Inspector Gadget, meet the Care Bears.
Two of the country's largest producers and distributors of children's programming are merging in an effort to save millions in duplicated costs and get their shows in front of an ever increasing number of digital consumers.
Halifax-based DHX Media said it would takeover its heavily indebted rival Cookie Jar Entertainment, creating the largest independent library of children's titles in the world. The deal comes as producers and distributors try to figure out ways to get their content in front of viewers, many of whom are parting ways with their traditional television service in favour of digital alternatives.
The rapidly changing online world offers the companies a chance to sell digital copies directly to consumers, reducing distribution costs and cutting out the cable and satellite companies who have traditionally taken a large cut of the profits.
"The problem has always been all of the in-betweeners," said DHX chief executive officer Michael Donovan. "The broadcasters have always taken all the profit. But now when consumers want unlimited access, they are prepared to pay much more than in the past."
The deal is a bet that mothers and fathers in more than 150 countries will be increasingly willing to pay 99 cents for a downloadable episode of Caillou or Yo Gabba Gabba to keep the kids happy after they cut the cable at home or join a subscription service that provides them access to streaming content.
Convergence Consulting Group Ltd. estimated that 1 million customers gave up on traditional television service in 2011 in favour of online options such as Netflix. Canadians have been slower to change – only 80,000 did the same here.
"We believe in the long run that recognizable brands are important," said Michael Hirsh, chief executive officer of Cookie Jar. "When we say Inspector Gadget or Dennis The Menace, we need to have to people say 'Yeah, I know that show' in order to capture market share."
The deal – which will see DHX pay $5-million, as well as assume $66-million in debt (remnants of Mr. Hirsh's deal to buy Cinar and rebrand the company as Cookie Jar) and issue 36 million shares to Cookie Jar stakeholders – will save the companies an estimated $8-million a year as they merge workforces and consolidate their real estate.
Together, the company will earn most of its money from the production of animated television series at an estimated 42 per cent, with merchandising and licencing accounting for 32 per cent and library and distribution at 26 per cent.
It will also get them in front of more consumers – together they have content deals with 14 digital providers (including Netflix, where they will be the world's largest provider of children's programming) and a presence in about 160 countries.
One of the benefits of its 8,500 half-hour episodes is because they are animated, they age better than live-action shows. Shows that were developed 20 years ago can be repackaged and delivered to parents around the world in multiple formats. The company's believe the high usage of mobile devices in developing countries provides a particularly compelling opportunity to boost sales.
"If you look at the BRIC countries (Brazil, Russia, India, China) they never really got to the points of fully wired homes," said Mr. Hirsh. "But now they are using phones, there's been a generational leap – these countries are embracing streaming."
The collapse of the video store has also shaken up the industry, with fewer buyers looking to get their hands on hard copies of movies and television shows. That's one of the reasons Goldman Sachs is shopping Alliance Films, one of the last remaining assets from its joint $2.3-billion purchase in 2007, with CanWest Global Communications Corp., of Alliance Atlantis Communications Inc.
Toronto-based Entertainment One emerged as the likely buyer in May, but has recently said discussions "may or may not lead to a transaction being concluded."