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Lego goes digital to keep building

By Mette Fraende

BILLUND, Denmark (Reuters) - Danish toy maker Lego will move deeper into the digital world, with more computer games and tie-ups with popular movie franchises, as it battles to grow in a shrinking toy market, its chief executive told Reuters.

Jorgen Vig Knudstorp said on Friday growth in sales of the group's trademark colorful plastic building bricks was likely to slow in the coming years as sluggish economies in its main European market take their toll.

But he was optimistic the world's third-largest manufacturer of play materials would outperform the broader toy market, helped by growing demand in Asia, as well as its drive to combine the worlds of physical and virtual play.

"My aim is to continue to reinvent Lego," Knudstorp said in an interview in his bright corner office, surrounded by Lego boxes, bricks and toys.

"To seize the digital revolution and make it our advantage is vital," he said, adding he personally spends on average two hours a week playing with Lego.

The world toy market fell by around 4 percent in the first half of this year, Lego estimates, hit by a faltering global economy and ever-increasing competition from digital games, whether on computers, mobile phones, tablets or games consoles.

Lego has bucked the trend by turning a threat to an advantage, tying up with global movie franchises like Star Wars, Harry Potter and Indiana Jones in deals that span Lego sets and computer games.

The company has also embraced mobile devices with initiatives such as its "Life of George" app, which challenges players to build a Lego construction in a certain amount of time and allows them to compete against their friends.

The key is using the digital world to encourage playing with the real thing, because the one thing that is not negotiable for Knudstorp is Lego's devotion to its core plastic bricks.

"I trust that we can continue to make a physical toy," he said.

Lego, with some 10,000 staff worldwide, grew revenues by 17 percent to 18.7 billion Danish crowns ($3.3 billion) last year, while pretax profit rose 13 percent to 5.54 billion crowns.

The Lego group was founded in 1932 by Ole Kirk Kristiansen and has passed from father to son, and is now owned by Kjeld Kirk Kristiansen, a grandchild of the founder. Knudstorp took over as chief executive from Kjeld Kirk Kristiansen in 2004.

Its products cost from about $2 for a box of simple building blocks to about $400 for a box containing 3,152 components to be assembled into a model space ship.

THE ORIGINAL LEGOLAND

Located in Billund in southwest Denmark, Lego's presence in the town is unmistakable.

Visitors do not have to search long for a Lego character, logo, shop or the Legoland theme park. And while Billund has just 6,500 inhabitants, Lego employs 3,500 staff, of which about 700 people live in the town.

There is also Billund airport, the country's second biggest after the one in the capital Copenhagen. That has grown from a tiny building in the 1960s with a small propeller aircraft which on some early occasions relied on Billund inhabitants and the front lights of their cars to light up the runway after sunset.

For the children of Billund, what the company calls market research translates as playtime. They are regularly consulted on products, old and new.

Lego, which combines two Danish words that roughly translate as "play well", makes about half of its revenue in Europe, about 40 percent in the Americas and about 10 percent in Asia.

Asia is now its fastest growing market, however, currently growing at around 50 percent per year. As a result, Lego is looking to establish a number of factories in the region to add to its current production in Denmark, the Czech Republic, Hungary and Mexico.

"We use our financial strength to invest in our own development, staff, factories and innovation," Knudstorp said.

Acquisitions, though, are not part of the plan.

"We have never made an acquisition, and have no plans to make one," he said. "We are all about Lego, Lego and Lego."

($1 = 5.7437 Danish crowns)

(Editing by Mark Potter)

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