−Removed: At the Nexus of Pop Culture
We are a leading pop culture consumer products company.
−Removed: Our business is built on the principle that almost everyone is a fan of something and the evolution of pop culture is leading to increasing opportunities for fan loyalty.
+Added: Our business is built on the principle that almost everyone is a fan of something, and Funko aims to have something for every fan.
We create whimsical, fun and unique products that enable fans to express their affinity for their favorite “something”—whether it is a movie, TV show, video game, musician or sports team.
−Removed: We typically infuse our distinct designs and aesthetic sensibility into one of the industry’s largest portfolios of licensed content over a wide variety of product categories, including figures, plush, accessories, apparel, handbags and homewares.
−Removed: With our unique style, expertise in pop culture, broad product distribution and highly accessible price points, we have developed a passionate following for our products that has underpinned our growth.
−Removed: We believe we sit at the nexus of pop culture—content providers value us for our broad network of retail customers, retailers value us for our broad portfolio of licensed pop culture products and pop culture insights, and consumers value us for our distinct, stylized products and the content they represent.
+Added: We typically infuse our distinct designs and aesthetic sensibility into our extensive portfolio of licensed content over a wide variety of product categories, including figures, bags, wallets, apparel, accessories, board games, plush and homewares.
+Added: We can reach a broad range of consumers with our diverse range of products, expansive license portfolio, unique style, broad product distribution and highly accessible price points.
+Added: We believe we sit at the nexus of pop culture—content providers value us for our ability to connect fans to their properties with our creative products and broad distribution;
+Added: retailers value us for our broad portfolio of licensed pop culture products that we can curate to resonate with their consumers;
+Added: and consumers value us for our distinct, stylized products and the content they represent.
We believe our innovative product design and market positioning have disrupted the licensed product markets and helped to define today’s pop culture products category.
−Removed: Pop culture pervades modern life and almost everyone is a fan of something.
−Removed: In the past, pop culture fandom was often associated with stereotypical images of fans from narrow demographics, such as Star Trek fans attending conventions to speak Klingon to each other or friends getting together to play Dungeons & Dragons.
−Removed: Today, more quality content is available and technology innovation has made content accessible anytime, anywhere.
−Removed: As a result, the breadth and depth of pop culture fandom resembles, and in many cases exceeds, the type of fandom previously associated only with sports.
+Added: The Pop Culture Industry
+Added: Pop culture encompasses virtually everything that someone can be a fan of—movies, TV shows, anime, video games, music, sports, books and more.
+Added: The global licensed pop culture product industry in which we compete sits within the global licensed merchandise and services market, which had nearly $293 billion in total sales in 2019 according to a Global Licensing Survey released by Licensing International.
+Added: Pop culture fandom has evolved from niche communities around specific properties to having a broad presence in modern life.
+Added: Today, there is more quality content than ever before and technology innovation has made that content accessible anytime, anywhere.
Social media has further allowed for fans to share their love and form communities more easily than before.
Everyday interactions at home, work or with friends, whether in person or through social media, are increasingly influenced by pop culture.
−Removed: We have invested strategically in our relationships with key constituents in pop culture.
−Removed: Content providers value us for our broad network of retail customers and retailers value us for our broad portfolio of licensed pop culture products, pop culture insights and ability to drive consumer traffic.
−Removed: Consumers, who value us for our distinct, stylized products, remain at the center of everything we do.
−Removed: • Content Providers:
−Removed: We have strong licensing relationships with many established content providers, such as Disney, HBO, LucasFilm, Marvel, Blizzard Entertainment, the National Football League and Warner Brothers.
−Removed: We have also recently entered into licensing relationships to develop products based on Fortnite and Pokémon.
−Removed: We strive to license every pop culture property that we believe is relevant to consumers.
−Removed: In 2019, we had license agreements with over 200 content providers covering over 800 active licensed properties.
−Removed: We believe our numerous licensing relationships have allowed us to build one of the largest portfolios in our industry, from which we can create multiple products based on each character within those properties.
−Removed: Content providers trust us to create unique extensions of their intellectual property that extend the relevance of their content with consumers through ongoing engagement, helping to maximize the lifetime value of their content.
−Removed: For the year ended December 31, 2019, sales of our Pop!
−Removed: branded products grew 20% year-over-year in the United States, which is the most mature market for our Pop!
−Removed: branded products.
−Removed: We believe we have benefited from a trend of content providers consolidating their relationships to do more business with fewer licensees.
−Removed: We believe our track record of obtaining licenses from content providers, together with our proven ability to renew and extend the scope of our licenses, demonstrates the trust content providers place in us.
−Removed: • Retail Channels:
−Removed: We sell our products through a diverse network of retail customers across multiple retail channels, including specialty retailers, mass-market retailers and e-commerce sites.
−Removed: We can provide our retail customers a customized product mix designed to appeal to their particular customer bases.
−Removed: Our current retail customers include GameStop, Amazon, Hot Topic, Target and Walmart in the United States, and Micromania, HEO, E.M.P.
−Removed: Merchandising and Smyths Toys, internationally.
−Removed: Additionally, for the year ended December 31, 2019, sales of our products on third party e-commerce websites increased 23% compared to the prior year.
−Removed: Retailers recognize the opportunity presented by the demand for pop culture products and are continuing to dedicate additional shelf space as well as increased presence on their e-commerce platforms to our products
−Removed: and the pop culture category.
−Removed: Additionally, we believe some of our retail customers, such as Target and Walmart, view us as pop culture experts, and we help them manage their pop culture category.
−Removed: We believe we drive meaningful traffic to our retail customers’ stores because our products have their own built-in fan base, are refreshed regularly creating a “treasure hunt” shopping experience for consumers, and are often supplemented with exclusive, limited-time products that are highlighted on social media.
−Removed: We believe these merchandising strategies create a sense of urgency with consumers that encourages repeat visits to our retail customers.
−Removed: Fans are increasingly looking for ways to express their affinity for and engage with their favorite pop culture content.
−Removed: Over time, many of our consumers evolve from occasional buyers to more frequent purchasers, whom we categorize as enthusiasts or collectors.
−Removed: We estimate that enthusiasts, who are more engaged in pop culture, and collectors, who regularly purchase our products and self-identify as collectors, each make up approximately one-third of our customers.
−Removed: We create products to appeal to a broad array of fans across consumer demographic groups—men, women, boys and girls—not a single, narrow demographic.
−Removed: Most of our products are generally priced under $10, excluding apparel and handbags, which allows our diverse consumer base to express their fandom frequently and impulsively.
−Removed: We continue to introduce innovative products designed to facilitate fan engagement across different price points and styles in different categories.
−Removed: In addition, our fans routinely express their passion for our products and brands through social media and live pop culture events, such as Comic-Con or Star Wars Celebration.
−Removed: We have developed a nimble and low fixed-cost production model.
−Removed: The strength of our in-house creative team and relationships with content providers, retailers and third-party manufacturers allows us to move from product concept to pre-selling a new product in as few as 24 hours.
−Removed: We typically have a new figure on the store shelf between 110 and 200 days and can have it shipped from the factory in as few as 70 days in certain circumstances.
−Removed: As a result, we can dynamically manage our business to balance current content releases and pop culture trends with content based on classic evergreen properties, such as Harry Potter, Mickey Mouse or classic Batman.
−Removed: This has allowed us to deliver significant growth while lessening our dependence on individual content releases.
−Removed: The Pop Culture Industry
−Removed: Pop culture encompasses virtually everything that someone can be a fan of—movies, TV shows, video games, music and sports.
−Removed: The global licensed pop culture product industry in which we compete sits within the global licensed entertainment and character products market, which had $122.7 billion in total sales in 2018 according to a Global Licensing Survey released by Licensing International.
−Removed: We believe that many retailers have seen traffic decline across traditional consumer categories.
−Removed: In contrast, demand for pop culture content, consumer products and experiences has grown rapidly.
The Forces at Work in The Pop Culture Industry
−Removed: The pop culture industry is being driven by several major forces.
−Removed: Technology advances have made it easier to access, consume and engage with content.
−Removed: Content providers have produced more quality content to drive fan engagement, often with a focus on franchise properties.
−Removed: Dedicated, active and enduring fan bases have emerged across the pop culture landscape.
−Removed: These fans seek out opportunities to interact with their favorite content and with
−Removed: like-minded fans through social media and content-centric experiences.
−Removed: At the same time, social norms have shifted, making fandom culturally accepted and mainstream.
−Removed: These trends reinforce one another leading to a substantial increase in pop culture fandom and to significant growth in the industry.
Technology Innovation
−Removed: The proliferation of powerful mobile technology, such as tablets and smartphones, and the emergence of new content distribution services, such as Apple TV, Amazon Prime, Hulu and Netflix, have enabled fans to connect and engage with content anywhere, at any time, in larger “binge” quantities.
−Removed: More content and greater access have led to more fans spending more time per day consuming content.
−Removed: In addition, fans are able to develop a deeper affinity for content due to the increased prevalence of platforms and events where they can share their passion with other fans (such as through social media, blogs, YouTube, podcasts and online games).
+Added: The proliferation of mobile technology, and the emergence of new content distribution services, such as Amazon Prime, AppleTV+, Disney+, HBO Max, Hulu, Netflix, Peacock and more have enabled fans to connect and engage with content anywhere, at any time, in larger “binge” quantities.
+Added: An increasing array of content and greater accessibility have led to more fans spending more time per day consuming content.
+Added: In addition, fans can develop a deeper affinity for content due to the increased prevalence of platforms and events where they can share their passion with other fans (such as through social media, blogs, YouTube, podcasts and online games).
The accelerated pace of content discovery and sharing has created an environment where niche content can quickly become mainstream, resulting in more content becoming part of pop culture.
1 unchanged sentence
Content providers have increasingly focused on creating original scripted and franchise content that has broad global appeal and potential for sequels and brand extensions.
−Removed: During the 1990s, the top ten annual grossing movies included an average of 2.5 franchise films and from 2000 through 2018, the top ten annual grossing movies included an average of 6.6 franchise films.
−Removed: The growth of a healthy franchise ecosystem across content types has fostered fan loyalty and stimulated licensed product purchases.
−Removed: We expect the number of scripted original series to continue to grow, with content providers such as Amazon Prime, Hulu and Netflix spending or announcing the intention to spend substantial capital on new original content.
−Removed: For example, based on public filings, Netflix invested more than $13 billion in content in 2018, compared to $8.7 billion in 2016.
+Added: During the 1990s, the top ten highest annual grossing movies included an average of 2.5 franchise films and from 2000 through 2019, the top ten highest annual grossing movies included an average of 6.6 franchise films.
+Added: Additionally, there has been an increase in high-quality scripted television series as content providers vie for binge worthy shows to attract consumers.
+Added: For example, in 2019 the number of original scripted series in the U.S.
+Added: increased by over 150% compared to 2009, according to FX networks research.
+Added: We expect content providers such as Amazon, Apple, Disney, Warner Bros., Hulu, Netflix and NBCUniversal to continue to invest in new high-quality original content.
+Added: The proliferation and globalization across content types has fostered fan loyalty and stimulated licensed product purchases.
Dedicated and Active Fan Base
2 unchanged sentences
For context, in 2019, retail sales of licensed entertainment and character products totaled $128.4 billion, compared to $28.9 billion for retail sales of licensed sports products.
−Removed: Furthermore, as it becomes increasingly easy to access a large quantity of quality content, fans seek more ways to expand and express connectivity to their favored characters or properties as they share their passion with others.
+Added: Furthermore, as it becomes increasingly easy to access a large quantity of quality content, fans seek more ways to expand and express connections to their favored characters or properties as they share their passion with others.
As a result, consumers are participating in the story of these properties via social media platforms and conventions, such as Comic-Con, AnimeExpo and Star Wars Celebration, rather than being solely consumers of content.
By being a part of the conversation regarding their favored content, fans reinforce their love for it, thereby creating a cycle of fandom.
−Removed: Growing Cultural Relevance and Acceptance
−Removed: As pop culture engagement has increased, we believe it has become more culturally acceptable to be openly passionate about all forms of pop culture, not just sports.
−Removed: Social media is driving the importance of pop culture as fans increasingly want to engage with the content and their social communities to show affinity for pop culture content.
+Added: Growing Cultural Relevance
+Added: As pop culture engagement has increased, we believe fandom has become a pastime, and fans are more openly passionate about all forms of pop culture.
+Added: Social media is driving the importance of pop culture as fans increasingly want to engage with the content across their social communities to show affinity for their favorite content.
Three of the top U.S.
1 unchanged sentence
San Diego and Anime Expo 2019, drew close to half a million attendees in 2019, representing a sharp increase of over 80% from 2010.
−Removed: This represents a cultural shift supporting the acceptability of fan affinity for pop culture content across multiple demographic categories of fans, and the growth beyond the traditional narrow, male-dominated demographic.
+Added: This represents a cultural shift supporting the acceptability of fan affinity for pop culture content across all demographic categories of fans.
+Added: In 2020, due to COVID-19 impacts on in-person events, many pop-culture conventions such as Comic Con International:
+Added: San Diego, New York Comic Con and others were cancelled or pivoted to virtual events, which continued to attract and engage fans in the new virtual format.
Our Strategic Differentiation
−Removed: Leading Design and Creative Capabilities
−Removed: Our in-house creative team layers our own whimsical, fun and distinct stylization onto content providers’ characters, creating unique products for which there is substantial consumer demand.
−Removed: With the help of our in-house creative team, we have also begun to develop our own proprietary intellectual property, including our Wetmore Forest line of characters.
−Removed: Our creative team also includes animators at Funko Animation Studios, who create video shorts that we have increasingly used to market our products in collaboration with some of our key licensors.
−Removed: In 2019 we also acquired Forrest-Pruzan Creative LLC (“FPC”), a leading board game development studio, which has enabled us to deliver a new pop culture product category to our fans.
−Removed: Our creative team is passionate about pop culture.
−Removed: We enjoy a strong pipeline of talent for our creative team given our culture and the opportunity we provide to work with the most relevant pop culture content.
−Removed: We believe content providers trust us with their properties, and consumers passionately engage with our products and brands because of our creativity.
−Removed: In addition, we reinvigorate classic evergreen or back catalog content by infusing a fresh, unique aesthetic and design into characters that enjoy enduring passion and nostalgia from fans.
−Removed: As a result of our creative capabilities and broad portfolio of licenses, we create a substantial number of new products each year, including approximately 5,000 new products introduced in 2019.
−Removed: Diversity of Products and Accessible Price Points Create Broad Appeal
−Removed: We create products to appeal to a broad array of fans across consumer demographic groups.
−Removed: We believe our broad appeal comes through our large selection of items, a large variety of licenses and properties and varied form factors across a number of product categories.
−Removed: We do not limit ourselves by targeting discrete demographics such as the stereotypical collector or the child seeking the latest (and often short-lived) toy craze.
−Removed: We estimate based on market and internal data that (1) occasional buyers, which we define as those consumers who are mainstream movie and TV fans, but do not self-identify as enthusiasts, (2) enthusiasts, who are more engaged in pop culture than occasional buyers but who do not self-identify as collectors, and (3) collectors each make up approximately one-third of our customers.
−Removed: To continue to broaden our offerings beyond figures, we have launched new or expanded categories such as plush, and accessories, and with the acquisition of FPC, we have expanded into the board game category.
−Removed: We believe we have one of the largest and most engaged fan bases in our industry, driven by their passion and love of our unique products and the properties we represent.
−Removed: Trusted Steward of the Most Important Pop Culture Content
−Removed: We strive to license every pop culture property that we believe is relevant to our consumers.
−Removed: Over the last decade, we have built strong relationships with content providers and currently have a catalog of content licenses covering a large number of properties that we believe is one of the industry’s largest.
−Removed: We believe there is a trend of content providers consolidating their relationships to do more business with fewer licensees.
+Added: Deep and Extensive Licensing Partnerships
+Added: We have strong licensing relationships with many established content providers, such as Disney, Warner Bros., Marvel, LucasFilm, NBCUniversal, Netflix, Epic Games, Blizzard Entertainment, the National Football League, the National Basketball Association and many more.
+Added: We strive to partner with content providers across multiple genres, including movies, television, video games, anime, sports, and music.
+Added: In 2020, we had license agreements with over 200 content providers covering over 1,000 licensed properties.
+Added: We believe our numerous licensing relationships have allowed us to build one of the largest portfolios of licensed property in our industry, from which we can create multiple products based on each character within those properties.
+Added: Content providers trust us to create unique extensions of their intellectual property that extend the relevance of their content with consumers through ongoing engagement, helping to maximize the lifetime value of their content.
+Added: We believe we have benefited from a trend of content providers consolidating their relationships to do more business with fewer licensees.
As a trusted steward with a strong retail distribution network and connection with the end user, we believe we have benefited from this trend.
−Removed: We often work collaboratively with content providers in advance of new content releases to create unique, stylized products to maximize the value of their properties.
−Removed: In some cases, the input we have provided has influenced the content provider’s creative choices for its original content.
−Removed: We believe we are well positioned to continue to obtain licenses for new important movie franchises and other properties.
Further, we have historically been able to renew productive licenses on commercially reasonable terms, which positions us to benefit from the ongoing desire of consumers to engage with and show affinity for their favorite pop culture content.
−Removed: Deep, Mutually Beneficial Relationships with a Broad Network of Retail Customers
−Removed: We partner with a diverse group of retail customers through which we sell our products.
−Removed: We believe many of our retail customers view us as experts in pop culture and in some cases, we help manage their pop culture category within their stores and can provide a curated experience by catering to their particular customer bases.
−Removed: We believe this enables us to enhance the productivity of the pop culture category for our retail customers, resulting in increased sales and expanded shelf space or online placement for our products—a major driver of our growth historically.
−Removed: Additionally, we believe our pop culture expertise and omnichannel sales model position us well to capture the industry shift from traditional brick and mortar to channel-agnostic content consumerism.
−Removed: In addition, we often release exclusive new products with a specific retail customer, which can drive traffic and sales for them.
+Added: Diverse Range of Properties
+Added: We strive to license every pop culture property that we believe is relevant to our consumers.
+Added: Over the last decade, we have built strong relationships with content providers and currently have a catalog of licenses covering hundreds of properties that we believe is one of the industry’s largest.
+Added: Our licensed property portfolio encompasses a diverse range of genres to ensure our products have broad consumer appeal.
+Added: Many of our licensed properties are "evergreen" in nature—properties that are not tied to a current or new content release, such as Mickey Mouse, Harry Potter or classic Batman.
+Added: We have visibility into the new release schedule of our content providers and our expansive license portfolio allows us to dynamically manage new product creation.
+Added: This allows us to adjust the mix of products based on evergreen properties and new releases, depending on the media release cycle.
+Added: As a result, we can manage our business to capitalize on pop culture trends, which has allowed us to lessen our dependence on individual content releases.
+Added: This allows our business to be diversified across properties, as well as evergreen and current content.
+Added: For the years ended December 31, 2020, 2019 and 2018, no single property accounted for more than 7% of our sales, and the portion of our sales for the years ended December 31, 2020, 2019 and 2018 attributable to our top five properties was 22%, 23% and 20%, respectively.
+Added: Additionally, the portion of our sales related to evergreen properties for the years ended December 31, 2020, 2019 and 2018 was approximately 66%, 51% and 47%, respectively.
+Added: Broad Portfolio of Products and Brands
+Added: We create products to attract a broad array of fans across consumer demographic groups.
+Added: We believe our broad appeal comes from our large selection of licenses and properties that we apply across a variety of product categories and brands.
+Added: We do not limit ourselves by targeting discrete demographics such as only collectors or children seeking the latest (and often short-lived) toy craze.
+Added: We strive to have something for everyone by offering figures and other product categories including bags, wallets, apparel, board games, plush, accessories, homewares and more.
+Added: We expect to continue to look for ways to diversify our product offerings to reach an even broader group of consumers.
+Added: In addition to offering multiple properties and product categories, we create and sell a variety of unique brands that have their own look and feel.
+Added: Our brand portfolio includes Pop!
+Added: and Loungefly as well as others such as Funko, Mystery Mini, Paka Paka, and Snapsies.
+Added: is our largest and most recognized brand that encompasses multiple product categories, including figures, accessories, apparel, games, bags and more.
+Added: The portion of sales attributed to Pop!
+Added: branded products in the years ended December 31, 2020, 2019 and 2018 was 76%, 79% and 76%, respectively.
+Added: Loungefly branded products include stylized fashion accessories such as bags, wallets and backpacks as well as apparel.
+Added: The portion of sales attributed to Loungefly branded products in the years ended December 31, 2020, 2019 and 2018 was 13%, 9% and 6%, respectively.
+Added: Additionally, from time-to-time our in-house creative team creates new brands and products based on Funko’s own intellectual property, such as Snapsies, Paka Paka and non-licensed board games.
+Added: Broad Consumer Appeal and Engagement
+Added: Fans are increasingly looking for ways to express their affinity for and engage with their favorite pop culture content.
+Added: Over time, many of our consumers evolve from occasional buyers to more frequent purchasers, whom we categorize as enthusiasts or collectors.
+Added: We estimate that enthusiasts, who are more engaged in pop culture, and collectors, who regularly purchase our products and self-identify as collectors, each make up approximately one-third of our consumers.
+Added: We create products to appeal to a broad array of fans across consumer demographic groups.
+Added: We strive to keep our products at an accessible price point, generally under $10 for our figure category, which allows our fans to express their fandom frequently and impulsively.
+Added: We continue to introduce innovative products designed to facilitate fan engagement across different price points and categories.
+Added: Our fans routinely express their passion for our products and brands through social media and live pop culture events, such as Comic-Con or Star Wars Celebration.
+Added: Additionally, we seek to drive direct engagement with our fans through in person experiences at our flagship retail stores and fan events, as well as digitally through our websites, mobile application and various social media platforms.
+Added: In 2020, given the impact of COVID-19 on in-person events, we began conducting virtual events including multiple Funko Virtual Con events, to continue to drive engagement with fans.
+Added: We believe we have one of the largest and most engaged fan bases in our industry, driven by their passion and love of our unique products and the properties we represent.
+Added: Diversified Global Distribution Network
+Added: We sell our products through a diverse network of retail customers across multiple retail channels, including specialty retailers, mass-market retailers, and e-commerce sites, as well as directly to consumers primarily through our owned websites and two flagship retail stores.
+Added: We can provide our retail customers a customized product mix designed to appeal to their consumer bases.
+Added: Our current retail customers include GameStop, Amazon, Hot Topic, Target and Walmart in the United States, and Micromania, HEO, E.M.P.
+Added: Merchandising and Smyths Toys, internationally.
+Added: We believe some of our retail customers, such as Target and Walmart, view us as pop culture experts, and we help them manage their pop culture category.
+Added: We believe we drive meaningful traffic to our retail customers’ stores because our products have their own built-in fan base, are refreshed regularly creating a “treasure hunt” shopping experience for consumers, and are often supplemented with exclusive, limited-time products that are highlighted on social media.
+Added: We believe these merchandising strategies create a sense of urgency with consumers that encourages repeat visits to our retail customers.
+Added: Additionally, we are continuing to invest in our direct-to-consumer channel to expand our reach and further strengthen our relationship with our fan base.
+Added: Our direct-to-consumer channel includes our own e-commerce websites in the U.S.
+Added: and Europe as well as our two flagship retail stores located in the U.S.
Nimble Speed to Market Reflects “Fast Fashion” Product Development Process
Speed to market has become increasingly important as technological innovation has accelerated the pace of content discovery and sharing and the speed at which niche content can become mainstream.
−Removed: Our flexible and low-fixed cost production model enables us to go from product design of a figure to the store shelf between 110 and 200 days and we can have it shipped from the factory in as few as 70 days, with a minimal upfront investment for most figures of $5,000 to $7,500 in tooling, molds and internal design costs.
+Added: We have developed a nimble and low fixed-cost production model built on the strength of our in-house creative team as well as our relationships with content providers, retailers and third-party manufacturers.
+Added: Our production model enables us to go from product design of a figure to the store shelf within 110 to 200 days and we can have it shipped from the factory in as few as 70 days, with a minimal upfront investment for most figures of $5,000 to $7,500 in tooling, molds and internal design costs.
Because of the strength of our in-house creative team, we are able to move from product design to pre-selling certain new products in as few as 24 hours.
−Removed: This ability, coupled with the valuable data insights we have developed over the past decade, and the increasing use of repeated franchise properties by content providers, reduces potential product risk to us while better positioning us to benefit from trends in content creation and consumption.
−Removed: As an example of our “fast fashion” product development process, we announced and were able to pre-sell a Baby Yoda figure, which was a surprise character in an episode of Disney's Star Wars:
−Removed: The Mandalorian, within three weeks of the episode's original release date on Disney+.
−Removed: Dynamic Business Model Drives Revenue Visibility and Growth
−Removed: Our business is diversified across content providers and properties, product categories, and sales channels.
−Removed: As a result, we can dynamically manage our business to capitalize on pop culture trends, which has allowed us to deliver significant growth while lessening our dependence on individual content releases.
−Removed: Our content provider relationships are highly diversified.
−Removed: For the years ended December 31, 2019, 2018 and 2017, no single property accounted for more than 6%, 6% and 5% of our sales, respectively, and the portion of our sales for the years ended December 31, 2019, 2018 and 2017 attributable to our top five properties was 23%, 20% and 16%, respectively.
−Removed: Our products are balanced across our licensed property categories.
−Removed: In 2019, we generated approximately 51% of sales from classic evergreen properties, approximately 20% from movie release properties, approximately 18% from current TV properties and approximately 11% from current video game properties.
−Removed: In 2018, we generated approximately 47% of sales from classic evergreen properties, approximately 20% from movie release properties, approximately 17% from current video game properties and approximately 16% from current TV properties.
−Removed: In 2017, we generated approximately 45% of sales from classic evergreen properties, approximately 21% from movie release properties, approximately 18% from current TV properties and approximately 15% from current video game properties.
−Removed: We have visibility into the new release schedule of our content providers and our expansive license portfolio allows us to dynamically manage new product creation.
−Removed: This allows us to adjust the mix of products based on classic evergreen properties and new releases, depending on the media release cycle.
−Removed: In addition, we typically sell our products worldwide through a diverse group of sales channels, including specialty retailers, distributors, mass-market retailers, e-commerce sites and direct-to-consumer sales.
−Removed: Visionary Management Team and Employees with Genuine Passion for Pop Culture
−Removed: Our highly experienced management team is led by Brian Mariotti, an industry pioneer.
−Removed: A long-time pop culture fan, Brian recognized early on the impact that trends in media and entertainment would have on the pop culture industry and the value of having a diverse portfolio of licenses.
−Removed: Passion for pop culture pervades our company and our openness to new ideas from anywhere in the organization has resulted in some of our most innovative and differentiated products.
−Removed: How We Plan to Grow
−Removed: We are pursuing the following strategies that we believe will drive substantial future growth.
−Removed: Increase Sales with Existing Retail Customers
−Removed: We intend to continue to increase our sales by expanding our shelf space and deepening our relationships with our retail customers.
−Removed: Our products have driven traffic to our retail customers’ previously less productive square footage, which has resulted in increased shelf space for our products.
−Removed: In addition to designing unique, stylized products that resonate with pop culture fans and drive traffic, both online and in store, we intend to increase the number of retail customers for whom we curate pop culture selections.
−Removed: We believe doing so deepens our relationships with our retail customers and encourages them to allocate more shelf space to our products and pop culture products generally
−Removed: and, in some cases, create pop culture departments where none existed before, which we believe will drive additional brand awareness and sales growth.
−Removed: Add New Retail Customers and Expand Into New Channels
−Removed: We regularly evaluate and add new retail customers as we believe consumers demand Funko products regardless of the retail channel through which they purchase them.
−Removed: While we believe we have opportunities to add new retailers within existing channels, we also plan to selectively target new or underdeveloped sales channels, such as dollar, drug, grocery and convenience stores.
−Removed: By adding new retail customers, we will increase the awareness and availability of our products to consumers, which we believe will increase sales.
−Removed: Broaden Our Product Offerings
−Removed: In addition to designing products to address new content that licensors continually produce, we plan to add new product categories, lines and brands to leverage our existing sales channels to continue to drive sales.
−Removed: For example, we have recently expanded our line of figures with our 5 Star line, which can be configured in different poses and allow collectors to creatively display their figures.
+Added: As a result, we can dynamically manage our business to balance current content releases and pop culture trends with content based on classic evergreen properties.
+Added: Leading Design and Creative Capabilities
+Added: Our in-house creative team layers our own whimsical, fun and distinct stylization onto content providers’ characters, creating unique products for which there is substantial consumer demand.
+Added: We believe content providers trust us with their properties, and consumers passionately engage with our products and brands because of our creativity.
+Added: In addition, our creativity and designs allow us to reinvigorate classic evergreen content by infusing a fresh, unique aesthetic into characters that enjoy enduring passion and nostalgia from fans.
+Added: With the help of our in-house creative team, we have also begun to develop our own proprietary intellectual property, including our Snapsies and Paka Paka brands, as well as various non-licensed board games.
+Added: As a result of our creative capabilities and broad portfolio of licenses, we create a substantial number of new products each year.
+Added: Growth Strategies
+Added: Grow our Core Pop Culture Business
+Added: We intend to grow our core business by utilizing our strength in building fun, creative and nostalgic programs at retail through:
+Added: (1) leveraging an increasing array of content, categories and distribution;
+Added: (2) creating programs that utilize evergreen content with a focus on targeting underpenetrated content genres to expand our addressable market;
+Added: and (3) continued product innovation to bring new designs and products to market.
+Added: We also intend to continue licensing content that will allow us to capitalize on the popularity of current releases across movies, TV shows, video games, and other content types, and to leverage those licenses across a broader array of products and expanded distribution to reach new consumers.
+Added: Additionally, we have the ability to leverage evergreen or back catalog content by creating fun, whimsical and nostalgic programs to be sold at retail that resonate with fans.
+Added: Our evergreen programs include new versions of well-known characters such as our Marvel Venomized line or, products built around nostalgic content or places such as Disney theme parks.
+Added: Additionally, we intend to strategically focus on growing within genres that we believe we have underpenetrated, such as anime, sports and music.
+Added: We expect to do this by expanding our license portfolio, creating new products or designs that resonate with fans and strategically expanding our distribution of these products.
+Added: Within anime, in 2020 we entered into an exclusive partnership with Bandai, which allows Funko to distribute anime properties in Japan, the largest market for anime merchandise worldwide.
+Added: In the sports category, we are continuing to leverage our broad range of sports licenses, which includes the NFL, NBA, NHL, WWE, English Premier League, MLB and more.
+Added: In 2020, we launched localized fan shops in the mass market channel.
+Added: Additionally, within the music category, we are expanding our license base to include more artists and in 2020 we launched Pop!
+Added: Albums, a new product line under the Pop!
+Added: brand that seeks to appeal to music fans by recreating iconic covers of music albums.
+Added: We expect to continue to utilize our in-house creative team to create new designs, products and brands that resonate with our core consumers.
+Added: For example, in 2019 we launched Funko Vinyl Soda, a stylized collectible vinyl figure to that comes with the opportunity to be surprised by a rare chase piece that will delight collectors.
+Added: Diversify our Revenue Streams through Product Innovation
+Added: We are leveraging Funko’s pop culture platform to diversify our revenue streams across product categories, channels and geographies.
+Added: In addition to designing products to address both new and evergreen content, we have introduced new toy lines, board games and softlines to leverage our existing retail partnerships and open up potential new channels of distribution.
+Added: In 2020, we added new non-licensed toy lines such as Snapsies and launched dozens of new offerings under our Funko Games brand, including Funkoverse branded games, and many other licensed games and non-licensed games.
We also continually evaluate product innovations and potential acquisition targets to complement our existing product categories, lines and brands.
−Removed: In June 2017, we completed the acquisition of Loungefly, LLC (“Loungefly”), a designer of a variety of licensed pop culture fashion handbags, small leather goods and accessories, to expand and diversify our product offerings in our accessories category (the “Loungefly Acquisition”).
−Removed: In February 2019, we acquired FPC, a leading board game development studio, to help us expand our product offerings into the board game category.
−Removed: Expand Internationally
−Removed: We believe that the forces at work first observed in the U.S.
−Removed: pop culture industry are global.
−Removed: We believe we are currently underpenetrated internationally, and we generate the majority of our net sales in the United States;
−Removed: however, we are also focused on growing our international business.
+Added: For example, in 2017, we completed the acquisition of Loungefly, LLC (“Loungefly”), a designer of a variety of licensed pop culture fashion handbags, small leather goods and accessories, to expand and diversify our product offerings in our accessories category (the “Loungefly Acquisition”).
+Added: In 2019, we acquired Forrest-Pruzan Creative LLC, a leading board game development studio, to help us expand our product offerings into the board game category and to develop the Funko Games brand.
+Added: Extend Funko’s International Reach
+Added: We believe the rise of pop culture and deep fan loyalty are global.
+Added: We believe our sales are currently underpenetrated internationally as we generate the majority of our net sales in the United States.
Sales generated from customers outside of the United States accounted for approximately 25%, 34% and 32% of our sales for the years ended December 31, 2020, 2019 and 2018, respectively.
We are continuing to invest in the growth of our international business, primarily in Europe, both directly and through third party distributors.
−Removed: In the future we may pursue similar acquisitions or expand our direct sales force or distributor relationships to further penetrate Asia Pacific, Latin America, Australia or other regions.
−Removed: Leverage the Funko Brand Across Multiple Channels
−Removed: We believe there is a significant opportunity to leverage our distinctive style and designs across numerous underserved channels such as digital content, as well as potentially movies and television.
−Removed: In March 2019, we launched a new mobile application, which allows Funko fans to track their collection, display their wish list and browse an expansive catalog of our products.
−Removed: Additionally, we are in the process of creating an online portal that will serve as an online destination for our consumers.
−Removed: This online community will allow consumers to create personal avatars, purchase digital products and interact with other consumers.
−Removed: We believe this opportunity will drive brand awareness with new audience segments, deepen consumer engagement to drive customer lifetime value, strengthen our direct connection with our consumers and grow our direct-to-consumer business, as well as support our retail customers.
+Added: In October 2020, we launched our own e-commerce website in Europe, www.funkoeurope.com, which is initially serving the U.K., Ireland, Spain, Germany and France, with more countries expected to follow.
+Added: We believe there are opportunities to further grow our sales in other regions, such as Latin America, Canada, Oceania and APAC, by expanding our direct sales to retailers or through distributor relationships.
+Added: Increase our Direct-to-Consumer Business
+Added: We view our direct-to-consumer business, which includes our e-commerce websites, www.funko.com, www.funkoeurope.com and www.loungefly.com, and two flagship retail stores, as a significant growth opportunity and an important vehicle for expanding our reach and broadening our relationship with our fans.
+Added: We plan to build a robust online platform and to enhance our digital capabilities to provide the infrastructure to scale this business over the long-term.
+Added: In 2020, we relaunched www.funko.com with an expanded product offering, and enhanced features and functionality to serve our customers in the U.S., and also launched www.funkoeurope.com to serve our customers in the UK and several countries in Europe.
+Added: Our direct-to-consumer strategy also provides us with an opportunity to utilize data and trend analysis to inform our overall business strategy.
+Added: We believe our direct-to-consumer business will help us strengthen our connection with our fans, deepen consumer engagement to drive customer lifetime value, build brand awareness with new audience segments, and support our retail customers.
Product Lines and Licenses
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Our products combine our proprietary brands and distinct designs and aesthetic sensibilities into properties we license from content providers.
−Removed: We seek to license content that will allow us to capitalize on the popularity of current movies, TV shows, video games, music and other content releases, as well as classic evergreen properties, which are not tied to a current release, and which are less subject to pop culture trends.
−Removed: We also continue to develop our own content and intellectual property, such as our Wetmore Forest property.
+Added: We seek to license content that will allow us to capitalize on the popularity of current movies, TV shows, video games, music and other content releases, as well as classic evergreen properties, which are not tied to a current or new release, and which are less subject to pop culture trends.
+Added: Additionally, by utilizing our in-house creative team we have the ability to develop our own content and intellectual property, such as our Snapsies and Paka Paka product lines as well as various board game offerings.
Our current products principally fall within the following product categories:
Our figures category includes figures that celebrate pop culture icons in the form of stylized vinyl, blind-packed miniatures and action figures.
−Removed: These figures combine the pop culture properties we license with our own distinctive designs to create pop culture figures that appeal to a broad range of consumers at an affordable price point, often under one of our proprietary brands, such as Pop!, Mystery Minis, 5 Star and Pint Size Heroes.
−Removed: Our other category includes plush products that are soft-sculpt figures that blend licensed content with our distinctive designs to create an array of product lines and are intended for consumers of all ages;
−Removed: accessories products that mix pop culture fandom with functionality, and feature everything from pens and pins to buttons and keychains, all based on pop culture icons;
+Added: These figures combine the pop culture properties we license with our own distinctive designs to create pop culture figures that appeal to a broad range of consumers at an affordable price point, often under one of our proprietary brands, such as Pop!, Mystery Minis, and Funko Soda.
+Added: Additionally, from time to time we will create figures that are not licensed such as our Snapsies and Paka Paka brands.
+Added: Our other category is comprised of stylized fashion accessories (including bags, backpacks and wallets);
+Added: plush products;
+Added: accessories (including keychains, pens and pins);
apparel (including t-shirts and hats);
−Removed: homewares (including drinkware, party lights and other home accessories);
−Removed: stylized bags, purses and wallets and board games.
+Added: homewares (including drinkware and other home accessories);
Our Brands and Designs
−Removed: Under the Funko brand, we have multiple proprietary brands under which we market most of our products.
+Added: Under the Funko brand, we have multiple proprietary brands under which most of our products are marketed.
Currently, our principal proprietary brands include Pop!
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stylized design incorporates a rounded square head that typically consists of no mouth and a very simple nose.
−Removed: figures typically stand about four inches tall.
−Removed: brand has also been applied across all of our other product categories, including games, plush, accessories, apparel and homewares.
−Removed: As a brand, Pop!
−Removed: represented 79%, 76% and 70% of our sales in 2019, 2018, and 2017, respectively.
−Removed: Loungefly, acquired in June 2017, includes fashion focused stylized handbags, backpacks, clothing, small leather goods and accessories.
−Removed: Loungefly products currently are based on a limited set of licenses, however, we anticipate expanding the licenses and content used to create our Loungefly products in the future.
−Removed: Other brands we market under include Mystery Minis, Paka Paka, 5 Star and SuperCute.
−Removed: In addition, we also develop product lines that we market under the broader Funko brand, rather than under any of our proprietary brands.
−Removed: We typically do so when we believe our speed to market or other competitive advantages uniquely position us to take advantage of certain opportunities.
−Removed: While these products may not initially be associated with one of our proprietary brands, they can still reflect our whimsical and creative style, and may develop into a distinct brand over time.
−Removed: We also continuously develop new product designs and lines, which may develop into proprietary brands in the future.
−Removed: We have strong licensing relationships with many established content providers, such as Disney, HBO, LucasFilm, Marvel, the National Football League, Universal Studios and Warner Brothers.
−Removed: We also seek to establish licensing relationships with newer content providers in order to capitalize on new and emerging trends in pop culture.
−Removed: For example, in recent years, we have established relationships and entered into licensing arrangements with Netflix and Epic Games.
+Added: Our standard Pop!
+Added: Vinyl figure stands about four inches tall.
+Added: brand has also been applied across many of our other product categories, including games, plush, accessories, apparel and homewares.
+Added: branded products represented 76%, 79% and 76% of our sales in 2020, 2019, and 2018, respectively.
+Added: Our Loungefly branded products are generally fashion accessories including stylized handbags, backpacks, wallets, clothing, and other accessories.
+Added: Loungefly branded products represented 13%, 9%, and 6% in 2020, 2019 and 2018, respectively.
+Added: Other brands we market under include Mystery Minis, Paka Paka, and Snapsies.
+Added: In addition, we also develop product lines that we market under the broader Funko brand, such as Funko Games, Funko action figures, Funko Soda and Funko Plush product lines.
+Added: We expect to continue to develop new product designs and lines, which may develop into proprietary brands in the future.
+Added: We have strong licensing relationships with many established content providers, such as Disney, HBO, LucasFilm, Marvel, Netflix, Pokémon, the National Football League, NBCUniversal, Epic Games, Blizzard Entertainment and Warner Bros.
+Added: We seek to establish new licensing relationships with content providers in order to capitalize on new and emerging trends in pop culture.
We believe we provide value to content providers by maximizing the lifetime value of their content by extending its relevance to consumers through ongoing fan engagement.
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For the years ended December 31, 2020, 2019 and 2018, the average royalty rate was 16.1%, 15.9% and 16.1%, respectively.
−Removed: Our royalty expense for any given year will vary depending on the mix of products sold during that year.
+Added: Our royalty expense for any given year will vary depending on the mix of products and properties sold during that year.
For the years ended December 31, 2020, 2019 and 2018, we incurred royalty expenses of $105.0 million, $126.8 million and $110.7 million, respectively.
Our licenses are generally not exclusive.
−Removed: In addition, the rights that licensors grant to us are typically limited to specific properties,
−Removed: product categories, territories and, in some cases, sales channels.
−Removed: In addition, o ur license agreements usually require us to obtain the licensor’s approval of products we develop under the license prior to making any sales.
+Added: In addition, the rights that licensors grant to us are typically limited to specific properties, product categories, territories and, in some cases, sales channels.
+Added: In addition, our license agreements usually require us to obtain the licensor’s approval of products we develop under the license prior to making any sales.
They also typically provide for a minimum guarantee that covers all licensed properties under that license agreement, a portion of which is generally required to be paid in advance, and the amount of which is negotiated based on a variety of factors, including past and expected sales and the licensor’s expected line-up of new releases.
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For the years ended December 31, 2020, 2019 and 2018, we recorded reserves of $1.0 million, $2.4 million and $5.5 million, respectively, related to prepaid royalties we estimated would not be recovered through sales.
−Removed: The increase in the reserves in 2018 was primarily due to our subscription box business, which we began phasing out in 2018.
−Removed: In addition, 2018 reflected higher reserves for minimum guarantees on international sales.
+Added: For the year ended December 31, 2020, 12% and 11% of sales were related to the Company’s two largest license agreements with no other license agreements accounting for more than 10% of sales.
For the year ended December 31, 2019, 13%, 11% and 11% of sales were related to the Company’s three largest license agreements with no other license agreements accounting for more than 10% of sales.
For the year ended December 31, 2018, 15%, 11% and 10% of sales were related to the Company’s three largest license agreements with no other license agreements accounting for more than 10% of sales.
−Removed: For the year ended December 31, 2017, there were no license agreements that accounted for more than 10% of sales.
Licensed Properties.
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In some instances, however, a property may consist of an entire franchise or even a single character, particularly in our classic evergreen category.
−Removed: We divide our licensed properties into four main categories:
−Removed: classic evergreen, movie release, current TV and current video game.
−Removed: We also license certain properties that fall outside of these four main categories.
+Added: We primarily divide our licensed properties between classic evergreen and current or new releases.
+Added: We also license certain properties that fall outside of these main categories.
• Classic Evergreen.
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As a result, products that we design and sell based on these properties generally do not have a defined duration of market demand.
−Removed: Examples of our classic evergreen properties include Star Wars, Harry Potter, DC Comics, Marvel Comics and WWE.
−Removed: • Movie Release .
−Removed: Properties in the movie release category are tied to new movie releases and are intended to capitalize on the excitement of fans surrounding these releases.
−Removed: Products that we design and sell based on these properties are expected to have a limited duration of market demand, depending on the popularity of the movie release.
−Removed: Examples of our movie release properties include Avengers:
−Removed: Endgame, Star Wars Episode IX, and Frozen 2.
−Removed: • Current TV.
−Removed: Properties in the current TV category are tied to TV shows that are currently airing new content.
−Removed: These properties are expected to have a market demand depending on the popularity and longevity of the TV show, which is generally expected to be between three and seven years.
−Removed: Examples of our current TV properties include Stranger Things, Rick & Morty, The Walking Dead and Dragonball Z.
−Removed: • Current Video Game .
−Removed: Properties in the current video game category are tied to new video game releases that are intended to capitalize on the excitement of fans surrounding these releases.
−Removed: Products that we design and sell based on these properties are expected to have a market demand depending on the popularity and longevity of the video game, which is generally expected to be three to seven years.
−Removed: Examples of our current video game properties include Fortnite and Overwatch.
−Removed: We also occasionally license properties that do not fit within the four categories described above, including those associated with current events and limited-duration pop culture phenomena, which we are able to capitalize on due to our speed to market and low cost of production.
+Added: Examples of our classic evergreen properties include Star Wars Classic, Harry Potter, DC Comics, Marvel Comics, Pokémon and WWE.
+Added: • Current Releases.
+Added: Properties in the current release category typically are tied to new movie releases, current television series or new video game titles.
+Added: These properties are intended to capitalize on the excitement of fans surrounding the launch of new content.
+Added: Products that we design and sell based on new movie releases are expected to have a limited duration of market demand, depending on the popularity of the title.
+Added: Examples of new movie releases are Avengers Endgame, Star Wars Episode IX and Frozen 2.
+Added: Additionally, products that we design and sell based on current television series or new video game titles are expected to have a market demand depending on the popularity and longevity of the title, which is generally expected to be multiple years.
+Added: Examples of our current TV and video game properties include The Mandalorian, Dragon Ball Z, Stranger Things and Rick & Morty.
+Added: Examples of our current video game properties are Fortnite, Overwatch and Five Nights at Freddy’s.
We expect these categories and the properties they encompass to evolve over time as current content becomes classic evergreen and as new forms of pop culture content emerge.
−Removed: In addition, while the percentage of sales attributable to our classic evergreen properties has been between approximately 51% and 45% over the past three years, it may fluctuate in any given year based on the number and popularity of new content releases.
+Added: The percent of our sales attributable to classic evergreen and current releases may fluctuate in any given year based on the number and popularity of new content releases.
+Added: For example, in 2020 there was a lack of new content releases due to the impact of COVID-19 on new content production and the movie theater industry.
+Added: Due to this impact, the percentage of our sales attributable to classic evergreen properties was higher compared to historical trends.
Product Design and Development
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Our creative team layers our whimsical, fun and unique style onto the content we license to create product designs that resonate with consumers.
−Removed: Our creative team is passionate about pop culture, and we have a strong pipeline of talent given our culture and the opportunity we provide to work with the most relevant pop culture content.
−Removed: Our designers often work collaboratively with content providers in advance of new content releases to create unique, stylized products to maximize the value of their properties and, in some cases, the input we have provided has influenced the content provider’s creative choices for their original content.
−Removed: Our product development team oversees all aspects of new product development in order to ensure a timely product design and development process, including submitting the initial design to the content provider for approval, developing the product prototype, receiving final content provider approval and coordinating
−Removed: manufacturing with our supply chain team and third-party manufacturer.
+Added: Additionally, from time to time our creative team will develop new styles and products based on our own intellectual property.
+Added: Our creative team is passionate about pop culture, and we believe we have a strong pipeline of talent given our culture and the opportunity we provide to work with the most relevant pop culture content.
+Added: Our designers often work collaboratively with content providers in advance of new content releases to create unique, stylized products to maximize the value of their properties.
+Added: Our product development team oversees all aspects of new product development in order to ensure a timely product design and development process, including submitting the initial design to the content provider for approval, developing the product prototype, receiving final content provider approval and coordinating manufacturing with our supply chain team and third-party manufacturers.
Our flexible and low-fixed cost production model enables us to move from product design of a figure to shipping from the factory in as few as 70 days and typically between 110 and 200 days, with a minimal upfront investment for most figures of $5,000 to $7,500 in tooling, molds and internal design costs.
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Our products are produced by third-party manufacturers primarily in Vietnam and China, which we choose on the basis of performance, capacity, capability and price.
−Removed: We also manufacture or assemble certain apparel and other products in the United States and Mexico.
+Added: We also manufacture or assemble certain apparel and other products in the United States, Mexico and Cambodia.
The use of third-party manufacturers enables us to avoid incurring fixed manufacturing costs, while maximizing flexibility, capacity and capability.
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We base our production schedules for products on our internal forecasts, taking into account historical trends of similar products and properties, current market information and communications with customers.
−Removed: The accuracy of our forecasts is affected by consumer acceptance of our products, which is based on the strength of the underlying licensed property, the strength of competing products, the marketing strategies of retailers, changes in buying patterns of both our retail customers and our consumers, and overall economic conditions.
+Added: The accuracy of our forecasts is affected by consumer acceptance of our products, which is typically based on the strength and popularity of the underlying licensed property, the strength of competing products, the marketing strategies of retailers, changes in buying patterns of both our retail customers and our consumers, and overall economic conditions.
Unexpected changes in these factors could result in a lack of product availability or excess inventory of a particular product.
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Although we do not manufacture our products, we own most of the tools and molds used in the manufacturing process, and generally these are transferable among manufacturers if we choose to employ alternative manufacturers.
−Removed: We sell our products to a diverse network of customers throughout the world.
+Added: We sell our products to a diverse network of customers throughout the world as well as directly to our consumers primarily through our owned websites and two flagship retail stores.
Domestically, we sell our products to specialty retailers, mass-market retailers and e-commerce sites.
Our key retail partners in the United States include Amazon, GameStop, Hot Topic, Target and Walmart.
−Removed: We also plan to target new or underdeveloped sales channels, including dollar, drug, grocery and convenience stores.
Internationally, we sell our products directly to similar retailers, primarily in Europe, through our subsidiary Funko UK, Ltd.
−Removed: Our key international retail customers include Micromania, HEO, E.M.P.
−Removed: Merchandising and Smyths Toys.
+Added: Our key international retail customers include Amazon, Micromania, HEO, E.M.P.
+Added: Merchandising, Fnac, Tesco, ASDA and Smyths Toys.
In addition to major retailers, we also sell our products to distributors for sale to small retailers in the United States and in certain countries internationally, typically where we do not currently have a direct presence.
−Removed: We also sell certain of our products directly to consumers through our e-commerce business and, to a lesser extent, at specialty licensing and comic book shows, conventions and exhibitions in cities throughout the United States including at Comic-Con events.
−Removed: Our direct-to-consumer sales accounted for approximately 4% of our sales for both 2019 and 2018 and 6% of our sales for 2017.
+Added: We also sell our products directly to consumers through our e-commerce business, two flagship retail stores and, to a lesser extent, at specialty licensing and comic book shows, conventions and exhibitions in cities throughout the United States including at Comic-Con events.
+Added: Our direct-to-consumer sales accounted for approximately 8% of our sales for 2020 and 4% of our sales for both 2019 and 2018.
Though our direct-to-consumer efforts have historically represented a small portion of our net sales, we intend to increase our focus on these efforts in the future.
+Added: In 2020, we relaunched www.funko.com with an expanded product offering, and enhanced features and functionality, to serve our customers in the U.S., and we also launched www.funkoeurope.com to serve customers in the UK and several countries in Europe.
We believe we have a diverse customer base, with our top ten customers representing approximately 48%, 44% and 46%, of our 2020, 2019, and 2018 sales, respectively.
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Many of our retail customers view us as experts in pop culture and, in some cases, we help manage their growing pop culture category within their stores, providing a curated experience by catering to their particular customer bases.
−Removed: For example, we have curated products based on Dr.
−Removed: Seuss and Harry Potter books for Barnes & Noble, and video game-based products, such as Fallout and Overwatch, for GameStop.
We believe this creates a mutually beneficial relationship between us and our retail customers by providing us with an opportunity to enhance the productivity of the pop culture category within their stores, which may also result in expanded shelf space for our products.
−Removed: In addition to our full-time sales staff, we also retain a number of independent sales representatives to sell and promote our products both domestically and internationally.
+Added: In addition to our full-time sales staff, we also retain several independent sales representatives to sell and promote our products both domestically and internationally.
We sell our products to our customers with payment terms typically varying from 30 to 90 days.
−Removed: As discussed above, we contract the manufacture of most of our products to third-party unaffiliated manufacturers primarily located in Vietnam, China and Mexico and ship those products to our warehouse facilities in the United States and the United Kingdom.
+Added: We contract the manufacture of most of our products to third-party unaffiliated manufacturers primarily located in Vietnam, China and Mexico and ship those products to our warehouse facilities in the United States and the United Kingdom.
While most of our sales originate in the United States and the United Kingdom from inventory we hold in our warehouses, certain of our customers may take title to our products upon shipment from the factory or at the port.
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As of December 31, 2020 and 2019, we had reserves for sales allowances of $28.0 million and $22.6 million, respectively.
−Removed: We believe Funko’s trendsetting and nostalgia-based product assortment is a unique voice in the pop culture marketplace.
−Removed: We have experienced significant growth in brand engagement as our product offerings continue their appeal to all ages.
−Removed: We believe that our expansive retailer presence, high engagement rates across our owned channels, and devout fan base create fervor for the Funko brand.
+Added: We believe Funko’s trendsetting and nostalgia-based product assortment is a unique voice in the pop culture marketplace, and that our expansive retailer presence, high engagement rates across our owned channels, and devout fan base create fervor for the Funko brand.
Our ability to effectively engage with our customers has resulted in a deep affinity for Funko and our products.
−Removed: Funko continues to acquire new fans through Facebook, Twitter, Instagram, Twitch and YouTube.
−Removed: In July of 2019 Funko’s Twitter handle, @originalfunko, reached one million followers.
−Removed: In comparison, Mattel and Hasbro average approximately 150,000 followers.
−Removed: The quality of our owned content also resulted in a 140% year-over-year increase in YouTube subscribers to over 500,000 subscribers as of December 31, 2019.
−Removed: We continue to expand our reach globally through our engaging content, events and personal engagement with our fan base.
−Removed: Connection to pop culture through a lifestyle product line that includes vinyl figures, action toys, plush, apparel, board games, housewares and accessories is our core business.
−Removed: Entertainment enthusiasts display their fandom through the lens of Funko products.
−Removed: The desire to tap into this fandom has resulted in strategic collaborations with companies like Microsoft and NBCU.
−Removed: In August 2019, we collaborated with Microsoft to launch Gears Pop!, a mobile game that utilizes Funko's unique Pop!
−Removed: Our fan base has also demanded the attention of studio partners and retailers.
−Removed: In 2019, Funko served as an official press junket partner for Disney, appearing at notable Disney, Marvel & LucasFilm junkets to interact with influencers and talent whose characters appear in the Funko brand and product line.
−Removed: The recent opening of a 40,000-square foot retail-tainment experience in the heart of Hollywood has further increased our brand presence.
−Removed: We are a worldwide leader in the design, manufacture and marketing of licensed pop culture products, in a highly competitive industry.
−Removed: We compete with toy companies in many of our product categories, some of which have substantially more resources, stronger name recognition, and longer operating histories than us, and which benefit from greater economies of scale.
−Removed: We also increasingly compete with large toy companies for shelf space at leading mass market and other retailers.
−Removed: We also compete with numerous smaller domestic and foreign collectible product designers and manufacturers in each of our product categories.
−Removed: Our competitive advantage is based primarily on the creativity and quality of the design of our products and their perceived value, our price points, our license portfolio and our ability to bring new products to market quickly.
+Added: Funko continues to acquire new fans through high profile social media sites such as Facebook, Twitter, Instagram and YouTube.
+Added: As of December 31, 2020, Funko’s Twitter handle, @OriginalFunko, had over one million followers.
+Added: We continue to expand our reach globally through our compelling content, events and personal engagement with our fan base.
+Added: For example, in 2019 we opened a 40,000-square foot retail-tainment experience on Hollywood Boulevard in Los Angeles, California to further increase our brand presence and create additional opportunities to engage with our fan base.
+Added: We also plan to develop and implement new marketing programs aimed at driving traffic to our websites and new customer acquisition targeted to specific products and properties.
+Added: We are a worldwide leader in the design, manufacture and marketing of licensed pop culture and other products, in a highly competitive industry.
+Added: We compete with toy, board game and fashion accessory companies across our product categories, some of which have substantially more resources, stronger name recognition, and longer operating histories than us, and which benefit from greater economies of scale.
+Added: We also increasingly compete with large toy and board game companies for shelf space at leading mass market and other retailers.
+Added: We also compete with numerous smaller domestic and foreign collectible toy, board game and fashion accessory designers and manufacturers across our product categories.
+Added: Our competitive advantage is based primarily on the creativity and quality of the design of our products, our price points, our broad consumer appeal, our license portfolio and our ability to bring new products to market quickly.
We produce most of our products under trademarks and copyrights that we own, utilizing the intellectual property of our licensors.
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These statutes and the related regulations ban from the market any consumer products that fail to comply with applicable product safety laws, regulations, and standards.
−Removed: The Consumer Product Safety Commission may require the recall,
−Removed: repurchase, replacement, or repair of any such banned products or products that otherwise create a substantial risk of injury and may seek penalties for regulatory noncompliance under certain circumstances.
+Added: The Consumer Product Safety Commission may require the recall, repurchase, replacement, or repair of any such banned products or products that otherwise create a substantial risk of injury and may seek penalties for regulatory noncompliance under certain circumstances.
Similar laws exist in some U.S.
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We are subject to various other federal, state, local and international laws and regulations applicable to our business, including export controls, and have established processes for compliance with these laws and regulations.
+Added: Human Capital
+Added: Our workforce is critical to our success.
+Added: We seek out employees who are passionate about pop culture, our products and our business, and who can help us build strong relationships with our partners, customers, fans and local communities.
+Added: Pop culture changes constantly, and we look to build teams that are nimble and can execute in our fast-paced environment.
+Added: We strive to foster a sense of community with our employees and make the workplace fun despite the demands of our rapidly changing business.
+Added: We believe our passion for pop culture of all forms is reflected in our fans around the world.
+Added: We believe that fully serving those fans requires a diverse and inclusive workforce.
+Added: We have implemented programs to advance these principles and embrace the opportunity to work with people of diverse backgrounds and perspectives.
+Added: In addition to offering market competitive salaries and wages, we offer comprehensive health and 401(k) benefits to eligible employees.
+Added: Our core benefits packages are supplemented with specific programs centered around voluntary benefits, paid time away from work and employee physical and mental wellbeing.
+Added: In response to the COVID-19 pandemic, we have implemented significant changes that we determined were in the best interest of our employees, as well as the communities in which we operate, and which comply with government regulations.
+Added: This includes adopting remote work policies for our corporate employees as appropriate, while also implementing significant safety measures designed to protect the health of all those working at or entering our distribution centers, retail outlets and other facilities that have remained open during the pandemic.
As of December 31, 2020, we employed 777 full-time employees.
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For the years ended December 31, 2020, 2019 and 2018 approximately 64%, 55% and 60%, respectively, of our net sales were made in the third and fourth quarters, as our customers build up their inventories in anticipation of the holiday season.
−Removed: In the fourth quarter of 2019, net sales were below expectations due to the challenging retail environment, which resulted in lower than expected purchases among Funko’s top customers throughout the holiday season as well as softness in sales related to certain tentpole movie releases.
+Added: The revenue distribution for the year ended December 31, 2020 was in part due to the COVID-19 pandemic, rather than typical seasonality, as we experienced weakened demand for our products in the first half of the year ended December 31, 2020, which had a negative impact on our net sales for the same period.
Generally, the first quarter of the year represents the lowest volume of shipments and sales in our business and in the retail and toy industries generally, and it is also the least profitable quarter due to the various fixed costs of the business.
−Removed: However, the rapid growth we have experienced in recent years may have masked the full effects of seasonal factors on our business to date, and as such, seasonality may have a greater effect on our results of operations in future periods.See Item 1A, “Risk Factors.”
+Added: However, the rapid growth we have experienced in recent years may have masked the full effects of seasonal factors on our business to date, and as such, seasonality may have a greater effect on our results of operations in future periods.
+Added: See Item 1A, “Risk Factors.”
Information about our Executive Officers and Board of Directors
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Executive Officers
−Removed: Brian Mariotti has served as Funko, Inc.’s Chief Executive Officer and as a member of Funko, Inc.’s board of directors since its formation in April 2017, as the Chief Executive Officer of FAH, LLC and as a member of FAH, LLC’s board of directors since October 2015, and as Chief Executive Officer of FHL and as a member of FHL’s board of directors since May 2013.
+Added: Brian Mariotti has served as Funko, Inc.’s Chief Executive Officer and as a member of Funko, Inc.’s board of directors since its formation in April 2017, as the Chief Executive Officer of FAH, LLC and as a member of FAH, LLC’s board of directors since October 2015, and as Chief Executive Officer of Funko Holdings LLC ("FHL") and as a member of FHL’s board of directors since May 2013.
Mariotti has also served as Chief Executive Officer of Funko, LLC since he acquired the business with a small group of investors in 2005.
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Irvine currently serves on the boards of directors of Casper Sleep Inc.
−Removed: (on whose board she has served since August 2019), Yelp Inc.
−Removed: (on whose board she has served since September 2011), and D.A.
−Removed: Davidson & Co.
−Removed: (on whose board she has served since January 2018), and previously served on the boards of directors of XO Group Inc.
+Added: (on whose board she has served since August 2019), Farfetch Limited (on whose board she has served since August 2020), Yelp Inc.
+Added: (on whose board she has served since November 2011), and D.A.
+Added: Davidson Companies (on whose board she has served since January 2018).
+Added: She previously served on the boards of directors of XO Group Inc.
from November 2014 to December 21, 2018, Rightside Group Ltd.
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Kriger is an Executive Partner at ACON Investments, which he joined in August 2017.
+Added: Kriger is also Chief Executive Officer and a director of ACON S2 Acquisition Corp., a public special purpose acquisition company.
Before that, Mr.
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since September 2019.
−Removed: Levy served as the Chief Operating Officer of Viacom Media Networks, a division of the entertainment and media company, ViacomCBS, from 2016 through 2019, where she was responsible for overseeing global strategy, finance and operations for the division.
+Added: Levy has served as the Chief Executive Officer and a director of Betterment, LLC, a financial advisory company, since December 2020.
+Added: Levy previously served as the Chief Operating Officer of Viacom Media Networks, a division of the entertainment and media company, ViacomCBS, from 2016 through January 2020, where she was responsible for overseeing global strategy, finance and operations for the division.
Prior to her appointment at Viacom Media Networks, Ms.
Levy was Chief Operating Officer at Nickelodeon from 2005 to 2016.
−Removed: She also currently sits on the board of the Lucius Littauer Foundation, which makes grants in the areas of education, social welfare, health care, and Jewish studies.
+Added: She also currently sits on the board of ACON S2 Acquisition Corp., a public special purpose acquisition company, where she serves on the Audit and Compensation Committees, and the Lucius Littauer Foundation, which makes grants in the areas of education, social welfare, health care, and Jewish studies.
Levy received an M.B.A.
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since October 2018.
+Added: Lunsford served as an Advisor and Vice President of McClatchy, Inc.
+Added: from 2017 to September 2020.
Lunsford previously served as the Chief Executive Officer of SK Planet, Inc.
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Segment Information
−Removed: We identify our reportable segments according to how the business activities are managed and evaluated, for which discrete financial information is available and is regularly reviewed by our Chief Operating Decision Maker (“CODM”) to allocate resources and assess performance.
−Removed: Because our CODM reviews financial performance and allocates resources at a consolidated level on a regular basis, we have one reportable segment.
+Added: We identify our segments according to how the business activities are managed and evaluated, for which discrete financial information is available and is regularly reviewed by our Chief Operating Decision Maker (“CODM”) to allocate resources and assess performance.
+Added: Because our CODM reviews financial performance and allocates resources at a consolidated level on a regular basis, we have one segment.
was formed as a Delaware corporation on April 21, 2017 for the purpose of completing our IPO.
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Our Internet address is www.funko.com.
−Removed: At our Investor Relations website, investor.funko.com, we make available free of charge a variety of information for investors, including:
+Added: At our Investor Relations website, www.investor.funko.com, we make available free of charge a variety of information for investors, including:
• our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file that material with or furnish it to the SEC;
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.