Filmmakers Poised for Big Gains in Hollywood's 'Streaming Wars'

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Dec 18, 2019, 08:30 ET

NEW YORK, Dec. 18, 2019 /PRNewswire/ -- While big streaming companies battle it out for supremacy, the real winners of an epic battled dubbed the "streaming wars" may have already emerged: the production companies that stand to profit in a big way from the exploding demand for SVoD content.

As digital streaming steadily eclipses all other forms of in-home entertainment delivery, an entertainment war has erupted among leading subscription video on demand (SVoD) providers. These streaming wars have opened the gate for newer production companies to step up and cash in by funneling fresh content to hungry SVoDs. The battle has already resulted in some big winners, including film-production companies, such as Wonderfilm Media Corporation (TSX-V:WNDR) (OTCQB:WDRFF) (WDRFF profile), that are lining up to satisfy the voracious content appetite of these SVoD giants. As on-demand media streaming continues to rival — and in some cases supplant — every other form of entertainment delivery, major streaming service providers such as Apple Inc. (NASDAQ:AAPL), Netflix Inc. (NASDAQ:NFLX), The Walt Disney Company (NYSE:DIS) and Amazon.com Inc. (NASDAQ:AMZN) are also duking it out for dominance.

Leading streaming service providers are spending billions on content annually.
With approximately 100 films already streaming on the Netflix platform, Wonderfilm is well-positioned to profit upon the cash-strewn battlefield of the streaming wars.
WNDR differentiates itself by eliminating the downside risk of filmmaking through setting up each film as a single-purpose entity packaged for upfront sale.

To view an infographic of this editorial, click here.

Another Entertainment Revolution

The widespread advent of the VCR in the 1970s gave birth to a revolutionary concept: Consumers could take control over their entertainment and watch what they wanted, when they wanted, within the comfort of their own homes. It wasn't long before millions of households in the United States possessed these high-tech devices.

Fast forward more than 40 years, and VCRs have now become the antiquated stuff of garage sales and thrift shops. But that concept of controlling one's own entertainment is alive and thriving — and fueling this major entertainment conflict the media has dubbed the streaming wars. The dominance of content streaming and the race to capture — and keep — VOD consumers unquestionably marks the entertainment revolution of this generation.

Younger Ponies Are Joining the Race

To pull ahead of the herd, the biggest SVoD providers are laying out big bucks to forge exclusive content deals, by both commissioning new content and securing existing content. These providers are also striving to bring leading producers and filmmakers into their paddocks. The demand for content in this streaming race is far exceeding the supply, which has given newer players such as Wonderfilm Media Corporation (TSXV:WNDR) (OTCQB:WDRFF) a prime opportunity to step in and claim their share of the field.

Wonderfilm is a leading publicly traded entertainment company backed by four Hollywood producers who have, collectively, generated more than $1 billion in revenues from hit films. Wonderfilm's primary business is the production of high-quality feature films and episodic television, and the company provides a continuous annual production slate of approximately $58 million in projects to ensure continuing deployment of capital and specialized industry expertise throughout the packaging, production and collection phases.

With approximately 100 of the 250 films it owns already streaming on the Netflix platform, Wonderfilm is well-positioned to profit upon the cash-strewn battlefield of the streaming wars. In 2019, Wonderfilm also entered into an agreement with one of the largest streaming platforms in the world to add its entire catalogue to the platform during the latter half of 2019.

In addition to offering up its existing film library for streaming on major platforms, Wonderfilm is also primed to produce original content commissioned by SVoDs.

Outside-the-Box Business Model

Wonderfilm was formed to bring together top filmmakers to produce major motion pictures using a unique risk-averse business model. The company differentiates itself by eliminating the downside risk of filmmaking through setting up each film as a single-purpose entity packaged for upfront sale before any money is spent. Productions are structured to minimize risk by matching budget to available funds. Films are sold based on script, writer and cast for each separate production, and once a film is sold, the company uses the proceeds as one of its tools to finance production. Additionally, Wonderfilm capitalizes on tax credits provided by the chosen state in which a film is shot, and these credits are used as an asset to bank against for an upfront loan to complete the financing.

This unique production structure enables Wonderfilm to start generating a return virtually the moment the camera begins rolling. Producer-fee line items ranging from $50,000 to $500,000, depending on total budget, are incorporated into each production budget and are typically paid to Wonderfilm on day one of principle photography.

Through Wonderfilm Global, a film, television and media foreign sales/distribution joint venture launched at the 2019 Cannes Film Festival, and in which Wonderfilm has 51% ownership, Wonderfilm is able to keep distribution margins in-house that formerly went to other companies.

Within each production budget, Wonderfilm Global charges fees for sales and distribution to cover presale costs. Unsold presale territories (countries or territories left off of a film's presale list either strategically or because the broadcaster/distributor is waiting for film completion) become major outside-of-the-budget distribution sales opportunities for Wonderfilm.

The company largely produces relatively low-risk, easy-to-sell films that feature desirable cast and genre. Once upon a time, third-party distribution companies were earning roughly 10%, plus expenses, on the company's films with zero level of risk. Now, however, Wonderfilm is generating revenue through presales of its own projects and, at times, third-party films.

The average Wonderﬁlm picture is pre-sold for $5 million, resulting in a commission that is between $500,000 and $750,000 per sale. Now, rather than going to a third party, these commissions remain in-house with Wonderﬁlm Global. The company anticipates it will sell between 10 and 12 third-party films by fall 2020, which will generate approximately $6 million in commissions for the company.

In addition, the company's film library continues to grow with each new production, which adds to future sales revenue. Exploitation rights for future worldwide sales return to Wonderfilm four or seven years after delivery, depending on the agreement. As of October 2019, the growing library of Wonderfilm-produced movies comprised 18 titles for future exploitation.

Exciting Projects – Both in the Can and on the Horizon

Wonderfilm has several potential breakout films currently on its development/production roster.

The company takes pride in working with some of Hollywood's best talents to create unforgettable films while providing exponential future value for shareholders. Wonderfilm's slate of 2019 films boasts some of Hollywood's biggest names in the starring roles, including Nicolas Cage and John Travolta. Cage has starred in two Wonderfilm productions since 2018 and is slated to begin filming a third Wonderfilm picture in 2020.

While Wonderfilm focuses on high-ROI low-budget films — the sort that are ideally suited for direct-to-streaming release — the company also produces a handful of large-budget films each year that are designed to generate home-run potential.

Seventeen new Wonderfilm features are currently greenlit for shooting, representing $58 million in production budgets. Most notable among these are the horror film "Amityville 1974," which is slated for theatrical release in October 2020, and the action film "Inside Game," starring Tyrese Gibson, which will hit theaters in fall 2020.

Wonderfilm is also actively developing various other new IP projects, among which is a dramatic biopic about the life of Steve McQueen, a screen adaptation of bestselling novel "Merchant of Death," and a TV series helmed by "CSI: Crime Scene Investigation" creator Anthony Zuiker.

Big Opportunities

In the current fight among SVoD providers to offer the most plentiful and alluring content to hook consumers, up-and-coming production companies such as Wonderfilm are in a prime position to strike lucrative deals, both with providers looking to acquire existing content and those seeking to solicit new, proprietary shows.

Newly launched by Apple Inc. (NASDAQ:AAPL) on Nov. 1, 2019, Apple TV+ has already made history as the first streaming platform to earn Golden Globe nominations during its launch year, bringing in nods for its original drama "The Morning Show." Apple has touted its service as the first all-original video subscription service, thus setting a high bar for itself right out of the gate to continue delivering content that is both all original and award caliber. This is, no doubt, a strong motivating force behind Apple's efforts to lure hot-commodity filmmaking talents away from established TV networks and movie studios.

Veteran streaming platform Netflix Inc. (NASDAQ:NFLX) has spent a reported $12 billion this year on programming alone to satiate the content appetites of its 166 million global subscribers. Netflix is also one of the production pirates that has been seducing writer-producers from studios and networks with jaw-dropping compensation packages.

Amazon.com Inc. (NASDAQ:AMZN) has done the same, luring creative minds from established networks and studios with big payoffs. The company spent $1.7 billion on streaming content (both video and music) in Q1 of 2019 alone. Across the film industry, big money is being tossed out in an effort to acquire talents, scripts and ideas, and it's happening at a level Hollywood has never seen before.

The Walt Disney Company (NYSE:DIS) is another big-hitter that is spending big bucks for streaming content to fill out the offerings on its new Disney Plus platform, which was also just launched in November. Disney has announced plans to spend over $1 billion for original content during fiscal year 2020 and projects it will reach upwards of $2.5 billion in expenditures for Disney Plus programming by 2024.

Hollywood's streaming wars could last for years as these and other big players with deep pockets wheel and deal, watch and wait. But regardless how long the battle lasts, production companies can claim victories right now as they step in to serve up the plentiful entertainment offerings these SVoD providers — and their patrons — are clamoring for.

For more information on Wonderfilm Media Corporation, visit Wonderfilm Media Corporation (TSX.V:WNDR) (OTCQB:WDRFF).

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