Hooked on national retailers

Reading: The new Baltimore-based owner of Hooked on Phonics intends to sell it at outlets such as Wal-Mart, Target and Amazon.com

August 25, 2005|By Rhasheema A. Sweeting | Rhasheema A. Sweeting,SUN STAFF

Hooked on Phonics, famous for its late-night TV infomercials, hopes to capture sales with a more traditional format under a new Baltimore-based owner: Its products will soon be available at major retailers nationwide.

The brand, acquired by Educate Inc. from Gateway Learning Corp. for $13 million in January, aims to reach more customers at retail outlets such as Wal-Mart, Target and Amazon.com.

"We're moving to retail distribution to give parents and educators easier access to our award-winning products," said Chip Paucek, general manager for Hooked on Phonics.

The company said new products are tailored to address specific grade levels and topics, making it easier for parents to address the individual learning needs of their children.

Spending on educational software nationwide is down by more than 30 percent in recent years. About $152 million was spent on educational software last year, down from nearly $496 million in 2000, according to the NPD Group, a market research firm.

Still, analysts are optimistic about a repackaged, refocused Hooked on Phonics. Legg Mason Inc. upgraded its rating on Educate stock to a "buy" from a "hold" last winter.

"Hooked on Phonics stands a better chance because it's harder to replicate," said Chris Swenson, who covers educational software for the NPD Group.

Hooked on Phonics, which seeks to improve reading and math skills through visual and audio tools, has strong brand recognition because of the heavy promotion of the product over the years. However, it has been in trouble with the Federal Trade Commission for making false claims about its effectiveness. California-based Gateway settled with federal regulators in 1994 over that dispute. Last year, it settled another FTC charge that the company unlawfully sold consumers' personal information to marketers after promising not to.

Educate Inc. is taking a new approach with Hooked on Phonics. "They're pushing a new image and associating it with new products," said Kirsten Edwards, education equity research analyst with investment bank ThinkEquity, which does not own shares in the company. "They're trying to get a piece of the market of people who can't spend as much on supplemental learning."

Edwards said the market will improve for consumer-oriented educational toy products. The products will range from $99 to $249, she said.

"There's nothing really like Hooked On Phonics in the marketplace," said Trace Urdan, an analyst who follows Educate for investment banker Robert W. Baird & Co, which also does not own stock in Educate. "They're trying to broaden their reach in the market and capitalize on the parental desire to supplement what the kids are learning in school."

Some experts contend that the Hooked on Phonics products will provide more entertainment than educational value.

"If parents really want their kids to get a head start, they simply need to spend more time working with them," said Barbara Kapinus, a literacy specialist at the National Education Association. "The most important thing for parents is to read to children and explain what they're reading. ... I'd rather the kids be hooked on books rather than hooked on phonics."

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