Toons get the bugs out

Cartoon Network boosts revs, plays with DVD

Journeying to Atlanta three weeks ago for an investors seminar hosted by Turner Broadcasting, a platoon of media analysts got bombarded with PowerPoint tributes to the high-octane performances of movies, the NBA and “Law & Order” on TNT and movies, “Sex & the City” and “Seinfeld” on TBS.

The TNT/TBS part of the presentation mostly reinforced what the analysts already knew. But Turner caught many of them up short when it started laying out the numbers for Cartoon Network, the 11-year-old sibling of TNT and TBS.

The bottom line: Cartoon Network, almost without warning, has shot up to the exalted position of fastest-growing network within the Turner Broadcasting portfolio.

Bugs Bunny, Tom & Jerry, the Powerpuff Girls and their cohorts helped Cartoon rack up $650 million in revenues last year and $241 million in cash flow. Those dollar figures made Cartoon more profitable than CNN and the rest of the Turner news operation for the first time ever. A gaudy 17% of the earnings of Turner Broadcasting now gets chalked up by Cartoon, compared to only 14% for news.

Cartoon’s strength showed up most recently in the just-concluded upfront sales, where it scored high-double-digit gains in ad dollars over last year’s intake.

Advertisers showed particular interest in the 12- to 24-year-old males who are congregating to Cartoon in greater numbers than ever. Mark Lazarus, president of the Turner Entertainment Group, says the magnet for these young men is Cartoon’s Adult Swim latenight block of mostly original animation, which continues to pull in a bigger percentage of these viewers, on average, than the broadcast- net talkshows hosted by Jay Leno, David Letterman and Jimmy Kimmel.

Historically, credit for laying much of the groundwork for Cartoon’s ascendancy goes to Ted Turner, whose shrewd deals helped Turner Broadcasting amass a bigger cartoon library than either the Walt Disney Co. or Viacom, which owns Nickelodeon. Cartoon Network now draws on more than 14,000 series and shorts from Warner Bros., MGM, Hanna-Barbera and Cartoon’s own ramped-up production operation.

One of the secrets of Cartoon’s financial success, says Jim Samples, exec VP/general manager of Cartoon, is “keeping the cost of our programming relatively low. We accomplish that with a mix of inhouse programming, acquired shows and partnered series.”

Although Cartoon regularly finishes among the top 10 highest-rated basic-cable networks in both primetime and total-day, it spends less money on programming each year than 25 other cable networks, including Oxygen, the Weather Channel and Home & Garden TV, according to Kagan World Media.

Russell Binder, a partner in Quattro Media, which represents many leading animators, says one of the engines of Cartoon’s growth is its success in “promoting and licensing the characters from hit shows. Warner Bros.’ consumer products division helps the network gets into bed with chains like Wal-Mart and Target and creates a tremendous retail presence.”

Its inventory bulging with more than 2,000 animated characters, Cartoon not only conjures up new figures through series like “Codename: Kids Next Door” and “Aquateen Hunger Force,” says Lazarus, but “reinvents” some of the old ones with updated remakes, turning the venerable Daffy Duck into a bumbling superhero known as “Duck Dodgers.”

Even when Cartoon commissions a series from an outside supplier, Lazarus says the network carves out an equity stake in the show’s ancillary revenues, including licensing and merchandising of the characters. That stake averages between 2% and 4%, which can bring in substantial dollars to Cartoon on a hit series with exploitable characters.

Cartoon has started to harvest significant revenues from homevideo, some of them well beyond the network’s forecasts. Most recently, Cartoon estimated the DVD of “Aquateen Hunger Force” would sell about 40,000 units. The audience proved much hungrier, scarfing up 150,000 units. Pre-sell orders for the second “Hunger Force” DVD are even more robust than the first.

Cable operators are big boosters of Cartoon because of what Scott Abbott, VP of programming for the National Cable TV Coop, a consortium of midsized and small operators, calls “a very favorable price/value relationship.”

Abbott is referring to the relatively low price Cartoon levies on the operators, which averages out to a monthly fee of only 14¢ a subscriber. (By contrast, TNT charges about 70¢.)

While only 38% of Cartoon’s revenues come from cable operators, a strapping 54% comes from advertisers, a ratio Abbott says is the sure sign of a healthy network.

Four years ago, Cartoon gave birth to the spinoff network Boomerang, making it the repository of classic cartoons, mostly from Hanna-Barbera. Boomerang, which is not advertiser-supported, has grown slowly on digital platforms provided by cable operators and satellite distributors, reaching about 20 million subscribers.

But soon, Cartoon plans to start pitching Boomerang to Madison Avenue, allowing the network to bathe in the dual revenue stream of advertiser dollars and cable-operator license fees.

Lazarus says Cartoon is trying to stay ahead of other revenue streams that are still in the early stages, working with cable operators, for example, to give them programming for their video-on-demand platforms.

“I’ve got a deal with Majesco,” he says, “that will put Cartoon’s shows on a chip the size of a thumbnail. Kids simply plug the chip into their Nintendo Game Boys.”

According to Samples, “Kids can watch an episode of their favorite Cartoon Network series by holding a Game Boy on their lap in the back of the bus on their way to school.

“If somebody invents a new form of delivery for TV shows,” Samples concludes, “I want Cartoon Network to be a part of it.”

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