Teletubbies Seek New Owner as BBC Worldwide Sells Venture

The Teletubbies, the toddler-sized creatures with antennas on their heads, are following Barney and Peter Rabbit down the path to new ownership as the British Broadcasting Corp.’s commercial arm cashes in on a burgeoning children’s market.

BBC Worldwide and Ragdoll Productions decided to sell their joint venture that owns the rights to the Teletubbies and pre- school shows such as “In the Night Garden” and “The Adventures of Abney & Teal,” the broadcaster told Bloomberg News.

Entertainment companies Mattel Inc. (MAT) and Viacom Inc. (VIAB) have purchased children characters such as Thomas the Tank Engine and Teenage Mutant Ninja Turtles Teenage in recent years to tap demand for globally known brands, especially in markets such as China and Brazil. Kids’ characters are attractive assets because they generate a new audience every few years, can be easily dubbed and provide lucrative ancillary sales from licensing and merchandising.

“The pre-school market is a new market every three to four years and that audience is a very loyal audience,” said Darren Throop, chief executive officer at Entertainment One Ltd. (ETO), which owns the rights to Peppa Pig, one of the most popular pre-school characters. “These brands transact quickly because people understand there is a long tail on the revenue side of merchandising.”

Mickey Mouse

Though Throop has no plans to seek buyers for Peppa, he said he bid for some characters that were for sale in recent years, declining to identify the targets.

Lunchboxes, sleeping bags and stuffed animals bearing the characters’ images provide revenue to the owner for years. Mickey Mouse, the cartoon character created in 1928 by Walt Disney, remains one of the most popular children’s characters.

“With children’s programs, you’re buying into the brand franchise,” said Nigel Pickard, the U.K. head of Zodiak Kids, the children’s content arm of producer Zodiak Media. “The TV show is at the front but it’s everything that follows that gives it a long-standing shelf life.”

The Teletubbies, four oddball characters known as Tinky Winky, Dipsy, Laa-Laa and Po, aired on the BBC in 1997 and have since been shown in 120 countries and in 45 different languages.

“We have taken the decision with Ragdoll to seek a buyer for our successful joint venture we established in 2006,” Marcus Arthur, managing director for BBC Worldwide’s global brands unit, said in an e-mail. The British broadcaster is seeking someone for the joint venture “to invest in and grow the business,” he said.

Merchandising Potential

DC Advisory Partners, which last year sold the rights to characters including Peter Rabbit, Mr. Men and Paddington Bear for entertainment company Chorion Ltd., is handling the sale for the BBC.

The BBC is one of largest platforms for kids content in the U.K. with its television channel CBeebies targeting pre-school children and its CBBC channel focussing on older ones. Ragdoll will continue in the children’s business by developing new content.

“The Teletubbies changed everything about the way people thought about preschool,” said Pickard. “It’s a heritage brand. I think they are no longer at their peak but clearly in TV licensing they are relicensed and they do drive ancillary revenue for merchandising.”

Brand Power

Mattel’s purchase of Hit Entertainment Ltd. last year illustrates the power of a brand’s licensing and merchandising potential, as the world largest toy company paid $680 million to add characters including Thomas the Tank Engine, Bob the Builder and Barney.

Spending on products targeting kids aged up to 4 years has soared in emerging markets. In Brazil, it surged by 28 percent to $528 million between 2008 and 2011, and by 46 percent to $867 million in China, according to researcher Euromonitor International. In the U.K., that figure rose 3.2 percent to $892 million, while it was little changed at $3.3 billion in the U.S.

“The important part now is having the intellectual property of a brand,” said Sander Schwartz, president of kids and family entertainment at FremantleMedia, the production arm of Europe’s biggest broadcaster RTL Group SA. (RTL) “TV is never going to be anymore the principle source of income.”

FremantleMedia’s kids division, whose roster includes shows such as “Ella the Elephant” and “My Babysitter’s a Vampire,” earns a large portion of revenue from distribution of such properties.

Italian Franchise

“Nothing repeats or travels better than children’s shows,” said Schwartz. “They have a very long life and nothing has a longer tail for ancillary revenue.”

Aside from merchandising and TV rights, children drag their parents in droves to the cinema for the latest screenings, which is something Viacom is betting will happen with its expected 2014 release of the latest Teenage Mutant Ninja Turtles movie. Viacom bought the franchise in 2009 for $60 million.

Viacom last year also acquired a minority stake in Rainbow Group, the creator of the popular “Winx Club” Italian TV franchise. In August, DHX Media (DHX) of Canada bought peer Cookie Jar Entertainment, which owns rights including Care Bears, Strawberry Shortcake and Inspector Gadget for $111 million to create the country’s largest children’s entertainment company.

Declining Prices

The prices for some kids’ content have fallen as more programs and characters flood the market, said Jules Borkent, senior vice president of global acquisitions and international programming at Viacom’s children’s channel Nickelodeon.

Viacom’s most popular brand is SpongeBob, which is seen in more than 170 countries on Nickelodeon. SpongeBob to date has generated more than $12 billion in retail sales, according to the company, and the character has more than 37 million fans on Facebook Inc. (FB)’s website.

While Nickelodeon is pitched about 500 pieces of content a year, the station will only sign a handful, Borkent said. “We’re going into companies much earlier as kids are watching more now with iPads, computer and there are bigger audiences.”

As more companies try to break into the children market, it’s key to secure the lucrative global brands, said Stewart Clarke, an editorial director at researcher Informa Telecoms & Media.

“It’s an unbelievably cluttered children’s market,” he said. “But when you get a SpongeBob you are sitting on a billion-dollar property and assets you can sweat for years.”

To contact the reporter on this story: Kristen Schweizer in London at kschweizer1@bloomberg.net.

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net.

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