Cinar Corporation

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Cinar Corporation

1055 Rene Levesque Boulevard East
Montreal, Quebec H2L 4S5
Canada
Telephone: (514) 843-7070
Fax: (514) 843-7080
Web site: http://www.cinar.com

Public Company
Incorporated: 1976 as Cinar Films
Employees: 876
Sales: C$172.64 million (1999)
Stock Exchanges: Toronto
Ticker Symbol: CIF.A
NAIC: 51211 Motion Picture and Video Production

Cinar Corporation produces children’s television shows and markets supplemental educational materials through two divisions: Cinar Entertainment and Cinar Education. Cinar’s most popular television series is Arthur, a two-time Emmy award winner. Other programs include Wimzie’s House, The Busy World of Richard Scarry, The Adventures of Paddington Bear, Caillou, and Zoboomafoo. Through a handful of subsidiaries, Cinar Education markets teaching aids and curriculum products such as vocabulary cards, classroom decorations, and software.

Origins

Ronald Weinberg and Micheline Charest first met in 1976, marking the beginning of a courtship that led to marriage and the beginning of a business relationship that led to the formation of Cinar. For the couple, Cinar came before marriage. The business was conceived in New Orleans and born in New York City. Charest, a film graduate, traveled to New Orleans in 1976 to attend a film festival. There, she met the festival’s organizer, Weinberg, and the pair immediately began making long-term plans for their future together. They moved to New York and, before the end of 1976, started a business named Cinar Films to distribute foreign-language films to art cinemas.

From its start, Cinar was directed by circumstance rather than strategy. Weinberg and Charest struggled to make a living by distributing foreign films. “New York was very hungry,” Charest recalled in a May 14, 1999 interview with Canadian Business. “We had absolutely no money,” she added. To supplement what little income they generated by peddling foreign films, the couple was forced by necessity into the field of animation. They purchased foreign cartoons, dubbed the cartoons in English, and sold the short animated features to customers in the United States. Neither Weinberg nor Charest had any experience in animation—and presumably little interest in the field—but the combination of the two businesses enabled them to pay their bills. Subsistence was the primary objective during this first era of Cinar’s history, a period that endured for approximately seven years. The fortunes of the company and the expectations of Weinberg and Charest improved dramatically once the couple left New York. It was a move forced by necessity.

In 1984, Weinberg and Charest became parents. The birth of their first son caused the couple to reevaluate their approach to Cinar and choose a less expensive setting in which to raise a child. The years of eking out a living in New York were over. The family moved to Montreal, back to Charest’s native province, where the cost of living was much lower and, as it would happen, where the business climate was primed for Cinar’s growth. Weinberg and Charest were greeted by a federal government receptive to the dreams of aspiring filmmakers, a mood, most importantly, that was expressed financially. The Canadian government was subsidizing the country’s film industry, which existed in the shadow of the much larger film industry across the border. Through tax reductions and the dispensation of funds, the government hoped to promote the growth of Canadian film companies, which provided the financial means required to make a small company like Cinar a profit-making success.

More good news awaited them after they settled in Montreal. At the time, newly founded cable networks in the United States were beginning to capture the attention of viewers, but they were in dire need of programming to fill their daily broadcast schedules. It was the emergence of the burgeoning U.S. cable industry coupled with the financial support from federal coffers that gave Weinberg and Charest an opportunity to succeed. The move to Montreal gave them the means and the market to develop Cinar into a legitimate production house, but at first the couple operated Cinar as a distribution company. Once the transformation was complete, Cinar emerged as a major player in the entertainment industry, both in Canada and in the United States.

Faced with far greater prospects in Montreal than in New York, Weinberg and Charest began talking with several cable stations. They entered into agreements with a number of cable broadcasters, including Nickelodeon, to air Cinar productions. The couple began distributing European and Japanese cartoons to its new customers before branching out into production. Working with Japanese and American partners, Cinar created its first original animated production in 1987, The Wizard ofOz, narrated by Margot Kidder. The program was followed by a series of Cinar productions, as the company focused on the new cable and specialty channel market to lay its foundation as a production house. Toward this end, the company’s first original production established characteristics that would define its success in later years. Cinar became known as a producer of nonviolent children’s programming, creating “pro-social” content hailed by critics during the 1990s. The company also enjoyed a solid reputation for converting children’s books into animated programs, a niche in the entertainment industry that Cinar would exploit to its advantage. In Cinar’s The Wizard of Oz, both of the company’s defining talents were demonstrated, establishing important precedents for future Cinar programming. Although symbolically significant, the company’s inaugural production did not make the Cinar name widely known throughout the North American entertainment industry.

At approximately the same time Weinberg and Charest first met in New Orleans, Marc Brown created what would become a hugely successful character named Arthur. Half-aardvark, half-eight-year-old boy, Arthur was created by Brown as the central character in bedtime stories he read to his daughter. Eventually, Brown wrote a series of books featuring Arthur, but the author refused numerous requests to turn Arthur into a television series. “I just knew what would happen to Arthur,” Brown said in the May 14, 1999 issue of Canadian Business. “In no time, they’d have him carry a weapon in his backpack.”

Brown rejected all proposals to make Arthur a television character until 1994, when he met Carol Greenwald. Greenwald represented the Public Broadcasting Service’s station in Boston, WGBH. In contrast to commercial networks, the Public Broadcasting Service (PBS) received its programming from its member stations, and WGBH ranked as the network’s largest producer of programming. Greenwald prevailed where others had failed by convincing Brown that an Arthur television series could be used to encourage children to read. Once Brown agreed to the project, Greenwald had won only half the battle, however. WGBH did not own its own animation studio, so a producer had to be found, one who could support the project financially and one whom Brown could trust to preserve the sanctity of Arthur. A worldwide search was begun, as Greenwald and Brown spent months visiting production houses around the globe. After a lengthy vetting process, Cinar emerged as the winner, giving Weinberg and Charest the project that would cement their reputation as industry leaders.

Cinar’s production of Arthur was an unmitigated success. By the end of the decade, after garnering Daytime Emmy awards in 1998 and 1999, the show ranked as the most popular preschool series in the United States. Weinberg and Charest reached celebrity status within the industry, earning praise for their ability to transform children’s books into popular, nonviolent television programs. A handful of other Cinar-produced programs added further confirmation of the couple’s talents. Programs such as The Busy World of Richard Scarry, The Adventures of Paddington Bear, and Are You Afraid of the Dark? turned Cinar into a leading production house not only in North America but overseas as well. By the end of the 1990s, the company supplied programming in 40 languages to roughly 150 countries, boasting more programming on television in France, for instance, than any other producer in the world. Revenues inched past the $100 million mark in 1998, and Weinberg and Charest, who had formed international alliances with Viacom, Sony, Time Warner, and Polygram, benefited enormously from the financial success of their company. In 1999, the couple’s stake in Cinar was worth an estimated $151 million.

Late 1990s Diversification

Cinar’s achievements in the entertainment industry during the latter half of the 1990s were complemented by diversification into other markets. Weinberg and Charest set their sights on the U.S. market for supplementary education products, an estimated $10 billion business. To spearhead their expansion efforts, the couple relied on Hasanain Panju, who served as the company’s chief financial officer and its third-in-command. Panju oversaw Cinar’s foray into educational supplies, figuring as the chief strategist in acquiring businesses complementary to the company’s widely popular animated characters. Industry observers hailed the diversification as a “mini-Disney” in the making, as an effort to capitalize on the popularity of the company’s characters by absorbing subsidiary businesses that could generate ancillary sources of profits.

Company Perspectives:

CINAR is committed to entertaining and educating children and families by producing, distributing and marketing quality, non-violent television programs and education products for the international marketplace. We intend to grow profitably by tapping the full potential of our steadily increasing library assets, by aggressively enhancing the value of our proprietary rights and by capitalizing on the synergies between entertainment and education.

Panju fulfilled his strategic plan through acquisitions. In 1997, he spent $56.1 million to acquire Carson-Dellosa Publishing Co. Inc., a Greensboro, North Carolina, company that made teaching aids. Carson-Dellosa’s educational materials included classroom decorations, supplemental books, and curriculum material such as vocabulary cards. These products, which were intended for ages preschool through eighth grade, were marketed through annual catalogues sent to every teacher in the United States. A year after the Carson-Dellosa acquisition, Panju acquired HighReach Learning Inc. for approximately C$40 million. With customers throughout the United States and in Mexico and Japan, HighReach operated as a direct supplier and creator of early childhood educational materials, designing its products for children ranging in age from three months to seven years.

After Panju had begun to create another dimension to Cinar’s business, the company’s corporate structure was changed. In December 1998, Cinar Films was renamed Cinar Corporation, which was divided in two divisions, Cinar Entertainment and Cinar Education. Cinar Education, headed by Steve Carson, one of Carson-Dellosa’s founders, gained another valuable asset in March 1999 when Cinar acquired Edusoft Ltd. A multimedia company based in Israel, Edusoft developed educational software for English-as-a-Second-Language (ESL) instruction. With the addition of Edusoft, Cinar gained the ability to publish multimedia software that incorporated its television characters, exemplifying the synergy between the company’s two divisions. Industry pundits applauded Cinar’s diversification strategy, pointing to the high profit margins recorded in the educational materials market, but their words of praise soon took on a different tone. As Cinar prepared to exit the 1990s, it became embroiled in controversy and scandal. The first hint of trouble surfaced in October 1999.

1999: Management Ripped Apart by Scandal

Cinar’s troubles began with a letter. A group of 71 Canadian writers published a letter claiming that Cinar was using U.S. writers instead of Canadian writers, an accusation that had profound implications. At stake was the financial support Cinar received from the Canadian government, support that was contingent upon Cinar’s status as a Canadian producer. In 1999, Cinar relied on tax credits for 20 percent of its production budget. Analysts estimated that the company also received $2 million annually from federally chartered Telefilm Canada. Cinar risked losing both of these sources of financial aid if U.S. writers were responsible for the content of the company’s television programs. In October 1999, the Royal Canadian Mounted Police began investigating Cinar. Luc Dionne, president of the Montreal-based Societés des Auteurs & Compositeurs Dramatiques, which represented Canadian writers, offered his version of what had transpired. Cinar, he charged, had received tax breaks because the company’s written work was credited to Charest’s sister, Helene, who was listed as a Canadian writer using the pseudonym Erika Alexandre. Dionne and others claimed Helene Charest was not a writer and, therefore, Cinar was not eligible for the financial support it had received. Cinar responded by launching an internal audit that exacerbated its problems.

The audit revealed that $122 million in investments had been made in high-yield, short-term bonds through Norshield International Ltd., a Bahamas-based company. Cinar’s directors were stunned. The funds had been set aside for acquisition purposes, not for investment, which left the company’s board of directors searching for an explanation. On March 6,2000, Panju was fired. At the same time, Weinberg and Charest resigned as co-chief executive officers, but both retained their seats on the company’s board. One day after the announcement, Cinar’s share price plummeted 70 percent, falling to $5.56 per share. Before the allegation surfaced that the company had used U.S. writers instead of Canadian writers, Cinar’s stock value reached a peak of $30.25 per share.

As the search began to locate the lost funds, a new chief executive officer was hired. Barrie Usher, a former chief executive officer of New York Life Insurance Co. of Canada, assumed control over the beleaguered company in the spring of 2000. Under new management, the company stated that Weinberg and Charest were unaware of the investments made without the board’s approval. Instead, the company blamed Panju. In the April 10, 2000 issue of Business Week, Panju stated that he had made the investments “for the sole benefit” of Cinar and “with its knowledge.” Weinberg and Charest did not escape the wrath of Cinar’s board for long, however. In August, the founders were told to vacate their seats on the board, as the extensive investigation into the company’s finances deepened. Company officials announced they were revising financial statements for 1997, 1998, and 1999.

By November 2000, Cinar had reached an agreement to recover all of the misappropriated funds, but the turmoil was far from over. Consequently, the company entered the 21st century facing an uncertain future. In early 2001, Cinar filed a $19 million lawsuit against Weinberg, Charest, and Panju. According to the February 14, 2001 issue of Electronic Education Report, Weinberg, Charest, and Panju had revealed plans to sue Cinar. While the battle ensued, industry observers reported that the company was considering putting itself up for sale, with rival Nelvana Ltd., a Toronto-based animation company, mentioned as an interested buyer.

Principal Subsidiaries

Edusoft, Ltd.; Carson-Dellosa Publishing Co. Inc.; HighReach Learning Inc.; The Wild Goose Company.

Principal Divisions

Cinar Entertainment; Cinar Education.

Key Dates:

1976:: Cinar is formed in New York City to distribute foreign language films.
1984:: Founders Ronald Weinberg and Micheline Charest move to Montreal.
1987:: Animated version of The Wizard ofOz, Cinar’s first original production, is completed.
1994:: WGBH and Cinar agree to produce Arthur.
1997:: Cinar acquires Carson-Dellosa Publishing.
1999:: Cinar acquires Edusoft Ltd.
2000:: Rocked by financial scandal, Cinar’s board fires Weinberg and Charest.