Apax buys HIT Entertainment for $934 Million

[Traveling Matt]

I hope this doesn't affect future Fraggle volumes (or season sets) at any point down the line...

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Apax buys HIT Entertainment for $934 Million

March 22, 2005

On March 21, 2005, HIT Entertainment Plc. agreed, to take a £489.4 million ($934 million) cash takeover offer from U.K. venture capitalists Apax Partners.

HIT, the kids entertainment company behind such characters at BOB THE BUILDER, THOMAS THE TANK ENGINE and BARNEY THEPURPLE DINOSAUR, made the announcement as it revealed disappointing financial results for the six months ending Jan. 31.

“We believe this offer is in the best interests of shareholders and provides an attractive cash premium to today’s share price,” said HIT chief exec Charles Burdick. “These interim results reflect the continued impact of a weak U.S. dollar, issues with major retailers and weakness in the critical consumer licensing and home entertainment markets which has been particularly pronounced in the United States. Whilst these issues were flagged in our recent trading statement, improved second half results will be dependent on the success of our video release schedule and the launch of the linear service of our U.S. cable channel joint venture in September.”

Burdick was referring to a U.S. digital kids’ channel in partnership with Comcast, PBS and Sesame Workshops.

“Operationally, we are focused in the U.S. on revitalizing the Bob the Builder brand, which returned to PBS in January, and launching the U.S. cable channel later this year,” Burdick continued. “Creatively, we have five existing brands in production and are developing new series and brands which are expected to be introduced in the next two years. This is an attractive cash offer from Apax which values the company appropriately when you balance the difficult near term trading conditions with the strength of our portfolio of leading children’s brands. We believe it is in the best interests of all shareholders to accept this offer and the independent directors will recommend that they do so.”

Recently HIT founder/chairman Peter Orton led the company’s board to fire ceo Rob Lawes six months ago after disappointing results and replaced him with Burdick. Orton and Burdick will resign from the company and HIT will be de-listed off the London stock exchange.

Revenue fell over the past year from £92.8 million to £70.2 million and profit before tax dropped from £14.6 million to £2.9 million.

London-based Apax bid through accompany called Sunshine Acquisition. It will pay a 20% premium on HIT’s closing price March 18 on the London stock market.

Orton founded HIT 16 years ago with just $573.000 and took it public nine years ago. He now owns 6% of HIT and is reported to make about $30 million in the deal.

Established in 1989, HIT Ent. (www.hitentertainment.com) is one of the world’s leading preschool children’s entertainment producers and rights owners. With operations in the U.S., U.K., Canada, Japan and Germany, the company’s activities span television production and distribution, home entertainment, consumer products, publishing and live events. HIT's famous characters which include classic global brands such as BOB THE BUILDER, BARNEY, THOMAS & FRIENDS, PINGU, KIPPER and ANGELINA BALLERINA, which are enjoyed by children in more than 150 countries and territories.

 

[McFraggle]

This could be interesting to watch. I am kinda surprised that Disney didn't at least make a play for the company. But venture capitalist groups typically sell their companies down the road anyway, so it could still happen.

 

[Traveling Matt]

Just to sort of follow up on the previous story, this article was posted on Animation World Network. While it doesn't have much to do with FR first hand, it does gives you an idea as to the "inner workings" of a company like HIT, and also might give a little insight into where HIT is coming from when handling a franchise like Fraggle Rock.

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HIT Entertainment: A Vibrant Video Strategy

For HIT Entertainment, direct-to-video (DTV) productions are an important part of the brand strategy for its children’s TV series, including Bob the Builder, Thomas the Tank Engine, Barney, The Wiggles and Angelina Ballerina. Typically, each property boasts at least one original video production each year, along with other episodic video releases.

While the strategies and specifics of the marketing campaigns vary depending on the property, a direct-to-video production always provides several significant promotional benefits. “If there’s a strong built-in audience, we try to drive the purchase of items by those already aware of the property,” says Jamie Cygielman, HIT’s senior vp of consumer products. “We drive them deeper into the catalog and into other products in the line.” For example, advertising to support a DTV release also may mention older titles featuring the same property. That was the case for Let’s Go to the Farm, a March 2004 release featuring Barney. The title’s advertising campaign also promoted two previous titles, Let’s Go to the Zoo and Let’s Pretend, both of which HIT thought would be of interest to the same consumer.

For newer properties, such as Angelina Ballerina, DTVs help drive attention to the franchise overall and to new product lines of which consumers may not be aware. Two upcoming Angelina DTV releases will be timed to the introduction of new book and toy lines, respectively, driving consumers to stores to purchase those products. They include the September 2005 release Princess Dance, which will support the toy launch from new licensee Sababa, and the spring 2006 release All Dancers On Deck, which will come out in conjunction with the launch of a full publishing program from an as-yet-unannounced licensee.

DTV productions also help maintain awareness for the TV series and the brand in general, of course, although with several DTV and episodic video titles released continually throughout the year, it is difficult to track the specific impact of individual releases on ratings, Cygielman says.

Extended Content
DTV programming typically features more involved storytelling than a standard television episode and is longer than a TV show. Some productions are considered feature-length. Calling All Engines, for example, is the first full-length special for Thomas the Tank Engine & Friends, and is being released in September as part of this year’s celebration of the characters’ 60 years in publishing, dating from the first book released in the U.K. in 1945. Similarly, a feature-length film starring Barney, called The Land of Make-Believe, releases August 30. It was shot on location at Universal Studios Theme Parks.
Some DTV releases provide additional backstory for the property beyond that revealed in the TV series. The August 2005 Bob the Builder DTV special, Bob’s Big Plan, will describe the story behind Bob’s new TV series Project: Build It, which debuts this September on PBS.

In some situations, HIT creates in-pack DVD originals — as do many other licensors and toy companies these days — to accompany various items in its licensed product lines. Certain plush Angelina merchandise will come with a DVD original featuring an eight minute episode and a live-action production about how to dance, for example, which will add value. “The more kids read or watch our content, the more they connect with the property,” Cygielman explains.

HIT sometimes themes other entertainment initiatives around DTV video content. For example, the live concert tours that support some of HIT’s properties, including The Wiggles and Barney, sometimes incorporate the same themes that are featured in one of that year’s direct-to-video productions.

Promotional and Product Opportunities
When positioned as an event, a direct-to-video release becomes a platform for extensive marketing activity; both for HIT itself and its licensees. HIT typically advertises DTV releases in multimedia campaigns involving print, radio (especially for properties such as The Wiggles, where music plays a big role), national TV, online (a growing means of reaching parents) and/or outdoor advertising.

Calling All Engines will be the occasion for the first TV advertising campaign ever to support Thomas the Tank Engine. A new television series debuted in September on PBS Kids — Thomas had been off the air for six years, during which time video and publishing sustained the property —and additional new episodes will start in fall of this year. As with many of HIT’s direct-to-video productions, a promotional partner will create a tie-in involving the title.

Amtrak, the new underwriter for the Thomas TV series, will conduct a sweepstakes, with entry forms included in the video box. The winner will have the opportunity to take an Amtrak train to one of 40 cities in “Day Out With Thomas: The Celebration Tour,” a series of live events featuring a full-sized train engine. (Several other promotional events and campaigns are planned throughout the year to celebrate the 60th anniversary.)

In addition to promotional opportunities, DTV productions give licensees a theme around which they can create products and promotions. Publishing licensees often create a tie-in book featuring the storyline from a direct-to-video release, for example. “There’s a good synergy there,” says Cygielman.

Simon & Schuster is developing a book based on a Project: Build It DVD that contains both a TV episode and a special DTV feature. Random House often publishes Thomas titles to coincide with direct-to-video releases for that property, and will do so for Calling All Trains. Scholastic is releasing a book based on Barney’s Land of Make-Believe.

DTV-themed toys are also possible. RC2/Learning Curve and Tomy, the two licensees that market Thomas the Tank Engine toy trains, are creating special train sets themed to Calling All Engines, for example. Meanwhile, an upcoming Angelina Ballerina title, Princess Dance, has Angelina visiting Queen Seraphina and two princesses at their castle; Sababa will create a princess castle to allow girls to play along.

While toys and publishing are the main categories for DTV tie-in products, other items sometimes are appropriate as well. For example, a few apparel items featured artwork from Snowed Under: The Bobblesberg Winter Games, a Bob the Builder DTV released in 2004.

Purchase Incentives
Many of HIT’s DTV productions, as well as video/DVD titles based on TV episodes, include on-pack merchandise to increase play value and enhance collectibility. A trilogy of Angelina releases in 2004 included The Magic of Dance, Silver Locket and Big Performance, which were packaged with a tiara, locket and pink tutu, respectively. “They work as promotional tools to drive purchase,” Cygielman explained, noting that girls can collect all three and use them to put on a show, just as Angelina does in the trilogy.

The three Thomas videos being released during the 60th anniversary year, including Calling All Trains, each will be packed with a special limited-edition collectible train in gold, silver or platinum.

HIT’s direct-to-video productions are distributed through mass merchants, toy stores and electronics and entertainment chains, among other retail outlets, as are all of the company’s video titles. “We also look at new and unexpected channels when there are opportunities specific to the property,” says Cygielman, citing Lowe’s home improvement stores as a current channel for Bob the Builder video releases and books, and train stores for Thomas videos.

As all the examples mentioned here illustrate, releasing direct-to-video productions throughout the year helps maintain awareness for a franchise, creates fresh content for use by licensees, and provides a vehicle for high-profile marketing activity. “It’s an opportunity for us to take our evergreen brands and create an event around them,” concludes Cygielman.

Karen Raugust is a Minneapolis-based freelance business writer specializing in animation, publishing, licensing and art. She is the author of The Licensing Business Handbook (EPM Communications).

http://mag.awn.com/index.php?ltype=pageone&article_no=2438&page=1

 

[King Jim]

What the?