What happens when liquidity dries up, royalty revenue is no more and proverbial tumbleweeds are rolling through once-active Discord channels? Time to play the long game — in some cases, with actual toys.
Even the strongest of non-fungible token (NFT) projects are feeling the squeeze of this latest bear market cycle, yet some seem to see this as an opportunity to build a bridge into the "normie" world. If there was ever a time for a sustainable model (that is not built on a promise of flipping JPEGs all the way to the moon), it's now.
But how do you go from Discord ghost town to a must-have product? With toys, of course — stuffed animals, figurines and dolls to be exact. One of the most significant assets of any project is its intellectual property (IP), particularly due to the merchandising spinoffs that good IP can birth. The visual aesthetics of an NFT collection makes a project recognizable and draws in the community. Regardless of whether a project uses commercial licensing or CC0, a subcategory of public domain, the question of monetizing a brand's IP becomes more pertinent in the bear market, when the shortcomings of the basic NFT business model in its reliance on secondary royalties become particularly stark.
Toys are the physical manifestations of IP franchises and form one of the strongest pillars of many Web2 multimedia and entertainment juggernauts, with the global toy industry valued at approximately $140 billion in 2021. Over the last eight months we saw three NFT brands venture into the world of toys in various formats: VeeFriends through their partnership with Macy’s and Toys "R" Us, Boss Beauties’ partnership with Mattel and Pudgy Penguins launching their own line of soft toys.
For an NFT project, a strategic play into the world of toys can be beneficial in a number of ways from creating an additional revenue stream in the short-term, to achieving cultural significance and building lore in the longer term.
VeeFriends announced their strategic partnership with Macy’s and Toys "R" Us back in October 2022. The partnership saw a launch of a limited series of plush toys which were sold through the retailer. The cute animal characters, each with a backstory of values, like a Gratitude Gorilla or Commonsense Cow, lend themselves well to be translated into physical toys. It is unlikely that this was a revenue driver for Vee Friends, but rather is a play for recognizability of the IP out in the real world.
“For us to partner with a major retailer like Macy’s was very meaningful in terms of reaching mainstream audiences,” says May Niu, director of media operations at VeeFriends. Niu explains that this foray into the toy world was also a good opportunity for their core audience to share their passion for NFTs as a physical item that they could gift to their kids, friends and family.
For Gary Vaynerchuk, a serial entrepreneur and creator of VeeFriends, this is a long-term generational bet in turning his family-friendly IP into a multimedia conglomerate. Each toy sold at Macy’s came with a link to a short animated video, explaining the character and building the lore around it. This lore will then be leveraged in building out other verticals of brand such media content and events. While the aim is to appeal to a broad range of audiences from digital collectors to kids and their parents, Niu admits that a lot of the brand’s focus is currently on building out the connection with the younger demographics of kids aged 5 to 10. Something the team is aiming to achieve by winning the content game on YouTube Kids.
“We want our younger demographic to grow up with VeeFriends and with our narrative of making soft skills cool," says Niu.
Pudgy Penguins decided not to partner with a toy brand or retailer and instead opted for a direct launch, selling over 20,000 of their plush toys on Amazon in the first two days. Luca Netz, CEO of Pudgy Penguins, who bought the NFT project for $2.5 million last year, sees physical toys as an opportunity to hit the mass market through the project’s IP, as well as to onboard more people into the world of NFTs, avoiding the usual friction and NFTs’ bad rep. The plush toys come with unique QR codes that seamlessly guide the owner through a process of setting up a digital wallet and creating a soulbound penguin which would allow them to participate in the online Pudgy World.
Importantly for Pudgy Penguins, physical toys are also an opportunity to generate much needed cash and establish a recurring revenue stream: “Strategically speaking, we need to build & grow a sustainable revenue stream that is not dependent on variables we can’t control, such as secondary royalties,” said Netz appearing in an interview with Carly Reilly on Overpriced JPEGs.
Netz, whose career to date includes launching a number of successful product businesses like the hugely popular Gel Blaster toys sold at Walmart, is confident he and his team have the secret sauce to turn the Pudgy IP into a nine-figure revenue generating business. He plans to do this by increasing the number of touch points that their target audiences have with the Pudgy brand through physical toys, social media channels and cultural notoriety achieved through other forms of media such as giphy.
Check out the Pudgy Penguins' collectible igloo figure pack on its website.
In May 2023 Boss Beauties (BB) announced their collaboration with Mattel’s Barbie, launching a digital collectibles collection incorporating BB traits and Barbie’s signature style. While the digital collectibles unlock access to dolls and IRL experiences, this partnership is markedly different from VeeFriends’ or Pudgy Penguins’ approach, being digital-first rather than a physical toy.
Unlike the Trojan Horse approach of having a physical item as a gateway to an NFT, Mattel’s collaboration specifically addresses the aim of lowering barriers of entry into web3 for all.
This collaboration is not the first for Boss Beauties and Barbie, having already partnered on the Role Models Collection for Women’s History Month in 2022. However, this time the digital collectibles are hosted on Mattel's dedicated website, MattelCreations.com, and are clearly aimed at onboarding Mattel’s vast Web2 audience into Web3.
“By having digital collectibles, it separates this partnership from other physical products Barbie produces, and gives people the opportunity to show the world of Web3 to friends, family, daughters, nieces, and more to start a conversation around what opportunities lie ahead in this next phase of the internet,” says Lila Thomas, vice president of brand at Boss Beauties.
Mattel has been experimenting with Web3 since 2021, when they successfully collaborated with VeeFriends on the UNO game cards. More recently, Mattel announced another collaboration, this time with Cryptoys, to mark the launch of the Fast & Furious NFT showcase.
For companies like Mattel, collaborations like these are a low-risk strategy of entering Web3 without having to bet the farm on the digital play.
These types of collaborations become even more powerful, when the partners align in values and purpose. In the case of the Boss Beauties x Barbie collab, the partnership was an opportunity to amplify the drive for greater representation in the digital realm.
“Fifty-seven percent of parents say it is important for their children to see people of their own ethnicity or race in the media they consume," explains Beenish Saeed, Director of Operations at Boss Beauties. "Seeing people that look like you in a plethora of careers, industries, and being successful in general is powerful."
As NFT projects understand the importance of introducing the younger audiences to their lore, so do the toy companies recognize the change in their consumers who are now growing up not only digitally-native but also crypto-native playing Roblox. “For the younger audiences, you don’t have to explain what an NFT is, they already get it,” says May Niu of VeeFriends.
So while both come at it from different angles, the challenge they face is the same: to be and remain relevant for the next generation of customers for whom concepts like the metaverse will be part of everyday life.
Synergies and collaborations aside, there is no doubt that the leading NFT projects are here to fight for the hearts and attention span of the upcoming digital generation. Projects that started largely as Web3 experiments are quickly realising the value of their IP and the commercial opportunities it creates. The toy market in the U.S. alone is estimated to be valued at $46.18 billion by 2027, but by all accounts the aspirations of NFT brands extend much further.
Physical toys represent only one of the stepping stones in achieving ‘household name’ status and creating multimedia entertainment conglomerates, leveraging the power of engaged communities. While still in early days, the Disneys and Hasbros of the world should be watching these disruptors-to-be closely as they are not coming to play — they are coming to win.
Liya Dashkina is a VC, contributor to a number of DAOs, web3 consultant, chapter lead at the Australian DeFi Association and an advocate for women in web3.
This article and all the information in it does not constitute financial advice. If you don’t want to invest money or time in Web3, you don’t have to. As always: Do your own research.
