Looks like a lot of kids — OK, their parents — are snapping up the toys and games represented on shows such as Transformers Prime, Clue, and My Little Pony that they see on The Hub. Hasbro COO David D. R. Hargreaves says these sales are soaring even though initial ratings following the channel’s October 2010 launch were at “the lower end of our expectations.” His comments were part of Hasbro’s day-long presentation to investors — including several who were skeptical about its $300M investment in April 2009 for 50% of Discovery Kids. Hargreaves says that last month’s ratings among kids between 2 and 11 were the best yet for The Hub, although he warned that the numbers “probably won’t grow each week, month, or quarter.” Cable and satellite company efforts to promote the channel “spike viewership which may fall back in the following period.” Still, the exec says Hasbro’s on track with its five-year business plan. “If The Hub network can be half the size of Cartoon Network” in five years then “that would be a success,” he says. Hasbro’s investment enabled the company to turn Hasbro Studios into a major TV production operation. It accounts for 50% of the Hub’s programming from 6:00 AM to 8:00 PM, as well as sales in 142 countries. Hasbro says it only expects to have to spend about $80M a year on channel-related expenses, lower than the $100M it anticipated. The company’s agreement with Discovery requires it to spend at least $25M a year on the channel through 2012, but “half of these payments come back to Hasbro as we own 50%.” About 70% of the program production costs are covered by income from traditional sources including ad sales and pay TV distribution fees. But the kicker for Hasbro is the additional merchandise sales — 90% from from toys and games. Hargreaves says consumers will spend $300M next year on merchandise tied to the TV shows, about 50% more than Hasbro had been selling from the products. Within two years he expects to see more than $300M a year in sales above and beyond previous levels. That would be “more than sufficient to cover any deficit” if traditional programming revenues don’t cover production costs. “It takes time to build a network,” Hargreaves says.
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