Hello, Kitty? Sanrio Wants to Buy You a Companion
Sanrio (SNROF) only exists to create cute licenseable characters like Hello Kitty. So why is it looking to buy a character? That's like McDonald's (MCD) buying a company to make french fries.
The Japanese purveyor of adorable is willing to spend nearly $400 million in its search for a suitable litter mate for Kitty. The company already has more than 300 characters it created itself, so why buy? "We want to diversify our character portfolio instead of spending time to boost recognition of our existing characters in overseas markets," said Managing Director Susumu Emori.
One reason may be because that's what all of its friends are doing. Earlier this year Tomy, maker of Transformer and Pokemon toys, bought RC2, the maker of Thomas the Tank Engine products $640 million. That came in the wake of last year's $175 million purchase of rights to the Peanuts comic-strip characters by Iconix Brand Group (ICON), owner of brands like Candie's and London Fog. So what's a poor kitty to do?
Short-lived buying spree
Sanrio's buying spree may be short lived, as there are relatively few internationally recognized characters -- and even fewer of them are ever put up for sale. The only one that comes to mind is Angry Birds, which has two problems: (a) it's way too cranky an image for Kitty (Emori: "We want to buy a character that won't harm Hello Kitty's image"), and (b) Rovio thinks it is worth more than three quarters of a million dollars.
What makes this all doubly odd is Sanrio is doing so well that waiting while it develops a new character is not going to hurt. The company, which had gross revenues of $969.6 million last year, relies on Hello Kitty for 80 percent of its overseas licensing revenue and 60 percent in Japan. Deals with Wal-Mart (WMT) and others helped Sanrio more than double operating profit since 2009. Further, its market value has quadrupled since the start of 2010.
Another explanation for this desire to buy foreign is that Sanrio may sense an end to Japan's aesthetic stranglehold on the worldwide cute market. Kitty's arrival in the U.S. in 1976 was the start of a 35-year-run that has seen Cinimaroll, Rilakkuma, Doraemon, Anpanman and more used to drive sales of products around the world. Kitty alone can be found on more than 50,000 products from backpacks to games to "adult products." The only things Sanrio won't license her for are tobacco, alcohol and firearms. Some companies have no sense of fun.
But all this may be changing under the tireless onslaught from Disney (DIS), Pixar, Dora The Explorer and others. Perhaps the zeitgeist is now embracing something slightly less round and twee. This would be a bitter blow for Japan, which has been counting on Kitty & Co. to counter China's growing influence in the world (and no, I am not making that up). Could this cause Kitty to retire from the Japanese government? She was appointed official cultural ambassador a few years ago and flutters between embassies in her spare time.
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