Film Roman, Inc.

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Film Roman, Inc.

12020 Chandler Boulevard, Suite 300
North Hollywood, California 91607
U.S.A.
Telephone: (818) 761-2544
Fax: (818) 985-2973
Web site: http://www.filmroman.com

Public Company
Incorporated: 1984
Employees: 268
Sales: $43.3 million (2002)
Stock Exchanges: OTC
Ticker Symbol: ROMN
NAIC: 512110 Motion Picture and Video Production

Film Roman, Inc., is one of the largest independent animation studios in the United States. The company’s credits include the production of The Simpsons, King of the Hill, and X-Men: Evolution. Film Roman also produces animated television commercials, serving clients such as Nestle’s Food, Intel, McDonald’s, Toyota, Sea World, and Fox Network. Film Roman has been nominated for 23 Emmy Awards, winning the coveted prize ten times.

Founder’s Background

Phil Roman saw a clear vision of his future career when he was 11 years old. He was sitting in a movie theater in Fresno, California, watching the 1942 release of Bambi. Entranced by the animator’s art, Roman decided he wanted to devote his life to drawing. When not in the fields picking grapes or working as an usher in a local movie theater, Roman practiced his chosen craft, honing skills that would later reach a global audience.

Several years after watching Bambi, Roman left Fresno, arriving in Los Angeles with $60 and a letter of introduction from his former employer, the Fresno theater manager. His dream was to become an animator, but the chances of fulfilling his desire were slim. With no formal training and meager financial resources, Roman relied on his passion to carry him forward, a zeal that convinced the owner of the Hollywood Art Center School to accept the young Fresno man as a scholarship student. Half of his tuition was paid for through the scholarship, enabling Roman to gain the formal training he needed to pursue his dream of some day working for the Walt Disney Co. Roman worked two hours a night performing manual labor to pay for the remainder of his tuition. He also worked the late shift at a movie theater to cover the rest of his living expenses. He studied and worked, taking a reprieve to serve in the military before returning to the art center to resume his studies. After several years of hard work, Roman realized his childhood ambition.

In 1955, the Walt Disney Co. hired the 24-year-old Roman as an assistant animator. He was hired to work on the company’s new animated feature, Sleeping Beauty, marking the beginning of a two-year stint at the famed entertainment company. Roman left Disney because opportunities for promotion within the ranks of Disney’s animators was limited, and he foresaw that his rise within the company would be slow and frustrating, prompting him to take a job as a full animator at a small studio in San Francisco. From there, Roman went on to establish a solid reputation, working on projects that fleshed out his portfolio and made his name known within the industry. During the 1960s, he directed several well-known commercials, most notably the “Charlie the Tuna” advertisements for Pittsburgh-based Starkist Seafood Company. Later, Roman returned to Hollywood, where he worked for a number of the most highly touted animation studios, including those owned by MGM and Warner Bros.

As Roman’s career progressed, his recognition rose. During the 1970s, he forged a connection with Bill Melendez that saw Roman’s name attached to the success of the hugely popular “Peanuts” characters created by Charles Schultz. During his 13-year association with Melendez, Roman co-directed and, subsequently, directed 16 “Charlie Brown” specials. Of the 16 television specials, 15 were nominated for Emmy Awards and three were awarded the coveted industry prize. Roman galvanized his reputation in the 1970s, giving him the clout and the confidence to start out on his own.

Independence in 1984

Roman was 53 years old when he decided to start his own animation studio. The beginning of his entrepreneurial career was aided immeasurably by the influence of Lee Mendelson, one of the numerous professional relationships cultivated by Roman during a career that had spanned more than a quarter of a century by that point. Mendelson convinced CBS and Jim Davis, creator of the popular Garfield comic strip, that Roman was the perfect selection to produce a Garfield animated television special, “Garfield in the Rough.” Roman used his personal savings and some of the network license fee advanced by Mendelson to start his studio, a one-room operation that initially employed three animators. “I had to do everything,” Roman remembered in an October 17, 1994, interview with the Los Angeles Business Journal, “the directing, the bookkeeping, scheduling, budgeting, post-production, animation.” Although Film Roman was small, the studio made an immediate impact, propelling its proprietor toward greater wealth and higher esteem within the industry.

During its first year of operation, Film Roman generated $300,000 in sales, a total collected from producing one commercial and the Garfield special. More important than the financial figure for the inaugural year was the recognition accorded to the fledgling studio. The Garfield special won an Emmy Award, convincing broadcasters and the character’s creator, Jim Davis, that Film Roman was the astute choice for further specials. During the ensuing decade, Film Roman produced ten Garfield primetime specials, nearly all of which were either nominated for or winners of Emmy Awards. During the 1988–89 television season, Garfield and Friends ranked as the highest rated Saturday’s children’s program.

Film Roman was built on the success of its contributions to Garfield, giving the studio the financial ability to expand and diversify its operations. By the time Film Roman celebrated its tenth anniversary, the studio had established its own distribution division. The studio was licensing its own characters through its own licensing and merchandising division, drawing from its animation portfolio that included primetime series, theatrical features and shorts, daytime network series, first-run syndication programming, television specials, and commercials. Film Roman also had expanded into the international market, endeavoring to fulfill global needs for animation. By entering into co-development, co-financing, and co-production arrangements, the studio succeeded in overcoming its relatively small stature by forging business relationships in the United Kingdom, France, Germany, Japan, and Russia. Physical and financial growth occurred as a result of the studio’s efforts to broaden its horizons, turning the three-employee, $300,000-in-sales studio into a 50-employee enterprise that generated more than $7 million in revenue by the beginning of the 1990s. The pace of growth accelerated decidedly from there, making Film Roman a 250-employee studio by 1993, a year in which the firm collected $27 million in sales. Although there were numerous factors contributing to the company’s enlarged stature by the time it prepared for its tenth anniversary, one addition to its portfolio stood out. During the 1990s, Film Roman was perhaps best known as the producer of television’s most well known animated television series, The Simpsons, a contract the company secured in 1992.

The strength of Film Roman after its first decade promised much for the decade ahead, but 1994 would be followed by several difficult and unprofitable years. The turning point in the studio’s fortunes could be traced to Roman’s October 17, 1994, interview with the Los Angeles Business Journal. “I don’t want to be the biggest studio in town, or even the busiest,” he said. The efforts of the studio to expand and diversify in subsequent years suggested differently, however, as the studio moved beyond its core animation business and lost itself in the rush. Perhaps more portentously, Roman declared his desire to develop properties that he completely owned and controlled, rather than the percentage control that described the company’s contracts. Before 1994, Film Roman operated as a “fee-for-services” animator, meaning that the studio contracted out its work and, consequently, surrendered the rights to its work. Roman wanted to own and control the content his studio produced, a logical, astute business decision, but the transformation was not smooth. For much of the second half of the 1990s, Film Roman floundered, beset by difficulties in obtaining control over its content and hamstrung by its efforts to evolve into a much bigger, much more diverse media company.

1996 IPO and the Beginning of Trouble

To get the money to own the characters it created, Film Roman filed with the Securities and Exchange Commission for an initial public offering (IPO) of stock. The company started trading in October 1996, when its stock debuted at $10 per share, enabling the studio to raise $33 million. With the proceeds from the IPO, the company entered the lucrative market of character merchandising, valued as a $7 billion market at the time of the IPO. However, Film Roman quickly began losing money. Its properties were not able to command high enough prices to compensate for production costs and losses were incurred, beginning in 1995 when the studio recorded a net loss of $1.7 million. The losses continued in 1996, and by the spring of 1997 Film Roman’s stock was trading a $2.25 per share.

Company Perspectives

Building on the cornerstone of its reputation as a quality animation supplier to the U.S. and international broadcast marketplace, Film Roman is pursuing a comprehensive production plan, redefining itself, and by so doing, television as we know it.

Film Roman’s profitability problems emerged just as the company entered the public spotlight, tarnishing the company’s reputation. Roughly one year after the IPO, Roman stepped down as president and chief executive officer, appointing David B. Pritchard as his replacement. Pritchard, who had co-founded a live action and animation television and film production company, assumed responsibility for the business side of the studio’s operation, particularly the task of restoring profitability. Roman, presiding as chairman, concentrated on the creative aspects of development. Under this leadership arrangement, Film Roman expanded its operations, seeking to evolve into a larger, more diverse studio while also attempting to arrest its financial slide. In the fall of 1998, the studio hired Mark Leiber, previously senior vice-president of children’s programming at Polygram Television, to serve as president of Film Roman’s new domestic television and distribution division. Under Leiber’s direction, the studio planned to create, develop, produce, and maintain proprietary control of its own animated series, which was to be sold in domestic syndication as well as to broadcast and cable networks. “We are continuing to transform this company from an animation house into a broad-based entertainment and new media company,” Pritchard declared in a November 30, 1998, interview with Electronic Media.

As Film Roman sought to transform itself amid a wash of financial losses, its leadership underwent significant changes. In February 1999, Roman left the company he had founded. The six-time Emmy Award winner resigned as chairman to start a new studio, Phil Roman Entertainment. Pritchard stayed on, but only until October 1999. In December 1999, John Hyde was named the new president and chief executive officer of Film Roman. To Hyde, a 30-year entertainment industry veteran, fell the responsibility of restoring profitability.

The process of recovery was slow and painful, as Film Roman entered the 21st century at a limp. Between 1998 and 2000, the company lost more than $16 million. In 2001, when the company generated $44.1 million in sales, its net loss nearly reached $6 million. Hyde blamed the company’s ill-fated foray into features for the financial collapse and redirected the studio’s attention squarely on animation. As Hyde struggled to correct the studio’s ills, it appeared the company would be sold to an interested suitor. In January 2001, Film Roman executed a definitive stock agreement with Pentamedia Graphics Ltd., India’s largest multimedia production company. The deal, which would have given Pentamedia a controlling interest in Film Roman, collapsed in mid-2001, however. Meanwhile, Hyde tried to persuade Roman to return to the company he had founded. In early 2002, Hyde succeeded. In March 2002, Roman moved Phil Roman Entertainment into the Hollywood studios occupied by Film Roman. Although the two enterprises remained separate entities, they entered an agreement that provided for their partnership in developing new and existing projects. “My troops and I are glad to be back where all the action is,” Roman was quoted as saying in the February 2002 issue of Market News Publishing. “We’re eager to start creating exciting new projects together, and to top it off, it will be really nice to be with all of my old friends at Film Roman again.”

Roman’s mood was celebratory, but there was little cause for excitement among the studio’s shareholders. When Roman returned to his old offices, Film Roman’s stock was trading at $.18 per share, a steep plunge from the trading price of $10 six years earlier. Although the company held sway as the leading U.S. producer of primetime television animation, the dire performance of its stock represented a glaring blemish on the company’s operations. By April 2003, Film Roman’s stock had dropped to $.03 per share, continuing its numbing free fall. The following month, Newark, New Jersey-based IDT Corporation acquired a 51 percent interest in Film Roman, causing the studio’s stock to increase more than 300 percent to $.33 per share. With approximately $1 billion cash in the bank, IDT offered hope for a turnaround in Film Roman’s financial performance, but much remained to be done. Film Roman, with an impressive portfolio of content, continued to wait for the day when Wall Street embraced its contributions to the creation and production of animation.