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Salter Street sequel DHX sees future in kids' shows Add to ...

When Michael Donovan decided to plunge once again into the risky world of running a film and television production company, his brother thought he was "crazy."

After all, both were financially comfortable after the Halifax-based company they founded, Salter Street Films Ltd., was sold to Alliance Atlantis Communications Inc., in 2001.

Salter Street, which the pair nurtured for two decades, was shuttered in 2003 when Alliance Atlantis began to focus on broadcasting. Undeterred, in 2004, Mr. Donovan decided to start a sequel to his first production house that built its reputation on unconventional programming.

"I thought we had many more miles to go," the 54-year-old chief executive officer of Halifax-based DHX Media Ltd., said in an interview. "The best is hopefully yet to come."

This time, Mr. Donovan -- who won an Academy Award for producing Michael Moore's anti-gun documentary Bowling for Columbine --has a new script for his entertainment venture.

Unlike Salter Street's focus on TV dramas, comedy, and documentaries, DHX's ambition is to become a global powerhouse in family and children's entertainment. And that involves an aggressive foray into the world of potentially lucrative merchandising and licensing deals to boost the bottom line and satisfy investors in a public company.

DHX recently inked its first major toy licensing deal with U.S.-based Hasbro Inc. Next year, the toy giant will sell toys and games based on Franny's Feet, an animated show about a girl who is whisked away on magical adventures after trying on shoes in her grandfather's shop.

The show, which is on Canada's Family Channel, has become a hot property for DHX. It is aired by major broadcasters around the world, including PBS Kids in the United States and Channel Five in Britain.

Franny's Feet is one of 14 original kids' shows that DHX produces, including Angela Anaconda, The Save-Ums, Naturally Sadie, Poko and Lunar Jim -- a co-production with Alliance Atlantis.

"We are probably the leading independent [producer of children's shows by volume]in this country . . . and one of the top 10 in the world outside the studios," Mr. Donovan said.

He can't divulge terms of the Hasbro deal, but said "it's material" to DHX's revenue. Canaccord Adams analyst Alan Howard estimates the upfront minimum guarantee payment will be over $1-million (U.S.), and the royalty on toys or games sold will likely be a double-digit percentage of Hasbro's net revenue.

Eyeing Hasbro's rival Mattel Inc., which has the licensing rights to the popular Dora the Explorer preschool show, Mr. Donovan hopes Franny's Feet "can go some of the way to matching the licensing success of Dora."

A relatively mature children's entertainment company could get end up with 50 per cent of its revenue from licensing, Mr. Donovan said. Licensing agreements now form the lion's share of revenue for international rivals like Britain's Hit Entertainment Ltd., which owns popular brands like Bob the Builder and Thomas the Tank Engine.

DHX, he said, is targeting the children's entertainment niche because these programs have international sales potential, and a longer lifespan than other genres.

DHX has been pursuing the licensing strategy since it went public last May after Halifax Film Co., co-founded by Mr. Donovan, bought Toronto-based kids' entertainment producer Decode Entertainment Inc.

Despite its focus on children's entertainment, DHX still keeps it fingers in other pies. It produces This Hour has 22 Minutes, a long-running TV satirical comedy, and is now in post-production on the feature Shake Hands with the Devil.

The shakeout among publicly traded film and TV companies in the 1990s -- with names like Nelvana, Cinar and Salter Street subsequently disappearing from the stock markets -- has created a "vacuum" in the space, Mr. Donovan said. "We could be on the ground floor in a cycle of expansion."


Donovan at a glance

Born in Antigonish, N.S., Michael Donovan, left, was one of eight children born to a Catholic family. After graduating from Dalhousie with a law degree, he accepted an invitation from his brother Paul to get into the film business. In 1983, the pair started Salter Street Films. While the company got its start making films, TV became its core business. Its big break came in 1986 with Codco, the forerunner to This Hour has 22 Minutes. Mr. Donovan and director Michael Moore won an Oscar in 2002 for Bowling for Columbine. Mr. Donovan says his "worst move" was selling Salter Street to Alliance Atlantis before the film was released.

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