tag:blogger.com,1999:blog-4815867514277794362.post1011439521130879363..comments2024-03-08T06:18:28.125+11:00Comments on Bronte Capital: Focus Media - focus on movie screensJohn Hemptonhttp://www.blogger.com/profile/03766274392122783128noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-4815867514277794362.post-8787221289182287502012-08-31T20:40:53.237+10:002012-08-31T20:40:53.237+10:00John, isn't there a third outcome here? Go ahe...John, isn't there a third outcome here? Go ahead as stated, walk away, or renegotiate - privatize but a lower price. We have established its a real business but that there are some questionable things going on, and these should be identified in DD. No one wants the PE funds to walk away and have the share price go to $2 (except the shorts), so the PE funds will use what they find to negotiate a lower price - everyone happy (sort of) (except the shorts).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-11899870599286266622012-08-31T20:33:44.212+10:002012-08-31T20:33:44.212+10:00A quick google suggests, rather surprisingly, that...A quick google suggests, rather surprisingly, that cinema ticket prices in China are actually higher than in the US. $6 to $12 equivalent or higher in China Vs $7 to $8 in the US.<br /><br />And since there are far fewer screens per capita in China its reasonable to assume the audience is a much more select group in terms of disposable income and therefor relatively much more attractive to advertisers. So more per screen in China could pass the smell test. That said these guys are probably a bit scummy, the question is just how scummy?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-36340899586020047022012-08-31T05:16:29.018+10:002012-08-31T05:16:29.018+10:00John - Does it pass the smell test that each scree...John - Does it pass the smell test that each screen in China earns MORE than each screen in the US? My impression of Chinese ad rates in general is that they are materially lower than CPMs in the US. It would strike me as odd that this one medium had higher rates than in the US, given the disparity in per capita income. I suppose the limited supply in China makes it POSSIBLE, but how LIKELY is it, really?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-10852337694977230522012-08-30T18:14:08.489+10:002012-08-30T18:14:08.489+10:00One possible way to think is that the privatizatio...One possible way to think is that the privatization is the covering up costs for the looting scheme the 2nd generation guanxi guys in Carlyle and its likes were playing since FMCN's IPO. <br /><br />Given that the stock went above $60 at some point, if these insiders sold their undisclosed positions at the peak, even if the "rebates" were not really attractive, the gains from buying and selling of stocks can theoretically cover all the costs paid in privatization. If this were true, the DD process is just a drama to be played by insiders.<br /><br />Just a possibility.L'https://www.blogger.com/profile/03939024101048773843noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-88367980068359110532012-08-30T05:37:35.558+10:002012-08-30T05:37:35.558+10:00John, New to this blog but so far a great read. ...John, New to this blog but so far a great read. I have not read all your posts but regarding FMCN, you should go back and look at the investigation in 2006/2007 into a related party transaction between Focus and Everease. I recall sitting in a conf room at the Four Seasons (NYC) when Jason Jiang trumpeted the investigation was concluded sending the shares higher. It was not until the 20-f was filed did this little nugget get revealed. Everease refused to provide documents and information to the audit committee as it was run by JJ's family. As such, they "closed the inquiry".<br /><br /> As a result of the Audit Committee investigation of allegations raised by attorneys representing an anonymous investor, we failed to timely file our 2006 annual report on Form 20-F. The unnamed investor, described as currently holding a short position in our ADSs, alleged that: (a) Everease, a company previously run by Focus Media’s founder and CEO, Jason Jiang, is a related party as a result of ongoing ties between Everease and Mr. Jiang and members of Mr. Jiang’s family; and (b) Focus Media was making undisclosed rebate payments to a third-party advertising agency through Everease in order to inflate Focus Media’s reported financial performance.<br /> The Audit Committee commenced its investigation of the allegations on June 28, 2007. It hired independent U.S. legal counsel and independent forensic accountants, who reviewed documents and interviewed witnesses. <b>Everease and the third-party advertising agency declined investigators’ request to provide access to specified witnesses and documents.</b>Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-30654392553804136592012-08-30T01:19:42.134+10:002012-08-30T01:19:42.134+10:00John,
Take a look at the 4th quarter of 2011 for ...John,<br /><br />Take a look at the 4th quarter of 2011 for some "above average" numbers for the movie theater network. Revenue was $20,783 and average screens were 2,095, for an annualized revenue per screen of nearly $40,000. Cost of revenue was $6,980, for a gross profit percentage of 66%. All this despite "continuing competition from our competitors."Steve Chapskihttp://seekingalpha.com/author/steven-r-chapskinoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-62026560251310996792012-08-29T17:23:41.812+10:002012-08-29T17:23:41.812+10:00How come you are not addressing FMCN acquisition s...How come you are not addressing FMCN acquisition spree that they engaged a few years(which of which they wrote down to $0)?<br /><br />Management clearly are scumbags, its a matter of what type of scumbaggery they are engaged inAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-87581409896378094452012-08-29T16:45:54.877+10:002012-08-29T16:45:54.877+10:00So the FMCN numbers seem to be in the right ballpa...So the FMCN numbers seem to be in the right ballpark. This was clearly not the case with the frauds you detected and elaborated on earlier. Why would somebody be just a little bit fraudulent? It makes no sense because of the risk/reward ratio. Until something much more serious is unearthed I do not think the planned deal will collapse.Wilfriednoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-66167085412201543252012-08-29T09:43:50.847+10:002012-08-29T09:43:50.847+10:00Gosh I wish I had seen NCMI before this.
They hav...Gosh I wish I had seen NCMI before this.<br /><br />They have - get this - 18,670 screens and 435 million in revenue.<br /><br />The fat margin comes from paying in advance to use those screens (payments that need to be amortised off...)<br /><br />But that is 23 thousand revenue per screen.<br /><br />Oh, and in that they have digital advertising, panels in the lobbies, events etc - <br /><br />My source that said 20-30 thousand per screen was right - but Focus earns more per screen in China that NCMI does in America.John Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-23076994144807200162012-08-29T03:37:28.601+10:002012-08-29T03:37:28.601+10:00I have no view on FMCN.
"Indeed this is a fa...I have no view on FMCN.<br /><br />"Indeed this is a fatter margin than any non-Chinese display advertising business I can find."<br /><br />See NCMI, a US pure-play movie theater advertising network. Operating Margins of 50% are similar to what Focus Media claims to have. NCMI's 'secret sauce' is the network effects of being by far the largest player in the US.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-76686814401605663212012-08-29T01:23:23.182+10:002012-08-29T01:23:23.182+10:00A US comp would be National Cinemedia (ticker NCMI...A US comp would be National Cinemedia (ticker NCMI). They have 50%+ OIBDA margins. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-59029092355080944482012-08-28T23:47:41.986+10:002012-08-28T23:47:41.986+10:00does anyone have a guess on the time frame of this...does anyone have a guess on the time frame of this due diligence? how long does this sort of thing take?<br /><br />also...<br /><br />let's say they do the due diligence, and then they want to buy the firm, why in the world would (if im a shareholder) would i want to sell to them? i'm all thanks in the world for clearing the name of the current management, but i still dont want to trade against you, especially now that you have definitive information about the value of the company that i didnt when i bot it.<br /><br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-81605131893820604632012-08-28T20:40:30.025+10:002012-08-28T20:40:30.025+10:00I still wouldn't be convinced this wasn't ...I still wouldn't be convinced this wasn't a fraud, if the PE guys go to the movies and see the Focus Media ads playing. <br /><br />I am not so concerned that the advertisements don't exist. I would be much more concerned that the advertisements don't make nearly as much money as Focus Media says they do.<br /><br />Confirming sales and AR balances with customers should give more comfort over the accuracy of revenue. I assume FM has some reputable clients? It should be fairly easy to confirm sales or and AR with the customers.Grahamnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-80263807535428094892012-08-28T17:59:50.125+10:002012-08-28T17:59:50.125+10:00John, have a look at Clear Media (100 HK), which i...John, have a look at Clear Media (100 HK), which is the Chinese subsidiary of Clear Channel Outdoor (CCO)and by all accounts a legitimate business. They operate a different business model (street furniture) but for comparison's sake, their gross profit margin has been c. 40% for the last 10 years, i.e. not that far from FMCN's margins. <br /><br />With regards to FMCN's early definition of theatre, it might have been lost in translation first time around (replace the word "theatre" with "slot").DKnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-64816203922337882552012-08-28T15:40:13.339+10:002012-08-28T15:40:13.339+10:00I worked on some cinema investments in China and w...I worked on some cinema investments in China and we would model 50-70k RMB/year for screen advertising revenue. This is for a good location in a tier 1 city. It would probably be 30-50% lower as you move out into the sticks or into lower tier cities.<br /><br />There are only a handful of property developers that actually hold on to their properties and operate on a nationwide basis. Most of those do not operate very well and are a lot more concerned with leasing out the millions of sq ft of office/retail space in their building than the lift lobby space for LCDs. Maybe the secret sauce is that they go to the building manager to lease the space, he gets the owner to approve it and then gets a night out at KTV with the FMCN sales guy or a fat red envelope in return. Possibly same with the FMCN ad sales guy and the (underpaid) media buyer. This is complete speculation, but would explain the high margins and sounds about right for China.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-34019484840995669372012-08-28T15:22:36.167+10:002012-08-28T15:22:36.167+10:00Bravo, sir. Some of your finest work in my estimat...Bravo, sir. Some of your finest work in my estimation. Can't wait.yoyodynehttps://www.blogger.com/profile/08061273602845442703noreply@blogger.com