First of all, let's look at the economic benefits of this streaming venture, as compared to the "current" film distribution model for HHSE / Medallion (which has been heavily weighted towards physical DVD sales since our first hit DVD title - "I Gotta Go" - in 2003). When we place a title like BATTLECREEK or LOST IN THE PACIFIC into retail outlets, the company has to advance a significant amount of capital upfront for the manufacturing and freight costs to fill the retail shelf space allotted for a particular title. The larger the initial orders, the more that HHSE's capital is tied-up into inventories. While the wholesale pricing of most $14.95 suggested retail priced DVD titles is around $7, and the manufacturing and fulfillment for these is around $1 per unit, initial shipments of 30,000 units to retailers does tie-up a lot of working capital... and is often not returned into cash flow to the company for four or five months (i.e., allowing for the time to manufacture, ship, stock the shelves, determine net consumer purchase quantities, settle the balance of unsold returns, and finally have the retailer pay the net sales to the supplier).
At any given time, significant amounts of capital are being captured into fulfilling inventory for retailers, spread over four-to-five months of a multi-title release slate. It's expensive to be in the physical DVD and BluRay distribution business... and even more burdensome when a title is widely placed with retailers!
Both of these costs (manufacturing expenses and payment delays) are functionally eliminated with the V.O.D. streaming model. There is no cost for replicating and shipping DVDs and there's no multi-month "wait" for payment (V.O.D. transactions occur directly with consumers via credit card or bank debit, and are paid in DAYS to the streaming service sites, as opposed to MONTHS for traditional retail distribution). So, in this respect, a shift away from physical DVD / BluRay sales in favor of streaming revenues will significantly reduce the amount of operating capital tied-up at any given time for HHSE / Medallion. The company is basically moving AWAY from a cash-intensive model, and into a "fast-cash flow" delivery model. The company's cash flow IMPROVES under such a digital-streaming distribution model.
Some shareholders have asked, WHERE do we see the MyFlix brand falling within the scope of competitive options for the S.V.O.D. space? In order to best answer such a question, let's take a look at the principal Subscription-based entertainment streaming suppliers servicing North America:
NETFLIX is the 900-pound gorilla, with over $1-Billion in monthly subscription revenues. Amazon is a distant second place, with HULU in third, and HBO NOW targeting to close-in on $100-mm in monthly revenues by early 2019.
The comparable suppliers to MYFLIX are most likely viewed as ACORN.TV and FILMSTRUCK. Acorn has a mix of British TV programming, PBS and Urban features with an impressive 710,000 monthly subscriber base after less than 5-years of operations. FilmStruck launched just last October, and already has over 250,000 monthly subscribers generating about $2.8-million in monthly grosses. VRV is a label consolidator (not unlike MyFlix) and they represent a handful of specialty labels, primarily on a non-exclusive basis (MyFlix will have MANY of the same titles that VRV is offering). UFC and SCREAMBOX are specialty subscription channels (wrestling / horror).
Based on the MyFlix revenue-sharing model with our 30+ program supplier labels, the venture should be operating in a cash-flow-positive mode after only 15,000 Monthly Subscribers - which is a revenue level so far below these other principal SVOD sites that it boggles the mind to try to justify any forecasts which do not significantly exceed this threshold.
The variable costs impacting the MyFlix launch and growth is MARKETING and ADVERTISING. How does the company build brand-name visibility and awareness with consumers in a cost-effective manner? Obviously, the company is not looking to rely on word-of-mouth, but is also not planning to buy a multi-million-dollar Superbowl TV commercial. The company's MyFlix marketing plan is extensive, creative and is designed to deliver tens-of-millions of consumer impressions at a very cost-effective level. The launch campaign includes paid internet ads and banners onto high-traffic sites catering to film consumers... other major support activities include extensive "barter" web placement activities, social media outreach, taste-maker and influencer campaigns, traditional publicity support and viral-style videos designed to build the MyFlix brand.
After reaching the cash-flow-positive threshold, MyFlix will work to expand its subscriber and user base through ongoing marketing and advertising - as well as a robust program of NEW TITLES to be added at over 300 per month. In short order, HHSE believes the site has the elements and panache' to become an entertainment brand name and a hugely popular destination portal.
Hannover House has been operating continuously since 1993 - initially in the Book publishing business, then into DVD when the opportunity arose, then later into theatrical, international and into feature film production as conditions in the marketplace suggested that HHSE take steps to EVOLVE in order to THRIVE. Now, with the digital streaming frontier wide-open ahead of us - and 30+ supplier partners (collectively with over 10,000 feature films and 2,000+ hours of television programming) - MyFlix will be among the largest of libraries for consumers to browse and access through this delivery breakthrough of digital streaming media.
MyFlix is the main reason why there is wide-spread enthusiasm among smart and visionary investors who recognize what a huge deal this site has become... and what a massive turning point this represents in the long history of Hannover House.
Watch this space!
