Jim Henson Co. blames last week's dismal debut of its latest movie, "Muppets From Space," on its ill-fated release during a highly competitive summer at the box office. The film's cool reception, coupled with the disappointment of the last Muppets TV series, "Muppets Tonight," which landed on the Disney Channel after bombing on ABC, underscores the difficulties of keeping evergreen characters, even those as lovable as Kermit and Miss Piggy, relevant in an age when young audiences crave edgier fare such as "The Rugrats" and "Pokemon."
"They have one of the world's greatest brands, but it's a brand that needs polishing and needs to be the centerpiece of the Thanksgiving table again," said Toper Taylor, president of Nelvana Communications, a Canadian company that specializes in children's programming. "If more time passes, they'll have a real uphill battle keeping their market share in the kids' business."
During the last five years, co-Presidents Brian Henson, 35, and Charles Rivkin, 37, have built Henson Co. into a profitable multimedia business, with an average 44.5% return on equity and more than $200 million in annual revenue.
The privately held company's non-Muppet business has grown as fast as its core franchise, thanks to interactive forays, international library sales and license fees from cable-TV hits such as "Bear in the Big Blue House" and "Farscape." Its special effects Creature Shop has become a powerful profit center, with credits that range from "Babe" to "Dr. Dolittle."
But the family concern is facing the toughest challenge in its history as one of the top suppliers of family entertainment. Since the unexpected death of "Muppets" creator Jim Henson a decade ago, family entertainment has become one of the fastest-growing and most competitive segments of the business, with stand-alone content providers such as Henson disadvantaged against deep-pocketed media giants that control both programming and distribution channels such as Disney, Viacom, Time Warner and Fox.
Even a programmer as powerful as Saban Entertainment, which produced such hit shows as "The X-Men" and "Teenage Mutant Ninja Turtles," was forced to partner with Fox Broadcasting Co. three years ago to survive the industry consolidation.
Rivkin, whom Jim Henson hired out of Harvard Business School in 1988, has made strides expanding the company into distribution. In partnership with Hallmark Entertainment, the company bought and relaunched Odyssey Channel, a religious network, and started several Kermit Channels internationally.
But partnerships with ABC and Sony are not expected to be renewed next year when they expire, leaving Henson Co. at a critical crossroads in terms of financing its core TV and film production. The production venture with ABC, formed in 1995, was stymied when the broadcaster was bought by Walt Disney Co., which was eager to see its own family fare on the network.
The same year, Henson struck a high-profile deal with Sony Pictures Entertainment to finance and distribute its theatrical movies. But that partnership also deteriorated when new management at the studio didn't share the same appetite for the arrangement as the previous regime.
Rivkin says the company has been profitable since 1995, following financial turmoil after Henson's death and a failed merger with Disney. But he readily acknowledges this as "a watershed year" and said management is exploring private or public financing and strategic partnerships.
"We do not have a shortage of people interested in investing in our company," Rivkin said.
Disney was once a suitor. Disney chief Michael Eisner said he's "always been interested in expanding our relationship" with Henson. Although he has never reconsidered buying the company, he allowed, "It certainly wouldn't be the last thing I'd think about. I wanted to buy it once."
Disney agreed to buy the company for $150 million nine months before Henson's death in May 1990. But the deal unraveled after Henson died, prompting the Hensons to sue Disney for exploiting the Muppets characters before owning them. Disney counter-sued, but it reached a settlement in May 1991, agreeing to pay $10 million for limited theme park rights to the Muppets.
The resulting "Muppet Vision 3D" attraction at Disney/MGM Studios in Florida will be replicated in 2001 as part of the planned Disney California Adventure in Anaheim.
And despite an ABC partnership that Eisner said "did not particularly work," Disney and Henson have also forged a strong relationship in cable TV.
In its third season on Disney Channel, "Bear in the Big Blue House" is one of the network's most popular shows among preschoolers. Disney Channel President Anne Sweeney said that parents and kids sit down together to watch the Emmy-award-winning program, created by Mitchell Kreigman, in much the same way "Sesame Street" audiences did.
"The genius of 'Sesame Street' is it works on two levels," she said, "and that's what I love about 'Bear.' "