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Walt Disney Co/The
Time Warner Inc
Discovery Communications Inc
Reckitt Benckiser Group PLC
For more than 70 years, Walt Disney (DIS) has used a warbling Jiminy Cricket to encourage families to wish upon a star. These days, Disney is banking on Doc McStuffins, featuring a 6-year-old in a lab coat and pink-sequined sneakers who fixes ailing toys. The cartoon will debut on Disney Junior, a cable-TV network for 2- to 7-year-olds that the company is launching on March 23 in about 30 million U.S. households. If all goes according to plan, Disney will bring in big future sales from those tiny viewers.
Preschool programming is the latest front in a decade-long war between Disney and Viacom (VIAB), the longtime leader in children’s cable television with its Nickelodeon networks. Kids’ TV has become a lucrative business because it can earn money from cable subscriber fees, advertising, and merchandise royalties. That’s why Disney is shuttering Soapnet, a 12-year-old channel devoted to soap operas, and shifting those subscribers over to what will be its fourth network aimed at families and young people, after ABC Family, the Disney Channel, and Disney XD, a four-year-old channel for boys. “It’s a better monetizaton of beachfront property,” says David Bank, an entertainment analyst at RBC Capital Markets. “[If] you have a hit show, it sells records, consumer products, and movies. They want to capture that consumer for a lifetime.”
An animated TV show costs about $13 million for a 26-episode season—a fraction of the price tag for a major motion picture—and can fuel sales of related products for years, says Sean Cocchia, general manager of Disney Channels Worldwide. Doc McStuffins will have an exclusive line of products in Toys ‘R’ Us stores in June, including dolls and a doctor’s kit. “It’s not like putting up a billboard and you’re reaching a lot of people who may not be interested,” says Cocchia. “We’re able to target consumers in a much more specific way.”
Disney’s youth cable strategy began to evolve in 2001 when the company focused on tweens with live-action comedies such as Lizzie McGuire and Hannah Montana, and then even younger kids with the 2007 cartoon hit Phineas and Ferb. Disney Channel has seen its audience rise almost 5 percent in the past two years, to 969,000 daily viewers, while Nickelodeon’s has slid 19 percent, to 999,000, says researcher Nielsen.
Viacom says its worldwide cable ad revenues fell 3 percent, to $1.35 billion, in the quarter ending Dec. 31, in part because of Nickelodeon’s weaker ratings. The company, home to warhorse characters such as Dora the Explorer and SpongeBob SquarePants, says it will produce a record 650 new episodes for the season beginning in September. “We’ve been the No. 1 kids entertainment brand for 17 years,” says Dan Martinsen, a spokesman for Nickelodeon. “We have no intention of giving that up.”
Disney Junior enters a crowded playground that includes not just Nickelodeon and its three spinoffs, Nick Jr., TeenNick, and Nicktoons, but also Time Warner’s (TWX) Cartoon Network and the Hub, a two-year-old joint venture between Discovery Communications (DISCA) and toymaker Hasbro (HAS). One distinction Disney Channel and Disney Junior have, says Cocchia, is that they are largely ad-free, featuring only spots for Disney movies and shows, and some limited sponsorships such as a recent one from Reckitt Benckiser’s (RB/) Lysol disinfectant reminding kids to wash their hands.
The “uncluttered” programming allows it to fetch premium fees from pay TV operators, Cocchia says. Disney Channel generates revenue from cable operators of 94¢ per subscriber a month, vs. 50¢ for Nickeloden, according to researcher SNL Kagan. That’s $1.2 billion and $605 million in annual subscriber fees, respectively, says Kagan. Nickelodeon also gets $1 billion a year in ads, Kagan estimates.
Disney’s strategy resonates with some parents. Sabrina Doherty, a Los Angeles mother of two, says she prefers commercial-free PBS but favors Disney Channel over Nickelodeon because it has fewer ads. “I don’t think my kids know what a commercial is, so ad-free is a big bonus,” she says.
The bottom line: Disney is launching a channel for preschoolers. That pits it against kids leader Viacom, whose Nickelodeon has 1 million daily viewers.