Interesting that Sony did Starship Troopers. It could make an interesting series for a fairly wide audience. I guess Sony would own the "digital characters" and they would be re-used. The only other info I got was that it was for a full year of episodes (which usually means 25 or so) in which case that's quite a nice bump up the the revenues and cash flow. If we assume it's in the lower end (since it's more episodes) it would mean around C$14 million. A rather quantum leap.
BTW, I would bet the GROSS Margins are very good, it's the below the line stuff (building staff, modeling for movies and more productions, SGA, depreciation, leases) that diminishes net income. You have to invest to make money and grow. If you're developing 20 or so projects, you're going to be spending some time & money on modeling and animating. A good "hit" ration would probably be 3-5 TV projects a year and 1-1.5 movies a year and 2-4 other things (Imax,games etc..). So GROSS margins are probably around 30-35%. That's not thin.
If you read the prospectus it states their strategy: To create internal projects and license in rights to characters and projects (which they did with Storyopolis and probably have done with others, we just don't know) and to develop shows/movies with major partners. On the financing side, they're not big enough to do it themselves and they state ..."The production of programming involves a substantial amount of risk, particularly because costs of programming are payable when incurred, while revenues from programming are received at a later time. Mainframe attempts to manage such risks by securing funding to cover the production costs of its programming prior to beginning production. Mainframe has not, to date, commenced prod. of a program prior to obtaining commitments to cover all of its direct costs."
This is paraphrasing:
Third party financiers are frequently entitled to receive a portion of the profits as compensation for assuming some of the financial risks. Such participation includes rights to share in revenues generated by commercial exploitation which diminishes the realizable value to MFE of its library but also mitigates the financial risk associated with production. In order to increase the value of its library, MFE intends to finance the costs of certain future productions from internal resources.
A small company can't take that kind of financial risk. Have it fully paid for, give yourself a nice built-in gross margin and some good residual value in the profit-sharing, rights etc... The more one has, the stronger the cash flows get over time. I agree, you don't see it with 1 or 2 TV series that are a few years old. But you will with 6 or more that are 4-5 years old. All the expenses were born in year 1, the reselling and reapplication of the property is all gravy. Look at the IMAX use of ReBoot. In the prospectus it says the RideFilm only cost $500,000. In just one ride platform it could generate (30seats * $5.00/ride * 70 cycles/day * 300 days) = $3mil --and that's just one theater. Now they don't all get that, but it will surely pay for itself in short-order. Now, what if you sell the 39 ReBoot episodes 100 times over the next 2 years. There's 100's of new TV broadcasters starting up in the rest of the world. Don't forget, most countries are just now deregulating broadcasting. Go to Europe and flip on the TV, there's only 20 stations if your lucky. So if you sold them 100 tims at US$40,000 --that's $5.6mil Canadian, with virtually no expenses. Now build that up every year and that's how you make mucho dinero.
As for capital equipment, from the prospectus: "Approx. 70% of the equipment used has been acquired since Nov 95....During FY 97, MFE pruchased hardware and software upgrades for equip. purchased prior to Jun 96 thereby maintaining the currency of its production facility at considerably less cost than replacing its older equipment. The comp. embarked on a further expansion program, to be financed through a capital lease."
That will lower the cash flow required to keep current and not make you stuck with outdated equipment. Your paying out of cash flow and specific projects, not spending a huge chunk of money up front.
..all for now --Can't wait to hear what this new Sony TV show is. |
