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I am very pleased to report that, after taking over as Chairman & Chief Executive Officer in December 2002, the company has continued to build upon the many achievements of previous years.
One of my immediate priorities at Fox Kids Europe has been to focus on capturing the many synergies that are available from our parent company, The Walt Disney Company (Disney). I am delighted to say that tremendous progress has been made on this front. For example, we have appointed Disney Consumer Products (DCP) as our agent for our phenomenally successful property, Power Rangers. DCP is a market leader in children’s toy licensing and we expect continued strong growth for Power Rangers’ consumer products in coming years. In a similar vein, we also appointed Disney subsidiary Buena Vista Home Entertainment (BVHE) to distribute Power Rangers and a number of our Marvel titles in both DVD and video formats. BVHE is also a market leader and their leverage in getting our products shelf space in retail outlets should prove invaluable.
At the heart of all successful media companies is high quality content. In this respect, we were very pleased to announce our first co-production of a new series with Disney: W.I.T.C.H. This animated series will be based upon Disney’s popular magazine entitled W.I.T.C.H. that sells approximately 750,000 copies every month in Europe. The series will be co-produced with France 3 and Super RTL, the leading German free television broadcaster amongst children. There is already significant licensing interest from other free TV broadcasters. We hope to announce more co-productions with Disney in the coming year.
Our core channel & online business had another excellent year, despite downward pressure on affiliate rates arising from consolidation of distributors throughout Europe. However, this same consolidation brings new opportunities, as the industry emerges stronger than before and is able to invest more in marketing to grow the subscriber base and reduce churn. The most notable example of this was in Italy where Stream, the pay television platform on which Fox Kids is distributed, merged with rival platform Telepiu. As a direct result, Fox Kids subscribers in Italy have more than doubled to 1.7 million this year. As well as increasing our subscriber revenues, the additional reach should increase our appeal to major advertisers and thereby help grow advertising revenues. We expect platform consolidation to continue to drive subscriber growth in other markets in coming years.
We have also made significant progress in our programme distribution business, acquiring quality titles for our library such as Tutenstein, Sonic X and Shaman King. By investing in these shows at an early stage of development, we have been able to secure top quality programming at competitive prices. For example, Tutenstein was the second most viewed show at this year’s MIPCOM Junior, one of Europe’s most important television fairs for programme buyers. These shows will be delivered during the fiscal year ending September 30, 2004 and we believe they will begin to drive the programme distribution business forward in future years. Buena Vista International Television services our programme distribution business and a new output agreement was concluded with Super RTL during the year. Super RTL is jointly owned by Disney and RTL. Additionally, we extended our programme output deal with Antena 3, a leading free television broadcaster in Spain, through 2006.
Our consumer products business showed strong growth on the back of a solid performance from Power Rangers which earned the honour of best selling action figure brand of all time in the US.1 We have also acquired the agency rights to some new properties such as PUCCA, which is already rapidly becoming a phenomenon across Europe. The successful launch of PUCCA has opened up new relationships for us with creative companies in Korea.
FKE’s operational success is mirrored in our financial performance as the company has made a strong return to profitability as income before tax increased from a loss of $33.0 million to income of $5.6 million.
So where do we go from here? We will continue to build upon these strong foundations and to maximise returns to our shareholders. As part of this strategy, we will retain the company’s primary focus on subscriber growth while improving our content offering to our existing subscribers. This should maximise our ratings and, in turn, grow advertising revenues.
Finally, I would like to take this opportunity to thank our employees, without whom our success would not have been possible. I could not have asked more from them this year and with such a talented and dedicated team, I am very optimistic about the company’s long-term growth prospects.
1 NPD Funworld 
Bruce Steinberg
Chairman & Chief Executive Officer
December, 2003
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