KIDS_1013_CONSOLIDATION_ALT_EUR_1006_ELLENDER 9/19/13 5:06 PM Page 4
82 TV KIDS
Hair-raising: Beyond representing titles produced by its own animation companies, DHX Media takes on third-party fare like SheZow.
Entertainment were rebranded as Moonscoop LLC.Young’s other big strategic move came in 2007. “We launched a kids’ VOD platform, Kabillion,” says Young. “At the time, the VOD market was very young and people wondered why an indie studio like ours would do it. But it proved to be a good decision. At last count we were in 45 million homes and achieving 6.7 million views a month for shows.” In some respects, Kabillion is Moonscoop LLC’s equivalent of Studio 100’s theme-park business. Although it is probably not generating the same levels of cash just yet, “it is very important in terms of driving other parts of our business,” says Young. “It is a useful negotiating platform when raising finance for shows, and it’s also a way of driving the licensing side of the business.” Anyone following the press will know Moonscoop SA recently entered administration, but Young says that this won’t affect the U.S. business. In an official statement, he said, “The U.S.-based Moonscoop LLC and Kabillion are independent and stand-alone entities in our production and corporate operations, financing and rights ownership.While Moonscoop France has an equity interest, we are a separate group and are both operationally and financially sound.” The background, saysYoung,“is that the two sides were looking to increase scale and presence—which is why we went into partnership. But we continued to operate as distinct entities behind the Moonscoop brand.” Young isn’t in a position to comment on the prospects for the French company, but in the U.S., the focus is on continuing to make great shows. HIT SEEKERS
The examples given so far focus on indies that have been the dominant partners in their merger and acquisition activities.This was also true for HIT Entertainment in the early years of its development, but not more recently. Launched by the late Peter Orton, HIT was a spin-off from The Jim Henson Company that cleverly exploited the capital markets to build up its presence in the preschool television mar-
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ket. During a period of around four to five years, starting at the end of the 1990s, it used stock-market money to fund the rollout of the hit show Bob the Builder and pull off a series of highprofile acquisitions. Among these were Lyrick (a deal which brought with it Barney & Friends), the Swiss preschool property Pingu and, most significantly, Gullane Entertainment, owner of Thomas & Friends. At one point, HIT was so hot that it had a stock-market capitalization of £600 million ($931 million). Things started to unravel when HIT was acquired by private-equity firm Apax in 2005. The deal, priced at around £490 million ($760 million), placed a large debt burden on the company at a time when its consumer-product revenues were slowing down. With Apax unable to make meaningful investments in the studio, HIT drifted along until 2011, when toy company Mattel acquired it for around $680 million. Edward Catchpole, HIT Entertainment’s senior VP and general manager, was part of the team that paved the way for the acquisition by Mattel. For him, the studio has finally found its right home.“Private-equity firms buy companies with the intention of making a profit and exiting after three to five years,” Catchpole says.“That’s not very long in the kids’ business, where content development can take three to four years. Contrast that with Mattel, which is in the kids’ business for keeps,” he says. For Catchpole, the Mattel/HIT deal made sense for both sides. “Mattel knew that times had changed and that it needed to be more than a toy company if it was going to keep engaging with its audiences. At the same time, HIT’s investment had been cut to a minimum and it needed a partner that could reinvest in its core properties and support development into new areas.” A year into the Mattel/HIT marriage, Catchpole says the businesses are integrated and the focus is on supporting core properties like Thomas. At the same time, Mattel has given HIT the resources necessary to expand into new areas. “We’ve hired Michael Carrington as our head of content and production. That’s a really key appointment which demonstrates our creative ambition.” But even when you have someone of Carrington’s credentials, is it possible to create exciting new concepts from within a global toy company like Mattel? “Absolutely,” says Catchpole, “I’m a fundamental believer that the story is key to the success of a property. You can spend hundreds of millions of dollars on special effects and CGI, but if your story doesn’t create an emotional connection with the audience, you’ll never sell any consumer products.We only work with the best writers.” In terms of strategic targets, Catchpole says that the girls’ preschool audience is an obvious gap in HIT’s portfolio.And where better to build a girls’ brand than Mattel, home to Barbie? In terms of the general theory of consolidation in the kids’ business, Catchpole believes it has a strong cyclical feel. “Kids’ is one of those businesses that constantly expands and contracts.You see companies growing through acquisition, then selling off non-core properties. At the same time, you see startups appearing out of nowhere and shaking up the market.” But what if a young Peter Orton appeared on the scene today? Would he still be able to build a successful studio or would the competition be too fierce? “I think the old TV funding model is broken, which is why so many companies have gotten in financial trouble,” says Catchpole. “But that doesn’t mean there aren’t opportunities for young entrepreneurial talent. Examples like Moshi Monsters and Angry Birds suggest that areas like digital, gaming and apps might be where new studios emerge.”