The Animation Boom — A Brief Look Back at the Early Days of Disney, the Current Cartoon Renaissance and the Future of Thunderbird Entertainment (TBRD)
Voss Capital is a Houston hedge fund founded by Travis Cocke in 2011, running value-oriented, bottom-up strategies focused on underfollowed small- and mid-cap special situations through long/short and long-only funds, increasingly turning activist.
In plain words
This report looks at how Disney's early obsession with quality and tech (like adding sound to cartoons and using expensive color) made it dominant, and reveals a surprising fact: licensing Mickey Mouse on merchandise actually made more money than the cartoons themselves. It argues that animation is booming again, with streaming services like Netflix spending heavily on animated shows. The report highlights Thunderbird Entertainment, a Canadian animation studio trading at half the valuation of peers, suggesting it might be undervalued. Worth a read if you're into content investing or small-cap growth stocks.
Voss Capital’s research report reviews how Walt Disney, in the early days, revolutionized the animation industry through a relentless pursuit of perfection, technological innovation (such as sound synchronization and physical simulation), and the financial support of his brother Roy. It emphasizes t
Theme and Background
This chapter reviews how Walt Disney, through his pursuit of perfection, technological innovation (e.g., sound synchronization, physics simulation, color animation), and financial backing from his brother Roy, revolutionized the animation industry. The report emphasizes that Disney refused to give up equity in order to maintain control, and notes that the animation industry is currently undergoing a renaissance with content spending steadily increasing. Thunderbird Entertainment (TBRD CN) is positioned as a high-quality beneficiary of this trend.
Core Thesis
- Disney's success stemmed from an obsession with quality and technology, not merely commercial strategy. His exacting standards (e.g., requiring animators to study physics, adopting color technology) far exceeded those of his contemporaries, ultimately setting the industry standard.
- Counterintuitive insight: Disney's most profitable business in the early days was not animation itself, but licensing. By 1934, licensing revenue had already surpassed revenue from animated films, becoming a "cash cow".
- Roy Disney was the "unsung hero": He provided the financial support for Walt's perfectionism through borrowing and by not giving up equity, ensuring the company's survival.
Key Arguments and Data
| Technology/Area | Key Event | Data/Impact |
|---|---|---|
| Sound Synchronization | 1928's Steamboat Willie achieved the first successful synchronization of sound and picture | Variety review: "Not the first, but the first to attract positive attention"; laughter "tripped over itself" |
| Physics Simulation | 1929 established the "Disney Art School," collected 2,000+ slow-motion videos | Other studios mocked the idea of "teaching artists art"; Dick Huemer said previously "no one considered the natural fall of clothing" |
| Color Animation | 1932 adopted Technicolor three-strip process | Cost was 3 times that of black-and-white production; first color short Flowers and Trees won the 1932 Oscar for Best Animated Short |
| Licensing Business | 1932 signed with Kay Kamen | By 1934, licensing revenue exceeded animated film revenue; annual royalties in 1936 were $200,000 (approximately $3.8 million today) |
Comparative Data:
| Disney | Other Contemporary Studios |
|---|---|
| Required animators to study physics and gravity effects | Mocked the idea of "teaching artists art" |
| Invested 3x cost in color technology | Considered the technology immature |
| Licensing revenue surpassed animation revenue | Had not yet focused on licensing |
Companies/Assets Referenced
- Walt Disney: Central figure, pursued perfection and technological innovation, but financially dependent on brother Roy.
- Roy Disney: Financial manager, supported Walt's ambitions through borrowing (without giving up equity).
- Kay Kamen: Licensing agent signed in 1932, elevated Disney's licensing business from "a few hundred dollars" to annual revenue of $200,000.
- Thunderbird Entertainment (TBRD CN): The report believes its positioning perfectly aligns with the current trend of rising content spending, though specific data is not elaborated in this chapter.
Investment Implications
- Licensing is a hidden gold mine in the animation industry: Disney's early experience proved that licensing revenue from content IP can far exceed the content itself. Investors should focus on companies with strong IP and mature licensing strategies.
- Technological investment forms a long-term moat: Disney was willing to pay 3x the cost to bet on color technology, ultimately gaining a monopolistic advantage (two years of exclusive use). If current animation companies lead in new technologies such as AI or VR, they may replicate a similar path.
- Equity control is crucial: Disney insisted on not giving up equity, ensuring long-term strategy remained free from external interference. Investors should be wary of companies that dilute control through excessive fundraising.
Theme and Background
This chapter focuses on the current animation industry revival wave and argues that Thunderbird Entertainment (TBRD.V) is a core beneficiary of this trend. The report notes that the animation industry has entered a new boom cycle since 2018, and the COVID-19 pandemic has further accelerated streaming platforms' demand for animated content, as animation production was less impacted by pandemic lockdowns.
Core Thesis
The author believes the animation industry is in a renaissance period similar to the 1920s, with content spending continuing to grow, and Thunderbird Entertainment, leveraging its animation production capabilities and proprietary IP portfolio, will fully benefit from this structural trend. The counterintuitive view is that while the market focuses predominantly on children's animation, the adult animation segment is growing faster (production volume more than doubled in one year), and TBRD's valuation is far below that of peers, indicating significant upside.
Key Arguments and Data
1. Surge in Streaming Animation Spending:
- Loup Ventures estimates Netflix's animation content spending will increase 4.5x to $5 billion by 2022; Amazon Prime's animation spending will approach $2 billion.
- The COVID-19 pandemic halted live-action content production, further pushing streamers to allocate more budgets to animation, with animation studios receiving numerous new project inquiries.
2. Subscription Data Supporting Animation Demand:
- Melissa Cobb, Vice President of Kids and Family Content at Netflix, noted that 60% of Netflix subscribers watch kids and family programming (mostly animation), and the churn rate for family subscribers is only half that of regular users.
3. Explosive Growth in Adult Animation:
- There are currently 100 adult animated series in production across 15 streaming/broadcast platforms (led by Netflix and HBO Max), compared to just 45 a year ago, representing year-over-year growth of over 100%.
4. TBRD Financial and Valuation Data:
- Last twelve months (LTM) revenue of approximately $100 million, with accelerating growth, and the pandemic-driven demand tailwinds have not yet been fully reflected in financial results (there is a lag of over 9 months from production to revenue recognition).
- Production services revenue has doubled in the past 18 months.
- Proprietary IP revenue of approximately $40 million, primarily from live-action content, but proprietary animation IP is expanding (five projects have entered or are about to enter production).
- Current EBITDA margin of 20%, with projected revenue of $113 million and EBITDA of approximately $23 million for the current fiscal year (ending June).
- Enterprise value (EV) of $180 million, implying approximately 8x EBITDA for the current fiscal year and only 4.5x for the estimated 2023 EBITDA.
| Metric | TBRD Current Valuation | Comparable Company Valuation |
|---|
| EV/EBITDA (Current Fiscal Year) | ~8x | WILD CN: 18x (low growth) |
|---|---|---|
| EV/EBITDA (2023 Estimate) | 4.5x | eOne acquisition price: 15x |
| Potential Return | >200% (within two years) | — |
Companies/Assets Involved
- Thunderbird Entertainment (TBRD.V): Core holding, bullish. Owns Atomic Cartoons animation studio, providing production services to all major streaming platforms and developing proprietary IP. Recently established an in-house licensing division led by industry veteran Richard Goldsmith, which can retain typically 30%+ of licensing agency fees, expected to significantly boost profit margins (e.g., eOne's in-house licensing division reportedly achieved >60% EBITDA margin).
- Netflix: Major client, with rapidly growing animation spending; 60% of users watch kids/family content.
- Disney+, Apple TV+, Peacock: Streaming competitors, driving continued demand for animation.
- WILD CN: Comparable company, low growth but valued at 18x EBITDA, highlighting TBRD's significant discount.
- eOne: Acquired animation studio, acquired at 15x EBITDA, with extremely high-margin in-house licensing business.
Investment Implications
- Clear Buy Signal: TBRD is currently valued at only 8x EBITDA, far below peers (18x-15x), with accelerating growth and margin expansion potential (from licensing business). The author believes the stock has over 200% upside within two years.
- Catalysts: Pandemic tailwinds to materialize in the second half of 2021; proprietary IP animation projects to launch; in-house licensing division to begin contributing high-margin revenue; potential Nasdaq listing (forthcoming) could boost valuation.
- Risk Note: Monitor whether growth slowdown assumptions are too conservative, and whether the licensing business can deliver profits as expected. However, the author clearly believes there is significant upside surprise in both areas.