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Market Insight

US children's entertainment company 4Kids files for bankruptcy

April 07, 2011

Tim Westcott Tim Westcott Director – Research and Analysis, Programming, IHS Markit

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US children's content company 4 Kids Entertainment has filed for bankruptcy protection to stay a lawsuit from the Japanese owners of the Yu-Gi-Oh property. New York-based 4Kids said yesterday it had filed a petition for bankruptcy relief under Chapter 11. The company said it will now explore strategic alternatives, including the sale of its business. The London-based 4 Kids Entertainment International was not included in the filing.

Last month, 4 Kids was informed by Asatsu-DK Inc and TV Tokyo Corporation of their intention to terminate their licensing agreement for Yu-Gi-Oh in the US. The move followed an audit of 4 Kids' books which the Japanese companies undertook last year to review its agreement to receive 50 per cent of the gross revenues from Yu-Gi-Oh, minus certain expenses. They alleged that they had found examples of questionable accounting by 4Kids and as well as terminating the agreement, are demanding $4.7m in damages. 4Kids said that the termination was 'wrongful and devoid of any factual and legal basis'.

4Kids Entertainment saw its revenues soar when it owned the rights to Pokemon outside the US at the beginning of the decade. The company has continued to license Japanese properties, which appear to have been considerably more successful than its own productions. The company also programmes the Saturday morning children's block on the CW Network.

In recent years, 4Kids has seen a dramatic reversal of fortunes. Last year its annual net sales were $14.5m, having fallen from $34.2m the year before and from a peak of $62m in 2006. Revenues from Yu-Gi-Oh property alone were $12m last year, 44 per cent of its overall licensing sales.

The company's rise and fall is not unusual in the fad-driven children's business. Germany's EMTV, BKN International and TV Loonland, Entertainment Rights in the UK and France's Carrere have all, in recent years, crashed from riding high on stock markets to insolvency. Cartoon Network, Walt Disney and Nickelodeon not only dominate the children's space in the US but are taking an increasing share of the global market and it has become harder for independent children's entertainment companies to thrive.

Japan is the main rival to the US big three, and has produced a string of worldwide hit franchises which tend to work across multiple platforms - TV, movies, computer games and trading cards. While IP owners have tended to license North American and European rights to third parties, the dispute over Yu-Gi-Oh may mean that more of them may choose to handle licensing directly rather than appointing third parties.

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