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ESL GamesWhite Paper

Prepared for:

Microsoft Corporation &4Kids Entertainment, Inc.

By:Andrew Steiner

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Table Of Contents

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ESL Games – The New Market Opportunity 4The Need For B1 Games and 4Kids ESL Brand

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Erikson’s Stages of Development 5Background 6Technology 6ESL and Branding: The Perfect Marriage 8B1’s Innovative Media-Based ESL Program 8Viva Piñata! 9Revenue Model for ESL Games 11Sources of Revenue 11B1 at a Glance 13Exploiting New Technology 13B1 Games Mission/Vision Statement 14Conclusion 14Appendix A: Distribution Channels 15

Appendix B: Consumer/Marketing Mix 16Appendix C: Games Produced by B1 17

ESL Games – The New Market Opportunity

Baby Einstein: A Case Study:

Despite marketing claims, parents who want to give their infants a boost in learning language probably should limit the amount of time they expose their children to DVDs and videos such as "Baby Einstein" and "Brainy Baby."

Rather than helping babies, the over-use of such productions actually may slow down infants eight to 16 months of age when it comes to acquiring vocabulary, according to a new study by researchers at the University of Washington and Seattle Children's Hospital Research Institute.

The scientists found that for every hour per day spent watching baby DVDs and videos; infants understood an average of six to eight fewer words than infants who did not watch them. Baby DVDs and videos had no positive or negative effect on the vocabularies on toddlers 17 to 24 months of age. The study was published in the Journal of Pediatrics.

"The most important fact to come from this study is there is no clear evidence of a benefit coming from baby DVDs and videos and there is some suggestion of harm," said Frederick Zimmerman, lead author of the study and a UW associate professor of health services. "The bottom line is the more a child watches baby DVDs and videos the bigger the effect. The amount of viewing does matter."

Co-authors of the study are Dr. Dimitri Christakis, a pediatrics researcher at Seattle Children's Hospital Research Institute and a UW professor of pediatrics, and Andrew Meltzoff, co-director of the UW's Institute for Learning and Brain Sciences. 1

The Need for B1 Games and 4Kids ESL Brand

We feel there is a great opportunity in creating and selling ESL Games using high profile and successful properties. Riding on certain brands’ built-in audience and dollars spent on marketing those brands, we believe ESL Games will sell substantial units in this marketplace. Globally, ESL is growing significantly. B1 believes that an opportunity exists by launching products and services that meet this vital market demand while strategically targeting this new market.

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Erikson’s Stages of Development

The best way to learn is to have fun. Interactive games are intuitively fun while teaching.

Eric Erikson (June 15, 1902 – May 12, 1994) was a developmental psychologist and known for his theory on social development of human beings. Erikson developed a stage theory about how children grow and develop psychosocial skills. Psychologists consider Erikson’s Developmental Stage Theory the standard to understanding the stages of learning and growth in children through adulthood.

Eriksons Stages of Development are:

Level Name CharacteristicsStage 1 Hope

Trust vs. mistrust(Infant)

A child will only learn trust if its mother meets their deep need for

attention and affection

Stage 2 WillAutonomy vs. shame and doubt

(Around age 3)

If the exploring child receives encouragement in their search for autonomy, they will learn trust, otherwise they learn shame and

doubt.Stage 3 Purpose

Initiative vs. guilt(Around age 4)

If the questioning child is encouraged in their ideas and

games, they will gain confidence, otherwise they feel guilty about

initiating things themselves.Stage 4 Competence

Industry vs. authority(At school)

If encouraged and praised by teachers, the child will increase

efforts to learn. If always criticized, they will learn to feel

inferior.

It is to these Stages of Development that we will cater and create a variety of ESL Games. The breakdown of the games will follow the various development stages in children and address the basic learning needs and characteristics of that stage.

We live in the information age where knowledge and the ability to communicate is paramount. With the rapid onset of globalization, English has rapidly become the common language of the world. Learning English in traditionally non-English speaking countries has transformed from an elective for the privileged elite to a requisite of basic education for the masses. To speak and understand English has become virtually a requirement in our global world.

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Background

It is estimated that currently one billion people around the globe are learning English as a second language. In the next ten to fifteen years, this market is expected to double to two billion. The British Council estimates that global revenue for ESL education in 2002 was a staggering $652 million. With the continued emergence of untapped markets worldwide, particularly those in China and India, these numbers can be expected to grow exponentially in the coming years.

Increasingly, consumers across the earth will be seeking all methods possible to learn English as a second language in order to be part of the new global society. More importantly, they will be seeking products that can teach their children in an effective, efficient, and fun manner.

Technology

Technology innovation is transforming entertainment. As consumers adopt new technologies, they are demanding more for their dollars. This market presents an enormous opportunity for ESL Games to take a significant market share. This being a fairly new market, and one in which is growing at a sizable rate, the upside for revenue in this category is substantial.

The penetration of DVD players is reaching nearly every household. At the CES convention in January of 2006, it is estimated that sales of DVD Players in 2005 has increased over 10% from the year before increasing DVD penetration into almost 75% of ALL households in the U.S. This increase means that the Installed Consumer Base of DVD players amounts to over 150 Million US Households that have at least one DVD player. This is a tremendous installed base of existing machines that is fueling the growth of this emerging market.

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As consumers have a variety of entertainment choices – we are seeing another phenomena. In 2006 DVD Households will surpass Internet Households for the first time. In addition, NDP, a leading market analyst for the game and consumer electronics industries, has reported that 2005 was a Sales Boom for Consumer Electronics and Information Technology.

The explosive growth in Digital Television Set Sales coupled with the explosive growth (as illustrated below) of DVD Players is creating a new home theater experience for the American consumer – it is for this reason that consumers are demanding ever growing choices for their entertainment dollar. ESL Games represent an opportunity for growth in an exponentially growing installed consumer base.

Another area of growth for ESL Games is in the world of online casual gaming and ‘safe’ community sites for children. The internet is the primary distribution channel for casual games.

Millions of today’s kids are supplementing the activities of the traditional hardscape with virtual, more-animated worlds. There, they can become penguins, elephants, fashion stylists to the stars and yes, Piñatas.

Most casual games are either downloaded as limited-time trials or delivered as Flash or ActiveX objects embedded in a web page. Some websites, such as Pogo.com, create casual games as a web-only experience first, then follow up with more advanced versions as "downloadable" games.

We see this with the added component and ease of a DVD product as well. In addition to online portals, casual games are increasingly available at major retailers, particularly Wal-art, Target and Best Buy.

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While the rising demand for ESL products is undeniable, there is a surprising lack of quality content on the market. Surely this lack of content, and particularly a lack of branded content present an excellent market opportunity. The demand is present and growing. The market is light on product. The next step, clearly, is to meet the demand with excellent products.

ESL and Branding: The Perfect MarriageBranded ESL learning programs are a perfect opportunity to meet this clear need for both established and emerging markets around the world. The combination of educationally proven programs delivered by internationally recognized brands and characters is a perfect solution to meeting this unprecedented demand.

With the current and growing prevalence of accessible media technology around the world, more and more consumers will seek interactive, media-based ESL programs that they can follow in their own homes.

B1 Game’s Innovative Media-Based ESL Programs

To this end, B1 Games has developed an innovative, UCLA and USC educator-endorsed, multimedia, ESL learning program. Based on a series of engaging, interactive games, the youth-targeted system can be applied to ESL learners from all countries. This program then integrates branded characters from nearly any property in an entertaining manner that reinforces brand identity. Our initial programs have been DVD-based to take advantage of the format’s extremely high market saturation. However, the system is easily adaptable to any media, including computer, web, and console games. Initial iterations were designed for appeal to boys and girls ages 3-9, matching property demographics for youth-focused clients such as Disney.

B1 developed the templates for several different language learning games in association with educators from USC’s American Language Institute and UCLA’s Department of Applied Linguistics. The games teach English to kids using words associated with the films they accompany. The words were chosen with the approval of the educators. The narrator’s dialog is kept very simple to facilitate non-English speaking children in learning. Words are reused from game to game to help reinforce learning.

For international versions, the games are recorded in English with the instructions recorded in the region’s language. The narration of the game can be recorded in the regional language while the words to learn are spoken in English.

All the games begin with a “Presentation” where the child learns the words for that game. Next, a demo is shown to illustrate how to play the game. Then the child plays the learning game either by seeing a word onscreen and finding the associated item, or an object is shown onscreen and they must choose the correct word associated with it.

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1. Piñata Pop-Ups:

3 versions of the game with 3 different backgrounds, 10 piñata words in all.

The piñatas are hidden all around the garden. One by one, they pop out from hiding. For instance, as the elephant appears, his name - “elephant” - will show up on screen as the narrator says, “That is an elephant.” The character and the word will disappear and the next piñata will pop out. Once we’ve seen them all, the name of one of the characters will appear. The player must not only remember which piñata character is associated with the word, but also where there are hiding. Once they have found all the piñatas, everyone comes out at once to congratulate the player.

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2. Piñata Patch!

3 versions of the game, 12 words in all.

We will show three areas of the island. The words will appear one at a time to teach the names of the 4 items and highlight them. The items will then disappear from the scene and appear on an interface. The player will be shown one of the words and asked to select that item form the interface to place them back in scene where they belong to redecorate the garden. The player will select each item on the interface and it will move into the background. Once all the items are back in place, all the items in the setting will animate.

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Revenue Model For ESL Games

The opportunity in ESL Games is offering the consumer ESL Games that are based on successful properties and proprietary technology. Revenues will be generated by distribution of the products through multiple channels. First and foremost will be traditional brick and mortar as well as through online downloads and programs.

Sources of Revenue

Primary revenue will be generated from domestic and International retail sales of the ESL learning series.

In addition to retail sales there are also many partnership opportunities that can generate a tremendous amount of secondary revenue. Secondary revenue is a bit misleading of a term because the ‘second tiers’ can make as much if not more than the retail distribution of the products. There is a tremendous upside to establish partnerships for these games. In addition to traditional distribution through brick and mortar stores, there is also a huge upside for these products in i) direct-response advertising, ii) educational distribution to schools, iii) tutoring sites, iv) sponsorship advertising.

Another area of great potential for exploitation, and one that is growing tremendously is in the area Casual Games for the web and VOD. We see a revenue being generated from on-line downloads of the game as well as licensing the game to third party web sites. In addition to the potential financial opportunities that these partners may bring, they also can certainly add value in a number of other ways as well.

Casual Games: The term "casual games" is used to describe a rather large and rapidly growing segment of the game industry. Casual games tend to be those that have simpler game play and engaging game design.

DFC Intelligence (Game Industry Intelligence Report) has estimated that the online casual gamers market is estimated to grow to $1.56 billion (USD) in 2008. Emphasizing why companies and brands need to be involved in the casual games industry, combined, the audience of consumers attracted to casual games is estimated to be over 150 million worldwide and growing each year. What this suggests rather clearly is that casual games have succeeded in expanding the overall games market. This is an area that is presently underserved in ESL games.

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VOD: Since the mid-1990's, video on demand (VOD) was touted to emerge and be the next big thing. It took until 2004 for VOD to be rolled out in significant numbers. Only now is the number of video streams measured in the billions.

Kagan Research predicts that subscription VOD will become a $1 billion-plus business by the end of the year. That number is when people pay for the content in some way. Telco's with their IPTV offering will generate about $22 million in combined PPV and VOD revenues, says Kagan. "Approximately $757 million was spent on cable VOD programming in 2005. Kagan forecasts that number will pass $1.1 billion in 2006."

Kagan estimates there were 26.2 million VOD homes through the last six months of 2006, growing to as much as 65 million homes within 10 years, it predicts.

Kagan sees a healthy future for ad-supported free VOD, saying: "The increased reach and reliance on free content has resulted in robust usage trends, making the use of advertising models increasingly viable…".

It was estimate that advertising on cable VOD was just under $50 million for 2006. However, Comcast and Time Warner project this market to become very significant by 2009 as more households adopt VOD usage and band-with expands. The companies are presently expanding bandwith at breakneck speed.

In regards to Marketing and Promotions, their are numerous partners that can create promotions and promotional tie-ins. The advertising value of these tie-ins has the potential to gain millions of dollars in media buys that the partners would be responsible for. These media buys would have a far greater impact on the sales of the items at the retail level than just the promotion alone. Retailers from Wal-Mart to Bloomingdales love to know that, no matter what the promotion, the product is getting tens of thousand of impressions.

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B1 at A Glance Summary

What is B1 Games creating?B1 Games is creating revolutionary ESL Games to sell both domestically and internationally. B1 Games are truly interactive game experiences where children can learn ESL along with their favorite 4Kids characters. What experience does B1 have?B1 Media—the sister company of B1 Games—has been in business for over 10 years creating groundbreaking games for major studio clients including Disney, Warner Brothers, Fox, Universal and New Line Cinema. B1 Media has produced over 100 DVD set-top, DVD flash and DVD ROM Games.

Who is the market?Families with children from nine months to 6 years of age.

Why are we able to penetrate this market?With our experience in creating children’s games, our high profile licensees, and our great partners, we can take a substantial share of the market.

Exploiting New Technology

B1 Media is currently working in new technologies for its Studio clients. These technologies include HD-DVD, Blu-Ray DVD, Video On Demand, Video IPOD, Cell Phone Games, Internet Protocol Television and Personal Video Recorders, all of which are vying to become the “next entertainment application.” B1 Games is in a unique position to understand and take advantage of these new technologies.

We will be the first game company to produce these games for this new platform. With added interactivity, much like a console video game and a connection to the Internet, our games will rise above the rest. Imagine selling a game once, then selling add on packs of the game over the Internet that consumers can download.

This is an amazing opportunity to take advantage of B1 Games resources and knowledge. We are planning to create versions of the properties for delivery in some of these new formats including website, VOD, DVR. This presents a ripening opportunity for an innovation that can enhance the learning experience for consumer’s and grab a leading market share.

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B1 Games Mission/Vision

Our vision is to help bring families together in the living room to share in a fun and educational experience.

B1 Games is more than just another game company—it’s a social innovation and a world-class lifestyle brand. Our belief is that audiences deserve compelling media experiences, a principle which drives our behavior as a company. Our true measure of success will be that our customers recognize this principle intuitively—that in their eyes B1 Games becomes synonymous with the best ESL Game experience.

Customers will compare our brand of games to others in the marketplace and be able to see and experience the difference. That difference in quality of production, higher level of interactivity, and game play will move them to always look for products with the B1 Games brand.

Conclusion

There are a number of opportunities for B1, 4Kids and Microsoft to work together in creating a number of cross-platforms for the exploitation and delivery of the ESL product. Utilizing content from the 4Kids library – Jim Henson Designs, Teenage Mutant Ninja Turtles, Yu-Gi-Oh!, Cabbage Patch Kids, and of course our favorite, Viva Piñata!

We see an immediate opportunity in creating ESL games for the upcoming Microsoft Viva Piñata! website. Also, as we all know, Microsoft casual games team is looking for new platforms for casual games – this too is an area for fun educational ESL product. Similarly we see that alongside the new Viva Piñata! plush series and accompanying website, we can also create and utilize our ESL DVD’s by adding a secret code embedded in the DVD that can be sold alongside (or used as a promotional premium) with the plush. The DVD’s secret code would work whereby the player puts the DVD in the computer and is sent to the Viva Piñata! Web-site. A whole area on the site is unlocked whereby the consumer can get additional games, episodes, or promotional content.

We feel the opportunity is right and we look forward to working with 4Kids and Microsoft in bringing these innovative products to market.

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Appendix A

Distribution Channels

The chart below shows a portion of the retailers that we expect the ESL Games will sell into. This is a small sampling of the retailers that are targeted to place the product.

Mass Merchants       - Wal-Mart      - K-Mart      - Sears      - Target      - Best Buy

- Toys R Us Mid-Tier/Chains :

       - Circuit City       - JC Penney       - Kohl’s       - Meijers       - Fred Meyer

Department Stores:      - JC Penney      - Federated       - Kohl’s

·Direct Mail/Catalogs:      - Amazon      - QVC      - HSN      - eBay

Drug Stores :        - Walgreen       - CVS       - Rite Aid       - Longs

Specialty Stores:        - KB Stores       - Blockbuster        - Barnes & Noble

       - Border’s       - AAFES

Grocery Stores:        - Kroger       - Albertsons       - Publix       - Safeway   

Warehouse Stores:                - Costco       - BJ’s       - Sam’s       - SaveMart          

Premiums - Taco Bell   - Wendy’s

- Burger King - McDonald’s

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Appendix B

Consumer/Marketing Mix

Action Venue Benefit

Publicity National & local entertainment media

Critic reviews in consumer press for original programming.

Guerrilla and street marketing

Highly targeted to demographic

Low cost Brand development

Promotions &Cross-Promotions

TV and Game releases Sweepstakes and other

contests Promotional tie-ins with

local affiliates and sponsors

Themed blocks, programming marathons & events, surrounding holidays and events

Highly targeted to demographic

Low Cost Brand development

Internet Websites, links & newsletter

Fan Databases Other children’s affiliate

sites

Highly targeted to demographic

Brand Development Direct consumer

interaction

Retail Distribution Sales to Retail Distribution Channels

Catalog Sales Online Sales

Highly targeted to demographic

Brand Development Low Production Cost High Net Returns

Print Trade Publications Consumer entertainment

magazines Consumer Magazines

Brand development Cost efficient demo

vehicle Barter opportunity

DirectMarketing

Sweepstakes Mailing lists Opt-in email Continuity Campaigns Interactive web content

Highly targeted to demographics

Brand development

Local Cable &Network TV

VOD iPOD X Box Live

Expands awareness Moderate cost Brand development

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Appendix C

’24’: The DVD Board Game

A Bug’s Life

A Scooby Doo Christmas

A Very Merry Pooh Year

Alice in Wonderland

Alice in Wonderland: Virtual Wonderland

Amazing Race

American Chopper DVD Board Game

American Legends

Aristocats

Atlantis II: Milo’s Return

Batman Big Chill Challenge

Beauty and the Beast

Belle’s Enchanted Christmas

Belle’s Forte’s Challenge

Belle's Magical World

Bionicle: The Mask of Light

Cinderella II

Dinosaur

Disney Princess Party Vol. 1 & 2

Disney Princess Stories Vol. 1 & 2

Doug's 1st Movie

Duck Tales

Harry Potter 4: Goblet of Fire

Harry Potter: To The Graveyard and Back

Hook

Inspector Gadget II

It’s Your Birthday With Winnie The Pooh

Justice League: The Brave and the Bold

Kangaroo Jack G’Day USA

Lilo and Stitch’s Island of Adventures

Lion King 1.5

Lion King II: Simba's Pride

Lion King Special Edition

Little Einsteins: Disneypedia

Little Einsteins: Meet The Team

Little Einsteins: Navajo Maze Set-Top Game

Little Einsteins 2: Spot It Set-Top Game

Many Adventures of Winnie the Pooh

Mary Poppins

Magic English

Monsters Inc.

Oliver and Company

Patch's London Adventure

Peter Pan II: Return to Neverland

Piglets Big Movie

Pinocchio

Pocahontas

Polar Express Christmas Challenge

Recess School's Out

Rescuers

Rescuers Down Under

Robin Hood

Rainbow Brite and the Star Stealer

Scooby Doo and the Lochness Monster

Scooby Doo: Blast the Monster Challenge

Scooby Doo: Escape From the Ankh Chamber

Scooby Doo: European Travel Challenge

Scooby Doo DVD Board Game

Snow Dogs

Spookable Pooh

Stanley

Stitch! The Movie

Superman: The Last Son of Krypton

Tarzan & Jane

Teen Titans: Divide and Conquer

The Book of Pooh

The Country Bears

The Emperor's New Groove

The Santa Clause

The Santa Clause 2

Tom & Jerry: The Great Space Chase Game

Superman: Little Piece of Home

Who Framed Roger Rabbit

Games Produced by B1

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