Retrospective: DHX Media

From Playback magazine: In 10 years, the kids content powerhouse has grown from being Canada's East Coast entertainment outpost to a global producer, distributor and broadcaster.
DHX Media celebrated its 10th anniversary on July 14, 2016 with a party, featuring The Goldmembers band, on the Degrassi backlot at DHX Studios in Toronto.

DHX Media celebrated its 10th anniversary on July 14, 2016 with a party, featuring The Goldmembers band, on the Degrassi backlot at DHX Studios in Toronto.

May 19, 2016 was a good day for DHX Media. That morning, CEO Dana Landry and president and COO Steven DeNure, surrounded by colleagues, rang the bell to open the Toronto Stock Exchange – marking 10 years the company has traded on the TSX. Also present was somebody dressed in a Caillou suit, nodding to one of the most valuable brands the entrepreneurial firm has picked up along the way.

The company was formed in 2006 by the merger of Decode Entertainment – the kids prodco and distributor cofounded by DeNure and known for copro animated series such as Angela Anaconda and Chop Socky Chooks – and the Halifax Film Company (HFC), cofounded by Michael Donovan. (The DHX moniker abbreviates “Decode Halifax.”)
While HFC similarly had kids programs such as Poko, it also had stalwart political satire This Hour Has 22 Minutes, and Donovan’s mantle was adorned with an Oscar statuette for producing Michael Moore’s divisive documentary Bowling for Columbine (2002). Today, Donovan is DHX’s executive chair and remains based in Halifax. Last year he was recognized as Canada’s EY Entrepreneur of the Year, and competed for the global crown in Monaco this past June.

Award organizers Ernst & Young stated that they chose Donovan largely for his “industry foresight.” Certainly, he and DeNure correctly predicted a bright future for a company such as DHX, and spelled that out in their initial IPO document.

“There was an opportunity to build a vertically integrated international Canadian kids media business and buy rights and libraries,” DeNure tells Playback. “We had a core belief that the evolving digital world would dramatically change the opportunities in kids television and that some libraries were undervalued. We’ve stuck to what we believed, and the digital distribution space has been as good or better than we imagined.”

DHX has grown into a major global player with interests in production (33% of its Q3 2016 fiscal revenues), distribution (25%), broadcast (23%) and merchandising and licensing (19%). The company doesn’t consider these to be silos, but rather as segments of “content’s virtuous circle,” with each division feeding into the others. Revenues in the 12 months preceding its Q3 report totalled $301 million, up from $264 million in fiscal 2015. Its stock price closed at $7.36 this July 14th, compared to $2.19 when the company began trading 10 years ago.

DHX says it employs more than 1,100 personnel worldwide, spread across 18 offices in 15 cities. It owns 3D CGI animation studios in Vancouver and Halifax (where it’s made Bob the Builder and Inspector Gadget, respectively), another 2D animation studio in Vancouver (Dr. Dimensionpants), and a live-action studio in Toronto (Degrassi: Next Class). It is planning to consolidate its Vancouver studios into one large, state-of-the-art facility by early next year.
DHX’s first move in its ambitious growth plan was its 2007 purchase of Studio B Productions, makers of kids shows such as the animated Kid vs. Kat. The $9.4 million acquisition boosted DHX’s production slate, brought its distribution division 400 hours of programming, and yielded its 2D Vancouver animation studio.

The company expanded its footprints in the interactive space and south of the border three years later when it shelled out another $8 million to acquire U.S.-based Wildbrain Entertainment, producers of successful series Yo Gabba Gabba! and Higglytown Heroes. YouTube specialists Wildbrain currently manages digital rights for series by DHX and other content owners. It runs a 350-channel YouTube network that, according to DHX, generates 750 million monthly views.

Wildbrain also produces original online content for consumer brands. That 18-minute unboxing/toy-play video about the Play-Doh Disney Princess Frozen Sled may not sound exciting to you, but part one has racked up 250,000 views for the toy seller.

Teletubbies Tinky Winky, Dipsy, Laa-Laa and Po helped DHX execs ring the Nasdaq opening bell on July 10, 2015 to celebrate the listing of the company's shares on the market.

Teletubbies Tinky Winky, Dipsy, Laa-Laa and Po helped DHX execs ring the Nasdaq opening bell on July 10, 2015 to celebrate the listing of the company’s shares on the market.

Good money in merch

When DHX launched, merchandising and licensing accounted for 0% of its revenue, but today it’s at 19% and is a major focus.

“We would like to make it 30-40%, even 50%,” says CEO Landry, who has been with DHX since the beginning. “The margins in licensing are considerably higher because we’ve got other companies spending money on the manufacturing and concerned about things like loss of inventory, while we’re just collecting a royalty. It’s an extremely strong business when you get properties that connect around the world.”

Tops among these for DHX is Teletubbies – those psychedelic, gibberish-spouting field-dwellers – which it picked up along with In the Night Garden in its $28 million 2013 purchase of Ragdoll Worldwide from BBC Worldwide and an investor group. BBC’s CBeebies commissioned DHX’s revival of the dormant Teletubbies series, which went to air this year on DHX-owned Family Jr. and on 16 more broadcasters worldwide as of July.

Last year, DHX’s Copyright Promotions Licensing Group struck a deal for Spin Master to distribute Teletubbies plush, plastic and bath toys in various North American and European markets. Landry estimates that at its peak, Teletubbies had upwards of 600 individual licensees.

“You can’t have that without the hit television show,” he adds. “That’s where our skills come in: content creation – stemming from the core of talent focusing on story and characters that connect with kids –and making sure from a distribution perspective that we get into the proper platforms. Then you can have licensing success. It was always part of the plan. It’s just taken us a while to build scale in each area of the business. We focus only on family and kids – specifically ages 0-10 – because scale is critical in competing.”

While DHX defines itself as a “pure-play kids content company,” 22 Minutes remains in the fold, set to return to CBC this fall for a staggering 24th season. According to DeNure, DHX, which also produced the primetime CTV comedy Satisfaction (2013), reserves the right to continue making adult-skewing fare.

“We think of these series as ‘special projects’ and would like to continue to have the scope to do them from time to time where it makes sense or where there’s an opportunity to help others grow new ideas. So while we’re not developing much ourselves in that area, we have partnered with or seeded some smart young companies with some development funding,” he says. DHX’s first-look deal with New Metric Media, for example, has led to coproducing partnerships on Letterkenny for CraveTV, Bad Blood: The Vito Rizzuto Story for Rogers and half-hour comedy What Would Sal Do? for Bell Media’s HBO Canada and TMN.

The core DHX team hit the road for its 2006 IPO.  From left: Dana Landry (then CFO, now CEO); David Regan (EVP strategy & corporate development); Steven DeNure (president & COO); Michael Donovan (then CEO, now executive chairman). Photo: DHX

The core DHX team hit the road for its 2006 IPO. From left: Dana Landry (then CFO, now CEO); David Regan (EVP strategy & corporate development); Steven DeNure (president & COO); Michael Donovan (then CEO, now executive chairman). Photo: DHX

A hand in Cookie Jar

What catapulted the company into the bigs was its 2012 pickup of Cookie Jar Entertainment, owners of Caillou, Arthur and The Doodlebops. The whopping $111 million deal added nearly 6,000 half-hour episodes to the library of 2,550 eps DHX already owned, giving the company bragging rights as owner of the world’s largest independent library of kids and family content. Its number of half-hours has since grown to more than 11,500.

DHX’s massive library has caught the attention of its digital-platform partners and helped grow its foreign business.
“The U.S. is a much more important revenue source to us today than it was 10 years ago,” notes Josh Scherba, SVP distribution. “The activity in the kids space by Netflix, Amazon and Hulu has given us new avenues for sales and made incumbents more competitive and on the lookout for the next big thing.”

He adds that the massive Chinese market is also on the rise after being a zero for DHX just five years ago. It’s been a strategic focus and the company is seeing gains from opening a sales office in Beijing a couple of years ago.

“It’s always been a highly regulated TV market,” Scherba explains. “If your content isn’t Chinese, it’s hard to get on air. However, there are more opportunities in digital. We’ve got SVOD partners in China licensing content and there seems to be big demand for Western animation that only seems to be growing.”

Lest DHX’s live-action slate should feel neglected, in 2014 the company paid $33 million for Epitome Pictures, producer of the venerable Degrassi franchise and owner of a 100,000-square-foot Toronto studio facility. The issue-driven, teen-focused dramas have gone through numerous incarnations since premiering in 1979, and continue as Degrassi: Next Class, which is in its second season on DHX’s Family Channel F2N teen block, with Netflix picking up international rights.

From launch, DHX’s plan was to maintain a strong presence in both production and distribution to maximize the benefits of its proprietary content in the global market. But it has also kept up a healthy business servicing other company’s animated shows. These include My Little Pony: Friendship Is Magic, Transformers: Rescue Bots and Littlest Pet Shop for Hasbro Studios and The Mr. Peabody & Sherman Show for DreamWorks Animation.

“Making incredible content for others is wonderful from both cash-flow and cultural standpoints,” says Ace Fipke, DHX Studios’ Vancouver-based chief content officer, who came over after yet another takeover – the $57 million purchase of animation shop Nerd Corps Entertainment in 2014.

“Whether we own the property or it’s somebody else’s, the talent in our production studios looks at it all the same. They just try to make the best possible program they can,” he continues. “[Service work] takes some of the constraint off cash concerns that come into play when you’re creating your own content. It’s one of the things we look at as a public company. You need that perfect balance of enough work coming in and reinvesting into those properties that will hopefully become billion-dollar successes for us.”

Surprise broadcast entry

What even Donovan and DeNure did not foresee a decade ago was becoming station-owners. But just as they were thinking consolidation, so was the broadcast industry. In 2013, the CRTC approved BCE’s purchase of Astral Media with the stipulation BCE sell off 11 of the acquired specialties. And so DHX saw an opportunity to enter kids broadcasting, which it did with the $170 million pickup of Family, Disney Junior (English and French) and Disney XD.
Similar to the Disney-branded channels, Family balanced shows from Disney Channel in the U.S. – including kids sitcoms Jessie and Austin & Ally – with Canadian programming.

But in a surprising twist, DHX lost all its Disney programming less than nine months after the transaction was finalized. In April 2015, deep-pocketed Corus Entertainment announced a deal for the exclusive Canadian rights to Disney Channel’s library, and soon launched a Canadian version of Disney Channel along with its own Disney Junior and Disney XD. As of this past January, DHX channels had no more Disney product.

DHX re-branded Disney Junior English to Family Jr. and French to Télémagino and XD to Family Chrgd. DeNure assures that DHX was not caught unawares.

“We were very interested in acquiring the channels, and as far as we know we were the only bidder that didn’t require a renewal of Disney programming,” he explains. “We figured there was at least an opportunity to use our library to program part of the channel. And unless there was a reasonable deal with Disney, we weren’t sure we wanted to renew. As a content company we were much keener on investing that money in original programming – either produced by DHX or independents – and that’s what we’ve done.”

To fill some of the gap, DHX licensed more than 1,000 half-hours from DreamWorks (titles including All Hail King Julien) and agreed to coproduce 130 animated episodes with the studio (titles yet to be announced) which will be spread across DHX’s channels. It also licensed 300 half-hours of teen content from AwesomenessTV, majority owned by DreamWorks, for Family. In another significant partnership, DHX is producing a series adaptation of Cloudy with a Chance of Meatballs with Sony Pictures Animation, although that one will air on commissioning broadcaster Teletoon.

The Disney loss has been a boon for DHX’s Canadian producer partners, as Family’s big promotional push is now behind tween soaps The Next Step (Radical Sheep Productions) and Backstage (Fresh TV), which recently shot seasons five and two, respectively. DHX also handles Backstage’s international distribution.

DHX’s success in developing all these segments of “content’s virtual circle” bodes well not only for its future, but also for that of Canadian production as a whole.

“We’ve worked a long time to pull this company together across all these different businesses,” DeNure says. “For us to have created DHX with all of these component parts has been one thing. What we’ve been focused on in the last couple of years is now making sure it really works as an integrated whole.”

This article originally appeared in Playback’s Fall 2016 issue