The Hub World

By Lutz Muller
February 2011

Early this year, Hasbro took another step towards taking control of all contact points between the company and its consumers. They are already the second largest toy manufacturer and extremely well represented at the large retailers where they have very prominent display positions and first-class on-shelf presentation. However, it has been their long-held goal to establish direct contact with consumers on the broadest possible level and to not depend on stores as the sole intermediary in the company’s dialogue with its audience.

They took the first step in this direction in 1995 by involving themselves very heavily in the then nascent video game industry. This involvement has now reached the point that a whole host of Hasbro’s characters and games have been transformed into video games produced by the giants of the industry, Electronic Arts and Activision. In fact, Hasbro formed a strategic partnership with Electronic Arts in August 2007 under which Electronic Arts has the rights to develop and distribute electronic games based on Hasbro properties, such as Monopoly, Yahtzee and Littlest Pet Shop. In addition, Activision also has developed games based on Hasbro titles, notably Transformers where there are currently 37 different games available.

The second step came with Hasbro emerging as a film producer for its action figure titles Transformers and Iron Man. This venture was fantastically successful – its first Transformer movie in 2008 version grossed worldwide $709 million, the second went on to topping it in 2009 with $836 million and the third movie is scheduled for release next year. In addition, they also repeated this feat with Iron Man which in 2008 grossed $585 million and this year $622 million. Again here, a third movie is in development for release in 2013.

So it seemed to be only a matter of time until Hasbro extended its tentacles into television, arguably to most potent of all consumer entertainment alternatives. This they did by making a deal for the U.S. market with the Discovery Channel for a Joint Venture covering Discovery Kids. Motley Fool on 10/7/2010 had the following to say about this agreement:

“Discovery Kids was a rare dud in Discovery's portfolio. According to the New York Daily News, it was attracting viewers in just 240,000 homes the most recent time the channel was rated. Kids can be pretty loyal to existing networks, and Disney and Nickelodeon have several spinoff channels already that specifically target The Hub's ideal audience of kids -- primarily boys -- between the ages of 6 and 12. “

To put this into context, the U.S. is estimated to have more than 115 million homes with at least one TV.

Hasbro paid Discovery $300 million and both companies now own each 50% of the new venture which they named The Hub. The companies said that the channel would be geared to boys and girls 14 years of age and under and feature new programming based on some of Hasbro’s products including Romper Room, Trivial Pursuit, Scrabble, Cranium, My Little Pony, G.I. Joe, Game of Life, Tonka and Transformers along with some current Discovery Kids favorites and new content. In addition to the cable channel, a web site offers an expanded content effort. Discovery handles ad sales, distribution and other operations for the venture and Hasbro provides studio-based programming.

To run this venture, they recruited Margaret Loesch who is clearly one of the best TV executives around. Her background includes several Emmy Awards and numerous other industry laurels, With nearly four decades of involvement in all phases of children's entertainment and her background in the development of "Smurfs," "Mighty Morphin' Power Rangers," "Jim Henson's Muppet Babies," "Animaniacs," "Transformers" and "Bear in the Big Blue House” she has definitely the qualifications to run any TV venture. As the CEO, she manages all business and creative areas of The Hub.

One of her first steps was to appoint an advisory board to ensure integrity of the creative process. The board members collectively bring to the network expertise in children’s education, health and nutrition, age-appropriate cognitive, physical and social-emotional learning, media literacy and Internet usage and safety. This board consists of seven experts in various disciplines and is chaired by Dr . Helen Boehm, a former director of the Children’s Advertising Review Unit (CARU) and a professor at the City University of New York.

I thought I would get some advice on the effectiveness of such a board on daily decision making and asked one of my friends, a senior exec at a large toy company, what he thought about it. This was his take on it:

“This Advisory Board really does not amount to a row of beans since The Hub does not produce original TV material where the input from this board could make a difference but uses films produced by other entities – e.g. Hasbro – without the benefit of this board.”

Margaret Loesch very much disagrees with this assessment:

“Our Advisory Board should prove to be very effective based on my past experiences--it does not matter one bit that we aren't producing our own series because we have creative approval over all content on our air, including approval on all shows based on pre-exiting toy-inspired programs. We read and review and give input on all key aspects of each of our new series; and acquired series are scrutinized, and where necessary, edited prior to air. Thus, the information provided you by an executive with a toy manufacturer couldn't be more wrong.”

At this point, The Hub is clearly making progress but still has a very long way to go until the channel becomes a real competitor to industry heavy weights. Margaret Loesch recognizes this:

“Our upward trajectory is strong and consistent, and I and my board to whom I report are very encouraged with The Hub's progress at this very early stage of our growth. We have only been on the air for ten weeks and while we're not yet in the upper ranking of kids channels, we have, however, already more than doubled our audience in both the 2 to 11 year old demo as well as the 6 to 11 demo. That, to us, is good news -- our business is new and growing, we have encountered strong support by advertisers, the creative community's robust outpouring of interest has amazed and excited us, and lastly (and most important) our growing number of viewers indicates to us that we're on a path to success. Nevertheless, Lutz, I must add that we didn't expect, after just ten weeks on the air or in the near future, that we would be ranked up there with networks which have been in existence for over thirty years (Nickelodeon), or almost thirty years (Disney Channel), or even one over twenty years (Cartoon Network )! Even Disney XD's launch (over a year ago) had the enviable advantage of being built on a Disney branded channel (Toon Disney) which launched over twelve years ago! It might take us a little while longer to be ranked up there with those older kids on the block!"

I looked at The Hub’s numbers relating to “Transformers Prime” [most probably their most successful program] as reported by Nick and More! of 12/7 for two five day periods:

Category	Average daily viewers 11/29 – 12/3 2010	Average daily viewers 11/22 -11/26/2010	Percentage Increase
Households	191000	56000	241%
Persons 2 years +	292000	75000	289%
Kids 2 -11 years	101000	33000	206%
Boys 2 – 11	81000	20000	293%
Adults 18 -49 years	138000	78000	77%
Women 18 – 49 years	40000	34000	18%

As for the numbers relating to the Saturday performance of “Transformers Prime”, this is how it looked:

Category	Saturday Viewers 12/4/2010	Saturday Viewers 11/27/2010	Percentage Increase
Households	194000	95000	104 %
Persons 2 years +	367000	169000	117%
Kids 2 -11 years	132000	73000	81%
Adults 18 -49 years	138000	78000	77%
Women 18 – 49 years	40000	34000	18%

We can hence say that the series “Transformers Prime” attracted a daily audience of approximately 300,000 children between the ages of 2 and 11 years old.

In comparison, this is the daily viewership of the top ten channels for the same audience:

Weekly Top Ten Basic Cable Ad Supported networks, Total Day Rankings among K2-11 (000) 11/29-12/5/10 [daily average]:

Nickelodeon	1220000
Disney	899000
Cartoon Network =- TBS	481000
Nick Junior	380000
NAN	333000
ADSM [Adult Swim] - TBS	198000
Disney XD	163000
Nicktoons	91000
ESPN [Sports Channel]	59000
Sprout [PBS]	53000

Against this background, a 300,000 children audience number is respectable and if The Hub’s growth rates continue, they will soon clock in on the same level as Nick jr and the Cartoon Network. This will be aided by the upcoming new Transformer series, an original half-hour, full CGI animated series “Transformers Prime” in its regular weekly time period with a new episode Friday, February 11.

Finally, are people interested in The Hub? I looked at both website traffic and the Blog Sphere that tracks blog mentions and is a good indicator of consumer interest. First, the web traffic:

Obviously, The Hub is getting traction at nearly 1 million hits but still has ways to go compared to Nickelodeon and the Cartoon Network, both of which are trending above 5 million and 7 million respectively.

Blog traffic measures what consumers are talking about and here The Hub is very much stronger:

On balance, I think that The Hub is a going concern. It is well managed, well funded and has an incredible amount of material from which they can draw for their programming. I predict that it will represent a significant force in toy marketing come next fourth quarter. In other words, Hasbro will have succeeded in its campaign to talk to consumers directly.

However, The Hub does not address one of Hasbro’s main strategic goals – to change the geographical imbalance in their sales. Hasbro now has 62% of its sales in the United States and Canada which only account for about one-third of the worldwide toy market. To reverse these percentages and to thus give Hasbro a similar market share outside North America would require increasing sales in international by a factor of four. Given that the Discovery Channel is the largest provider internationally – dwarfing such heavies as the Disney Channel and Nickelodeon - it has been widely speculated that the deal for the United States was to represent only the first step for a worldwide roll-out. Hasbro’s recent agreement with Turner Broadcasting/Nickelodeon for four major properties [Pound Puppies, Little Pony, The Adventures of Chuck, and Transformers Prime] key markets in Europe and the Middle East suggests that this expectation has now been abandoned.