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Animators Diversify to Ensure Success

Mar 15, 2004  •  Post A Comment

The growing boom in televised animation has changed the marketplace to such an extent that networks and studios are scrambling to create new business models, and in the process are finding ever-more-creative ways to develop, produce, market, distribute and merchandise successful children’s animated programming.
Through it all, the only constant is change, and the only sure thing is that television animation is not child’s play.
The good news is that with the rise of 24-hour cable channels such as Cartoon Network, Nickelodeon and Disney, there have never been more outlets for televised animation. But those channels, along with the Big 6 networks, have created a radically fragmented marketplace, making impossible the ratings success necessary to drive advertising and licensing fees.
Though some have hailed the era as a new golden age for animation content, it’s far from an idyllic time on the business side of the equation. The downward spiral of licensing fees and the demise of syndication in kids TV are two of the culprits.
The old model, whereby a network’s licensing fee paid two-thirds of the studio’s production costs, is quickly becoming a relic. “Today, a license fee from a network is $20,000 to $30,000, and some of the networks don’t pay at all,” said DIC Entertainment Chairman and CEO Andy Heyward. “We’re in a cannibalized environment with many outlets and completely fragmented ratings. The license fees, which just reflect the ratings, don’t pay anywhere near the costs of production.”
Indeed, production costs for a single half-hour episode can range from $110,000 to $600,000, with an average cost of $350,000, said online magazine Animation World editor and longtime industry observer Sarah Baisley.
Though the business environment for producing and packaging TV animation is undeniably more challenging than in the past, networks and animation studios have risen to the challenge. “The business environment has driven creative innovation,” said Frederator Studios President/CEO Fred Seibert, former president of Hanna-Barbera Studios. “It’s a stunningly wonderful period creatively and businesswise, and anyone who thinks otherwise has their head in the sand.”
Mr. Seibert is among the first to admit that the off-network marketplace, which once combined with network license fees to cover studio financing, is rarely a factor these days. “Syndication is dead and gone for kids TV,” the victim of both consolidation of media outlets and the lack of local advertising dollars, Mr. Seibert said. “As a dependable business model, it doesn’t exist.”
One innovative exception to that rule-and an example of how creative solutions can overcome a challenging business environment-is the ad hoc network for syndication created by DIC Entertainment, which provides Federal Communications Commission-mandated educational programming to more than 400 stations nationwide.
“It’s a three-hour weekly turnkey operation with all the FCC documentation required to fulfill the legal obligation,” said the company’s Mr. Heyward, adding that Fox, The WB and UPN affiliates are among the stations provided with the programming.
The major networks have gravitated to a vertical integration model to keep production and marketing costs down. Rather than pay a licensing fee to outside studios, Kids’ WB, Nickelodeon, Cartoon Network and The Disney Channel all rely heavily on in-house production arms.
“Much of the animation in the U.S. is coming out of vertically integrated operations,” said Disney Channel entertainment president Rich Ross. “Because it’s a collaboration between business units, you’re not trying to mark up costs to make the production. Also, animation divisions used to have big marketing and PR departments, and that responsibility has been forwarded to the networks.”
The TV animation industry went through a major contraction more than a decade ago, closing down domestic ink-and-paint shops and sending the animation overseas. That trend has continued as producers have followed talent and cheap prices first from Japan then Taiwan and now China, Ireland and India. Off-shoring continues to be a crucial part of the equation enabling animation production at the vertically integrated network and indie studios alike.
“It wouldn’t be possible to produce without going overseas. We probably save 50 percent in production costs on what we do there,” said Mike Young, CEO of Mike Young Productions, which produced “Voltron,” “Butt-Ugly Martians” and “Jakers! The Adventures of Piggley Winks.”
Producing content for a parent studio has its advantages. “We’re much better connected to our buyers and audience,” said Walt Disney Television Animation President Barry Blumberg. “Conversely, and also of tremendous benefit, we find that our partners aren’t making demands on us that impact the budget or schedule.”
Cartoon Network Studios’ Senior VP and General Manager Brian Miller put it another way: “We’re able to produce top-quality shows for the numbers the network needs,” he said, “but because we’re part of the network, we don’t have to make a profit.”
Though ancillary revenues have always been a part of the picture for children’s animation, the dearth of licensing fees and syndication have made them increasingly important slices of the pie. Each deal may differ, but the revenues for everything from video games and DVDs to apparel are often negotiating points among producing and distributing partners.
But vertical integration doesn’t tell the whole story. Warner Bros. Animation president Sander Schwartz said his studio provides only 25 percent to 30 percent of the programs on Kids’ WB, while also developing properties with The Cartoon Network, MTV and other outlets. Nickelodeon Executive VP of Development and Original Programming Marjorie Cohn estimated that 20 percent of her network’s programming is acquired.
Many network executives value diversification of their production portfolios as a way to spread the risks. “Cartoon Network went from being library-based to more of a mix of production, acquisition and co-development,” Jim Samples, executive VP and general manager, Cartoon Network, said.“It increases our ability to find those elusive hits.”
Though Walt Disney Television Animation is the largest provider of content to The Disney Channel, indie companies such as Wild Brain, Jumbo Pictures and Cup of Coffee help fill the channel’s preschool slots. This continued outsourcing of some programming has created an environment in which boutique animation studios are able to survive and even thrive amid the competition.
Still, the development of network in-house production has meant overall less demand for the indies’ services. “We need indie shows,” said Cartoon Networks’ Mr. Samples, “but fewer of them.”
Financing a show for an independent studio has generally become much more complex, with a heavy dependence on ancillary markets. “Today you have to piece it together by going to every stop in the food chain-the American licensee, international television, domestic and international home video and consumer products as well as emerging medias,” DIC’s Mr. Heyward said.
Because it’s easy to dub and has universal appeal, animation is much better suited for international sales and co-productions than live action, PBS Kids Senior VP of Programming John Wilson said. Ms. Baisley said an increasing number of independent companies are launching shows abroad without the anchor of a U.S. broadcast outlet.
Because the money is in merchandising, international sales and home video, taking on these capabilities is the Holy Grail for an indie studio. Mike Young, who recently established an in-house distribution company at his production studio, said he’s glad to be able to retain licensing rights to his products. “Before, we’d often have to sell the rights to a big studio, and we’d get a back-end percentage, which generally we never saw,” he said.
According to Frederator Studios’ Mr. Seibert, indies generally choose between two predominant models of production: one in which the net
work funds production and owns the show, giving the production company some back-end participation; and another in which the animation studio comes to the network with at least part of the financing in place. “There are producers that will offer networks free carriage of an already produced show plus an override on the ancillary revenue,” he said.
The challenge for animation producers is that they now must develop chops in distribution, home video and merchandising. “You can’t just be a nice film producer who comes up with a good show, makes it and delivers it,” Ms. Baisley said. “You have to be savvy in a lot more areas, or hire people who are.”
Merchandising, home video and international sales are also part of the mix for networks. Nickelodeon’s Ms. Cohn reports that as shows become more popular, her network builds in big story ideas and longer programs that can be promoted and marketed as specials or TV movies.
“Our most important revenue streams are advertising and the fees from cable and satellite operators,” said Cartoon Network’s Mr. Samples. “Merchandising is important but a distant third. However, it is fast-growing.”
New technologies offer potential for new looks and greater cost efficiency. Some independents are charging ahead into CGI animation. Threshold Entertainment Chairman and CEO Lawrence Kasanoff said his company is in development on three hows, including “Galaxy Grand-Prix.” Canadian company DKP Productions, in partnership with Carsey-Werner-Mandabach, has produced the CGI-animated “Game Over,” which debuted March 10 on UPN.
“If it’s as successful as we think it could be, the back-end participation will result in real dollars,” said DKP President Dan Krech. “There’s incredible potential for tie-ins.”
Flash animation has also helped to reduce costs. Mr. Schwartz said Flash, a software package developed by Macromedia for animation on the Internet, can save from one-third to one-half of the key animation and in-betweening, which works out to one-sixth to one-fifth of production costs overall.
Mr. Schwartz should know-the industry’s most successful use of Flash animation so far is WB Animation’s “ ‘Mucha Lucha!” a half-hour series that airs on Kids’ WB. Its immense popularity is driving plans for a “ ‘Mucha Lucha!” feature film, made-for-video releases, comic books, console games, consumer products and online and interactive experiences.
At the Cartoon Network Studios, Brian Miller said, Flash is the technique behind 13 half-hour episodes of creator Craig McCracken’s “Foster’s Home for Imaginary Friends,” which will premiere with a 90-minute feature July 16.