With hopes of boosting the amount of its Cancon proprietary production, Nelvana has acquired 100% of children’s book publisher Kids Can Press.

The acquisition of one of Canada’s largest publishers of fiction and non-fiction children’s books will continue Nelvana’s practice of basing productions on literary properties while protecting them from having to share profits with coproduction partners and licence holders.

‘We think that being in the book business will help us identify more opportunities,’ says Nelvana co-ceo Michael Hirsh. ‘The expertise at Kids Can and their knowledge of children’s literature will be very helpful in finding some classic chestnuts.’

Before the buyout, Toronto-based Kids Can had an existing licensing relationship with Nelvana, through which Nelvana obtained production and merchandising rights to its highly successful series Franklin. Now the entire revenue stream from Franklin will stay within the joined companies, says Hirsh, who would not disclose what percentage of Nelvana’s Franklin revenues are being paid to Kids Can in exchange for rights.

Nelvana purchased Kids Can, a privately held company controlled by Valerie Hussey and Ricky Englander, for $6.1 million. Under the terms of the agreement, shareholders will be paid 90% in cash and the remaining 10% through the issuance of subordinate voting shares in Nelvana priced at current market value.

Kids Can has a back list of over 250 children’s titles, including the Franklin property, which has sold over 16 million books. Nelvana and Kids Can are currently developing several other properties for television together, including Elliot Moose, which was recently published in book format.

Hussey, Kids Can president and ceo, says the preschool property Elliot Moose, based on the work of Canadian author and illustrator Andrea Beck, has the potential to be another Franklin.

By developing properties from Kids Can’s stable of primarily Canadian authors, Nelvana should remain able to access increasingly Cancon-strict government funding agencies such as the ctcpf. To qualify for the full amount of the ctcpf’s distinctly Canadian criteria, a children’s animated property must be based on the works of a Canadian book or merchandising property.

Hirsh says that while Nelvana intends to develop properties from Canadian authors that will be eligible for various funds, the company’s move into publishing will benefit Canadian authors most.

‘We’ll be able make the tv shows that access the funds, Kids Can will publish the books and we’ll merchandise them.’ he says. ‘We’ll be in a position to give Canadian authors the kind of marketing opportunities that they generally had to look south for.’

Educational title synergies

About 60% of Kids Can’s titles are educational, and Hirsh says Nelvana is already producing more animated educational series than any other producer in the world.

Nelvana’s cfo Sally Moyer Kent points out that among the financial advantages Nelvana gains from the transaction is the fact that it’s cheaper to develop properties for books than for television.

‘If you develop them simultaneously or launch with a book prior to a series, it will reduce our costs internally,’ says Kent.

Hussey, who remains president and ceo of Kids Can, has signed a multiyear employment contract with Nelvana and will be entitled to additional consideration, contingent upon the financial performance of Kids Can in the years 2000 and 2001.

Following the closing of the transaction, Englander will remain with Kids Can for a transition period of approximately six months, after which she will leave the company to ‘pursue other opportunities.’

Founded in 1973, Kids Can had revenues of $8.5 million last year.

Second-quarter

revenue decline

The acquisition may also help to increase Nelvana’s margins on series as its recently released second-quarter results show a marked decrease in current revenues.

Delivering 28 proprietary animated episodes, Nelvana’s second quarter showed increased net earnings but a significant decline in current revenues, due in part to the coproductions needed for an expanded slate.

Nelvana saw a second-quarter net earnings increase of 53% to $1.28 million compared to $830,000 for the same period last year.

For the quarter ended June 30, the company’s earnings per share increased by 20% to $0.18 per share from $0.15 per share in the previous year.

However, revenue for the quarter declined to $3.9 million from $4.9 million for the same period last year.

Coproductions accounted for 61% of the 28 episodes delivered in the quarter, and Nelvana says the copros allowed for a bolstered slate but also resulted in lower revenue per episode.

Total revenue for the quarter increased 24% to $9.19 million from $7.43 million in the prior year, with an increase in library sales partially offsetting the decrease in current revenue.

Library sales increased to $3.70 million from $1.64 million a year ago.

Nelvana’s stake in animation specialty channel Teletoon contributed $108,000 to quarterly earnings.