Special Report: Canadian Public Film & Television Production Companies: Bullish on ’96: Nelvana considers NASDAQ option

In this report we take a look at the activities and game plans of Canada’s public production companies.

In this report:

Alliance p. 40

Atlantis p. 42

Cinar p. 39

Coscient p. 40

Devine p. 42

Greenlight p. 43

Keystone p. 43

Malofilm p. 37

Nelvana p. 38

Paragon p. 40

The level of international market penetration for series from Toronto-based Nelvana, sustained over four or five years now, is probably the highest of any Canadian production company.

Now in its 25th year, the company produces top-rated programs on the u.s. networks, without really sacrificing world sales, says chairman Michael Hirsh.

‘The reason that our European numbers aren’t bigger is that our American numbers are huge. We have been very strong at exploiting our shows. For example, Dog City was designed with the (u.s.) network market in mind, and that sold in over 140 countries. The same is true for Tales of the Cryptkeeper, which also sold in over 140 countries.

‘My feeling is that we are bullish about ’96. We’re set for a good year, and the industry is continuing to perform very well: not just us, but mostly everybody has been making good commercial shows and enjoying worldwide success.

‘We expect ’96 to be substantially stronger than ’95,’ says Hirsh.

Nelvana’s confirmed ’96 production slate includes nine half-hour episodes of Eek! the Cat/The Terrible Thunderlizards, produced for Fox’s Children’s Network, and 13 half-hours of The Magic School Bus. And on top of that, Hirsh says, ‘the company expects renewals for 13 one-hour episodes of Jake and the Kid, and 13 half-hours of both Nancy Drew and The Hardy Boys.’

‘We are also about to announce 13 half-hours of Little Bear that have been picked up (and) we are negotiating on a few new shows. So there will be additional announcements,’ he says.

Nelvana has a conservative income recognition policy, accounting for series only when they are completed and 100% delivered. ‘So there was a series in ’95 (Little Bear) that falls in ’96 because we didn’t complete it until ’96,’ explains Hirsh.

He says formal details of the full ’96 slate will be known in a month or so.

The company delivered 32 service episodes in ’95: 10 episodes of Eek! the Cat, 13 episodes of The Magic School Bus Series II, eight episodes of Free Willy Series II and one episode of Ace Ventura.

Five proprietary series of 13 episodes each were also completed: Rupert Series IV, broadcast on Nick Jr., The Neverending Story, sold to hbo, Nancy Drew and The Hardy Boys, both syndicated by New Line, and Jake and the Kid, which went to air on the CanWest Global System in mid-December.

’1995 was a consolidation yearwe’ll show some growth,’ says Hirsh.

Last year, Nelvana also picked up foreign sales rights on two American series, 13 half-hour episodes of the ‘featurized’ series The Attack of the Killer ‘B’ Movies and 13 half-hours of Young Duke.

Combined ’95/96 production from the company is projected at 200 episodes, pointing to an increase in ’96 over ’95.

In recent years, the lion’s share of Nelvana revenues have originated from u.s. program sales.

In ’95, 73% of revenues came from the u.s. and 21% from international. The recent movement is towards an increase in international and Canadian sales, specifically in light of Jake and the Kid.

In terms of u.s. ties, Hirsh says the company is looking for a u.s. home for Jake and the Kid, while Little Bear is the top-rated show on Nick Jr. (the junior program block on Nickelodeon). Ace Ventura is another top-rated Saturday morning show, seen on cbs, while Magic Bus will be the first animated strip to air on pbs this fall (just nosing out new specialty channel partner Cinar’s Arthur, which was actually commissioned first).

Rupert is broadcast on Nick Jr. while Stickin’ Around and Blazing Dragons will find u.s. homes in ’96, adds Hirsh.

‘The key is that ’96 will be a great year, and the main thing for Nelvana is that we will be adding some terrific new brand names to our stable of characters,’ he says.

One of those new brand names is Pippi Longstocking, a ‘low-budget’ us$10 million animated feature produced in association with SvenskFilm in Stockholm and Beta Taurus. The film is currently in production and slated for delivery in ’97.

In other program news, PolyGram Video has done a tremendous job on Tintin in the Quebec market, selling over 400,000 cassettes in a year and a half. Sony has the u.s. rights.

The point is sometimes lost, but Nelvana’s great character gallery also includes deeply rooted French characters (in French markets Tintin is far and away the most-loved childhood hero).

Programs in development based on European characters include Barbarella and Fantomas, a French pulp-fiction series with roots (including many movies) going back 60 or 70 years.

The hope is to go into production on both by ’97, says Hirsh.

Nelvana has cash resources of more than $13.3 million and is presently establishing a combined credit facility with the Royal Bank. The arrangement will give Nelvana term, production finance, letter of credit, foreign exchange and operating credits facilities.

As for teletoon, the specialty animation channel hopeful partnered by Family Channel, Cinar, Nelvana and ytv, Hirsh says the hope is to exercise the additional 10% stake in teletoon, which is projected by brokers to have a market value, over time, similar to ytv, in the $100 million range.

Nelvana also has an option to complete its acquisition of Minneapolis-based 3D animation producer Windlight.

Consolidated nine-month results for ’95, ending Sept. 30, include net earnings of over $1.6 million on gross revenues of $25.9 million compared to $1.7 million and $28.1 million for the same period in ’94. eps was $0.32, down from $0.41 last year.

The company used a big share of its available cash assets in ’95 to invest in new production. The nine-month increase is from $8.4 million last year to almost $24 million in fiscal ’95.

Third-quarter results were $13.7 million in revenues, $764,000 in net earnings and a basic eps of $0.15, the same as the second quarter and about $0.10 off what some brokers had anticipated.

The nine-month ’95 production and distribution revenue of $9.1 million is from the exploitation of the company’s tv library. Revenue from ’95 production will start to appear only in the fourth quarter.

Production service revenues for the nine months is $14 million, up more than $4 million over ’94. Management says it expects a loss of about $300,000 in merchandising and licensing in ’95.

Nelvana also reports it will recover all costs associated with canceled feature film projects in development with Paramount Pictures.

Year-end results will be announced a bit earlier this year, says Hirsh, in late March or early April.

Nelvana is listed on the Toronto and Montreal Stock Exchanges and is ‘contemplating a possible nasdaq listing,’ according to Hirsh.

There are some 5.2 million Nelvana shares outstanding, ‘and about half are closely held’ by management and strategic partners. The market cap is in the $90 million range, a little less than half of which is in the public domain, or float.

On the issue of mergers and acquisitions, Hirsh says there is ‘a constant flux of interest from us and other parties.’

‘If you look at what happens with these (public) companies, that (merger and takeover activity) clearly is one of the ways of growing.’

The future of commercial house Bear Spots is under review and there may be a forthcoming announcement as to its status.

Nelvana went public in May of ’94. The company employs 350 and has offices in Toronto, London, Los Angeles and Paris.