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Photon Kathaas (PKP)

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Thursday 04 November, 2010

Photon Kathaas

Admission to AIM

RNS Number : 5815V
Photon Kathaas Productions Ltd
04 November 2010
 



Photon Kathaas Productions

 

Admission to AIM with market capitalisation of US$10.4m

 

 

Chennai, India.  4 November 2010.  Photon Kathaas Productions (Photon Kathaas or 'the Group'), the South Indian film production company, announces the commencement of dealings in its Ordinary Shares on AIM today under the ticket PKP and the ISIN number of SG9999006886.

 

The Group has raised approximately US$2.4 million, before expenses, via a placing of shares at US$0.49 per share with institutional investors and will have a market capitalisation of approximately US$10.4 million at the placing price.

 

Placing details

·      Placing of 4,894,301 Ordinary Shares at US$0.49 per share raises US$2.4 million gross

·      Photon Kathaas is expected to have a market capitalisation of approximately US$10.4 million on Admission

·      The number of Ordinary shares in issue following admission is 21,295,391

·      Seymour Pierce is acting as Nominated Adviser and Broker

 

Business Summary

 

India is the largest and fastest growing film industry in the world, with strong economic drivers linked to the country's development. The South Indian film industry is a distinct market and in contrast to the better known Bollywood of North India, is fragmented with inefficient processes and under-exploitation of IP rights. In 2009 the South Indian Film Industry, was valued at US$374 million and accounted for 60 per cent of the 1,300 films produced in India. 

 

Photon Kathaas has raised funds to establish the first studio-driven corporate model specifically targeting the fast-growing South Indian film market. The Group intends to capture opportunities in the entire value chain of film production by investing in the creation and exploitation of media content, by producing and co-producing films of varying genre, language and budget.  It will target the South Indian audience of around 240m and a significant international diaspora  spread across the US, Canada, Europe, Middle East and South-East Asia.

 

In addition to the Chief Creative Officer, Gautham Vasudev Menon, who is one of the leading directors and producers in South Indian cinema, Photon Kathaas has appointed A. R. Rahman as its creative adviser. Recently, Gautham worked with A. R. Rahman on his latest bilingual film which was released in February 2010. It has received positive reviews from Indian film critics and achieved gross sales of US$ 8.8 million (as at 30 April 2010).

 

Venkat Somasundaram, Photon Kathaas Chief Executive, comment:

 

 "We are delighted to have securing funding to develop the business rapidly.   We are confident that the combination of our studio driven corporate model with creative talent will enable us to exploit our leading position in the fast growing South Indian film markets."

 

 

Enquiries

 

Photon Kathaas


Venkat Somasundaram, Chief Executive

+65 6224 4991

Reshma Ghatala, Head of Marketing

+91 44 2820 2988



Seymour Pierce Limited

020 7107 8000

Nandita Sahgal/Tom Sheldon - Corporate Finance


Leti McManus/Richard Redmayne - Corporate Broking




College Hill

020 7457 2020

Adrian Duffield/Carl Franklin


 

 

 Introduction

 

Photon Kathaas Productions is a Singapore registered company established to produce and co-produce South Indian films and films primarily targeted at a South Indian audience.

 

The Company will operate as a South Indian motion picture company producing films predominantly in the South Indian languages of Telugu, Tamil, Kannada and Malayalam. The Directors believe that Photon Kathaas will be the first South Indian film company specifically created to produce and co-produce films with a varying genre, language and budget primarily targeted at a South Indian audience to be traded on a major international stock exchange.

 

The Company will benefit from a special creative relationship with its Chief Creative Officer, Gautham Vasudev Menon. Gautham is one of the leading directors and producers in South Indian cinema. He has been involved in nine films to date, not only as a director but also as a screenplay writer, an executive producer and a producer. His earlier films include: Minnale (2000), Rehna He Tera Dile Mein (2001), Kaaka Kaaka (2003), Gharshana (2004), Vettaiyadu Vellaiyadi (2006), Pachaikili Muthucharam (2007) and Vaaranam Aayiram (2008).

 

The Directors believe that these seven films have together been estimated by the South Indian film trade to have achieved total gross sales of US$14.6 million. More recently, Gautham worked with A. R. Rahman on his latest bilingual film, Vinnaithaandi Varuvaaya (in Tamil) / Ye Maaya Chesave (in Telugu), which was released in February 2010.The Directors also believe that both the Tamil and Telugu versions of this movie have received positive reviews from Indian film critics and together have been estimated by the South Indian film trade to have achieved gross theatrical sales of US$8.8 million (as at 30 April 2010).

 

The Group will not only have the first right of refusal on all Film Projects originated by Gautham Vasudev Menon, but will also retain the flexibility to explore and produce Film Projects by other directors who have signed talent agreements with the Group.

 

In 2009 60 per cent of the total films produced in India were in the South Indian languages and about half of the country's cinema screens were located in South India. The Directors believe that, even though the South Indian Film Industry was valued at approximately US$374 million (INR 17.3 billion) in 2009, the South Indian Film Industry remains fragmented with inefficient processes and less than effective exploitation of Intellectual Property Rights.  Between 2009 and 2013, the Indian film industry is expected to grow at a CAGR of 11 .6 per cent to US$4.0 billion (INR 185 billion) by 2013. The Directors believe that growth in the South Indian Film Industry will follow similar patterns over the same period.

 

The Director's believe that, with its Studio-Led Corporate Model, Photon Kathaas is well positioned to become a market leader in the South Indian Film Industry by benefiting from the expected growth in the South Indian Film Industry, by consolidating and attracting industry talent, through the better exploitation of films' Intellectual Property Rights and by creating a brand synonymous with high quality film content. The Company will seek to provide capital appreciation by creating a diverse film library with Intellectual Property Rights available for exploitation in various media formats.

 

The Company intends to generate returns for its Shareholders through the utilisation of the combined experience and industry knowledge of the Directors and its creative adviser, A. R. Rahman, in the direction, production and distribution of South Indian films.

 

Market opportunity and background

 

Global film industry

 

Filmed entertainment spending in North America, EMEA, Asia Pacific and Latin America is expected to grow at a CAGR of 4 per cent from US$84.8 billion in 2009 to US$102 billion in 2013. By comparison, over the same period filmed entertainment spending in India is expected to grow at a CAGR of 11.6 per cent Filmed entertainment spending in Asia Pacific (including India) is expected to grow the fastest at 5.7 per cent compounded annually from US$18.2 billion in 2009 to US$23.3 billion in 2013. Filmed entertainment spending in Latin America is expected to grow by a CAGR of 4.5 per cent from US$2.5 billion in 2009 to US$3 billion in 2013. Filmed entertainment spending in EMEA is estimated to grow by 3.7 per cent compounded annually to US$30.7 billion in 2013 compared with US$25.7 billion in 2009. Filmed entertainment spending in the North American market is expected to grow the slowest with a CAGR of 3.4 per cent from US$38.4 billion in 2009 to US$45.1 billion in 2013.

 

The Directors expect the key drivers for the growth of the global film industry to include the growth of digital cinemas, the increase in the number of cinema screens in Asia Pacific, EMEA, Africa and Latin America, the introduction of new DVD technology, the availability of new institutional film finance facilities in Asia Pacific, EMEA and Africa, the availability and development of on-demand movie streaming services and rising ticket prices in the Asia Pacific, African and Latin American markets.

 

Indian film industry

 

The Indian film industry comprises three distinct markets: (i) Hindi films, also known popularly as Bollywood, (ii) South Indian films and (iii) films in other regional languages.

 

The Indian film industry plays a material role in the Indian media and entertainment industry, accounting for 19.0 per cent of that industry in 2008. The overall size of the Indian film industry stood at around US$2.3 billion (INR 107.0 billion) in 2008. It is estimated to have grown at a CAGR of 15.6 per cent over the four years to 2009 and between 2009 and 2013 is expected to grow at a CAGR of 11 .6 per cent to approximately US$4.0 billion (INR 185 billion).

 

Films are an integral part of the entertainment industry in India and the Directors believe that they form the basis of an entire economic chain dedicated to bringing entertainment to an audience. The Directors believe that Indian films form one of the most important content feeder systems to the other mainstream media and entertainment segments, such as television, radio and music, and there are several television channels whose main content is based on films and film music together with radio stations whose programming substantially features film music.

 

In 2009 India produced the most films in the world (1,300) and had more cinema admissions than any other country (over 3.2 billion).The Indian film industry was transformed when the Indian government granted "industry" status to the movie business in 2001, allowing organised and institutional financing. This promoted the industry's corporatisation, as more films began to be produced by corporates rather than individuals.

 

A number of film companies have subsequently listed on both the Indian and certain other international stock markets. The industry has also attracted funding from private equity institutions. Some of India's leading corporate houses have also entered the sector, including Reliance, Birla and Mahindra. Reputable banks and financial institutions now provide funding to the industry, providing a platform for continued growth of the Indian film industry.

 

The Directors believe that this improved access to film finance has predominantly been focused on Bollywood and has not yet benefited the South Indian Film Industry to the same extent. As a result, the South Indian Film Industry continues to have a lower level of organised funding and lacks the corporate models that have developed in Bollywood.

 

Bollywood

 

Bollywood was historically fragmented, much like the South Indian Film Industry today. In the 1990s, studio driven corporate models started to enter the industry, leading to its corporatisation in the early 2000s. Corporate players entered various segments of the value chain from production to distribution and exhibition of films. The Directors believe that these companies utilised various forms of institutional finance, such as capital markets, private equity and bank funding. Key Bollywood corporations include UTV Motion Pictures Plc, Eros International Plc, Mukta Arts Limited, PVR Limited and Pritish Nandy Communications Ltd.

 

As a result, Bollywood expanded its overseas market and capitalised on new revenue streams, such as mobile phone downloads, home video and pay-per-view television. Domestic box office revenues grew from US$1.0 billion (INR 46.5 billion) in 2004 to US$1.8 billion (INR 81.3 billion) in 2008; overseas box office revenues increased from US$108 million (INR 5 billion) in 2004 to US$229 million (INR 10 billion) in 2008; and ancillary revenues increased from US$1 10 million (INR 5 billion) in 2004 to US$216 million (INR 10 billion) in 2008.

 

Global production houses have started to enter the industry: Walt Disney is a strategic investor in UTV Software Communications Limited which controls UTV Motion Pictures Plc; Walt Disney also recently co-produced and released its first film in India with Yash Raj Films; Fox Star Studios has signed multiple deals with various Indian producers, including Dharma Productions; Warner Bros produced and distributed its first Hindi film last year, Chandni Chowk to China, and is currently producing a 3D Hindi film; and Sony Pictures Entertainment co-produced and released its first Hindi film with Sanjay Leela Bhansali.

 

South Indian Film Industry

 

South India encompasses the four states of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu. In 2001, these states accounted for 21 per cent (240 million) of the total Indian population and 24 per cent (INR 7,405 billion) of India's gross domestic product. The official languages in the region are Telugu, Tamil, Kannada and Malayalam. In 2001, it was estimated that around 135 million people in India (or approximately 13 per cent of its total population) spoke either Telugu or Tamil.

 

South Indian films play a significant role in the Indian film industry, accounting for 60 per cent of the total 1,300 films produced in India in 2009, with South India accounting for around 50 per cent of the total number of cinema screens in the country. The size of the South Indian Film Industry was approximately US$374 million (INR 17.3 billion) in 2009 and, like the Indian film industry as a whole, it is expected to grow in the future.

 

The market size of the South Indian Film Industry by language segment is shown below:

 

The table below compares the South Indian Film Industry with Bollywood in 2009:

 


Bollywood

South Indian Film Industry

Movies per year

242

Combined: c.570 to 660



(Telugu: c.250 to 270, Tamil: c.130 to 150,



Malayalam:" c.70 to 90 and Kannada: c.120 to 150)

Annual revenues

c.US$1 .3 billion

Combined: c.US$400-450 million

Revenue sources

Domestic theatres: 50% to 65%

Domestic theatres: 70% to 85%


Overseas theatres: 15% to 20%

Overseas theatres: 5% to 10%


Others: 15% to 35%

Others: 5% to 25%

Time to completion (average)

15 to 18 months

6 to 18 months

No. of operational theatres

c.5,000

c.5,000

Level of organised funding

Medium

Non existent/low

 

The global Indian Diaspora of around 25 million people represents a large and currently untapped market opportunity for South Indian films. A significant proportion are from South India. The Indian Diaspora is spread over important international markets such as the United States (around 2.32 million people), the UK (around 1.5 million people), Canada (around 0.85 million people), Malaysia (around 1.94 million people), Saudi Arabia (around 1.43 million people), United Arab Emirates (around 1 .3 million people) and South Africa (around 1.2 million people).

 

The international market has not been tapped effectively by the South Indian Film Industry (as evidenced by low box office admissions at overseas theatres for South Indian films (c.5 per cent) compared to Bollywood films (c.20 per cent) - these percentages relate to overseas theatrical revenues for South Indian films as a percentage of the total South Indian Film Industry market.

 

Historically, there has been a niche pan-India market for dubbed or sub-titled South Indian films. This market is now expanding with the advent of cinema multiplexes and paid television channels. Also, Bollywood is increasingly making use of South Indian Film Industry content. Recent examples of this are the biggest box office hits in India in 2008 and 2009 respectively, Ghajini and Wanted, which are both remakes of South Indian films. 

 

The Directors believe there is an opportunity to tap a pan-Indian audience by using sophisticated marketing techniques and improving the quality of dubbing and sub-titling for South Indian films, and additionally by selling the rights to remake South Indian films for a pan-Indian audience.

 

The Directors also believe that there is potential to tap the international market (in the same way as Japanese, and more recently, Chinese films have done) through enhancing film content, marketing at international film festivals (which South Indian films have only recently started to do), offering sub-titled versions and establishing and developing international distribution arrangements.

 

Major growth drivers of the South Indian Film Industry

 

The Directors believe that key drivers for the growth of the South Indian Film Industry, many of which also apply to the wider Indian film industry, include the following:

 

●     Increasing per capita income. 166 million people are expected to move into the consumer and richer classes between 2005 and 2015. The Indian middle class is increasing both in size and purchasing power. India's per capita income has increased by around 10 per cent per annum from 2003 to 2009. In 2009, per capita income in India reached INR 43,749, an increase of 9 per cent over the previous year. This figure is below, or marginally above, the 2009 per capita income for each of the four Southern states: Andhra Pradesh (INR 38,088), Karnataka (INR 40,809), Kerala (INR 48,203) and Tamil Nadu (INR 46,267). The Indian entertainment industry, and in particular the South Indian Film Industry, is expected to benefit from this rapid economic growth.

 

In general, when incomes rise, proportionately more disposable personal income is spent on leisure and entertainment than on items of necessity. In 2009 70 per cent of the Indian population was under 35 years of age and the younger generation in India go to the cinema on average at least three times more a year than the older generation. The Directors believe that the increase in the disposable income of the Indian (and South Indian) public over recent years may generate a significant increase in the demand for film entertainment, mobile phones and mobile phone value-added services, televisions, music systems and other similar goods.

 

●     Increasing access to finance. The corporatisation of the Bollywood film industry and the resulting increasing access to institutional film financing from banks, capital markets, private equity investors and film funds has made films more commercially viable by significantly reducing financing costs by comparison to the previous model of private financing. Whilst this has not yet happened to the same extent in the South Indian Film Industry, as these financing opportunities migrate to the South Indian Film Industry there should be a similar reduction in the costs of film financing.

 

In addition, the Directors believe that international investment and large conglomerates adhering to recognised corporate governance best practices have increased transparency and organisation within the Indian media industry as a whole.

 

●     Expansion of audience. The overseas market for South Indian films is primarily based around the Indian Diaspora of around 25 million people in 2009 spread over important international markets such as the United States, the UK, Canada, Malaysia, Saudi Arabia, United Arab Emirates and South Africa. Revenues from international film rights contributed around 5 per cent of total revenues for the South Indian Film Industry in 2009. The Directors believe that there is an opportunity for substantial growth as a result of improvements in the organisation of the international distribution market and the expansion of the industry's target audience to include non-Indians through the use of sub-titled and dubbed films.

 

In addition, the Directors expect that by using sophisticated marketing techniques and improving the quality of dubbing and sub-titling for South Indian films, the domestic market will grow, as South Indian films will become increasingly appealing to a pan-Indian audience.

 

·    Growth of multiplex screens. The number of multiplexes in India has increased significantly over recent years and is expected to grow from 747 in 2008 to 1,405 screens by 2013. Multiplexes have a number of advantages over single screen theatres, including better occupancy ratios, increased number of shows, improved cost management, dynamic pricing and higher average ticket prices.

 

·    Switch to digital cinema. The wider industry is moving towards digital cinema, which encompasses the production, delivery and projection of films, trailers and advertisements to theatres using digital technology. This has a number of advantages over traditional film projectors, including faster and cheaper distribution, higher quality images, greater protection against piracy (which should improve box office attendance and revenues), digital preservation and optimisation of additional revenue streams.

 

The South Indian Film Industry is embracing digitalisation; in 2009 about 40 per cent of South Indian films were digital. Digital cinemas are expected to increase film penetration in rural India, which in 2009 represented 40 per cent of India's middle class and over 50 per cent of the total disposable income in India. The number of digital theatres in India is expected to increase from approximately 1,800 in 2008 to 7,000 in 2013.

 

·    Increased marketing spend. Indian advertising spend across all sectors has historically been below norms in both the developed and developing worlds. The Directors believe that this provides significant potential for growth as western marketing strategies are developed to create greater interest in the opening of a film and to increase a film's shelf life.

 

Additional revenue channels. In 2008 the Indian film industry derived approximately 75 per cent of its revenues from box office collections. The Directors expect this percentage to reduce as secondary revenues increase through the development of new media, including the sale of ancillary rights to mobile phone companies, television broadcasters and other distributors for mobile ringtones, ring-back tones, wallpapers, clips, trailers, SMS-based interactivity, pay-per-view, video on demand and film merchandise.

 

Between November 2008 and November 2009, India's mobile telephone subscribers increased from approximately 336 million to 506 million. The home video market is also demonstrating substantial growth and is expected to grow at a CAGR of 13.2 per cent from US$213 million (INR 9.84 billion) in 2009 to reach US$347 million (INR 16.06 billion) by 2013.

 

·    Improved television space. In recent years, the number of television channels in India has increased significantly, fuelling demand for film content. Media companies have started to introduce dedicated movie channels. Pay revenues from movie channels have started to contribute an increasing proportion of broadcasters' revenues, which has had a knock-on effect on the Indian film industry's revenues.

 

·    Improved film variety. The output of the Indian film industry has traditionally covered a narrow range of topics with romantic films being the most prominent. The Indian film industry has, however, seen a wider variety of topics covered in recent years, including biographic films, patriotic films, comedies, political films and super-hero films. The Directors believe that the variety of films on offer allows the industry to appeal to a broader audience, thereby increasing box office attendance and revenues.

 

Investment objectives

 

The Group's investment objective is to enhance shareholder value by establishing a Studio-Led Corporate Model that becomes a market leader in the South Indian Film Industry; benefiting from the anticipated growth in the South Indian Film Industry; consolidating and attracting industry talent; the better exploitation of films' Intellectual Property Rights; and by creating a brand synonymous with high quality film content.

 

The Directors believe that a Studio-Led Corporate Model will better create, produce and exploit a diverse portfolio of South Indian films with varying genre, language and budgets primarily targeted at a South Indian audience. The Group intends to implement efficient processes and innovative business models such as profit, revenue or Intellectual Property Rights sharing with key cast and crew and syndication of film rights that ensure cost minimisation and profit maximisation.

 

The Group will typically produce or co-produce Film Projects where the Group retains full ownership of all Intellectual Property Rights relating to each Film Project although ownership or exploitation of these rights may be shared with Co-Producers and key members of cast and crew where necessary. The broad objective of the Group is to create a film library with Intellectual Property Rights in various formats such as cinema, television, home video and mobile technology.

 

The Directors believe the Group is well placed to take advantage of film production opportunities and to capitalise on the growth that the South Indian Film Industry is currently experiencing.

 

Operational strategy

 

The Group's operational strategy will have the following characteristics:

 

●     Studio-Led Corporate Model. The Directors believe a Studio-Led Corporate Model will capture opportunities in the entire value chain of film creation by: (i) sourcing and evaluating Film Projects through a research led investment process, and (ii) managing and structuring the production and exploitation of such Film Projects across various media. The Group will have a portfolio of movies under production at all times and enter into talent agreements with talented directors and lead artists. The Directors intend to create a film library with Intellectual Property Rights in various formats (including cinema, television, home video and mobile technology) which will be commercially exploited by syndication.

 

Further, the Directors intend to implement innovative business models including talent agreements, which will include terms for sharing profit, revenue and Intellectual Property Rights with key members of cast and crew, co-production arrangements (domestic and international) and financing arrangements with service providers.

 

●     Portfolio of film related intellectual property. The Group will produce a diverse portfolio of (primarily) South Indian language films having different genres, language and budgets, and will aim to produce an average of five films per year. Of the South Indian language films, the Group expects its production portfolio to be predominantly in the South Indian languages of Tamil and Telugu although select movies will also be in the other South Indian languages of Kannada and Malayalam.

 

The Group intends to target as broad an audience group as possible by creating commercially viable and quality films that can be exploited through multiple streams including, but not limited to, remakes, spin-offs and serialisation.

 

●     Cost management. The Group expects to utilise the experience and expertise of its production team to implement pre-production, production and post-production processes that will ensure that budgets and time schedules are met. The Group intends to produce movies of different budgets thereby achieving efficiencies of working capital management and production economies of scale. In addition, the Group will put in place a production cost liability cap across all of its films in order to limit its exposure to any one film. This cap may only in special circumstances be waived if the Directors decide that a particular film merits a larger budget because of its revenue generating potential.

 

●     Partnerships. The Group has entered into talent agreements with various persons, including directors, art directors, editors and cinematographers and shall continue to partner with such talented professionals. The talent agreements include terms for sharing profit, revenue and Intellectual Property Rights with key members of cast and crew, to facilitate retention and to encourage a community of interest in the production and promote cost efficiency. The Group will also take advantage of relationships of the Company's Directors and senior personnel with service providers, such as studios, equipment providers and distributors/exhibitors.

 

●     Bilinguals. In order to take advantage of the cultural affinity between the South Indian states, the Group plans to produce a large part of its proposed portfolio as bilinguals - movies made concurrently in both Tamil and Telugu languages. This will enable the Company to tap into two large markets (Tamil and Telugu) at a lower cost than if the movies were made separately in individual languages. To date, Gautham Menon has experience in and a proven track record of producing bilingual movies.

 

·      Revenue diversification and enhancement. The Group will reduce dependency on domestic theatrical box office collections and enhance the size of the revenue base by exploiting other revenue channels such as overseas theatrical box office collections, television rights (domestic and overseas), pay-per-view and video on demand, IPTV, video streaming, mobile download rights and retail merchandising.

 

·      Intellectual property ownership. The Group's focus on movie production will enable it to create and own the Intellectual Property Rights of its movies in perpetuity. The Intellectual Property Rights can then be exploited for annuity revenues through theatrical and DVD release and, subsequently, over time, by multiple repeats across various media channels. As the migration to online and digital viewing accelerates, the Directors believe that effective exploitation of various brands, characters, titles, programs or patents, over a variety of media platforms will become increasingly critical.

 

·      Marketing. The Group will execute a well developed marketing plan across several media platforms, including outdoor advertising, internet, television, print (e.g. newspapers and magazines) and mobile phones, to increase consumer awareness of its products and provide the initial momentum and interest to watch its films. The Group intends to run cost efficient marketing plans by associating itself with certain recognised brands and leveraging its future portfolio of films to negotiate better rates from media outlets. The Group will benefit from the experience of Venkat Somasundaram and Reshma Ghatala, both of whom have a track record of successfully marketing films with EM&C, a specialist film marketing and entertainment company.

 

Script selection

 

The Group will adopt the following processes with a view to producing creative and commercially successful films:

 

·      Evaluation of scripts. The Group will use movie experts, sector focus groups and market research (if required) to evaluate concepts and scripts in order to assess their commercial potential on an ongoing basis.

 

·      Evaluation of key personnel. The Group will evaluate the director, star cast and key technicians against various parameters such as box office track record, compatibility with the genre of the target audience, production values, success in maintaining budgets and time frames.

 

·      Budgeting. The Group will evaluate the proposed budget and timeline of the proposed Film Project and also prepare a detailed revenue forecast for each Film Project.

 

·      Committee approval. The Group will prepare reports covering the key aspects of each proposed film project and complete detailed feasibility studies for submission to the Project Committee for consideration and approval.

 

The Group's Project Committee will analyse and approve all of these factors before moving to the pre production phase

 

Whilst the above script selection processes are commonly found in the more sophisticated Bollywood film industry, the Directors believe that these processes are very rare in the South Indian Film Industry.

 

Operational model

 

The Group intends to execute an operational strategy using the following three operational models:

 

·      The Group originates and produces the Film Project. The creative idea and Film Project will be originated by the Company through the use of in-house talent and with external talent agreements in place. The Company will be the sole producer and own 100 per cent of the Intellectual Property Rights associated with the film.

 

·      The Group originates the Film Project and enters into a co-production agreement with a third party. The creative idea and Film Project will be originated by the Group but factors such as budget size and the diversification of risk may mean that it better suits the Company to co-produce the Film Project with another production company. The Company will seek to retain a majority interest in the Intellectual Property Rights associated with the film.

 

●     The Company enters into a co-production agreement as a third party. The creative idea and Film Project will be originated by a third party. The Company will be a co-producer to the Film Project with an agreed share of the Intellectual Property Rights associated with the film.

 

The Directors see several benefits in having three operational models, including increased access to a wider base of film content and talent, diversifying revenues and establishing strategic relationships with international production houses.

 

As the Group develops Film Projects with third parties, the Directors believe that the collective experience of the Board and its senior management will enable the Group to have a competitive advantage over other potential third parties as it can offer a knowledgeable, active partner with the ability to add value beyond the provision of pure finance.

 

Production and distribution strategy

 

The Group expect the duration of each film production to vary from three months for small independent productions and co-productions (these will typically have a production budget of up to US$1 million), to five months for medium independent productions and co-productions (these will typically have a production budget of between US$1 million and US$3 million), and to eight months for large independent productions and co-productions (these will typically have a production budget of between US$3 million and US$4 million).

 

The Group will build relationships with established distributors (both domestic and international) and content buyers (for music, home video and television for example). The Group will, in most cases, exploit the Intellectual Property Rights associated with a movie through immediate licensing arrangements with distributors so as swiftly to recover costs and achieve any internal profit targets. These licensing arrangements will be limited in geographical scope and duration with the Group retaining any additional or residual rights for further exploitation.

 

In other cases, the Group will retain all of the Intellectual Property Rights and exploit them itself, thus gaining a greater share of the potential upside and enhancing potential profits. The Directors believe that with a pipeline of high quality films, the Group will be able to negotiate preferential terms from distributors and content buyers.

 

The Directors believe that the Group's operational model will enable it to be involved in, and to take control of, the whole process of movie production, including content and distribution. This ranges from script preparation to casting and from line production (including through third parties if appropriate or necessary in the business circumstances) to marketing and distribution internationally (including through third parties if appropriate or necessary in the business circumstances).

The Directors believe that its strategy of combining production and distribution will enable the Company to reduce its exposure to risks that would normally be associated with finance-only or distribution-only business models.

 

Competition

 

Competition within the South Indian film market is currently fragmented, primarily taking the form of individual and small production houses. These smaller production companies have less than effective processes, have high costs of financing with limited available capital, limited production portfolios and a significant dependence upon the domestic theatrical market.

 

There are a small number of quoted companies within the Indian Film Industry, such as Eros International plc and Pyramid Saimira Theatre Limited, but these are primarily focused on Hindi films and distribution as opposed to film production respectively.

 

The Directors believe that, with its Studio-Led Corporate Model, Photon Kathaas is well positioned to become a market leader in the South Indian Film Industry by benefiting from the expected growth in the South Indian Film Industry, by consolidating and attracting industry talent and by the better exploitation of films' Intellectual Property Rights and by creating a brand synonymous with high quality film content.

 

Key strengths

 

The Directors believe that the Group has the following key strengths to support the achievement of the investment objectives and operational strategy described above:

 

Strong track record of the Directors and senior management

 

The Group benefits from the collective experience of its Board and senior management. With their combined skills and extensive network of contacts and relationships, the Directors believe that the Group is well positioned to achieve its investment and operational objectives.

 

The Board comprises respected and influential media specialists, who have considerable experience in the Indian film industry as well as in wider film, television and media markets.

 

The artistic and commercial achievements, recognition and track record of the key members of the Board are outlined below. Biographies for the other Directors and senior management and senior adviser A. R. Rahman are set out in Section 12 below.

 

Gautham Vasudev Menon

Gautham is a Tamil film director based in Chennai, Tamil Nadu, India. He started his film career as a director of film advertisements, shooting various commercials after an apprenticeship under noted film maker, Rajiv Menon. He then worked as an assistant director for Minsaara Kanavu before becoming an independent director.

 

The majority of his movies have won critical acclaim and many have gone on to become the biggest box office hits in South India of the year of their release. Although definitive industry standard revenue figures are not published for the sector, he has made four of the biggest hits of the Tamil film industry according to the estimates of certain individuals involved in the South Indian film trade. He has worked with leading artists in South India including Dr. Kamal Hassan, Suriya, Jyothika, Venkatesh, Asin, A. R. Rahman and Harris Jeyraj.

 

He has been involved in nine films to date, not only as a director but also as a screenplay writer, an executive producer and as a producer. His earlier films include: Minnale (2000), Rehna He Tera Dile Mein (2001), Kaaka Kaaka (2003), Gharshana (2004), Vettaiyadu Vellaiyadi (2006), Pachaikili Muthucharam (2007) and Vaaranam Aayiram (2008).The Directors believe that these seven films have together been estimated by the South Indian film trade to have achieved total gross sales of US$14.6 million. More recently, Gautham worked with A. R. Rahman on his latest bilingual film, Vinnaithaandi Varuvaaya (in Tamil)/Ye Maaya Chesave (in Telugu), which was released in February 2010. It has received positive reviews from Indian film critics and, together have been estimated by the South Indian film trade to have achieved gross sales of US$8.8 million (as at 30 April 2010).

 

Gautham won the Star Vijay TV award for 'Best Director' in 2009. He was also selected by India Today (a leading Indian publication) as one of the top five South Indian film directors. His recent movie, Vaaranam Aayiram (2008), won the Indian National Award for 'Best Tamil Film' in 2008 and six Filmfare awards in 2009.

 

Venkat Somasundaram

Venkat is an experienced entrepreneur, with over 14 years of experience in identifying emerging opportunities and establishing growing organisations.

 

He has international experience in business development and general management, having been the co-founder and CEO of EAP Global - an information risk management consulting company with operations in India, the UK, the USA and the Middle East.

 

In his most recent position as Head of Asset Management at Spark Capital Advisors in India, Venkat was responsible for setting up its private equity practice. Venkat is also the co-founder of EM&C, a film entertainment marketing and communications company. Venkat holds a bachelor of technology from the Indian Institute of Technology, Madras (India) and an MBA from the Indian Institute of Management, Bangalore (India).

 

Focus on content production and ownership

 

By producing a diverse portfolio of movies across different genres, languages and budgets, the Group will develop and own a library of content and release a line-up of movies aimed at various audience types. Owning its own library will also enable the Group to achieve more efficient value realisation of marketing and distribution arrangements and to have greater control over the creation and exploitation of its Intellectual Property Rights in relation to a particular movie. Movie production will enable the Group to own the Intellectual Property Rights of its movies in perpetuity the rights on which can then be exploited across a variety of media platforms and over a period of time, on multiple occasions. This should provide the Group with more constant returns and improved margins on second window sales (i.e. subsequent revenues after the initial release of a film).

 

First mover advantage in a fragmented but large and growing market

 

The South Indian Film Industry is currently fragmented with numerous individual and small production houses. The Directors believe that Photon Kathaas will be the first South Indian film company specifically created to produce and co-produce films with a varying genre, language and budget primarily targeted at a South Indian audience to be traded on a major international stock exchange.

 

The Directors further believe that, being the first company of its type, first mover advantage will give the Group a significant edge over its competitors. In 2009, South Indian film producers commonly started film projects with an anticipated mark up on production costs of around 30 per cent but typically ended up achieving a mark up of less than 10 per cent at the end of the project due to (i) the high cost of capital that producers incur through non-structured, short-term finance; (ii) delays in film production increasing the actual cost of production; and (iii) the lack of working capital headroom, forcing producers to sell (and in many cases pre-sell) the film at discounted rates to maintain liquidity.

 

The Directors anticipate that the Group will be able to increase its mark up on production costs above 30 per cent as its equity financing will give it access to structured finance at a more affordable cost. The Group should be able to complete and sell its films without having to compromise its intended margin through discounting to attract finance or reducing its potential interest in the final film to cover increased working capital costs.

 

The Directors believe that first mover advantage, combined with its Studio-Led Corporate Model, will enable the Group to become a market leader by consolidating and capturing the growth of the fragmented South Indian Film Industry, attracting industry talent and creating a brand synonymous with high quality content.

 

Scope for efficiency gains and intellectual property profit opportunities

 

The Directors expect to achieve efficiencies by benefiting from economies of scale, such as the simultaneous production of bilingual films, entering partnership agreements with distributors and equipment providers, and obtaining competitive terms from service providers. The Directors anticipate that talent agreements, which include terms for sharing profit, revenue and Intellectual Property Rights with key members of cast and crew, will facilitate retention, encourage a community of interest in production and promote cost efficiency. In addition, the Directors believe that gains will be made by associating with leading consumer brands and establishing co-production partnerships and financial relationships with reputable production companies. The Directors also expect that through leveraging the experience of the Board and the senior management team, processes will be streamlined to ensure that budgets and time schedules are met.

 

With almost 75 per cent of revenues deriving from domestic box office collections, there is currently a substantial under-exploitation of Intellectual Property Rights in the South Indian Film Industry. The Directors have implemented processes, a management team and structure with a view to achieving greater exploitation of a movie's Intellectual Property Rights. The Group will own and exploit Intellectual Property Rights across a range of revenue streams including mobile ringtones, ring-back tones, wallpapers, clips, trailers, SMS-based interactivity, pay-per-view, video on demand and film merchandise. The Directors believe that this strategy will reduce risk and increase total revenue.

 

Proprietary access to creative inputs from a successful film director

 

The Company has entered into an agreement with its Executive Director and Chief Creative Officer, Gautham Vasudev Menon. Under the agreement, Gautham Vasudev Menon has committed to direct movies exclusively for Photon Kathaas Private during the term of the agreement. Importantly, the Company is not limited to producing Film Projects originated by Gautham, allowing the Group the flexibility to explore and produce Film Projects by other directors.

 

Directors

 

Michael Rosenberg OBE, aged 71, Non-executive Chairman

Michael started his career at Samuel Montagu & Co. Limited, the London merchant bank, in 1957. He was a member of the main board of directors from 1972 to 1974 with specific responsibilities for corporate finance. In 1973 Michael joined the board of Allied Investments Limited, which later became the UK's largest manager of hospitals overseas.

 

In 1974 Michael became a director and shareholder of David Paradine Limited, the holding company for the business interests of Sir David Frost, the international broadcaster. Michael has been involved in film and TV production over many years. In 1982 he was a founding shareholder and director of TV-am, the first commercial breakfast TV station in the UK.

 

Between 1989 and 1999, Michael was a director, and later chairman, of Raphael Zorn Hemsley plc (now Numis Corporation plc), a London firm of stockbrokers. For several years he was chairman of the DTI's committee (as it was then called) on trade with Hong Kong and a director of the China Britain Business Council.

 

He is the chairman of Pilat Global Media plc, a leading international broadcast media software company and the chairman of Catalyst Media plc, both listed on AIM. He is also a director of Amiad Filtration Services Ltd and Dori Media Group Limited, both listed on AIM. He is chairman of Boomerang Media Ltd, a private company. He was awarded the OBE for services to exports in 1996. Michael is also a published author of children's books and mentor to the Prince's Trust.

 

Venkat Somasundaram, aged 39, Chief Executive Officer

 

Venkat is an experienced entrepreneur, with over 14 years of experience in identifying emerging opportunities, establishing processes and expanding organisations.

 

He has international experience in business development and general management, having been the co-founder and CEO of EAP Global - an information risk management consulting company with operations in India, the UK, the USA and the Middle East.

 

In his most recent position as Head of Asset Management at Spark Capital Advisors in India, Venkat was responsible for setting up its private equity practice. Venkat is also the co-founder of EM&C, a film entertainment marketing and communications firm. Venkat holds a Bachelor of Technology from the Indian Institute of Technology, Madras (India) and an MBA from the Indian Institute of Management, Bangalore (India).

 

Gautham Vasudev Menon, aged 38, Executive Director and Chief Creative Officer

 

Gautham is a Tamil film director based in Chennai, in Tamil Nadu, India. He started his film career as a director of film advertisements, shooting various commercials after an apprenticeship under noted film maker, Rajiv Menon. He then worked as an assistant director for Minsaara Kanavu before becoming an independent director.

 

The majority of his movies have won critical acclaim and many have gone on to become the biggest box office hits in South India of the year of their release. He has made four of the biggest hits of the Tamil film industry. He has worked with leading artists in South India including Dr. Kamal Hassan, Suriya, Jyothika, Venkatesh, Asin, A. R. Rahman and Harris Jeyraj.

 

He has been involved in nine films to date, not only as a director but also as a screenplay writer, an executive producer and a producer. His earlier films include: Minnale (2000), Rehna He Tera Dile Mein (2001), Kaaka Kaaka (2003), Gharshana (2004), Vettaiyadu Vellaiyadi (2006), Pachaikili Muthucharam (2007) and Vaaranam Aayiram (2008).The Directors believe that these seven films have together been estimated by the South Indian film trade to have achieved total gross sales of US$1 4.6m. More recently, Gautham worked with A. R. Rahman on his latest bilingual film, Vinnaithaandi Varuvaaya (in Tamil) / Ye Maaya Chesave (in Telugu), which was released in February 2010. It has received positive reviews from Indian film critics and together have been estimated by the South Indian film trade to have achieved gross sales of US$8.8 million (as at 30 April 2010).

 

Gautham won the Star Vijay TV award for 'Best Director' in 2009. He was also selected by India Today (a leading Indian publication) as one of the top five South Indian film directors. His recent movie, Vaaranam Aayiram (2008), won the Indian National Award for 'Best Tamil Film' in 2008 and six Filmfare awards in 2009.

 

Gautham is one of the few Indian directors to use focus test groups to solicit early feedback (and make changes if required) on his productions.

 

Ramanujam TST, aged 45, Chief Financial Officer

 

Ramanujam has over 21 years experience working in finance across a variety of industry sectors ranging from consulting, IT hardware and solutions, business process outsourcing and software, and the liquor and spirits industry. Since 2008, and prior to joining the Company, he ran a financial advisory company specialising in advising small to mid-sized businesses in establishing financial systems and processes and on both debt and equity structuring.

 

Before 2008, Ramanujam was the Chief Financial Officer for Servion Global Solutions Limited, a software services company in the contact centre management sector, headquartered in Chennai, India and with global operations across the United States, Singapore, Malaysia, Australia, the UK and Dubai. During his time at Servion, Ramanujam was responsible for assisting in raising approximately US$12 million of equity and US$10 million of debt financing.

 

Ramanujam is a chartered accountant and a cost accountant with a bachelor's degree in mathematics.

 

Nathalie Schwarz, aged 40, Non-executive Director

 

Nathalie was formerly the Group Commercial and Corporate Development Director at Channel 4 where she was responsible for new business across all platforms: television, online, mobile, consumer products and rights exploitation. She managed the 4 Rights and Ventures business and had overall responsibility for new revenue streams and commercial development at Channel 4, including business development, joint ventures, partnerships, brand extensions across multiple platforms, interactive revenues, content exploitation and new business models. Nathalie was also Chairman of the Box TV business, the music television portfolio jointly owned by Bauer and Channel including the newly-launched 4 Music channel.

 

Nathalie joined Channel 4 in 2005, originally as Director of Radio, to set up the launch and operation of the new Channel 4 Radio division. Nathalie led the formation of a multi-media consortium which was successful in winning the competitive bid for the second national commercial digital radio multiplex awarded by OFCOM in 2007.

 

Prior to joining Channel 4, Nathalie was Capital Radio's Strategy and Development Director and an Executive Director on the plc Board (1998 - 2005). She played an instrumental role leading Capital's £710 million merger with GWR to form GCap Media.

 

In her time at Capital Radio, Nathalie played a leading role in the rapid expansion of the business through a series of acquisitions. She also had management responsibility for the company's digital media strategy alongside commercial development, regulatory and public affairs and market research.

 

Nathalie started her career at global law firm, Clifford Chance, qualifying as a corporate finance lawyer specialising in mergers and acquisitions. Nathalie studied law at the University of Manchester (Law LLB Hons) and subsequently graduated from the College of Law London.

 

Sasi Kala Devi, aged 58, Non-executive Director

 

Sasi Kala Devi is a practicing Public Accountant domiciled in Singapore. Following her graduation from Chennai University she qualified as a Chartered Accountant in the UK and is a non practicing member of ICAEW. Immediately after qualifying she started her own accountancy firm in Singapore. She advises a broad range of industries in relation to statutory and management audits and implementing financial reporting standards. She also advises foreign companies looking to set up business is Singapore.

 

In addition to her Chartered Accountancy qualification, she is a Fellow Member of the Institute of Certified Public Accountants (Australia) (non-practising), a Fellow Member of The Association of Chartered Certified Accountants (UK) (non-practising) and a Fellow Member of the Institute of Certified Public Accountants (Singapore).

 

Chief Creative Mentor

 

Allah Rakha Rahman

 

A. R. Rahman is the Company's chief creative mentor. He is an Indian film composer, record producer, musician and singer. He is credited for totally overhauling the style in which music is made in India. He has won two Academy Awards, 14 Filmfare Awards, four Indian National Film Awards, a Bafta Award, a Golden Globe and two Grammy Awards.

 

He has sold more than 150 million records of his film scores and soundtracks worldwide and sold over 200 million copies, making him one of the world's top 25 all-time top selling recording artists. Time magazine described A. R. Rahman as the "Mozart of the Madras" and in 2009, placed him in Time's 100 list of the world's most influential people.

 

A. R. Rahman started his career composing jingles for advertisements. He then started his own music recording and mixing studio called Panchathan Record Inn, which developed into India's most advanced recording studio. His first break came when he composed the score and soundtrack for Mani Ratnam's Tamil film, Roja, in 1992, which won the award for Best Music Director at the Indian National Film Awards and was listed in Time Magazine's top 10 best soundtracks of all time in 2005. He went on to compose several hits for Tamil-language films before composing the score and songs for his first Hindi-language film, Rangeela, in 1995.

 

A. R. Rahman has worked with Andrew Lloyd Webber, composing the music for the West End production of Bombay Dreams in 2002. He worked with Shekhar Kapoor, co-scoring Elizabeth: The Golden Age in 2007. Then in 2008, A. R. Rahman scored the Slumdog Millionaire soundtrack, winning two Grammy Awards for Best Soundtrack for Motion Picture and Best Motion Picture Song, a Golden Globe for Best Original Score and two Academy Awards for Best Original Song and Best Original Music Score, becoming the first Indian citizen to do so.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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