Toon in

NELVANA, THE CANADIAN animation studio, is no Disney--yet--but it sure is cooking in children's programming. On the Nickelodeon cable channel, the studio produces cuddly Little Bear, based on the classic 1957 children's book by Maurice Sendak and aimed at toddlers. On the Disney Channel, there's Rolie Polie Olie, a rounded, computer-animated boy with goose-neck arms and legs. On the Saturday morning CBS Kidshow Nelvana has a monopoly--it produces all six programs shown over a three-hour stretch.

And now Nelvana has won three new deals: a Saturday morning block on PBS of six new book-based shows for preschoolers; a prime-time show on the Fox Family Channel based on the cartoon strip Committed, and, on Nickelodeon, a kid's adventure book spinoff called Maggie and the Ferocious Beast.

With Little Bear and Franklin, also on Nickelodeon, Nelvana has the two top-rated TV shows for 2-to-5-year-olds. A Nelvana show for adults is even on prime-time TV--Bob & Margaret on Comedy Central.

"There's nothing that's going to stop us," brags Chief Executive Michael Hirsh. Wearing a baggy, navy corduroy suit brightened by a turquoise Little Bear tie, Hirsh, 51, is holding court in his cinder-block-walled office in a former munitions factory in Toronto. He can brag about his studio's creative successes, but he can brag even more about his business decision, two years ago, to own his output rather than sell it as a work for hire. "Cartoon characters have long lives," he says, growing animated himself. "If you don't have the rights, you can't exploit them."

Hirsh did a lot of work for hire before he got to that point. A philosophy student at Toronto's York University, Hirsh was an underground filmmaker when he founded Nelvana with two partners in 1971. The studio survived by making shorts, holiday animation specials and a futuristic (now cult-classic) film called Rock & Rule. It wasn't until the mid-1980s that the studio gained commercial recognition with its well-produced Care Bears series for both film and television.

But Nelvana was mainly serving as a mere contractor for big entertainment companies. After spurning a 1996 takeover attempt by Golden Books (thank God--Golden is in very sick shape now), Hirsh realized that the road to big money was to own the rights. So he started to build a library by making acquisitions. His latest: Toronto-based publisher Kids Can Press, for $4 million in a 90% cash/10% stock deal. He got plenty of fodder. The big draw was Franklin, the saccharine turtle protagonist of a Canadian children's book series. Nelvana made it into an animated series, now in its third year in Canada, and on Nickelodeon since January.

Hirsh also deals directly with author/illustrators. He bought the entertainment and merchandising rights to Olie from creator William Joyce of Shreveport, La. To produce Olie's world in 3-D animation (not traditional cell animation), Hirsh bought a computer-generated animation studio, Windlight, for $2.2 million.

Owning the characters outright means Hirsh can exploit them in merchandising deals. In the first quarter he tripled merchandising revenues to $1 million from the same period a year ago. Nelvana's strongest licensing property is the French elephant Babar (a made-for-HBO movie is in production). Little Bear and Franklin are catching up, with dozens of licensees making items like bedroom slippers. Hirsh sacrifices when he has to. To get a plum spot for Olie on the 52-million-home Disney Channel, Nelvana gave the merchandising rights to Disney.

Hirsh's new strategy is working so far. In 1998, Nelvana, which trades on the Toronto Stock Exchange, saw revenues hit $50 million, up 34% from 1997. Net earnings rose 75% to nearly $6 million. The surge is continuing this year, with first-half revenues up 55% to $17 million, while earnings are up 16% to $1.6 million.

"We're taking on Pixar," says Hirsh. "Steve Jobs, read this and weep." Nelvana has yet to create a hit like Toy Story or A Bug's Life, but in the world of animation, dreaming is a requirement.