Big Bird, Pals Fighting to Regain Turf

Today’s story is brought to you by the letter “C.”

C for the Change taking place at Sesame Workshop, the parent of “Sesame Street.” And for the Competition in children’s television that is fueling that change.

More than three decades ago, Sesame Workshop, then known as Children’s Television Workshop, revolutionized TV for preschoolers with its curriculum-based, commercial-free PBS show that used Jim Henson’s lovable Muppets to make learning numbers and letters fun.

These days, “Sesame Street” remains the gold standard of kids television, but its nonprofit parent is struggling to find its niche while bigger, well-financed for-profit rivals, such as Nickelodeon, grab its turf.

Versions of “Sesame Street” in such places as South Africa and the Middle East have won acclaim for attempting to bridge cultural gaps. But Sesame Workshop has only modestly succeeded in replicating the magic with other shows in the U.S. Its essential dilemma: How to make the vaunted education-based model for producing television economically viable.

Today, in a bold move to take more control of its future, Sesame Workshop is expected to announce that it is acquiring full rights to “Sesame Street” characters from their copyright and trademark owner, Germany’s EM.TV & Merchandising AG, owner of the Jim Henson Co. The multimillion-dollar deal will allow the workshop, which in the past has had to share decision-making with the Henson Co., to use its prize show and characters more deftly.

More broadly, workshop executives are already addressing challenges head on, with a new creative chief and commercial partners for new productions, including a 10-series, five-year co-production deal with EM.TV, also expected to be announced today, said sources familiar with the negotiations.

Ironically, Sesame Workshop has had difficulty benefiting from the revolution it started in 1969. Today, “there is no preschool media service that does not define itself as educational, and that was certainly not the case when CTW went into business 30 years ago,” says Alice Cahn, an executive with the Markle Foundation and the workshop’s former head of production. “It’s not because the nation decided to focus attention on preschoolers. The industry as a whole saw an opportunity: You could do well financially and do good for kids at the same time, so why not do both?”

In recent years, critics say, the workshop has been too slow-footed to keep up with the rapidly changing marketplace, and exceedingly cautious in its decision-making to protect its integrity. As a result, even as outlets for its programming mushroom, workshop productions have grabbed few spots. With their high consumer trust level, “they should be dominating children’s television,” says Kenn Viselman, chairman of the itsy bitsy Entertainment Co., which holds North American rights to PBS’ “Teletubbies” and co-produces the Learning Channel’s “NiNi’s Treehouse.”

One big workshop move--partnering with Nickelodeon to create the educational cable channel Noggin, which airs early “Sesame Street” reruns--led to a serious rift with its longtime partner, the Public Broadcasting Service. The two have increasingly gone separate ways. Log on to the PBS Kids Web site and up pop the aardvark Arthur, the purple dinosaur Barney and the bouncing Teletubbies. But Big Bird, Elmo and Cookie Monster are nowhere to be found, although a buried link lets users jump to the show’s Web site.

TV Funding Cuts Hurt Workshop

The workshop’s problems started in the early 1980s, when the government diminished TV funding, says Joan Ganz Cooney, co-founder, board member and president for the first 20 years. “I was very naive. I thought if you were very successful, the government and foundations, our supporters, would go right on supporting us.” By the mid-1980s, she says, “things were getting sort of dire here.”

The workshop, through savvy investments, built up a hefty cushion to see it through tough times, but the prudent board still demanded that projects break even. CTW turned to then-controversial product licensing.

Furthermore, competition loomed as baby boomers embraced wholesome Nickelodeon and Disney’s classic videos and bought their plush toys and sheet sets. PBS began distributing new shows such as “Barney,” whose licensing windfalls drew even more newcomers. In 1990, says workshop Chief Financial Officer Melvin Ming, “there were two PBS preschool brands: ‘Mr. Rogers’ and us. Today, there are 20.”

And outlets for quality shows abound. Cable’s the Learning Channel runs three hours of ad-free preschool shows daily; the Cartoon Network and the Fox Family Channel have ad-free blocks; the Disney Channel is widely available; and PBS has its own “Sesame”-free channel, PBS Kids. CBS runs Nick shows such as “Blue’s Clues” on Saturday; HBO has “Babar.” “Kids are growing up with the ‘Blue’s Clues’ and ‘Toy Stories’ of the world, which have raised the level of sophistication,” says Gary Knell, Sesame Workshop’s president and chief executive. That has “pushed the envelope on technology. . . . The bar gets continually raised.”

Nickelodeon and PBS shows remain the most popular with kids. In the PBS universe, Sesame Workshop’s “Dragon Tales,” an animated problem-solving show launched last year with Sony Pictures’ Family Entertainment, is one of the top preschool shows. But the viewership of “Sesame Street” is falling off as public stations air it less frequently in favor of PBS’ new shows.

To meet the rising competition, the workshop has kept shifting strategy. Several companies, including Boston Consulting Group, came in to develop strategic and marketing plans, which critics say were never given enough time.

Cooney says management was focused on a few goals, such as launching an educational cable channel. But that proved difficult; with a lack of distribution expertise, the workshop finally turned to commercial rivals, talking with everyone from Disney to Fox, before partnering with Nickelodeon. Noggin now reaches 12 million homes.

That 1998 deal was complicated because the workshop didn’t own “Sesame Street” outright. It also angered PBS, which saw reruns of its franchise going to a commercial rival. PBS subsequently launched PBS Kids. And a new contract for ongoing seasons of “Sesame Street” reduced PBS funding and for the first time gave PBS a sliver of the show’s licensing revenue. Sesame Workshop began seeking corporate sponsors for the show for the first time.

Increasing production also proved problematic. Early on, the workshop had some success with “The Electric Company” and the science show “3-2-1 Contact.” But the workshop’s several attempts in the 1990s to make it in the commercial world foundered and the Sesame group so far has failed to come up with shows for Nickelodeon, even though its Noggin deal gave it a valuable commitment there.

By 1992, the workshop was on a money-losing streak (the exception was 1998, thanks to the toys Tickle Me Elmo and Sing ‘n Snore Ernie.) In 1995, 47 people, or 12% of its staff, were laid off. In 1999, the workshop had its largest operating loss yet, $15.2 million, a figure that dropped to $10.7 million in fiscal 2000. The financial cushion covers the shortfall, along with ongoing Noggin investments; it is also expected to be tapped to cover part of the EM.TV deal.

Like other companies, the workshop made a costly blunder on the Internet. “Everybody thought it was potentially a profit venture just a few years ago,” says Cooney. “By the time it became clear there was no revenue model, we had spent an immense amount of energy and money.” A simpler site has just been relaunched.

New Shows in Development

Today, the workshop is refocusing yet again under Knell, who took the top post in January when David Britt, who followed Cooney as president, retired. Knell, former executive vice president, brought in a new management team, and the quarreling TV, online and publishing fiefdoms that ruled the workshop are now pulling together, says Karen Gruenberg, new executive vice president of operations. In October, the board chairmanship changed for the first time.

One of Knell’s first steps was the name change, to take advantage of the workshop’s best-known brand, and to signal a focus on developing content for all media, even Sony’s PlayStation 2. The workshop dramatically stepped up development, allocating a couple million dollars in seed money for new programs, 16 of which are in various stages of development, says Knell. One in the works: “Tiny Planets,” five-minute shows starring computer-animated Bong and Bing, who teach basic science and push kids to follow up online. Drama projects deal with dyslexia and Latino girls. “Sesame English,” a language show launched in Asia with Berlitz, is expanding.

Broadly, management wants to return to the workshop’s mission-driven roots, with ambitious plans to replicate its preschool model for the much more finicky 6- to 11-year-old crowd.

But it is turning to executives with commercial experience to carry out that program. Nancy Steingard, former executive vice president at Universal Family & Home Entertainment Production, has just been hired to oversee creative development. She’ll stay mostly in Los Angeles, a first for the New York-based workshop. Her job, says Gruenberg, will be to examine “socially, emotionally, cognitively and just overall developmentally, what do kids need and how do we fill that need?” A new London office will foster international ties; it will be headed by Julian Scott, group vice president of European operations. He says he won’t be upset if some of the ambitious projects don’t gel, because as a workshop, “we’re the only media company that can experiment like that.”

The new model carries risks. For one, nearly all new productions will be done with partners, which means compromises. So “Sagwa the Chinese Siamese Cat,” a self-discovery show for older children starting on PBS next fall, will be done with Canada’s Cinegroupe, and “Tiny Planets” with the U.K.’s Pepper’s Ghost Productions. The workshop has a new deal with the U.K.’s Granada Media Children’s to develop nonfiction shows for 8- to 12-year-olds.

The “Dragon Tales” co-production, although ultimately successful, underscored the workshop’s cautious nature. “We each took our lumps in the process,” says Sander Schwartz, president of Sony Pictures Family Entertainment. For one, he says, “they want to test and test and I am not from the school of overtesting. I want to make sure it’s entertaining; they want to make sure it’s educational.” Still, the two are in early stages of developing another show.

Moreover, to finance its efforts, the workshop is counting on foundation grants and corporate sponsorship. “Philanthropy is in the air again,” says Cooney. Such money was a mere 5% of 1999 revenue of $123.8 million, but doubled to 10% in fiscal 2000. Ming says the goal is for grants to account for 30% of the budget, to offset what are likely to be slowing licensing revenue, due to competition.

Changes at PBS have allowed an opening to repair the frayed relationship. “They have new management, thank God,” says Cooney. New PBS President Pat Mitchell has “mandated” that her staff repair the rift.

Through the struggles, “Sesame Street,” which has won a record 76 Emmys, remains a bright spot. The addition of “Elmo’s World,” a 15-minute segment on life through a 3-year-old’s eyes, has revitalized the show, which, as the only hourlong preschool program, demands a lot from its young audience.

Nonetheless, the ratings are down, so the show’s creative team gathered last summer at a programming summit with an array of children’s entertainers. But with testing and long production lead times, it’s still a slow process: The changes won’t be seen on air until 2002.

Knell says he and his team are committed to “getting our arms around” the “Sesame Street” problems, as well as the company’s broader challenges. The EM.TV deal is one sign of how aggressive the workshop intends to be. But the test remains the same: whether Sesame Workshop will be able to remain relevant to new generations.