BUSINESS

DHX Media buys Cookie Jar Entertainment to be global leader in digital content

08/20/2012 09:54 EDT | Updated 10/20/2012 05:12 EDT
Children's show producer DHX Media Ltd. expects to increase global sales on digital platforms like Netflix and mobile devices following a $111-million deal to buy Toronto's Cookie Jar Entertainment.

Cookie Jar Entertainment with shows such as "Caillou" and "Inspector Gadget" is already the No. 1 supplier of kids' programming to online content provider Netflix, DHX Media chief executive and chairman Michael Donovan said Monday.

"The consumers can get programming exactly when they want it, not when it's on a schedule," Donovan said in an interview. "Consumers are prepared to pay for that."

Halifax-based DHX with shows like "Kid vs. Kat" already sells content to Netflix and Donovan said the combined company will have more even more content to sell to Netflix and a greater global sales potential.

"Families are increasingly accessing children's entertainment from sources other than traditional television and DVD sales," Donovan told an earlier conference call to discuss the acquisition.

"Content is now available directly by way of computers, mobile, IPTV (Internet protocol television), standard television with an Internet connection, etc. For example, Cookie is a leader in the digital distribution of its library."

DHX Media (TSX:DHX) said the transaction will be paid through a combination of about $45 million in cash and shares and includes the assumption of $66 million of debt.

Announcement of the transaction caused DHX's shares to surge 23 per cent, gaining 26 cents at $1.40 in early afternoon trading on the Toronto Stock Exchange.

The combined company will have more than $125 million in revenues going forward, Donovan said.

Michael Hirsh, Cookie Jar's CEO, said the combined company will be an independent global market leader in all aspects of children's entertainment from distribution to production to licensing and merchandising.

"There is an insatiable appetite for kids content in the new digital streaming universe and we are very well positioned with our extensive library of evergreen, popular and recognizable brands to satisfy the market demand," Hirsh said in a statement.

Privately held Cookie Jar also has digital distribution agreements in place with providers including DISH Network, Amazon.com and cable providers Comcast and Videotron (TSX:QBR.B), Donovan said.

DHX Media also produces programs such as "Yo Gabba Gabba," "Rastamouse," "How to be Indie" and "That's So Weird."

Donovan billed the transaction as creating what he described as Canada's largest children's entertainment company.

The acquisition will increase DHX's current library of children's programming to more than 8,550 half-hour episodes from about 2,550 half-hour episodes and also will expand merchandising opportunities.

He also said the merchandising, licensing and library and distribution segments of the combined companies will represent 58 per cent of total revenue.

There will be about $8 million in cost synergies are expected in the first 12 months. The companies have offices in the same cities such as Toronto and Los Angeles, he said. As for job cuts, Donovan said, "We have no plans one way or the other."

Cookie Jar also had $8 million in digital distribution revenue for the 12 months ending May 31, representing growth of 353 per cent versus the same period last year, Donovan said.

DHX media is the producer or co-producer of more than 60 original TV series.

Cookie Jar has offices throughout western Europe as part of its Copyright Promotions Licensing Group (CPLG), a leading licensor and merchandiser of third party brands and characters.

One of DHX's competitors is Canadian children's production company Nelvana which produces such shows as "Beyblade." There are also international competitors such as Dreamworks.