4Kids Picks Fight Yu-gi-oh By Joseph Pereira Yahoo Finance riday October 18, 11:08 AM

4Kids Picks Fight -2:Nickelodeon Downplays Tie-Ins

By Joseph Pereira

NEW YORK -- Life-or-death suspense, grotesque supernatural villains, shoot-'em-up science fiction -- just another Saturday morning on Fox television for children.

Tune in to "Ultimate Muscle" and watch a gawky wrestler battle evil alien musclemen for intergalactic dominance. "Ultraman: Tiga" evokes the karate-chopping of the Mighty Morphin Power Rangers. In "Stargate," human bounty hunters battle sinister aliens. Both "Fighting Foodons" and "Kirby" follow the adventures of monster-bashing heroes. Coming in January: the return of the "Teenage Mutant Ninja Turtles."

Behind all the action is 55-year-old Alfred Kahn, chief executive of 4Kids Entertainment Inc. and the merchandising wizard who introduced Cabbage Patch Kids and Pokemon to America. In January, his New York-based company agreed to pay $101 million to lease for four years the prime preteen time slot of Saturday morning, 8 to noon. As soon as his new lineup, dubbed FoxBox, made its debut last month on News Corp.'s Fox network, it was clear Mr. Kahn had a certain kind of youngster in mind: boys.

"When boys fantasize, they fantasize about power, strength and speed, so they need Pow!, Ka-zam! and Voom! in their stories," Mr. Kahn says. "Nickelodeon doesn't give them that."

FoxBox presents a direct challenge to Nickelodeon, the Viacom Inc. unit that dominates the under-11 TV market and Saturday mornings in particular with cartoons such as "SpongeBob Square Pants" and "Hey Arnold." These shows rely on wry humor, real-life dilemmas and generous helpings of gross-out gags.

Instead of emulating Nickelodeon, 4Kids is importing and Americanizing decidedly more-violent, more-action-packed Japanese cartoons to appeal to the boys who make up roughly half of Nickelodeon's two million Saturday-morning viewers. The goal isn't just advertising dollars. Mr. Kahn's 4Kids specializes in licensing Japanese creative properties in the U.S., and its hottest properties, especially Pokemon, are cooling off. The company is hoping it can woo boys to its shows and induce them to buy action figures, video games, game cards and other tie-ins to its new shows, yielding big royalties.

The formula is already producing good results on the WB Network, which runs 4Kids' English-language productions of the Japanese cartoons "Pokemon" and "Yu-Gi-Oh" on Saturday mornings. Though it started weak last season, "Yu-Gi-Oh," the tale of a boy who travels through an underworld of card sharks and monsters, has topped the ratings so far this year among boys under age 11. Boys are lining up at stores to buy Yu-Gi-Oh cards. Analysts expect retail sales of Yu-Gi-Oh products of as much as $400 million this year. As holder of U.S. rights to the property, 4Kids would take a slice of that.

In its deal with Fox, 4Kids company similarly is banking on toys and other products to make the gamble pay off. Mr. Kahn says he already has more than $25 million in advertising commitments for the first year from food, toy and other vendors -- albeit with ratings-guarantee clauses for some. Profits, he says, will come from the product tie-ins.

Since the launch of FoxBox, 4Kids stock has climbed strongly, hitting a 52-week high this week of $27.74. Yesterday, it closed at $27.45, up 50 cents, in 4 p.m. New York Stock Exchange composite trading, but that's a long way from the $90 high it reached in 1999 at the height of the Pokemon craze.

Peter Lynch, the former top stock picker for Fidelity Investments' Magellan Fund, says he has bought some shares for his personal account and is encouraged by "a small research group of 10-year-old boys" he knows who watch "Yu-Gi-Oh" and "just love the show."

At 4Kids' studio in midtown Manhattan, carpenters are connecting the 11th floors of three adjacent buildings to make space for some 90 sketch artists, music scorers and producers. Though the shows arrive from Japan, 4Kids still has to produce translations, dub the films and compose music that is better-suited to U.S. tastes.

"We're soon going to a 24-hours-a-day-seven-days-a-week production schedule," says Norman Grossfeld, president of 4Kids Productions Inc., the unit that is producing the shows. He says production also involves exercising a bit of creative latitude. The U.S. versions of Japanese shows, he says, sometimes need a lighter touch.

In "Kirby" for instance, King Dedede, the villain, is mean and dumb in the Japanese version. For the U.S., Mr. Grossfeld gave the character a Louisiana drawl and got someone who sounds like the late comedian Paul Lynde to provide the voice of his sidekick, who loves bossing the peasants around.

But the action of the Japanese cartoons stays. In "Ultraman: Tiga," the eponymous hero destroys enemy monsters with laser beams that emanate from energy sources hidden in his body. The action is laced with campy humor. During a break in a battle scene in one recent episode, a warrior says the monster "is uglier than my mother-in-law." A comrade responds: "Yes, but her nose is bigger." The climax generally entails the monster villain exploding into bits.

In "Ultimate Muscle," Earth is threatened by a band of intergalactic wrestling types. Kinnikuman is a cowardly and rather homely hero who uses flatulence to fly. Reluctantly, he takes on the space villains in the ring and dispatches them into space with head locks, body slams and other wrestling maneuvers.

Compare that to Nickelodeon's Saturday-morning anchor, "SpongeBob Square Pants," about the mild misadventures of a sea sponge and an ensemble of supporting aquatic characters. In "Jimmy Neutron," the 10-year-old hero is a genius who sports Elvis-style hair and creates mayhem with his own grandiose experiments. The animated sitcom "Hey Arnold" focuses on a racially diverse group of earnest adolescents coping with everything from romantic crushes to sinister developers threatening their inner-city neighborhood.

Mr. Kahn says he may hear from some parents who deplore the violence in the FoxBox shows. The father of four says his shows don't abet violent behavior, and he argues that family has greater impact than television programming on a child's psyche. "Kids watch their parents smoke and they go out and buy bubble-gum cigarettes," he says. "I find that more disconcerting than watching superhero cartoons."

Mr. Kahn looks like the personification of a cartoon action hero, with a weightlifter's 6-foot-1, 280-pound frame. "The only real thing I take seriously is the gym," he says. "You'll find me every morning at 5:30 lifting weights. I can bench press 500 pounds." He is the oldest among the 160 employees of 4Kids, "but I'm the strongest."

He wears an electronic police beeper -- a gift, he says, from some well-placed friends in law enforcement -- on his belt at all times. The vibrating device alerts him to high-speed chases, major crimes and the like around New York City. He uses it to avoid traffic snarls, but there's also the fact that as a child, he says, "I always wanted to be a cop."

He first started working his merchandising magic at Coleco Enterprises. While head of the company's marketing and development, Mr. Kahn read an article in The Wall Street Journal about someone who ran a make-believe hospital for toy babies and sold them through an adoption agency. Xavier Roberts, the Atlanta businessman who owned the rights to the dolls, was having a hard time persuading major toy companies to pick up on the downbeat idea.

Mr. Kahn showed up to seal a deal for Coleco to market the dolls, and thus began the Cabbage Patch Kids craze. That lasted about three years, and after it ended, so did Coleco, which folded in 1989.

Mr. Kahn then bought Leisure Concepts Inc., the predecessor to 4Kids, and struck an alliance with Nintendo Ltd. to become a licensing agent, selling the merchandise rights to such big video-game properties as Donkey Kong and Mario Brothers to U.S. companies. In the mid-1990s, he negotiated toy and video-game deals for the Worldwide Wrestling Federation.

During a visit to Japan in the fall of 1998, he saw Japanese children lined up outside toy stores awaiting the next shipment of little dolls called Pocket Monsters. Nintendo feared that they were too Japanese for Western tastes. Mr. Kahn convinced his old ally otherwise and then secured Hasbro Inc. to make a line of Pokemon toys for the U.S.

"American and Japanese boys have similar appetites for action-oriented shows," he says. "In many ways, we in the U.S. have this big focus group in Japan."

Since the rechristened Pokemon charter line of 150 little monsters came out in the fall of 1998, Americans have plunked down more than $15 billion for Pokemon stuff -- sneakers and party goods, breakfast cereals and vitamins, trading cards and video games. With a piece of just about all of it except video games, 4Kids has taken in about $140 million in Pokemon revenue.

But sales of Pokemon products, the company's main source of licensing revenue, have been declining, to about $30 million last year from $85 million in 2000. That's why the Saturday-morning TV gamble is critical to 4Kids.

The company made the leap into children's television at a time when Nickelodeon's pre-eminence was reducing the segment's appeal for other broadcasters. Though annual spending on child-oriented television advertising has increased to $950 million from $700 million over the past six years, about 55% of it has gone to Nickelodeon, which regularly draws more than half of the nation's 48 million children.