By HILDY MEDINA Staff Reporter Isaac Larian knew his doll Singing Bouncy Baby would be a hit his own 4-year-old and 9-year-old daughters pronounced it “cool.” The doll, which sings every time her bottom strikes something, indeed became a sales success over the holiday season. In November, it won “Doll of the Year” at Family Fun magazine’s annual Toy of the Year awards the Oscars of the toy industry. Nearly 900,000 Bouncy Baby dolls have been sold (at $19.95 each retail), providing a bonanza for Larian’s company, North Hills-based MGA Entertainment. The company is expecting record sales of nearly $65 million in 1997. “We’re expecting another record year (in 1998),” said Larian. Singing Bouncy Baby marked a turning point for MGA. By coming up with its own, proprietary toy rather than making toys based on licensed characters from movies and TV shows MGA has crossed a line that small toy manufacturers usually have to pass if they ever hope to become large players. “For a small manufacturer it can be tough, because the big toy companies keep getting bigger,” said Sally H. Wallick, an analyst at Legg Mason Wood Walker Inc. in Baltimore. “You can’t be a little, fly-by-the-seat-of-your-pants operation. You’ve got to be able to meet their standards.” Many small toy companies start out by making licensed merchandise, using the well-known nature of entertainment products to secure distribution deals. Retailers are willing to pay big bucks for popular cartoon or movie figures, making licensing a low-risk but also low-profit business. Those profit margins are being squeezed even tighter in recent years as movie studios sign licensing agreements on hot properties that shift ever-bigger percentages of the proceeds to the studios. But for a proprietary toy, no licensing fees or royalties need to be paid. MGA was originally a consumer electronics manufacturer until making its first foray into the toy business in 1987. Doing business at the time as ABC International Traders Inc., the company handled cassette players, radios and CD players. Through his manufacturing ties in Hong Kong, Larian formed a relationship with Japanese video-game maker Nintendo Co. Nintendo awarded MGA the licensing rights to make electronic hand-held games using such Nintendo characters as Donkey Kong and the Mario Brothers. Following a successful year of Nintendo sales in 1988, MGA began to focus more on the toy business. Then in 1989, MGA got another break. Lucasfilm Ltd. sold it the licensing rights to make walkie-talkies based on the blockbuster “Star Wars” film. “We went directly to them and we were given a break,” recalled Larian. “The head of licensing at (Lucasfilm) believed in giving small companies a chance.” Other licensers took notice, and MGA hooked licensing deals with Warner Bros. for the “Batman” movie and Saban Entertainment to make toys based on the children’s program “Power Rangers.” “That was a major coup for us,” said Larian of the Power Rangers deal. “We sold more than 1.2 million pieces and we only paid $40,000 … and a 10 percent royalty.” But that was three years ago. Since then, the business of licensing has taken a dramatic turn. In Oct. 1997, Lucasfilm signed a $225 million licensing deal with Hasbro Inc. for rights to the three upcoming “Star Wars” prequels now in production. The deal sent shudders through the toy industry. Smaller companies have been hit the hardest, said Larian, because of their inability to compete with the giants. The Singing Bouncy Baby landed on MGA’s doorstep in the summer of 1996. The doll’s inventors had pitched the concept to all the big toy companies, only to be turned down. Larian took the doll home for market research using his two daughters who both liked it. So he signed a deal. MGA spent months seeking retail distributors for the doll and finally scored a coup in January 1997 when Toys ‘R’ Us signed on. With that deal secured, MGA poured $3 million into television ads and hired a market research firm to test the toy. The doll’s success has triggered a growth spurt for the company. MGA is now planning to introduce a number of new products for 1998, moving more and more into development of proprietary toys rather than licensed products. Plans for this year even include some toys for big kids. “We have one item, Phone Fun, you attach it to any phone and it changes the sound of your voice,” Larian said.