DHX Media puts faith in creating content for streaming services for Apple, others

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TORONTO — DHX Media Ltd. is expanding its presence in the United States through new partnerships with Apple Inc. and Comcast, DHX executives said Tuesday while discussing the company’s third-quarter financial results

The Canadian producer and distributor of child and youth-oriented programming, such as Peanuts and other animation and the Degrassi live-action franchise, posted a bigger loss ($18.4 million) and lower revenue compared with last year

DHX says the most recent quarter included a $34.2-million writedown related to its investments in film, licensed television programs, acquired content and intangible assets.

Revenue in what was the company’s third quarter totalled $110 million, down from $116.5 million a year ago.

However, DHX executive chairman Michael Donovan and members of his management team said they’re comfortable with the progress they’ve made in what has been a difficult transitional period.

“One of the pillars of our content strategy is to produce premium shows for the world’s leading streaming and broadcast platforms,” Donovan said.

DHX’s third quarter ended March 31 included, for the first time, earnings from producing Peanuts-themed premium content for Apple at the main DHX animation studio in Vancouver, which employs about 700 people.

Among the announced programs is “Peanuts in Space: Secrets of Apollo 10,” a documentary starring Ron Howard and Jeff Goldblum that celebrates the 50th anniversary of the second NASA mission to orbit the moon.

Donovan noted that Apple TV+ is just one of a number of new video-on-demand streaming services announced recently.

“As competition heats up among these players, we believe the emphasis will be increasingly on offering viewers the best original series,” he told analysts.

“We are committed to exploiting the best opportunities with additional premium children brands such as Strawberry Shortcake and numerous others in our portfolio.”

The Comcast deal, which will see the creation of a new subscription-based service called Kids Room that will be distributed through the Philadelphia-based cable and internet company’s Xfinity X1 platform.

“Discussions are ongoing to license the service to other U.S.-based multi-service operators as another new way to monetize our library,” Donovan said.

Unlike the Apple TV+ deal, Kids Room won’t have Peanuts content and will generate revenue from a selection of content from the DHX library at little to no additional cost.

Another growth platform for DHX Media is its YouTube-delivered WildBrain channels, which use a combination of acquired and original content for pre-school children and other young audiences.

DHX president Josh Scherba noted that the company has previously estimated that WildBrain is accessed by one-third of kids with access to YouTube worldwide, each quarter.

“We now also know that eight per cent of unique users on YouTube watch videos on the WildBrain network, which amounts to approximately 18 per cent of kids users on YouTube,” Scherba said.

He added WildBrain’s audience is its core asset because of the potential to generate additional revenue from e-commerce merchandise sales associated with programming as well as paid media.

However, WildBrain’s revenue growth has slowed in recent quarters due to a number of factors including the launch of a new YouTube Kids platform — causing some analysts to ask when it will return to double-digit levels.

“We are pleased with what we’ve seen so far in Q4,” Scherba said. “Obviously, we’re only midway through May but signs are positive that the worst is behind us and that we’re going to be returning to revenue growth.”

Earlier, DHX announced that it has begun the search for a new CEO to replace Donovan, who returned to that role in February 2018 after Dana Landry stepped down as a strategic review was launched.

Donovan said Tuesday there have been advances of the company’s priorities since then, including a more streamlined organization, progress on reducing debt that DHX took on to acquire the Peanuts business, and growing revenue.

However, DHX was down about four per cent Tuesday to $1.82 in afternoon trading, less than half what it was worth when Landry’s departure was announced on Feb. 26, 2018.

 

Companies in this story: (TSX:DHX)

David Paddon, The Canadian Press



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