Drawing on

the global picture

The Canadian animation business is anything but.

In the tradition of many industries based in Canada, the country’s animation producers do call Toronto, Vancouver, Montreal, Ottawa or Halifax home. But like their counterparts in live-action production, animation shops cannot afford to think of Canada as their central focus.

Most producers recognize that learning to finance and market projects internationally, from the show through to the plush toys and the interactive video games, is the promise of tomorrow. There are few lucrative Canadian tv slots earmarked for kids and the merchandise-buying population is relatively small. Demand is up slightly in Canada, with cbc adding Nelvana’s Little Bear to its preschool package for this fall, but worldwide, demand is better than ever.

Specialties

‘The real growth came with specialties like Nickelodeon 15 years ago,’ says Ron Weinberg, president of Montreal-based Cinar Films. He adds that recent arrivals of new kids specialty services – including Nickelodeon services coming to Germany and Australia, a new service licensed in Korea in the past year and a total of five children’s outlets in Britain – mean that ‘territory by territory you see there’s more places exhibiting children’s programming and that’s going to drive a lot more business.’

Both of Canada’s publicly traded animation players, Nelvana and Cinar, report the majority of their fiscal 1994 revenue or production revenue flowed in from outside Canada, and smaller companies are building global production slates.

Nelvana derived a whopping 93.1% of its 1994 revenue from international sources, 75.9% of that from the u.s. International sales accounted for 55% of Cinar revenues in fiscal 1994, 42% from the u.s.

And more companies are looking to partake. Recently, three companies in two markets moved into the biz through new financial relationships, an established tv player began planning a reverse merger to finance features, and other shops shifted some of their focus from service to proprietary work or from commercials to long-form.

Telefilm backing off

All despite a marked decline, in recent years, in contributions from Telefilm Canada. According to figures from the agency’s 1985-94 annual catalogues, Telefilm commitments to animated programming peaked at $9.71 million for projects completed in 1989, with about $8.35 million allocated in 1990. The total for 1994 was down to $3.54 million; evidently, companies have been in presale and coproduction school for some time.

That expertise in hand, the industry leaders have mounted impressive slates. Nelvana has announced production or service production of 10 animated series/ 161 half-hour episodes through the end of 1996 and is developing five $20 million-plus features on a service basis for Paramount Pictures. There’s great comfort for investors in this since Nelvana assumes no financial risk.

Cinar has four animated series/ 101 half-hours in production for delivery in 1995 or 1996, with an additional 39 half-hours still to be announced. Cinar is also producing 65 five-minute episodes of Babalous and 26 13-minute episodes of The Papa Beaver Stories.

These slates have faced their setbacks, however. Buyers can be fiendishly fickle, especially in the u.s. ‘Saturday morning’ market.

A leading supplier of series to the Saturday a.m. nets (Fox, abc and cbs) for the past two seasons, Nelvana was hit with a three-network tackle earlier this year. When renewals were announced, none of Nelvana’s three proprietary network series – Tales from the Cryptkeeper (abc), Jim Henson’s Dog City (Fox) and Jim Lee’s WildC.A.T.S Covert Action Teams (cbs) – was among them.

(‘Proprietary’ generally refers to projects in which a company owns the copyright and/or certain distribution and/or merchandising rights. ‘Service’ projects are commissioned by third parties for fixed amounts; some service deals entitle the contracted producer to the chance at distribution and/or merchandising revenues.)

But Nelvana had prepared for Life With Networks. Says company chairman Michael Hirsh: ‘When we went public (May 1994), we announced that one of the growth strategiesÉwas to expand our market share throughout the u.s. so that we weren’t so dependent on the networks.’

More development

Hirsh adds that because the company is committed to ‘an above-average growth rate’ it has more shows in development.

A strong slate combined with solid international relationships allowed Nelvana to bounce back. By May it greenlit 26 half-hours of Stickin’ Around, to be coproduced with ytv and Ellipse Programme. And Britain’s ITV Network picked up 13 episodes of Blazing Dragons, to be produced by Nelvana and Carlton Television in the u.k.

Weinberg and Cinar ceo Micheline Charest began as distributors, so a global focus comes naturally. ‘Looking at the whole world gives you a much broader range of subjects, styles and creative people to deal with,’ says Weinberg. ‘It doesn’t push you into the same frenetic style of production (as with network shows). If we were looking at the u.s. as being our primary market for production, we might not have done much of what we’ve done. That being said, we’re not ignoring the u.s. market.’

Cinar prefers deals which allow it to make as many episodes as possible of any given series. ‘We tend to work with the same partners and broadcasters over and over again. We want projects (typically literary properties) to fit into our strategy rather than reinventing the wheel.ÉWe were developing Little Lulu for more than a year and we almost made a deal with one of the networks and we realized we weren’t working on the same show. They wanted to make Little Lulu this hip ’90s character and we wanted to do Little Lulu.’

What of trends in costs versus licence fees? Hirsh says fees in Europe, particularly Germany and the u.k., have seen ‘significant growth for the a product’ from 1993-95 compared with 1990-91. He says u.s. fees are holding steady. Weinberg says that, with more work available and studios across North America competing for talent, labor is an increasing cost here and overseas.

Weinberg agrees ‘there’s an increased number of outlets where we can sell our work,’ but adds, ‘sometimes it’s the same pie with more slices, sometimes it’s another pie andÉthat increases the amount of money for our product. Sometimes when the specialty services begin to compete with each other, they have to increase licence fees.’

Service shops say they have to look to u.s. commissions to keep margins healthy. Barry Ward, a partner in Vancouver’s Bardel Animation, says u.s. contractors ‘allow better margins because of the difference in the dollar and (they pay) higher rates to begin with.’

Marketing strategies also require a global view. While Who Framed Roger Rabbit woke up the rest of the world to the glorious potential of animation, The Lion King gave the ultimate lesson in the potential for both box office and back-end revenue.

u.s. networks living in the post Syn-Fin world have jumped into the game: now that they can own ‘a piece’ of programs, they are emphasizing their role as promoters and trying to deal themselves merchandising and/or distribution rights to shows they air. To avoid such a squeeze, producers must either come calling with exceptional properties or else opt for international financing.

Many Canadians say the merchandising and distribution rights in production deals are becoming as important as the production itself even though Nelvana has spent nearly a decade in merchandising without the proverbial big hit.

On the other hand, as Hirsh attests, if you have a ‘toyetic’ property, the hit can come any time: The Lyons Group struck it big with Barney on its first time out, but Saban Entertainment had to wait for Power Rangers for a winner.

‘Merchandising is a fundamental, and often a more important element of the business plan than a straight licence fee,’ says Charles Falzon, president of Catalyst Entertainment, which, with the Britt Allcroft Group, recently bought a controlling stake in Phoenix Animation.

‘What a lot of people are doing is banking on the coproductions and financing the bulk of the project through coproduction partners so that they can play at the merchandising roulette table in the u.s.,’ says Falzon.

‘Producers have been aggressively pursuing projects that have some kind of merchandising potential,’ says Steven DeNure, president of Alliance Productions. While revenues for animation production are ‘quite predictable,’ and there is potential for a ‘big upside’ in merchandising, he cautions that merchandising revenues are very unpredictable.

Alliance Communications is moving into its second season of the all-3D animated series ReBoot, coproduced with BLT Productions of Vancouver. The show is staring down technical, creative and delivery difficulties and ‘in the long term we expect the show to be profitable; a major component (of that) will be merchandisingÉ.The work done on the production of the show means there’s a database of images that can be used by (ReBoot game producer) Electronic Arts to produce the games with the ReBoot team,’ says DeNure.

Two other producers who focus primarily on live action have recently directed significant attention to this animation business. Paragon International structured a 50:50 coventure, Lacewood Animation Productions, with Ottawa’s Lacewood Animation, and Catalyst/Allcroft took control of Phoenix. Both deals should give the animation producers more distribution punch.

Sheldon Wiseman, scion of Lacewood Animation, says Lacewood has its ‘biggest slate ever’ for ’95 and ’96, featuring a variety of financing packages. Two series are Canada-France coproductions (26 half-hours each of Flash Gordon and Matthew and the Midnight Adventures); a second season of Katie and Orbie involves a mix of Canadian and u.s. broadcasters. Thirteen half-hours of Savage Dragon offer limited distribution rights to Paragon, while a total of eight specials are aimed at Canadian nets.

Catalyst, meantime, has established a three-pronged strategy for Phoenix: high-end service work for features such as The Goofy Movie and All Dogs go to Heaven; work to be done with Britt Allcroft, as in Britt Allcroft’s Magic Adventures of Mumfie, a 13-part half-hour series (plus a Christmas special); and developing proprietary Catalyst projects, including a feature and ‘a couple of series.’

In the bursting Vancouver market, Chris Delaney and Friends continues with animated commercials, but is adding more long form.

The company is currently in discussions with a group of New York investors for a series of three features, The Shoemaker and The Elves, The Legend of William Tell and Dr. Jekyll and Mr. Hyde.

At press time, Delaney was also in merger negotiations with Delaware-based Ocean Productions. The reverse acquisition merger would provide Delaney with the capital to produce the three features, budgeted in the $7 million range each, see it listed on nasdaq and still allow Delaney principals to control the merged company.

According to Chris Delaney, the script and design for The Shoemaker and The Elves are completed and the film could be wrapped in two years if the merger goes through.

Also in the works at Delaney is a coproduction with Michael Chechik’s Waterstreet Productions based on the children’s story The Short Tree and The Bird That Couldn’t Sing and written by Vancouver playwright Dennis Foon (Little Criminals).

Meantime, Delaney and coproducer Cambium Film and Video of Toronto are doing 26 half-hours of Nilus the Sandman (they have already done three specials) for 1996 airing, and are developing a feature.

Vancouver’s Gordon Stanfield Animation is producing a new children’s series in association with WIC Western International Communications through Westcom Entertainment.

Kleo The Misfit Unicorn, is about a winged unicorn who is sent to Misfitland to help others deal with their fears. The pilot is currently in production in Vancouver featuring classical cel animation. Gordon Stanfield, writer/producer and director of the series, is finalizing negotiations with wic for the production of 26 half-hour episodes.

Bardel Animation, known as a service specialist, hopes to push some of its own projects into production. Says Bardel’s Ward: ‘It’s time we stood up and showed that we’re the talent behind a lot of these projects.’ In addition to the four series Bardel is servicing, Ward says the eight-year-old Vancouver shop is animating a cd-rom project for u.s. schools, and developing two series, The Witch’s Apprentice and Thorax the Conqueror.

At Vancouver’s Studio B Productions, partner Chris Bartleman plays down the company’s low Canadian profile, pointing out that most of his work comes from l.a. He says the company has grown quietly and steadily and is now ‘the biggest studio in Western Canada.’

Four tv series service projects are under way (including Felix the Cat and Action Man), plus a mega-job servicing ’30 or so’ one-hour direct-to-video films. He and partner Blair Peters are in no hurry on their own projects, but they plan to assemble a trailer film showcasing series ideas to take to natpe.

‘We want to have more control and do our own things, and not really get much bigger. We likeÉarguing over the style of the phaser gun in the boardroom.’

In Montreal, advertising veteran Productions Pascal Blais saw three shorts languish in development hell before recently kick-starting one down the production path. It’s a dialogue-free, half-hour film called La Vielle Dame et les pigeons. The bbc prebought it for international distribution and Pascal Blais will seek a Canadian broadcaster.

The animation boom means studios have to be creative to keep talent. High-gloss u.s. studios recruit the restless with promises of coveted feature work and raiding parties are becoming the focus of urban myth. So Canadian bosses say they must counter with loyalty, professional development, diverse projects and competitive wages.

Or just take Bartleman’s attitude: ‘We have a really cool place. We pay well, compared to the States. It’s just a really great city to live in. And we beg and plead.’