Job Is Serious Business for Head of TV’s Biggest Cartoon Factory

Dennis the Menace, the all-American brat, is part Canadian.

Last year, DIC Enterprises in Burbank produced 13 half-hour cartoon episodes starring the mischievous 5-year-old that are now airing Saturday mornings on CBS.

Canada gives tax breaks to investors in television shows and movies if the programs are at least partly made there. So DIC got about $3 million in U.S. dollars from Canadians to finance the shows and qualified them for the writeoffs by having an Ottawa animation firm do drawing, voices and editing, according to Canadian executives and former DIC officials.

Exotic deals are nothing new to DIC (pronounced deek) and its president, Andy Heyward. A former writer for rival cartoon factories Hanna-Barbera and Filmation, Heyward, 39, has used his deal-making prowess to take DIC from a business that he operated six years ago on his mother’s kitchen table to television’s biggest cartoon supplier with about 60 half-hours of children’s programming on the air a week. The privately held company has nearly $90 million in annual revenue.

Each Saturday morning, Heyward and DIC have six half-hours of shows on all three major networks, including CBS’ “Dennis the Menace,” NBC’s “ALF,” and ABC’s “The Real Ghostbusters.” On local stations, more than 50 half-hours of DIC shows air each week, including “Beverly Hills Teens” and “The Adventures of Teddy Ruxpin.”

Yet for all of DIC’s growth, competitors and business associates predict that DIC will be under increasing pressure to churn out hits, while the television market is softening, because DIC must service its debt arising from a two-step, $70-million buyout that Heyward led in late 1986 and 1987.

Last fall, with Prudential Insurance and the Bear, Stearns & Co. investment firm as partners, Heyward finished buying out DIC’s previous owners, French businessman Jean Chalopin and Radio-Television Luxembourg. That left Heyward with about 52% of the company and a debt that probably costs DIC between $5 million and $8 million a year to service, according to executives familiar with the company.

“Andy has no choice but to succeed,” Chalopin said. “He has a heavy burden on his back.”

If Heyward is worried, he doesn’t show it. “We are a growing company in an industry that is in a down cycle right now,” he said.

DIC maintains that it is profitable but doesn’t release figures. People familiar with the company estimate its pretax profit before debt payments at $12 million to $15 million.

Some suggest that if the hits don’t keep coming, Heyward may have to sell a chunk of the company. Indeed, Heyward and his partners nearly sold one-third of DIC when they unsuccessfully tried to take it public by merging with Computer Memories, a publicly held “shell company” in Chatsworth that has sold off virtually all of its assets and holds $25 million in cash. The deal was scuttled last month when a dissident Computer Memories shareholder opposed it.

Michael Garstin, a managing director with Bear Stearns, dismisses any idea that DIC must go public soon or that it may need a cash infusion. “We recognize that there is some softness in the animation business, but we don’t see that at DIC,” Garstin said.

Still, television industry executives note that all animation companies, including DIC, face problems on several fronts.

Kids are watching tapes on videocassette recorders more. And new television ratings based on hand-held “people meters” reveal that fewer kids watch TV programs than was previously thought, which could hurt advertising revenue. Toy makers that buy ad time on kid shows are also suffering from an industry slump.

“Tremendous Shakeout”

But the more serious problem is the glut of children’s shows, splintering ratings and advertising revenue. In some cities, 25 or more separate cartoon shows air on local stations, most of them daily. Add to that the 20 or so kid shows that the networks air Saturday mornings and children’s programs on cable channels such as the Disney Channel and Nickelodeon.

“There is a tremendous shakeout going on. The market melted down because of an oversupply of cartoons,” said Melvyn Smith, vice president of programming for Tribune Broadcasting in Chicago.

Characteristically, Heyward sees the current shakeout as an opportunity for DIC to emerge an even stronger player. “Things are moving rapidly. There is a changing of the guard,” he said.

Another problem is the sharp rise in production costs. Industry executives say a half-hour cartoon can cost from $150,000 to nearly $400,000 an episode. Although DIC, the industry’s only major non-union company, and most others subcontract much of the animation work to the Far East, where production is cheaper, Japanese animation executives say work there costs as much as 40% more than it did two years ago because of the stronger yen.

So Heyward and other animators are moving more work to South Korea and Taiwan, a trend that worries some executives because it may mean problems meeting deadlines, as well as inconsistency in the quality in the drawings. “DIC has had a big problem with quality control and consistency because they have been so spread out all over the Far East. They bend over backwards to fix it, but usually the problem is time,” said Phyllis Tucker Vinson, NBC’s vice president of children’s and family programs.

Had Early Success

Heyward grew up in the television business. His father, Louis M. (Deke) Heyward, is a former Hanna-Barbera executive. In the early 1980s, Andy Heyward met Chalopin, who had founded DIC (Diffusion Information Communication in French) in the early 1970s. The two set up the company’s modest American operation in Los Angeles in 1982, where they first worked on Heyward’s mother’s kitchen table.

They immediately sold “Inspector Gadget” to local stations and “The Littles” to ABC, making their operation profitable by contracting the work out to animators in the Far East.

Heyward’s family and friends say he is obsessed by work and success to the point that he often calls associates at midnight to talk about work. “He’s the kind who wants the name on top of the building. Prestige is very important to him, and success is very important to him,” Chalopin said.

One reason for Heyward’s success has been his skill in persuading toy makers to participate in new shows either by commiting to buy national advertising spots in advance, especially when they plan to develop products based on the show’s characters, or directly funding a show. This method, however, has become more difficult recently because of the toy industry’s financial woes.

DIC sometimes does work for hire, as it did with the hit cartoon shows “The Real Ghostbusters” and “ALF.” Heyward argues that there is money to be made simply producing. But industry executives note that even though such a show is a hit, DIC loses out on future profits because it doesn’t own the characters.

Three months ago, Heyward moved DIC from Encino to Burbank, where from his sixth-floor office he can look a mile to the east and see the studios of Walt Disney Co., founded by and named for American’s greatest animator.

Heyward often talks of Disney-like projects in the future such as a DIC theme park, DIC boutiques and DIC prime-time family shows. And he yearns to build for DIC the same kind of name recognition with its cartoon stars as Disney has with Mickey Mouse and Donald Duck.

Heyward scoffs at suggestions that his goals are Disney-like, calling such talk pretentious. Still, his plans are ambitious. And, industry executives say, it will take deft maneuvering by Heyward in the next two years to bring them to reality.