U.S. toymaker Hasbro Inc and Discovery Communications unveiled a joint venture on Thursday for a television network and website that will carry children's programs featuring brands like G.I. Joe, Transformers and My Little Pony.
The new network will replace the Discovery Kids Network and feature new content for Hasbro's brands and its existing collections as well as Discovery's own shows, such as Hi-5 and Bindi The Jungle Girl.
A name for the network, expected to debut in late 2010, is yet to be decided. It will continue to operate as Discovery Kids until the rebranding is complete.
This is a bold move by Hasbro, said BMO Capital Markets analyst Gerrick Johnson. It fits well into their ongoing strategy of building entertainment around their brands.
Johnson questioned why Hasbro would not just sign a licensing deal for its brands, which would cut expenses and let it focus on building new toy brands.
The deal gives Hasbro, the No. 2 U.S. toymaker, a stronger foothold in the entertainment arena, where it already has a solid presence with toys tied to movie franchises like Iron Man and Star Wars.
The joint venture will take a toll on the toymaker. Hasbro said it expects fiscal 2009 per-share results to take a 25-cent to 30-cent hit, and fiscal 2010 per-share results to take a 30-cent to 35-cent a share hit due to expenses tied to launching the network.
After that, the deal should add to profits, Hasbro said.
Investors did not take to the news, sending Hasbro's shares down 5 percent. Discovery shares fell 0.9 percent.
You have a binary event -- either it works or it doesn't, Johnson said. The market is making a decision, saying, 'We don't really like it.'
Under the deal, Hasbro will purchase a 50 percent stake in the venture, which will hold the assets related to Discovery Kids Network in the United States, and Discovery Communications will receive $300 million.
Discovery Communications will retain the Discovery Kids brand for its international networks and licensing and merchandising business.
Hasbro shares were down $1.46 to $27.13, and Discovery shares fell 31 cents to $18.96.
(Reporting by Aarthi Sivaraman; Additional reporting by Martinne Geller; Editing by John Wallace and Brian Moss)