Brick by Brick

LEGO x Fortnite

In April 2022, Epic and LEGO announced they would be entering a long-term partnership. While there was little detail around what exactly was going to be built, the partnership was established to “give kids access to tools that will empower them to become confident creators and deliver amazing play opportunities in a safe and positive space.” Any information around what the first product would be was kept relatively quiet publicly until 3 weeks ago when Epic unveiled Fortnite: Fortnite Festival, Rocket Racing, and LEGO Fortnite. All 3 of these experiences were built in partnership. Fortnite Festival was built by Harmonix (Rock Band) and Rocket Racing was developed by Psyonix (LEGO Fortnite is the only experience where the studio behind it was unannounced).

Over the past 3 weeks, it quickly became apparent that LEGO Fortnite was going to be the big hit out of the 3 and potentially a mainstay in the Unreal Engine Fortnite (UEFN) ecosystem. LEGO Fortnite had the biggest splash out of the gate, with almost 2.5 million concurrent players the day of release. While some could raise concerns about the large dropoff after the first few days, this pattern of player behavior is very normal in the first days, weeks or even months of release.

‍LEGO is the Perfect Fit for UEFN‍

To date, various brands have utilized User-Generated Content (UGC) platforms to create unique experiences. LEGO, with its distinct and versatile brand identity, is particularly well-suited for a partnership with a platform like UEFN, known for its high fidelity and adaptability. This collaboration promises to blend LEGO's creative appeal with UEFN's advanced technological capabilities, offering an innovative and engaging user experience. There are 3 primary reasons why this is a strong partnership:

1. LEGO embraces innovation and newer technologies
2. LEGO has a vibrant creator community
3. LEGO has a long history of collaborating with other IP

This week, we will be diving into LEGO’s history, evaluating their capabilities within gaming, and sharing why we believe LEGO will maintain its status as the most valuable toy brand because of video games.

Innovation and Newer Technologies

The LEGO brick has had a long standing appeal for generations. One of the main cornerstones of the brand is “LEGO System in Play”; all elements fit together, can be used in multiple ways, and can be built together. This means that bricks, no matter when they were purchased, will fit perfectly with bricks bought in the future. Evolution then must come in the form of Build or Play. The abstract nature of these “uncontrollables” have not slowed LEGO down. Just last year, LEGO achieved double-digit top-line growth, which the CEO, Niels B. Christiansen, attributed to their diverse portfolio. 48% of their products last year were new and designed to appeal to builders of all ages and interests.

While LEGO’s core business is still in physical LEGO bricks and brick-and-mortar stores (they opened 155 new LEGO branded stores, reaching a total number of 904 stores globally), they have also been openly making strides through digital activations. In April 2022, LEGO announced they would triple the size of their digital team over the next 3 years. They have also experimented with a few different online platforms such as their social media for kids platform, LEGO Life, and AR apps (AR-Studio, Hidden Side, VIDIYO).

Creating a Vibrant Creator Community

Bricks become only as powerful or as fun as their builders. What is notable about today’s specificity around appealing to all ages is the inclusion of adults (referred to as Adults Fans of LEGO, or AFOL). However, LEGO did not always embrace its adult fans. In fact, prior to the late 1990s, the company did not think that the adult demographic had any value and were actually detracting from the brand. In 1998, the company began to stutter and extended into areas far outside the LEGO brick such as a clothing line, amusement parks, and LEGO-branded jewelry. The company manufactured sets that drastically oversimplified the building experience to shorten the time to play. It went so far as “the sets [became] so unrecognizable that customers were asking for directions to the LEGO aisle while standing in the middle of the LEGO aisle” (National Geographic). In 2003, the company had reported a $238m loss and bankruptcy was a serious option.

However, all was not yet lost and after design and marketing budgets were slashed, LEGO finally turned to their saving grace, their adult fans. AFOL had already been actively networking in online forums, even putting together unofficial fan conventions starting in 2000. The two groups slowly began to intermingle, culminating in the production of some of the company’s most successful endeavors including LEGO Creator, LEGO's Ambassador Network and VIP program, LEGO League, and the company’s first-ever official fan convention in 2021, LEGO Con.

One of the best community-driven endeavors that LEGO has formalized is LEGO Ideas (2008). The crowdfunding-eque website allows anyone to submit ideas for LEGO to produce commercially. Once the design gets 10,000 supporters, the idea is reviewed by LEGO experts and is put into production. 1% of the royalties go to the submitter. Some of the ideas that have made it into production and are actively being sold are replicas of The Office, the house from Home Alone, and Vincent Van Gogh’s Starry Night.

Today, LEGO has the most robust company-sponsored community of any toy brand. The endorsed LEGO Ambassador Network helps anyone find groups and events near you. There are ~350 Recognized LEGO User Groups and 120 Recognized LEGO Online Communities all over the world (LAN). While the subgroup on Reddit is not officially sponsored, the AFOL subreddit is in the top 5% subreddits by size.

Focus on AFOL has also been reflected in the products that have been released over the past 2 decades. After the Creator theme was established in 2001, the subtheme Expert was introduced to cater to experienced LEGO builders. The Expert theme was replaced in 2020 by the designation 18+. This has become a fully fledged vertical today, with over 150 active sets on their website. These sets have both increased complexity and price, with the most expensive active sets priced at ~$850. The continued expansion into more complex sets has been lucrative for the company; between 2011 and 2021, the adult LEGO market has quadrupled.

IP Collaboration

‍Building on an already strong foundation: Over 100 games with the LEGO IP have been published since the late 90s. While not all of them were hits, popular titles such as the LEGO Star Wars and LEGO Marvel Super Heroes series continue to be a north star for other brands hoping to license their IP. LEGO’s strong performance in games can be attributed to 3 things:

• Core of Build and Play ties in well to video games: Instead of recognizable characters and storylines, what makes games distinct to LEGO are the applications of the Build and Play mechanics in a virtual world. Since there are two levers that can be pulled in gameplay design, developers have more versatility and are not locked into a single style of play. For example, LEGO Star Wars: The Skywalker Saga (Play-heavy) is a very different game from LEGO Builder’s Journey (combination of Build and Play) or LEGO Worlds (Build-heavy).
• Long history of strong IP partnerships: LEGO has collaborated with top IP such as Star Wars, Marvel, Harry Potter, Lord of the Rings, and DC for both their physical sets and their video games. Because what makes LEGO games unique are the gameplay mechanics, it is easier to partner with a recognizable IP that has their own rich history and lore, with little compromise. It is clear that these prolific brands trust LEGO to put out high quality products that boost the value of both brands. This builds in well with how Fortnite primarily monetizes (skins) and opens the door for fully-fledged, IP-themed experiences on UEFN.
• Good-to-great development partnerships: We believe that the secret sauce for why LEGO puts out such great gaming products today has been their development partners. While between 1996 and 2005, LEGO worked with a wide range of development partners with varying degrees of success. The turning point was the release of LEGO Star Wars: The Video Game (2005) by Traveller’s Tales. The game was extremely well-received and was the first LEGO video game to reach this level of public appeal. Following this success, Traveller’s Tales was given control to develop LEGO’s top titles which has ensured high quality games. More recently, LEGO has experimented with in-house development, however, in 2020, this team was spun out by LEGO to become Light Brick studios to ensure that the team had more freedom, autonomy, agility, and speed. This was fully supported by LEGO, as they invested in the studio out of their investment arm, LEGO Ventures.

What Does This Mean for the Future of LEGO?

Alongside the likes of Mattel and Disney, LEGO is at the forefront of what it means to be an entertainment franchise. While other products such as toys, amusement parks and movies have much tighter parity across these 3 companies, LEGO is arguably at the helm in terms of both physical toys and digital media. What may create a sizable lead is how LEGO handles its presence in video games.

Despite having a successful history in games thus far, this medium is understated in their annual reporting. Any ties to video games have been tied to short mentions that digitization is a core part of their future, specifically “expanded building experiences for consumers”.

While their wedge in the UEFN universe seems small and potentially short-lived today, it should not be underestimated. The Base-Building/Creation/Survival Genre is the perfect balance of Build and Play. The longest standing at-scale platform in this space is Minecraft, however, there have been other great titles such as Valheim, Factorio, and Rust that have catered to an older, dedicated player base. LEGO Fornite fills a niche as an age-agnostic platform with familiar building mechanics and recognizable, wide-spread appeal that is easy to consume. While some of the building controls need polishing, the tie to Fortnite and Epic will provide enough player liquidity to hopefully sustain the player community until these updates can be made.

However, where the magic lies is that UEFN has finally unlocked and enabled LEGO to apply the System in Play principle in the digital realm. The design of LEGO Fortnite today is mapped as a set of interconnected LEGO worlds. This combined with the levers of Build and Play gives developers and players the flexibility to lean into being an open-universe, evergreen-type platform while potentially giving players the ability to play in LEGO-themed, IP-specific worlds.

‍Takeaway: LEGO is the most valuable toy brand in the world. To date, this has been driven by their willingness to change and innovate, their strong creator community, and their high-quality partnerships with other brands. This partnership with Epic Games enables them to achieve even greater heights by allowing them to bring their System of Play principle into the digital world. We believe this has the potential to be one of the most transformational partnerships of the decade and we are excited to see what players build.