Perspective: Hirsh: strategy for the future

Montreal: This month, Nelvana raised $20.7 million through the sale of 900,000 subordinate voting shares, including 585,000 shares from treasury and 315,000 from senior management. The shares were sold as special warrants at a price of $23 each. The underwriters, led...

Montreal: This month, Nelvana raised $20.7 million through the sale of 900,000 subordinate voting shares, including 585,000 shares from treasury and 315,000 from senior management. The shares were sold as special warrants at a price of $23 each. The underwriters, led by Yorkton Securities, exercised an option to buy 100,000 warrants.

The sale by senior management – the people who founded the company in 1971, chairman Michael Hirsh, president Patrick Loubert and executive vp Clive Smith – is worth a cool $7.2 million.

Nelvana’s ascent to international prominence over a quarter century has been awe inspiring. The company started out when selling anything to the Americans was almost impossible. Today its shows are seen throughout the u.s. market and on networks around the world.

‘It’s clear that we expect to be growing the number of episodes to the library next year over this year and that will require capital. We intend to keep growing the company,’ says Hirsh, a talented corporate strategist and directly responsible for Nelvana’s distribution and licensing divisions.

Hirsh, chairman of new specialty animation channel teletoon, also has high hopes for Canada’s animation industry.

Industry growth in the past 15 years has been unprecedented, especially since the launch of the pubcos, but Hirsh says equal opportunities lie ahead.

The pace of change will not subside, and Hirsh says the Canadian industry will witness the kind of vertical integration underway in the u.s., including the merger of broadcasting and production/distribution companies.

The 25-year-old company went public in May of 1994 and is reporting nine-month ’96 revenues of $37.7 million and a net profit of $1.88 million or eps of $0.36, as compared to $25.9 million in revenues for the same period in ’95 and $1.65 million in net profits and an eps of $0.32.

Nelvana expects fourth-quarter revenue to be in line with ’95, when combined revenues totaled $56.6 million.

700 episodes in library

Revenues and overhead are both up in ’96. Proprietary (library) production grew to 78 episodes this year from 65 last year, while non-proprietary (service) production increased from 32 episodes to 69. The company has 700 library episodes.

Nelvana’s current 1996/97 proprietary production commitments include 13 half-hours of Stickin’ Around, created by Brianne Leary and Robin Steele and produced in association with Medialab and sold to ytv in Canada; 13 half-hours of Blazing Dragons, based on ‘Age of Chivalry’ characters created by Terry Jones of Monty Python fame and coproduced with France’s Ellipse Animation and presold to Carleton in the u.k. and Germany’s Ravensburger; and 26-half-hours of Little Bear (season two and three for a total of 39), a widely exported preschool series illustrated by Maurice Sendak and written by Else Holmelund Minarik and presold to Nickelodeon, cbc/src, France 3 and bbc.

Non-proprietary production commitments delivered this year include 22 half-hours of Ace Ventura Pet Dectective, produced for Morgan Creek and broadcast by cbs; nine episodes of Eek! The Cat/The Terrible Thunder Lizards (series 5), produced for the Fox Network; 11 episodes of Gargoyles – The Goliath Chronicles, produced for abc/Disney; 13 new episodes of Scholastic’s The Magic School Bus (series 3), distributed internationally by Nelvana and broadcast on pbs; and 13 episodes of Waynehead, a new Warner Bros. series.

Nelvana’s live-action production in ’96 includes 13 new hours of Jake and the Kid (for a total of 26), a family series set to wrap on location in Alberta produced by Nelvana and Great North Productions for Global Television in Canada, Family Channel in the u.k. and Ravensburger.

Two additional ’96/97 proprietary animated productions are slated for delivery next year – Pippi Longstocking, a $10 million feature film based on the classic Astrid Lindgren books and coproduced with Svensk and Betafilm Gmbh; and 26 3D animated episodes of Donkey Kong Country, adapted from the Nintendo video game and produced in association with Canal+ subsidiary Medialab and WIC Western International Communications.

Waiting for 3D

The industry expects more from 3D, says Hirsh.

‘The television animation world is waiting for the first successful computer-animation series. I don’t think our industry perceives ReBoot to be that example. Everybody respects the fact that it was done and went several seasons, but from the point of view of the industry it was not enough of a success – at least in the American market – to create a demand.

‘The other thing they (clients) are looking for is efficiencies shows that can be delivered at a certain point, reliability.’

Hirsh says Donkey Kong – now in production – could be the breakthrough. ‘We won’t know until we get there.’ Nelvana has other 3D properties beyond Donkey Kong.

‘The world out there believes that animation does something that 3D will never do. In the comedy vein it’s very clear that 2D, because it’s a cartooning kind of art, is very hard to supersede with 3D. I think 3D can supersede 2D (and cel) in the action-adventure vein, but it will be a lot harder to do anything that’s comedy.’

As part of its plan to diversify production to all age groups, Nelvana is coproducing a teen animation series with Swiss and German partners called Robin.

Robin (the creation of Swedish artist Magnus Carlsson) and his zany friends are into rock ‘n’ roll, cow-tripping, getting loaded and other myth-defining moments of youth, but the stupidity quotient is way above the Beavis & Butthead standard.

Hirsh says production on Robin is limited (27 three-minute episodes), even experimental. ‘It’s meant to be our Beavis & Butthead. It’s designed to appeal to teens and young adults, it’s funny and a comment on today’s society.’

New Nelvana properties, typically based on books and comics acquired by the company in various stages of development, include Franklin from Kids Can Press, popular French bd titles Barbarella and Fantomas, St. Trinian’s and Thelwell from the u.k., and Sam and Max and Care Bears from the u.s.

Nelvana is Canada’s only animation producer with a consistent presence (12 years and counting) on Saturday morning network tv in the u.s., the cartoon big time.

However, some doors are closing, as others open.

‘Consolidation has obviously had an impact because you have companies that are vertically integrated and can deliver shows to themselves,’ says Hirsh. ‘Having said that, they have also had the benefit of the fcc (financing and syndication) rule changes (meaning the majors and networks are no longer prohibited from self-dealing).

‘The thing that we have going into the market is our availability to identify great projects, creative and the ability to cost-share and invest in those programs.’

The status of Canadian

Canadian pubco producer/distributors like Nelvana have been able to better navigate the ebbs and tides of reliance on public funding, but the incentives (and quotas) go right to the core of the Canadian system, in both broadcasting and in production. No producer in this country will deny tax credits and other funding sources have a major impact. (Not enough for mca to really want to be Canadian, but one digresses.)

According to Hirsh, Canadian producers, publicly traded and otherwise, enjoy a competitive edge over their American counterparts.

The issue resurfaced in dramatic fashion this fall when Nelvana was basically pushed into announcing preliminary-level merger talks with Golden Books Family Entertainment, the largest publisher of children’s books in the u.s.

No one suggested the deal would not have been a nice fit, and since then industry players in law offices, Crown corporations, government departments, and the u.s. are taking a closer look.

‘Canadian producers enjoy a great benefit through our access to various government funding and other funding that comes to us by virtue of qualifying as Canadian producers, and things like the Cable Fund that are part of that, any crtc-initiated funding,’ says Hirsh.

‘And the ramification is that we are all generally more profitable than our American counterparts. And I think that it is hard for anyone who is going to come in and pay a premium for a production or a production/distribution company in Canadaand as a result of that acquisition lose the benefits. So, I think that’s a general truism and would make it tough for any Canadian company to give up their Canadian status.’