Drawing on Success : Graz Entertainment’s ‘X-Men’ Emerges as Latest Hit in Fickle World of TV Cartoons

Like the cartoons they bring to life each week, independent animation houses rise and fall according to the whims of a notoriously fickle young audience. This year, thanks to the school-age set’s embrace of two of its productions for the Fox Children’s Network, tiny Graz Entertainment Inc. of Glendale has emerged as the animation industry’s latest Saturday morning super hero.

The Graz-produced cartoon programs “X-Men” and “The Tick” consistently ranked among the top-rated children’s television shows this season. During the February ratings period, “X-Men,” an action series drawn from a 32-year-old comic book about a group of genetically mutated adventurers, was the No. 1 Saturday morning show among the 6-17 age group. “The Tick,” a spoof that follows the exploits of a humorously unlikely crime fighter, came in third. Mighty Warner Bros. was the only other cartoon mill to have as many Saturday morning shows reach the Top 10.

In some ways, though, success may have come too soon for Graz. The company was founded in January, 1992, by the husband-and-wife team of Stephanie and Jim Graziano, a pair of industry veterans who decided to go into business for themselves after years at Hanna-Barbera, Warner Bros. and Marvel Productions. The hit status of their two Fox series has made valuable franchises out of the X-Men and Tick characters, whose images have been transformed into everything from toys and trading cards to arcade games and commercials for canned spaghetti.

But because Graz was a new company when it secured the deals to work on the shows--now in their third and second seasons respectively--the Grazianos were in no position to demand a share of the profit pie generated by merchandise spinoffs. Marvel Comics owns the rights to the “X-Men” characters; Fox owns rights to those in “The Tick.”

Instead, Graz is paid by the episode. For each half-hour segment of “X-Men” and “The Tick” the budget is between $350,000 and $400,000, with Graz getting a share of that. With a combined 26 episodes per season, the two cartoon programs generate revenues of about $3.5 million to Graz each season they are renewed. However, because animation is so labor-intensive, the 35-employee company actually sees little profit from the programs, said Stephanie Graziano, Graz’s 40-year-old president.

“ ‘X-Men’ has been incredibly beneficial in establishing us as a studio, but not necessarily for our future,” Graziano said. She added that even if Graz had carried the clout to negotiate a partnership deal with “X-Men,” she may not have pursued that because no one anticipated that a decades-old comic book would become such a blockbuster. “It was one of our first contracts and at the beginning, we didn’t know how successful it would be,” she said.

Graz is not the first animation shop that has failed to reap full financial benefit from the hit series it churns out. The small, “boutique” studios that write, design and edit animated programs, usually start out working as contractors for the networks or larger production companies. They get paid on a per-episode basis to tell stories using cartoon characters that were created by other artists.

As these boutique studios get better known and have more negotiating power, “their goal is to come up with their own characters and keep the rights for licensing,” said Rita Street, publisher of Animation Magazine, a trade publication based in Agoura Hills. “But most companies are just starting to get to that point where they have enough shows going and enough money coming in so they can make those kind of deals,”

Fred Wolf, who owns Fred Wolf Films in Burbank, noted that after decades in business, he must still negotiate his projects one deal at a time. His company has created prime-time Mickey Mouse and Chipmunks specials for which it received a flat fee, and has been getting some of the ancillary profits from the hugely successful “Teenage Mutant Ninja Turtles.” In the case of the latter, Wolf purchased the film rights to the Ninja characters and developed them into a series, so a portion of the show’s syndication and video royalties go to him.

“You can’t predict the future, so you have to make the best deal you can based on the information given,” Wolf said. “I know plenty of companies that did work on a work-for-hire basis for the biggest hits ever and they are full of sour grapes. They should be satisfied they got the price they asked for in the beginning.”

Not that the Grazianos are complaining. Using close to $100,000 of their own money, they launched Graz specifically because they saw a potential niche developing in the work-for-hire animation market. When they went into business, demand for animation was exploding due to the advent of cable television and CD-ROM technology, while more established companies, like North Hollywood’s Film Roman (producer of “Garfield and Friends” and “The Simpsons”), were evolving from mere suppliers into full-fledged production partners.

It helped that both Grazianos were veterans of the business. Jim Graziano, 43, left a senior vice president post at Marvel Productions, the comic book company’s television production wing, when the couple founded Graz. Stephanie, who got her start in animation as a 17-year-old cel painter at Hanna-Barbera, was director of animation programming at Fox. While most beginning animation firms spend years toiling on commercials and film titles before landing a series, the Graziano’s contacts within the industry helped them make an immediate leap into network television. They landed the “X-Men” contract after the Fox Children’s Network took the Marvel-owned property to Saban Entertainment; Saban, which at the time lacked the staff to produce an animated series, subsequently hired Graz. Today, Stephanie Graziano is the president and sole owner of Graz, one of the few female chief executives in an industry long dominated by men. Eight months after Graz went into business, her husband took a job as vice president of production for Universal Cartoon Studios, which produces family videos and programs for MCA.

Like other companies, Graz designs the characters, writes and lays out the stories, records the voices and edits the film, but farms out the actual painting and producing of drawings to an Asian company, usually one in Korea. Most of Graz’s full-time staff of artists and editors is composed of T-shirt-clad young men in their 20s and 30s. Aware that animation houses often have to lay off people when their series get canceled, Stephanie Graziano also relies heavily on about 60 free-lance artists and writers. “I don’t want to move too far, too fast,” she said.

Now, with a proven track record and 1994 total revenue of $7 million, Graziano said the company is in a good position to become an equity partner in its future productions. Last year, it developed a Saturday morning cartoon series based on a toy line called “Skeleton Warriors.” When CBS picked up the program for this season, Graz shared the rights with the toys’ creator. Currently, it is developing a series for Fox based on another action comic book called “Cyber Force.” Graz owns half of the programming rights, meaning it has a potential windfall in syndication and video revenue if the show becomes a hit.

Graziano said her ultimate aim is for Graz to develop and own its own characters; ultimately, that is where the real money is. But given the uncertainty of the animation business, she expects that the company will continue devoting at least half its time to for-hire contract work.

Developing her own characters, “is something that will come, but not at one time,” she said. “A (Teenage Mutant Ninja) Turtles or a Power Rangers come along only every 10 years.”