BLOG: Five (5) Companies Consortium
Monday, April 17, 2017
The beginning of something truly significant…
“Those who cannot remember the past are condemned to repeat it.”
– George Santayana, The Life of Reason, 1905.
For fifteen of the twenty-three years that Hannover House has been operating, the company has been involved with the acquisition and release of movies and television programs onto DVD and other home media platforms. Since that time, the company has released or represented over three-hundred-fifty (350) titles, ranging from significant sell-thru hits, to specialty home videos for targeted audiences. At last count, the company had sold a total of over 34-million home video units to retailers in North America (primarily DVD, but some on the BluRay format and in the early years of Hannover’s home video distribution, some were sold on the VHS cassette format).
Not every title acquired and released by Hannover House to the domestic home video market these past 15-years has been a financial success for the company. The biggest failure of expenditures-compared-to-revenues was the 2005 release of “Off The Lip” – which, despite a theatrical release expenditure of more than $350,000, did not manage to inspire a single one of the nation’s top mass merchants for home video placement. Fortunately, the loss with “Off The Lip” occurred at the same time when Hannover House had seven (7) of the top ten (10) best-selling indie video titles at Walmart – when we were literally selling-thru to consumers over 100,000 units per week through Walmart nationwide. So that initial theatrical release endeavor was expensive, but not deadly. And a valuable lesson was learnt: opening movies at theatres only helps the retail home video response if the movie actually DESERVED (commercially) to have been released to theatres.
As Hannover released more titles to the home video market, trends began to emerge, even as the market itself was maturing and evolving. By 2008, when Walmart, Target and Best Buy started aggressive merchandising of the (then) new BluRay format, the shelf space was usually reallocated away from independent DVD titles, and migrated for use in displaying BluRay units of major studio releases. That was a big loss for all indie distributors – and making our second-tier titles “available on BluRay” did not pick-up the slack. By 2010, certain genres of home videos for indies studios were drying up or functionally non-starters: “no-name comedies”, “dramas” and “special interest subjects” could no longer be placed at the big-box retailers due to sluggish retail turns. The major studio theatrical releases were holding their home video sales volume, but at the expense of diminishing shelf space and placement frequency for the indie distributors.
It was about that time (late ‘2009 / early ‘2010) that Hannover House was offered the opportunity to “reverse-merge” with Target Development Group, Inc. and become a publicly-traded company. This was not a desired goal for either Eric Parkinson or Fred Shefte. But the TDGI venture came with an attractive investment-banking arrangement with Bedrock Ventures: in consideration of the merger, Bedrock would place $1.5-mm as a direct stock purchase agreement, and would separately fund loans of $500,000 towards acquisitions and $300,000 towards P&A (theatrical releasing costs).
Energized with these funding commitments in hand… and motivated by a positive thumbs-up from several of the industry’s top consultants… Hannover House took the leap-of-faith and decided to try for a mid-level, nationwide theatrical release. In January, 2010, Hannover House surprised the industry by beating out SONY, FOX and LIONSGATE at the Sundance Film Festival for the acquisition of director Joel Schumacher’s teen-angst thriller, “TWELVE.” The cost was high: $1.75-mm plus a theatrical release commitment to open on not less than 200 theatres simultaneously. But the upside seemed greater, and after all, the funding had been secured (or so we thought). While Bedrock did, indeed, fund the $500,000 as a loan for the down-payment for rights to “TWELVE” (and later, funded $300,000 of the $2-million+ spent on theatrical releasing costs), their original agreement to fund $1.5-mm as a direct stock purchase never occurred.
With only a few weeks to go before “TWELVE” hit theatres on August 6, 2010, Hannover House was in full-scramble mode, working diligently to try to secure vendor credit, private loans, and ancillary sales advances to help cover the theatrical costs. We went from being a reliable (but small) indie distributor, to being full time managerial firemen, moving from one emergency flash outbreak to the next. The release of “TWELVE” suffered, the relationship with Bedrock tanked, and the company was put into full scramble mode for months thereafter.
Over the next six years that followed – the history of Hannover House has been a bit of a roller-coaster ride, for both management and shareholders. High moments – such as a multi-million-dollar sponsorship from SEA WORLD in 2011 (for “Turtle: The Incredible Journey”) were met with humiliating lows, such as the principal cast’s refusal to attend the red-carpet premiere of “All’s Faire In Love,” in New York City (also in 2011). In each of the successive five years, Hannover House has overcome significant obstacles, and met with welcomed successes, only to face financial challenges and legal struggles. Finally, when the most notable events in 2016 were the bankruptcy or closure of the company’s top two wholesalers, it became clear to management that it was time to look at a whole new business model: one that meets and leads the dynamic edge of the industry, rather than seeks out the occasional crumbs from the trailing tail.
In order to build a better company, it is essential that HHSE managers and shareholders take a high-altitude look at the trends in the industry to best determine the direction in which the consumer market for entertainment is moving. Skipping over the volumes of industry research, sales trends and analytical studies to reach the consensus bottom-line conclusions, we see Ten Essential Trends:
1) DTV - “Direct-to-Video” programming is rapidly declining in retail value in the North American retail marketplace;
2) RENTAL – Except for Redbox Kiosks, Family Video and a handful of stubborn independent video specialty stores, there is functionally no more retail “rental” home video market in the USA;
3) VOD - “Video-On-Demand” continues to grow, but disproportionately in favor of theatrical titles; VOD is the new “rental experience” for the emerging generation of consumers;
4) SVOD - “Subscription V.O.D.” license fees are dropping precipitously as Netflix now favors major theatrical hits or their own programming over independent or non-theatrical titles;
5) INTL - Key International Markets are booming for specific film genres: Action, Sci-Fi and Horror; but low-budget, no-stars or non-theatrical titles are functionally impossible to sell today;
6) PRODUCTIONS – Due to the availability of significant international pre-sales for selected programming, as well as State and Federal tax and rebate incentives, there is a viable business model that includes the facilitation or physical production of films as a revenue source;
7) DISTRIBUTION PACTS – As the retail market shifts away from independent titles – in favor of Major Studio titles – the value of a major studio partner has grown exponentially… both for domestic release, but more crucially for international territories;
WHAT ARE CONSUMERS, INTL. BUYERS & RETAILERS RESPONDING TO?
a) High-Concept Films – action, science-fiction, horror, family-appeal;
b) Films with one or more “name” stars; Films shot in "original language" English;
c) Films with wide theatrical visibility, momentum and credibility;
9) WHAT ARE CONSUMERS, INTL BUYERS & RETAILERS NOT RESPONDING TO?
a) Low-Budgeted releases, without stars or theatrical visibility;
b) Comedies & Dramas are dead genres, unless driven by credible stars in lead roles;
c) Micro-budget production values that do not compare to mainstream quality expectations;
10) BALANCED RELEASE SLATE – There is an economy of scale for a distributor in the current marketplace to release ONE (1) “major” theatrical title per quarter, plus ONE (1) “mid-level” theatrical title per month, and supplement these with one or two third-party acquired titles that still are essentially “direct-to-video” or V.O.D., but are now supplemental revenues (rather than the company’s primary cash-flow source).
*******************************************************************
WHERE ARE WE NOW - WHERE ARE WE GOING FROM HERE?
Last Month, on March 10 specifically, Hannover House managers signed a letter-of-intent to join with another publicly-traded company, two private companies and a major studio distribution partner, to create a new structure that addresses each of the Ten Essential Trends described above, and which we feel will bring substantial value to our shareholders.
Over these past five weeks, the legal, operational and structural changes that are required to effectively launch such an ambitious merger have been in motion. The two privately held companies will join with the two publicly-traded companies into an overall venture that is fully reporting, fully registered, and sufficiently funded to allow for a realistic pursuit of a NASDAQ listing. This venture involves the placement of approximately sixty-five million dollars (USD $65,000,000) from pre-existing international presales and feature film private investor commitments, and will provide us with both the high-end “major” titles as well as the first two-years of the “mid-level” theatrical titles. Due to availability of State and Federal incentives and rebates on the productions, the company will also be well funded with theatrical releasing resources – as well as earning lucrative production company service fees upfront. A major studio partner will handle most of the domestic home video and V.O.D. activities (excluding VODWIZ.TV) as well as international sales through their existing distribution units in over 100 territories worldwide.
Upon regulatory approval, existing Hannover House shareholders will receive a significant premium-to-market redemption, and overall, the Hannover House shareholders will retain a majority control in the combined entities.
Over the next few days, details of the venture partners will be released through mutual public announcements. As the merger L.O.I. contains performance triggers (including specific funding requirements and regulatory approvals), Hannover House has honored the temporary, proprietary confidences imposed on all parties - as is customary for a venture that involves four separate companies and a major studio distribution partner.
For the principal venture parties involved in this new structure, we all feel that this is a marriage in which the whole is greater than the sum of the parts. The consensus is that this is the “launch moment” for a truly significant entertainment company… and a move that will bring substantial value to all of our shareholders.
We wish to thank the company’s many patient, “long” shareholders, and we are excited that you will be rewarded for your loyalty and support as we have navigated a winning plan in this evolving media sector. The new management team includes some of the industry’s most respected and successful executives, and our future as a successful, independent studio and media distributor is bright. Watch for updates on this BLOG, including advance notification of Form 8 Information Statement Filings.
*****************************************************************************
LAST - BUT NOT LEAST - Watch for the Hannover House - CMC Pictures / Crimson Forest Release of "SHOCKWAVE" to key theatres in the USA and Canada on Friday, April 28 - with a simultaneous release across China. This is a specialty release for the North American market (Mandarin with English-subtitles), to reach this responsive and targeted audience.
Monday, April 17, 2017
The beginning of something truly significant…
“Those who cannot remember the past are condemned to repeat it.”
– George Santayana, The Life of Reason, 1905.
For fifteen of the twenty-three years that Hannover House has been operating, the company has been involved with the acquisition and release of movies and television programs onto DVD and other home media platforms. Since that time, the company has released or represented over three-hundred-fifty (350) titles, ranging from significant sell-thru hits, to specialty home videos for targeted audiences. At last count, the company had sold a total of over 34-million home video units to retailers in North America (primarily DVD, but some on the BluRay format and in the early years of Hannover’s home video distribution, some were sold on the VHS cassette format).
Not every title acquired and released by Hannover House to the domestic home video market these past 15-years has been a financial success for the company. The biggest failure of expenditures-compared-to-revenues was the 2005 release of “Off The Lip” – which, despite a theatrical release expenditure of more than $350,000, did not manage to inspire a single one of the nation’s top mass merchants for home video placement. Fortunately, the loss with “Off The Lip” occurred at the same time when Hannover House had seven (7) of the top ten (10) best-selling indie video titles at Walmart – when we were literally selling-thru to consumers over 100,000 units per week through Walmart nationwide. So that initial theatrical release endeavor was expensive, but not deadly. And a valuable lesson was learnt: opening movies at theatres only helps the retail home video response if the movie actually DESERVED (commercially) to have been released to theatres.
As Hannover released more titles to the home video market, trends began to emerge, even as the market itself was maturing and evolving. By 2008, when Walmart, Target and Best Buy started aggressive merchandising of the (then) new BluRay format, the shelf space was usually reallocated away from independent DVD titles, and migrated for use in displaying BluRay units of major studio releases. That was a big loss for all indie distributors – and making our second-tier titles “available on BluRay” did not pick-up the slack. By 2010, certain genres of home videos for indies studios were drying up or functionally non-starters: “no-name comedies”, “dramas” and “special interest subjects” could no longer be placed at the big-box retailers due to sluggish retail turns. The major studio theatrical releases were holding their home video sales volume, but at the expense of diminishing shelf space and placement frequency for the indie distributors.
It was about that time (late ‘2009 / early ‘2010) that Hannover House was offered the opportunity to “reverse-merge” with Target Development Group, Inc. and become a publicly-traded company. This was not a desired goal for either Eric Parkinson or Fred Shefte. But the TDGI venture came with an attractive investment-banking arrangement with Bedrock Ventures: in consideration of the merger, Bedrock would place $1.5-mm as a direct stock purchase agreement, and would separately fund loans of $500,000 towards acquisitions and $300,000 towards P&A (theatrical releasing costs).
Energized with these funding commitments in hand… and motivated by a positive thumbs-up from several of the industry’s top consultants… Hannover House took the leap-of-faith and decided to try for a mid-level, nationwide theatrical release. In January, 2010, Hannover House surprised the industry by beating out SONY, FOX and LIONSGATE at the Sundance Film Festival for the acquisition of director Joel Schumacher’s teen-angst thriller, “TWELVE.” The cost was high: $1.75-mm plus a theatrical release commitment to open on not less than 200 theatres simultaneously. But the upside seemed greater, and after all, the funding had been secured (or so we thought). While Bedrock did, indeed, fund the $500,000 as a loan for the down-payment for rights to “TWELVE” (and later, funded $300,000 of the $2-million+ spent on theatrical releasing costs), their original agreement to fund $1.5-mm as a direct stock purchase never occurred.
With only a few weeks to go before “TWELVE” hit theatres on August 6, 2010, Hannover House was in full-scramble mode, working diligently to try to secure vendor credit, private loans, and ancillary sales advances to help cover the theatrical costs. We went from being a reliable (but small) indie distributor, to being full time managerial firemen, moving from one emergency flash outbreak to the next. The release of “TWELVE” suffered, the relationship with Bedrock tanked, and the company was put into full scramble mode for months thereafter.
Over the next six years that followed – the history of Hannover House has been a bit of a roller-coaster ride, for both management and shareholders. High moments – such as a multi-million-dollar sponsorship from SEA WORLD in 2011 (for “Turtle: The Incredible Journey”) were met with humiliating lows, such as the principal cast’s refusal to attend the red-carpet premiere of “All’s Faire In Love,” in New York City (also in 2011). In each of the successive five years, Hannover House has overcome significant obstacles, and met with welcomed successes, only to face financial challenges and legal struggles. Finally, when the most notable events in 2016 were the bankruptcy or closure of the company’s top two wholesalers, it became clear to management that it was time to look at a whole new business model: one that meets and leads the dynamic edge of the industry, rather than seeks out the occasional crumbs from the trailing tail.
In order to build a better company, it is essential that HHSE managers and shareholders take a high-altitude look at the trends in the industry to best determine the direction in which the consumer market for entertainment is moving. Skipping over the volumes of industry research, sales trends and analytical studies to reach the consensus bottom-line conclusions, we see Ten Essential Trends:
1) DTV - “Direct-to-Video” programming is rapidly declining in retail value in the North American retail marketplace;
2) RENTAL – Except for Redbox Kiosks, Family Video and a handful of stubborn independent video specialty stores, there is functionally no more retail “rental” home video market in the USA;
3) VOD - “Video-On-Demand” continues to grow, but disproportionately in favor of theatrical titles; VOD is the new “rental experience” for the emerging generation of consumers;
4) SVOD - “Subscription V.O.D.” license fees are dropping precipitously as Netflix now favors major theatrical hits or their own programming over independent or non-theatrical titles;
5) INTL - Key International Markets are booming for specific film genres: Action, Sci-Fi and Horror; but low-budget, no-stars or non-theatrical titles are functionally impossible to sell today;
6) PRODUCTIONS – Due to the availability of significant international pre-sales for selected programming, as well as State and Federal tax and rebate incentives, there is a viable business model that includes the facilitation or physical production of films as a revenue source;
7) DISTRIBUTION PACTS – As the retail market shifts away from independent titles – in favor of Major Studio titles – the value of a major studio partner has grown exponentially… both for domestic release, but more crucially for international territories;
WHAT ARE CONSUMERS, INTL. BUYERS & RETAILERS RESPONDING TO?
a) High-Concept Films – action, science-fiction, horror, family-appeal;
b) Films with one or more “name” stars; Films shot in "original language" English;
c) Films with wide theatrical visibility, momentum and credibility;
9) WHAT ARE CONSUMERS, INTL BUYERS & RETAILERS NOT RESPONDING TO?
a) Low-Budgeted releases, without stars or theatrical visibility;
b) Comedies & Dramas are dead genres, unless driven by credible stars in lead roles;
c) Micro-budget production values that do not compare to mainstream quality expectations;
10) BALANCED RELEASE SLATE – There is an economy of scale for a distributor in the current marketplace to release ONE (1) “major” theatrical title per quarter, plus ONE (1) “mid-level” theatrical title per month, and supplement these with one or two third-party acquired titles that still are essentially “direct-to-video” or V.O.D., but are now supplemental revenues (rather than the company’s primary cash-flow source).
*******************************************************************
WHERE ARE WE NOW - WHERE ARE WE GOING FROM HERE?
Last Month, on March 10 specifically, Hannover House managers signed a letter-of-intent to join with another publicly-traded company, two private companies and a major studio distribution partner, to create a new structure that addresses each of the Ten Essential Trends described above, and which we feel will bring substantial value to our shareholders.
Over these past five weeks, the legal, operational and structural changes that are required to effectively launch such an ambitious merger have been in motion. The two privately held companies will join with the two publicly-traded companies into an overall venture that is fully reporting, fully registered, and sufficiently funded to allow for a realistic pursuit of a NASDAQ listing. This venture involves the placement of approximately sixty-five million dollars (USD $65,000,000) from pre-existing international presales and feature film private investor commitments, and will provide us with both the high-end “major” titles as well as the first two-years of the “mid-level” theatrical titles. Due to availability of State and Federal incentives and rebates on the productions, the company will also be well funded with theatrical releasing resources – as well as earning lucrative production company service fees upfront. A major studio partner will handle most of the domestic home video and V.O.D. activities (excluding VODWIZ.TV) as well as international sales through their existing distribution units in over 100 territories worldwide.
Upon regulatory approval, existing Hannover House shareholders will receive a significant premium-to-market redemption, and overall, the Hannover House shareholders will retain a majority control in the combined entities.
Over the next few days, details of the venture partners will be released through mutual public announcements. As the merger L.O.I. contains performance triggers (including specific funding requirements and regulatory approvals), Hannover House has honored the temporary, proprietary confidences imposed on all parties - as is customary for a venture that involves four separate companies and a major studio distribution partner.
For the principal venture parties involved in this new structure, we all feel that this is a marriage in which the whole is greater than the sum of the parts. The consensus is that this is the “launch moment” for a truly significant entertainment company… and a move that will bring substantial value to all of our shareholders.
We wish to thank the company’s many patient, “long” shareholders, and we are excited that you will be rewarded for your loyalty and support as we have navigated a winning plan in this evolving media sector. The new management team includes some of the industry’s most respected and successful executives, and our future as a successful, independent studio and media distributor is bright. Watch for updates on this BLOG, including advance notification of Form 8 Information Statement Filings.
*****************************************************************************
LAST - BUT NOT LEAST - Watch for the Hannover House - CMC Pictures / Crimson Forest Release of "SHOCKWAVE" to key theatres in the USA and Canada on Friday, April 28 - with a simultaneous release across China. This is a specialty release for the North American market (Mandarin with English-subtitles), to reach this responsive and targeted audience.
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