Drawing on Creativity

In the last broadcast season, the tiny boutique in North Hollywood known as Film Roman Inc. produced almost as much animated television as the industry Goliath. While Walt Disney Co. churned out 183 half-hour episodes, Film Roman created 141 episodes of a wide range of programs, from Fox’s two popular prime-time series, “The Simpsons” and “King of the Hill,” to children’s shows such as “Bobby’s World,” “Mortal Kombat,” “The Mask” and “Bruno the Kid.”

But the reliability and range of animation styles that are Film Roman’s hallmarks have provided little protection against a wrenching realignment of the entertainment industry that has forced all independent producers to rethink their strategies.

Since a $33-million public offering in October 1996, shares in Film Roman have plunged to the $1 range, from $10 when they opened. Losses have mounted as networks have canceled its shows and made way for their own programs. Pressed against the wall, the board of directors in September brought in new management, relegating Phil Roman, the soft-spoken founder of the 14-year-old company, to a mostly creative role as chairman.

“This is the toughest time in all my years in the business,” said Margaret Loesch, who after building News Corp.’s children’s television business recently became the new president of Jim Henson Co.’s television group, an independent producer now trying to assemble its own cable channel to compete.

Most broadcast networks are now owned by major studios interested in assuring air time for their own programs, leaving independent suppliers to fight over the scraps. This “vertical integration” of production and distribution under single ownership has hit Film Roman’s bread-and-butter business of television animation particularly hard.

Disney’s takeover of ABC and the network’s Saturday morning schedule derailed a plan under which DreamWorks SKG would have managed the block. Warner Bros. yanked product off of Fox to feed its own network, WB.

With expanding cable opportunities, the most powerful channel, Nickelodeon, typically demands ownership rights in its series, while the Cartoon Network draws upon resources of its sister Warner Bros.

The new Film Roman management is scrambling to adjust to the changing economics, leaning on foreign partners and computerized animation--which is cheaper than hand-painting--to reduce its risks.

“We will figure out a way to be in this business,” said David Pritchard, the new president and chief executive. “But this won’t be easy. It’s really tough to get into the pipeline. Disney and Warner Bros. put so many people under contract I can’t compete for talent. The only way I can win is by having a more creative edge and if I figure out how to do the job for less.”

Other independents have sought the protection of major studios to survive. Jumbo Pictures, the creator of the “Doug” series, sold out to Disney, while Saban Entertainment and its “Mighty Morphin Power Rangers” merged with Fox Children’s Network.

Even well-financed DreamWorks was forced to lay off television animators it had stockpiled to supply ABC after the business didn’t materialize.

“Independent companies have been mortally wounded by vertical integration,” Loesch said. “They can survive, but today they have to be as good at raising money and forging international co-productions as at the creative process.”

Film Roman was already mid-stream in a corporate transformation when the landscape shifted. Phil Roman, the son of immigrant farmers from Fresno who had bootstrapped his way to success, had churned out more than $1 million in profits in 1994, mainly from contract animation work. But as digital technologies expanded television choices around the globe, he became eager to break into the big leagues of original production, creating his own characters and cashing in on their licensing and merchandising.

But getting programs to stick has been challenging. Film Roman was forced to write off $2 million of a $6-million investment in September when a new program for next fall, “The Blues Brothers: The Animated Series,” was canceled by UPN after new management changed the direction of the network.

Entertainment sources say Film Roman, having had little experience in prime time, was naive in the deal it structured.

Last year, Fox canceled Film Roman’s critically acclaimed “C-Bear and Jamal” despite a top ranking in its time period. Analysts viewed it as a sign that Fox would be supplying more of its own programming after merging with Saban, but the network said the ratings of the program simply couldn’t justify its steep price.

“C-Bear and Jamal” may also have been a victim of declining licensing fees. Two years ago, networks commonly paid producers $200,000 to $300,000 per half-hour for high-quality animation that typically costs up to $400,000 to produce. Today, those fees are less than $100,000, forcing producers to make up the difference by pre-selling their shows internationally.

Broadcasters have less money to spend on children’s programming because of severe declines in viewership and a parallel drop in advertising revenue. In contrast, the erosion of prime-time network ratings has yet to translate into advertising declines, protecting against a similar deterioration in licensing fees.

Foreign subsidies have also contributed to the erosion of licensing fees. French and Canadian producers enjoy subsidies from their governments, allowing them to undercut U.S. producers. For instance, in an unusual decision in January, CBS handed over production of its Saturday morning children’s block to Canadian-based Nelvana Communications Inc., in part because of subsidies of up to $150,000 per half-hour. That allowed Nelvana to outbid DreamWorks, Henson and Film Roman, with a deal to produce programs for $50,000 per half-hour.

“The deal had a very chilling effect on the business,” said Pritchard.

Said another animation executive: “The big fundamental change is the shift from U.S. to foreign production. The government and the industry should wake up. This could become a trade problem.”

Some U.S. producers have tapped into these subsidies by producing across the border. For instance, Scholastic Productions cut costs for “Goosebumps,” a hit on the Fox Children’s Network, by co-producing it in Canada with locally based Protocol Entertainment. Pritchard says he is cultivating relationships in Canada and France but that such partnerships often mean sacrificing copyrights--a potentially costly alternative.

A former investment banker and senior executive at Home Box Office and Gulf & Western, Pritchard comes with an unusual blend of skills. Before joining Film Roman, he ran his own production company, which created Comedy Central’s award-winning series, “Dr. Katz, Professional Therapist.”

Quick to joke and tease, Pritchard, 50, has loosened up a Film Roman culture that was a bit on the serious side, with what one subordinate says is his “sick, twisted and demented” personality. The corporate art has been replaced by a rotating gallery of local and office artists. A monthly raffle, free of charge to all employees, gives away prizes--a weekend getaway to Cancun, a dinner for two at Jozu--as well as gags such as an ugly Hawaiian shirt from Pritchard’s closet or a bag of trinkets including Silly Putty and Slinkies.

Bagels are served every Monday morning in a makeshift screening room where black-and-white rough cuts of “The Simpsons” are shown.

While the contract work from programs like “The Simpsons” helps pay the bills, Pritchard says he is reinvigorating the development slate for network prime time as well as cable. To improve production efficiency, the company is creating animated shorts generated by computers, which generally cut the time and personnel required to produce animation.

Each episode of “The Simpsons” and “King of the Hill,” for instance, takes roughly a year to produce. The first and second floors of Film Roman each house about 130 people devoted to each of the programs. After the Hollywood staff creates “key art”--the storyboards and cornerstone sketches--the episodes are shipped to South Korean subcontractors for inking and painting.

By contrast, four digital artists are assigned to the two small rooms where high-powered computers can create shorts that serve as pilots for network review. “This is our answer to creating the next ‘South Park,’ ” said Pritchard, referring to the irreverent Comedy Central series that quickly became the highest-rated program on cable. “Computer animation can have lower budgets and be more efficiently produced.”

Like other independent producers, Film Roman is focusing on ways to finance increasing deficits on shows. That includes picking projects with international appeal that can be produced with partners without a commitment from a U.S. network. For instance, the company is producing an animated series based on a sing-along video made popular in South Korea with Tooniverse, a Korean cable network.

Pritchard is also keen on the feature film business. “The idea is to get a major studio to fund the production, we keep some of the rights, keep people working and have the potential to turn these properties into ongoing series,” he said, citing the model created by Sony Pictures Entertainment, which has made “Men in Black” and “Jumanji” into network TV series.

Pritchard sees the Internet as a new frontier. “Where anarchy will ultimately prevail is when the consumer is in charge of what they watch rather than being spoon-fed,” he said. “If you are going to be distinguished by your creativity, why not be at the edge of the distribution chain.”