It’s all systems go for the German kids animation industry as entertainment giants like EM.TV and TV-Loonland tool up to take on the world. Their aggressive acquisitions strategies, fired by buoyant domestic capital markets and easy access to finance, have already given the Germans control of Henson and Sony Wonder. But is the bubble about to burst-and what will be the impact of all this activity on smaller German producers and the international kids market as a whole?

The days are long gone when Germany, the world’s second biggest entertainment market, was simply regarded as a lucrative sales territory for U.S. toonsters. The flotation of EM.TV, RTV, Igel Media and more recently TV-Loonland-which announced its acquisition of Sony Wonder for US$20.5 million in October-have all pumped new funds into the domestic animation industry.

Judging from the headlines, the situation for local kids toon production in Germany has, with one or two exceptions, rarely looked healthier or busier as rivals square up to make the most of new media opportunities both at home and overseas.

In March, Munich-based RTV announced it was upping original production-having taken a majority stake in indie animation studio Energee Entertainment-as well as boosting its library size by 40% after inking a deal with CLT-UFA, now part of the new conglomerate RTL. This September, Hamburg prodco Igel Media reported a 1,500% increase in revenue, the result, it claimed, of refocusing its activities from national to international horizons.

The only real hiccup in this otherwise upbeat scenario was news in early October that the price of EM.TV’s stock had fallen to a new low, losing around 30% of its value following the discovery of an accounting error related to the company’s acquisition of Henson and Formula 1 Racing. As a result, founder Thomas Haffa’s brother, Florian, resigned as chief financial officer.

Where all this leaves production levels in Germany’s kids animation industry-and staffing levels at some of the companies that have recently been taken over-is not exactly clear. ‘We have grown enormously fast,’ insists TV-Loonland president Peter Volkle, ‘doubling or tripling our revenue in the past year. We produced 100 half hours of animation last year.’ In fact, in early November, TV-Loonland reported expected annual sales of over US$56 million-four times the initial projection made when the company went public in March.

The outfit, formed 10 years ago by Volkle, is now a genuine international player, with offices in Munich, London, Paris, Miami and New York, and animation studios in London, Hungary and Korea. Its acquisition of Sony Wonder gave TV-Loonland more than 2,000 episodes of children’s and family fare-and that all important entrée into the U.S. market place and ancillary English-speaking territories.

The catalog now boasts such domestically tried-and-tested titles as Pettson and Findus (Happy Life), plus international toons like Fox and Cartoon Network staples Aaron and the Magic Village, Three Friends and Jerry (a Happy Life/Sunbow co-pro) and Fat Dog Mendoza (Sunbow). Having signed a three-year pact earlier this year to co-produce and launch a joint website with Toronto’s AAC Kids in order to sell shows via the Internet, Volkle is putting a lot of faith in new media. Two months ago, TV-Loonland acquired Hamburg-based ISP FamilyHarbour.de. But like any new media strategy, skeptics wonder if the technology is all its cracked up to be, and whether TV-Loonland’s emphasis on broadband will actually turn out to be a good investment.

They also wonder if Volkle’s combo might have become a takeover target itself had it not pounced on Sony Wonder. Doubters, moreover, suggest that TV-Loonland’s buying Sony Wonder effectively amounted to an admission that despite the enormous improvement in the quality of German kids toons these past years, the only real way to crack the North American market is to acquire a piece of it.

For those working at Sony Wonder’s studios in New York and Los Angeles, Volkle admits there is also the possibility of job cuts due to overlap with other parts of the burgeoning TV-Loonland empire. ‘It’s possible that studios could close in the States,’ he says. Distribution is another area where the axe might fall. Even so, Volkle does not rule out other acquisitions in the near future, especially related to TV-Loonland’s on-line business in Asia. ‘That’s the part of the puzzle that’s missing,’ he says.

But looking closer to home, Volkle-like many of his peers-suggests that the sun has set on the days of easy financing for companies like his own. ‘There’s been a leveling out. German investors are more interested in putting their money into real estate these days,’ he reckons.

At boutique combo Igel Media, Marie Line Petrequin agrees: ‘Investors have lost their blind confidence in media companies. They have become very suspicious and skeptical because they didn’t understand that entertainment companies can lose money as well as make it, and that all that glitters is not gold.’

Part of the problem, Petrequin points out, is that there is now an over-supply in Germany’s animation industry as some producers find it increasingly difficult to find domestic slots for their material-or secure premium prices on the international market or at home, where some pay channels are paying fire-sale rates for children’s animation. ‘Nobody knows where all the output will go,’ she says. ‘It is very competitive out there.’ The question on everyone’s mind is whether there are enough channels to accommodate the product flooding the market. Some feel there will have to be further consolidation or a divestment of interests.

Despite the emergence of tax-backed equity to finance animation, introduced in Germany for feature film funding in the `70s, and the availability of ad hoc subsidy funds available in parts of the country, many German producers still envy the kind of subsidies that are available in France. Nikolaus Weil, COO of German producer/distributor Greenlight Media, set up the US$100-million Berlin Animation Funds in cahoots with Dresdner Kleinwort Benson in London following the success of the SimsalaGrimm series, which has now sold to around 125 territories, with licensing and merchandising deals in 10.

Inevitably, Greenlight’s long-term objective is to break into the U.S., although Weil claims the U.K. market is even harder to conquer owing to the lack of opportunities and Britain’s internationally renowned animation talent pool. He claims, however, that Greenlight is on the verge of closing a U.K. deal for SimsalaGrimm. Meanwhile, Weil concedes that the domestic market is getting tougher all the time because of the scarcity of slots and advances in production techniques and values. ‘Our producers are becoming more and more sophisticated,’ he suggests. ‘In TV, they are almost up to Disney-style standards.’ This, reckons some German programmers, is making it more difficult for U.S. firms to export their wares to Germany. Says TV-Loonland’s Peter Volkle: ‘Nowadays, we’re producing in all the different styles of animation.’

Not everyone agrees. One British animation buyer recently doing the rounds at MIPCOM was disappointed by what was being offered by German producers. ‘They sell it by the yard, but it isn’t the kind of material that would play well in Britain,’ he suggests. Another Brit, HIT Entertainment’s managing director of worldwide distribution Charlie Caminada, is more scathing still and argues that the numbers just don’t add up. Says Caminada: ‘The German strategy is flawed. Excluding the classics, in the last 10 years you can count the number of truly successful international kids animation vehicles on two hands. When I hear that certain producers are putting together US$145 million to do 20 half-hour series, I know it won’t work because you’re talking US$430,000 minimum to do something decent. It’s absolute madness.

Also, where are the creative resources going to come from? The list of genuinely good writers and animators doesn’t run into dozens. Seventy percent of these shows will not hit the mark, and the people who are financing them risk burning up their money.’

He does concede that Germany is attracting strong co-production partners. One example is Igel Media’s success with series like Lucky Luke (presold in Germany to Super RTL), Space Goofs and Oggy and the Cockroaches. The latter two were co-produced with France-based Xilam and shown successfully on Fox Kids in the U.S.

Igel claims to put quality before quantity. It is a tried-and-true strategy perhaps worth emulating as German animation programmers work out where to go from here.