Cartoon Costs Rise : Animation Firms Feel Squeeze as Dollar Weakens

By some measures, Scrooge McDuck has lost 40% of his fortune in the last two years, and Astro Boy and Hashimoto may be buying him out.

Spacely Sprockets may have to lay off George Jetson.

And even Archie’s allowance doesn’t go as far as it used to.

Cartoon characters and their creators are in trouble.

Already suffering from a weakened toy industry, a sluggish network TV economy and a declining syndication market, U.S. cartoon producers are finding that they now must try to make their shows with devalued dollars.

Ironically, production of most kidvid shows was shifted overseas during the last two decades to take advantage of cheaper labor costs, usually in Japan, Taiwan or Korea. Japan has the most highly developed animation industry in Asia, and American producers agree that the Japanese studios turn out the highest quality programs.

But during the last two years, the dollar has lost about 40% of its value against the Japanese yen and lesser amounts against other currencies, creating a substantial increase in production costs.

“The yen has gone from 250 to the dollar to a low of 123, so there’s obviously been a tremendous change,” says Gary Krisel, senior vice president for network television at Walt Disney Pictures, which produces NBC’s “Gummi Bears” and the syndicated “DuckTales.”

“Animators’ wages in Japan have risen to about 70% of what they are in the United States,” Krisel said, “and yet the Japanese are more efficient at producing high-quality television animation. We can’t do here what they do in Japan.”

Faced with the combination of these rising costs and some drastic cutbacks in the toy industry’s subsidies for syndicated programs, animation producers say they must either move production elsewhere, try to cut costs or seek higher prices from the major television networks.

Network officials say they cannot increase the license fees they pay for the cartoons, so suppliers are attempting to maintain the quality of their shows while switching production to less experienced artists. If their attempts fail, producers concur, viewers can expect reductions in the quality and/or quantity of Saturday-morning programs in one to three years.

“Saturday-morning animation is an industry in real transition,” says Margaret Loesch, president and chief executive officer of Marvel Productions Ltd., which makes “Muppet Babies” for CBS and “Fraggle Rock” for NBC. “The cost of production in Japan is now about equal to the United States.”

Each studio has adopted its own strategy for minimizing the rising costs of overseas production. Andy Heyward, president of DIC Enterprises (“The Real Ghostbusters,” “The New Archies”), says his company has switched from Japanese to Taiwanese and Korean studios, which accept payment in U.S. dollars, and has taken advantage of the more favorable deals it can make outside the peak April-September production season.

According to Krisel, Disney anticipated the new exchange rates and bought millions of dollars worth of yen two years ago, but few animation studios have a large company behind them that can afford that kind of investment. Independent producers such as Marvel have been hit the hardest, and they must consider cutting quality in a form already notorious for its low standards.

Marvel’s Loesch said she’s already seen deterioration in her firm’s Emmy Award-winning “Muppet Babies.”

“We’ve escalated the price as much as we could on ‘Muppet Babies,’ but it wasn’t enough to match the decline of the dollar,” she said. “As a result, the Japanese had to lessen the quality of the animation, and within two years it had fallen off noticeably. The Japanese regret it--they try to turn out a good product--but they just can’t do it on what we’re able to pay.”

The unrivaled editing, camera work and special effects of the Japanese studios make U.S. producers reluctant to switch to suppliers in other countries, despite the mounting costs.

“The work done in the rest of the Orient isn’t up to the standards of the Japanese,” Krisel said.

Among Asian suppliers, the Taiwanese are generally ranked second to the Japanese.

But the booming Taiwanese economy may offer only a temporary haven.

“Taiwanese animation has been improving, and we hope it will reach Japanese standards,” Krisel said. “But the Taiwanese dollar is appreciating even faster than the yen: It may not offer a long-term solution to the problem.”

Some animation firms are looking even further afield, where minimal wages keep production costs at a fraction of U.S. rates.

Lou Scheimer, president of Filmation, said “a cel that costs us $10 to $12 to ink and paint in this country will cost you $1.25 in Korea. You can go to mainland China and get that cel done for 17 cents.”

Says Marvel’s Loesch: “We’ve been exploring Taiwan and discussing Malaysia and China, but the animation industry there is still in its infancy. Years ago we considered doing work in Europe, and we may re-examine Ireland, in light of what Don Bluth is doing there.”

Bluth, who set box office records for an animated feature with “An American Tail,” has moved his studio from the San Fernando Valley to Dublin. He is completing “The Land Before Time Began” for Steven Spielberg and has expressed interest in developing television production there.

The fall of the dollar and the concomitant rise in costs could scarcely come at a less opportune time, producers report. The once-lucrative syndication market--a more important source of revenue for animation producers than network production during the last few years--has fallen on hard times, due principally to a plethora of animated shows and a serious falloff in toy-industry revenues.

With development costs averaging between $12 million and $14 million per series (plus an equal expenditure on commercial time), producers say that toy manufacturers can’t afford to continue underwriting syndicated cartoons such as “He-Man and the Masters of the Universe.”

Syndicated programming never really challenged the popularity of the networks’ Saturday morning shows, but it did provide an alternate market for advertisers trying to reach children.

“It’s unrealistic for us to spend more money on animated programs,” says Phyllis Tucker Vinson, vice president of family and children’s programs at NBC. “Our profit margin has decreased on Saturday morning, and there’s been a decrease in the advertising dollars available for Saturday morning--that’s the result of the syndication market.”

“In the long run, changes in budgets or license fees for the programs aren’t the answer,” Krisel said. “If the dollar continues to weaken against the Oriental currencies, those extras won’t make up for it.”

Barring a sudden resurgence in the dollar, Saturday morning production will probably center on Taiwan and Korea for the next few years. Economic variables make it difficult to predict the long-term results.

“I like to think that computer technology will eventually bring production back to this country--if we can use it in a way that involves the animators, rather than replaces them,” Loesch concludes. “Twenty years from now, I hope we’ll be able to look back and say this slump was good for animation because it led to the technology that brought production back to the U.S. and resulted in better shows.”