But choppers, they said in the SHM that the core business (distributing second tier DVD’s) essentially fell apart. That’s why they got into theatrical distribution, which, so far, they have not done well at. We all hope they will get lucky, but the core business, as I understand his words at the SHM, is not in good shape. I interpret the LionsGate idea as a nice “Emerald City” type goal, but they need to show the ability to have some basic success in theatrical distribution – with good movies distributed intelligently. They appear to be running on credit, and they need to have some success theatrically over the next few months IMO.
SHM about minute 3:28
“In the last couple of years the industry has faced a lot of turmoil. The turmoil has occurred for a variety of reasons. First of all there’s no longer a lot of shelf space for secondary titles. And that’s because there’s so many films available on DVD that the retailers have a choice where they can say, “Gee, for $9.95 we can carry Top Gun and the first two Mission Impossibles and maybe Pretty Woman.” And it makes it very difficult when you have titles that don’t have the same star panache, the same box office momentum or visibility, to get that shelf space because they’re really making the decision, “Do I put in this Hannover House title or do I create an extra facing for Iron Man 2.” And for a lot of the major accounts it’s not a hard decision to make, so it’s been very difficult in the last couple of years to place a lot of DVDs.
"Also eroding the DVD market has been the emergence of Blu-Ray. And a lot of the key accounts have taken shelf space away from the DVD category in order to create space for Blu-Ray. And again they’re usually gravitating towards the major studio hits. So suddenly it’s no longer is there space for my movie against Iron Man 2, there’s no space at all. There’s Iron Man 2 on DVD and now Iron Man 2 on Blu-Ray in the space that I otherwise might have competed for.
"As a result, it kind of put us in a difficult squeeze, and that set the stage for Fred and I to be very receptive to the opportunity, in December of 2009, of taking Hannover House and merging or doing a stock swap venture with Target Development Group. Target was not a shell per-se by the definition of a public company shell. There was some limited activity and there were assets in there and it was maintained through a securities counsel to make sure that the company was being maintained properly. But it provided an opportunity for Hannover to merge into a publicly-traded vehicle and create an opportunity for us to go out after the bigger titles. Because, you know, despite the many years that I’ve been in the video business, which is actually I think 26 years, and having relationships with many of the buyers that go all the way back to 1984, you know they still say, “Gee, Eric we really like you and we’d love to carry your movie but it’s just not quite high enough profile. Can you get us some theatrical product? If you get us some theatrical product we’ll create space for you. We won’t just give you one space, we’ll give you multiple facings, we’ll create a corrugated display as people walk in the front door. We’ll do some advertising on an instore monitor.” Suddenly the whole world of the oyster marketing opens up when you have these bigger theatrical titles.
"And Fred and I made a determination that having a bigger vehicle for the company would be a tool to help us provide not only financing opportunities but also to provide a greater level of confidence and comfort from the people who are program suppliers and people who would be vendors providing us lines of credit. There’s a greater degree of transparency in a public company, even in a Pinksheet where the filings are essentially voluntary, but we have been maintaining our filings on a quarterly basis. But, you know, that’s very important if you’re asking a laboratory for a quarter of a million dollars line of credit, that they can look up your financials and see, “Ok, maybe you’re not the biggest company out there, but can see that you are consistently making a profit and we see that you guys are honest and forthright and working hard, so we’ll give you that line of credit.” That might have not happened under a private company ownership, it certainly hadn’t happened to us before.
"So we have had a lot of great opportunities open for us in the last year. I would have to say vendor lines of credit have been the greatest blessing for the company because it doesn’t require the issuance of equity. And all of the shareholders out there, and Fred and I are the largest, we don’t want to dilute the company if there is any other way that we can build cash flow and credit facilities for the company without issuing equity. So the credit lines from vendors has been a very welcome and exciting tool for us to use."
