If you were to be an investor in SEGI it does not matter what the film investors make, it matters what the distributors take is. Film Producers have a larger risk of losing money on a film, than Distributors do. Distributors are last money in the investment flow of a film and first money out. Aside from the theater chains.
Every distribution deal is in effect a operating business of its own. But you can use base percentages and get a decent estimation of what a company like SEGI could potentially earn from distribution. They also will make money from managing the P&A fund. Here is the article from last year discussing that P&A fund.
http://www.fa-mag.com/component/content/artic...Itemid=211
I will use low end numbers in these estimations because most full service distributors actually make at least 30% but my number is based on a low end service deal of 15%, much like what Freestyle Releasing normally receives. However Sycamore says potential for 45% on their website.
http://www.sycamoreentertainment.com/entertai...rvices.php
Quote:
DISTRIBUTION PROCESS /
Sycamore acquires all North American rights for quality specialty independent movies (indie, art, foreign language and lower budget) and releases these titles into all media formats.
Potential films can be sourced through film festivals, independent producers, and international film commissions.
In exchange for all North American rights, Sycamore can be responsible for P&A funds and 45% of all net profits.
The business model is designed so that Sycamore’s P&A investment will be repaid in full before the participation percentage is paid.
Every deal is different, but P&A (Print & Advertising) funds gets paid back first after the theatrical run 50/50 split with the theater chains. Then distributors make anywhere from 15% to 40% off of their 50% take in gross revenues.
So just as an example. Using the film "Insidious", and just pretending that Sycamore acquired the distribution rights to that film. Again this is just pretending that Sycamore Entertainment released "Insidious" because obviously they did not.
In our example SEGI would have successfully released the film domestically to the tune of $54 Million. They would split that $54 on average with the Theaters and take a cut of $27 Million.
Now the Print and Advertising fund they used has to be paid from the $27 Million. Lets assume a $10 Million P&A fund was used for the film which is probably a bit high. Film prints and delivery cost an average of approximately $1000 for each theater location, and as low as $200 for delivery of digital media and then associated advertising for a few weeks prior. I'm assuming P&A was probably around $5 to $7.5 Million. But $10 Million should be a safe barometer.
http://www.boxofficemojo.com/movies/?id=insidious.htm
We subtract the $10 Million P/A and we'll say a $2.5 Million fee or $25% profit to pay the P&A fund investors that Sycamore Manages for a total of $12.5 Million taken from that $27 Million theater split figure.
We now have a total of $14.5 Million gross from which distributors are allowed to take any incurred expenses as well as their agreed upon distribution fee which can be anywhere from 15% to 40% but we will use 15% on the low end which is essentially the equivalence of a "service deal".
So say there were $2 Million in expenses negotiated in management fees with the films distribution such as distribution management, marketing plans, and marketing consultants that Sycamore could take off the top to pay off those expenses leaving $12.5 Million. Then there is the 15% SEGI could potentially bring in as their distribution fee which could net them $1,875,000 from the remaining $12,500,000 in this instance plus say a P&A managment fee of $500K, thus leaving the producers that made "Insidious" with $10,625,000 to cover their production budget of $1.5 Million and making the producers a $9,125,000 Million profit.
Take into account the monies made by SEGI in Distribution Fees of $2,000,000 and their 15% take of 1,875,000 and their P&A management of $500,000 then there is potential for $4,375,000 in Revenues from 1 successful film.
If just $1,000,000 of this is profit (low end) and they can replicate this business across 5-8 films a year then a significant return could be foreseen. Use 5 films and $5 Million in profit annually from those films spread across an O/S of 177 Million give and EPS of $.028
Use a low end P/E ratio of 10 and you have a $.28 stock. Use a 20 P/E and you have a $.56 stock.
Get a couple of movies that have success comparable to "The King's Speech" and Sycamore becomes the next Lionsgate or Summit on the distribution depth chart and your looking at a moon shot of the share price.
Keep in mind, that I did not mention anything about the monies received from Home and Video distribution. A DVD costs distributors on average about $1 to produce from a 3rd Party supplier. If walmart sells a DVD for $15 the price paid to SEGI would probably be around $7.50. Minus $1 production run costs there is $6.50 left to split between film producers and SEGI the distributor. SEGI would get approximately 40% of that cut as distributor or $2.60 per DVD.
1 Million DVD's sold would net them $2.6 Million based on that calculation.
Even a moderately successful film the makes $5 to $10 Million in a theatrical run, which is probably where our bread and butter lies, will provide significant revenues for SEGI.
Say a $5 Million dollar film using all the above examples but on a lower scale, would probably see a theatrical run of maybe a high of 500 theaters. Say $700K P&A used and there would be $1.8 Million to take their cut from. At 30% they could be looking at a $540,000 cut from the theatrical take and possibly another $200,000 in management fees. Do this 5 times a year targeting decent films and they could have $3,750,000 in revenues and say $1 Million in profits. Each one of those 5 films sells 50,000 DVD's multiplied by $2.60 average DVD profit is $130,000. Times 5 movies that is $650K.
Combine theater and DVD profits that could be $1,650,000 and divided across 177 million O/S shares you get an EPS of $.009. Using the same low end P/E multiple of 10 and you have a 9 cent stock. 20 P/E and you would have an 18 cent stock.
If they continually target quality films like "The Eye of the Storm" that has talks of potential for Academny Awards, then these numbers are not out of the realm of possibility.
Am I saying this will happen. Of course not, but I believe I used some very low numbers to portray the possibilities here.
Just so you know Judy Davis has already been nominated for an Academy Award in Australia for her performance in "The Eye of the Storm" There is talk circling that she and Geoffrey could be nominated for their performances here in the U.S. also.
Make your decision. If by some chance the O/S has not changed and this is traders creating this drop, then SEGI is unbelievably cheap.
