RLJ Entertainment, AMC Networks Form Partnership17 Oct, 2016 By: Erik Gruenwedel
Pact includes $65 million loan and warrants enabling AMC to become majority owner
As expected, AMC Networks and RLJ Entertainment Oct. 17 announced a partnership aimed at exploiting the latter’s subscription-streaming video businesses, which include Acorn TV and Urban Movie Channel.
Under the deal previously disclosed in a regulatory filing, AMC is giving RLJ Entertainment a $65 million loan, which include warrants that if exercised would make AMC majority owner (50.1%) owner of the home entertainment distributor created by B.E.T. founder Robert L Johnson in 2012 when he acquired Image Entertainment and Acorn Media Group.
AMC properties include AMC (home of “The Walking Dead”), BBC America, WE tv (a leading network for the African American market), SundanceTV, AMC Networks International, IFC and IFC Films.
RLJ Entertainment, which has struggled financially resulting in hits to the company’s stock valuation, will use the funds to refinance the company's existing senior credit facility, add working capital, reduce the cost of capital through lower interest rates, and provide revised covenants that will allow for increased operational flexibility.
“[AMC Networks’] Josh Sapan is a visionary CEO and an absolute advocate for producing and delivering to audiences of all interests the best in quality and award-winning entertainment,” Johnson said in a statement.
By aligning Acorn TV and UMC with AMC Networks and its channels and film business, which serve similar audiences — Acorn TV and UMC have the potential to cross-promote, develop and distribute content ultimately reaching more viewers of British TV dramas, urban content, and independent film, according to Sapan.
“Bob is a talented entrepreneur with a real understanding of the power of strong brands and a proven ability to identify and provide premium content to a wide range of audiences by tapping into the demand for content that uniquely fits their specific consumer interests. Much like the early days of cable, and AMC Networks' own history of providing quality programming to targeted audiences, RLJ Entertainment's Acorn TV and UMC appeal to consumers with quality programming that represents diverse voices,” he said.
The agreement comes as RLJ Entertainment reported a net loss of $174,000 in the most recent fiscal period on revenue of $15.7 million, down 20% from $19.9 million in the previous-year period. The decrease was driven by a decline in retail revenue due to a reduced release slate.
AMC is eyeing RLJ Entertainment’s SVOD services, which generated $1.1 million in operating income in the quarter, compared with an operating loss of $400,000 during the previous-year period. Acorn TV, which launched at the same time as Netflix, has more than 370,000 subscribers — up 92% since last December.
Yet, rolling out SVOD services requires capital — notably for license rights and technology. And RLJ Entertainment had issues.
In June, citing concerns from Nasdaq, the company approved a 1-for-3 reverse stock split of its common stock. The Baltimore, Md.-based distributor had received a delisting warning from the stock board after its shares closed below $1 for 30 consecutive business days.
The reverse stock split reduced the number of shares of RLJ Entertainment’s outstanding common stock from about 14.1 million to 4.7 million.
“I look forward to the future of this new chapter in our business and entering into a relationship with one of the most dynamic and creative content companies in the entertainment industry,” said Johnson.