Joe Strike braves the (virtual) cold of the Canadian winter to report on the merger of two of Canada's premier producers of animation.
U.S. entertainment companies aren't the only ones with an urge to merge. It's unlikely that Canada's DHX Media will ever become a behemoth on the order of Viacom or Time Warner, but with its acquisition of Vancouver-based Studio B, DHX now straddles the Great White North from the Atlantic to the Pacific.
DHX came into existence in May of 2006 when Toronto's DECODE Ent. and the Nova Scotia-based Halifax Film Company merged. DECODE boasted a top creative team and a huge, internationally-distributed inventory of animated and live-action kids programming. (DECODE shows seen in the U.S. include Franny's Feet on PBS Kids, Angela Anaconda on the short-lived Fox Family, and The Save-Ums on Discovery Kids.) For its part, Halifax produced an assortment of shows for children and grown-ups, including Discovery Kids' Lunar Jim and the long-running Canadian satire This Hour Has 22 Minutes.
The incentive was financial: in today's business world, the first commandment is "grow or die," and the new, larger entity was in a much better position to raise capital to expand. "It's an interesting combination of talent, people and projects," says Steven DeNure, DECODE's president. "Our focus is on kids TV and we have great distribution as our ground floor. The company was founded by myself, Neil Court, Beth Stevenson and John Delmage in '97. Neil runs the international sales side -- he's very well known in that area.
"Halifax produces a variety of preschool shows for the CBC, along with 22 Minutes; they also produced Michael Moore's Bowling for Columbine. Michael Donovan [Halifax and now DHX CEO] is an astute finance guy. The idea was 'let's put the two companies together and let each of us do what we do best.' Neil runs the international side; [Halifax president] Charles Bishop, Beth Stevens and I develop and produce shows, and Michael focuses on managing DHX.
"That's really the idea: DHX is an umbrella under which focused creative boutiques could exist, with each one producing a different kind of programming. Individually, none of them would ever get large enough to attract the attention of capital markets, but by creating a larger entity -- with each unit having a high degree of autonomy -- you get the best of both worlds.
"Once you have access to capital you can finance other aspects of your business: extend your distribution operation, acquire additional rights on other properties or in other companies -- like the investments we made in Tribal Nova and Studio B."
DHX's $2 million (CAN) investment in Tribal Noval -- a Montreal-based creator of interactive content, virtual video games and video-on-demand for the 3-to-12-year-old demographic -- earned it a 17% ownership of the company. Tribal Nova's clients include a variety of Canadian media companies, as well as PBS, with the recently launched PBS Kids Play!, an Internet service currently in beta testing.
DHX may be feeling its way into the interactive arena with its relatively modest investment in Tribal Nova, but there was no hesitation in acquiring Studio B, top to bottom. "It's a great company," DeNure enthuses. "It's partly an animation studio, but more than that it's a great creative think tank and production company. They've been around for something like 17 or 18 years and produce a wide range of animated projects. They're very well known internationally. They just launched George of the Jungle and they're working on Martha Speaks [based on Susan Meddaugh's series of children's books] with WGBH in Boston. Teaming with them increases the number of things our international distribution side can sell around the world."
"We've been friends for a long time," says Studio B co-founder Chris Bartleman of his company's relationship with DECODE. "They distributed one of our first shows, What About Mimi. We've had a very successful business relationship, but more importantly we've been friends for many, many years, Neil [Court], Steven, Blair [Peters, Bartleman's partner in Studio B] and I. When they did their deal with Halifax and created DHX, we'd already been talking with them.
"Steven had mentioned that at some point in the future their strategy was for DHX to grow into a bigger company -- and we were on the radar. We thought that would be wonderful, because our main business is in producing and creating content. We only dabble in international distribution. We sell in Canada, but internationally we're always looking for partners, which is a good strategy for us. We've gone to Nelvana with a couple of shows, Classic Media, Sony Family Pictures, those kinds of people. We've always been in the business of making the product, but not really exploiting the product -- we weren't doing any merchandising or licensing. As time rolled along, we saw DHX forming into a strong, exciting company. About a year ago I sat down with Steve at Kidscreen and said 'what's the deal?' We were 19 years old then and we had to do something -- we were looking to buy, build or become part of a distribution company. We had all these great shows, but the exploitation was always with somebody else. It was a great plan for a while, but it was time to move on."
Over the course of 2007, the two companies' bigwigs met repeatedly to "get our ducks in a row," as Bartleman puts it. "We explored a few things, but kept coming back to the fact that DHX would be a perfect partner for Studio B."
On November 30th a deal was reached, with DHX acquiring all of Studio B's outstanding stock. Once a privately held company, Studio B became part of the publicly traded DHX. "It was the right move for us," Bartleman reflects. "We needed to grow -- we're 20 years old now and we've evolved from a service company to our own indigenous production studio. We're making great hit shows, but there's a lot more to it than making a show. You have to have not just an exploitation strategy, but the legs and power to pull that strategy off. That's why we felt DHX was a great partner."
Even though DECODE, Halifax and Studio B all create animated children's programming, Bartleman sees little risk of the companies duplicating each others' efforts. "All three of us make really good, unique products, but none of it steps on each other in the marketplace. We're very much kids 6-12, while DECODE does younger stuff, as well as live action for tweens." (For his part, DECODE's DeNure points out that "we focus a lot on 3D computer animation, going back to Angela Anaconda, and our upcoming Chop Socky Chooks, which we're co-producing with Aardman.") "Halifax is primarily a preschool shop," Bartleman continues. "From an artistic point of view, we thought it was a great fit.
"DECODE will sell most of our products now. Now Blair and I can focus even more on making shows, which we love to do because we're animators and directors, and leave the exploitation of properties to the company I think is the best in the business -- Neil Court and Steve, all those people are fantastic. Blair and I are just so thrilled with it. That's not just the usual blabbity-blah. These guys are just great friends of ours -- we've been hanging out with the DECODE folks for over 10 years. We're getting to know the Halifax people as well. They do interesting things: live action, 22 Minutes, great preschool shows, stop motion. It's terrific because we're filmmakers ourselves and those kinds of things are exciting to look at. It will be interesting to integrate these companies together and get the benefits of it all." (With its in-house Flash studio and its relationship to Asian animation facilities like the Philippines' Top Draw Animation, Studio B will also be in a good position to take on the production of its partner companies' projects.)
"We've got the country covered now, from coast to coast," Bartleman sums up. "Our combined efforts are going to make an interesting company. That's what we're in it for -- to make interesting shows."
Joe Strike is a regular contributor to AWN. His animation articles also appear in the NY Daily News and the New York Press.