As Hollywood shuffles through this year’s award season, the market’s winners and losers in the media sector turns its eyes towards profitability. While mainstream attention tends to focus on the biggest budget films of the year, understated is the profitability of smaller budget films that appear to be a safer investment, coming from production houses such as The Wonderfilm Media Corporation (OTC:WDRFF) (TSX.V:WNDR), Comcast Corporation (NASDAQ:CMCSA), Lions Gate Entertainment Corp. (NYSE:LGF-A), Twenty-First Century Fox, Inc. (NASDAQ:FOX), and Sony Corporation (NYSE:SNE).
No stranger to both critical and financial successes, independent film producer Kirk Shaw, has had his fair share of accolades. But today as CEO of The Wonderfilm Media Corporation (OTC:WDRFF) (TSX.V:WNDR), Shaw’s taking the formula he’s developed over his career, and focusing it on making profitable films—and a lot of them.
Easily the most notable among Shaw’s career spanning over 230 films was the 2009 film The Hurt Locker, which won multiple Oscars at the 2010 Academy Awards—including Best Picture. But the critical success of the film comes secondary to the bottom line success, having been made for $15 million, and returning nearly $50 million at the box office.
Therein lies the success story that many of Hollywood’s biggest production houses want to mimic, through their independent subsidiaries. Given the low-risk nature of these films’ budgets, it’s becoming a higher priority for them to be made.
For production houses such as Shaw’s Wonderfilm Media Corporation (OTC:WDRFF) (TSX.V:WNDR), these types of films are their bread and butter. Having announced the completion of two feature films (at a combined cost of under CAD$10 million), the company has tapped into a formula of big names, and small budgets.
One of the two films, set to release in 2019, is called Moose and stars Academy Award nominee John Travolta. The other is called Disturbing the Peace, starring Guy Pearce, who also starred in Shaw’s Hurt Locker opus, and has quietly accumulated a lifetime gross total over a billion dollars over his career.
The two new films bring the relatively new Wonderfilm Media Corporation’s (OTC:WDRFF) (TSX.V:WNDR) production total since hitting the public market to three films—the first of which is Primal, starring Nicolas Cage, which is now in post-production.
CAPITALIZING ON THE LOW-BUDGET SWEET SPOT
Finding that sweet spot of low-budget production, and box office success, doesn’t necessarily rely on critical accolades.
For example, the 2018 runaway hit biopic Won’t You Be My Neighbor, from Comcast Corporation (NASDAQ:CMCSA) subsidiary Focus Features was snubbed for this year’s Oscars, despite becoming the highest-grossing biodoc of all time. Spun out from a budget that was lower than $10 million, the film more than doubled its investment with a box office of $22.8 million, prior to its current run now on PBS and HBO.
However, biodocs don’t typically make back the returns that safer options do, such as horror, action and even Christian films.
According to Indie Wire, the top grossing Indie film of 2018 was the Christian drama I Can Only Imagine, put out by Lions Gate Entertainment Corp. (NYSE:LGF-A) subsidiary Roadside Attractions. With a modest $7 million budget, the raked in $85.4 million at the box office—for a whopping return of 1,120% on investment.
Home runs like I Can Only Imagine or The Hurt Locker are still quite rare. Quadruple-digit returns aren’t the only definition of success.
Looking at the strategy implemented by Kirk Shaw’s Wonderfilm Media Corporation (OTC:WDRFF) (TSX.V:WNDR), there is a model that works even if the producers are safely looking for base hits. Shaw himself has a track record of hitting 5% EBITDA on total production budgets.
Wonderfilm’s upcoming production budget slate for original content has been announced as USD $90 million. Over the months ahead, the company will incrementally unveil its strategy of not only producing films, but implementing modern techniques to promote them through AI, advertisement, social media, and fan interaction.
Getting the word out about the company’s films is key, as well as pre-selling content once they’ve signed on recognizable talents such as John Travolta, Nicolas Cage, and other big names that the management team has worked with over their careers.
Attaching a notable name to a project gives the producers an edge when looking for buyers ahead of a film’s release. Bringing a successful production track record that has run consistently since the 1980s, Shaw and his team are able to bridge their Hollywood A-List network with buyers from all over the world—including into the lucrative Asian market, through its Wonderfilm Korea subsidiary.
The company’s goal is to have 16-20 films in production each year. Quantitatively, this model reduces risk, while also increases opportunities for an occasional home run, both domestically and abroad.
Unlike other publicly-traded studios whose indie films tend to come from a small handful of subsidiaries, The Wonderfilm Media Corporation (OTC:WDRFF) (TSX.V:WNDR) is targeting this niche directly. Shaw’s company is aiming towards hitting consistent singles and doubles—as swinging for the fences can result in massive failures.
FURTHER INDIE SPECIALTY DIVISIONS
Comcast Corporation (NASDAQ:CMCSA)
Through its subsidiary Focus Features, Comcast had multiple Indie winners in 2018, including the profitable homerun, BlacKkKlansman (Budget $15 million; Box Office $89.7 million), and the highest-grossing biodoc Won’t You Be My Neighbor (Budget <$10 million; Box Office $22.8 million). The studio has four movies slated for 2019, including the sci-fi movie Captive State, starring John Goodman and direcfted by Rupert Wyatt (Rise of the Planet of the Apes), and the big screen adaption of the popular television series Downtown Abbey.
Lions Gate Entertainment Corp. (NYSE:LGF-A)
While the Lionsgate Films studio is considered a big budget heavyweight, its smaller-budget subsidiaries include Summit Entertainment (Twilight series), and a portion of Roadside Attractions. Working together, Lionsgate and Roadside Attractions distributed the very profitable Christian drama film I Can Only Imagine (Budget $7 million; Box Office $85.4 million). Roadside also distributed the romantic drama Forever My Girl (Budget $3.5 million; Box Office $16.4 million). On the Summit Entertainment front, an ill-timed controversial interview with Cold Pursuit star Liam Neeson will likely seriously hamper the film’s box office expectations. Roadside Attractions is banking on another Christian drama success with the upcoming Run the Race film, co-produced by former NFL quarterback, Tim Tebow.
Twenty-First Century Fox, Inc. (NASDAQ:FOX)
Beneath the massive Fox parent company is the independent film subsidiary Fox Searchlight Pictures. The studio made a sizeable profit on the 2018 Wes Anderson animated picture, Isle of Dogs (Budget ~$25 million; Box Office $64 million). In 2019, the studio has on deck The Aftermath, a film set in postwar Germany starring Keira Knightley, and the JRR Tolkien biographical drama, Tolkien. The studio also doubled its money in 2018 on the cult comedy film Super Troopers 2, which cost the studio only $13.5 million, but returned more than $30 million domestically. In 2017, the indie studio hit a homerun with the 2018 Best Picture Award Winning The Shape of Water—which was made for only $20 million, and grossed nearly $200 million.
Sony Corporation (NYSE:SNE)
In 2018, Sony Pictures Releasing distributed the massively profitable independent film Searching (Budget $1 million; Box Office $75.5 million), where actor John Cho plays a father searching for his missing 16-year-old daughter through social media clues. The clever gimmicky plot device was a huge success with young audiences, returning 75x in box office revenue to the film’s miniscule $1 million budget. Domestically, the film grossed $26 million, however, given the film’s Asian leads, the foreign box office drew 65.5% of the total, with an additional $49.4 million. Sony’s indie production companies include Sony Pictures Classics and Sony Screen Gems, which together have a combined eight films slated for release in 2019.
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