After being bankrolled for almost a decade by the personal fortune of Alkiviades “Alki” David, scion of a European soft-drink bottling firm, streaming-media company FOTV Media Networks Inc. recently took efforts to stand on its own by raising at least $20 million.
Rather than launching a traditional initial public offering, however, FOTV is using recently approved equity crowdfunding provisions as part of the Jobs Act in an effort to sell at least 2.5 million shares at $8 each. The offering began in August and will close Nov. 11.
If successful, the offering would value the Beverly Hills firm at $336 million and would allow it to apply for listing as a small-cap company on the Nasdaq this month. Should FOTV fail to reach its $20 million threshold, the money will be returned to investors, as stipulated by Securities and Exchange Commission rules. It declined to disclose how much has been raised so far, citing SEC disclosure rules.
David’s goal is to make FOTV a nimble player in the world of online media giants Netflix Inc., Hulu, and Time Warner’s HBO by becoming a one-stop shop for viewers’ entertainment needs, from live TV to on-demand movies. It aims to make money through ad-supported viewing, one-off digital renting, and monthly subscriptions.
As part of that strategy, FOTV has rolled up several small digital streaming companies over the last year to join its flagship streaming site FilmOn.TV. Those acquisitions include a $7 million purchase of movie-streaming service CinemaNow in December and a deal for video aggregation website OVGuide, which was acquired in an all-stock deal in April of last year. FOTV also acquired hologram projection company Husa Development Inc. for $1.15 million in April.
“We are the biggest media company you’ve never heard of,” said David, 48, who claims the company’s content-driven sites have tallied more than 75 million unique visitors.
Public perception
Sanjay Reddy, FOTV’s executive vice president, said trading on Nasdaq will give the company the liquidity it needs to grow further.
“We believe there is a material opportunity to use our public equity to execute acquisitions,” he said. “Where (over-the-top streaming) is going, we feel it makes a lot of sense to complete part of our story using acquisitions instead of growing organically. It strengthens our hand as we approach targets because the stakeholders are much more amenable, outside of using cash, when there is public currency exchanged as opposed to private stock.”
FOTV has several other targets in its sights, including a digital ad marketplace, which Reddy said would allow the company to increase the amount of video advertising inventory it sells. FOTV now sells about 10 percent of its ad capacity, he said, explaining that the company hasn’t been willing to discount its rates for third-party exchanges.
The firm generated revenue last year of $13.1 million, which came almost entirely from preroll ads, compared with $13.5 million in 2014. The company reported net losses of $8.7 million last year and $5.3 million in 2014.
To sustain the media firm’s operations, David said he has invested $65 million. SEC filings show that in the quarter ended March 31, he put $5 million into the business, on top of contributions of $16 million last year and $12 million in 2014. He holds an 89 percent stake in the business, which would decline to between 80 percent and 83 percent when the offering is completed. The firm also raised some $2.5 million from outside investors in May, the majority of which came from GeoCities founder David Bohnett, who also founded Baroda Ventures of Beverly Hills. Bohnett, who declined to comment, citing SEC quiet-period rules, would take a seat on the FOTV board upon completion of the offering, according to SEC filings.
However, when FOTV’s offering launched in August it raised eyebrows, said Mike Paxton, an analyst with research firm SNL Kagan in Scottsdale, Ariz.
“That’s a very modest amount of money to go public for, particularly on the Nasdaq,” he said of the $20 million raise.
When the offering didn’t close on Oct. 11, but was extended 30 days, it raised more questions for Paxton.
“My initial thought was, OK, this was supposed to close three weeks ago. What’s going on?” he said.
The IPO period was extended to allow some last-minute European investors to purchase equity, said FOTV spokesman Owen Phillips.
Paxton noted that FOTV could have problems raising money because David’s personality and antics – he is a regular and irreverent poster of home videos to YouTube – appear to outshine the company.
“Investors sometimes shy away from companies when the light and heat is around one individual instead of around the business itself,” he said. “It doesn’t seem there is a real strong business there yet.”
Content collection
David founded FOTV, originally known as FilmOn.TV Networks Inc., in the United Kingdom in 2007, relocating to Beverly Hills in 2010. Born into a Greek Cypriot family in Nigeria, David is heir to his family’s overseas Coca-Cola Co. bottling franchise fortune.
FOTV’s original business, FilmOn, allows users to stream a collection of TV channels from around the world, including the BBC, France24, and Russian news network RT. Much of the content is interest based, including channels featuring extreme sports, Bollywood movies, and fashion shows.
“The thing that performs the best is actually the bikini channels,” said David. “Then its horror, then it’s the news, then its sports, and then music.”
FOTV has tried to obtain live TV programming from networks such ABC, NBC, and Fox by arguing that it is eligible for a compulsory license to legally retransmit the content as cable broadcasters do. Several major networks sued FilmOn over the claim, but a federal judge in Los Angeles ruled last year that FilmOn should be allowed to purchase the licenses. The networks have appealed the case to the U.S. Court of Appeals for the Ninth Circuit.
FilmOn visitors can also rent or buy blockbuster movies and popular TV shows, or stream more obscure titles with ads for free. Alternatively, a $15 monthly subscription grants access to much of the site’s content.
The site is also trying to grow its user base through original content in the mold of Netflix, Hulu, and Amazon, albeit on a much smaller scale. Some of the original titles available on FilmOn include “Bob Thunder Internet Assassin” and “Lord of the Freaks.”
“You bring people in the door with the big stuff and you show them the rest of the wares and you keep them,” said Reddy.
The firm owns 27,000 titles and licenses more than 340,000 others, including a trove of B movies and old westerns as well as some 3,500 podcasts.
FilmOn also wants to scale by licensing its platform and relicensing content to more than 10,000 affiliates. For example, the app MobiTV, developed by Israeli firm Undertap, is a rebranded version of the FilmOn mobile platform. FilmOn also struck a deal with Beijing-based Lenovo Group Ltd. to preload FilmOn’s app on more than 19 million personal and tablet computers.
“From a content rights perspective, you want to provide content to wherever a person is,” said Reddy.
However, successfully executing that strategy might prove difficult, especially if users get lost in a sea of content, said Addison McCaleb, chief executive of El Segundo’s Media Hound Inc., which developed a search and suggestion platform for films and TV shows available online.
“When you have all this content, you’ve got to learn which parts of your catalog are most relevant to (an individual viewer),” he said. “Otherwise, you risk turning into the modern TV Guide, where most people only consumer three or four channels because they fall back on the ones they know.”
