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Gener8 Media Corp. (CNSX:GNR) A Star is Born

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January 29, 2014

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Gener8 Media Corp. (CNSX:GNR) A Star is Born

One of the big stories of the Canadian Securities Exchange in 2014 has been Gener8 Media Corp. (CNSX:GNR). Since completing a reverse takeover in mid-2013, the company’s share price has appreciated by 400 per cent, providing a huge win to early stage investors.

The question is, will the company sustain this momentum in 2014, and is there still an opportunity for the stock price to continue rising exponentially? I conducted an interview with company CEO Rory Armes to find out.

Gener8 Media Corp is a Vancouver-based technology firm founded by Rory Armes former Senior Vice President at Electronic Arts (NASDAQ:EA), where he headed game development in London, Sweden, Montreal and Vancouver. He was responsible for EA’s largest franchises, including Need for Speed, FIFA, Harry Potter and NHL. Prior to joining EA, Rory was cofounder and president of Radical Entertainment, a leading developer of interactive entertainment. He was also a senior executive with Distinctive Software Interactive, a company acquired by EA.

The company operates a 2D movie to 3D movie conversion service for major Hollywood studios. It has, since its founding successfully converted all or part of 15 major feature films, the most recognizable of which include The Amazing Spiderman, the most recent Harry Potter movie, and Ghost Rider 2.

The company has approximately $30 million worth of projects slated for 2014 so far, and its operating margins fluctuate between 10 to 20 percent, with efficiencies and improvements trending the margin toward the upper end of that scale.

The company is in the process of selling a 60% interest its conversion business to Tianjin Fu Feng Da Movie & Television Technology Investment and Development Co. Ltd. (“FFD”) for CA$15 million, which it will spin out into a subsidiary but continue to run.

The move to China will provide better margins by capitalizing on cheaper programming talent in China.

Revenue Model

“When a movie studio decides to do a 3D movie, all of the movie is 3D. Even though sometimes they’ll have a couple of vendors on it for whatever reason – we may do half the movie or the whole movie – but we get paid for every minute of the movie we work on. So for each minute, we realize $60,000 to $80,000 in gross revenue. That’s roughly what you get per minute. So if you multiply that our across 120 minutes, you get a sense of what the revenue can be.

It takes 100 to 120 people to do a film. So when you look at the deal we’re doing with the Chinese company that will see our conversion operations move largely to China, we’ll be able to capitalize on the differences in wages in China versus the United States, and that will improve our margins.

Competitive Landscape

“When we started in this business, we had about 20 competitors,” says Armes. “Today we have three. One is an Indian-based company and the other two are in California. And that’s it for the industry, actually. So we moved ourselves from being in a sort of ‘David and Goliath’ competitive scenario, to being one of the top, at least in terms of Hollywood’s thinking – if not the top – 3D conversion studios in the world.”

The technology division provides 3D technology and cloud-based data management and analytics to the entertainment industry.

Demand for 3D Movies is Increasing

GNR_Table1

Number of 3D films released in each year:

GNR_Table2

3D Films by the numbers:

GNR_Table3

3D Movies is the Future

James Cameron, award-winning director of multiple Hollywood blockbusters including The Titanic and Avatar, says he believes most films in the future will be in 3D.
James_Cameron_3D
In China, the 3-D movie “Painted Skin: The Resurrection,” from Huayi Brothers Media Corp. (SHE: 300027) is on track to become the highest-grossing domestic film ever, with box-office revenue at 628 million yuan (US$98.7 million) and counting, according to data from EntGroup. Mr. Cameron’s 3-D rerelease of “Titanic” has brought in more than 934 million yuan in China this year.

On the BBC, Cameron said, “For me it’s absolutely inevitable that entertainment will be 3D, it’ll all be 3D eventually, because that’s how we see the world. When it’s correct and convenient for us, we pre-select for that as the premium experience.”

Demand for 3D movies in the future will be driven by the proliferation of 3D television in the home. Samsung (OTCMKTS:SSNLF), the world’s largest maker of television screens, sees 3D as an important component of much of its future production.

“3D is still an important part of our TV proposition,” Dilen Thakrar, Samsung’s Senior TV Product Manager said. 3D is a feature that consumers do like to use, therefore we have to make sure it part of our core range and is something we believe in as well.

“We have 3D throughout all of our product ranges, starting from the 6000 series up so it’s a core element of our range on LED and it’s part of the UHD range as well.”

Starting with models displayed at 2013’s CES, Sony (NYSE:SNE) made the feature a default feature in all of its TVs — meaning that you get it whether you plan to use it or not. It’ll be there if something — perhaps the next “Avatar” — comes along to get consumers interested.

The really good news for 3D TV supporters is that while it may not have worked as a premium service to get people to pay more for TVs, it is becoming affordable and just another bonus feature. It’s now possible to buy a 40-inch 3D TV from Samsung (OTCMKTS:SSNLF ) for a little over $500, a 50-inch model for under $800, and a 47-inch Smart TV from LG for under $1,000.

3D Winning Awards

The International 3D & Advanced Imaging Society bestowed 25 honors for “distinguished achievement” at the 3D Creative Arts Awards on Tuesday night, at Warner Bros. Studios in Los Angeles.

“It is clear from these winners that 3D is maturing as an art form”

“Gravity” (Warner Bros.) swept several categories including: best “Live Action 3D Feature,” best “Stereography – Live Action,” best “3D Scene of the Year,” and best “2D to 3D Conversion.” Two of the Society’s Lumiere™ statuettes were presented to “Frozen” (Walt Disney Animation Studios) for best “Animated 3D Feature” and best “Stereography – Animation.”

“Metallica Through the Never” (Picturehouse Entertainment) won for best “Motion Picture Documentary.” “Get a Horse” (Walt Disney Animation Studios) was honored as this year’s best “Short-Subject Movie.” “Stalingrad” (Columbia Pictures) received the Society’s 2014 Jury Prize for “Outstanding 3D Artistic Achievement.”

DreamWorks Animation (DWA) Chief Executive Officer Jeffrey Katzenberg received the Society’s Harold Lloyd Filmmaker Award, which was presented by Suzanne Lloyd and Society Co-chairman Tom Cosgrove, CEO of 3net Studios.

Following his critically celebrated 3D movie, ‘Pina,’ Wim Wenders has begun production on his 2nd 3D feature, ‘Everything Will Be Fine.’ The family drama will star James

Franco, who plays a writer involved in the accidental death of a child. This is 2nd 3D movie for both Wenders and Franco. ‘Pina’ (2011) was honored with a 3D Society “Best Documentary” Lumiere, and an Academy Award nomination. The movie was based on the work of choreograoher Pina Bausch. Franco starred in this year’s ‘OZ: the Great and Powerful’ in 3D. ‘OZ’ is
the 3rd highest grossing movie of 2013 to date, with worldwide box office at $490 million dollars.

Wenders said ‘Everything Will Be Fine’ is “a story of guilt and forgiveness, and of accepting things you cannot change anymore.”

“We wrote it with 3D in mind,” he added, “and I’m convinced that the medium lends itself really well to an intimate story.”

Gener8 is also a ‘Big Data’ Play

In 2012, Gener8 announced the launch of its cloud-based ‘Cumul8’ division to develop a data management tool specifically geared toward deriving useful insights from ‘Big Data’, or the massive amounts of data companies generate now on a daily basis.

According to the company’s press release of October 30, 2012:
“From filmmaking to real estate to mining, Cumul8 distills key insights from complex data streams in any large-scale project that requires coordination among multiple departments, vendors, and reporting tools. The production’s essential data sources are integrated into the Cumul8 engine, which aggregates the reported data to provide top-notch analytics through visualization dashboards that can be customized to the viewer’s individual needs.

These metrics are stored in the cloud and securely accessible 24/7 from any connected device, empowering managers to continually track a production and providing the “big picture” insight needed to mitigate costly bottlenecks and make informed decisions.

In addition to driving all of Gener8’s 2D to 3D film conversion projects, Cumul8 has been adopted by two major Hollywood studios to manage the production of upcoming feature films. To expand Cumul8’s reach, Gener8 is actively seeking new partnerships in the film industry and beyond.

Gener8 Owns 48% of Reelhouse

Reelhouse.org is an open video sharing platform dedicated specifically for quality entertainment content. The platform offers a comprehensive toolset for filmmakers to self-distribute and market their content while providing a far more engaging experience for their viewers.

The toolset includes various monetization, customization and social tools to help filmmakers build their fan base. Reelhouse is a vibrant community and as a destination site also embeds a range of features specifically for viewers to facilitate discovery, ease of access, sharing and curation.

Conculusion

Gener8’s executive suite is well-connected in Hollywood, and so the growth of its 3D conversion business looks poised to continue throughout the near future. With the move to China, its human resource costs will improve, making it more profitable.

As it continues to build out and develop Cumul8, revenue from that division could become a significant addition to the bottom line. And its Reelhouse investment is just another iron in the fire for this dynamic company.

Gener8’s head office is located in Vancouver, British Columbia and has approximately 140 employees across both divisions. The executive team draws on years of experience developing graphics technology in commercial software, video games and the film industry. To learn more, visit the company website: http://www.gener8.com.

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James West