Does the distribution divide actually exist?

At first sight, it seems easy to divide distributors of kids programming into two camps--specialists and those that have diversified their portfolios. But closer analysis shows that companies are often more similar in character than you might think.
July 1, 2002

At first sight, it seems easy to divide distributors of kids programming into two camps–specialists and those that have diversified their portfolios. But closer analysis shows that companies are often more similar in character than you might think.

There are catalog differences, of course, driven mainly by strategic decisions and based on contextual factors over which companies have no direct control. Country of origin, for example, can initially shape the core of a distributor’s portfolio–even if the outfit later restructures to focus on international rights acquisitions. This is because winning a domestic TV license is often the first step towards brand-building, and winning that license depends on giving a broadcaster what it wants.

Other elements that influence library development include the background of a company’s senior execs (whether it be production, distribution or licensing); whether the company is owned by a broadcaster or publisher; whether it has gone public or is still privately-owned; and whether the catalog has benefited from a hit show yet.

Thomas the Tank Engine has been the flagship brand of Gullane’s catalog for two decades, but recently, the company has made strides towards decreasing its long-term reliance on a single hit property by diversifying into older-skewing fare such as make-and-do show Art Attack and Guinness World Records. Gullane president Charles Falzon explains that the decision to extend the company’s reach beyond preschool can be attributed to two things: the need to avoid ‘competing with ourselves’ and the need to engender a cradle-to-grave audience relationship. ‘We have such a huge loyalty among Thomas fans that we want to keep them when they get older,’ says Falzon.

While Gullane has diversified, HIT Entertainment, eschewing fears of cannibalization, has affirmed its commitment to preschool. Previously, the company’s activities included third-party distribution and financing older-skewing live-action and animated projects. In early 2002, the company sold HIT Wildlife and completed its transformation into an under-eight specialist. Says president of global sales and marketing Charlie Caminada: ‘We don’t want to dilute our resources and energy by getting involved in craze-driven properties that are replaced after two or three years. We want shows that will be watched in 20 years.’

To bolster its Bob the Builder franchise, HIT has aggressively built a stable of other preschool brands through in-house development and acquisitions. And if Gullane accepts HIT’s recent US$230-million takeover bid, Thomas could soon join the acquisition ranks with Barney and Pingu. Of course, that raises the fascinating question of whether HIT will offload Gullane’s older-skewing properties or use them as a launchpad for diversification.

Superficially, HIT and Gullane appear to be in strategic opposition. After all, the two companies are at different life stages, and while Gullane’s priority has been to reduce its Thomas dependence, HIT has focused on ensuring that at least one of its brands achieves the long-term success of Thomas.

But strip away the veneer and you could argue that Gullane and HIT are more alike than not. Both originated in the U.K., but have restructured to focus on the U.S. (HIT’s acquisition of Barney rights owner Lyrick provided the company with a crucial point of access to ancillary U.S. markets.) And both have rejected fad properties in favor of building strong ancillary activities around family fare.

Of course, the longevity and off-screen potential of preschool properties means that everyone wants a market presence in this genre, even if it means diversifying. While TV-Loonland’s slate is dominated by quirky shows for older kids, the arrival of distribution veteran David Ferguson as COO has brought about a shift in emphasis. ‘I like the idea of running a diverse, eclectic portfolio that covers every demo,’ says Ferguson, ‘It keeps us open to a broad range of opportunities when they arise.’

Ferguson is looking to jumpstart activity around TV-L’s wholly owned properties ‘so that more fees from video, merchandise and TV will come to us. Otherwise, you end up paying advances on shows that it takes forever to recoup.’ Preschool will also be a Loonland focus going forward, with shows such as Henry’s World, Georgie Goat, Something Else and Tucker coming to the fore. ‘You need to produce something unique and distinctive to stand a chance in preschool,’ says Ferguson. ‘And that’s where the bulk of ancillary lines exist. As you get into older kids, the number of L&M opportunities dwindles.’

Echoing Ferguson’s perspective, Decode Entertainment partner Neil Court claims: ‘If you want a licensing hit, preschool is where it’s at.’ Best known for sassy tween series Angela Anaconda, the Anglo-Canadian outfit is testing preschool market waters with The Save-Ums! (26 x 30 minutes) and Franny’s Feet (13 x 30 minutes).

Even CGI specialist Mainframe is poised to branch out from its core six to 14 demo into preschool with a whimsical series set on a magical planet inhabited by fluffy round creatures known as The Wubbies. ‘Mainframe perfected its approach to action-adventure in its formative years,’ says Joy Tashjian, president of JTMG, Mainframe’s licensing agency of record. ‘But with Barbie in The Nutcracker, we’ve been able to devise a softer, more human look for CGI that opens up opportunities for us.’ Tashjian says there is too much investment tied up in talent and equipment for Mainframe to consider diversifying into non-CGI projects, but preschool, commercials and corporate work are all possible areas of expansion.

‘It’s tempting to focus on preschool because that area is proven to spur ancillary rights businesses,’ says Entertainment Rights chief executive Jane Smith. ‘But I see no reason why we shouldn’t be able to develop a property for eight- to 12-year-olds if the right one comes along. Why make rules for yourself?’

With a view towards creating a company capable of housing a hit, Smith sees third-party distribution as an important dimension of ER’s activities, which also extend to video distribution. The company has developed strong links with the all-important retail market through distribution successes such as Barbie in the Nutcracker. ER sold video/TV rights to Barbie in the Nutcracker to more than 60 countries, with unit sales topping 800,000 in the U.K. alone. ‘Distribution gives us cash, contacts and market knowledge. It keeps us healthy while we wait for wholly-owned brands to take off. I don’t believe you can build a business solely on hits,’ says Smith.

Egmont Imagination also favors a diversified slate, one it doesn’t define along a demo slide. ‘We view kids as our core competence,’ says EI president Tom van Waveren. ‘We choose distinctive properties we think the market will respond to, and we like the richness of investing in different kinds of properties.’ Egmont’s portfolio currently houses tween series Lizzie McGuire, stop-motion preschool series Little People and a family-targeted toon based on the stories of Hans Christian Andersen.

Being backed by publishing giant Egmont means Van Waveren has direct links to ancillary expertise. Since the company is privately owned, he also believes there is less pressure to demonstrate short-term success to shareholders–a chore that publicly-quoted companies such as HIT are forced to perform. ‘We have to hit our numbers, but there isn’t the same expectation for rapid expansion that would appear to underlie a deal like 4Kids’ relationship with Fox in the U.S.,’ says Van Waveren.

Of course, the public/private debate is a double-edged sword for distribution outfits. Public investment can facilitate rapid catalog growth, which leaves some private outfits looking a bit puny. But it can also force companies to forge high-profile, but ultimately self-destructive deals, such as those which afflicted EM.TV. 4Kids chairman and CEO Al Kahn doesn’t seem unduly concerned by the speed with which he has had to ramp up to launch the Fox Box this fall. (Search ‘Fox Box’ at for more info.)

The 4Kids business owes much to the success of Pokémon, the ubiquitous Japanese show repackaged for the world market. But Kahn acknowledges that further growth is directly linked to network demand for more of the same. ‘You always have to ask yourself how you’ll get programming on air. Our deals with Fox and Kids’ WB! mean we have 400 episodes in production–and that supports our ancillary activities,’ says Kahn, who defines his business as boys action for five-year-olds through to teens.

While 4Kids streamlines its activities towards boys, BKN International is keen for a boy-girl split within its diversified roster of kids series. Head of worldwide sales Anthony Temple supports the view that diversification is ‘often borne out of necessity.’ Indeed, BKN’s key properties are primarily designed to capitalize on trends. UBOS, which has echoes of fantasy property Harry Potter, is enjoying strong broadcast sales in Europe, including BBC in the U.K. and Mediaset in Italy. And 2003 headliner Legend of the Dragon (26 x 24 minutes, with an additional 26 ep-run available this fall) borrows from the action sequences of Crouching Tiger, Hidden Dragon. ‘There’s plenty for us to do in terms of building our business across ancillary markets,’ says Temple. ‘But I think the success of the diversified strategy has yet to be proven.’

Regardless of strategy, once companies have hits, there’s always a temptation to reposition the business around them–in a way analogous to Hollywood studios investing in film sequels or networks relying on repeat series. The key lies in avoiding an artificial distinction between specialization and diversification and finding a balance that complements a company’s skills.

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