WOW Unlimited Media Inc (CVE:WOW) is an animation production studio with YouTube advertising and subscription orientated revenue streams. President and COO Neil Chakravarti joins James West in the Midas Letter studio to share details of WOW’s recently finalized deal with Bell Media (TSE:BCE). WOW’s kids and youth content production and skill at creating digital platforms for that content caught Bell’s attention, whose media is increasingly consumed on mobile devices. WOW’s consistent revenue growth is a value catalyst for stock price drivers. WOW’s deal with Bell is also an immediate value catalyst as Bell is the largest media business in Canada.
James West: Hey, welcome back to Midas Letter Live. My guest this segment is Neil Chakravarti; he’s the COO and President of Wow Unlimited, trading on the TSX Venture under the symbol WOW. Neil, welcome back.
Neil Chakravarti: Thank you, James. Thanks for having me.
James West: Neil, big news: you closed a deal with Bell Media, who is now a 12 percent shareholder in Wow Unlimited.
Neil Chakravarti: Yes.
James West: And that took a long time. Why did it take so long?
Neil Chakravarti: Well, we announced this, I believe, June of 2017. So we had been discussing this with Bell for several months prior to that, and after we announced, obviously we went into discussions over a series of agreements which had to be sort of worked through lawyers, etcetera, involved from both sides. And Bell obviously is a larger organization; luckily for us, they were kind enough to coordinate all the agreements through the various divisions of the organization, and so that took the better part of three or four months. And then it went to the CRTC, where the CRTC effectively has to give you permission to transfer the license from Bell Media to Wow, which finally came through in July. So about a month and a half, two months ago.
And then we were at the fag end of it, sort of wrapping it up, so that we could close this and announce it today.
James West: Well, congratulations on that.
Neil Chakravarti: Thank you.
James West: What is the attraction for Bell Media to Wow?
Neil Chakravarti: That’s an interesting question, best answered by Bell Media, but from what we can understand, we believe that they’re excited by what we’re doing within the kids and the youth business, whether it’s in animation, producing great content, or in the leadership we have in creating digital platforms for these audiences. And, you know, we had a proposition for Bell where we could work together and build some very interesting digital channels and digital content for more of a 2019 audience, so to speak. And that’s how the discussion started. And I would think that’s the primary motivation for them to work with us.
James West: So it’s programming?
Neil Chakravarti: It’s a lot of programming, and an understanding of the digital audience, which is probably going to be an important thing for them as more and more of their content gets consumed on mobile devices, etcetera.
James West: Right. So run us through your business model again, just because it’s fascinating to me, and for some of the audience who might not be familiar with what it is you’re actually doing.
Neil Chakravarti: So our first revenue stream is animation production. This is where we’re either making a show for a large client partner, like Mattel; we do a lot of the Barbie animation shows. Or, we are creating a show and licensing it to a partner like Netflix, in which case I would mention a show like Castlevania, which is a show we produced and licensed to Netflix. So that’s the animation studio, and that revenue model has been around for decades.
The second is an advertising revenue business, where the bulk of our revenues come from YouTube advertising. So we have over 3,000 channels of animated content and animation content on YouTube, which has advertising revenues coming, and then, you know, as you may be aware, YouTube gives you a 55 or 60 percent revenue share, and then we in turn share some of the revenues with the content creators. So that’s the second revenue stream.
And then the newer revenue streams coming out of the company are going to be subscription-oriented revenue streams working with these digital platforms that we’re creating. So one example would be us getting into partnership with Bell for some of their offerings to create content and showcase content for a kids audience. And there could be revenues coming out of that.
We are working on another platform called VRV in the US, where again, we have a channel called Hangover, you know, which will have multiple revenue streams, whether it’s subscription from individual subscribers subscribing to the channel, or production revenues. So it’s a mixed bag.
So I mean, to summarize, there’s three broad streams: one is the traditional animation production, where you have service revenue and license revenue; there is the YouTube business, which has primarily advertising revenue; and there are all these new platform where you’ll have a mix of subscription, advertising, minimum guarantees in some cases, and production.
James West: Fascinating. The growth of the YouTube channel, correct me if I’m wrong, has been your biggest sort of centre. Is that correct?
Neil Chakravarti: The YouTube network has grown very well. When we closed the deal to put Wow together in December of 2016, we had about 450 monthly views, and when we announced second quarter last week, we had over 2.5 billion views.
James West: Wow.
Neil Chakravarti: So in 18, 20 months, we’ve sort of quintupled, if you will.
James West: Yeah, no kidding. That’s interesting. So then the revenue that is derived from advertising on YouTube is sufficient to generate a profit and a margin for you, with those kinds of numbers.
Neil Chakravarti: Yes, I mean, if you’re running a large enough network, the gross dollars are significant, and then obviously you want to make sure you share revenues with the content creators because they’re the heart and soul of the network. And then beyond that is your fixed overhead, and we work with a very lean team which allows us to cover our fixed overheads recently better than some of the other YouTube networks out there.
James West: So would you say that your primary value catalysts in terms of stock price drivers would be the incremental growth of revenue and margin over time?
Neil Chakravarti: Yeah, so revenue growth is a big part of our story, and, you know, we have shown during the last couple of quarters that the studio business is self-sufficient; the YouTube business has now become self-sufficient, and the idea is to take the cash flows coming out of the studio and the YouTube business and investing them into the new initiatives. So you want to look at growth for the new businesses, and for the studio you want to look at both growth and margins coming out.
James West: Fascinating. So then, tell me about some of the brands that you’ve got under the umbrella, because those are also intriguing. It’s not like this is a startup – there are some established brands.
Neil Chakravarti: The two companies we put together, one is the Mainframe Rainmaker studio in Vancouver that is 25 years old. It was a public company, and actually, we built Wow on the Rainmaker structure. So they’ve been doing 3D animation and V-effects back in the day for the last 25 years.
The other company we put together was Frederator, which is a digital animation network on one hand and a very accomplished animation studio on the other hand. Frederator is also 20 years old. So these are definitely not new companies, as you rightly said; they have great track records in producing fantastic properties over the last couple of decades, working with the Nickelodeons, with the cartoon networks of the world.
In the last 18 months that we put Wow together, we’ve had great properties come up from both Rainmaker and Frederator going to platforms like Netflix and Amazon. I talked about Castlevania coming from Frederator – that went to Netflix. Rainmaker Mainframe put out three properties in the summer on Netflix; we had the Barbie Dreamhouse series, which was with Mattel. We had the Spy Kids animators’ series; some of you may have seen the Spy Kids live action movie, this was the animated version. And then we had a show called Reboot, which is a Reboot of the old Reboot that came out in Canada 25 years ago.
James West: Reboot Reboot Reboot.
Neil Chakravarti: A reboot of a reboot, yes.
James West: [laughter] Okay. Well, that’s great. Sounds like things are really coming together for you. Now, this deal done with Bell Media: does that represent some kind of immediate value catalyst?
Neil Chakravarti: Well, I mean, this is something we’ve talked to the market about. Bell obviously is a behemoth within the Canadian landscape, and interestingly, Bell has not just a telephony business; they have a very large internet business, a very large cable and satellite business, and probably the largest media business in the country. So we look at this as a fantastic partnership for us with literally endless possibilities in how we can help Bell by being a partner in delivering great programming to kids and youth in the months and years ahead. So overall, the audience should be able to see new things coming out of this partnership in the upcoming months and years.
James West: Fantastic. Well, good work, Neil. Thanks for joining me today.
Neil Chakravarti: Thank you very much, James. Appreciate it.
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