SODOR ISLAND Essay Annex

Thomas & The Takeover

Thomas & The Takeover

The Ins and Outs of the murky business of breaking up or selling HIT Entertainment, how we have reached this point in Thomas's life and what it could mean for future of our favourite blue tank engine...

We have finally reached a point that we all knew would eventually come.  Apax Partners, the private equity firm that bought HIT Entertainment in 2005 have decided to make the necessary sales to save the company from collapsing under its own mountain of debt.  HIT will either be sold as a whole company, or in various entities, selling off its more attractive assets to the highest bidder.

In September 2002, HIT Entertainment officially acquired Gullane, formerly The Britt Allcroft Company.  Their main goal behind the acquisition was Thomas The Tank Engine & Friends, which had been the crown jewel in Britt’s company since the very beginning.  Over the years, Britt had built up an amazing catalogue of properties to stand alongside Thomas including Mumfie, Sooty, Captain Pugwash, Fireman Sam and Art Attack, but Thomas still stood out as the strongest property in the company’s portfolio and ascended proudly to the rank of No.1 Children’s Pre School Property in 2000.

Following the acquisition, HIT re-developed Thomas with more effective marketing, and succeeded in getting the series back on American television through a radical restructuring of the show’s format, launching their first series in 2004.

 

In 2005, although enjoying success following their re-launching of Thomas, HIT found themselves making major losses.  This was attributed to the effects of a ‘challenging’ market, which had saw sales drop by 24%, and net profit slump 96% from 6.51m to 288,000.  Brands such as Barney and The Wiggles were blamed for declining popularity, and a major US retailer, who had cut shelf-space for children’s products in that year.

As a result, the company put themselves up for sale, and they were bought out by Apax Partners, a private equity firm, for 489m, with the overall goal of  restructuring and revitalising the business.  Over the years, Apax were very quiet and faded somewhat into the background, whilst HIT continued to conduct it’s affairs.

However, their plans to revitalise the business were in full swing, with a long-term view to the sale or floating of HIT Entertainment on the stock market again.  Apax felt the best means of making the company more attractive to investors would lie within expansion.  Plans included merging HIT with another successful company, such as Entertainment Rights, the owners of Postman Pat and other various properties, which itself entered administration with debts totalling 125m.  Apax lost out on the acquisition of Entertainment Rights to Boomerang Media.  There had also been consideration to merge the company with Canada based Cookie Jar Entertainment, although this also failed to materialise.

In 2007 and 2008, Apax began looking at ways and means of reducing production costs in HIT’s portfolio, whilst still maximising profit.  Fireman Sam and Angelina Ballerina were both announced as the first properties that would enter into full-CGI makeovers, with Thomas’s production costs being reduced through CGI implements on the model set-up provided by Nitrogen Studios in Canada, and the move to a single storyteller, Pierce Brosnan, who was intended to bring the ‘cool’ back to Thomas.

In early 2008, speculation was rife among the Thomas Production team that the series would move to full CGI.  This had been mooted for several years previously, and no-one was fully convinced it would happen at first... but as time progressed, Thomas’s production costs were also questioned and it was considered by higher management at HIT that the series would be better served if a full CGI production was implemented.  The same treatment would be applied to the declining Bob The Builder series.  SiF had the info passed privately by a reliable source, but chose not to disclose it for fear of the implications and lack of corroborative evidence on our side.  The news was officially broken by The Sun newspaper’s business section a few weeks later, and long before HIT was prepared to make a formal announcement.  The information had been passed by a source close to the newly closed set.

Outside of the public view, in late 2009, there were questions over where HIT Entertainment were due to be standing in 2010, and more importantly, where Thomas The Tank Engine would be.  Many commentators believed that HIT would go bust in 2010, and these fears bore fruit in the first quarter of the year when HIT came close to facing a 'soft' breach in its loan covenants.  Thankfully, these were restructured by Apax and the creditors, who continued the long term objective of expanding the company.  Later in 2010, HIT were split into two companies – one specialising solely in the marketing of Thomas and Friends, and the other looking after the other HIT properties.  This would later lead to further questions over whether this move had been made to make Thomas easier to sell, but HIT insist that this is not the case – but for purely for ease of marketing.

In September of 2010, it was announced that Apax would be pushing through plans to sell HIT Entertainment in order to settle the debts that the company held.  HIT would either be sold as a whole or as individual properties – with Thomas high on the list of lucrative assets that could be beneficial to paying off HIT’s financial burdens.  However, it also has to be noted also that as the most popular property in the portfolio, it is also the most lucrative, and the acquisition of Thomas to the HIT stable has been as beneficial for them as it has for the property itself, becoming the company’s main breadwinner by a huge margin.

Following the announcement that Thomas was to be sold, many media commentators have called the brand unattractive to investors, and have wrongly suggested that Thomas is being overtaken by rival rail-based production, Chuggington.  Based upon information from reliable sources, this could not be further from the truth in terms of sales and continued growth, particularly in terms of DVD sales where Thomas continues to thrive over Chuggington releases, and has seen significant growth in terms of sales since the move to full CGI under Nitrogen Studios.

The same commentators have also touted large companies such as Disney and Viacom as the most likely buyers of Thomas and or HIT Entertainment.  Whilst certainly able to pay for the rights to HIT, it is questioned whether or not the core values and history of the brand will be respected by either of the large American corporations.

 

More recently, British based media group Chorion Entertainment came to the fore as an interested party for Thomas.  With properties such as Mr Men, various Enid Blyton works and Beatrix Potter, it is the sincere view of many fans at the moment that a sale to Chorion could be a good move for the preservation of the brand in the long term if it cannot stay with HIT Entertainment.  A more recent report, clarifying Chorion’s position on the bidding process, (which can be viewed here) states that any potential sale could take between six months and a year, and that no firm plans have been established at this very early stage in the game.  What does remain clear is that Apax are intent upon settling HIT’s debt by any means necessary.

However, we have no knowledge of what any of the prospective bidder’s plans for the series would be.  It remains open ended as to whether or not they would retain the current production team, keep ties with Nitrogen Studios, maintain the rigour of the series’ current setup or choose to go in a completely different creative direction, slash budgets further or allow for greater creative freedom among writing and production staff.  The full extent of HIT’s innovations to the series came as a surprise to many in 2004, and the same could happen again if and when new owners finalise their own relaunch.

In my own personal, sincere view, Thomas has prospered beyond belief under HIT’s guidance.  Although there are some aspects of the business model that remain questionable, particularly the treatment of some heritage railways over Days Out With Thomas events, the redevelopment of Thomas as a world beating brand is unquestionable.  The brand is now more profitable than ever before, and HIT have gone a long way to embracing all aspects of the fandom – including the elder ones, and on behalf of SiF, I would like to pay special tribute to the friendly relations that HIT and Nitrogen staff have extended toward our community.

 

In all, here’s to a happy outcome for Thomas, his friends and his fans.

Related Links

This essay is accompanied by a new Blog Series chronicling the Takeover and the subsequent proceedings...