I had many spirited exchanges with Han concerning potential revenue and or earnings from this WWTBAM project (Below is Han's analysis for anyone who wants to refresh their memory...sorry for the painful memory). I figured the best case scenario would be about 10% of what Han was forecasting. He was forecasting anywhere from about $1 million plus or more revenue per episode to AAGH based on his flawed logic of success with WWTBAM in other markets (Hong kong China WWTBAM flamed out after 5 months...but they did show program 5 days on week during that time). In effect it turned out to be about 1% of Han's predictions (so even I was off by a factor of 8X...stupid me but at least I sold 80% of my 150K shares of AAGH into last run-up). In the filling they reeived $118,000 + from WWTBAM from Sept 20- dec 31st or about 13 episodes...just over $13,000 per episode.
CALCULATION and COMPARISON:
We know that 30 second spots in Vietnam costs $3,400. Let say each 60 minutes show have 10 minutes of advertising time (in Vietnam, USA, and China).
GDP (ppp) 2006: Vietnam’s: $3,400; China’s: $7,700 (2.26x of Vietnam’s);USA’s: $37,800 (11.11x of Vietnam’s)
Population/Market Size (2006): Vietnam’s: 85 millions; China’s: 1.3 billions (15.3X of Vietnam’s); USA’s 300 millions (3.53x of Vietnam’s). However we got the precise number of home viewers who have access to the show of 517 millions or 6X of Vietnam's. This is the number I will use instead of 15.3 to make my DD more accurate and conservative.
Vietnam’s Calculation:
$3,400 x 2 ads per minute x 10 minutes = $68,000 of ads revenue (10 minutes per a 60 minutes episode.)
USA’s Calculation:
If we use Vietnam’s revenue and work backward to see how it compares to that of USA in 2001.
$68,000 x 11.11 GDP differences x 3.53 Population differences = $2.66 million in ads revenue of 10 minutes per a 60 minutes episode.
We know that about 6 years ago in the USA, advertising revenue from the show is around $2 million per episode. The $2 millions at 5% growth in advertising cost and inflation rate for 6 years = $2.66 millions. Basically, $2 million in 2001 equal $2.66 millions in 2007 after adjustment for interest rate. That was $100,000 per 30 seconds spot back in 2001 or $134,000 per 30 seconds spot in 2007.
China’s Calculation:
$68,000 x 2.26 GDP differences x 6 Population differences = $922K per twenty 30 seconds of paid advertising spot for 60 minute show. That is $46K per each paid 30 seconds spot.
But in China we have 90 minutes episode. $922K x 1.5 = $1.383 millions in ads revenue per Saturday new episode.
Using the USA’s cost structure (40% of ads revenue 700K/1750K), each episode in China will generate $830K ($1.383 x 60%) in profit per 90 minutes episode.
104 episode x $830K = $86.32 millions in profit (2 years) OR $43.16 millions in profit for 52 episode (1 year).
The revenue from advertising is split CMP 70% and local agent 30%.
Total Ads revenue: $1.383 millions
Cost per episode (90 minutes): $553K (40% of $1.383 millions)
CMP takes 70% of revenue = $968K in revenue per episode.
CMP net profit after cost = $305K per episode ($968 - $553K).
AAGH owns 60% of CMP.
AAGH ‘s take in profit per episode: $183K per episode.
Net profit for AAGH per year (52 episodes) = $9.52 millions.
With 200 million shares in O/S = $0.0476 a share in net profit (EPS)a year from now.
ALSO, the revenue from the RERUN on Sunday afternoon & CALL-IN revenue stream for this show in China might be worth $300K a week. But this time there is no cost of production involved. Giving the ratios as above:
Total Ads revenue: $300K
Cost per episode RERUN (90 minutes): $0
CMP takes 70% = $210K in revenue per episode.
CMP net profit after cost = $210K per episode.
AAGH owns 60% of CMP.
AAGH ‘s take in profit per episode: $126K per episode.
Net profit for AAGH per year (52 episodes) from the RERUN = $6.55 millions..
With 200 million shares in O/S = $0.0327 a share in net profit (EPS)a year from now.
What will you give P/E for a company such as AAGH giving 1) in China super hot market, 2) more shows are to be under the umbrella, 3) EPS’ potential of $0.08 a share ending 3rd qtr 2008? 4) the Olympic in China is soon to take place, and 5) this company is small and fast growing. Advertising revenue will be pouring into the country.
