Etch A Sketch's Incredible Toy Legacy — And Burden

CNBC

Ohio Art Company Chairman Bill Killgallon demonstrates the original Etch A Sketch prototype created by the late French inventor Andre Cassagnes during the late 1950s.

When Bill Killgallon — now chairman of the Ohio Art Company that makes Etch A Sketch — was 21, he got a summer job at the toy company doing quality control.

The iconic red gadgets would roll off the production line in northwestern Ohio. The inside of the Etch A Sketch screen is coated with aluminum powder, which is scraped off with turns of two knobs, leaving behind dark lines on a grey background. Shaking the toy causes plastic beads inside to erase the drawn picture and re-coat the surface with the powder.

"The powder is in the base of the product along with the beads," said Killgallon in a CNBC interview. "And so we would take it and we spank it," said Killgallon, turning over an Etch A Sketch and slapping its backside. "We spank it to life just like a child. ...

"But in those days, we were throwing out more than we were accepting because it's a very difficult product to make. And you have climate control and everything else," Killgallon said.

Hasbro Passed on the Etch Prototype

More than 50 years later, Killgallon is still tinkering with a toy that lets children and adults discover the joy of doodling. In an industry sweating to overcome flat sales by capitalizing on digital platforms such as video games, Etch A Sketch is a low-tech wonder. You turn two knobs and draw. That's it!

Killgallon and his Bryan, Ohio-based team of about 100 employees have been left with the enormous task — and burden — of ensuring the classic toy isn't forgotten among apps and blockbuster-film action figures. Ohio Art's ability to translate the Etch A Sketch for a digital generation will define the toy company's future.

The legacy weighs on employees' minds. Maybe more so since the Etch A Sketch creator's death in January. Andre Cassagnes, who died in a Paris suburb at the age of 86, was working as an electrician in France in the late 1950s, when he stumbled on the idea for a drawing toy with a joystick, glass and aluminum powder. The initial product was called "Magic Screen," a nod to its TV-like appearance. He sold the prototype to Ohio Art and the first toys rolled off the Bryan, Ohio production line in 1960. Since then, more than 100 million have been sold worldwide.

Says Killgallon, "We don't want to destroy the brand."

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Source: The Ohio Art Company

Making the $15,000 Etch A Sketch Deal

Ohio Art, in fact, has been defined and shaped by an inimitable combination of challenges, curious tinkerers and happy accidents.

Ohio Art didn't get its start in the toy business. Instead, a dentist — more interested in art than teeth — used his plaster casting skills in 1908 to make novelties such as oval, metal picture frames. Using a metal-stamping process called lithography, the company made popular frames featuring images of awake and asleep Cupids, sold at Sears, Woolworth's, Kresge's and Butler Brothers for a few pennies.

Fast forward to 1959. With an Etch A Sketch prototype in hand, the French toy inventor's agent shopped for a buyer at the toy fair in Nuremberg, Germany. He was seeking an $100,000 advance, which the Ohio Art chairman at the time Howie Winzeler passed on at first. The asking price "at that time was a substantial amount of money....And so Mr. Winzeler walked away," Killgallon recalled. So did Hasbro.

A month later, the inventor's agent attended a toy fair in New York City. "He went to our company, and he went to Hasbro and others. But the advance was still too high," Killgallon said.

But the agent had a relative working at Ohio Art. He telephoned and reached an Ohio Art engineer, who in turn notified Killgallon's father, William Casley Killgallon, who had joined the company in 1955 after leaving a rival toy maker.

Killgallon senior saw the prototype for himself and said to Winzeler, "I've seen this great drawing toy." A deal for a $15,000 advance was struck, much lower than the initial asking price of $100,000.

Bill Killgallon finally met inventor Cassagnes in May of 2006. There were no hard feelings about a low-ball offer.

"A wonderful, jovial man. He had cold champagne," Killgallon said. "He had French baguettes, delicious French cheese waiting for my wife and I, when we went to interview him."

Overseas Production Reaches Ohio Art

There was a particularly dark chapter for Ohio Art a decade ago, when Etch A Sketch production moved to China in 2001. It was "traumatic," Killgallon said. About 75 percent of the Ohio-based employees had been on the Etch A Sketch production line for more than 50 years. But as they aged, the company couldn't find local, younger workers with the same skills required to run the production line.

During the same period, the company faced bankruptcy. But Ohio Art secured financing in 2000 to remain viable.

"We strategized for three or more years," Killgallon said. After the Etch A Sketch production equipment was shipped to China, some employees went to dinner to commiserate. Roughly 35 jobs on the production line were lost. "There were a lot of tears shed that evening," he said.

About 600 Ohio Art production jobs have been moved overseas between 1995 and 2005. In fact, "Made in USA" is a growing niche in the toy industry. At the 2013 Toy Fair held in New York City earlier this month, select toy makers proudly showed off their products, specifically pegged to domestic production with eco-friendly materials.

(Read more: Made in the USA: More Consumers Seek Domestic Goods)

Source: The Ohio Art Company

Ohio Art issued a special, blue Etch A Sketch after an adviser to Republican candidate Mitt Romney described his boss's evolving campaign strategy as "like an Etch A Sketch. You can kind of shake it up and restart all over again."

From Wall Street to the Toy Business

In my conversations with Killgallon, talking about moving Etch A Sketch production overseas was the only time he became emotional. He's otherwise steadfast, polite, personable, a Midwesterner.

I first met him at the 2013 Toy Fair in February. The 110th annual trade show attracted about 24,000 people from nearly 100 countries inside the cavernous Jacob Javits Center. Amid giant, inflated toys, plush dolls and a sea of action figures, there was Killgallon, discreetly carrying around inventor Cassagnes's original Etch A Sketch prototype — encased in bubble wrap inside a small, worn brown box.

Killgallon is a "numbers guy," whose finance background after college took him to Wall Street as a commercial lending officer in the late 1960s. "There was a lot of money being made, a lot of insider trading going on," he described with a laugh. "Those things have been outlawed now."

He also served on the "Nixon for President" committee — perhaps a prescient nod to last year's political, Etch-A-Sketch moment.

Romney Aide's Etch A Sketch Moment

In 2012, an adviser to Republican candidate Mitt Romney described his boss's evolving campaign strategy this way: "It's almost like an Etch A Sketch. You can kind of shake it up and restart all over again." Politicos pounced on the moment made for the Twitter-verse. Romney's rivals went — See! Romney keeps shifting his stance on issues!

Killgallon naturally welcomed the free publicity from the campaign flub. The company nimbly churned out special-edition, political Etch A Sketches (one in blue) and an advertising campaign to match. The slogan read, "Draw your own conclusion." The "Shake It Up, America" campaign recently won a key advertising award.

But after Nixon's defeat, Killgallon reached a crossroads. "My father knew I was disappointed after the election. And he asked me if I would join the toy business," he said.

"I had no thought of ever returning to Ohio ... I wanted to be a banker," Killgallon said. "And that's what my wife thought, also. But I disappointed her when I took her from New York to Bryan, Ohio," he said with a laugh.

(Read more: Etch A Sketch's Stock Soars on Romney Aide's Gaffe)

Source: The Ohio Art Company

Wanted for Bryan, Ohio: More Creative Talent

Killgallon returned to Ohio Art full-time in 1969 and settled down. He and his wife have raised five children in Ohio. But he didn't come home from work everyday, arms brimming with product samples. "I wanted them to be able to make their own choice for a toy," he said.

And while Killgallon returned to run his father's company, none of his children work at Ohio Art — not that they haven't expressed interest. Killgallon's business philosophy is that if you're going to succeed at Ohio Art, you need to strike out on your own first.

Killgallon has since spent the bulk of his career, more than 40 years and counting, at a single company — rare these days. Now at 75 years old, one of his constant challenges is recruiting the creative talent necessary to innovate.

He runs his toy company the way he runs his life. Killgallon said if you meet him and hit it off, "it's a lifelong friendship. I stick with individuals and companies that I enjoy and I trust. We're a family company."

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Source: NYToyFair | YouTube

NY Toy Fair 2013

Straddling the Digital Divide

But Bryan, Ohio is a tough sell to prospective job candidates. Ohio Art is a relatively small business in a town of roughly 8,500.

So part of Ohio Art's growth strategy includes partnerships. Partners create toys, Ohio Art handles distribution. Ohio Art's partners include mobile gamer Freeze Tag, which developed the Etch A Sketch app for the tablet. The New Yorker blogged about the wonky app experience.

Killgallon is keenly aware mastering the digital space is crucial to the future of Etch A Sketch and Ohio Art. "Big problem for us. Big opportunity," he said.

In the drawing-design space, iDraw for Apple Macs and iPads is a powerful illustration and design tool. And unless you've been living in a cave as a designer, 3-D printing is already remaking many industries including manufacturing.

(Read more: 3-D Printing Sparks Innovation Among Small Companies)

Specifically in the toy industry, perennial hits and breakouts like Activision Blizzard's Skylanders — which blends collectible figures with gaming — haven't been able to halt weak industry sales overall. Annual U.S. toy sales were $20.47 billion for 2012, down 3.5 percent from $21.21 billion from a year earlier, according to research compiled by the NPD Group, a consumer market research firm.

"I think the toy industry suffers a bit from lack of innovation," said Phyl Georgiou, founder of Tiggly, an startup toy maker. Their toys designed for toddlers combine physical shapes, created for interaction with tablets. Georgiou created the toy as part of a startup competition at Harvard Business School, where he's scheduled to graduate from later this year.

With startups nipping at their heels, Ohio Art is pushing hard on its years-long quest to solve the digital puzzle. "We do not have the solution yet. But we believe that we're very close to having a gang-buster product that utilizes the same play pattern that the current Etch A Sketch uses and brings it into the 21st century," Killgallon said.

"We have a strategy to expand because you have to expand or you're gonna die," Killgallon said. "Especially in the the toy business."

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— Written by CNBC's Heesun Wee. Follow her on Twitter @heesunwee