The Cartoon King
`Rainer. Raaaaaainer!" Thomas Haffa shouts the name up the ladder to the stern deck of the "Ava," a 40-meter yacht he has rented for a huge mid-April TV programming conference in Cannes. It's a sun-drenched morning, and Haffa is furiously dealmaking from a bench at the yacht's stern. Having connected a BBC Television executive with Rainer Tschierschwitz, one of his chief lieutenants, Haffa suddenly spies Jeffrey Schlesinger of Warner Bros. Inc. strolling up the quay toward the Warner yacht. "Jeff, Jeff!" Haffa barks, his voice raspy from schmoozing. He scrambles nimbly down the gangplank. Soon, he and Schlesinger, president of Warner Bros. International Television, are fixing an appointment for that evening to talk deals.
It's one more day in the frenetic world of Haffa, chief executive of EM.TV & Merchandising, a Munich outfit that may well be Europe's hottest company. EM.TV had a tiny $15 million in annual sales when it went public in October, 1997. But over the past 19 months it has grown at an explosive rate as Haffa has spun deal after deal with the biggest players in the world of entertainment, from Walt Disney Co. to German media titan Leo Kirch. Its stock is up around 10,000%, to nearly $1,000, on Germany's growth-stock exchange, the Neuer Markt (chart). The stock carries a price-earnings ratio of roughly 90: Merrill Lynch & Co. estimates the company will earn $38.3 million this year on sales of $117 million.
Haffa is only one of the most prominent examples of a growing band of entrepreneurs in Germany who have struck it rich as the Neuer Markt boomed over the last three years. In the past, smart young Germans opted to work for stolid giants such as Siemens and Deutsche Bank. But the experience of employees at companies such as EM.TV is changing attitudes fast. About 40 of the company's 140 employees have stock options, and most are now millionaires. Other companies in media, software, biotechnology, and information technology are following EM.TV's example by listing shares on the Neuer Markt.
About 100 German companies are planning to go public this year, nearly three times as many as two years ago. In addition to Haffa, new entrepreneurs making bids for the big time include Metin Colpan, CEO of biotech outfit Qiagen, and Barry Bares, a whiz kid who started up hot Munich film company Intertainment in 1993, with a $28,000 investment. The company went public on the Neuer Markt on Feb. 8. But its market cap has already topped $800 million after a $125 million deal to distribute Warner Bros. films in Germany, the Benelux countries, France, and Eastern Europe.
These new entrepreneurs are riding a wave of social, technological, and economic change that is creating vast opportunities for European growth companies. Until recently, tightfisted Continental banks held small companies back. But the euro, deregulation, and strong growth in capital markets are changing all that. An entrepreneur such as Haffa, who got in on the trend early and built confidence with investors, suddenly has access to huge amounts of cash. In 19 months, EM.TV's market capitalization has soared from $38 million to more than $4 billion. Haffa, who owns 61%, has a personal net worth on paper of about $2.5 billion.
Unlike many older German executives, Haffa has attitude. He is joyously ostentatious about spending his money. He rides a Harley motorcycle, drives a silver Porsche 911 and a top-of-the-line Mercedes, has a villa in Majorca, and is building a huge yacht. He doesn't hide his ambition. His heroes include Ted Turner, Leo Kirch, and Haim Saban, CEO of Los Angeles-based Fox Family Worldwide, Rupert Murdoch's children's programming unit. "I want to be a media baron," he says matter-of-factly. "I want to be big."
EM.TV is still tiny compared with European TV heavyweights such as BBC or France's Canal Plus. But in its chosen niche--cartoons and other children's programming--it's much bigger than they are. EM.TV controls about one-third of all animated children's programming in Germany, analysts estimate, and about 10% Europewide. Haffa's plan now is to pour profits from that treasure trove of programming into developing new kids' shows he can market around the globe through a raft of partnerships and co-production deals. He is beginning to inundate Europe with dolls, T-shirts, and videos using the U.S. characters for which he has local rights, from Garfield to The Simpsons.
Haffa's goal is to make Junior, his children's programming brand, as well known around the world as Disney's offerings. "It will be a world brand," he declares. "I'm sure of that now." Amazingly, some analysts and investors believe he has a strong chance. "We think the company is still capable of growing at some fantastic multiple of the market rate," says Richard Pease, European director of London-based Jupiter Asset Management Ltd.
EM.TV is already well on its way. Saban, who met with Haffa in Cannes, sums up the company's potential this way: "Digital TV is coming. There's going to be a big need for product. And Thomas Haffa has the product." If the optimists are right, lower costs possible with digital TV will cause the number of Continental TV channels to soar from dozens in each nation now to hundreds in a few years. J.P. Morgan & Co. figures European pay-TV revenues alone will more than quadruple, to $26 billion, by 2005.
GOLDEN SMURFS. Such prospects have TV honchos such as Rupert Murdoch's News Corp., Canal Plus, and Kirch jockeying to be first in setting up digital networks across Europe. As the number of channels climbs, content companies such as EM.TV expect demand for their programs to explode. Cartoons may seem an odd niche, but they have advantages: Kids of all nationalities like them. There's no problem with lip-synching for cartoon characters. And cartoons age well. Classic characters such as the Flintstones, the Smurfs, Charlie Brown, and Rocky & Bullwinkle--all of which Haffa owns partial rights to--grow more valuable with each passing decade.
EM.TV is also virtually assured of rapid growth over the next few years because of a deal Haffa did last year with the septuagenarian Kirch, the most powerful figure in German TV. In deep financial trouble, Kirch turned to Haffa, who had worked for him in the 1980s, for a bailout. Although friends say Haffa has always been dazzled by Kirch's charisma, he didn't cut his mentor any slack as the two hammered out the deal.
By the end of December, when the deal was announced, Kirch had agreed to spin off his library of rights to some 20,000 half-hour segments of cartoons and other kids' programs into a joint venture controlled by Haffa. That boosted the size of EM.TV's library sixfold, to about 24,000 segments. Haffa controls German-language rights--and in many cases the European and world rights--to a panoply of cartoon characters.
Haffa in return is investing $280 million for a 50% stake in the new venture, while Kirch is putting up programming for his 50%. But best of all, from Haffa's standpoint, EM.TV gets all the cash the venture spins off until it recovers its investment. Merrill Lynch estimates that, fueled by the deal, EM.TV's earnings will hit $180 million by 2002, 15 times more than last year, on sales that will rise eightfold, to $324 million--an almost unheard-of 56% net margin, if correct.
Why would Kirch cut such a deal? Aside from badly needing cash, Kirch believes in Haffa's wizardry as a merchandiser. "He was one of the most talented employees we ever had," says Dieter Hahn, Kirch Group's president. While at Kirch Group, Haffa pioneered U.S.-style marketing tie-ins in Germany. He's a master of the art of developing a cartoon, apparel, and other spin-offs and tie-ins from popular TV series such as Flipper, which EM.TV will start bringing out as a worldwide cartoon offering late this year. A collection of toys will follow.
While Kirch Group is predominantly a German company, Haffa's plan now is to build the Junior brand into a worldwide powerhouse. In April, EM.TV nailed down a deal under which Disney will air 330 hours of Junior television programming on the new German digital channel it is starting this fall. Haffa says that, while at Cannes, he signed new German-language deals that could add up to $55 million annually to EM.TV's sales. He's also close to a deal with a major publisher to start a line of Junior books, and he plans a chain of Junior toy stores in Germany. Last year, he bought 50% of Igel Spielzeug, a German toy company.
FISH STORIES. But capitalizing on his library of programming rights is only the start of Haffa's ambitions. He needs a big flow of fresh, high-quality, new programming to which he owns the world, not just German or European, rights. To that end, Haffa is buying stakes in production companies in key markets. For instance, EM.TV recently bought a 50% stake in Yoram Gross, an Australian animation company that is doing a Flipper cartoon series based on the TV show.
EM.TV already has 21 co-productions of children's programs in the works with partners all over the world. And at Cannes, Haffa says he launched preliminary discussions for 10 more co-productions. One project under way: a deal with Sony to co-produce 52 episodes of Rainbow Fish, a cartoon depicting a fish based on a well-known children's book. "If they have one or two blockbusters in there, it will feed right through into the bottom line," says Merrill Lynch analyst Bernard Tubeileh. He figures the Kirch deal will spin off $140 million annually over the next three years, which Haffa can invest in developing new global programming.
Haffa runs his company more like a clan than a typical German corporation. At business meetings he tends to keep six or eight managers in close proximity. He likes to be surrounded by his people and believes there's power in outnumbering a negotiating partner. His 34-year-old brother, Florian, is his chief financial officer, alter ego, and detail man who attends to operations. In a business that thrives on late-night schmoozing, the two are known for their staying power. At the Cannes confab they threw the biggest, hippest party, a blowout at the local Planet Hollywood that had guests dancing on the tables until 4 a.m. Haffa claims 1,100 people came, 10% of the conference's attendees.
Haffa knew early on that he wanted to be wealthy. He was an indifferent student, but in high school in a small town near Munich, he made money by selling motorcycles and used cars on the side and by starting his own school newspaper. At 18, he quit school without a degree, announcing that his ambition was to be "a manager." It was an unheard-of step for a bright young man in Germany at the time, and his father was horrified.
Thomas' sister, Petra Birnbaum, an art historian who lives in Nairobi, Kenya, thinks Thomas' drive comes from his often strained relationship with their father. Walter Haffa, who died 12 years ago, was shot down over Britain early in World War II during his first sortie as a Luftwaffe pilot, and spent seven years in a prison camp in Canada. He used the time to teach himself the violin and to read widely. After the war, he valued education, stability, and a guaranteed, if modest, paycheck: For most of his career, he headed an association of German agricultural equipment manufacturers. Thomas could do no wrong in the eyes of his mother, Susanne, but his father was disappointed by his choice of career path.
SALES STAR. Whatever the father's judgment, it didn't hold Haffa back. After a few years selling BMWs, he took a job with IBM in 1972 and was one of the German subsidiary's star salesmen almost from his first day. In 1979, he switched to Kirch Group after a friend introduced him to Leo Kirch. He made video outlets ubiquitous in Germany after pioneering the concept of selling videocassettes in gas stations and convenience stores. Later he switched to merchandising, where he proved a natural. But he still wanted to be on his own. So in 1989, with his wife Gabi pregnant with their first son, he quit Kirch Group. He started EM.TV with an office, a car phone, and not much else. "I didn't know if I could pay the rent," he recalls.
Haffa's success since then could become the stuff of European corporate legend. He got a big break early on when he bought the German rights to the Teenage Mutant Ninja Turtles from Fox partner Saban, and sold them to the German TV channel, RTL. He used the money to painstakingly start building a library of German and European rights to children's programs, largely from the U.S. By 1997, the year of the initial public offering, Haffa controlled 1,800 half-hour segments. The size of his rights portfolio grew to about 4,000 segments just before the Kirch deal.
How far can EM.TV go from here? Florian Haffa predicts EM.TV will have $1 billion or more in sales in five years. Most outsiders who know Thomas doubt he will let up until he achieves success on at least that scale. "I think he's going to be a very major player," says Philip I. Kent, London-based president of the Turner Broadcasting System International unit of Time Warner Inc.
For one thing, further deals with Kirch Group are rumored in media circles, now that Leo Kirch is restructuring so he can fund his new digital pay-TV network. At the very least, the new network will be a major outlet for Junior's programs. Some Haffa followers believe he will branch out of children's TV into other types of programming, perhaps through other ventures with Kirch.
But the big question now for Haffa is whether he can make it big in English-speaking markets, something Kirch and other Continental media players have never been able to do. The era when big profits could be made by simply importing U.S. content into Europe may be ending, now that heavy competition is driving up prices for American shows.
Haffa has shown that some of his prized German programs can make it elsewhere on the Continent. The hit cartoon character Tabaluga, a little green dragon, is a mega-success in Spain and France, drawing up to 80% of the kids' audience during prime viewing hours. One of Haffa's priorities is to cut deals with U.S. players such as Warner, Turner, and Fox to get more original EM.TV characters on U.S. airwaves. Saban has bought Tabaluga for Fox, for instance. But it's an open question whether European megahits will make it big in the U.S., too.
Haffa faces plenty of other hurdles. In the U.S., the growth in channels has fragmented the children's TV market, making profits scarce. Something similar could happen in Europe now that kids' channels are proliferating. There are homegrown risks also. The European Union is considering a ban on advertising during children's viewing periods, which could slow growth. The bigger worry is that the Neuer Markt, which some analysts consider overheated, could crash. EM.TV, with the Neuer Markt's biggest market share at 9% of its market capitalization, would be a sitting duck if that happened.
Still, even Haffa is astonished at how fast his company has grown. Christian Strenger, head of DWS, Germany's biggest mutual-fund company, happened to be on the same Frankfurt-to-Munich flight as the EM.TV execs right afteR their IPO in 1997. He recalls the Haffa brothers toasting Each other, overjoyed that the stock had closed its first day of trading at slightly above its offering price. They never imagined it would soar so high afterward. "It's an unbelievable development," Haffa admits in a rare reflective moment between deals at Cannes. "What I'm being allowed to experience is magic." And just another step down the road to building Thomas Haffa's own magic kingdom.