The money’s in the merchandising. Hardly news, but many European prodcos suffer through a hard slog and long lead time before reaping licensing rewards. Thanks to European money-makers such as Ragdoll’s Teletubbies, however, things may be starting to change.

The long, hard road to licensing in Europe feature looks at what stage various territories are at when it comes to licensing concerns.

BBC plunges into licensing with both feet (next page) looks at BBC Worldwide, arguably the European licensing leader, and its attempt to re-create the Teletubbies phenom by taking full control of licensing for its new Tweenies property from day one.

Also in this report: a roundup of cool new girl shows (page 59) and Dream Block `99 (page 60).

Sometimes it’s hard to comprehend why any European company regards children’s television as a viable business investment.

The competition is fierce, the budgets are huge, the broadcast license fees are miserly and the time lag between development and delivery can be excruciating. Even after forcing your concept through the co-production mangle to raise cash, there isn’t any guarantee that kids will like it.

Then, once in a while, a licensing phenomenon like Thomas the Tank Engine and Friends or Teletubbies comes along, and all the effort can suddenly seem worthwhile.

There’s no question that exploiting ancillary rights is a core concern for European producers. Tony Stern, business affairs director at Pearson Television’s animation arm Eva Entertainment, says: ‘Running an animation business on the basis of TV and video distribution returns doesn’t add up anymore. You’ve got to create properties with merchandising potential.’

This view is endorsed by ITEL marketing director Mike Morris, who reckons ‘a property worth US$100 million to US$200 million a year at U.S. retail can bring a steady annual income of between US$3 million to US$8 million.’

Such successes are rare, however. You need the right idea, heavy media exposure, creative marketing, a retailer prepared to listen to your pitch-and blind luck.

‘My advice to anyone looking at licensing is to go to the main retail outlets like Toys `R’ Us and Woolworth’s,’ Morris says. ‘It quickly becomes clear that if you are going to have a licensing hit, you need to knock the likes of Disney or Warner off the shelf.’

Outside the U.S., the U.K. has had the greatest success on the international licensing stage. But, with the possible exception of the BBC, most British kids producers debuting shows at MIPCOM `99 know there is a long way to go before they can hope to recoup meaningful ancillary revenues.

ITEL’s preschool series Animal Shelf (52 x 10 minutes) is already over three years old. But next year is the critical one in terms of establishing licensing revenue, says Morris. Securing a berth on Fox Family Channel’s It’s itsy bitsy Time block is viewed as pivotal to the property’s prospects in the lucrative U.S. market.

For debuting ITEL shows like Porter & Daughter, it is simply too early to know what the off-screen potential might be, says Morris. Even well-touted shows like Foxbusters and 64 Zoo Lane (a Millimages co-production, also primed for the itsy bitsy block) are hard to gauge at this stage.

Link Entertainment managing director Clare Derry endorses every word: ‘We launched Forgotten Toys in 1995 and are just seeing the merchandising side take off.’ She expects a similar slow build for Link/United co-production Teddy Bears, a preschool series first aired in January 1998, which looks like it’s becoming a mainstay on the ITV schedule.

Broadcaster support ought to be a welcome boost to ancillary exploitation, but ITV is also plowing money into preschool properties such as Mopatop’s Shop (Henson/Carlton), Construction Site (Henson), Dog & Duck (United) and Dream Street (Dream Street Productions). Not all will be licensing hits.

Slow payback is partly a reflection of the U.K. taste for short-run commissions. BBC’s Noddy, first aired in the early 1990s, is only now breaking out in the U.S., while Wallace & Gromit is still growing five years after launch. BBC acquisition Pingu took three years before it started to make headway off-screen. HIT Entertainment’s Kipper, like Animal Shelf, is only now being geared up for a major assault on the U.S.

There is also a widely-held belief that it is a mistake to rush properties. Says Derry: ‘You need to build up strong awareness to give yourself the best opportunity of making a return.’

Eva’s Stern agrees. Despite launching preschool series Hilltop Hospital at MIPCOM, Stern is not expecting to start licensing activity until the following year. ‘We will wait until after the show is established on ITV this fall. If your product doesn’t move from the retailer’s shelves, you are screwed.’ In the interim, Hilltop’s exposure on Disney’s video label will reinforce awareness levels.

European producers and distributors insist that emphasis on licensing does not mean creativity is compromised. Decode Entertainment’s London-based founder Neil Court warns that, ‘TV buyers can see a toy-driven property from 1,000 yards.’

HIT Entertainment chief executive Peter Orton agrees. He has two animated series-Kipper and Bob the Builder-that appear to be shaping up as licensing successes. ‘A tremendous number of people are trying to create formula TV,’ he says, ‘but licensing and merchandising will only work if kids like the show. Disney’s success is built on creative excellence.’

This view is endorsed by the licensing sector. Kirk Bloomgarden, managing director of leading European licensing agency CPL, is working with Dream Street Productions on its ITV preschool hit Dream Street. He insists that ‘creativity is still the driving force in Europe-merchandising is not the first consideration.’

That said, licensing is an integral part of the early development process. On Dream Street, CPL ‘came into the process soon after the editorial concept had been formulated.’ A licensing program that includes back-to-school items, greeting cards and apparel is currently being devised. Toys will be launched in early 2000 to coincide with the second series of the show.

While CPL promotes its independence as a benefit to clients, companies like HIT, Granada, Carlton International and ITEL have all beefed up their internal licensing operations to keep close control over ancillary opps. Following the appointment of Catherine Mackay as head of a new division, Pearson Television Enterprises, there is also a strong likelihood that Pearson will set up an internal licensing resource this year.

French studio Toon Factory is bringing animated co-production Kid Clones in Space to MIPCOM. Like her Brit counterparts, director of development and marketing Valerie Seban looks for licensing potential at the earliest possible stage. ‘I assess what might work for licensing when I deal with the writer,’ she says. ‘Then we will show the production bible and scripts to a licensing agent to get feedback on specific details.’

This involvement ensures that a licensing hit is not ruled out by editorial oversight. Ensuring characters have play value-or that designs are not unnecessarily over-complicated-are essential steps along the way.

However, Seban believes the French are some way behind the U.K. and Germany where licensing is concerned. Despite classic properties like Tintin, Babar and Asterix, ‘French public broadcasters are not really involved in licensing and merchandising-and parents here do not have a positive attitude to the consumer society.’

So what factors help make a hit? Decode Entertainment’s flagship series this year is an animated version of the best-selling book and hit movie Watership Down (a 26 x 30- minute co-pro with Alltime Entertainment).

According to Court, this heritage gives the property a valuable boost when approaching retailers, but he also accepts that ‘licensing is black magic. There is an extraordinary amount of luck and timing in having a hit.’

Zenith Productions’ managing director Steve Matthews stresses the need for a balanced portfolio-not so big that it stretches development resources but large enough to generate many opportunities.

As part of this strategy, Zenith has acquired children’s publisher Toucan in a multimillion-dollar deal. Not only does this give the company access to numerous properties with TV potential, says Matthews, but Zenith will also get a first look at new ideas.

At MIPCOM, producer-distributor BKN will channel its efforts into a futuristic version of the King Kong story-tentatively entitled Kong. According to president of international sales and co-pros Nadia Nardonnet, a clear focus on a few properties is essential.

BKN’s last two major projects-Extreme Dinosaurs and The Roswell Conspiracies: Aliens, Myths and Legends-both benefited from an integrated marketing plan involving committed partners. ‘We make sure all our series have potential to be licensing successes,’ she says. ‘But it is also crucial to get consistency between all the partners.’

Nardonnet says this has been aided by a more commercial attitude at pubcasters. ‘They have begun to realize that programs with licensing support don’t need to be rubbish. In fact, licensing creates a hype around a program which can be an important tool to keep hold of kids audiences.’

The continent-wide grip of Disney and Warner is only one block on entry to the business. Emerging forces like Fox Kids Network and Nickelodeon also offer retailers a combination of proven TV properties and targeted broadcast exposure.

Ynon Kreiz, president of Fox Kids Europe and Saban Merchandising Europe, runs a ‘well-oiled machine which combines the strength of a global company with local implementation.’ Going forward, Kreiz plans to ‘strengthen the merchandising operation in Europe by integrating it more closely with our (23-territory) channel business. That way we can offer multiple avenues to our partners.’

Although new product constantly flows through Fox/Saban, Kreiz points out that Power Rangers is still going strong in Europe six years after launch ‘thanks to our constantly refreshing the toy line every season.’

This extended life cycle is another factor that makes it hard for new properties to break out. While heavily-promoted U.S. blockbuster movies like Star Wars can secure retailer support, classic kids properties are often likely to get the nod over newcomers to TV.

Says Derry: ‘Next Christmas, you can guarantee the shelves will be filled with Barbie, Teletubbies, Winnie the Pooh and Thomas. That doesn’t leave a lot of shelf space.’ Heightened licensing activity from brands like Lego is also a source of serious competition.

Despite the prospect of Tubby-like wealth, the market is realistic. No one uses merchandising forecasts to justify the green-lighting of a show. Zenith’s Matthews speaks for all when he says: ‘You can’t put licensing figures into your business plan. You never know what cuddly toys the fickle consumer will want to buy.’

Prospects for licensing appear mixed. Derry says ‘the increase in interest in ancillary rights comes at a time when it is harder to make them work. I think the U.K. market needs Star Wars to be a hit. If it isn’t, a lot of retailers will catch a cold and that will impact adversely on us as a business sector.’

Orton, however, believes there is growth potential in taking licensing and merchandising into the on-line and interactive environment. ‘There are opportunities to extend the viewing experience and build viewer loyalty,’ he says. ‘HIT will make a massive investment in its Internet site next year.’