Concord, California (EastBayDaily) — When Factory Entertainment, Inc., the Concord, California manufacturer of licensed toys and collectibles, including a popular line of Beatles Yellow Submarine products, makes its maiden voyage to the American International Toy Fair in New York this month, it will mark a major course correction in the personal voyage of the Company’s founder and CEO, Jordan Schwartz.
Mr. Schwartz, a 1981 graduate of the University of Chicago Law School, spent the first 30 years of his working life as a high profile securities lawyer, most recently for more than two decades as a Partner at the venerable and prestigious New York law firm, Cadwalader, Wickersham & Taft. In that role, he counseled some of the country’s largest financial institutions on complex capital markets offerings. Like many other Wall Street professionals, Mr. Schwartz was caught off guard by the length and severity of the downturn in his markets beginning with the 2008 financial crisis. “I was in denial for a couple of years about how quickly things would bounce back. But then I finally woke up one morning and realized I’d better stop waiting for the phone to ring and figure out what to do with the rest of my working life.”
And that’s where the toy business comes in. In 2001, Mr. Schwartz, a lifelong film buff and science fiction fan, had co-founded a company called Master Replicas around the then-upcoming release of “Attack of the Clones,” the second entry in the revived Star Wars trilogy. The Master Replicas business model was simple in its early days; it produced limited edition screen-accurate replicas of props, vehicles and gadgets featured in some of Hollywood’s biggest blockbusters. “MR validated the viability of the prop replica category which, while small, attracted the interest of many core fans of popular film franchises and created strong emotional attachments to the related properties. By 2005, Master Replicas had grown from a startup to Lucasfilm’s third largest licensee, just behind the much larger Hasbro and Lego. It also held licenses on many other first-tier entertainment properties, including Star Trek, Marvel and Disney. It even had the most elusive of all things in the toy business—a hit product in the form of the “FX lightsaber” a hybrid toy and collectible replica of the iconic Star Wars weapon, featuring die cast metal hilts and sophisticated motion sensitive LED lighting and sound effects, accurately mimicking the function of the weapon as seen on screen, which sold hundreds of thousands of units through national retailers including Borders and The Sharper Image. During that period, Mr. Schwartz assisted Master Replicas in identifying properties to license and negotiating license agreements, but was otherwise a passive investor uninvolved in the management of the company, as he continued to be fully immersed in his busy securities law practice. However, Mr. Schwartz was thrilled and proud of MR’s success, eventually jettisoning the dozens of stuffy leather bound “closing books” in his office in favor of rows of replica lightsabers, imperial walkers, phasers, communicators and other sci fi ephemera, much to the delight of visitors and interviewing law students, if occasionally to the head-scratching puzzlement of some of his older partners.
While it made highly coveted collectibles, most of which still command high secondary market prices, Master Replicas eventually folded in 2009, a victim of a string of questionable management decisions, including merging with the near bankrupt UK toy company Corgi International, alienating Lucasfilm’s senior licensing executives and ultimately losing the Star Wars license and investing heavily in dubious properties (anyone remember “The Golden Compass”), compounded by bad timing, as the company’s increasing cash needs from its missteps coincided with the start of an era of extremely tight corporate credit. Mr. Schwartz, who had retained his investment in Master Replicas, but ceased to have any active role after the company’s 2006 merger with Corgi, watched from a helpless distance as the business he had helped birth foundered and ultimately collapsed. “I learned a valuable, albeit costly, lesson from the Master Replicas experience,” says Mr. Schwartz, “namely that while great management can’t save a flawed concept, weak management can kill a great concept pretty quickly.”
After Master Replicas’ failure, Mr. Schwartz was certain that his one unsuccessful foray into the toy and collectibles business would be his last. However, like many before him, he’d been bitten by the toy bug.
When the global financial crisis slowed his once robust practice to a crawl, he decided it was the perfect time to take a second run at his passion. Said Mr. Schwartz “I thought that the collapse of Master Replicas and the total loss of my investment would have cured my toy fever, but it was only in remission. Whenever I reflected back on the MR experience, I couldn’t shake the feeling that the company had represented a lost opportunity. Master Replicas had a unique concept and a dominant position in its market and squandered it. When I go into Toys R Us today and see an FX lightsaber box with the name “Hasbro” printed on it, it just breaks my heart! I often wondered what might have been if MR had been built and run with the same discipline that I’d brought to building my practice. When that practice hit the wall, I realized that I was still young enough and still had energy enough to build something, and that I was more up for the challenge of using what I’d learned in 30 years as a professional and 10 years as a toy investor to build a successful toy company for the first time than to rebuild a legal practice.”
So, in 2011, Mr. Schwartz hung out his shingle in the toy business, starting Factory Entertainment, Inc., which he headquartered in Northern California to facilitate bringing on several former Master Replicas employees as the first hires. Mr. Schwartz then plumbed his old contact list from his MR licensing days and, in reasonably quick succession, signed up licenses for James Bond, The Beatles, Men in Black , Universal Monsters and a number of other well-known properties. Factory’s first release, a limited edition replica of the titular prop from the James Bond film, “The Man with the Golden Gun,” sold out quickly and routinely resells on Ebay for over $1,000. “Because of the Master Replicas legacy, high quality prop replicas are part of our DNA and are really the core competency around which Factory Entertainment is built” notes Mr. Schwartz. But, in a weaker global economy than Master Replicas operated in back at the start of the century, and with more competition for licenses, Mr. Schwartz quickly realized that a broader range of products and price points was needed to supplement the replica business. “Visitors to our booth at Toy Fair will, I think, be amazed at the breadth of products which our small company has to offer. Whether it’s plush, action figures, our proprietary Shakems â¢ Premium Motion Statues or high end prop replicas, we offer something for every category of retailer. But, even more importantly, what we learned from Master Replicas’ strengths, and ultimately its weaknesses, was to adhere with strict discipline to a simple four part philosophy—make only quality products, deliver them to your customers on time, treat your business partners with respect and provide attentive and quick customer service. On Wall Street I learned that, with intelligence and a willingness to work hard you can execute large projects with massive complexity in a short period of time. At Factory Entertainment, our goa