DHX Media says its WildBrain kids unit tapping growth from online streaming

TORONTO — DHX Media Ltd. sees the new YouTube Kids mobile app and streaming services from Apple, Amazon and Roku as promising new ways to generate revenue from its library of video programming, senior executives said Tuesday.

"One of the pillars of our strategy is to produce premium content for the world's leading streaming and broadcasting kids platforms," executive chairman and CEO Michael Donovan told analysts.

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During the quarter, DHX signed a landmark deal to produce new content focused on the Peanuts characters Snoopy (the dog) and Woodstock (the bird).

"The agreement is expected to keep our animation studio at new capacity and to contribute steady (earnings) for years to come," Donovan said.

Additionally, the company's internet-foused subsidiary WildBrain completed its best quarter in terms of revenue, which was up 13 per cent to $19.9 million — one of the few bright spots for the company's second quarter.

DHX's overall revenue fell four per cent to $117.0 million, from $121.9 million in last year's comparable quarter, due to a drop in a broad range of activities including content production, distribution and service fees.

DHX also had an $17.9 million net loss attributable to its shareholders during its fiscal second quarter, as a change in foreign exchange rates affected the carrying value of its debt.

Donovan told analysts Tuesday that he's confident the second half of fiscal 2019 will show more positive results, as developments at WildBrain and other parts of the business gain momentum.

DHX president Josh Scherba said the revenue growth at WildBrain was slower than in previous periods, but that was partly due to a shift of kids viewing to the new YouTube Kids dedicated app from the general YouTube platform.

"We see this slowdown as transitional," Scherba said.

"We believe we have not begun to scratch the surface of the opportunities at WildBrain and we are pursuing numerous initiatives to unlock the value of this large and growing user base."

"Over the last month, viewership across our Teletubbies channels on WildBrain increased from 125,000 views per day to over 450,000 views per day," he said.

Scherba added that, as advertisers become aware of the potential of YouTube Kids — as a relatively safe environment for young viewers and their caregivers — the rate per thousand viewers will likely increase over time.

"Ultimately, we think the YouTube Kids app is a great thing," he said. "Over time, we believe this will be an environment where premium CPMs can be charged."

Donovan also noted that DHX is working on other revenue-sharing content projects for Apple TV, Amazon Fire and the Roku video streaming device.

"As competition heats up amongst major streaming services and broadcasters, the emphasis will increasingly be on offering viewers the best original series," Donovan said.

"Premium brands are key to this formula and Peanuts is the sixth largest character brand in the world."

However, Donovan said he sees 2019 as a transitional year as it simultaneously works on growth projects while reducing its debt load and improving cash flow.

DHX's second-quarter loss amounted to 13 cents per share for the three months ended Dec. 31, which compared with a year-earlier profit of $7.4 million or six cents per share.

However, that included a $15.5 million non-cash, unrealized foreign exchange loss due.

Cash flow for the quarter was positive at $11.6 million, compared with an outflow of $1.1 million a year earlier. The company also paid down $9.5 million of its credit facility.

Excluding net income attributable to non-controlling interests, DHX Media's net loss was $11.8 million, compared with a year earlier profit of $9.2 million.

Companies in this story: (TSX:DHX)

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