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City view

By Steve Metcalfe

HIT Entertainment, the owner of children’s television show Bob the Builder, has denied increasing speculation that it is preparing itself for a sale to a US media company.

HIT said last week it expected to announce details of a new digital channel venture in the US within six months, leading analysts to suggest it was preparing the way for a sale.

HIT, which has built up a large portfolio of children’s television brands including Thomas the Tank Engine, Pingu and Barney, has been seeking the best way to control the distribution of its content and is looking at how to set up its own digital channel.

Analysts have said this is likely to be done in partnership with a US network or distributor and have viewed it as the first step to a takeover. “I see this as a precursor for HIT putting themselves up for sale,” said Evolution Beeson Gregory analyst Adrian Kearsey.

But Nigel Birrell, director of corporate development and acquisitions for HIT Entertainment, said the speculation about a sale to a US major was unjustified. “That’s not the case at all,” he said. “We are a growth company and we need to keep growing. We see this as a way to further our development.” Currently, HIT’s TV shows are shown through a variety of channels, but the new deal would allow it to exploit its products better.Birrell was unwilling to give details of how HIT would structure its channel deal, but Kearsey suggested that as well as teaming up with a distributor or network, HIT would have to assess whether it had enough content for its own channel or whether it needed to partner another content provider.

Meanwhile, analysts at Merrill Lynch said a sale was more likely to be an alternative to the US channel deal. In a report to clients, the analysts said that if no deal was done, because of HIT’s small size and lack of leverage against the US majors, then “we believe the group would then take steps to sell itself, to deliver shareholder value”.

Market observers have long viewed a deal with a US distributor, such as a cable company, as a likely scenario.

HIT’s share price rose 6% on the day that US cable giant Comcast launched a hostile bid for the Walt Disney Company, in the hope that Comcast’s move could inspire a similar marriage of content and distribution involving HIT.

Birrell said HIT’s move in the US was driven partly by the fact that the penetration of digital television in the US is lower than in the UK. The success of Sky and Freeview has pushed digital television into about 50% of UK homes, whereas the penetration is only about 40% in the US. In addition, Birrell said: “There are no dedicated pre-school television channels in the US, unlike over here.”

HIT said last Monday that its six-month profit before tax had fallen from £21.5m to £14.6m, largely due to the weakness of the dollar. Some 60% of HIT’s revenue comes from the US. Bob the Builder, which accounts for nearly a quarter of the company’s revenue, reported a slide in revenue of 29%, although HIT said a re-energising of the brand would boost sales.

Dow Jones to buy more local language news providers

Dow Jones & Company is looking to purchase more local language news services following its acquisition last week of German newswire vwd, according to newswires division president Paul Ingrassia.

Dow Jones Newswires paid €4.4m for the news business of vwd, but sold its terminal and services operations on to a separate consortium. It now publishes newswires in 11 languages, but wants to increase its penetration of local language news.

“This is a key focus for Dow Jones Newswires and the company is always looking at opportunities,” said Ingrassia.

In Europe, Dow Jones publishes news in English, German, Spanish, French, Portuguese, Italian and Dutch.

Ingrassia said the acquisition of vwd would add 120 staff to Dow Jones Newswires’ existing 200 editors and reporters in Europe.

Dow Jones previously controlled one-third of vwd, and held two seats out of six on the vwd board.

Following the sale of Telerate to Bridge in 1998, Dow Jones has focused its attention on just providing content, unlike its larger rivals Bloomberg and Reuters which also distribute content through market-data terminals.