Building blocks: Lego's next move | FT Film

Summary

The script discusses Lego's successful business model, transforming low-cost ABS plastic into high-margin products. It highlights Lego's impressive growth, driven by its iconic bricks and Minifigures, and its expansion into media, entertainment, and digital realms. Despite sustainability challenges and competition, Lego has cultivated a strong ecosystem involving resellers, adult fans, and creative communities. BrickLink, a key player in Lego's aftermarket, faces uncertainty. The company's ability to innovate while maintaining its core brick product has made it a global leader in toys and entertainment.

Takeaways

• 🔄 Lego buys ABS plastic for about $1 per pound and resells it for significantly higher prices, making it highly profitable.
• 👶 There are likely more Lego Minifigures in the world than humans, highlighting its massive global presence.
• 💰 Lego is one of the most profitable toymakers, consistently growing and competing against major entertainment companies like Disney, not just toy companies like Mattel and Hasbro.
• 🧱 Lego has evolved from just selling bricks to becoming a broader entertainment brand with movies, games, and TV shows tied to their products.
• 🎨 The rise of Adult Fans of Lego (AFOL) has created a large, passionate market for adult-focused Lego sets and reselling.
• 📊 Lego's resale ecosystem, especially through platforms like BrickLink, has become a significant market, with some resellers making it their primary business.
• 🌍 Sustainability is a challenge for Lego, as its products are made from petroleum-based plastic, and efforts to switch to sustainable materials have faced setbacks.
• 💡 Lego's entertainment ambitions have grown, with the company producing films, TV shows, and creating intellectual property that competes with major entertainment giants.
• 🎥 The success of Lego movies and other digital content is heavily influenced by the AFOL community, which originally drove stop-motion Lego animations.
• 🏗️ Despite its expansion into various digital and entertainment ventures, Lego remains fundamentally focused on its iconic brick, with efforts to extend its lifecycle through reselling and reuse.

Q & A

What is the core material used in Lego products?

Lego products are primarily made from ABS plastic, which is petroleum-based.

How has Lego managed to maintain growth despite being a product-focused company?

Lego has grown by expanding beyond physical products, creating an ecosystem around its core brick, including movies, TV shows, apps, and collaborations with fans while maintaining the timeless appeal of its brick and Minifigures.

What is BrickLink, and how does it fit into Lego's ecosystem?

BrickLink is an online marketplace where fans buy and sell new and used Lego parts, sets, and Minifigures. It was initially a trading site but has grown into the largest online Lego database and marketplace, which Lego eventually acquired.

How has the Adult Fan of Lego (AFOL) community influenced Lego's business?

The AFOL community has influenced Lego by driving demand for more complex sets, influencing product development, and even inspiring Lego to create feature films and other media tied to its brand.

Why is Lego considered a highly profitable company despite producing physical products?

Lego is seen as highly profitable due to its high margins. The cost of ABS plastic is relatively low, but Lego sells its products at a much higher price point, creating profit margins similar to those in the software industry.

What challenges does Lego face in terms of sustainability?

Lego faces sustainability challenges because its products are made from petroleum-based ABS plastic. While they have made efforts toward more sustainable materials, their attempt to create fossil-free bricks was halted due to increased emissions.

How did Lego recover from its near-bankruptcy in 2003?

Lego's recovery involved refocusing on its core products, particularly the iconic brick and Minifigure, while expanding into new areas like entertainment, digital media, and adult fan engagement.

What role does the resale market play in the Lego ecosystem?

The resale market, facilitated by platforms like BrickLink, plays a significant role in the Lego ecosystem. Many fans buy and sell used Lego pieces and sets, creating a thriving secondary market.

Why do some resellers express skepticism about Lego's acquisition of BrickLink?

Resellers are skeptical because they fear Lego may limit the resale market or use BrickLink to gather customer data, potentially hurting independent sellers by controlling the platform too tightly.

How does Lego now compete beyond traditional toy companies like Mattel and Hasbro?

Lego has expanded its competition from toy companies to large entertainment firms like Disney and Universal Studios by producing films, TV shows, and digital content, making it a competitor in the entertainment industry.