January 27th, 2006

In Tots' TV Shows, A Booming Market, Toys Get Top Billing

By Aaron O. Patrick
Wall Street Journal

Animators working on a new British children’s television show thought kids would laugh at a character called Pato, a googly-eyed duck with a long yellow neck and a skinny body.

But executives at ITV PLC, Britain’s biggest commercial TV network, objected. Pato’s neck was too long to be made into a soft toy, they said. So the neck was shortened and Pato fattened up. He’ll go on sale as a stuffed animal this year for about $18. By the same reasoning, Elly, Pato’s pink elephant friend, lost her toenails. She’s expected to sell for the same price.

As the age of TV viewers gets younger and younger, television networks are scrambling to compete for the very smallest eyeballs. And because profits in this market are driven largely by merchandising, the commercial and creative sides of children’s television are fusing in a way that sometimes makes them indistinguishable from one another.

"We’re co-creators in a show," says Michelle Smith, creative service manager at Granada Ventures, a unit of ITV. Ms. Smith helped the new show, called "Pocoyo," develop characters that could be spun-off as toys and other merchandize.

The United Kingdom has long been a test bed for children’s television, throwing out new ideas that are followed elsewhere. In the 1950s, it introduced the notion of educational TV. Before becoming a world-wide hit, the "Teletubbies" was launched in the late 1990s on the British Broadcasting Corp. The show is credited with lowering the age of TV audiences to below 3 years, which was the previous benchmark.

Today, some of the most popular preschool shows in the U.S. are British, including "Bob the Builder" and "Thomas and Friends."

TV networks are chasing preschoolers because unlike older kids, they haven’t abandoned TV for the Internet or video games. They’re also at home a lot. Britain counts more than 20 channels dedicated to television for kids, more than it has for sports. In 2005, British TV showed 10 times as many hours of children’s programming—160,441 in total—as a decade earlier, according to the Television Research Partnership Ltd., a U.K. research firm. Programming for preschoolers is mixed in with that for older children.

In the U.S., preschoolers have their own channels. They include Viacom Inc.’s seven-year-old Noggin and PBS Kids Sprout, a channel launched last year by Comcast Corp., Sesame Workshop and the Public Broadcasting System.

Unlike shows for older viewers, TV programs for small kids can’t rely on advertising revenue because commercials aimed at the very young rarely work. As a result, networks pay low fees to studios. Shows for tots are also relatively expensive to make. Many use fancy computer-generated animation, for example. A seven-minute episode of "Pocoyo" costs $110,000 or $16,000 a minute.

So producers turn to sales of toys and DVDs to make up the difference. A 3-year-old is unlikely to see a 30-second ad and request the toy, but parents will often buy their kids toys based on favorite shows.

‘Giant Toy Ads’

Greg Lynn estimates he has to generate $3.6 million in merchandise retail sales to fund 10 minutes of "Fifi and the Flowertots," a show for little girls that runs on Britain’s Channel Five. Characters in the series include a pet caterpillar and a rabbit. Mr. Lynn, the show’s executive producer, says that’s in part because they make good soft toys. Once the show becomes well known, the production team is planning to increase the prominence of male characters to help sell toys to boys.

"Children’s television shows are just giant toy ads," says Gary Pope, a London-based children’s marketing consultant who advised on "Pocoyo."

Successful shows can make big money from toys and other spin-offs. Viacom’s Nickelodeon unit says "Dora the Explorer," one of the most popular programs for young viewers, generated about $1.4 billion in sales of toys, backpacks, clothes and other products in 2005.

Hit Entertainment PLC, the British owner of "Bob the Builder," made $68 million from toys, games and other licensed products in the six-month period ending January 2005, the latest available data. That’s more than it made from sales of DVDs, videos and selling the show to networks.

These successes have inspired other producers to follow suit. Joella Productions Ltd., an independent English production company, has spent $7 million on a show called "Underground Ernie," which is aimed at kids between 3 and 8. Like the hit "Thomas and Friends," this computer-animated show is based on talking trains. Executive producer John Deery says he’s not trying to cash in on the success of "Thomas," but acknowledges that trains make popular toys.

"The design of the trains is based on the [London subway system] and clearly we had an eye to the merchandising as we were going along," he says. "It’s not just TV. It’s not just merchandising. We are in the process of building a global brand."

Shaun, an animated sheep, made a four-minute appearance in the 1995 British film, "Wallace & Gromit: A Close Shave." The character became an unexpected cult favorite. Several million Shaun toys have been sold around the world. Producer Aardman Ltd. says those strong sales helped persuade it to finance a new show based entirely around the sheep.

Wallace & Gromit creator and Aardman director Nick Park says "Shaun the Sheep," which is currently in production, won’t be influenced by licensing considerations. "I hate the way the marketing side can dictate the creative side," he says.

The danger, some TV executives say, comes from making good toys at the expense of good television. Nigel Stone, chief executive of Platinum Films Ltd., a film and TV producer based in London, says he "resisted the lure of a well-known burger chain" in producing "Planet Cook," a cooking show. He wouldn’t provide any more details.

"Young kids really know when things have been artificially inserted, even preschoolers, and, indeed, their parents, too," says Mr. Stone.

‘Pocoyo’ Negotiations

ITV executives came across the idea for "Pocoyo" ("little me" in Spanish) at a trade show three years ago. The show had been created by Spanish company Zinkia Entertainment SL, which needed funding to get it made. ITV’s financing arm, Granada International, agreed to finance the show. ITV’s children’s production arm, Granada Kids, was given responsibility for overseeing it. Granada Ventures, ITV’s licensing arm, was put in charge of merchandise.

The producers say the show is designed to teach children, age 2 to 5, basic facts about daily life, such as the purpose of an umbrella. It’s based around a toddler called Pocoyo. His "stories are recognizable to preschoolers as parallels to their own daily adventures," says Anne Brogan, the executive producer of "Pocoyo" and controller of Granada Kids.

Throughout development, Ms. Brogan held conference calls every four to six weeks with Zinkia’s animators in Madrid and Granada Ventures’ executives in London. Granada Ventures employees also regularly traveled to Spain to meet with the animators. Ms. Brogan would send scripts to Granada Ventures.

Granada Ventures, in turn, hired Mr. Pope, the children’s marketing expert, who works for Kids Industries Ltd., his own firm. Mr. Pope held focus groups in January 2005 with groups of 24 children, ages 1 to 4. He showed them pictures of characters from the show.

By studying the children’s reaction, and based on his analysis of the show, Mr. Pope came up with a theory about how kids would play with "Pocoyo" toys. There are hundreds of different "play patterns," he says, including "dress ups," water squirting and "crash and bash." In this case, he said, children would want to treat Pocoyo like their own child. The toys were designed with this in mind, with an emphasis on cuddly and cute.

"Pocoyo’s" designers had drawn the toddler with a bright yellow pacifier in his mouth. Pacifiers are common in Spain but their use is more controversial in Britain and the U.S. Mr. Pope argued that its prominent use might irk some mothers and hurt toy sales. Granada Ventures pushed Zinkia to remove the pacifier.

The show’s co-creator and Zinkia founder, David Cantolla, wanted to keep it. Removing the pacifier would involve major creative changes. It would give Pocoyo a mouth, requiring him to speak. Turning him into a talking character would necessitate changing scripts, casting an actor for the voiceover and reprogramming computer-animation software.

They compromised. Pocoyo would be allowed to appear with the yellow pacifier in a few exceptional cases, such as when he became anxious, reflective or appeared underwater. The changes took Zinkia several months to process.

In late 2004, executives from Zinkia and Granada met with Japanese toy-maker Bandai Co., the main licensee tapped by Granada Ventures. They discussed an episode where Pocoyo and another character race each other on a car and a skateboard. Bandai suggested that the vehicle appear regularly in other episodes; cars make popular toys. Granada Kids objected because driving a car was too ordinary an activity, according to people at the meeting.

To resolve the impasse, Mr. Cantolla sketched an imaginary vehicle, which he called a Vamoosh. It could fly and travel underwater. Bandai was happy because it could make two toys—a submarine and a flying version. Zinkia included the Vamoosh in the title sequence so viewers see it every episode, although it doesn’t appear in every story.

White Space

Toy considerations didn’t always win. Zinkia wanted the characters to appear in front of a white background. Granada wasn’t thrilled about that idea, concerned it would limit the options for jigsaw puzzles and books, says Ms. Smith, the Granada merchandising executive. All-white jigsaw pieces, for example, would confuse small kids. Eventually, bowing to the show’s overall look, Granada went along with the white backdrop.

Working closely with the merchandising arm didn’t bother Zinkia’s founder Mr. Cantolla. "If you can control the creative part, it is not a very big problem to make these changes for merchandising," he says.

The first episode of "Pocoyo" ran on British television in September. The show appears every day at 3:30 p.m. on ITV’s main free-to-air channel, ITV1. In the three months the show has been on air, it’s been seen by 31% of homes with children under 3, according to ITV. The network hopes "Pocoyo" will be a signature show for the children’s TV network it plans to launch soon for cable and satellite subscribers.

When "Pocoyo" toys and candy hit stores this spring, there will be several versions of Pato the duck: a bath toy that squirts water and a large soft toy whose neck is a mere 1½ inches long. Granada executives have deals to air the show in Australia, Canada, Israel and across Asia. This week, they were in Las Vegas at a television trade fair pitching the show to U.S. networks.

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