The Wonderfilm Media Corp (CVE:WNDR) Low-Risk Film Financing

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

Wonderfilm Media Corp (TSXV:WNDR) CEO Kirk Shaw speaks to James about being a public company.  Wonderful is an entertainment company focusing mostly on feature films.  The company is backed by four Hollywood Producers who have produced over $1 billion dollars worth of movie revenues. They are able to mitigate risk with their model of financing and ability to attract proven celebrities during casting of their films.  Kirk also opines on the Netflix model and what he sees as becoming the norm for content delivery in the future.

Transcript

James West: I’m joined now by Kirk Shaw, CEO of Wonderfilm Media Corp., trading on the TSX Venture under the symbol WNDR. Kirk, welcome.

Kirk Shaw: Thank you, James.

James West: Kirk, it’s not every day we get a bona fide film production company in here. Tell me about the business model of Wonderfilm and how it’s going to make a great experience for investors.

Kirk Shaw: Okay, well, our business model is making low-budget movies that we pre-sell into the market so there’s no risk. So we make about 15 films a year, anywhere from $1 million to $10 million. Stars as big as Nicholas Cage, John Travolta, you know. Now we’re doing something with Ryan Phillipe. So it varies, and we take the risk off the market because we pre-sell them.

James West: So is that, is this an opportunity that is more or less created by the explosion in online streaming media?

Kirk Shaw: Well, I’ve done 250 movies, so I’ve been in the business a long time, but there’s never been greater demand for content. The demand for content today is huge, because we started with Netflix, now we’re basically trying to compete with Netflix. Now you’ve got Apple, you’ve got Amazon, you’ve got Hulu, just this huge list of internet companies that are getting into the business. Besides you have the traditional networks and video-on-demand companies.

James West: So how do you mitigate against the risk of losing money making a film?

Kirk Shaw: Because we pre-sell them.

James West: Pre-selling is the risk mitigator?

Kirk Shaw: So we were just in the Cannes Film Festival, we sold our own movie for the first time – we’ve started our own sales company – but we’re selling a Nicholas Cage movie that was written and it’s being produced by the guys that did Green Book. It’s their first movie since winning the Oscar for Green Book. And so we’re at the Cannes Film Festival, in every country in the world, selling that movie to them, and so we pre-sold the movie and now we’ll go into production in July. So there’s no risk, so everything has been pre-sold.

James West: Okay, so how do you see revenues ramping for the company in the 12-month, 24-month, 36-month scenario?

Kirk Shaw: Right. I think we’ll finish this year around $20 million, but we’ll have deferred revenue of another 20 million, which goes into next year, because we don’t recognize our revenue till we deliver the movie. So we’ll hit, we’ll be about, we were 10 million a year ago, we’ll do 20 million this year, but we’ll be in the 60 to 70 million next year, and then we’ll be over 100 million the year after that.

James West: Wow, and so what kind of margin are you expecting?

Kirk Shaw: I’m trying to get to a 5 to 8 percent EBITDA.

James West: Okay. And that’s pretty standard in the film industry?

Kirk Shaw: Yeah, yeah.

James West: Is that right? So how does a Canadian filmmaker like yourself get access to all these big Hollywood names? It seems like this should be happening in Los Angeles, but in Toronto? Has Toronto really matured that much as a development marketplace?

Kirk Shaw: No, I spend half my time in Los Angeles. [laughter]

James West: Oh, you do! Okay…

Kirk Shaw: I’m there twice a month at least.

James West: Oh, is that right? Okay.

Kirk Shaw: Yeah. That’s the hardest part of my job, is getting cast attached to films. So there’s a lot of competition for the same casts, but let’s say Nicholas Cage, this is our second movie in a year with him. We’re talking to a third movie with him next November; I’ve probably done six movies with him so far.

James West: Okay, so for Nicholas Cage, you’re a known quantity; he’s not feeling that he’s risking his reputation by participating. Interesting. So what kind of films have you got coming up in the near future?

Kirk Shaw: Well, we’ve got, one of the – we’ve had a new film producer join us by the name of Shaun Redick; he won Oscars for Black KKKlansman and Get Out, those were his last two films. So we’re packaging features now with him for studios, so we’ve got, just got the rights to do a film on Steve McQueen. We just got the rights to do a film on Rocky Marciano, which we’ll be doing with Shaun. We’ve got a case movie with the Green Book writer and producer. We have a movie we’re shooting right now with Ryan Phillipe, we have a movie coming on with Ann Heche and Thomas Jane, which we’re shooting in July. So we have quite a bit coming.

James West: So when you pre-sell a film, I’m assuming that that means you’ve already got cast attached?

Kirk Shaw: Correct.

James West: And that’s what the distributor is buying, is this known script with a known cast; that gives them a level of comfort.  

Kirk Shaw: Previous, we’re a known company.

James West: Right.

Kirk Shaw: Because I’m really in the delivery business, because they’re gambling I can deliver.

James West: Interesting. So the – what percentage of your films make money?

Kirk Shaw: I’d say 90 percent.

James West: 90 percent, that’s a pretty good average.

Kirk Shaw: I’ve done 250 movies.

James West: Yeah, no kidding! Fantastic. Okay, so as a publicly traded entity, there’s not a lot of film companies that are publicly traded, and looking at the performance of your stock since you went public, it’s obvious that there’s not a lot of uptake from the retail investment audience. And in your opinion, what is it that the retail investment audience is missing that gives you the ability to say in confidence that my stock is undervalued?

Kirk Shaw: I think we’re re-branding the company, because we started as a movie production company. We’re re-branding ourselves as an entertainment company. I think that’ll be easier for investors to relate to an entertainment company. We’re doing TV movies, we’re doing features, we have a TV series with Anthony Zuiker, who created CSI, that we’ve got coming together. So we’re becoming more of an entertainment company, and now we’ve joint ventured with a social media company that’s going to help. We’re helping them with their content creation of short content; they’re going to help us with our marketing of our assets.

James West: And in this age of online streaming and all these different sources of streaming video, now, is it incumbent upon you to actually own a social media company to drive audience to your product?

Kirk Shaw: Yeah, I think it’s part of the way the future is going to go, is I’m going to be able to – my view is that the future, let’s say we’re doing a zombie movie. So we shot a zombie movie in December, it’s going to go, it’s going to be released this August, and then that zombie movie, as soon as we announce the movie we will go to the social media company, identify which of their influencers speak to the horror company, so that we can start talking to the horror community as soon as the movie is announced, when we add actors and directors. In this case, we have the actor Ian Ziering, director from Sharknado as well, and we start building that audience as soon as we’ve announced the movie, while we’re shooting the movie, we might run a contest where you can come and be a zombie in the movie…you know, something like that, to involve fans. And then when the movie’s in post, we’ll keep people informed, and then I believe when the movie’s finished, today we deliver to the Sci-Fi channel, who broadcasts it worldwide.

But I think in three years, through our Grapevine Logic company, that it’ll talk to your personal assistant, which might be Alexa, it might be a robot at home. And your personal assistant is going to go, ‘That zombie movie you’ve been following is now ready to download’. It’ll ask you, you know, do you want to watch it? And you’ll go, yeah, I’d like to watch it on Saturday night. So your personal assistant will talk to us directly, not through Netflix, and say we’ll buy that zombie movie for $1.99. We get your $1.99, we give you a 30-day download of the zombie movie. Then your personal assistant is going to come to you and ask, do you want to invite any friends? Do you want some food? So your personal assistant will set everything up for Saturday night. Maybe it’ll get you some edibles as well.

James West: [laughter] Right, I was going to say, there’s a film in there somewhere!

Kirk Shaw: I believe, in three to five years, that’s how content is going to be delivered.

James West: So it sounds to me like you’re predicting the death knell of Netflix.

Kirk Shaw: Yeah, I think now if you, the disruption of Netflix is over. The economic model of Netflix is now going to mature, and they’re losing a lot of money. Netflix right now is $9 billion in debt, and junk bond debt, so that sucks all the revenues to service the junk bond debt, from the subscriptions.

James West: Sure. So in –

Kirk Shaw: And I don’t know if you’ve been to Netflix recently, but you go try to find a movie there.

James West: Well, I’ve – I’m a avid consumer of Netflix content, and I come this close to unsubscribing every month, because the level of what I would consider world-class entertainment is an ever-shrinking percentage of the rest of the stuff they’ve got on there. So certainly one gets the sense that the ability of Netflix to produce and project great content seems to be a losing game for them. So is this the future, then, where people are going to have a relationship directly with the studio?

Kirk Shaw: Correct. I think so.

James West: Okay, well, that’s an interesting future. All right, that’s great, Kirk. Well, that’s a great introduction. We’ll leave it there for now; we’ll have you back when you have another film come out. Thanks for joining me today.

Kirk Shaw: Okay, thank you.

 

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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