Late last fall, licensing luminary and LIMA Hall of Fame member Gary Caplan stopped by Neil Friedman’s office in Mattel’s El Segundo, California HQ for a chat. In this fourth installment of our six-part series, the president of Mattel Brands discusses his first encounter with the licensing business, his biggest product

disappointment, and how the company plans to follow up 2006’s hottest toy, T.M.X. Elmo.

Gary Caplan: Thank you very much for meeting me today, I’ve been looking forward to this for a long time. Why don’t you tell me a bit about your background?

Neil Friedman: Thanks Gary, glad to be here. I was born in Brooklyn, New York and spent most of my life in Philadelphia. I went to school at Rider University…When I graduated, Sears offered me a management training position. I left Sears [a few years later] and went to work for Porter Hosiery as its New England manager, and I ran 13 stores. I was there for a year and a half. [My family] wanted to move back to New Jersey, so I answered an ad in July of 1972 from a retailer named Lionel Leisure, Kiddy City. That was my start in the toy industry.

How long were you at Lionel Leisure?

Ten years. I went from department manager trainee to senior merchandise manager, eventually, and I left in 1982 to work for Hasbro.

Who was your first boss at Hasbro?

Larry Bernstein. He was head of sales, and I was Eastern regional sales manager. I did that for about six weeks and then they made me president of this small import company called Aviva. It was only doing a couple of million dollars a year, mostly Snoopy toys. Hasbro bought Knickerbocker that November, and Alan and Stephen Hassenfeld (who were heading up Hasbro) gave it to me to integrate with Aviva. We rolled the whole thing into Hasbro in the mid-’80s, and I started the inbound licensing department. The company didn’t have one until then; it was whoever happened to be in marketing services. That’s really how I became heavily involved in the licensing industry, getting into contracts and negotiations, meeting with all the licensors, and picking products.

You mentioned some industry heavyweights and some terrific people. Can you think of a particular boss that left an indelible impression on you?

I think Stephen probably left an indelible impression on a lot of us. He was incredibly savvy on making financial decisions and acquisitions, and he was smart about how to deal with people. Although he was a little rough sometimes, he was pretty straightforward, which I always found refreshing.

Along those lines, can you think of the best business advice you ever received and how it has impacted your professional life?

The best business advice I ever got was you should always surround yourself with great people, because no one person can do every job themselves. But if you surround yourself with great people and you teach them to do your job, the better they become, the better you look.

Great answer! When can I go and work for you? Changing tack a bit, in 2004, you were inducted into the prestigious Toy Industry Hall of Fame. How did you feel when you got the phone call from the TIA?

Actually, I was standing out in the hallway of the TIA. At that time, I was the chairman. So I didn’t know that I had been placed in the nominations and it had been put out to the membership to vote. When I got the call that I was elected, I was ecstatic.

So looking at your time in the toy business, I’m sure that you consider Tickle Me Elmo and its subsequent versions over the years as one of your greatest successes. How did you and your Fisher-Price team come up with the original concept and the product?

When I started at Tyco Preschool in August of 1995 (Editor’s note: Tyco merged with Mattel in 1997, Fisher-Price became its sole preschool brand in 1998), Tickle Me Elmo was already in the works. An inventor had presented a laughing, giggling monkey to Stan Clutton, who was, at the time, head of marketing and design. But Tyco Preschool didn’t have any soft toy rights, so he sent it to the division with the Looney Tunes license, which tried to do a Tickle Me Taz. Then Tyco did a master toy deal with Sesame slated to begin in January 1996. Having the master toy rights included soft toys, so Stan put the mechanism into Elmo. Our advertising agency said, ‘This is really a great toy…But TV is a visual medium, and he doesn’t do anything physical.’ So my wife Amanda, who was head of design, put the shaking mechanism into Tickle Me Elmo. And that shaking mechanism was the surprise, the wow that really put that product over the top. Then we made sure we put it into a Try Me package, and I got Tyco to agree to let us advertise. It was the first toy we advertised at Tyco Preschool, and we had a very limited budget. I then got our PR agency heavily involved. The PR behind it was really part of what made it happen.

I didn’t know that. It appeared that there was a huge advertising budget.

It grew out of the PR as much as it did the advertising. The advertising certainly helped. And then Rosie O’Donnell put it on her TV show, and it went bigger – the day after Thanksgiving, the thing took off. The rest is history.

On the other side of the coin, did you ever create or champion a toy or a product line you really believed in that disappointed you? What did you learn from that experience?

I’ll tell you the one that was probably the biggest disappointment. We bought a product called Bingo the Bear; it was an interactive hand puppet and was really magical. It was the first toy that did branching, where you could talk to it and it seemed like it was answering your questions…It was terrific, everybody loved it. The only problem was children couldn’t work the toy, [and] it wasn’t satisfying for them to play with. So the things we learned from it are a) puppets are not generally good for kids because the child can’t do it, the parent can; b) don’t fall in love with a toy because you are amazed with the electronics – just because they can do all of these things doesn’t mean that they’re fun; c) make sure a child can handle the toy before you sell it.

Your team sees probably hundreds of new properties and characters each year. What are the key elements they look for? Do they have a method for picking winners?

It’s interesting. Stan Clutton, Fisher-Price SVP, and Mattel VP of licensing acquisitions Holly Stein are certainly very experienced at doing that. We tend to tie in with partners that have the same values and kinds of initiatives planned as we do. What we’re looking for, in many respects, are properties that have long-term staying power, [belonging to] organizations that we feel are honorable and are good partners. We like them to be collaborative in the partnership so that we have the access and the ability to make great things. All of our business units understand character properties because it’s what we do in building our own brands. And we know how to bring these products to life.

Neil, I’ve heard you talk about the wow factor over the years. Can you explain it?

It’s the magic in a toy that makes it come to life and makes it fun for the child. If you look at Tickle Me Elmo, for example, as a piece of magic, it was the shake and the laugh that was surprising and made everybody smile. If you look at T.M.X. today, it’s when he falls down and slaps his knee and rolls over. We think of that as technology; to a child it’s magic and it brings the toy to life and brings a smile to everybody’s face. That’s the wow factor…If they [want to] play with it over and over again, then we’ve succeeded.

There are a lot of property and product creators who are going to read this interview. On their behalf, let me ask you what advice would you give on how best to break into the toy or the licensing business?

In the licensing business, if they’re starting off and they’re a property holder, they should find a good agent who understands their type of property. Call LIMA, it will provide a list of agents who do those kinds of things. For the inventors, there are agents who represent new inventors. We have an incoming inventor relations department: Stan Clutton and Steve Toth oversee Fisher-Price, and Jamie Filipele looks after Mattel here in El Segundo. They will either say, ‘Okay, we want to move forward,’ or ‘No, you should go to someone else,’ and they can give the creator a list of agents.

So could a toy inventor just pick up the phone or send an email to Mattel? Is that welcome?

If the proposal is unsolicited, without a non-disclosure form signed, we can’t look at it, and we’ll send it back. So they need to contact the department first and ask us if we want to look at it; the department will then send a non-disclosure form. If the department can’t look at it, it will send the inventor to somebody who might be able to help.

Even though there seemed to be an upswing in the toy industry this year, what about the business keeps you up at night right now?

Things that keep me up at night are consolidation at retail, the increasing costs of manufacturing, material costs, and trying to make sure that we can still maintain the quality, the wow factor, the features and the play value in a toy at prices that are still competitive or within reach of the average consumer. Unfortunately, the prices are going up at retail because of the cost of the raw materials. But the thing we always talk about is that we never cost-reduce the features of the toy. At the end of the day, it’s all about the play value.

You were also a two-year chairman of LIMA. How do you feel about the future of the licensing business and the toy industry?

I think that licensing has played an enormous part in the toy industry since Walt Disney started licensing Mickey Mouse in 1932. And I think the licensing business will always be a major part of the toy industry. As it’s incumbent upon the toy industry to make great product and feature these licenses properly, it’s incumbent upon the licensors to come up with good intellectual property and great entertainment for the appropriate age groups. Too often we find that the entertainment isn’t necessarily geared to the right age group, or if it’s a licensed property, that the key products aren’t appropriate for either the age group or the gender. It’s a combination of all those factors that’s important, [but] I think the future is great.

Let’s get back to things more personal, as we wind down this interview. Can you tell us a little bit about your family?

We live in Long Island, but we are planning to move to the L.A. area over the next couple of months. I have five children. Two are married, and one is in his last semester at the University of Connecticut. And then with my wife Amanda, we have two girls ages six and nine.

Thinking back to when you were a kid. Do you remember your favorite characters?

The characters that were the craze at the time were Mickey Mouse, with the first Mickey Mouse Club and the Wonderful World of Disney. Davey Crockett, of course, was a big hit. And everybody watched Howdy Doody.

Who would you like to spend an hour with?

If there was one historic figure I could meet, it would probably be Thomas Edison – a creative, prolific person in our history. I’d like to learn from his ideas on innovation.

One last question, Neil. T.M.X. was the must-have toy this past holiday season. How is Mattel going to follow it up in 2007?

I think you know typically we don’t talk about any of our new products in the press. But I will tell you we are doing a whole wedding segment for Barbie. Taking the aspiration of the wedding and bringing that to life – and not just putting a doll in a wedding gown. You’ll see dolls that have electronics in them. Girls will be able to act out the entire wedding, and not just have a bride and a groom doll to dress and undress. So, it’s really getting more play value into the Barbie line. I think what you’ll see throughout our entire line is that there’s more play value and more excitement and more of the wow in 2007.

It’s been great talking to you. Congratulations on your exciting career so far, and we’ll see you at Toy Fair.

Gary, as always, it’s been a pleasure.

Gary Caplan is known in industry circles as ‘The Godfather of Licensing’ and is president of Gary Caplan Inc., a Studio City, California-based consultancy specializing in the marketing and management of licensing programs. For further information, check out www.garycaplaninc.com.

Editor’s note: Since Gary conducted this interview, Neil Friedman has been named LIMA’s Hall of Fame inductee for 2007.