Hasbro, Inc. (HAS) Earnings Call Transcript & Summary

Good day, everyone. I'm Steph Wissink, Senior Research Analyst and Managing Director at Jefferies. Thank you so much for joining us for our interactive and gaming conference this year. This is actually one of the sessions I'm looking most forward to. We have the President of Wizards of the Coast, Chris Cocks, coming in from the West Coast; and also Debbie Hancock, the Senior Vice President of Investor Relations from Hasbro, which is the company owns Wizards of the Coast. So thank you both for joining us. We're going to start just really quickly with the visual aid on your screen, the safe harbor. This is a public company. And so they do fall in line with the SEC compliance guidelines around forward-looking statements, and anything that Chris says today that might be forward-looking falls under this safe harbor.

The first topic is actually just to help provide a visualization of how Wizards fits into this great company. And so we're going to do just a quick share on that Hasbro brand blueprint, and I would say that this is actually becoming synonymous with Hasbro's strategy, this visual -- visualization. So I wanted Chris to just start by talking a little bit about his background but also how the Wizards of the Coast segment fits into this bigger brand blueprint at Hasbro. So Chris, over to you.

Great. Well, hey, first off, Steph, thank you so much for having me. I'm really looking forward to both today's session and future sessions where we can actually get together in person again. That will be fantastic. So a little bit about me. I'm Chris Cocks. I'm President of Wizards of the Coast. I've been leading our division for the last 5.5 years. Maybe I should start off a little bit about Hasbro and a little bit about Wizards for those of you on the call who maybe don't know as much about the company and the division. So Hasbro is a multibillion-dollar global play and entertainment company with one of the most impressive portfolios of entertainment brands across movies and TV, toys and games, as well as tabletop gaming and digital games. The company really is being driven by a central strategy that we call the Hasbro Brand Blueprint, which was founded by our late CEO, Brian Goldner. And Brian had a vision that basically, brands all have stories, and storytelling is the core that we engage consumers with. And the Brand Blueprint is that expression of that. At the center of all of our Brand Blueprints is the brand and its brand story and then surrounding that are a set of experiences that we tell those stories through. You can see the success of that strategy with Transformers, which, prior to 2007, was a beloved toy brand. After 2007, it's one of the biggest blockbuster franchises in Hollywood history. Huge -- a huge licensing brand, a huge toy brand and a huge entertainment brand. You can see it most recently with what we've done with My Little Pony. The new My Little Pony movie came out last month on Netflix. It was the #1 kids property across over 80 markets across the world and the #1 movie across over 20 markets across the world. It literally blew up the brand in terms of social engagement, and our point of sales literally gallops forward as a result, pony pun intended. So Wizards of the Coast is one of the 3 operating divisions inside of Hasbro. Our operating divisions are Consumer Products, Wizards and Digital as well as eOne, which is our entertainment TV and movie-based division. So Wizards fits into the brand -- Wizards follows the Brand Blueprint and gets a lot of value from it. As we think about the Brand Blueprint, we think about 2 different ways that Wizards engages with it. The first is simply leveraging it. And we think there's been tremendous value of leveraging it to date in terms of our engagement with our consumer products teams, with our publishing teams. Wizards brands include games like Dungeons & Dragons and MAGIC: THE GATHERING, which, combined, have over 100 best-selling books, dozens upon dozens of graphic novels and comic book expressions, some great collectibles that we partner with Eric Nyman and his consumer products team on and some great licensing opportunities as well. But moving forward, increasingly, we'll be leveraging more and more aspects of the Brand Blueprint, particularly entertainment. Next year, MAGIC: THE GATHERING will have its first animated TV series, which will be partnering with Netflix on. We're very excited about that release. And then in 2023, Dungeons & Dragons will have a blockbuster movie starring Chris Klein and Hugh Grant, that we're partnering with eOne and our partners over at Paramount with. And that's really going to explode the potential of the blueprint of that household name in fantasy. There'll be a tremendous theatrical lift. There'll be a huge push in merchandising with toys and games, amazing licensing opportunities and merchandising partnerships, publishing opportunities. Wizards will have a whole host of tabletop products associated with it, and it will really kick off the 50th anniversary of the Dungeons & Dragons brand, which starts at the end of 2023 and really goes kind of rolling thunder style into 2024 with a host of new games expressions, more fan-favorite products from our consumer products teams as well as all new digital game experiences that we think will have a lot of upside potential for the brand and a lot of delight potential for our fans. The second area that we think the Brand Blueprint is a big opportunity for Wizards really has to do with how Wizards can help Hasbro and how we can form another plank in the Brand Blueprint. Over the last several years, we've been investing heavily in our digital gaming capabilities. You've seen it most recently with what we've done with MAGIC: THE GATHERING Arena, which is the digital expression of the best-selling trading card game in the world MAGIC: THE GATHERING, where we released it in 2018 on PC. And then we expanded that platform in this year with mobile. And we believe digital games represents a powerful new extension for the Brand Blueprint moving forward for not only Wizards and our brands, but also for Hasbro favorite brands as well as new brands that we can launch that are originally digitally native. So when we look at like the Brand Blueprint moving forward, we see a lot of opportunities both in leveraging as it exists today and enhancing it for amazing value for Hasbro as a whole in the fastest-growing sector of entertainment, which is tabletop and digital games.

And Chris, I want to put a finer point around the financial implications of some of the things that you're talking about because the last 5 years have been explosive in terms of the growth of the business. I think it's doubled, and it is on pace to double again between 2018 and -- or double between 2018 and 2021. It's on pace to double again. I think it's kind of where you're at or [indiscernible] years ahead of your plan. So talk a little bit about how the Blueprint allows you to experience that explosive growth. And then as we think about the changes in scope of the business, I mean, this is really a business that's anchored or was anchored in face-to-face -- you mentioned digital coming into the play experience, but there are so many other ways that those brands create opportunities for fans to connect. So talk a little bit about how the business financially has performed and then anybody spoken in the most recent press release, you're going to see a pretty attractive margin profile. So talk a little bit about what that affords you as well.

Yes. So Wizard of the Coast is -- we're a division of Hasbro, like I said, but we're also one of the fastest-growing and most profitable game companies in the world. Our focus is traditionally fantasy, tabletop and digital-based games. And our 2 kind of house brands are MAGIC: THE GATHERING, which is the worldwide leader in trading card games, and Dungeons & Dragons, which is the worldwide leader and originator of the whole role-playing game category. And we have had amazing growth. If you look at our 10-plus year track record, we have a CAGR of in excess of 13% in terms of overall revenue growth and a similar CAGR in terms of overall operating profit growth. Our operating profits historically have been in the 40% range, which is likely in the top decile, if not the top 5% of all gaming publishers across the world, and we've been able to consistently deliver that. And the way that we think about Wizards and like kind of our success model is even though we come from the tabletop space, I think we're the original innovators in the concept of games as a service. Really, when you think about MAGIC and you think about Dungeons & Dragons, they are super extensible and super expandable play systems. MAGIC focused on trading card games and D&D focused on role-playing games. And we have decades and decades of content that are still played in active today, which creates both a great value generator, a fantastic engagement mechanism for our players and a tremendous competitive moat, which makes it very difficult for competitors to kind of go into the spaces that we operate in. As we look at the last 3 years, Brian talked about in 2018, we had a plan -- a strategic plan to double the business over the next 5 years, and we've been executing against that plan. I remember in 2017, I sat down with Brian for lunch. I'd only been at Hasbro for about 9, 10 months. And that lunch was originally scheduled to be about 30 minutes. It actually extended into 1.5 hours, and that's where we sketched out our plan for how we wanted to "go big" in digital and really drive our tabletop business. And I was super impressed by Brian's vision, his openness to new ideas and his willingness to take on the Brand Blueprint strategy, which he pioneered and help us expand it into digital games. And that's really been the core of our growth ever since. We have challenged ourselves again and again around kind of like sacred cows, which we have in the business. We drove all new segmentation for how we think about our product lines, which has driven tremendous new user growth as well as average revenue per user growth. We've tackled all new channels, which have helped us expand product availability. We've aggressively invested in digital, which has also been another big plank of growth for us. And we just overall innovated on our products and rethought about what our product potential is, thinking beyond just kind of like a proprietary brand to a play system that can extend into multiple brand families that can extend across multiple genres.

And Chris, I think it's so important just to emphasize that point that there is a face-to-face gaming business, physical and digital. There's really robust distribution. You've mentioned some of that. Maybe let's talk a little bit more about distribution going from kind of Hobby all the way to Mass success. And then also the -- I know we've been in a period where competitive play in some of your more eSports-based opportunities have been under some pressure because of COVID. But let's assume that in the next couple of years that we're able to gather back together in mass and -- how important are each of those modalities to the growth of the business as you look forward?

Yes. So I'll start with our channel. So traditionally, Wizards of the Coast has been anchored around the concept of what we call the Wizards Play Network. And that's a bunch of mom-and-pop game stores or hobby game stores around the world. There's about 10,000 or 12,000 hobby game stores in countries all around the world. We partner with about 7,000 to 8,000 of them. And those 7,000 to 8,000 stores form the bullwork of a play network, which drives super impressive scale. Those 7,000-ish stores drive -- over prepandemic, they drove over 1.3 million events -- play events per year. And those play events had somewhere north of 13 million or 14 million participants who came into those stores and played in those stores. And that has been the traditional driver of our business for us, and we see that as an important driver moving forward. Play kind of receded significantly during the pandemic. Our play numbers -- we basically stopped our play programs during the heart of the pandemic. They've been coming back, and now it's at about somewhere between 60% to 65% of prepandemic levels. And as the pandemic recedes into an endemic phase and kind of governments and society gets arms wrapped around it, we continue to see that growing in the future. So that's been a traditional plank for us. But channel expansion has also been a big plank for growth for us. When I started about 5.5 years ago, we had a belief that the pie was fixed. And that if you took away from any portion of the pie, you would jeopardize the model. And we invested a lot in business intelligence and bringing on new kind of channel and marketing talent. And what we found was that the pie was actually quite dynamic and that we could grow both different elements of the channel and grow the overall business and not hurt any other slice of the pie. So we've been able to grow our hobby channel business significantly over the last 5 years. Likewise, we've been able to add on e-commerce, which has been the fastest-growing portion of our business. We've added direct. We've expanded in mass. And basically, our overall goal is to get the product wherever our consumer would like to consume it, and that's paid off handsomely for us. The next area of distribution that's obviously been important for us has been digital. And so traditionally, MAGIC has had a digital version of MAGIC since back in 2002 when we released MAGIC: THE GATHERING Online. We had another version of that product called Duels of the Planeswalkers, which came out -- which was one of the first Xbox Live Arcade games back in 2010. And then we have the latest iteration with MAGIC: THE GATHERING Arena, which launched in 2018 and then came out on mobile this year. And what we've traditionally seen is there's been a synergistic effect of having a great digital on-ramp into this fantastic game that then affects the whole brand -- positively affects the whole brand. And so what we've seen is that, again, adding another leg to that distribution to how to play the game, it's just overall increased the pie and actually drives new players in. And ultimately, those new players then funnel into our traditional tabletop business and help to grow our mass partners, our e-commerce partners and our hobby partners.

Yes. Chris, I want to complement you because when we do checks within the hobby trade, the ability for your partners to articulate that is quite impressive. They have not felt the digital opportunity as cannibalistic. They actually see it as a pathway into driving the player network in the physical space. So I think it's being validated in the field as well.

That's great. Yes. I mean we -- our sales team -- we like to think of ourselves as a category captain inside of the hobby channel. We partner with them very closely. And we care a lot about partnering overall as a business. We -- as you think about just how we make our games and how we run our business, one of the core values of the company is, we call it, it takes a multi-verse. And we recognize that our games are bigger than just Wizards of the Coast. Our games are successful because of our distribution partners, our development partners, our community of artists, our community of influencers and our community of players and fans. And so we engage with them at a very serious rate. For the Hobby channel, we -- even though the business has grown outside of Hobby, we still view Hobby as the core of our growth engine and the core of our engagement engine. And so when the pandemic struck, we took that very, very seriously. Back in 2008, 2009 during the financial crisis, we saw about 20% of Hobby stores go out of business, and that was a negative impact to the business at the time. So when the pandemic hit and the world started to shut down, we left into action. We worked with our Hobby channel -- we worked with our distribution partners to make sure products got out to a variety of warehouses. So taking it from the 5 primary warehouses and points of distribution that Wizards has and moving it into 200-plus points of distribution so the product continue to flow, giving them financial terms that made that easy for them to carry that inventory. Then we worked with our Hobby partners to make sure that they maintain good financial viability while basically the world was shut down for several months. We invested over $10 million of grants and free product into the Hobby channel. And basically, what we were trying to do is we were trying to give them enough money to be able to float their rent at least for 1.5 months to 2 months. And then we worked with them to help them figure out how to evolve their business to be successful during a time of great unpredictability and a lack of mobility. And at the time, less than 1/3 of our Hobby store partners had any kind of e-commerce presence or ability to service outside of their store. And within about 8 months, over 85% did. And as a result of all that, not only did we not see what happened during the financial crisis in 2008 to 2009, we saw only about 3% of Hobby stores go out of business, which is just slightly more than what we see in a typical year, which is around 2%, 2.5%. But we actually saw the business thrive despite the lack of in-store play. So I bring that up more as we stay very engaged with our partners. We care about their financial success. MAGIC is a big business. D&D is a big business, and we believe there's an opportunity for everyone to succeed and thrive inside of it.

That's amazing. I want to spend a little bit of time talking about segmentation because it's one of the things that, as you've come in, in the leadership role, you work closely with the broader Hasbro leadership team and your partners across the Blueprint, this idea of segmentation becomes a really important strategy. So talk a little bit about the groupings of the different player bases and different cohorts and how that has played into the way you commercialize and go to market.

Yes. Sure. So I joined in June of 2016. And MAGIC, in particular, had this brilliant run from around 2009, 2010, the end of the financial crisis to about 2013, where literally the business had doubled during that time. But from 2014 to 2016, the growth had significantly flattened. We've gone from double-digit growth down to single-digit growth. And in 2016 into 2017, we actually were looking at our first potential for a slightly down year, down about 1% or 2% at that time. And so we had to figure out, okay, what's not working from our playbook anymore? And I give the team a lot of credit. It's -- MAGIC is a very special development studio in that the leadership there has been serving as leaders for 10, 15, in some cases, 25 years. They've seen the highs and lows on the brand. And they had such plasticity of thinking and such ability to think flexibly and wanting to win. And when we took that kind of -- that core of great leadership and we coupled it with significant investments in business intelligence and consumer intelligence, it had a tremendous amount of unlock, particularly when they got permission from leadership to take some risks and try some new things. And so what we were able to find is our traditional view of the MAGIC consumer was very monolithic. We saw competitive players as the core of the game. We tailored every product, every price point, every distribution and channel decision towards the competitive player. And we knew there are other types of players. But frankly, at the time, we kind of feared them because we were -- we had this kind of -- we had this view that we needed to protect our cheese as opposed to go after the entire refrigerator. And when we challenged ourselves, we found, hey, these segments aren't something we should fear. They're actually segments that we should embrace. We can build products that are bespoke for them. We can build marketing and programs that are bespoke for them, and we can profit handsomely from it. And so we expanded our segments from one segment, which is a competitive player, to 5 segments. The new segments that we looked at and embraced were the social player, which people who just play around a kitchen table and play for fun. They don't get involved in our competitive events, but they still enjoy the game quite a bit. They actually have been our second fastest-growing segment overall in terms of overall number of players and our fastest-growing segment in terms of total revenue. We looked at collectors, which is something other TCGs had embraced for a long time, but that we tended to not embrace. And that's been a huge revenue and profit driver for us as well. We then added on the digital player, thinking about Arena and future products like we have for more casual CCG called Spellslingers, which should be coming out next year. And then last but not least, we added our newest segment, which is fans of adjacent properties. And really, fans of adjacent properties kind of cover all the segments and also represents a new opportunity of growth for us. And you can see what happened with our first endeavor with that -- with Adventures in the Forgotten Realms this summer. Adventures in the Forgotten Realms is a D&D-MAGIC crossover. It's the first time MAGIC has allowed an outside IP into the play system for one of our "premier" sets, which are a large kind of 5 per year sets, and that was the best-selling summer set of all time. And when you look at the strategy holistically, what it's been able to do for us is it's been able to drive significant new player growth for us because we've been able to engage these players with products that are relevant for them. We're not forcing a square peg to a round hole anymore. We offer multiple pegs for multiple holes. And then we've also been able to significantly raise our average revenue per user and our average revenue per boost without raising the price of our core products. In 2016, the typical magical booster costs around $3.99, and that was the only booster product that we offer. Today, we offer 3 different types of core booster products. We offer the Draft Booster, which still is $3.99. We offer a Set Booster, which ranges in price from $4.99 to $5.99 because our retailers set the price. And then we offer a Collector Booster, which typically has a street price in the neighborhood of $20 to $30 per booster. And so if you just look at like Adventures in the Forgotten Realms and compare it to a set that we would have released at the same time in 2019, not only did Adventure in the Forgotten Realms bring in new players, but our average revenue per booster increased by over 50% without raising the price of our core booster. And I just think that shows the power of smart segmentation and the power of thinking broadly about your business and testing and trying new things, and it's worked wonderfully for MAGIC.

Chris, I want to say on this logic because if anybody is a fan of MAGIC or D&D or is a player of these properties, you know that the sequencing and the timing and the release pattern of these core, these expansion packs, these boosters is really central to the experience. So why not just maybe talk, even just really briefly, about how that plays into your engagement with your players, how you continue to explore new stories through these expansion events? And then you just not referenced it, but the launches seem to keep getting bigger and bigger every time. Just talk really briefly about how important that flow and that wave cadence is for you?

Yes. So I think it all goes back to the segmentation point, which is by having more segments and making those products -- making products bespoke to a segment, it allows us to have more product releases and to engage those segments in more ways. It also allows us to take our big product releases, which typically we have between 5 to 6 per year, and allow us to make those multisegment so that everyone wants to participate in those. So in 2016, the product we would have released in the summer would have been only for the competitive segment. Now Adventures in the Forgotten Realms appeals to the digital segment, competitive segment, social segment, the collector segment. And it brings in adjacent fans that are D&D fans, which didn't necessarily play [ MAGIC: THE GATHERING ] which has been tremendous for us. In terms of how we think about keeping the brand fresh and new and relevant, that's another area that we've really been challenging ourselves on. I always remember a training that I went to, it was probably like -- I can't remember if it was at Microsoft or Procter & Gamble, but it stuck -- the core message stuck with me. We had some visitors from Coca-Cola, and they came in and said, "Hey, when we thought about our business as just soft drinks, we decided -- we have like a 60%, 70% share. And the growth opportunities became much -- they became much smaller, and we thought much smaller. But then when we thought about our competitive set is all consumable liquids, including the water that you get from the tap, suddenly, our share of the market dropped to about 2% of all liquids consumed. And suddenly, it opened up how we think about our market and how we think about our product lines." And I think we've gone through a similar genesis on MAGIC and D&D. And I think the real value unlock there is thinking about our products as play systems as opposed to just proprietary narrative IP. Proprietary narrative IP, superimportant for us. Like I said, we've got dozens and dozens of best sellers. A bunch of our consumers love the storylines in MAGIC and D&D, and we will continue to invest there heavily. It's core to the concept of the Brand Blueprint. But I think thinking about your brand as a play system, you suddenly unlock all new opportunities to bring in new fans and to be able to play with your narrative IP in ways that you otherwise wouldn't have prior. So by thinking about things as a play system, it allows us to -- MAGIC to partner with D&D or D&D to partner with MAGIC. It allows us to announce new initiatives like Universes Beyond or MAGIC: THE GATHERING, where we're going to have -- where we're partnering with Middle-earth Enterprises to bring in more to the rings into the MAGIC play system, where we're partnering with Games Workshop to bring in Warhammer and Warhammer 40,000 into MAGIC play system, Epic Games to bring in Fortnite, Capcom to bring in Street Fighter, Netflix to bring in Stranger Things. And it's been an amazing opportunity for us. Every time we announce one of those, we have a new best-selling set for that kind of segment, and it really opens things up. It also allows us to think much broader than classic fantasy. So for MAGIC, we're thinking about science fiction, science fantasy, contemporary fantasy, steampunk, cyberpunk. If you just look at our lineup coming up, we have -- one of our fan favorite sets, which is over 15 years old is a futile Japanese theme set called Kamigawa. While we're revisiting Kamigawa in February, except now it's called Kamigawa Neon Dynasty, and it's basically revisiting that futile Japan themed land 1,500 years later, and now it's kind of a cyberpunk meets MAGIC setting. The set after that will be the Streets of New Capenna, which is a kind of a steampunk mafia thriller where demon crime lords run mafioso families, and you need to figure out which mob game you want to join inside of the set. And it just allows our designers to have a bigger play field to play in and allows us to attract more fans and delight fans in new and exciting ways. And while we're doing that on MAGIC, we also have plans to be doing that on D&D. So it's a big opportunity and I think the next big leg in our growth stool.

Actually, Chris, a question came in from someone on the secondary market. I know we haven't talked a ton about this, but the secondary market for MAGIC and D&D cards, is that something that you support? Is it something that you participate in? How should we think about that secondary [ streaming value ]?

That's strictly for our players. So we don't participate in the secondary market or actively engaged in it.

All right. That's helpful. I want to just step back a little bit and talk about some of the big themes that we're observing in the digital gaming community. One of them, of course, is metaverse and digital expressions of their brands and the idea of co-creation, certainly digital assets through things like NFTs. Take us down that pathway really quickly on how you're thinking about beyond Arena, where do you go in terms of that digital sphere, I'm using your analogy of it's not just soda, it's actually the entire liquid beverage industry? Where are the opportunities in digital?

Well, as big and robust as the tabletop games market is, and the Hobby channel is, there's about 60 million or 70 million people that shop through those 8,000 to 10,000 Hobby stores that I mentioned before. And the genres that tend to dominate in those Hobby stores are collectible card games, strategy games, board games and act like's strategy miniatures like kind of Warhammer, et cetera. When you take those same genres and you apply it to digital games, there's more like 600 million to 800 million people who play those games digitally around the world on platforms as diverse as VR, like Oculus Quest, mobile, PC and console. And so we obviously see that as a huge blue ocean market for us and a great strategic adjacency for us. MAGIC and D&D have some of the best brand awareness in their genres. They're basically household names for fantasy fans and nerds around the world. And we see an amazing opportunity to be able to take those brands and take them to digital marketplaces, take them to video games. And I think that's really the first step to be participating in the metaverse. You have to have digital games. Entertainment as a whole -- I think the metaverse is shorthand for, hey, entertainment is digitizing and entertainment is gamifying. And I think Wizards and Hasbro as a whole has amazing brands that can take advantage of that opportunity. So at Wizards, we're focused on the mid-core and hard-core segments of the gaming market. We have over 10 games in various stages of development for digital. MAGIC and D&D are 2 that we're focused on very much, but we also have whole new brands like a new Sci-Fi role-playing game that we're developing out of a new studio called Archetype Entertainment in Austin. That's helmed by literally an industry legend, James Ohlen. He was the Creative Director of BioWare and helmed best-selling digital role-playing games like Dragon Age. He oversaw the design teams that drove Mass Effect, Star Wars: Knights of the Old Republic, and near and dear to my heart, Baldur's Gate, Neverwinter Nights, which are based on D&D. So like we're very excited about what they're putting together. We also see tremendous opportunities, not only new brands, but taking house brands from across Hasbro. So we started up a new studio in Raleigh, Durham with the studio head by the name of Ames Kirshen. Ames Was the Vice President in charge of DC Games at Warner Bros. So he helmed the best-selling Batman Arkham series and several other DC games. Before that, he was at Marvel driving a bunch of their gaming experiences. And he's going to be taking a shot at the G.I. Joe franchise. And we see, again, as open-minded and open to new ideas in new ways of thinking, as we have been on MAGIC, we see a same opportunity for some of the great kind of like Hasbro evolved brands. So when we think about G.I. Joe, we think about something that -- we're thinking about the consumer who was 12 years old in 1990 or 1995 when G.I. Joe was like one of the biggest toy brands in the world. And we're thinking about, okay, what would they like G.I. Joe to be today as like a 35- or 40-year-old? And we've been thrilled with the response to some of the early concepts, how we're maturing the brand, how we're taking it in -- keeping some of the core DNA and presenting it in bold new directions, and we think there's an amazing opportunity for that. We haven't divulged all the other brands that we're working on across Hasbro, but I think some are very -- you would expect that we'll be working on and some might surprise you until we show you the games, and then you'd be like, oh, okay, that's really cool. And so when we think about the metaverse, going back to your earlier point, I think that's a huge new leg or a new plank in Hasbro's Brand Blueprint. And I think Wizards is going to add amazing value in kind of like the digital platform that we're building and the digital capability we're building.

And Chris, I want to give you a chance also to just help people's expectations be managed because there are a lot of companies at this event that are talking about $100 million plus investments in AAA games. What we've known about your business model is that you have very strategic, grounded, targeted, data-driven investments. And it's not necessarily these big hit-driven investments. So just really quickly talk a little bit about as the leader of the division how you're thinking about the capital responsibility side and just again given the financial profile at 40% plus margins, it's very attractive, but talk a little bit about the financial rationale.

Well, I think what 40-plus percent margins and having inherently a games as a service base to our business allows us to do is it allows us to be able to reinvest in the business without having to draw capital from the balance of Hasbro, which is very attractive, both to us as well as, I think, to our corporate parent. And then as we think about new digital games initiatives, we are -- as is mentioned, we're very data focused. We're very disciplined in how we think about building to use. But at the core, it's less about the game, and it's more about the team and the track record that they bring to bear. Like the people that we're hiring to helm our new games initiatives, they're experts in their field. Their average meta critics are in the 80% to 90% range. Their total -- you would look at them, and if you compare them to like a Hollywood director, you would be looking at box-office grosses in the billions of dollars. And I think that track record is kind of the first step. The second step is, hey, do we have brands that have relevance? And is there native audiences that we can tap into? And that's something that I think Hasbro is richly endowed with and Wizards is endowed with, which gives us a lot of hope. And then we have a very methodical process for developing our games, starting with a concept where we evaluate literally over 100 concepts for every game that we put into preproduction, a preproduction process, which is milestone-based, player behavior and database and then a production process, which we scale with the scope and opportunity of the game. And games we have in development, they'll range in a production budget from $15 million to $120 million. And so we put the same rigor on $15 million opportunities as we do $120 million opportunities. And so far, we feel very good with the trajectory of those, the talent we have in place and the time lines that we have to build them.

That's great. There's a lot of exciting things to come. All right. Last question on the business, and then we'll save the topic of leadership for the end. But I want to just have you talk a little bit about synthesizing the growth drivers. So as you think about the next 5 years of growth drivers for the business, where do you expect to see the most substantial area of growth? Is it digital relative to physical as the combination of digital and physical? Maybe talk a little bit about the largest portions of growth.

What I would say as a percentage, digital will be the fastest-growing portion of the business. As an absolute, we see a roughly equal level of growth between the 2 businesses. Our tabletop business is just simply starting from a larger base, and we see a lot of opportunities in both. I've talked a bit about digital. We've got a great brand portfolio. We've got some great teams working on games. We're a patient investor who will make sure that the games land and will be good. And I think we have the financial wherewithal to be able to do that and do that really, really well. On the tabletop side of things, we see a lot of upside. We're primarily a North American business today. Our 2 primary markets are the U.S. and Japan. We see amazing upside potential in Europe, in Southeast Asia and China, where our brands still are strong and resonant, but our business is under-indexed. We see a lot of further upside in collectibles and driving average revenue per user. If you look at other tabletop businesses, particularly collectible tabletop businesses, as impressive as the average revenue per user is for MAGIC: THE GATHERING, there are other collectibles with millions and millions of fans, which have, we believe, 2 to 3x our overall average revenue per user. So we see a lot of upside there. I think we're barely started with what we're doing with digital MAGIC and what we've been doing with digital D&D in terms of migrating tabletop play to like a digital simulation of tabletop play. So you'll see us continue to invest in our MAGIC: THE GATHERING platform, and you'll see us announce exciting new investments in digital tabletop for role-playing games. And then I think the whole concept of a play system, we're barely scratching the surface on that. And we have some amazing partnerships in the wings that we haven't announced yet that I think are on a similar scale to what you'd see from Warhammer and Lord of the Rings. And I think those will have -- offer a lot of upside opportunity as well. So when you look at our tabletop side of the business, it's an incredibly profitable side of the business. It's got a tremendous track record of growth. It's got very, very wide and deep moats that make it difficult to some competitors to sum out. And we've got a lot of reasons to believe that, that business has continued growth and momentum behind it. And when you look at the digital side of the business, we've got -- we've been able to hire some of the best talent in the industry. We're investing patiently and making sure we're quality first. And if you look at the blue ocean opportunity, it's literally 8 to 10x the audience potential that we have in tabletop with brands that rank in the top of their cohorts in those spaces. So I'm bullish on the future of Wizards of the Coast. I'm bullish on the future of Hasbro as well. I think the assets we have here are not only great for our business, but I think they will also be great springboards for the overall Brand Blueprint and for Hasbro as a whole.

That's great. All right. I have about 1 minute because I asked your partner, Eric Nyman, this question last week. You mentioned this earlier, just the untimely and too soon passing of Brian Goldner was really heavy news for all of us, frankly, those of us on the outside, but certainly, I know the Hasbro family. I also want to just give you a chance to talk about the strategy is in place that the change of a CEO doesn't mean necessarily the change of the strategy. It feels like this is one of those unique situations where we usually look at the change in the CEO as a real pivot point in the strategy. But in this case, this is really about big shoes to fill on a strategy that's already in motion. So just talk a little bit about how you as a leader of one of the segments is stepping in and really locking arms with your partners to guide the culture and the organization during this time and how you think about working with a new partner as a new CEO and how that just carries forward what the strategy is that you've been putting in place and executing against.

Yes. Yes. Well, first off, thanks for mentioning Brian. It was a shock to all of us. He was not only a great mentor, coach and boss, he also was just a fundamentally really good human being. He cared about the communities we worked in, his philanthropic efforts, his infectious laugh. He was a great, great person, and he'll be dearly missed. But the strategy he put in place, that will continue. That will continue. It'll evolve and get even stronger over time. What I think Brian brought to the business was the whole idea of the Brand Blueprint strategy and the power of narrative storytelling to drive that Blueprint. I think that is an evergreen human insight that the power of story and the power -- and that every brand has a story to tell. And what we've been able to create over the last 10 or 12 years with Brian at the helm was this amazing engine to storytell and to tell it across more and more components of the Blueprint. I think what we've been able to do over the last several years at Wizards and across our games businesses is add a new dimension to the Brand Blueprint. So the Blueprint to date has been powered by this narrative energy. And I think what a games business and the concept of like the metaverse or the gamification of entertainment does is it adds a new kind of power source, which I call human energy. And it's people getting together and being playful. And if you look at like the -- if you look at the drivers of our company's growth over the last several years, those human energy-based brands have been just as impressive as these narrative-based energy brands. Human energy drives MAGIC. It drives D&D. It drives PLAY-DOH, like the creativity of the kids have playing with each other, playing with their parents. It drives NERF. Whether you're blasting someone in an office meeting just for fun to blow up some steam at a brainstorm or having a Battle Royale in your backyard using a Fortnite branded NERF blaster, it's just fun that you can do that. And board games like, geez, like imagine the world without board games over the last 2 years during the pandemic, like what would you have to talk about with your families? So I think human energy has emerged as a new and powerful component to our Blueprint. And I think whoever becomes the new leader of Hasbro has this amazing portfolio of brands that they can tap into narrative energy, they can tap into human energy, and they have this amazing portfolio of businesses with really strong leaders like Eric on the consumer product side and Darren and his team on the eOne and Entertainment side that we can leverage and take the Brand Blueprint to all new levels.

Nothing better well said. Thank you, Chris. Some fantastic minutes. And thank you, too, Debbie, for sitting in and joining in. I want to thank everybody else for joining in as well. I know there were some questions left unsaid, unanswered. So if you have any follow-ups for the team at Hasbro, just reach out. We're happy to get you in touch with Debbie. Again, thank you so much, Chris, and sentiments, well versed, I think in terms of -- I heard Brian a lot today in this conversation. So I think that's a very [indiscernible] for the moment.

Thanks, Steph. Appreciate you having me and looking forward to being in person again soon.

All right. Take care, everyone.

Thank you, Steph.