Entertainment Studios seeks to raise up to USD 1bn

Date: Jan 2016

Television production company Entertainment Studios is seeking to raise USD 500m to USD 1bn to fund Smart.TV, an “over-the-top” (OTT) streaming service looking to compete in the USD 100bn cable-subscription market.

The Los Angeles-based company is also seeking to make acquisitions in the coming year.

Entertainment Studios was founded by comedian and producer Byron Allen in 1993, and produces 39 television programs and operates a number of cable TV networks, including Justice Central, Comedy.TV, Cars.TV and Recipe.TV.

Smart.TV offers viewers the company's HD networks on an OTT platform for USD 4.95 per month. Allen said the service will expand to about 30 networks, as well as the signals of a number of local television stations from across the US. As Smart.TV broadens its offerings, the price will jump to USD 19.95 per month.

OTT competes against traditional cable and satellite television subscriptions, delivered instead through a broadband connection. These older television businesses have seen declines in subscribers as potential customers either discard too expensive subscriptions or flock to online alternatives, a practice known as “cord cutting”.

Allen predicted that cord cutting will “continue to go at a rapid pace, because people are going to say, you know what? I don't need to spend ... almost USD 100 a subscriber, to get my content fix.”

Allen said Entertainment Studios welcomes calls from investment bankers and other professionals interested in helping the company with funding. Looking to the future, he said that although an IPO for the company is ultimately unlikely, “all options are on the table.”

The company will also look to make further acquisitions on the heels of its October agreement to buy Freestyle Releasing, an independent producer of feature films and sourcing potential acquisitions.

Freestyle, which has a distribution deal with OTT service Netflix (NASDAQ: NFLX), plans to release 15 to 20 films per year across all genres, including drama, comedy, faith-based stories and horror.

Terms of the transaction were not disclosed, but Allen said Freestyle has 25 employees, and that its relationships with theaters give it access to about 35,000 screens. According to a report in Variety, the deal was priced in the “high eight figures”.

Under its deal with Netflix, Freestyle is paid a certain amount based on the box-office performance of its films. “That's a game changer,” Allen said, because traditionally only the big studios have had such deals, as Time Warner's (NYSE: TWX) Warner Bros. has with HBO, and Viacom's (NYSE: VIA.B) Paramount Pictures has with Showtime. “The independents never had that kind of safety net, one that assured that if their movie did X [in grosses] at the box office, they got XYZ from another platform to run it after it had been in movie theaters for approximately 90 days,” Allen explained. “So this company is a perfect fit, and represents one of the great opportunities the Internet makes possible.”

As it pursues potential studio acquisitions, Entertainment Studios will seek “best-of-breed” entities, including some similar to Freestyle in size and scope.

Allen would not reveal Entertainment Studios' annual revenue figure.

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