Andy Heyward, CEO of Kartoon Studios, was recently a guest on Benzinga's All-Access. Kartoon Studios is a leading global media company that develops, produces, and distributes animated entertainment for kids. The company produces content in-house, like Stan Lee's Superhero Kindergarten, starring Arnold Schwarzenegger, and acquires properties like Barney. Mr. Heyward spoke to the company's success in growing revenue and reducing costs over the last quarter.
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00:00Andy, good morning. How are you?
00:06I'm good. Good to see you again, Sinead.
00:08Good to see you as well. And of course, with no disappointment, your glasses match the outfit. I love it.
00:13It's what I look forward to the most.
00:15You know, you had some great results in Q2.
00:18I want to talk about that here shortly.
00:19But for the folks at home that are not familiar with what is it you do, give us a quick brief over you, please.
00:24We make children's cartoons.
00:27We distribute children's cartoons and we license the consumer products based on the characters of those consumer product cartoons.
00:34And many of those cartoons I have seen with my nieces and nephews, for sure.
00:38Let's talk about Q2. You've had, you know, the entertainment business is so tough.
00:42I feel especially with the headwinds that are in that aspect of it.
00:45But with your Q2 results, to me, you did quite well.
00:48What are some highlights that folks can take away from your results?
00:51Well, we had revenues are up.
00:54All of our individual units, Beacon Media, our ad sales unit, revenues are up.
00:59Our mainframe production unit in Vancouver, revenues were up.
01:04We had increased profits at Frederator, our young adults broadcast service up, increased subscribers for Cartoon Channel,
01:12increased territories where Cartoon Channel is now broadcast.
01:17I think we're up to 87 territories worldwide.
01:21The rankings inside the Apple App Store continue to be above all of our competitors.
01:27We're ahead of Netflix. We're ahead of Disney Plus.
01:30We're ahead of Max. We're ahead of YouTube Kids.
01:34We're 4.9, virtually ahead of PBS Kids, ahead of Nickelodeon, ahead of everybody.
01:40Go straight to the App Store. Those are the user rankings.
01:44So we see that as a bellwether of where we are going because everybody that comes to the channel likes the channel,
01:53likes it better than the options that are available to them.
01:55The hallmark of the kids channel is safety. Everything is highly curated.
02:00If you're a parent, you know that you're not going to have to worry about anything that's on there,
02:04seeing things for your kids that are inappropriate.
02:07So pretty much across the board, revenues are up everywhere and also costs are down.
02:14We have a new CFO and our costs dropped by 39% in the most recent quarter.
02:21So everything is kind of moving in the right direction, shall we say?
02:25Yeah, I mean, so far it looks like they have been.
02:27I'm glad you brought up the safety aspect of it because I wasn't kidding.
02:29I do watch some of the cartoons that you have with my nieces and nephews,
02:32and I'm always kind of paranoid to make sure that I'm not showing them anything I shouldn't be
02:36because no one wants to get yelled at by my cousins and brothers and sisters, right?
02:39So that is a very important standpoint as a guardian, if you will.
02:43You mentioned quite a few competitors in your Q2 results there.
02:47You have things that are available on Amazon Prime channels, Roku, and all the others as well.
02:53It is a competitive space. I said that at the top of the show here.
02:56Why is being a kids-focused streaming service still a good strategy,
03:00no matter how competitive things currently are?
03:03Well, we always are going to have more kids coming into the world.
03:06Our audience turns over every two or three years with new customers.
03:10So it's a space we know. It's a space I know personally.
03:14I've been in this my whole career. I started off as a writer, I think you know.
03:18I used to write Scooby-Doo and the Smurfs and the Flintstones and all the Hanna-Barbera shows.
03:22And it's a very robust and vibrant field.
03:26And when you have a hit, when you get a hit, the numbers are staggering
03:30because it's not just like a hit in some other area of entertainment.
03:34You get the consumer products, which means you get the toys, the video games,
03:38the publishing, the apparel, the backpacks, the sleepwear, the school supplies, the stationery.
03:43And I've had the good fortune to be a part of a number of very big brands that have hit on all of those.
03:48And we think we've got several of them now cooking.
03:51You have also the Stan Lee IP library as well, right?
03:54So that contains hundreds of like never-before-seen characters from the creators of Marvel comics.
03:59You've got Cartoon Studios that you're working, you know, in terms of maximizing financial potential from that IP as well.
04:05How are you involving AI in this? Everyone's looking to figure out how AI can be a part of it.
04:09I've seen it from Chad GPT to graphics to videos.
04:13Now I'm seeing that are almost realistic as possible.
04:16What's your work with AI? What's the game plan in a pipeline that people can expect?
04:21Well, we started looking at AI a couple of years ago and we reached out to Nvidia
04:26and we began meeting with Nvidia and being guided by them.
04:30Myself and others in the team have been up to Nvidia many times.
04:34They've been down here. So that's kind of been our guide, if you will.
04:40It's a very it's an important area that we have to be very cautious in because there is a lot of sensitivity in the creative community.
04:49People are concerned about their jobs being replaced quite candidly and some will and some new jobs will be created.
04:56But by and large, there's going to be a lot of efficiencies.
04:58They're going to be in dubbing. They're going to be in script writing.
05:01They're going to be in storyboarding.
05:03They're going to be pretty much in every area across the board of our pipeline.
05:07And we're already seeing material savings going on.
05:11And that's helping us to cut our cost structure and become increasingly competitive in the space.
05:17You're increasing your revenue. You're decreasing your costs.
05:20We talked about your IPs and the plethora of things that you have to show and get entertainment value of as well.
05:25Is there anything else that I am missing that the viewer should know about that uniquely positions you to take advantage of the current state of the entertainment business?
05:34Well, I think if you look at the big studios right now, they're all down, whether it's Disney, whether it's Warner, whether it's Paramount Global.
05:43They are, in many cases, burdened by large obligations that they already have, whether it's sports or this or that.
05:50They have significant debt. We have no debt. We have no obligations.
05:55We are very, very focused. We have a very clear mission.
05:58We have three tentpoles now, and that's it that we're focused on.
06:02Cartoon Channel, which is our streaming service that is doing so well, it is already in profit, I should add.
06:09Our second tentpole is the Stan Lee business.
06:12If you've ever seen The Avengers, if you've ever seen Spider-Man, if you've ever seen Iron Man, if you've ever seen any of those characters from Marvel, they were created by Stan Lee.
06:22And we are very fortunate and privileged.
06:25I see Stan Lee is in the background, one of the pieces of artwork that we're involved with him right now, with the prominent artist.
06:34We have all of Stan Lee's IP post-Marvel.
06:38It was a book of about 200 properties, and we are bringing them out into the marketplace.
06:43So Stan Lee is a proven commodity.
06:46And we have now a Stan Lee store at Amazon.
06:48We have a Stan Lee channel on YouTube.
06:50We have a very prominent, actually the largest distributor of digital and physical products selling Stan Lee content products.
07:02They only do alongside ourselves with Stan Lee.
07:05They do Marvel and they do Star Wars, period.
07:07So we're very privileged to be working with the Stan Lee business.
07:12And the New York Comic Con coming up in October, we're going to announce the new content.
07:17And we have some very, very exciting content coming from Stan.
07:21And then the third pillar is Winnie the Pooh.
07:24Winnie the Pooh is the single most successful children's brand of all time.
07:30It's done 80 billion, that's a billion with a B, dollars of sales.
07:35The property went into public domain in the last two years, 75 years after the death of the original author.
07:41And we had been preparing for that and ready for it.
07:45We notified the Walt Disney Company that we were going to be doing our own version of Pooh.
07:49We have a version that we've developed, which is stunning with AI.
07:54And we're very excited.
07:56We have the trailer and my head of creative affairs said to me last week,
08:01when you see this trailer, I'm only going to say three words to you, better than Disney.
08:05I said, don't say that because what Disney did was brilliant.
08:09But I have to say I've seen it and it's spectacular.
08:11And we're very excited to be bringing that into the marketplace.
08:15So I'm excited to see what you do, especially, you know,
08:18I think it's next year that Winnie the Pooh animated series comes out, right?
08:20That's what you mentioned. Correct.
08:23Awesome. Should be some good stuff to look out for.
08:26The floor is kind of yours. I know we covered about so many topics in terms of your Q2 results,
08:30AI, what's in the pipeline as well. The floor is kind of yours.
08:33If you want to make an elevator pitch to a possible new investors to Cartoon Studios
08:37or anything I haven't covered, it's all you.
08:40Well, I would just say thank you.
08:42Thank you. I would just say if you've ever seen Spider-Man,
08:46if you've ever watched a Winnie the Pooh episode,
08:49or you've ever watched a streaming service, then you know what our business is about
08:54because those are the three areas that we're focused on right now.
08:57We've got a lot of headwinds. Our Cartoon Channel streaming service is in profit.
09:01The other two have a tremendous brand equity and they're going to be.
09:06Awesome. Appreciate your time, Andy, as always.
09:08And we look forward to more great news and future conversations as well.
09:12Bless your heart. Thank you.