metaverse investments?
YNON KREIZ: Well, the two key features of NFTs in general is collectability and community. And in our case, we have brands that really play on those planes very successfully. Barbie, Hot Wheels have a huge collector market that is still untapped, and we believe we can be very successful there. And, of course, the community, the built-in fan base is very vibrant. And we know how people are engaged with our key brands. We've had three NFT campaigns that were not very large, they were more early stage, and for us to really test the market, and our product got -- our NFTs got sold almost instantly, different types, different genres, and it's been very successful. So, we know there's high engagement with our brands, and the opportunity to translate that relationship into the metaverse and the digital sphere is very exciting.
JULIA BOORSTIN: Well, certainly so many opportunities as you move these iconic brands and intellectual property into, film, entertainment, games, now NFTs in the metaverse, as well. We are very curious to see what comes next. Ynon Kreiz, thank you so much for joining us today from Mattel headquarters.
YNON KREIZ: Thank you, Julia. It's been great. Thank you.
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