DHX Media’s deal with Dreamworks Animation gets thumbs up at Euro Pacific

A deal with Dreamworks Animation, announced today, is further validation of DHX Media’s (DHX Media Stock Quote, Chart, News: TSX:DHX) decision to move beyond its reliance on reselling Disney content, says Euro Pacific Canada analyst Rob Goff.

This morning, DHX announced it had entered into a five-year agreement with Dreamworks Animation to co-produce 130 episodes of original animated children’s content at DHX’s studios. The content will air on DHX Television Channels with DHX handling the distribution here in Canada and Dreamworks tackling the rest of the world. DHX also says it will license more than 1,000 half-hours of programming from DreamWorks Animation.

In April, DHX announced it would not renew its contract with Disney, which supplied content such as Liv and Maddie, Good Luck Charlie, and Mighty Med to specialty channels DHX owned. Instead the company said it would, as of January 2016, move forward with its own content. The Disney Junior channel would be rebranded as Family Junior, and the Disney XD channel rebranded as Family XTRM.

“We are excited to be teaming up with DreamWorks Animation and AwesomenessTV,” said DHX CEO Dana Landry. “These are two of the world’s leading content producers in the kids, teen and family space and we look forward to creating fantastic new series with them, and to bringing many of their exciting titles to our channels for Canadian families to enjoy.”

Goff says today’s move validates DHX Media’s recent execution, and underscores its growing global profile.

“It is fair to say that the announced deal is clear evidence of DHX’s strong position as a producer, broadcaster and distributor of youth programming,” says Goff. “The deal should be well received for the above considerations and the validation it provides for the company’s decision to move away from its Disney reliance.”

Goff says he sees Netflix’s prior quarter as supporting a bullish thesis for DHX Media. He says the downturn in that company’s stock was a reflection of what the street saw as disappointing subscriber growth in the United States. The analyst says he thinks children’s programming is a “key weapon” in the defense of North American market share and also in opening up new markets. He says that while Netflix is preoccupied with original programming, an argument could be made that DHX exclusives could replace a certain amount of internal production at Netflix, noting the exclusive deal it made recently for DHX’s Degrassi, The Next Class.

In a research update to clients today, Goff maintained his “Buy” rating and one-year target price of $13.00 on DHX Media, implying a return of 54.6 per cent at the time of publication.

Founded in 2004, Dreamworks Animation is a publicly-listed spinoff of Dreamworks Studios. To date, the studio has released 31 feature films, including blockbusters such as Kung Fu Panda, Shrek, Madagascar and The Croods. It’s films have grossed an astounding $13-billion worldwide, and boast an average gross of $419-million per film.

Founded in 2006, Halifax-based DHX Media owns the world’s largest independent library of kids and family content, at more than 11,000 half-hours of content. DHX Media brands include Teletubbies, Yo Gabba Gabba!, Caillou, In the Night Garden, Inspector Gadget, Make It Pop, Slugterra and the Degrassi franchise.

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