A Really Useful Earner

Britt Allcroft bought the rights to Thomas the Tank Engine for £50,000. Today, her company is worth more than £220m. But since even she wonders how much more growth can be squeezed out of Thomas and his friends, will she be able to keep the business on track in the future?

In 1945, when the Reverend W Awdry started his series of children's railway books, no one could have guessed how the characters he'd created would become global icons equally loved in Derby, Denver and Darwin. But Thomas the Tank Engine and his friends now rank alongside the all-time greats of Winnie the Pooh and Mickey Mouse, read and watched in 121 countries in nine languages. There are Thomas toys, websites, yoghurts, duvet covers, clothes and (in Japan) loo paper and potty-training charts. Last week the "really useful" engine hit the silver screen with his first full-length feature film, Thomas and the Magic Railroad.

In 1945, when the Reverend W Awdry started his series of children's railway books, no one could have guessed how the characters he'd created would become global icons equally loved in Derby, Denver and Darwin. But Thomas the Tank Engine and his friends now rank alongside the all-time greats of Winnie the Pooh and Mickey Mouse, read and watched in 121 countries in nine languages. There are Thomas toys, websites, yoghurts, duvet covers, clothes and (in Japan) loo paper and potty-training charts. Last week the "really useful" engine hit the silver screen with his first full-length feature film, Thomas and the Magic Railroad.

The world's under-fives have become well and truly gripped by Thomas's magic island of Sodor, the struggles of good steam engines against troublesome trucks and weasel diesels, and the comeuppance for those locos such as Percy who just get too "puffed up". Such intense emotional involvement has sent cash tills ringing from Tokyo to Toronto.

But it is not the Awdry family who have reaped most of the benefit but a former BBC television producer, Britt Allcroft, and the company she created around the success of Thomas. Ms Allcroft, whose two-year-old grandson is a Thomas addict, bought the long-term rights over dinner with the Reverend in 1982 for £50,000, raised by remortgaging her Southampton family home. Now in her mid-50s, she has made a 400-fold return on her investment, of which even the Head of the Railway, Sir Topham Hatt, would be proud.

In London to publicise the feature film, Britt Allcroff exudes the confidence of someone who knows she has made it in life, and has appropriately ensconced herself in the Claridge's penthouse suite (£3,500 a night, excluding VAT and breakfast). She talks over tea and scones in the hotel lounge about the "distinctiveness in the way I tell stories, my method is unique. Unless children are wrapped up in these stories they are not going to want any of these products."

But she also betrays a slight nervousness at the challenge the movie represents for her, her company and Thomas himself. "This movie is another step in the life of Thomas and the company's business of delivering value to shareholders. But its success or failure in the box office depends on all sorts of different factors and is not easy to predict." Reviews have been poor.

Ms Allcroft, a BBC radio interviewer in her teens, had recognised the potential of characters such as Thomas, Gordon and Henry after an earlier chance meeting with the Rev Awdry. Once they were hers, she translated them on to the small screen and has been reaping the benefit and the cash ever since.

Her company, of which she still owns nearly 8 per cent, worth £18m, is valued at £221.5m, trading on 60 times historic earnings. This phenomenal growth - the shares have doubled in the past year alone - is largely on the back of Thomas who has enriched Ms Allcroft, her senior colleagues (who all hold largish stakes) and other shareholders.

Until recently at least, the Thomas stories and the videos, toys and the other products they have spawned accounted for 90 per cent of Britt Allcroft Company's revenues. Ms Allcroft searched for three years for the right people and format to start production of a television series of 26 short Thomas stories, narrated by Ringo Starr, which came to the small screen in 1984. It was an instant success, and licensed Thomas toys were soon launched by Hornby and Bluebird. Other countries such as Australia and New Zealand started to broadcast the shows.

The Britt Allcroft cottage industry was swiftly becoming a serious business enterprise as more and more Thomas series were commissioned, made with the help of venture capital finance. More countries were buying the shows. By 1989, she hit the big time by breaking into the US market with the specially customised Shining Time Station series which interweaves Thomas adventures with the exploits of various American children and magical characters. Just a few years later, Thomas was sufficiently well-known to lead the children's parade at President Bill Clinton's inauguration.

Now the US accounts for up to 30 per cent of Thomas sales, the same as Britain and, surprisingly, perhaps, Japan. The train-mad Japanese, introduced to theengines only a decade ago, flock to the world's only Thomas theme park - in Japan - and have even claimed the engine as a national symbol.

William Harris, managing director and the day-to-day "Controller" of Britt Allcroft Company (BAC) now that its founder has taken a more strategic and creative role, believes the new feature movie will help to promote Thomas. But the main target audience is outside Britain where the market is already considered mature.

To the horror of many parents here who have already seen the film and who grew up with the books, Thomas and the Magic Railroad is a blatantly Americanised movie designed to appeal primarily in the US by using the Shining Time Station format. British steam nostalgia and the gentle, original stories have given way to action-packed drama and dollar signs. Mr Harris says: "We want to push the revenue curve substantially higher, with huge potential particularly in the US rather than here. Thomas's penetration in the US is only about half that in the UK in terms of royalty revenues per capita." A lot of the money for the £13m film is also from the US, where Ms Allcroft lives in a Californian beach house. Its American distributors, Destination, are putting up half. BAC is investing just £2.1m, with the rest coming from the Isle of Man Film Commission (in return for some filming on the island), Japanese investors and tax credits from around the world.

Destination will recoup its investment first from US and UK takings, with BAC taking a percentage after that. But the company's brokers, Charterhouse Securities, predict the hoped-for "uplift in merchandising" rather than box-office take will prove to be the main benefit. After seeing the rather disappointing film it is difficult to argue with that.

The movie certainly pushes two new characters - Diesel 10 and Lady - at the expense of old favourites, including Thomas. They, and accompanying CDs and other film-linked products have gone on sale, prompting what the company hopes will be yet another surge of interest in Thomas paraphernalia which has repeatedly topped many parental shopping lists.

BAC has issued 500 licences to manufacturers worldwide to make Thomas merchandise, and is constantly reviewing them. The latest casualty is Brio, the highly regarded Swedish toy train-maker who will stop making wooden Thomas trains, track and accessories at the end of next year, after three years. Brio will be replaced by Learning Curve from the US, a young company led by a former Early Learning Centre executive. It clinched the deal by offering BAC an equity stake but its designs are noticeably different - and some say inferior - to the outgoing Brio.

Even Ms Allcroft admits she is unsure whether, post-movie, there is anything more that can be squeezed out of Thomas. "I don't know whether we can do anything else. Although a decade ago we didn't have the internet and who could have foreseen the difference that's made? And if the audience responds to this film, there will be demand for another. But film-making is a risky business."

The City shares her doubts, although Thomas is making inroads in continental Europe. Under pressure to diversify - and with nothing nearly as big as Thomas in the offing - BAC has been on a spending spree which started with the 1997 acquisition of the worldwide rights to another old-timer, Captain Pugwash. There followed the £13.5m acquisition of the remaining Thomas rights they did not own from Reed Elsevier, a 50 per cent stake in Sooty and the £14m purchase of Media Merchants, a children's TV programmer.

Mr Harris says: "We'd decided we needed to get much larger to be an effective global player and compete against the Disneys and Viacoms. Once you have the distribution channels in place, you need lots of products to push down them."

BAC, under attack for being one-dimensional, hired Wasserstein Perella to explore "strategic" options but soon attracted an unwelcome takeover offer this February from HIT Entertainment. The all-paper bid was worth 750p a share (30p above the share price) but was rejected.

"We took the approach from HIT seriously but we didn't feel the valuation and share exchange ratio between the companies was good enough for our shareholders or that our philosophies matched," says Mr Harris. "We are not against the principle of a merger because we are not going to stay the size we are. So we are looking at acquiring new things every day. But none will be as big as Thomas, who is unique."

Sooty and Media Merchants, makers of Art Attack (the most popular school-age children's programme after Blue Peter), will now be given the BAC treatment. Live theatre productions of Sooty, who started 50 years ago and is the longest-running TV show in the world, will expand. A range of merchandise is planned to include magic-making kits from a simple wand to a video demonstrating how to perform tricks.

"With Thomas we have captured a whole section of children's play," says Mr Harris. "There is now very little pre-school train product that isn't Thomas. To be successful you have to do the same with any of your markets."

The Art Attack brand is also to be stretched, with new licences being awarded for linked products ranging from crayons, books, videos to paper - anything needed to make things. "We think the brand could be as big as Crayola," says Mr Harris. Art Attack is also linking with Disney to produce foreign language versions. These acquisitions have managed to reduce BAC's reliance on Thomas, which now makes up 60 per cent of sales, rather than the 90 per cent until recently.

BAC is big business, and will soon be bigger, alone or with a merger. The managers are picky about granting licences - turning down Thomas food items they didn't like - and the priority is the long-term protection of the product stable.

Only time will tell whether too much commercialism will take the magic out of the children's characters in its care, not least Thomas the Tank Engine himself. Remember the blitz of sales and publicity around the globe about the Teletubbies? Who talks about them now?