We will use "THE SUMMONING" as an example.
The Summoning is a film that by all ordinary measures, is functionally a $4-million dollar production. However, clever deal-making by the producer and director (including waivers, facility participations and deferrals) has made it possible to produce the film for a budget which qualifies for the S.A.G. Low-Budget rates (which is important for saving another $100k or so). The production budget for the film has been REDACTED from the graphic above - as have other proprietary details, such as the value of the forecasts or commitments from third party partners.
Structurally, a private lending group is financing the movie. HHSE ends up with all worldwide rights... BUT... the International is being sublicensed to The Little Film Company and the Subscription Video-On-Demand is being licensed to Netflix through FreeStyle Digital Media. Hannover House has agreed to issue a "standby" guarantee to the lenders for the full amount of their funding, e.g., $2-mm. However, the value of the sales and revenue sources EXCEEDS the guarantee, SO - the exercise of a call on the HHSE guarantee would be contingent upon a third party default or shortfall in revenues. Technically, there is risk to HHSE, but the risk has been mitigated with presales, contractual commitments, rebates and revenues.
"This is a lot of work for one movie" one shareholder said recently. "Why deal with all these production and financing steps when Medallion Releasing have 90+ other titles?"
That's a fair question, but one which ignores the marketplace reality that has a specific limitation on the amount of Video and V.O.D. revenues that are obtainable from direct-to-video properties. For Hannover House to step up to the next level as a major independent, we need mainstream theatrical titles that have a wide (500+ print) theatrical launch. It's these sorts of titles that become the locomotives to drive the revenues and pull-through promotions for the catalog and lower-stature properties. While a movie like "AMERICAN JUSTICE" can achieve placement at Walmart and Redbox, the quantity of units as a direct-to-video release are relatively small when compared against the volume of a 600-title theatrical release like "THE SUMMONING." Revenue wise, physical home video sales are more than 7-times greater for nationwide theatrical titles than direct-to-video releases. And in the case of "THE SUMMONING," there's a lucrative home as a Netflix subscription property following its theatrical release.
It's titles like "THE SUMMONING" and "MOTHER GOOSE" that will elevate HHSE into a much larger revenue position - where $50-mm to $100-mm in annual sales becomes both realistic and obtainable. The core direct-to-video business will always be a good bread-and-butter business... but the sizzle - and the steak - is likely to come from well-structured, high-profile titles for Hannover House in 2015, 2016 and beyond.
