The Animation Boom

A Brief Look Back at the Early Days of Disney, the Current Cartoon Renaissance and the Future of Thunderbird Entertainment (TBRD)

Here we take a look at the early days and evolution of the animation industry led by Walt Disney, the current animation renaissance underway, and an overview of one of our favorite stocks perfectly positioned to benefit from the continued content spending boom - Thunderbird Entertainment, TBRD CN

The Early Days of Disney

Walt Disney could be described as a perfectionist, a workaholic, and a perpetual tinkerer. His admirable attention to detail and high standard for quality are what set him apart from his contemporaries and created the company that would dominate media for the next 100 years.

As Neal Gabler described it in his 2007 biography of Walt Disney:

"The biggest difference between the Disney studio and the animation studios in New York was not in preparation or specialization; it was in expectation. Walt Disney had to be the best.. Walt insisted upon excellence, and [one animator] admitted that he soon had some misgivings about joining the studio when he came to realize how high Walt’s standards were."

"Part of Walt’s secret was that in insisting on quality from individuals of whom it had never been required, he inspired commitment. “We’d hate to go home at night,” Iwerks recalled, “and we couldn’t wait to get to the office in the morning.”

Walt’s demands for perfection and endless desire to push the technological boundaries of the day are what created some of the most revolutionary animated films in history, but it was Walt’s brother Roy who is the unsung hero in the Disney Studios saga. He was the one tasked with making sure the studio survived financially while Walt continuously pushed for perfection.

"Walt's pursuit of excellence eventually ran up against an intractable reality that always seemed to bedevil him: money. Quality was expensive, and there never seemed to be enough money to support it"

In the early years, Roy and Walt would do whatever it took to get by including often taking personal loans to pay studio expenses. The only rule Walt had in this regard was to never give up equity in the studio. Borrow against any asset, take unfavorable splits on future profits, but never give up control.

Disney was a pioneer in the industry in many ways but four areas in particular stand out: sound, physics, color and, perhaps most lucrative of all, licensing.


Walt become obsessed with the idea of adding sounds to his cartoons in 1928 while working on the third ever Mickey cartoon, Steamboat Willie.

While Disney wasn't the first to attempt adding sound to a cartoon he was the first to do it right, with Variety saying of Willie at the time:

“Not the first animated cartoon to be synchronized with sound effects, but the first to attract favorable attention. This one represents a high order of cartoon ingenuity, cleverly combined with sound effects. The union brought laughs galore. Giggles came so fast.. they were stumbling over each other.”


In 1929 Walt began to drive some of his animators to night classes at a nearby art institute in LA. Disney eventually hired the course instructor and started what would be referred to as the "great Disney Art School" internally at the studio with classes five nights a week to teach the animators how bodies and objects move in real life.

In addition to learning about the effects of gravity on objects and the physics of body movement, Walt also compiled a collection of over 2,000 slow-motion videos of things like glass breaking, water dropping, bubbles popping, and smoke swirling for the animators to study. 

All of this stood in stark contrast to other animation studios at the time who laughed at the idea of bringing in art instructors to teach animators. Renowned animator Dick Huemer who worked at multiple studios before joining to Disney recalled that prior to Disney, “no one thought of clothing following through, sweeping out, and dropping a few frames later, which is what it does naturally.”

This idea of gravity became an obsession at the studio.


With sound now mastered and the physics of his cartoons improving, Walt became obsessed with the next big technological leap - color.

Walt had experimented with using color prints but felt the technology wasn't there yet and forcing a subpar product would detract from a cartoon, not add to it. That changed in 1932 when Technicolor announced a new three-color process. Upon seeing it Walt reportedly exclaimed “At last! We can show a rainbow on the screen.”

In what had become (and always would be) a repeatable problem for Disney, the cost to implement the new technology was prohibitively expensive, costing 3x as much as black and white production. Roy, as always, was in charge of finding a way to finance Walt's ambitions and did so (without giving up any equity of course). This allowed Walt to strike a deal with Technicolor to produce 13 cartoons in color to showcase the new technology in exchange for its exclusive use for two years.

The first cartoon Disney produced in color was Flowers and Trees which won an Academy Award for Best Cartoon in 1932, but perhaps the more memorable early use of color was Disney's May 1933 release, the Three Little Pigs.

Upon release it became an instant nationwide phenomenon. The song "Who's Afraid of the Big Bad Wolf?" (which Walt paid two freelance singers $10 to record) reached #2 on the Billboard music charts in 1932 and the cartoon won an Academy Award the following year. This began a 9-year Academy Award winning streak for Disney in the cartoon category.

Merchandise Licensing

The famous story of Disney getting into licensing goes that in early 1930 a guy on the street of New York City offered Walt $300 to put Mickey Mouse on some school supplies for children, the studio needed the money and Walt took it.

Walt and Roy soon did a deal to outsource all the merchandise licensing for Mickey Mouse. However, after a couple of years the licensing royalties coming in were disappointing, only amounting to a few hundred dollars and the products were of poor quality, something Walt couldn't accept. That all changed with Kay Kamen. 

Kamen by all accounts was built to sell. He signed with Disney in 1932 and set off to do for licensing what Walt and his team had done for animation, reinvent the industry.

“Shoppers carry Mickey Mouse satchels and briefcases bursting with Mickey Mouse soap, candy, playing cards, bridge favors, hairbrushes, chinaware, alarm clocks and hot water bottles wrapped in Mickey Mouse paper tied with Mickey Mouse ribbon and paid for out of Mickey Mouse purses with savings hoarded in Mickey Mouse banks.. Children are living in a new Mickey Mouse world" - New York Times, 1934

By 1934, Disney was making more from licensing out Mickey's likeness than the Mickey cartoons themselves and by 1936 Disney was collecting $200,000 in royalties per year (~$3.8 million today).

"Disney became the first studio to recognize what would become a standard business practice in Hollywood forty years later—that one could harvest enormous profits from film-related toys, games, clothing, and other products. Indeed, as Literary Digest reported, “It is no exaggeration to state that Walt Disney Enterprises [the licensing arm) has become the tail that wags the mouse.”

As fascinating as these early Disney years were, this barely scratches the surface on the man and the company. If interested, I highly recommend the Walt Disney biography by Neal Gabler, possibly my favorite biography I've read: Walt Disney : The Triumph of the American Imagination

The Current Animation Boom

Similar to the 1920s, we are currently in the midst of what could be called an animation renaissance which began around 2018 and has accelerated over the past year with COVID driving ever increasing streaming content demand.

In 2018, Loup Ventures estimated that Netflix’s animated content spend would increase 4.5x to $5 billion by 2022 and Amazon Prime’s animated spend would reach nearly $2 billion, both increasing as a percentage of each company’s total content spend.


These estimates have no doubt risen over the past year as COVID-related shutdowns of production for live action content has driven the streamers to direct even more dollars to animated content, whose production has been relatively unaffected.

“Our phones and email have been ringing off the hook, we've had so many people reaching out.. partners we’ve never heard from or worked with before.. Just the volume, the sheer volume of people of pitching went through the roof." - President of 219 Production, animation studio

Even pre-COVID there’s a reason the streamers are paying increasingly massive amounts for animated content. According to Melissa Cobb, VP of Kids and Family at Netflix, 60% of Netflix subscribers watch kids and family programming (most of which is animated) and families cancel their subscriptions at half the rate of the average subscriber.2

But it’s not just kids’ cartoons, the less mature subsegments within animation are also booming and have even more room for growth. For example, there are currently 100 adult animated series in production across 15 streamers/broadcasters with Netflix and HBO Max leading the way, this is up from 45 series a year ago.3

Thunderbird Entertainment (TBRD.V)

One company we think is perfectly positioned to benefit from the accelerating animation demand and content creation tailwinds is Thunderbird Entertainment (TBRD.v on the TSX but Nasdaq uplisting coming soon).

TBRD has two divisions - Factual (live action) and Animated under its Atomic Cartoons studio brand. The company does production work for all the large streamers as well as produces an increasing amount of owned-IP shows where TBRD creates and sells the show and retains all the rights to the IP which can be monetized through licensing. An example of the latter is Last Kids on Earth on Netflix based on the NYT bestselling book series by Max Brallier.

Here is a sampling of TBRD’s animated work:

The studio is now doing about $100 million in revenue over the LTM with accelerating growth, and this is before the COVID related benefits hit the company’s financials. Given the 9+ month lead time in terms of production start versus when the content gets delivered and revenue is recognized, the company should start seeing accelerating growth later this calendar year.

TBRD’s Production Service revenue has doubled in the past 18 months which includes productions like the Lego Star Wars Holiday movie for Disney+, Trolls: Trolltopia for Peacock, and Mighty Express for Netflix. The streamers cover the cost of production, pay TBRD a nice fee on top of that, and in an increasing amount of cases allow TBRD to get a cut of the back end licensing royalties.

The company also does about $40 million in revenue from owned-IP content. While most of this is currently coming from live action shows like Highway Thru Hell and Kim’s Convenience, the studio is a making a notable push in owned animated content with five shows in, or about to be in, production with some notable high quality partners.

TBRD recently launched its own internal licensing division and hired industry veteran Richard Goldsmith to head it (could he be TBRD’s Kay Kaymen?). This will let TBRD retain the typical 30%+ cut paid out to licensing agents and will also let TBRD develop closer relationships with toy, video game, and other merchandise manufacturers. To frame how significant this can be to margins, eOne’s internal licensing division was doing over > 60% EBITDA margins when the studio was acquired in 2019.

TBRD currently does 20% EBITDA margins and with an estimated $113 million in revenue should do ~$23 million in EBITDA this FY (ended June). At a current $180 million EV the stock is trading at just under 8x current year EBITDA and 4.5x our 2023 EBITDA estimates which conservatively assumes slowing growth rate and no margin expansion from licensing, both areas we think could significantly surprise to the upside.

Comparable studios with minimal growth like WILD CN trade at 18x EBITDA and studios like eOne were acquired at 15x, thus we think the path to a >200% return for TBRD is very possible over the next two years.

Given the streaming wars are just heating up (Disney+ launched in November 2019, Apple TV+ in November 2019, Peacock in July 2020, etc.) plus the spend shift towards animated content, Thunderbird has an extremely long runway to continue to benefit.

Following the path that Walt Disney and Kay Kamen blazed almost 100 years ago, Thunderbird is positioning itself to be an animation and IP-licensing powerhouse. As TBRD’s CEO Jennifer McCarron likes to say, and we wholeheartedly agree, “Thunderbird is well on its way to becoming the next major global studio.”