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Firm Hopes Old Brand Will Spell Success

New owner Educate Inc. is reintroducing Hooked on Phonics as it shifts to consumer products.

July 10, 2006|Hanah Cho | Baltimore Sun

BALTIMORE — On Wal-Mart's aisle of educational toys and children's learning materials, dozens of brightly packaged products and cartoon-infused titles vie for parents' attention and a slice of their spending.

There's the LeapFrog electronic writing pad, Dora the Explorer learning kits, SpongeBob SquarePants educational games -- and an old brand fighting to be new again.

More than a decade past the peak of the backlash against "whole language" reading instruction that propelled Hooked on Phonics into infomercial ubiquity, Baltimore-based Educate Inc. is aggressively reintroducing the brand as an educational products line at Wal-Mart Stores Inc., Target Corp. and other mass retailers.

The move to revitalize Hooked on Phonics, which Educate acquired last year when it bought Gateway Learning Corp. of Orange County, is part of the company's broader plans to shift more of its business toward consumer products as its core tutoring business, Sylvan Learning Centers, is stumbling.

But Hooked on Phonics faces scores of competitors in a nearly saturated market. Spending on DVDs, CD-ROMs and other educational materials is declining, and some analysts worry about the pressures on retailers to cut shelf space devoted to educational products.

Some analysts also are concerned whether a company known for its tutoring business has the skills to manage inventory and maintain relationships with retailers.

Others question whether the Hooked brand is still relevant.

"One of the questions I have is 'Will the market favor the line of thinking: What is old is new again'? " said Jim McVety, a senior analyst with MarketingWorks, which specializes in educational sales. "In the retail market, they're up against companies like LeapFrog, which touts the model of toys that teach, whereas Hooked on Phonics is a tool that teaches."

Educate believes its strategy can work. The company wants to attract parents who may balk at spending an average of $3,325 on tutoring, hoping they will be lured by the nostalgia of the Hooked brand. It also is trying to reach children earlier in the learning process. Educate has found that two-thirds of parents bought educational materials before enrolling their children in its tutoring sessions, which begin in kindergarten.

The move into consumer products involves more than just Hooked on Phonics. Under a deal to co-produce the PBS children's series "Reading Rainbow," Educate will start selling licensed "Reading Rainbow"related DVDs and other materials in stores this summer.

Moreover, the company is using its Sylvan brand to sell School Success kits to help elementary-age children with organizational skills and testtaking strategies. And next year, Hooked on Phonics electronic learning aids will be sold at major retailers under a partnership with a toy company.

"It allows us to not only deliver service but deliver products earlier in the life cycle and educational experience," said Kevin Shaffer, Educate's chief financial officer. "We see that as a way to better address the needs of all educational consumers, both in products and service."

Hooked on Phonics, created in 1987 by a father whose son was struggling to read, quickly gained national name recognition through heavy promotion on late-night airwaves.

Its promises to help struggling readers by emphasizing the pronunciation of letters coincided with a cultural backlash, fanned by conservative talk radio, against the "whole language" method of reading instruction then gaining popularity in many public schools. "Whole language" emphasized teaching the meaning of words primarily through reading.

"The parents were terrified that their kids were not going to learn to read. They thought they weren't getting the phonics," said Robert E. Slavin, director of the Center for Research and Reform in Education at Johns Hopkins University in Baltimore. "Hooked on Phonics filled something that the schools weren't filling."

The culture war eventually faded, with experts advocating a balanced approach to reading instruction that included phonics as one of several important components.

Hooked on Phonics' popularity faded as well. After seeing sales peak at $100 million a year, the company filed for bankruptcy protection in 1995, a year after it settled Federal Trade Commission charges that it made unsubstantiated claims about being able to teach reading to children with learning disabilities.

Sales had fallen to $50 million in the years before Educate acquired the brand.

Dorothy Strickland, a professor at Rutgers University in New Jersey who specializes in reading, said she could not speak to Hooked on Phonics' effectiveness but noted that "virtually all educators in literacy subscribe to programs that not only build phonics but focus on comprehension as well."

To that end, Hooked on Phonics reading products combine teaching children to sound out letters and words with vocabulary and reading lessons, said Jinny Goldstein, vice president of education and strategy at Educate Products.

"It's very much in line with what experts say is the approach you should take to teaching your child to read," Goldstein said.

After acquiring the brand in January 2005, Educate abandoned the infomercial sales of Hooked on Phonics and repackaged it as a retail product line targeting specific grades and topics. It expanded to other subjects such as handwriting and Spanish.

A limited number of Target and Wal-Mart stores began stocking Hooked on Phonics products last year. More locations will sell the brand starting in August, and retailers such as Barnes & Noble Inc. have been added. Costco Wholesale Corp., Wal-Mart's Sam's Club and Inc. also carry the products.

Educate estimates that Hooked on Phonics sales this year will grow by 50%.

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