José María Castillejo, IE graduate, is the president of Zinkia Entertainment, a world reference in children’s entertainment, thanks to the extraordinary international success of the happy character Pocoyó, a small boy dressed in blue. Pocoyo, protagonist of a television series, has become a global, multi-platform entertainment brand.
Zinkia was created in 2001 as an audiovisual content producer for TV. Whatare main characteristics today?
Actually, Zinkia wasn’t created as an audiovisual contents producer for TV: Zinkia was created with the idea of being able to create contents that would help change our lives for the better and, in particular, help change our children’s lives for the better; children who were only babies when we created Zinkia.
Your company has become a world reference in children’s entertainment thanks to the extraordinary international success of Pocoyo, a small boy dressed in blue. What are the key factors behind that success, especially bearing in mind the huge number of competitors on the market?
I think that one of the key factors has been staying focused: trying to change our children’s lives, helping them to enjoy themselves and, while they do so, to learn that there are certain values that make human beings different from other living beings and that when we assume those values, they help us to be happy: friendship, loyalty, sincerity, hard work… And all while they are discovering new things about the world. The world that opens itself up to them and that they look at under a light of never-ending curiosity. I have no doubts that keeping our focus on that has helped us to be successful. Then ther e is also the talent of the people w e have worked with, the quality of the designs, contents and technological developments that have been made to represent the world of Pocoyo as we wanted.Speaking of competition, could you tell us what the main resources are for competing successfully in the animation sector in other countries?
The animation world has become an increasingly difficult and competitive market because the barriers for entering the market, as is true of many other sectors, are being removed. Years ago, having a good “computer farm” to render the episodes or films required a level of investment that was out of reach for most players and the technology you needed was unattainable. Now, farms are hired on a use-by-use basis and the software is available at very competitive prices.
So, I go back to the idea of remaining focused. If you want to be independent in the world in which large corporations protect themselves more and more with the tools they can obtain thanks to their size; and, if you want to be successful in a war in which the other side continuously obtains more and better weapons, your ideas have to be very clear. You also have to be very clear about where you want to go and how you want to get there.
I think that idea -high-quality content, and years of work and patience to sow the seed- are the basic resources you need to compete in the animation sector on an international scale. Another matter, which is also very important in our business, is finance, but we can speak about that later.
Is Japan still the invincible giant?
Japan is the second-largest market for our business in the world. The largest is still the United States. As far as we are concerned, Japan is still “pending”, but we are working on it. We appear on one of the country’s TV channels; our brand-recognition is growing slowly among Japanese children, which we can see on Facebook, YouTube and our online Pocoyo’s World. Japan is a very traditional country and Japanese people are very conservative. We are content to be entering the market one step at a time and we are happy. The toy company we work with in most of the world and, more specifically, in the United States is Japanese and I am sure that also will help when the time comes for entering the Japanese market.
Now, our main target is success in the United States. Then we will look at Japan. For the moment, we are just sowing seeds there.
How has the animation sector evolved in recent years?
As I mentioned earlier, it has changed and continues to change in a very radical way. Technology has become available for the general public, which means that many new players are entering the sector and we are starting to see a lot of content created by small, very enthusiastic teams.
Commercial conditions are also changing a lot and it is becoming more and more difficult to reach agreements with large media conglomerates. TV channels are again integrating vertically in certain areas, such as the commercial exploitation of by-products. The old windows in the film world are gradually disappearing, and new platforms are appearing, making it possible for content to be singled out when it is good. We could say that the change is a very important one.
In Spain, what is still holding us back in the creation of digital contents for entertainment? I don’t think anything is holding us back. The creation of digital contents by Spanish teams all over the world is very significant in the area of entertainment. I think Spain is one of the great pioneers in digital contents for entertainment. Remember, for example, if we can focus elsewhere for a moment, although still in the world of entertainment, that there are Spanish businesses among the world’s top 10 games companies. We also occupy a large sector of the world of video and online games, with businesses that are perhaps still small in size and widely dispersed, but which have shown outstanding quality and capacity for innovation.
I think that what holds us back, all the weight that prevents us from flying high enough, is still the capacity for finding finance during the initial stages and, possibly, the fact that Spanish society is not very prone to taking risks. But there are younger generations who are muscling in, I would say, very much so, in the world of digital contents. There, the universities have spotted the niche in time and I think they are exploiting it successfully.
You were the first company to be floated on the Alternative Investment Market (Mercado Alternativo Bursatil – MAB) designed for small and medium-sized enterprises, and you have recently issued three-year bonds with an annual profitability of 9.7%. What problems did you have and what problems does a company like Zinkia come up against in the area of finance?
We had lots of problems and we still have them. It is not at all easy to open doors in Spain.
When we decided to float the company on the MAB, many of those who later congratulated us told us that the idea was madness. And many said that it is a market destined for failure in Spain, don’t realise what the MAB is about: floating small businesses with low levels of liquidity. Investors can take part in what could be a very high return in exchange for access to finance.
Of course, the risk is higher than investing in an IBEX (Iberia Index) company, but the potential for appreciation is also much higher. We have been listed on the MAB for just over a year and that things have not yet happened. But I am sure they will. The facts will show that investors who go into companies in the early stages will achieve very important, increases in value for their investments…
Companies on the MAB are working very hard to continue growth and achieve the targets set. We think we are succeeding. It is true that we have missed some of the short-term sales forecasts we gave to the market, but we have not missed any of the strategic targets we set when we were floated on the MAB. If we can continue our progress along the road we are on, this will help us turn Zinkia into a large enterprise in a short period of time: no more than 24 months. And, sooner or later, the market will recognise that. When that happens, and we are all working very hard to make sure it does, you will see how the world will start to talk about the MAB and want to take shares in MAB businesses.
We have the same situation with bond issues. We are opening up a new door in Spain in an organised way and under the supervision of the corresponding body, i.e. the National Securities Market Commission. (CNMV-Comisión Nacional del Mercado de Valores). We have covered the first stage and achieved just over 20% of our targets. We are soon starting a new stage and have all year to achieve the target of covering the bonds programme that was presented to and approved by the CNMV. It is true that the general situation of the market is difficult, but I am sure that when investors see that the MAB companies take things seriously and fulfil their commitments, many will start to look for MAB shares because their profitability will be higher. It is not easy to find profitability at 9.7%. Not even at times like the present. And we are receiving more support from retail investors than anyone else, i.e. the basic investor base, not large institutional investors. We want private investors to be able to obtain high levels of profitability.
It is true that what I am saying is achieved by assuming more risks: a MAB company is not the same as an IBEX company, but I think the serious approach, hard work and commitment of MAB companies is quite clear. At least in our case, which is what I can vouch for. And the higher the risk, the higher the potential for profitability.
Of the three business areas in which you work -audiovisual animation series for TV and films, interactive games for consoles and online contents, and license-based brand exploitation- which accounts for most of your turnover?
At the present time, audiovisual, but that will change very soon. Our company’s main business will come from the commercial exploitation of the brands we create and which we work with worldwide. Our target is to generate money with our properties in more than 100 countries at the same time. And we think that target is not very far away for us now.
At the present time, Pocoyo accounts for the biggest slice of the sales cake. Do you not think that could be something of a double-edged sword?
I honestly don’t think so. Right now, I think we are at less than 20% of what we can achieve with Pocoyo and Pocoyo is becoming a truly global property. At the present time, people across the world watch almost two million episodes of Pocoyo on YouTube every day!! We think there is much to do on the road ahead and there is still a long way to go. One example that is familiar to everyone is Hello Kitty, which is also the property of an independent company. It is more than 40 years old and is at the height of its exploitation. Pocoyo still hasn’t reached its sixth year on the market.
Even so, we’re working on other brands as alternatives to Pocoyo and we believe that very soon we will be able to announce very important agreements, which will lead to the production of new contents by Zinkia other than Pocoyo.
How has the current crisis affected your plans for expanding and developing new products?
A lot. It is much more difficult to sign the contracts we are signing now than it was before, in terms of both negotiation and profitability. No matter how large companies are, they are heavily restricting the amount of risk they are assuming and you have to remember that what we are bringing to the market are new brands which, therefore, are affected by high risks. We are trying to make inroads, but in times of crisis, it is not at all easy.
After we get things going, they usually do very well. We are renewing all our agreements as and when their times come, many of them are being renewed with better terms and conditions than we had originally. The crisis has stopped and is stopping many creation processes; many companies are encountering difficulties in assuming risks and, therefore, finding finance. So, access to finance becomes particularly important for a company like ours. Indeed, I would say that it is absolutely essential. If we can find finance, we can develop the programmes we have in progress and maintain ownership of the brands we already have and the ones we are developing. If we didn’t have finance, we would have to reconsider the company’s strategy and that is why it is very important for us to have floated the business on the MAB and become a listed company. In Spain credits depend entirely on banks, so gaining access to alternative routes is very important for us. This has meant opening up doors we haven’t been through before, with the problems that can arise. If we want to grow, and start new projects, we need finance and if the crisis has closed the doors of the bank s to any kind of finance, we will be only too happy to lead the expedition in new lands that were unknown to date for the Spanish SME market, which is where we trade.
You are currently focusing on Italy, Mexico, Brazil, China… And even the United States. Isn’t the North American market a very hard nut to crack?
The U.S. market is the largest, hardest and most competitive of all markets. But it is also the one that can give you the highest levels of profitability. Indeed, we are just starting and doing so with a lot of enthusiasm in Mexico, Italy, Brazil, Chile -almost all of Latin America- China, the Philippines and Malaysia… They are all huge markets. But the market we are most interested in is the U.S. I think it is easy to understand why.
We have been trading on the U.S. market for more than four years to get our foot in the door and we think we are finally succeeding. We are present on four different TV platforms: Nickelodeon, which is number one in audience levels there, PBS (Public Broadcasting System), now present on 80% of the most important markets in the country, Univisión, and Discovery Family in Spanish. We are selling toys on a token scale in many of the Toys “R” Us centres in the U.S. and we have agreements with other important retailers that will take us in with them in autumn 2011. On YouTube, we have grown from 80,000 episodes of Pocoyo viewed during the month of January 2010 to almost 300,000 episodes a day at the present time, only in the United States. Growth in recognition is tremendous and the presence of the brand among American children is on the up. We think we are succeeding… But there is still a lot of work to be done. And you have to remember that it is the most difficult, largest and most competitive market in the world. We have to be focused all the time.
Indeed, the person responsible for the Pocoyo brand and I are considering moving to the United States for a time to suppor t and push the implantation of the brand there in the closest and most direct way possible. In other words, we hope to make room for ourselves in that “hard nut to crack” as you have defined the American market.
When will we see Pocoyo on the big screen and what other products are you working on at the present time?
We hope to be able to premiere the film at the end of 2012. We’re working on the script with one of the most highly respected script writers in the animation industry today. One of the main people involved in making Ice Age 2 the success it was. We are very excited about the film and we think it will be a big boost for the br and.
Furthermore, as I mentioned earlier, we’re working on new contents for Pocoyo. Indeed, we are currently premiering on TVE (Televisión Española) what could be seen as a new Pocoyo season, although it is actually completely different from our past seasons. We also are working on the new Pocoyo Game, which was also given a special mention at the Lyon Game Connection and we are developing new mobile contents for Pocoyo and his friends, as well as new contents in Pocoyo’s online world. Besides all that, we have a new series called Mola Noguru, which we hope to have in production over the coming months, ready for its premiere in 2012, and we are working on a new brand, in this case for children who are a little older, between 6 and 12 years-old, called The Fishtail Saga. We have no time for boredom.
We hope the share price will soon start to show what we have mentioned and we are working hard for that to happen, since it means value for our share holders.
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