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Disney Hopes Baby Steps Boost Consumer Products

Disney Hopes Baby Steps Boost Consumer Products By CARLOS MARTINEZ Staff Reporter The Walt Disney Co., once the last word in children’s entertainment, is tapping into outside sources to try and bolster its struggling consumer products division. In recent weeks, the Burbank-based entertainment behemoth acquired Baby Einstein Co., a five-year-old company that sells books, compact discs and videos intended to introduce infants and toddlers to the arts. The acquisition will provide Disney with an entree into the infant and toddler market, a business that has grown in double digits in recent years, according to industry reports. It also will shift some of Disney’s consumer products focus away from older kids, which have proven more elusive than their parents and grandparents, the baby boom generation. “It fits perfectly into the whole Disney image, catering to families and children with wholesome family entertainment,” said David Miller, an analyst with Sutro & Co. “But I don’t know if it’s going to mean a turnaround for a division that’s been essentially sucking wind for the better part of the last 18 months.” In Disney’s most recent quarter ended June 30, the company reported that revenues fell by 6 percent and operating income declined by 3 percent over the period last year in its consumer products division, primarily as a result of declines at Disney stores. The company’s stable of characters and the corresponding licenses have lost some of their popularity as other film and television-based characters have risen to prominence. Disney hopes the acquisition will pump some life into the division as it taps a new and growing market. “We’ve seen Baby Einstein carve out a very strong presence in a fairly new market niche of developmental learning for infants and we want to take advantage of this opportunity,” said Russell Hampton, vice president of corporate development and strategic planning. Baby Einstein was established in 1996 by Julie Aigner-Clark, a former English teacher who started the company in her basement. Baby Einstein develops and sells videotapes, DVDs and CDs for babies intended to expose them to poetry, music and art. Disney is currently unveiling a new collection of books and toys as part of a partnership agreement with Disney Publishing Worldwide and Hasbro Inc. signed in June. “We felt that we could be useful in that, given our distribution strength, we could use it to grow the Baby Einstein product and expand the product line beyond video to books, toys and other merchandise categories,” Hampton said. Last year, Baby Einstein posted $10 million in total sales, with revenue for 2001 projected at between $25 million and $30 million, said Baby Einstein CFO Bill Clark, Aigner-Clark’s husband. Neither Baby Einstein principal would comment on their decision to sell. An announcement on their Web site noted that the sale would “allow us to spend more time with our little girls, who are growing up by the minute.” The two will assume roles as consultants to Disney. A year and a half ago, Disney began shifting its focus from older children to toddlers, Hampton said. As part of that initiative, Disney began developing a series of books for young parents and their babies when the opportunity to acquire Baby Einstein came up, Hampton said. “We’ve actually had a relationship with infants and with infant apparel and publishing, but we never had a very synchronized approach to infants like this,” said Hampton. Jeff Pittsburg, president of New York-based brokerage Pittsburg Institutional, said Disney may be onto something with its acquisition. “Disney’s been having a lot of problems and some say they shouldn’t spend money, but sometimes the best time to buy something is when it’s the darkest and this could be that,” he said. The $750 million bath Disney took with its now-defunct Go.com Web portal gave the company reason to reassess its online strategy and its video gaming business, said analyst Shawn Milne of SoundView Technologies Group. Under the deal, Disney will distribute the company’s “Baby Einstein” series of videos, which focus on nursery rhymes and language skills, and the company’s “Baby Mozart” series, focusing on the music of the composer. But Hampton said the company will also expand the brand with a new “Little Einstein” and “Little Mozart” series for toddlers and preschool children, ages 2 to 5. Disney also plans to develop a television show based on the characters from Baby Einstein that would air sometime in 2002 or 2003, Hampton said. Hampton would not say how much Disney would spend on its effort to expand the brand nor how much revenue the unit would generate in the next few years. “I can say that it will help us and our consumer products division,” he said. Disney does not break out revenues for the interactive portion of its consumer products division, which is where the Baby Einstein unit will be housed, but analysts believe it contributed about $100 million to the company’s $25.4 billion in sales revenues last year.

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