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Discovery-Hasbro Deal Under Fire

5/02/2009 2:00 AM Eastern

Discovery Communications has a new programming partner in toy maker Hasbro Inc., but their plans to remake the Discovery Kids channel into a new programming service aimed at children have some critics threatening to seek government help to derail the venture.

Discovery and Hasbro said last Thursday they’re creating a joint venture that will remake the Discovery Kids channel late next year into a vehicle for new programming based on Hasbro brands including Romper Room, games Trivial Pursuit and Scrabble, and toys My Little Pony, G.I. Joe, Tonka and Transformers.

Hasbro will pay $300 million for a 50% stake in the venture, which also will create online digital content and share merchandising revenue that emanates from the programming.

Discovery Kids BindiThe new channel will be aimed at kids age 14 and under and also incorporate existing Discovery Kids shows aimed at a range of age groups. They currently include Bindi the Jungle Girl, Endurance, Tutenstein, Hi-5, Flight 29 Down and Peep and The Big Wide World.

Discovery will handle ad sales and distribution, and Hasbro will create and acquire new programming, the companies said. The channel will be renamed and the venture will seek out a CEO and management team.

Discovery CEO David Zaslav and Hasbro CEO Brian Goldner told reporters during a conference call their respective desires to add value to Discovery Kids and extend Hasbro into television (especially cable) programming came together when Hasbro approached Discovery.

Zaslav called Discovery Kids “a fantastic platform” that will have 60 million subscribers by late next year but that needed a strategic partner with strong brands to build greater value.

Goldner said Hasbro “saw TV as a keystone to our brand strategy” and wanted a partner with programming and distribution savvy.

Critics, including not-for-profit groups that advocate for children, quickly and strongly denounced the plans, saying government regulators should make the proposed transaction a test case for examining when programs based on products aimed at kids cross the line into prohibited advertising.

“The planned network is the latest indication that the deregulation of children’s television has been an unmitigated disaster for children and families; no longer do companies feel compelled to even pretend that their programming is beneficial for children or about anything but pushing product,” was one such response, from Campaign for a Commercial-Free Childhood, or CCFC.

We hope that the [Federal Communications Commission] takes a long, hard look at this new venture as they consider whether their current restrictions on embedded advertising are adequate to protect children,” CCFC said.

“Perhaps Hasbro should create a chutzpah doll, because they certainly have a lot of it,” the Center for Digital Democracy’s Jeff Chester said. “This is a bad decision Discovery made because now Discovery is going to be on the target list of groups concerned with children and their well-being.”

Discovery HasbroThe FCC is currently re-examining rules governing the use of products embedded within programming. Product placements already are barred in programs aimed at children under 12 years old. But many programs on existing kids’ programming services — such as Viacom’s Nickelodeon, Disney Channel or Time Warner Inc.’s Cartoon Network — are based on characters that either emanate from toys or games or that later generate lucrative merchandise.

“It’s exploiting the loopholes in the law,” Josh Golin, the associate director at CCFC, said. A show can promote brands or characters if the products themselves aren’t in the shows. A show can be about G.I. Joe, but not actually show the action figure kids would buy. “That’s not considered product placement, though obviously it is,” Golin said.

Discovery and Hasbro called the criticism premature and unfounded. “Great stories and characters will drive the programming on the new network,” a Discovery response stated. “Overly commercialized content is not what viewers want and not a good business plan.

“Hasbro and Discovery are committed to creating a television network dedicated to high-quality entertainment and educational content, and once parents and children see the actual focus of the new network in the fall of 2010, we are confident it will meet their expectations for quality and family friendly programming.”

Discovery Communications CEO David ZaslavZaslav said Discovery wants to take channels like Discovery Kids — ones with fewer homes than fully distributed Discovery Channel, Animal Planet and TLC — and maximize their value via partnerships or format tweaks.

Discovery entered into a joint venture with The New York Times on Discovery Times, which has been reformatted as Investigation Discovery, and with Oprah Winfrey, who is partnering on a conversion of Discovery Health into the Oprah Winfrey Network. Discovery Home has been remade into eco-focused Planet Green.

Gary Knell, CEO of Sesame Street producer Sesame Workshop, a co-owner of PBS Kids Sprout, said Hasbro was taking a page from Marvel Comics in attempting to create lucrative programming from well-known brands.

Discovery, he said, he was trying to make the most out of an underperforming asset in Discovery Kids by finding the best partner it could in tough economic times.

Knell said he wouldn’t judge Discovery’s motives. “But just from its face, they’re probably going to have a fairly big hurdle to climb to convince people that they’re starting with education first and not marketing first. And whether parents are going to accept it as something other than as a way to promote their products.

“The proof will be in the pudding,” he said.

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