As Funko moves to expand its direct-to-consumer (DTC) business and moves into video games, the company faces potential conflicts with retailers and whether licensors will split licenses.

While there will be some overlap between the Pop! figures sold directly to consumers and those carried by retailers, Funko will continue developing exclusive products to separate the business lines, CEO Andrew Perlmutter said. DTC accounted for 11% of sales in 2021, up from less than 3% a few years ago and ahead of its top retail customer, Walmart (8%).

“We made a decision to participate [in DTC] on every product to make it easier on our fans and retailers and think that is an opportunity for us to help market the item,” Perlmutter said. “Some retailers were unhappy, but most of them thought it was great because when they ran out of product, they could add a link to the Funko store. We are absolutely competing with retailers in some cases, but not on all items. They still need us because we make so many exclusives and they have to buy a certain percentage of their business in our core line, and for that we reward them with exclusives.”

The same conflicts potentially arise as Funko enters the videogames business for the first time in partnership with 10:10 Games. The first title, which is expected to be an “action” game, will likely target consoles with a game that features multiple licensed IPs that in some cases may be the same properties as those deployed in Electronic Arts and Activision Blizzard titles, but feature a different design and game play, Perlmutter said. The first of the games will be released in 2023 and will be developed by 10:10 Games using Funko’s portfolio of licensed IP.

“There are a lot of different conversations that have to take place with the IP holders and some are going to be easy to work with and others won’t be,” Perlmutter said. “Some of the titles we develop will be unique offerings unto themselves and involve multiple conversations with IP holders. It may be that we split licenses for different contractual opportunities and there are different ways to develop your product to meet a contract’s requirements.”

At the same time, Funko, having sold a 25% stake ($263 million) in the company to an investor group led by former Disney CEO Robert Iger and The Chernin Group, will also seek to expand in developing content largely through third-party studios at the start. Several years ago, Funko was in discussions with Warner Bros. regarding a film based on its Pop! figures, but the plans never moved forward, Perlmutter said. It also formed an animation division with the acquisition of Evil Corp. and created some short form content with its Wetmore Forest IP. The content will include Funko buying the remaining 51% it doesn’t own of NFT developer TokenWave and continuing to expand its line of NFTs. Funko has released about 20 licensed NFTs since June in amounts ranging from 20,000-250,000 tokens depending on the property’s popularity, Perlmutter said.

“We have been approached by multiple streaming networks on developing an episodic show with our IP,” Perlmutter said. We are exploring that, and now that we have the partnership with the Chernin Group we believe we have brought on the expertise and partnership needed to help us navigate those [content] waters because it is not our strong suit.”

As Funko expands its business, it is also seeking to widen distribution. The company will open a 6,000-sq.-ft. section in early 2023 in rapper Snoop Dogg’s Tha Dogg House clothing store in Englewood, CA that will feature a Snoop Dogg mural for fans under a revenue-sharing agreement, said David Bere, VP of marketing at Funko. The plan is to switch out 40% of the stores inventory to coincide with events at SoFi Stadium, which is across the street from the store, he said. It also is developing in-store displays that feature Funko Pop!, Loungefly and now Mondo products, which have been deployed at some Tesco stores in Europe, Bere said.