| sunnier days on sesame street
AFTER A MERGER KNOCKED HIM FROM HIS CEO’S PERCH, JEFFREY DUNN CONSIDERED GLOBE-HOPPING. INSTEAD, HE HEADED TO HARVARD AND THEN ON TO RETOOL AN ICONIC NOT-FOR-PROFIT.
After a merger knocked him from his CEO’s perch, Jeffrey Dunn considered globe-hopping. Instead, he headed to Harvard and then on to retool an iconic not-for-profit.
At the annual Halloween bash last year, Jeffrey Dunn, the 63-year-old CEO of Sesame Workshop, didn’t dress up as Bert or Ernie but as the Statue of Liberty. “I was distraught by the divisiveness and the toxicity in this country,” he says. “I wanted to make a statement to our employees of what we at Sesame stand for.”
His Lady Liberty costume worked on another level, too. Six years ago, Dunn gained the financial freedom to do anything—or nothing at all. Mattel Inc. had just paid $680 million for the company where he was CEO, HIT Entertainment, owner of Thomas the Tank Engine and other children’s characters and programming. Flush and out of a job, Dunn wanted to work in the charitable sector. But his wife, Karen, suggested they first take a few years to travel the world and sit on the beach. A temporary retirement, of sorts.
“I was like, ‘No, I am not ready for that. Not sure if I ever will be,’’’ he recalls. Anyway, Harvard was calling. Dunn had earned his B.A. in history and his M.B.A. there decades before. Now he’d been admitted to Harvard’s Advanced Leadership Initiative, a yearlong program for corporate executives and professionals in their 50s and 60s interested in applying their skills to social problems. For a tuition of around $65,000 the handpicked fellows (for 2018, 48 were chosen from more than 550 applicants) get to audit courses and hash out prospective projects with professors and fellow students.
What sealed the deal for the Dunns— high school sweethearts who have been married 36 years—is that spouses of fellows are welcome on campus too. So while Jeff dived into nonprofit accounting, media and kid’s education and economics, Karen, a nurse by training, studied art and music.
Dunn began as a fellow in January 2014. Then, midway through his year, a representative from Sesame’s board called him for a consult. The nonprofit’s licensing revenues (from Tickle Me Elmo and the like) and DVD sales had been sliding for a decade, and its operating losses were growing. “Sesame found me because I was a known entity in the kid space,’’ he says. Before taking over at HIT in 2008, he’d spent 13 years at Viacom’s Nickelodeon, where he helped create Noggin (now Nick Jr.) as a joint venture with Sesame Workshop.
Already in Harvard term-paper-writing mode, Dunn delivered a ten-page report to Sesame’s board. By September he’d
been hired as the first outsider to head the insular organization. Sesame needed a “financial turnaround, a cultural turnaround and a strategic turnaround,” says Harvard Business School professor Rosabeth Moss Kanter, who is director of the Harvard Advanced Leadership Initiative and a coauthor of a case study on Sesame.
Perhaps Dunn’s most significant structural and cultural change: He created two business units. One was for Sesame’s philanthropy and social impact work, mostly funded by foundations and government. The other ran Sesame’s TV, media and licensing operations; it would have to operate with an eye to the bottom line. “People thought ‘nonprofit’ meant we don’t have to make money, or we can lose money,” Dunn says. “Nonprofit is a tax status: If your revenues don’t exceed your expenses, you don’t stay in business—it is not sustainable.”
That new ethic led to Dunn’s most audacious move. For 45 years the Public Broadcasting Service had been the home of the Sesame Street television show, where generations of preschoolers learned to recognize letters and love Cookie Monster. But what PBS was paying for broadcast rights covered less than 10% of production costs. So in 2015 Dunn negotiated a five-year licensing deal with HBO, the premium cable channel known for its edgy and sometimes violent content. HBO would pay enough— an estimated $20 million-plus a year—to cover most of Sesame Street’s production costs and would get the right to air newly produced episodes exclusively for nine months. After that period, PBS stations would get those shows for free.
“It totally changed our economics,” Dunn says. “It replaced that lost revenue from the DVDs and other merchandise, and we totally stopped the bleeding.” In the fiscal year ended June 2014, Sesame had an operating loss of $11 million on revenues of $104 million. In 2017 it had an operating profit of $6.7 million, on revenues of $118.5 million.
As he did with revenues, Dunn took a bold approach to another Sesame problem—keeping up with changes in education technology and in how media is consumed. He axed a four-year-old internal innovation lab that had produced no viable products and launched Sesame Ventures to invest in startups focused on children’s education, development and health. At Harvard, Dunn says, “I was going to school with all these kids, sitting there and listening and talking to them, and knowing full well most of these things happen from startups, not existing players.”
So far, Sesame has invested in more than 40 startups, including Epic!, which gives kids and teachers access to a personalized digital library of high-quality ebooks, and Kano, which sells kits to teach children computer coding. “You can’t force people inside, who’ve been doing it the same way forever, to change their habits,’’ Harvard’s Kanter says. “When you partner with those startups and connect them to the people inside, new creative sparks begin.” Sesame is also completing a pilot program with IBM that pairs its characters with IBM’s Watson to test adaptive learning for preschoolers.
What about the philanthropy and social impact side of Sesame? It, too, seems to be thriving. In December, Sesame Workshop and the International Rescue Committee started work on a new, regional version of Sesame Street that aims to reach 9.4 million Syrian refugee and local children in Jordan, Lebanon, Iraq and Syria with material more relevant to their experiences and culture. It’s funded by a $100 million five-year grant from the MacArthur Foundation, which notes that before this effort less than 2% of global humanitarian aid money was being spent on education, and only a sliver of that 2% on young children.
“The Syrian refugee crisis is the humanitarian issue of our time,” Dunn says. “These children are, arguably, the world’s most vulnerable on the planet, and by improving their lives we create a more stable and secure world for us all.” The new program will be distributed via television, mobile and digital platforms, with extra educational content given to parents, clinics and child development centers.
These days, Dunn makes a weekly eight-hour round-trip commute via Amtrak from his Boston home to Sesame’s Manhattan headquarters. But he’s not complaining. “You don’t get the opportunity many times in life to really change the world, but this may be one of them,” he says. Sure, this isn’t exactly volunteer work—Dunn’s official compensation in 2016 is listed as $689,000, though he says he declined to take all of it. “You only need so much money,’’ Dunn concludes. “But you can’t sit on the sidelines.”
Sweeping the clouds away: CEO Jeffrey Dunn turned around Sesame Workshop’s finances with an HBO deal.