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RWS Presentation Final

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David Grover, Head of Media Finance at ING, presents summary of June 2011 Russian World Studios Content Production Financing.

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RWS Presentation Final

  1. 1. Alternative Sources of Financing: Banks & VCs October 4, 2011 Case Study: Russian World Studios Loan
  2. 2. The loan to Russian World Studios, secured by its content library, represents a first in the Russian market <ul><li>The traditional broadcaster-funded production model constrains independent producers’ library growth </li></ul><ul><li>RWS has a strong track record based on a strategy of full rights ownership </li></ul><ul><li>The RWS transaction is unprecedented in the Russian corporate credit market </li></ul><ul><li>RWS obtained funding due to three key success factors: </li></ul><ul><ul><li>Success factor #1: quality content - delivered on-time, on budget </li></ul></ul><ul><ul><li>Success factors #2 and #3: relationships with customers and demonstrated cost control </li></ul></ul><ul><li>All producers can learn from the RWS success in crafting a “bank-friendly” credit story (the 3 Cs) </li></ul><ul><li>If you are looking for debt production financing, ING would like to hear your credit story </li></ul>
  3. 3. The traditional broadcaster-funded production model constrains independent producers’ library growth <ul><li>“ Traditional” model: </li></ul><ul><ul><li>Without access to capital, Russian producers act as “service shops” for the major Russian broadcasters, with broadcasters retaining the rights </li></ul></ul><ul><ul><li>Russian production companies have typically had to provide tangible assets as security in order to obtain loan financing </li></ul></ul><ul><ul><li>Consequence: Russian producers can be constrained in building up library value and exploiting productions without adequate access to capital </li></ul></ul>
  4. 4. <ul><li>RWS, founded in 1998, is a key player in Russian TV-series production, ranked #1 in 2010 among first-run series producers </li></ul><ul><ul><li>The Russian-produced TV content market is believed to have exceeded USD 1bn in 2010 </li></ul></ul><ul><ul><li>Still a fragmented market: top 12 TV-series producers received 75% of orders in 2010 </li></ul></ul><ul><li>RWS operates two studios in Moscow and St. Petersburg – the St. Petersburg studio, launched in October 2008, is the first dedicated, state-of-the-art film studio built in Russia during the past 60 years </li></ul><ul><li>RWS has transitioned to a model of full rights ownership to enable it to fully exploit its growing content library </li></ul><ul><li>RWS now holds more than 1500 hours of diverse content </li></ul><ul><li>RWS is a subsidiary of JSFC “Sistema”, one of the largest diversified holding companies in Russia </li></ul>Sources: Federal Agency for Press and Mass Communications, “TV in Russia” industry report 2010. Nevafilm: 2010, The Russian Film Industry Review Russian World Studios has a strong track record based on a strategy of full rights ownership
  5. 5. The RWS transaction is unprecedented in the Russian corporate credit market <ul><li>On June 29, 2011, RWS closed a RUB 1.2bn (USD 43m) three-year secured loan to fund TV-series production </li></ul><ul><li>For the first time in the history of the Russian media industry, a loan was structured with a library of video content as security </li></ul><ul><li>The financing need was created due to a combination of: </li></ul><ul><ul><li>Working capital required to shift to full rights ownership </li></ul></ul><ul><ul><li>Increased production slate to consolidate RWS’s market position </li></ul></ul><ul><ul><li>Align with Sistema policy for its subsidiaries to be financed independently </li></ul></ul>
  6. 6. A challenging transaction made possible by ING’s media finance expertise <ul><li>The loan was structured and coordinated by ING Bank </li></ul><ul><li>Challenges: limited history of secondary sales, discount rate, Russian law library pledge, delivery and storage of master copies </li></ul><ul><li>The necessary risk assessment was made possible by: </li></ul><ul><ul><li>ING leveraging its global media finance expertise and bringing it to Russia </li></ul></ul><ul><ul><li>Sberbank’s local expertise as Russia’s largest bank </li></ul></ul><ul><li>At the same time, Sistema, ING and Sberbank, signed an MOU to further develop the Russian Media industry </li></ul>
  7. 7. Success factor #1: quality content, delivered on-time, on-budget “ Indian” TV series nominated at Monte Carlo Int’l Television Festival “ Palm Sunday” wins Golden Eagle award in “best TV movie or miniseries category” “ Woman’s Dreams of Neverland”, shown primetime on Channel 1 “ Sea Patrol” now in 2 nd season, shown on Zvezda, ranking second only to football RWS’s productions garner international praise and highlight increasing demand for domestically produced content Client roster includes: Sony, Hallmark, HBO, Beacon
  8. 8. Success factors #2 & #3: relationships with customers (broadcasters) & demonstrated cost control <ul><li>RWS has a 100% success rate in converting green-lighted productions to sales to its broadcasting customers </li></ul><ul><li>RWS outsources physical production to its production partners on a fixed-price basis, enabling RWS to effectively monitor and control production costs </li></ul>
  9. 9. All producers can learn from the RWS success in crafting a “bank-friendly” credit story (the 3 Cs) <ul><li>Bank funding typically comes later in the life-cycle development of a production studio – enabling the demonstration of its track record and allowing banks to assess risk </li></ul><ul><li>The better a bank can extrapolate past-performance into the future, the less perceived risk, which leads to a lower funding cost </li></ul><ul><li>Three Cs :  C ontent: high-quality, produced on-time and on-budget </li></ul><ul><li> C ustomers: provide evidence of enduring relationships with key customers </li></ul><ul><li> C osts: transparency in the budget-setting and monitoring process is a must </li></ul><ul><li>As a borrower, be prepared to: </li></ul><ul><ul><li>Provide your content library as collateral </li></ul></ul><ul><ul><li>Provide a detailed business plan for the tenor of the loan, and be held accountable to meet the business plan through bank-covenant monitoring </li></ul></ul><ul><li>We see security over a content library as an effective risk mitigant - however, the primary goal is to structure a loan based on future expected cash flows </li></ul>
  10. 10. If you are looking for debt production financing, ING would like to hear your credit story Questions?

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