Feb 19, 2024

French producer Xilam says 2024 is a "year of transition."

French animation studio Xilam Animation has announced its financials for 2023. After a strong year last year, the company has had to recalibrate its near-term ambitions due to a drop in demand for new children's content from U.S. streaming distributors.

Xilam, which celebrates its 25th anniversary this year, has produced the 2019 Oscar-nominated feature "I Lost My Body," the Disney+ animated series "Chip 'n' Dale: Park Life," "Oggy and the Cockroaches and Mr. and Mr. The company is currently animating Disney+'s The Doomies, previewed at Annecy in 2022, and Zack Snyder's Götterdämmerung for Netflix.

Xilam, one of the few publicly traded mid-sized animation companies in Europe, must publish its financial statements (download PDF of full-year 2023 financial statements); Xilam's filings include a statement that late last year the U.S.-based streaming distributor was in the process of preparing a new projects, describing 2024 as a "year of transition" due to hesitancy in permitting projects.

Cartoon Brew spoke with Marc du Pontavice, CEO and chairman of Xilam, about whether this is a trend other studios are currently dealing with. He said:

Yes, it is. Over the past 12 months, the downsizing has been quite severe, with very limited green lights given out by the two main outsourcing partners, Netflix and Disney. This is even more problematic because many mid-sized studios have scaled up in the last few years and are now weighed down by a lack of new commissions. Studios like Zylam, with its strong library of recurring revenue and access to other consignments, such as European TV broadcasters, should be able to weather this downturn. But for studios that have grown solely on commissions from streamers, it will be very tough."

Du Pontavice says that streamers are missing the mark with original children's content because they are not giving new content time to build a fan base. This is an opinion shared by other leading industry professionals, including Chris Nee (creator of Doc McStuffins and Ada Twist, Scientist).

According to du Pontavice:

Some streamers have not found a way to make a hit with their original content because they expect too much from the launch period. It takes a very long time to create hits for kids and families, as opposed to adult-oriented content. However, I don't know if the algorithm can or wants to implement this rule of our business. As a result, it is the library titles that provide the core kids audience for streamers. As long as streamers are a large part of the audience, I think they have a responsibility to create new content. Any new generation needs to grow up with us as a reference. What do you think of a world where children grow up seeing the same things as their parents -

The animation industry is slowing down in slow motion, and Zairam has been concerned about this situation for the past year. Last October, the company warned shareholders that U.S. media companies were pulling back from animation (download PDF):

American streaming platforms have been squeezing their business models and investing significantly less in children's animation. They now focus on American brands with global recognition, preferring to invest less.

In the same report, Zylam predicted declining sales in 2024 and canceled its "Ambition 2026" plan to grow total operating income to €80 million by 2026 (up from €48.2 million in 2023). The announcement caused the company's stock price to plummet by more than 60%, and the stock has not recovered to this day.

Last December, Zylam raised €3.7 million ($4 million) by issuing nearly 1 million new shares to "strengthen its shareholders' equity and liquidity" in response to lower sales expected this year. According to the company, the remaining debt is primarily self-liquidating and is therefore secured by production in progress.

Asked about what other adjustments his studio will make to compensate for the shifting demand for streamers, du Pontavice explained:

We are reorienting our children's business towards European television. In addition, we will continue to explore the promising adult animation market, which we believe is recession-proof. And finally, we are focusing on feature films.