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Toymaker Links To Connectivity

A piggy bank isn’t exactly the most exciting toy on the shelf. But take that same bank and connect it to an app through which a parent can deposit money into an account when their children do their chores, celebrate a birthday or perform well in school – and that’s an innovation. Spiral Toys Inc. has made such a bank, called Wiggy, and the Agoura Hills startup will make a big push this year to get the product on retail shelves and into the hands of children and parents. “It is finding new ways to use this different technology with iPhone, iPads, computers and everything else to create new experiences that reach outside the computer or phone,” said Chief Executive Mark Meyers. Spiral Toys might have the word “toys” in its name, but it’s the technology that makes Meyers and investors excited about the future. Wiggy will be the first of several products the company brings to market this year. Already in stores are CloudPets, which are plush bears, cats, dogs, rabbits, elephants and unicorns. Spiral provided the technology to connect to an app so parents can send and receive messages through the toy; the child can play games and music and hear stories from the toy. About a half-million of the toys have been sold, Meyers said. Spiral is publicly traded on the over-the-counter market. Its total revenue last year was $6 million, nearly all of it coming from sales of electronic components used in CloudPets. It had a net loss of $2.4 million (-5 cents a share). There are 15 employees split between the Conejo Valley; the headquarters; Canada, where programmers create apps; and Hong Kong, where employees oversee manufacturing done in China. Investors see at least some potential in Spiral. Last month, the company received $1.18 million in debt financing from institutional investors that will be used for releasing new products this year. Gary Paccagnini, an early investor in the company who now serves on Spiral’s board, had only praise for Meyers and the team he has assembled. The company’s prospects look bright, especially with the new connected bank, he said. “I love the Wiggy,” Paccagnini added. “I think it is going to be a home run.” CloudPets are manufactured and distributed by another toy company with Spiral providing the apps. But with Wiggy, Spiral is also handling all the marketing and sales. It is taking preorders through an Indiegogo campaign that will end later this month, with a July date for shipping the toy. The cost of a single toy starts at $35 and goes up to $499 for a 24k gold-plated version. As of April 22, pre-sales from the Indiegogo crowdfunding campaign had brought in just over $7,000. Wiggy comes in 11 designs and works in conjunction with an Apple or Android app that a parent uses to set tasks for their child and the amount the child receives for completing the task. For example, the toy might tell the child she has earned $2 for cleaning her room plus $1 for completing the task early. Now, she’s earned almost half the money she needs to buy a toy she dearly wants. The pig also notifies the child when tasks need to be completed. In addition, the app can be used for setting savings goals and tracking progress. Reyne Rice, principal of New York toy and technology consultancy Toy Trends, said that Wiggy could prove to be popular because of its educational component of teaching a child financial planning and money management. “That is something that kids are going to need for the rest of their life,” Rice said. “It is a skill set that falls to the parents to teach their kids because they don’t always teach that in the schools.” Disney heritage Meyers, an electrical engineer, started Spiral in 2011 after having worked as a vice president in the interactive division of Burbank’s Walt Disney Co., and also working at the interactive entertainment subsidiary of Sony Corp. and Midway Games. Along the way he earned his M.B.A. from the University of Chicago. Spiral was acquired in 2014 by Rocap Marketing Inc., which in January 2015 changed its name to Spiral Toys Inc., with Meyers remaining the chief executive. “Most of us come from a video-game background,” Meyers said of himself and the other executives at Spiral. Paccagnini said he met Meyers through networking contacts. Spiral was not the type of company he typically would invest in, but he was intrigued by Meyers and the passion he had. Also, Meyers’ resume speaks for itself, Paccagnini added. “He is a CEO with a vison that is unique and he knows how to pick his players, the people who are working for him and in his relationships on the retail side with Wal-Mart, Best Buy, Bed Bath & Beyond,” Paccagnini said. While at Disney, Meyers said he noticed how mobile games were becoming a bigger part of the gaming industry, especially with children and teens. Spiral started developing mobile-game apps but competition from free games was too fierce and made it difficult to monetize a consumer base. In response, the company switched to connected toys as a way to serve children and make money as it could offer more than just a game. “We have been able to attract customers because we are selling a physical item that can be marketed,” he added. The connected-toy market began to take off after the introduction of the iPad in 2010, with that device often used as a controller for the toy, said toy industry consultant Rice. Having been raised with computers, children and preteens expect that their toys will be connected to the Internet in some way, she said. “It’s not something we thought our toys would do, but kids today look for the connection in their toy products or games,” Rice said. Competition in the connected toy space is growing, although many of the companies making these products are not that much bigger than Spiral. There is Sphero in Boulder, Colo., with its app-controlled robots and droids; AE Dreams in Pittsburgh, with its Turtle Mail, a wooden mailbox device that receives and prints digital content using an embedded thermal printer; and CogniToys in New York, maker of connected dinosaur toys. Even Patrick Soon-Shiong, the biotech billionaire, has dabbled in such toys through a partnership between his NantWorks company and Jakks Pacific Inc. in Malibu. El Segundo toymaker Mattel Inc. has also jumped into the market with Hello Barbie, a new version of its popular doll that can have a conversation. But so far, Hello Barbie is not generating big sales numbers and some retailers have slashed the original $75 price. Meyers said that Mattel and its large competitor Hasbro Inc. of Pawtucket, R.I., don’t do much with connected toys because of the risk and development costs. At least for now, smaller companies seem to be in the lead for developing such toys. Spiral’s operating margins are thinner than the big companies, but its marketing budget is much lower compared with Mattel and Hasbro. Because of that, the company needs to be more strategic with its spending on advertising. For Wiggy, pre-sales will last through this month and then the direct sales through the Spiral website will begin, Meyers said. That will be followed by television advertising and selling through Amazon.com for three months to build up a following for the brand. That’s where the $1 million in new financing will help. By the time the piggy bank does make it to retailers there is a better chance it will fly off the shelves, he added. “You don’t want to go to retail with no brand awareness by the consumer because it becomes costly to build that awareness,” Meyers said. “Retailers have no patience for you to figure that out.” YouTube connection Meyers’ goal for revenue for this year is in the range of $20 million to $25 million. To reach that, the company will have to sell between 800,000 and 1 million of its toys, half of which would be Wiggy, he said. There are other products in the development pipeline, too. For example, Vinyl is a sticker that can receive and display a photo from a customer’s cellphone, allowing a child to have a customized image stuck on his or her notebook or wall. The product is ready for launch except for one big hurdle – Apple Inc. needs to unlock the near-field communication technology on its devices so it can communicate with the sticker. Until that happens, the child can’t download a photo onto the sticker. At this time, only Apple Pay, the company’s mobile payment service, can use near-field communication. Apple is necessary because of the reach its devices has in the market, Meyers said. “The technology movers and the early adopters in the high-tech families are Apple families,” he added. “They are not usually Android device families.” Another new product under development is a makeup tray to capitalize on the popularity of YouTube tutorials on applying makeup. The tutorial instructor can embed into their videos a tone that is detected by an ultrasonic chip in the makeup tray. Detecting the tone will then light up a section of the tray containing the makeup the instructor is discussing, Meyers said. Such products, Meyers believes, will help the company grow. That in turn could lead to Spiral moving off the over-the-counter market to a major stock exchange. The company recently hired an investment banker in New York whose intention is to do just that, Meyers said, adding that although it can be costly to move to even the small cap Nasdaq exchange, the beauty is that it would put the company in front of new investors. “We have to get Wiggy and the next product (out) and get to a nice revenue place and then begin that process of going to the next level,” Meyers said.

Mark Madler
Mark Madler
Mark R. Madler covers aviation & aerospace, manufacturing, technology, automotive & transportation, media & entertainment and the Antelope Valley. He joined the company in February 2006. Madler previously worked as a reporter for the Burbank Leader. Before that, he was a reporter for the City News Bureau of Chicago and several daily newspapers in the suburban Chicago area. He has a bachelor’s of science degree in journalism from the University of Illinois, Urbana-Champaign.
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