4Kids Entertainment Inc.

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4Kids Entertainment Inc.

1414 Avenue of the Americas
New York, New York 10019
U.S.A.
Telephone: (212) 758-7666
Fax: (212) 754-7947
Web site: http://www.4KidsEntertainment.com

Public Company
Founded: 1970 as Leisure Concepts, Inc.
Employees: 185
Sales: $53.1 million (2002)
Stock Exchanges: New York
Ticker Symbol: KDE
NAIC: 512110 Motion Picture and Video Production; 512191 Postproduction and Other Postproduction Services; 515120 Television Broadcasting; 517510 Cable and Other Program Distribution

Little known until the late 1990s when Pokémon swept the planet, 4Kids Entertainment Inc. is the parent company of Leisure Concepts Inc., which was the sole licensing agent of the Pokémon phenomenon and rode an impressive wave of merchandising that extended from Nintendo's Game Boy to include a highly rated television series, two feature films, trading cards, action figures, apparel, home textiles, numerous book series, and even music. Yet Pokémon is not the only star of the 4Kids licensing stable, which includes Yu-Gi-Oh!, Teenage Mutant Ninja Turtles, the Hulk, Cabbage Patch Kids, Charlie Chan, a wide array of Nintendo characters and products, World Championship Wrestling, and Monster Jam truck rallies and toys.

In the Beginning: 1970s–80s

The sum of 4Kids Entertainment, Inc.'s parts is far less known than its components. Leisure Concepts, Inc. (LCI) was founded as an independent licensing agency in 1970 in New York City. The firm began making news in the 1980s through licensing actual people, a variety of products, and even concepts. LCI had numerous licensees, including "real" person Farrah Fawcett of Charlie's Angels fame, cartoon characters, and a growing number of deals with television producers and toy manufacturers. In 1987 LCI took a chance on a futuristic movie project called Star Wars, from director George Lucas and with unheard of special effects by Industrial Light & Magic. When Star Wars became an enormous success, LCI reaped the rewards—orchestrating the kind of merchandising invasion considered commonplace today. Star Wars games, action figures, clothing, and trading cards were everywhere.

During 1987 LCI signed another licensing deal, this one with Nintendo of America, Inc. to market the software products that went along with its increasingly popular gaming systems. Nintendo had already introduced the Legend of Zelda for its home video game system, a software product that went on to sell more than one million copies during the year. In 1988 LCI hired Alfred Kahn, formerly of Coleco Industries, as its new chief executive. Kahn had already earned a reputation for marketing savvy, having acquired the licensing rights to an oddlynamed bunch of dolls known as the Cabbage Patch Kids—which went on to conquer the United States and the world.

On the Verge: 1990s

With Kahn at its helm, LCI expanded its operations in the early 1990s by creating two new subsidiaries: The Summit Media Group, Inc. and 4Kids Productions, Inc. The former was established to handle syndication rights for various licensed products in both print and broadcast media, while the latter maintained a studio to buy and produce animated and live-action properties, which it then distributed to the television, home video, and theatrical markets.

Kahn and LCI turned in a new direction in the middle of the decade by launching the World Martial Arts Council (WMAC) and a new weekly television series, WMAC Masters, which brought together the world's most talented martial artists in a live-action format. Shannon Lee, daughter of martial arts champion Bruce Lee, lent considerable credibility to the show and its contestants by hosting. LCI hired Bandai American Incorporated to produce WMAC action figures and other merchandise.

LCI's lucrative licensing agreement with Nintendo continued to fuel its income as more and more kids bought gaming systems and Nintendo software. Next came the Game Boy, a hand-held portable gaming system that came with its own customized video games. In addition to the Zelda franchise, which had spawned a successful sequel, Nintendo had introduced Mario Bros., Donkey Kong, and in 1996 came a game about "pocket monsters" called Pokémon. The game consisted of catching unusually named creatures, taming them, and helping them "evolve" into stronger versions of themselves. Pokémon, previously introduced in Japan, became the must-have gaming cartridge of Game Boy players in the United States. LCI wasted no time in developing strategies to market the endearing Pokémon characters to youngsters everywhere.

As Pokémon mania began to take hold, LCI turned its attention to an entirely new area in 1987 when it agreed to handle licensing for the American Heart Association (AHA). The nonprofit AHA hired LCI to market its animated spokesperson, "Ticker," as a way to raise additional funds for the health organization. In turn, LCI merchandised Ticker to youngsters in a variety of products, from plush toys to apparel to books—all to promote cardio health.

By 1998 LCI had two revenue-producing television shows, WMAC Masters and Pokémon. Regarding the latter, LCI had also signed with Hasbro Inc. to produce plush toys, of which Pokémon character Pikachi (a bright yellow ratlike creature) was the most popular. An important milestone was also reached in children's television programming when the Toronto-based Nelvana signed a two-year contract with CBS to provide its morning television lineup. At the time, no television producer had been given exclusive rights to provide an entire block of children's programming. This would evolve in the coming years with LCI mastering the art of the deal. In the meantime, however, the company had reached total net revenues of just under $14.8 million for 1998, an increase of 46 percent over 1997's $10.1 million. Net income, however, rose significantly from 1997's $739,000 to $2.7 million.

LCI's fortunes changed exponentially in 1999. As the exclusive licensing agent for Nintendo, as well as other firms, LCI had both the notice and respect of the corporate world. Nintendo released the Nintendo 64 gaming system and a slew of Pokémon games to go with it, while LCI had inked a new deal linking monster truck promoter PACE Motor Sports and World Championship Wrestling (WCW). Additional Pokémon licensing included a three-year contract with Golden Books to produce 17 Pokémon books and an array of stickers and postcards for youngsters during the summer, just before the big screen debut of the first Pokémon movie by Warner Bros.

Pokémon mania hit a fever pitch with its characters gracing both the small and big screens, and a merchandising rollout unlike anything ever seen before. In its first day at theaters, Pokémon racked up $10 million in ticket sales and Warner Bros. completely ran out of the promotional trading cards it was distributing to early ticket buyers. By December, Golden Books had 30 million Pokémon titles in circulation, while Burger King's promotion of 100 million action figures and special gold-plated trading cards, placed in kids' meals, disappeared in a matter of weeks.

The hype fueled explosive growth for LCI and garnered it the top slot in Fortune magazine's "100 Fastest Growing Companies" in 1999. The company ended its remarkable year with net revenues of $60.5 million and net income of $23.7 million (up from 1998's $2.7 million).

Hitting the Jackpot: 2000s

The new century found LCI and its parent company, 4Kids Entertainment, Inc., switching from the NASDAQ market and joining the New York Stock Exchange. The firm's new ticker symbol was KDE and 4Kids was indeed riding high when it earned Fortune 's top slot on its 100 Fastest Growing Companies for 2000. The company's sales were just under $88 million, up more than 242 percent from the previous four quarters in 1999. According to Variety magazine, the Pokémon franchise had earned upwards of $16 billion worldwide since its original launch in Japan, and 4Kids, as the exclusive licensor for all things Pokémon, had racked up not only impressive sales but net income climbing to an all-time high of $38.8 million ($15 million higher than the last year). Knowing the Pokémon bubble would burst at some point, LCI continued to ink other licensing deals, including a new contract with Marvel Comics to market merchandise for its comic book properties such as X-Men, Incredible Hulk, and Fantastic Four.

During 2001 4Kids and LCI had several licensing properties gaining popularity, but not with the speed and impact of Pokémon. X-Men and Hulk projects were underway, while Cubix, an animated program about robots on the Kids' WB was gaining an audience. 4Kids scored a marketing coup when both McDonald's and Burger King were featuring its licensed products in their children's meals during the summer of 2001. Though the timing was unintentional, 4Kids had signed with Burger King to place its Cubix action figures in meals beginning the week of August 27th, while McDonald's was putting Mattel's Hot Wheels in Happy Meals with a special Monster Jam Trucks (licensed by 4Kids) placement to occur in August or September.

4Kids stock reached a high of $29.30 per share in the third quarter of 2001 due in large part to a successful bid to lease Fox television's "FoxBox" block of Saturday morning children's programming beginning in early 2002. 4Kids went up against Nickelodeon (of Rugrats fame), DIC Entertainment (known for its Sonic the Hedgehog and Sabrina the Teenage Witch series), Discovery Communications (purveyor of Animal Planet, TLC, and the Discovery channels), and Nelvana (Franklin the Turtle)—all of whom coveted the four-hour programming block. 4Kids won the $100 million four-year deal, yet it did not include old stalwart Pokémon or new phenom Yu-Gi-Oh!, which was promised to the Kids' WB.

Company Perspectives:

We know what KIDS like!

Yu-Gi-Oh!, an animated series based on a Japanese comic book and card game, debuted on the Kids' WB in the fall of 2001. Yu-Gi-Oh! revolved around a boy who played a special card game and in doing so was able to transform himself into the "Master of Games" (a rough translation of the show's title) and battle monsters. The show's targeted audience was older than its predecessor Pokémon 's, primarily due to the upstart's darker tone, elaborate plots, and scarier monster content. Like Pokémon, however, Yu-Gi-Oh! was already a hit when 4Kids became interested in the franchise's licensing rights. According to Variety, Yu-Gi-Oh! had racked up earnings of more than $2 billion in Asia by 2001 when 4Kids brought the animated series to the United States. While year-end net revenue for 4Kids fell from its all-time high in 2000, it was still a respectable $41.5 million in 2001. Net income came in at $12.2 million—and 4Kids believed its newest import would soon drive its sales to previous heights.

As Kahn envisioned, Yu-Gi-Oh! the television series attracted a growing audience of kids, mostly male, during its first six months. By April 2002 the show was no longer just on Saturdays but ran six mornings a week. Like Pokémon, Yu-Gi-Oh! spawned merchandise tie-ins such as action figures, trading cards, games, video games, apparel, lunch boxes, music, and even linens. Net revenues rose accordingly, up to $53.1 million, a $12 million leap from the previous year.

In early 2003 LCI and 4Kids resurrected the animated television series Teenage Mutant Ninja Turtles as well as a series version of Back to the Future into its Saturday morning FoxBox programming. Both 1980s favorites were revamped and updated to good results. 4Kids also lent its famous animated Yu-Gi-Oh! characters to the White House's Office of National Drug Control Policy in a new anti-drug crusade called "Honor—My Anti-Drug." The new campaign was launched in July 2003 and featured special Yu-Gi-Oh! collectible stickers available through Blockbuster Entertainment video stores nationwide. Another deal came with the unusual pairing of Yu-Gi-Oh! characters and NASCAR, to create a Yu-Gi-Oh! paint scheme for car number 43 at the Talladega Superspeedway in a September 2003 race. The back of the Dodge car featured the Yu-Gi-Oh! famous line, "Let's Duel!"

4Kids Entertainment, parent to many subsidiaries, including marketing master Leisure Concepts Inc., continued to bring some of the world's most famous characters into the homes of mainstream Americans. Much of its success could be credited to Al Kahn, chairman and CEO, whose vision seemed to know no bounds. 4Kids had more than lived up to its name and would likely continue to do so in the years to come.

Key Dates:

1970:: Leisure Concepts, Inc. (LCI) is incorporated in New York.
1987:: LCI signs on to market Star Wars and inks a deal with Nintendo of America, Inc.
1988:: Alfred Kahn joins LCI as chief executive officer.
1992:: Two subsidiaries, Summit Media Group Inc. and 4Kids Productions, Inc., are formed.
1996:: Nintendo debuts a new game for Game Boy called "Pokémon."
1998:: Two LCI television shows gain considerable audiences: WMAC Masters and Pokémon.
1999:: The Pokémon phenomenon takes the nation by storm.
2000:: 4Kids Entertainment, Inc., parent company to LCI, goes public on the New York Stock Exchange.
2001:: 4Kids bids on Fox television's "FoxBox" slot of children's programming and launches Yu-Gi-Oh! animated series.
2002:: Two new subsidiaries are created: 4Kids Entertainment Music, Inc. and 4Kids Entertainment Home Video, Inc.
2003:: 4Kids and the White House's Office of National Drug Control Policy team up, using the characters from the Yu-Gi-Oh! television series in a new stay-away-from-drugs campaign.

Principal Subsidiaries

4Kids Ad Sales, Inc.; 4Kids Entertainment Home Video, Inc.; 4Kids Entertainment Music, Inc.; 4Kids International, Ltd.; 4Kids Licensing, Inc.; 4Kids Productions, Inc.; 4Kids Technology, Inc.; Leisure Concepts, Inc.; Leisure Concepts International Inc.; The Summit Media Group, Inc.; Websites 4Kids, Inc.