Bringing Back the Magic

Despite tight budgets, intense competition and lots of product in the market, many independent children’s producers are finding ample opportunities globally.

It has been quite a while since independent producers of children’s programs have said their business was anything but tough and challenging.
 
It was tough and challenging long before the global economic slump of the past couple of years. It was tough and challenging even before Disney Channel, Cartoon Network and Nickelodeon grew to the level of global dominance they share today by means of multiple channels, owned programs and their own merchandising arms.
 
That being said, some recent conversations with independent producers finds them saying that business, while still far from easy, is showing some signs of improvement. And they’re not too critical of the big three.
 
“I’m actually feeling more optimistic,” says Arnie Zipursky, the president, CEO and co-chairman of CCI Entertainment. “I’m feeling things are better than they were 12 or 18 months ago. Going into 2011, I’m seeing more opportunities than a couple years ago.”
 
Tom van Waveren, the CEO and creative director of CAKE Entertainment, has detected some renewed interest by broadcasters in quality animation. “In the last 9 to 12 months, there has been a return by broadcasters that give an important place to animation,” he says. “They are interested in picking up good shows. We feel the middle market has disappeared. Fifteen years ago, if you made nice shows—nice ideas properly executed—there was a market for them. But the volume has gone down and there is more competition for fewer slots, which has raised the bar.”
 
Lionel Marty, the president of worldwide distribution for Moonscoop, calls the market “tough” and attributes much of the toughness to European terrestrial broadcasters moving kids’ programming to their digital channels.
 
DIGITAL MAZE
“The [time slots] on digital terrestrial channels dedicated to kids don’t have the same budgets as those on analogue television,” Marty says. “We saw that in many major Western European countries, which in the past had always been the most lucrative markets.” Nevertheless, he sees improvement coming. “We are making every effort we can to get licensing revenues higher. The analogue switch-off is coming soon and those [digital] channels will get more revenues. I expect license fees to increase again.”
 
Pierre Sissmann, the chairman and CEO of Cyber Group Studios, bemoans the complex, difficult kids’ market, but notes that his company grew by more than 60 percent in 2010 and it more than doubled its international television sales.
 
“We’re doing extremely well,” he says. “But it’s very complicated. You have to move fast. You have to [be active] in different parts of the planet. We have between seven and ten shows in development. We have a pure action show, a couple of adventure-comedy shows, a couple of edutainment shows and a pure entertainment preschool show. They’re all different. In the past you didn’t need to do this. The market is more complex because you have to address more targets. At the same time it’s more difficult because people have less money.”
 
HELPFUL HANDOUTS
It’s not surprising that many of the companies with reason for optimism are based in countries that offer subsidies and tax credits, or are involved in co-productions with such companies.
 
“Ultimately, if you add up all the license fees around the world that are being paid for animation, you do not cover a budget,” CAKE’s van Waveren says, pointing to the leg up that producers can get in Canada, France, and, to a lesser extent, Australia and Ireland. “They can bring 30 to 40 percent of the budget to the table. You need those kinds of funding mechanisms.”
 
Cathy Payne, the CEO of Endemol Worldwide Distribution, says there wouldn’t be an Australian kids’ business without subsidies and quotas. “In Australia we’ve always had content laws that required broadcasters to carry local kids’ content,” she says. “The networks wouldn’t have children’s programming if they weren’t forced to. It’s not a commercial business for them. The market that’s really suffered in kids’ programming in recent years is the U.K. There just hasn’t been money available from the broadcasters for commissions.”
 
Producers also look to licensing and merchandising for help in turning a profit. The hurdle, naturally, is that merchandise success almost always follows a hit show; it doesn’t help a show get established.
 
Ira Levy, an executive producer and partner at Breakthrough Films & Television, calls merchandising a tough business. “For an independent to compete in that area is quite different now than it was 10 or 15 years ago,” he says. “It’s an area that the bigger brands are very dominant in. You have to have a lot of money to play in that game, in marketing and support.”
 
With little government support, Italian kids’ producer Rainbow S.p.A. relies heavily on licensing and merchandising. Its founder and CEO, Iginio Straffi, says Rainbow is not a typical independent in that regard. “We make about 35 percent from TV sales and 65 percent from merchandising,” he explains. “I’ve seen balance sheets of other production companies like us, and aside from the fact that they are struggling now and their revenues and profits are much lower than ours, for the most part their split is 85 to 90 percent TV sales and 10 to 15 percent licensing.”
 
PROFITABLE PARTNERSHIPS
FremantleMedia, a company with roots in the U.K., German ownership through RTL Group in Luxembourg and RTL’s parent Bertelsmann AG, and operations worldwide, is using Canadian co-production, in one case, and merchandising tie-ins in another to launch its entry into the kids’ business.
 
Sander Schwartz, the executive VP and head of children and family entertainment at FremantleMedia Enterprises, says the company produces in 45 or 50 countries with partners in Europe, the Americas and Asia. “Our shows are co-productions done with partners in each of those three regions,” he says. It was almost two years ago that the company decided to produce for kids and teens, a sign of optimism that the market would get better.

The publicly traded producer and channel owner Your Family Entertainment (YFE), which is based in Munich, has neither subsidy help nor aggressive merchandising, yet it saw revenues grow by 17.1 percent in the first nine months of 2010. Its CEO, Stefan Piëch, explains that YFE relies on license fees from public broadcasters and subscription fees from its noncommercial channel and several mobile-phone services. Selling to public broadcasters less affected by a weak economy has helped YFE, Piëch says.
 
The mobile-phone business has been something of a surprise to Piëch. “Be­cause Austria is a leader in the mobile business, we are about to launch our fifth mobile channel there. We want to bring it to Germany and Switzerland and other markets. We see it as a very strong business in the future. The market share of one of our mobile channels sometimes matches the public broadcaster in Austria.”
 
FINDING OPPORTUNITIES
Influencing the issues of both license fees and merchandising are the three gorillas in the room—Cartoon Network, Disney and Nickelodeon—and their tendency to negotiate aggressively with independents and to give their own shows more and better time slots than acquired shows.
 
Independent producers measure their words carefully when talking about the big three, and criticism is necessarily muted. But for the most part the independents say there are ways to deal successfully with the gorillas.
 
CCI’s Zipursky expresses some frustration with the big three, but he points out that no one knows where the next big hit is coming from. “The three majors are going to promote their wholly owned shows first,” he says, “but we’ve seen the opposite happen, too, if the show fits their brand. That’s why the independent is surviving.”
 
Moonscoop’s Marty says the big three can’t rely only on their own production and that when they build partnerships from the beginning with independents they will give acquired shows the exposure they need.
 
Endemol’s Payne takes that a step further, suggesting that the way into the hearts of the majors is through commissions. “As the market becomes more competitive, it’s about producing for those networks as a local commission, as opposed to acquisitions,” she says. “They do acquire programming, but all their big signature shows they either co-produce or get in­volved early because they want to editorially control the show. If you were going to get something with the Disney Channel in America, where they own the tween genre, they would have to be involved very early.”

The only real negotiating leverage the independent has is the performance of its shows, most executives say. “If you have a show that does what their other shows can’t, they’ll back it because they need the ratings,” CAKE’s van Waveren says.
 
“If you’re an independent producer, you’re just trying to make the best show possible to reach out to kids,” he says. “You’re hopefully complementary to, rather than in competition with, the other time slots. Every one of the big three, their time slots are very valuable real estate, and they don’t want a show that doesn’t perform. Often they’ll find they need a show from independent producers to get their schedule going. Hopefully, it will drive us all to make better shows. The smart ones know how to partner.”
 
A longer version of this article appeared in the MIPTV 2011 edition of TV Kids.