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Opposites attract in ER/Classic merger

When London, England's Entertainment Rights sat down to negotiate in earnest to acquire Classic Media four months ago, going over the New York-based company's business assets was like looking at a mirror image of its own holdings, says ER CEO Mike Heap. 'We do 90% of our business outside of America, and they do 90% of their business inside America,' he explains.
January 1, 2007

When London, England’s Entertainment Rights sat down to negotiate in earnest to acquire Classic Media four months ago, going over the New York-based company’s business assets was like looking at a mirror image of its own holdings, says ER CEO Mike Heap. ‘We do 90% of our business outside of America, and they do 90% of their business inside America,’ he explains.

And that entrée into the U.S. broadcast and retail landscapes has been a goal of ER’s for quite a while now. ‘We spent some time [in 2003/2004] not buying Chorion, and one of the reasons for that was very simply that it had as little access as we had into America,’ says Heap. But with a stake in Qubo (which has taken over the NBC Saturday morning block vacated by Discovery Kids) and relationships with major retailers including Wal-Mart, Best Buy and Target, Classic could prove to be a much more effective pipeline into the region.

ER is priming Postman Pat to test the waters first, and Heap thinks Qubo is a natural broadcast home for the show, given that the channel’s mandate is to serve up pro-social, literacy-centric entertainment for four- to eight-year-olds. (For more on Qubo, turn to page 51.) ‘Postman Pat didn’t start with bible stories like VeggieTales did, but the content within the show is very high on moral values,’ says Heap. The series has been building an audience on cabler HBO Family since fall 2005, but it would certainly benefit from a regular airing on a broadcast TV outlet.

On the flip side of the deal, ER is in a position to fully maximize Classic’s properties in the international market, something that wasn’t a driving priority for Classic. Heap sees a lot of global potential for Casper as Halloween continues to gain traction in Europe as a bona fide holiday, and he also expects to increase VeggieTales’ presence in regions including the U.K. (where 70% of the 60-million population is Christian) and Latin America (a Catholic stronghold, to be sure).

Whereas Classic relied on distributors to sell its shows abroad, ER plans to bring that business in-house, an obvious move given that it has a robust international sales team under the leadership of Chloe van den Berg. In the new year, the company will evaluate Classic’s relationships with international licensing agents and various other partners to determine which ones still make sense under the new corporate structure.

The same thing goes for in-house staff, although Heap says there’s no pressing need to reduce costs in this area since the merger will lessen the operating budget in other ways. For example, the two companies easily spent US$500,000 to US$600,000 apiece on marketing at industry events like MIPCOM and Toy Fair, and now that expense will be cut in half.

Heap says Classic’s development slate also boasts a lot of sales and licensing opportunities, and feature films represent a future profit center. In the pipeline are: Underdog, a live-action/CGI pic from Spyglass and Disney; The Pirates Who Don’t Do Anything: A VeggieTales Movie at Universal; and Disney’s adaptation of comic book IP Turok. ‘These are no risk to Classic,’ says Heap. ‘And if the studios get one away, we can do some good business. There was a Fat Albert movie released in the U.S. in 2004, which frankly wasn’t a box-office smash, but on the back-end of it we sold 400,000 DVDs.’

On tap for smaller screens is a George of the Jungle animated series that will debut on Cartoon Network in the fall, as well as a Casper animated series and a Kung Foo Magoo direct-to-video. JC

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