|Zuckerman did not see the benefits of these strategies, however, for he sold the toy business in the late 1980s. Charan soon re-emerged as an American-owned company, Toy Biz. In 1990, Toy Biz was acquired by independent investor Isaac Pearlmutter, who installed himself as chairman and brought in Joseph Ahern as chief executive officer. Cost controls, innovative licensing agreements, and fresh toy-designing talent allowed the new management team to ride a rising tide of interest in classic comic book characters during the decade.
Trained as an accountant, Ahern had previously worked to bring toymaker Coleco Industries Inc. out of bankruptcy. Ahern's bottom-line focus was reflected in Toy Biz's low overhead. The company owned no real property, instead leasing a modest headquarters in New York City and an Arizona warehouse. It also limited costs by outsourcing most manufacturing to China and concentrating most of its sales efforts on mass merchandisers. This low overhead structure gave Toy Biz a remarkably low employee-to-sales ratio, generating nearly $2 million in annual revenues for each employee in the mid-1990s.
But low overhead was just one factor in Toy Biz's equation for success. As it had been in the 1980s, licensing continued to be an important element of the company's strategy. But this time Toy Biz forged a singular agreement with Marvel Entertainment Group, best known for its well-established cast of comic book characters. Instead of signing the short-term (one- to five-year) license typical of the industry--an agreement it had previously utilized--in 1990 Toy Biz exchanged 46 percent of its equity for an "exclusive, perpetual, royalty-free license" to Marvel's characters. Toy Biz focused its earliest efforts on just a few of the series' more than 3,500 characters, especially emphasizing Spider-Man and the Uncanny X-Men.
This strategic alliance was mutually beneficial. For Toy Biz, it eliminated royalties that would otherwise have cost the company anywhere from 6 to 12 percent of its sales of Marvel character toys. Marvel's top-ranked comic books and animated television shows amounted to free advertising for the action figures and other playthings marketed by Toy Biz. Harry De Mott, II, an analyst with CS First Boston, told Forbes' Suzanne Oliver that "The cartoons are like a half-hour infomercial for Toy Biz products." And Marvel's stake in Toy Biz gave it much higher returns than it would have made from mere royalties.
Toy designer Avi Arad was yet another element of Toy Biz's success. Over the course of his 20-year career, Arad had a hand in the creation of over 160 toys for such major manufacturers as Mattel Inc., Hasbro, Inc., Tyco Toys, Inc., Nintendo, and Sega. Upon joining Toy Biz on a part-time basis in 1993, Arad received a 10 percent stake in the company in addition to his salary. His 22-person product development staff accounted for about 20 percent of Toy Biz's total employment. As executive producer of animated television programs for Marvel and the creator of toys for Toy Biz, he personally represented the intersection of Marvel and Toy Biz's interests. Arad could, for example, coordinate the launch of characters on television screens and toy store shelves. He specialized in action figures and earned a reputation for combining materials in unique ways. But Arad's creativity wasn't limited to cartoons and action figures; his resume included Baby Bubbles and Roller Blade Baby.