The House That Bob Built

Bob the Builder leads HIT's growing stable of global stars

In Britain, he plays to sold-out crowds at massive venues such as the London Arena. His catchy theme, Can We Fix It?, stayed at the top of the British singles chart longer than any other song since Candle in the Wind, Elton John's tribute to Princess Diana.

No, it's not Bono. It's Bob the Builder, a guy who really has a way with a hammer. The star of his own 3-D TV cartoon, Bob is all the rage with the preschool set. The show, which first aired in Britain in 1999, is now seen in 140 countries, including the U.S. The phenomenal success of the chubby hardhat has even surpassed the ambitions of his parent, Britain's HIT Entertainment PLC. "In a very short period, Bob has become a global franchise, generating around $100 million a year in revenues," says Chief Executive Robert Lawes.

Bobmania has turned HIT into one of the world's leading independent children's studios. The London-based company is expected to post a pre-tax profit of $33 million this year, a more than threefold increase from 2001, on sales of $146 million, according to estimates by Investec Securities. Over half of all revenues will come from HIT's three-year-old Bob franchise, which is driving the company's current growth. "HIT's hallmark is quality," says Brown Johnson, executive vice-president at kid's cable channel Nick Jr., which broadcasts Bob the Builder.

The problem for HIT is that much of its remaining revenue this year will be provided by an aging star--Barney. HIT added the purple dinosaur to its roster when it bought out Lyrick Corp. for $275 million in March, 2001. The Barney buyout, while good for current sales, doesn't solve HIT's main problem: how to keep generating new characters that will keep kids watching--and lead to those lucrative merchandising deals with toymakers and retailers that all studios count on. Deals with big-name U.S. retailers such as Wal-Mart Stores (WMT ) and Target Stores (TGT ) and toymakers Hasbro (HAS ), Lego Group, and Fisher-Price, along with sales of home videos, now account for 85% of HIT's revenues. That's quite a change from three years ago. Back then, "television was almost 100% of HIT's business and consumer products zero," says Investec analyst Michael Savage.

HIT hopes to keep the momentum going with Angelina Ballerina. The classically trained rodent first graced the stage in a popular children's-book series. HIT's animated cartoon, featuring Oscar-winning British actress Judi Dench as the voice of Angelina's ballet teacher, is already a sensation in Britain, where the series debuted in October, 2001.

This spring, Angelina goes to America. Her reception there will determine if HIT can meet its goal of creating four to five global brands, each generating $50 million to $100 million a year in revenues.

HIT is the brainchild of Executive Chairman Peter Orton, a 58-year-old Briton with more than three decades of experience in children's television. Orton learned the ropes at New York's Children's Television Workshop, maker of Sesame Street, before moving on to Henson International Television, of Muppets fame. Orton and some of his Henson colleagues set up HIT in 1989 as a distributor of kids' shows. By the mid-1990s, HIT was producing its own shows based on characters in British children's books. "We realized if we were going to survive, we needed to develop and own programming," says Orton, who took HIT public on the London Stock Exchange in 1996, with a valuation of $26 million. Today, HIT's capitalization is $686 million.

While the focus is on grooming new talent, Orton isn't giving up on Barney. At the time of the Lyrick deal, critics wondered if the 15-year-old dinosaur was on the verge of extinction. After all, 97% of U.S. households already own at least one Barney product. Yet HIT's staff has nurtured the character back to financial health, partly by making him more accessible to international audiences. Barney is expected to sell 6 million videos this year, along with $150 million in related merchandise--of which HIT gets approximately a 10% cut. If Angelina Ballerina achieves that kind of star status, the folks at HIT will be singing Barney's We're a Happy Family all the way to the bank.

By Kerry Capell in London

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