Media: The great strawberry shortcake custody battle

Cookie Jar CEO Michael Hirsch will fight to the end to reclaim his title as Canada's king of kids' entertainment.

Inside the Toronto headquarters of the Cookie Jar Group hangs a large picture of the cartoon character Strawberry Shortcake, smiling and struggling to carry a massive strawberry while her friends frolic between mountains of cake. “She’s a great character,” remarks Michael Hirsh, Cookie Jar’s co-founder and CEO. “It’s a Strawberry Shortcake world. What could be better?” This is a typically optimistic statement from Hirsh, a pioneer in kids’ entertainment in Canada, and one that ignores the trouble he now finds himself in: Cookie Jar is currently embroiled in a bitter international legal battle over the ownership rights to Strawberry Shortcake, as well as another cuddly children’s icon, the Care Bears.

Hirsh, 61, has dwelled among colourful cartoon characters since 1971, when he co-founded Nelvana Ltd. Once a three-person indie operation, Nelvana grew into a major player in children’s animation, producing such classics as Franklin, Babar and Rupert. In 2000, Corus Entertainment Inc. bought Nelvana for $540 million. Hirsh left just two years later amid speculation that he had trouble adjusting to no longer being the boss.

With Cookie Jar, his most recent venture, Hirsh is no less ambitious. He co-founded the company in 2004 from the wreckage of Cinar Corp., the notorious Montreal film and television entertainment firm brought down by financial scandal. Since then, Cookie Jar has expanded quickly. It now has more than 400 employees around the world producing children’s television, developing toys and games, and managing an extensive licensing operation, and it will soon launch a block of programming on Saturday mornings on CBS, branded as Cookie Jar TV.

Hirsh scored his biggest coup for Cookie Jar last year with the purchase of DIC Entertainment Holdings Inc., a rival in California. As part of the deal, he entered into an arrangement to buy the intellectual property rights to Strawberry Shortcake and the Care Bears — properties that generated more than US$5 billion in retail sales between 2002 and 2008 — from Ohio-based American Greetings Corp. Gaining control of those characters was supposed to have been the icing on the cake.

But Cookie Jar failed to raise the US$195 million needed to buy the properties by the Sept. 30, 2008, deadline. It had another chance to buy them a few months later when a French animation firm called the MoonScoop Group put in an offer, but again it couldn’t raise the cash. That’s when things turned sour. American Greetings filed a lawsuit against Cookie Jar, and on the same day, Cookie Jar launched its own suit against both American Greetings and MoonScoop, arguing the companies thwarted its efforts to acquire the properties. In one court filing, MoonScoop slams Cookie Jar, alleging its “stated appetites have consistently exceeded its financial abilities.” Cookie Jar and American Greetings are both after millions in damages, and both are alleging fraudulent behaviour and breach of contract.

The messy lawsuit and the poor financing climate would suggest that Hirsh could be in over his head this time. Cookie Jar is a relatively new company, after all, one competing with established giants. But Hirsh has been in tight spots before, and those who know him say he should not be underestimated. Clive Smith, one of his partners at Nelvana, says Hirsh always had an insatiable appetite for growth, and he’s not the type to give up easily. “He’s still on that same path,” he says. “It’s world domination, actually.”

Michael Hirsh displays almost none of the bravado one might expect from a guy often credited with building an industry in this country. He is soft-spoken and reserved in conversation, and except for his garishly coloured shirts and ties, and chunky black glasses, he possesses few of the eccentricities common to kids’ entertainment execs. (By contrast, call up former DIC CEO Andy Heyward on his cell, and you’ll be confused by his voice-mail greeting: “You’ve reached Inspector Gadget’s personal command centre.”)

In a photograph displayed in Cookie Jar’s lobby, Hirsh is pictured with the Doodlebops, a live-action rock band he co-created for kids. The three characters smile maniacally under their outrageously coloured face paint, while Hirsh stands expressionless, looking almost uncomfortable. But make no mistake: kids’ entertainment is his domain.

Born in Belgium, and raised in Toronto and New York, Hirsh was a voracious consumer of comic books and cartoons growing up. Superman, Mickey Mouse and Bugs Bunny were among his favourites. As a teenager, he made experimental films that combined animation and live action. (He’s reluctant to talk about them today, other than to say that one was titled Voulez-vous coucher avec God?)

In the late ’60s, he enrolled in philosophy at York University and met Patrick Loubert, a student who shared his enthusiasm for film. Loubert, who later became Hirsh’s business partner, recalls Hirsh as a bit of an oddball, saying he typically clomped around the city in a pair of oversized soccer cleats. Hirsh left York after three years to concentrate on filmmaking, and later he and Loubert formed a venture called Laff Arts. The burgeoning outfit was financed with a credit card Loubert received in the mail, and it didn’t take them long to sink a few thousand dollars into debt. They soon recruited Clive Smith, a British animator living in Toronto. Smith was puzzled when first meeting them to discuss animation work. “They wore these very strange baggy suits,” he says. “It looked like they borrowed them from their fathers.” Nevertheless, Smith signed on to make animated and live-action shorts for Canadian television networks. In 1971, they incorporated a company and named it Nelvana, after an old Canadian comic book character, Nelvana of the Northern Lights.

Initially, the company produced zany, low-budget material: Smith cavorting around Toronto in a pencil costume or a trash bag, often with the thinnest of story lines. But Nelvana took a more serious direction when it began creating longer animations, like the half-hour special A Cosmic Christmas, which aired on the CBC in 1977. Smith was the artist of the bunch, Loubert handled production, and Hirsh quickly fell into the role of salesman, pitching the company’s programs and services to U.S. networks to build a bigger name for Nelvana. Loubert says he was amazed how quickly Hirsh developed this new skill set, and Smith was impressed by his thick skin. “He must have had more rejections than I can imagine, and yet it never fazed him,” Smith says.

Hirsh also developed a keen sense of what children were after, and was quick to learn from the company’s mistakes. Nelvana’s first feature film, an animated musical called Rock & Rule featuring the voices of Iggy Pop and Lou Reed, came in over budget and tanked so badly at the box office in 1983, it nearly bankrupted the company. To keep them afloat, Hirsh scored work animating cartoon series, co-producing episodes of Inspector Gadget with DIC. Nelvana didn’t own the intellectual property as it had in the past, but the work was lucrative.

Hirsh kept pushing the company in a commercial direction, and in 1985 it produced the first Care Bears feature film. “I swear I grimaced at the thought of doing a Care Bears feature,” says Smith, who was more interested in pushing the boundaries of animation rather than the saccharine sweetness of lovable cartoon bears. “But Michael went out and actually brought that project in.” The film grossed nearly $4 million on its opening weekend in the U.S., a big number for an animated kids movie at the time.

The success of the Care Bears project helped to bring in more business for Nelvana — the company went on to co-produce animated versions of Beetlejuice, The Adventures of Tintin, and The Magic School Bus. In 1989, Hirsh recruited Toper Taylor, a former entertainment agent, to head U.S. operations. The two instantly bonded and began what would be a long partnership. Both were driven salesmen (Taylor worked his way up from mail clerk to agent at William Morris in California), and their styles complemented each other: Hirsh was the understated soft-seller, and Taylor the aggressive extrovert with slicked-back hair, tinted glasses and a booming voice. “Between us, we have sold to everyone in the world,” Hirsh says in a rare moment of boastfulness. In 1994, the company went public in a $28.8-million IPO, with Hirsh as chairman, Loubert as president and Smith as executive vice-president. The financial backing and increased public profile gave the team the clout to expand even further.

Around the Nelvana offices, Hirsh appeared abrupt and impatient to some — employees had to work hard to keep his attention. “You talked in sound bites,” says Patricia Burns, former vice-president of international production. “Whenever we had to go into a meeting with Michael, we had to practise being as concise as possible.” Some employees were put off by his demeanour, but others found his honesty refreshing.

Hirsh was constantly looking for ways to grow the company, sometimes to the frustration of his team. “He was always laying things on the table that were impossible to meet,” Smith says. “This all trickled down, and everyone else had to rush around and follow up.” In 1996, he convinced his partners to sell Nelvana to a children’s entertainment company in New York, but then changed his mind, causing tremendous infighting among the founders. The deal was ultimately scuppered.

But another offer was soon to come. Four years later, Corus Entertainment bought Nelvana for over half a billion dollars. At the time, Nelvana was the largest independent producer of kids’ entertainment in the world, and Corus was the largest kids’ broadcaster in Canada. But Loubert and Smith were burnt out after three decades in the business, and by the end of 2001, both had left the company. Hirsh had different plans for himself.

“Michael had grandiose ideas,” Smith says. “He wanted to share the CEO role with John Cassaday at Corus.” He was used to sharing power at Nelvana (although Smith says it was apparent Hirsh longed for it to be his company, appearing to want the final say in decisions). “I told him, ‘I think you’re crazy, Michael,’” Loubert says. “He said he thought he could make it work.” But Nelvana was a division of Corus, and it was never going to be an equal partnership. For the first time in his life, the indomitable Hirsh had a boss.

Hirsh won’t say much about his time at Corus, except that he was no longer enjoying himself. (Cassaday wasn’t available for comment.) It’s not difficult to see why. After the tech bubble burst, “media convergence” suddenly became a dirty phrase. It became obvious Corus had overpaid for Nelvana, as it started to scale back and cut staff. Hirsh, an empire builder by nature, was not about to help dismantle what he and his colleagues took 30 years to create.

He and Taylor left Corus in October 2002. The same day, Corus announced a $200-million writedown of Nelvana. Employees were shocked. “Everyone was upset because the last parent was leaving,” Burns says, but when Hirsh spoke to execs later that day, he looked almost giddy. “I think it had been really stressful, and it was a relief,” she says.

He was likely plotting his next move.

Cinar Corp. was once a Canadian success story, a huge producer of children’s entertainment worth more than $1 billion at its peak. But it fell apart in 2000 after it was rocked by financial scandal involving offshore bank accounts and improperly collected tax credits. Amid the rubble were a slew of valuable assets, such as Arthur and Caillou, and Hirsh and Taylor wasted no time before swooping in. In 2004, they purchased Cinar for just US$143.9 million, with help from a syndicate of private equity partners. Sorting through the mess to determine what the company actually owned and to settle outstanding lawsuits was an enormous undertaking. Taylor, then living in California and the father of a six-month-old, essentially relocated to Montreal and worked 18-hour days for six months to complete the deal.

For Hirsh, the purchase of Cinar’s assets was a victory of sorts. Cinar had always been Nelvana’s competitor. It was a stock market darling with an executive team that had strong government connections, and Hirsh even considered selling out to Cinar at one point. Now he downplays any satisfaction in buying the former rival, but Nelvana employees appreciated the symbolism. “It must have been great for him to take over Cinar,” Burns says. “It was just so Michael of him to do that.”

His return to the business was hardly surprising to anyone in the industry. “I don’t know what else he’d do,” Loubert says. “He’s not a guy with a lot of hobbies.” The company was renamed Cookie Jar, and a host of well-known names now fall under its umbrella, such as Mona the Vampire and Inspector Gadget. And the television show for Hirsh’s rock band co-creation, the Doodlebops, has been so successful that Cookie Jar is developing an animated version to export internationally. The band has toured both Canada and the U.S., and even appeared on an episode of The Today Show. Actor Billy Bob Thornton, a guest on the same episode, asked for the band members’ autographs.

Much of Cookie Jar’s scale is due to acquisition, most notably with the US$87.6-million purchase of California-based DIC Entertainment last year, the same company that provided Nelvana with work animating Inspector Gadget in the ’80s. As a result of the purchase, Hirsh doubled his library of television shows to a total of 6,000 half-hour episodes, landed the company’s programming a spot on CBS, and scooped up the Copyright Promotions Licensing Group. The latter division owns roughly 2,000 licences in various European countries for properties ranging from South Park to Spongebob Squarepants.

The DIC acquisition also came with rights to market and distribute entertainment products and merchandise for Strawberry Shortcake. DIC bought those rights from American Greetings in 2001. As part of the agreement, DIC could not resell or transfer the rights to a competitor of American Greetings. Although the company is primarily a greeting card manufacturer, it objected to the sale to Cookie Jar in June 2008 and filed a suit to stop the deal. The companies reached a settlement within a month, however, and Hirsh agreed to buy the ownership rights for not just Strawberry Shortcake, but for the Care Bears and a newer group of characters called Sushi Pack from American Greetings — all for US$195 million, more than twice the value of the DIC deal.

Hirsh was thrilled last year when the initial deal was announced, pontificating on the “evergreen” status of the characters. It’s often easier, he says, to scoop up established characters than to create from scratch. The purchase of Strawberry Shortcake and the Care Bears, which have been popular for decades, was a reunion of sorts for Hirsh — Nelvana animated both characters decades ago. He sounds paternal when talking about his properties. He refers to them as children and gets immense satisfaction from spotting them in a foreign country, knowing they’ve spread far afield.

But the sale was not to be. Hirsh had just more than two months to raise the cash, but markets deteriorated severely over the summer of 2008, and he didn’t have financing lined up by the Sept. 30 deadline. American Greetings found another buyer earlier this year when MoonScoop Group, an animation company in France, offered US$95 million. Strawberry Shortcake and the fuzzy paws of the Care Bears were slipping from Hirsh’s grasp.

Cookie Jar had the right to match any offer American Greetings received for roughly six months after the original close date, and Hirsh opted to match MoonScoop. According to legal documents filed by Cookie Jar, American Greetings gave Hirsh 30 days to close the deal, whereas MoonScoop had 75. American Greetings also threatened to seek millions in damages from Cookie Jar if it didn’t raise the cash and buy the properties, according to the filings.

The deadline passed, and again Hirsh did not pull the financing together, arguing that 30 days was unrealistic. American Greetings then sued for US$100 million in early May in Ohio, alleging Cookie Jar did not use reasonable means to raise the funds. Cookie Jar launched its own suit seeking at least US$25 million in damages just a few hours later in New York. It claims American Greetings and MoonScoop engaged in fraud to keep the Toronto firm from purchasing the properties. To complicate matters, MoonScoop also sued American Greetings this past August, alleging the Ohio company is trying to back out of their deal. No court dates have been set.

But the legal battle has not slowed Hirsh down, and Cookie Jar continues to expand. This fall, the company will launch Jaroo, a website to stream some of Cookie Jar’s many hours of content. It also launched a production arm focused on prime-time television recently. “Children are growing up very quickly, and they’re watching The Simpsons and Family Guy,” he says. “We want to have the next big prime-time thing.” More acquisitions are planned, and he wants to take Cookie Jar public, just as he did with Nelvana.

Given the similarities between his old and new companies, it’s tempting to wonder if Hirsh regrets selling Nelvana and starting over again. “My mind doesn’t tend to go to ‘what ifs,’” he says, before slamming his fist on the table like a mock dictator and snarling sarcastically, “We could have been ruling the world!”

At his core, Hirsh enjoys the process of building and deal-making more so than presiding over an established empire, which makes Cookie Jar the perfect venture for him. “The programming itself is what drives me,” he says, “and I love the art of building a company.” He set a huge precedent for himself with Nelvana, of course. Just about any kid born after the late ’70s would have had the company’s polar bear logo seared into memory after seeing it at the end of so many cartoon shows. This suggestion prompts a genuine smile from Hirsh. “Before people knew the name, they knew the bear,” he chuckles. “Now they’ve got to learn Cookie Jar.”