SoftKey

Publisher and distributor of CD ROM based personal computer software

SoftKey International (originally SoftKey Software Products, Inc.) was a software company founded by Kevin O'Leary in 1986 in Toronto, Ontario. It was known as The Learning Company from 1995 to 1999 after acquiring The Learning Company and taking its name. SoftKey played a major role in the dissolution of the edutainment industry by the turn of the millennium. hostile takeovers of major edutainment software companies, reduction of these acquisitions to a skeleton staff, and questionable financial practices to maintain its stock price. In 1999, the company was acquired by Mattel in what Businessweek called one of "the Worst Deals of All Time". It was subsequently folded into Mattel Interactive, Riverdeep Interactive Learning, and Software MacKiev.

SoftKey published and distributed CD ROM based personal computer software for Windows and Macintosh computers during the late 1980s and 1990s. Its lineup consisted of software intended for home audiences, specifically shovelware discs containing various freeware or shareware game software. The company enjoyed great success by offering "jewel case only" products, dubbed its "Platinum" line. As a home and small office software publisher, SoftKey bought the rights to application packages from their authors and distributed them under its own "Key" label. By late 1992, SoftKey was distributing 35 different products in this manner. SoftKey began to develop its own software by 1994, and had branched out to include edutainment games and CD ROMs in its line of products. In 1986, SoftKey released specialized graphics package KeyChart for the IBM PC and compatibles, designed to make time consuming plotting easier. In 1993, it was selling KeyMap, a DOS only software that offered maps, route planning, and a database tool for annotating maps. Around this time, Computer Associates acquired Easy Tax (DOS) from SoftKey and sold it as Simply Tax. SoftKey's acquisition of The Learning Company added the Reader Rabbit and Math Rabbit educational video games to its collection. Its acquisition of MECC added The Oregon Trail, Word Munchers, Number Munchers and Storybook Weaver. With the acquisition of Broderbund, it obtained multiple award winning brands including Carmen Sandiego, The Print Shop, Living Books, Family Tree Maker, Arthur, and KidPix.

According to founder Kevin O'Leary, SoftKey's business model was to market its retail products "no different from cat food or any other consumer good." O'Leary stated, "When we approach a retailer, we can offer them a wide range of titles that diversifies their risk. So if they give us five or 10 square feet of store space, we’ll guarantee X dollars of sell through." The company pioneered revolving racks with software packaged in standard CD jewel cases, allowing them to display three times as much product. It took products out of niche software businesses and into general stores with more traffic such as Office Depot, Radio Shack, Willson Stationers and SmithBooks. It used eye catching graphics on the boxes and made all of its packaging uniform. O'Leary believed that "What's inside the box is important, but it's not as important as how it's marketed."

SoftKey's pricing strategy was to prioritize the number of copies sold over the price per unit. As such, SoftKey listed its titles for lower prices, generally between $40 and $100, with minimum profit. He stated, "In the last two years, we've moved from an industry that sells primarily to businesses to an industry that's going through a violent change to become a commodity.'' Casey Dworkin, publisher of Retail Price Week, said that SoftKey appeals to companies that want to "sell software by the pound, appealing to impulse purchases by customers who are intrigued but don't want to drop $40 for a piece of software." "SoftKey believes that much consumer software is overpriced and therefore cannot reach a broad market. It's a philosophy that clashes with the artistic sensibilities of many in the multimedia software business—but is nonetheless likely to become increasingly influential in the volatile software world."

SoftKey Software Products was the fastest growing company in Canada in 1992, with sales of $36.8 million and profit of $6.1 million. Its most profitable products were its tax software and processing service. A public offering of 2.3 million common shares was priced at $28.875. SoftKey products were sold in more than 19,000 stores in over 40 countries In June of that year, Montgomery Securities raised more than $60 million for the company. In October, SoftKey raised another $350 million in an unrated private offering. On November 28, 1995, SoftKey rose from 3.2 million to 4.7 million shares, the largest increase in open positions among Nasdaq issues. In August 1998, the stock exchange halted trading in The Learning Company, as the company issued a statement to clear up questions about its accounting practices. Shares of The Learning Company (NYSE: TLC) fell 1 15/16 to 26 3/8 and Mattel (NYSE: MAT) plunged 20 percent to 23 11/16. The company continued to grow, with revenue of $800 million despite an accumulated deficit of $1.1 billion by the end of 1998. started SoftKey Software Products, Inc. in O'Leary's basement with a loan of $10,000 from his mother. He convinced other companies to bundle SoftKey's products with their own, later licensing software from other firms, which proved more cost effective than internal development. In 1993, SoftKey International was created out of a three way merger between SoftKey Software Products, WordStar International, and Spinnaker Software. Shareholders of Softkey Software represented about 53 percent of the new company's shares.

In October 1995, SoftKey initiated a bidding war against Broderbund for Learning Company, launching a hostile offer valued at $606 million. SoftKey also announced it had agreed to buy the Minnesota Educational Computing Corporation (MECC) for $370 million, throwing a wrench into Broderbund's offer. O'Leary commented, "They're working on the economics of yesterday", stating that "Learning's premium priced products were out of step with trends in the market." After the acquisition of The Learning Company, SoftKey changed its name to "The Learning Company". A substantial percentage of the staff were let go, reducing it to a skeleton staff. MECC' senior vice president of product development Susan Schilling stated: "[O'Leary] had an interest in earning money. I'm not sure he had a desire to help children learn."

On September 14, 1994, SoftKey acquired privately held Software Marketing Corp., Phoenix, for about 600,000 shares of SoftKey common stock and the assumption of $1.6 million in long term debt. On November 30, 1995, the original Learning Company announced that it had sued the Tribune Company for violating securities laws as a "strategic partner" of SoftKey International. The next day, SoftKey agreed to acquire Compton's New Media from Tribune for stock valued at $106.5 million. Compton's New Media was a publisher of encyclopedia CD ROMs, and was originally a unit of Encyclopedia Britannica. In 1996, SoftKey International acquired EduSoft, a French education software developer and publisher, for $14.3M USD. In March 1998, Softkey, now called The Learning Company, acquired Mindscape Inc. from Pearson PLC for $150 million in cash and stock. Broderbund's Red Orb Entertainment was moved to Mindscape. In June 1998, Learning Co. agreed to buy rival Broderbund Software Inc., maker of the blockbuster game Myst, in a stock deal valued at about $416 million. In December 1998, The Learning Company acquired Palladium Interactive. According to Information technology consulting company Booz Allen Hamilton, two of SoftKey International's acquisition deals rank among the ten worst U. S. acquisitions during 1994–1996 as measured by shareholder value two years after the deal.

In the fall of 1998, Mattel agreed to acquire The Learning Company in a stock for stock merger valuing the company at approximately $4.2 billion. The merger was finalized and unanimously approved by both companies' boards of directors on December 14. On May 7, 1999, shareholders of both companies voted to approve the merger. The merger was completed on May 13, 1999. Jill E. Barad, Mattel's chairman and chief executive officer stated "This merger gives Mattel a $1 billion software division with an unparalleled portfolio of branded content and profit margins exceeding that of our traditional business," The company was placed under Mattel's new Mattel Interactive division.

The sale proved to be fraught. A report from the Center for Financial Research and Analysis a few weeks after the merger highlighted the "lack of proper due diligence by Mattel during the Learning Co. acquisition," and listed numerous systemic problems with The Learning Company. The stock price valuation of Mattel dropped $2 billion in one day. The Telegraph deemed it "one of the worst takeovers in recent history". Toy analyst Margaret Whitfield of Tucker Anthony Cleary Gull called it "a disaster for Mattel". Bloomberg, Businessweek, and CNBC all described it as one of the worst mergers of all time. In January 2000, Mattel brought on software executive and former Sega of America president Bernie Stolar to assist with their financial troubles. On February 3, 2000 Chairman and CEO Jill E. Barad resigned from Mattel. The 1999 Annual Report began, "The bad news for 1999 unfortunately has overshadowed the good news. We are all painfully aware of the negative effect the acquisition of The Learning Company and its subsequent performance had on our results for 1999"

On April 3, 2000, Mattel announced its plan to dissolve its assets related to the software business. Gores Technology Group acquired The Learning Company for $27.3 million plus a profit sharing agreement with Mattel, to create their entertainment, productivity and education divisions, which became GAME Studios, The Learning Company, and Broderbund respectively. GAME Studios was sold to Ubisoft in 2001. Gores subsequently sold most of the other holdings – including the edutainment series and the brand name The Learning Company – to Irish company Riverdeep Interactive Learning, which later became Houghton Mifflin Harcourt. Harcourt released several book sets under The Learning Company brand umbrella, including Oregon Trail Adventures, The Little Box of Love, and The Little Box of Laughs. As of April 2018, Houghton Mifflin Harcourt has ceased using the Learning Company brand.