32 The Flame (1/2)
The next afternoon, Wang Yang received an email from John that contained the information he wanted. Enclosed in the email was a list of companies. He skimmed through it and saw that there were around 30 of them. Most of the companies had names he had never even heard of. Some of them did not even have an official website.
That said, the list was fleshed out with statistics and details. There was a column containing the film companies' basic information, such as their contacts and names of movies they had produced and published; and one describing their current financial situation. The latter showed which ones were suffering huge losses due to flops that had sold badly at the ticket office, which ones were likely in the red due to bad deals, and which ones were poised to be sold by their chairmen.
Wang Yang scrolled the contents on the screen with his mouse, studying the list with great interest. Then, it became apparent to him why Lionsgate would become such a successful independent film company in the future, why they had such great foresight, and why they always seemed to have the upper hand in deals. He could see it clearly in that list—Lionsgate kept their fingers keenly on the pulse of the industry, especially small film companies and low-budget movies. Their accumulated knowledge of the successes and failures of low-budget movies gave them an unparalleled understanding of the market and an uncanny knack for spotting hidden gems.
Of course, the list did not reveal Lionsgate's insights and analysis. Those were classified information, and John Feldmeyer would never give them to him. The list only contained the hard facts.
”Let's see if there are any that are debt-free...” Wang Yang murmured at the computer. With a click of his mouse, he filtered the companies which were confirmed or suspected to be laden with debt. He did not know how much money those companies owed the banks, but he knew for certain he did not want to pay for them.
After that, he was left with a dozen companies that were financially healthy. Some of the companies had production capabilities but not publishing; others had their own publishing system and distribution channels and were able to produce a film independently and arrange for its release with theater chains. But those companies could seldom compete with the larger corporations. The theater chains would not screen their low-budget movies. Instead, they would arrange test-screenings at dilapidated cinemas, which usually ended up as flops.
In truth, it was not difficult for a company to establish its own publishing system. But having a publishing system meant having more departments and more employees. For instance, a film company would have a department dedicated to developing, copying, storing, and transporting film reels. There would also be a department in charge of screening movies; their job was to maintain good relations with the theater chains, organize the distribution of movies in public transportation, public areas, and other non-cinema locations. Then, there was the administrative department, the information systems department, the sales department, and many more.
A publishing system entailed an enormous expense, which, for a small film company, could make the difference between staying afloat and going under. Hence, smaller film companies usually stuck to what they did best—shooting and producing films. And when it came time to publish a movie, they would seek the help of a publishing company. That way, they could avoid fixed costs associated with advertising, processing, transportation, distribution, and other functions. Although they made less money when a movie became a success, they lost less money when a movie became a flop.
But Wang Yang wanted to acquire a company that had its own publishing capability because he was confident that High School Musical would be a huge success. He dreaded having to negotiate with the publishing companies and could not be bothered to seek their help. He would much rather do it himself.
Wang Yang's eyes swept the screen up and down before stopping at a company called A-Pix Entertainment. The company had been founded in 1993. It had no debt. It had produced a number of low-budget movies. It even had its own publishing department, which had published over 30 low-budget movies. None of them were highly regarded, but some were brought to market via collaborations with videotape and DVD companies. A-Pix had a few movies that had been released in cinemas, but none of them had made it past the first week. It was evident A-Pix had not made money from any of its movies.
As of late, A-Pix's ventures consisted mainly of buying low-budget, R-rated movies, such as Sister My Sister, Sexual Malice, and Secret Games, and publishing them as videotapes. It was a low-margin business, but at least they were able to make ends meet and stay out of debt.
That year, A-Pix had produced and released its very own R-rated movie called The Proposition. The move had been test-screened at 17 cinemas. Although they'd had high hopes for the movie, it had only netted them 61.5 thousand dollars at the box office in the first week. And when the screenings had ended during the second week, it had only made 14.7 thousand dollars. It'd been their last hurrah. A-Pix suffered a huge loss. Without any clear hope for recovery, the chairman, Chris Lynch, had considered selling the company.
The company's finances were rock solid. Despite all the challenges, they'd been able to keep themselves afloat with copyright royalties. They possessed experience in producing movies and in publishing DVDs. They had connections with the theater chains. Wang Yang was tempted. He searched the repository of movies in his mind but could not find A-Pix's Sister My Sister or other similar movies. Thankfully, the movie had been released in 1994. He could always watch it if he wanted to.
There was very little about the company that Wang Yang could glean from his visions. There were no future releases by the company. From the looks of it, the company was barely scraping by. If someone did not bail them out, they would not survive much longer. Judging by the chairman's desperation and the lack of foreseeable success in the company's portfolio, Wang Yang could only assume that the company's days were numbered.
Wang Yang had shortlisted A-Pix Entertainment and was about to make an enquiry over the phone. But then he realized he did not know how to go about it. Although he knew a great deal about movies, he was ignorant about a great many things in life. At that moment, he realized he needed an agent. An agent would be perfect in times like that, he thought. An agent would give him advice and negotiate with A-Pix Entertainment on his behalf.
The truth was, many agents had come to him, offering their services. Wang Yang had not known where they had obtained his contact information, but he could see that they were all very keen to work for him. Up until then, Wang Yang had been on the fence when it came to agents. But now that the need had arisen, he took out his cell phone, looked up a ”Mark Strong” in his contacts, and dialed the number.
Mark Strong had worked with Wang Yang once, during the audition for Paranormal Activity as the representative of the actors' guild. When Wang Yang had become one of the most famous directors in America, Mark Strong was the first in line to offer his services to him. Wang Yang had read his resume and his bio. He had graduated with a degree in business from USC; that made them somewhat schoolmates. He was also an agent for Creative Arts Agency. USC was a prestigious school, after all, and Wang Yang had wondered why Mark Strong had to live on crumbs of commission from no-name actors.
Wang Yang had asked him that question before. Mark Strong had told him he had been hired by a film company to work as a publishing manager straight out of college. He thought he had lucked out. But a few months after he had joined the company, before he had gotten used to the place, the company had declared bankruptcy due to debt. He had not even published a movie while he'd been there, but the stigma of a manager of an insolvent company had stuck with him. But his story did not end there. Sometime later, he had been able to secure a second job thanks to his impressive qualifications. He'd been the manager of a talent agency. Unfortunately, that agency had soon gone under, too. Hungry and unemployed, Mark Strong had remembered how much money a top agent at his ex-company used to make. So he had dusted himself off, taken a licensing exam, and become a talent agent himself.
The call connected. Wang Yang smiled and said, ”Hi, Mark. Is that you? How would you like to be my temporary agent?”
”Young director, are you serious? Of course I'm interested.” Mark could hardly contain his enthusiasm, and he laughed. ”This will be the best decision you've ever made in your life. You won't regret hiring me as your agent!” he said. And before Wang Yang could respond, he went on, tooting his horn, ”So tell me, do you want to be a celebrity-type director, with the limelight, the parties, and the rumors; or do you want to be a serious, work-oriented director, with endless projects—horror movies, romance, comedy…”
”Stop!” Wang Yang shouted. He rolled his eyes and warned, ”Mark, if you keep talking like that, I'm going to find another agent.” Afraid of losing a potential client, Mark Strong cried, ”No! Okay, what would you like me to do for you?” Wang Yang smiled and explained, ”I'm not a celebrity looking for a public relations agent. I don't need to be dressed up and sold, got it? I want to acquire a film company, and I need someone who can advise me on investment-related matters. I need a professional who's knowledgeable about finance. You learned about these things back at USC, didn't you? So what do you say? Are you interested?”
Immediately upon hearing Wang Yang's words, Mark Strong's face lit up and he said, ”Sure. I'm interested. I'm the professional you're looking for.” Wang Yang said in a serious tone, ”If you serve me well on this acquisition, I might hire you on a permanent basis.” Mark Strong stood silent for a minute, then said gladly, ”This sounds like a wonderful opportunity. Thank you. I needed that.”
After having hired Mark Strong, Wang Yang brought a few more professionals onboard, including Hebel Carl his legal advisor, a financial accountant, and an asset appraiser. Before long, Wang Yang had assembled for himself a fine acquisitions team.
At first, Mark Strong contacted A-Pix Entertainment to confirm the board of directors' intention to sell the company. The company's founder, Chris Lynch, was nearly 50 years old. He had used to work in wholesale where he'd made a small fortune. A few years ago, he'd followed his passion and founded A-Pix Entertainment. His foray into the movie business had been met with setback after setback. When his most recent multi-million project, The Proposition, had turned into a fiasco, he thought he'd had enough. He was going to retire.
He was willing to sell his 85% stake in his company as long as the price was right. The other 15% was owned by his business partners. Should Wang Yang wish to acquire the entire company, he would need to convince his partners to sell him their stakes, too.
Thereafter, Wang Yang's acquisition team received a financial report from A-Pix Entertainment that stated the company's income, expenses, receivables, debt, and assets. Wang Yang's professional accountant performed an audit on the books and found no issues with them. And then it was time for the asset appraiser to measure A-Pix Entertainment's worth, from top to bottom.
There were tangible assets in the head office, such as desks, chairs, and television. There was also some old film shooting equipment. But there were no cameras because expensive equipment was usually rented during a film shoot. Their warehouse contained only cheaper items, such as camera rails and tripods. Of course, there were also intangible assets, such as the copyrights to Sister My Sister and business relationships.
The asset appraiser left no stone in A-Pix unturned, much to the annoyance of its staff. Finally, he valued A-Pix Entertainment at around 2.5 million dollars. The company was considered an excellent business, even though they had only managed to break even, year after year. Although their profit was only in the lower six figures, they had no liability. But the company had just lost a million dollars that year due to The Proposition. Without additional funding, the company would have to declare bankruptcy or take on a huge debt.
After reviewing the valuation report, Wang Yang's acquisition team got together and decided to extend an initial offer of one million dollars to A-Pix Entertainment to buy-out the company. For an initial offer, it was a fair price. A-Pix was worth 2.5 million dollars. But considering it had suffered a loss of 700 thousand dollars that year, its market value should be between 1.5 million and 1.8 million. However, A-Pix responded with a counteroffer of three million dollars. The company's reaction was hardly surprising. To play hardball was part and parcel of the negotiation process. At that point, it seemed both parties had reached an impasse that could only be settled face-to-face in the boardroom.
”Mr. Lynch, what do you take us for? A couple of slack-jawed yokels? Do you think we don't know our way around the business? Three million dollars? Please!” Mark Strong bellowed as he threw his hands up. His face was flaming with rage. He gazed sternly upon Chris Lynch across the table in the boardroom and said, ”If we have to pay three million, we may as well set up our own company! Just look at these copyrights. Tell me, Mr. Lynch, do you honestly think they're worth three million dollars?”
Chris Lynch, who was wearing a black colored suit, rubbed his forehead resignedly. His lips quivered as if grasping for words. No words came out.
Mark Strong regained his composure and said with sincerity, ”Mr. Lynch, surely you'd know, there are many other film companies in Los Angeles. We can easily find one that's about to go bankrupt, knock on its door, and walk right in. Mr. Lynch, we're sincere in our offer to acquire your company. But if you don't mind me saying so, we're not interested in your copyrights. What we're interested in is your company's experience.” Then, staring Chris Lynch straight in the eyes, he said, ”Mr. Lynch, let's all be reasonable here. 1.5 million.”
”I'll… think about it,” Chris Lynch replied with a deep frown. He was caught between a rock and a hard place.