Money wasn't the goal, says Fatkat owner

May 15, 2009

A few weeks after news of layoffs, Fatkat Animation Studio's owner has announced the company will declare bankruptcy.

About two weeks ago, Fatkat laid off all but three of its employees as they struggled to find enough contracts to keep people working.

On Wednesday, Fatkat founder Gene Fowler said some of the company's government supporters were willing to hold off as long as necessary, but creditors weren't.

"The talks with the creditors didn't go as we had hoped."

Since 2003 Fatkat received more than $2 million in aid from both the provincial and federal governments, including a $500,000 loan guarantee from Business New Brunswick and another $500,000 loan from the Atlantic Canada Opportunities Agency, of which $479,879 is still owing.

In 2006 the province gave Fatkat $125,00 for new equipment and in 2007 the Post Secondary Education, Training and Labour Department gave them $370,000 to expand staff.

The company also received an unknown amount in New Brunswick film tax credits, with at least $405,842 in 2007. The Finance Department will not release the rest of the figures because of privacy reasons.

Both Fowler and provincial representatives have cited the current economic downturn, which lead to a lack of contracts for the company as reasons for the financial problems.

Fowler said the company would need six to eight years of consistent $5 million to $6 million in revenues to pay off all the outstanding debt.

"It just didn't seem worth it. We were tired. We have been going full steam some of us for 10 years and we are tired so we felt that if we were going to continue to work together as a team, and we do want to, that it would be best to do it with a fresh start."

During a meeting of business leaders in Fredericton Tuesday, Fowler told the crowd the company reached all its goals, but forgot to set a goal to make money.

When asked how a company could overlook the goal of making money, Fowler said it was an important aspect of business if money is what you want.

"Money has never been a goal of mine. It just hasn't."

Fowler said he wanted to do something different for the animation industry to create a place where artists could go to work, live as slow paced life and not worry about paycheques, which is different from what most studios have to offer.

But the company had to make sure they had work for the staff and money to pay them, which they did for five years, he said.

"The fact of the matter is we spent it as quickly or if not quicker than it came in to keep people employed."

Fowler said they knew something was wrong with the business model in 2007 because they were moving too fast. That was when they brought in an external consultant to give management and executive training to try and fix the problems at Fatkat.

But things were moving too fast to fix things while they were still working on contracts and by January 2008 he realized they would have to stop everything to fix the business model they were using, Fowler said.

"I couldn't just halt in the middle of a production to fix the business model."

Despite the problems within the company, Premier Shawn Graham announced a $500,000 loan guarantee for Fatkat when he was in Miramichi in August 2008.

Fowler said the executives all know how to move the business forward to make it profitable and create a good working environment that caters to artists.

"We just can't do it with Fakat. Fatkat, it's taken on too much water."

The company made some mistakes along the way, one of which was retaining staff even when there wasn't work, he said.

"That was a huge no-no, but you don't see that when you're doing, you know $8 million a year and you have 120 people working for you. Things are going so fast you just don't see that it's a really silly mistake."

Fowler said that model would only work if they had a client that went in with a long-term multi-year contract to give them steady work.

"Before we would retain staff, whether we had the agreements or not, and just hope for the best and we did a damn good job of keeping everybody employed, but it was a failed model if there wasn't any work at the exact right time."

Once he emerges from bankruptcy, Fowler said he wants to start a new animation studio and there is not doubt he could maintain one in the Miramichi.

There are a lot of ex-Fatkat animators still living in the Miramichi with more than enough for projects he would bring in to the new studio, he said.

"Whether they're all going to stay, I doubt it. If there's work they're probably going to stay."

Fowler said his team was meeting Wednesday to decide what to do to get the new company going and put the details together for the new business.

"My first goal is to get work in as fast as possible to establish a new studio and put the great, amazing team that I had here at Fatkat to work as fast as possible."

Despite his plans to move fast on a new business, Fowler said he didn't know how long it will take him to get it up and running.

"I have no idea what's going to be happening with Fatkat at the moment. I have some inclination what might be taking place in the next few weeks, but I don't know how occupying it's going to be on my time."

Fowler said the company brought a lot of people back to Miramichi and spent about $7.5 million in payroll in the last three or four years in downtown Miramichi.

"I know people want to know where their tax money went. Guaranteed we used it for exactly what it was meant for and that was to create jobs and we did that. We did a very good job of that."

But the new studio probably won't see staff levels as high as Fatkat had at its peak of 120 in 2007, he said.

"If I'm running the shop, which I probably will be with my executive team, we all agreed that that kind of staff, it's just too hard to recruit and it's too hard to maintain so what we'll probably do, and I mean maximum size that we'll get, is probably 50 and that's just peachy by us."

Fowler said there are different ways to fund a company and he doesn't expect to borrow money when he starts the new studio.

"I doubt that I'll be starting it with any credit because I'll be going personally bankrupt as well, but I can start it with a project. All I need is one project to start a company and I can't see that being a problem at all. It's just a matter of time."

The government money Fatkat received helped and brought cash in quickly to help them grow faster, but they won't look for government money for a new studio, he said.

"I don't think we need to. There's smarter ways to fund a company."

As for the animators that are still in the Miramichi, Fowler said they will only stay here for so long, although he talked to some who said they are willing to wait.

"I've got to do my part to look for work. I'm sure they're looking for work too."

Acting Business New Brunswick Minister Jack Keir said he doesn't know if all or part of the loan guarantee will be called in and the department will follow the process as it goes forward.

"We'll let the process unfold through bankruptcy and play it out from there. I guess what I'd want to just emphasize is it's a good company. It was very innovative. It's the type of company that we'd certainly like to do business with in New Brunswick and the economy caught up with them."

Although he said he didn't want to speculate on whether or not the province would give a new company under Fowler any money, they will talk to anybody who has a good business plan or makes a good business case.

"We'd always talk to them about what those opportunities will be and frankly if it's good for New Brunswick and if it's a good business case and it's good for New Brunswick then Business New Brunswick will always be willing to look at it."

Miramichi Centre MLA John Foran said he was disappointed to hear Fatkat was filing for bankruptcy and was surprised to hear it happened so quickly since he first heard about their layoffs.

"It's no surprises there are companies that are failing, although Fatkat, the last information I had on them was that they were restructuring and downsizing and because of that I actually had no reason to believe they would go to the step of declaring bankruptcy."

Miramichi-Bay du Vin MLA Bill Fraser said he was also disappointed to hear about the bankruptcy and it was bad for the city to see a company close.

"It's bad for the community and the people that worked there and the businesses that also did business with them and the people that worked there. You know, it's just bad all around."