Best of the year: DHX Media

As Playback counts down to the end of the year, we’re rolling out our Best Of stories from our Winter 2012 issue. Halifax-based kids entertainment company DHX Media in 2012 acquired Cookie Jar Group to form one of the largest indie libraries of kids entertainment content. Here, company president and COO Steven DeNure discusses what the acquisition means for the newly-expanded company, and its plans for continued expansion in 2013 and beyond.

Kids Distributor of the Year: DHX Media

In 2012, one of Canada’s biggest kids show suppliers got a whole lot bigger. DHX Media’s October acquisition of competitor Cookie Jar Group has formed what is being touted as the world’s largest indie library of children’s entertainment content. And with the merger, not only is DHX a bigger player in a niche in which it was already a formidable presence, it is now poised for a major push into digital distribution.

Publicly traded DHX Media pulled the trigger on the deal – which was announced in August but began taking shape behind the scenes a year ago – from a position of strength, having recorded $73 million in revenues in its fiscal year ending June 30, up 31% over 2011. Servicing other company’s animated projects accounted for $31 million of that, up a robust 102% versus 2011. Projects included Hasbro’s My Little Pony and Pound Puppies out of DHX Vancouver and DreamWorks’ Dragons: Riders of Berk out of DHX’s Wildbrain Entertainment facility in Los Angeles. Cookie Jar, meanwhile, reported revenues of $57 million for the year ending May 31.

DHX’s revenues for proprietary productions, meanwhile, dropped 22% to $13 million. The Halifax-based company produces Monster Math Squad, That’s So Weird! and music-themed phenom Yo Gabba Gabba!, which it acquired in 2010 when it bought Wildbrain. The latter property also accounted for $13 million of DHX’s $16 million in revenues from merchandising and licensing, music and royalties (up 24% versus 2011). In September, DHX assumed all international broadcast and licensing rights for Yo Gabba Gabba! from Zodiak Rights, setting it up for a renewed push to monetize this lucrative property.

Indeed, given the unpredictability and high costs of production, DHX is looking increasingly at its other revenue streams. “There is reasonable demand for original production, although we’re seeing that has softened a bit with reduced advertising revenues,” says Steven DeNure, company president and COO. “One of our goals has been to diversify the revenue across different opportunities in our business and to look for some geographical diversity as well. We have always seen this as a sales-oriented business.”

And DHX now has plenty to sell. The integration of Cookie Jar’s library adds nearly 6,000 half-hour episodes to the 2,550 DHX owned previously, bringing into the fold such stalwart shows as Caillou, Arthur and The Doodlebops, as well as a consumer products division representing more than 3,000 brand licensees worldwide – a potential merchandising and licensing goldmine. The $111 million deal is being paid with 36 million DHX shares, $5 million cash and the assumption of $66 million of debt. (Toronto’s Birch Hill Equity Partners was Cookie Jar’s controlling shareholder).

It is the latest such transaction in a flurry of kids-sector consolidation, which also has seen Mattel acquire HIT Entertainment (and its 1,500 hours of programming) and DreamWorks Animation purchase Classic Media (owners of 450 movies and 6,100 TV episodes).

“Many of these companies have been owned by private equity, and eventually private equity sells or merges the companies they own,” DeNure notes. “We knew some years ago there would be a change in ownership at many of them, but we couldn’t have predicted it all would have happened in a 12-month span.” DHX itself was formed from the 2006 merger of Decode Entertainment, which DeNure co-founded, and Michael Donovan’s Halifax Film Company. Donovan is today DHX’s chairman and CEO.

These newly expanded companies, like DHX, believe owning more content will make for more attractive deals with digital services including Amazon, Comcast, Hulu and Netflix, the latter with which DHX struck a deal in March to make preschool series Franny’s Feet, Bo on the Go! and Mighty Jungle available in the U.S. “We’re having further discussions with them about other content,” DeNure says.

Cookie Jar, meanwhile, had a bigger digital footprint than DHX before the takeover, consisting of numerous branded websites related to its properties as well as, where programs are free to watch with sponsor messages. Cookie Jar grew its digital distribution revenues 353% to $8 million in the fiscal year ending May 31.

“Digital distribution had been a relatively small part of our business but we were seeing some relatively rapid growth,” DeNure adds. “For Cookie Jar, with its bigger library, it had been a very significant portion of their international sales. We will now be one of the key suppliers to over-the-top companies, including Netflix. There’s good demand for catalog.”

Most of DHX’s $6 million in new media revenues in 2012 (a 119% bump) were attributable to UMIGO (“you make it go”), a transmedia educational initiative in development at Wildbrain and funded by U.S. public educational dollars. “It’s focused on a math and science curriculum,” DeNure explains. “The business model there includes producing a television series, which we’re pitching at the moment, as well as web-based content from games to puzzles – much of which is free – to apps, which won’t be.”

Keeping multiple platform executions in mind, DHX recently formed a partnership with children’s publisher Egmont U.K. to co-develop ideas that will work for books, TV and digital.

DHX also has on its slate the CG-animated preschool series The Doozers, a copro with The Jim Henson Company that incorporates characters introduced on Fraggle Rock. It has been sold to Turner Broadcasting’s Cartoonito channel in Europe, the Middle East and Africa for a fall 2013 launch. “It’s a great project we’ve been working on for a while and the show’s looking fabulous,” DeNure says. Forthcoming new shows originated at Cookie Jar include season six of Johnny Test (fall 2013) and kids superhero comedy Dr. Dimensionpants (winter 2014), both for Teletoon.

Meanwhile, former Cookie Jar CEO Michael Hirsh is assuming the title of executive board chairman of DHX, while former president and COO Toper Taylor, will continue to focus on digital distribution and business development, although his title hadn’t been revealed as of early November. Upon announcement of the deal, DHX anticipated $8 million in annual synergies from “consolidation of locations, marketing efficiencies and the integration of operations.”

Even though going forward DHX will focus on exploiting its vastly enlarged catalog, DeNure assures the expanded company will remain a production force. “Both DHX and Cookie Jar had good development slates and projects in the pipeline [prior to the recent takeover],” he says. “We’ve combined those and will continue.”

Check out Playback‘s 2012 Winter edition here.