Film Distributor Gets Capital Boost from New OTC Partner

  Springdale is more than 1,500 miles from the film industry mecca of Hollywood.

But that’s not a deterrent for entertainment distribution company Hannover House, which plans to compete with the likes of Sony Pictures and Warner Bros. for the distribution rights to the “Terminator” franchise.

Until recently, Hannover House has primarily been a DVD distributor, with about 75 percent of its revenue generated from sales of low-budget movies to retailers like Wal-Mart Stores Inc., Amazon.com and Blockbuster stores.

But CEO Eric Parkinson and president Fred Shefte are looking for a film with the potential to make a dent at the box officeand raise the company’s status.

“We’re kind of emerging from a cave in a way,” Parkinson said.

In December, Hannover House merged with publicly traded company Target Development Group Inc., elevating Target Development’s stock by nearly 2,000 percent, from 0.0015 cents to 0.03 cents per share.

Under the agreement, the company will trade stock under the Target Development Group Inc. but will release films, videos and books under the Hannover House brand name.

The penny stock, traded over-the-counter under the ticker symbol TDGI closed at 0.032 cents on Jan. 19.

The merger allowed Hannover House to obtain new credit funding and off-balance-sheet financing opportunities, Parkinson said.

“The merger provided us with some liquidity that we didn’t have before,” he said.  “It will enable us to move forward in releasing a lot more projects.”

This spring, the company will release seven films on DVD and Blu-Ray, including “2 Dudes and A Dream,” a comedy about actors trying to make it in Hollywood, a sci-fi thriller called “Sensored,” a horror-thriller called “The Hiding,” and recent theatrical releases “War Eagle, Arkansas” and “Chelsea on the Rocks.”

“These are smaller titles and that’s kind of the realm we’re in right now,” Parkinson said. “But over the next year, we fully intend to have bigger theatrical titles.”

Parkinson and Shefte hope to acquire some of those bigger titles at the Sundance Film Festival in Utah in late January.

Parkinson said the festival sent a list of 115 films, which he and Shefte have narrowed down to 18 films they think they could successfully distribute.

They’re hoping one of those films will be the company’s flagship title. 

Once they decide to bid on a film, Hannover House will pay the producer an advance against the film’s expected royalties.

“Most of the movies we’ve acquired we’ve paid advances of $50,000 to $100,000,” Parkinson said.

Bigger titles will require bigger advances, often up to $1 million or more.

“We’re looking for a film we can hang our hat on,” Parkinson said. “Sundance is a really important strategic move for us if we’re going to become more than a boutique film distributor.”

He points to Summit Entertainment as an example of a company that went through an instant transformation.

The company had annual revenues of $8 million, he said, and then it acquired the rights to Stephanie Meyer’s Twilight series.

When “Twilight” came out, their revenue grew to $400 million, Parkinson said. The second film in the series, “Twilight Saga: New Moon” was released in November and grossed almost $700 million worldwide. Summit will release the third film, “Eclipse,” in June.

“We’re in the same business,” Parkinson said. “If we can acquire a franchise like that, we can transform our company from $10 million annual business to a $500 to $600 million annual business.”

Currently, Hannover House is pursuing the rights to the “Terminator” franchise.

Production company The Halcyon Group put the film rights up for sale in September after filing for Chapter 11 reorganization.

Lions Gate is the lead bidder on the franchise, with an offer of $15 million in cash plus 5 percent of future gross receipts in exchange for the rights to make “Terminator” sequels and spin-offs.

In order to make a competing offer, Hannover House must submit a higher bid prior to the Feb. 5 cut-off date.

Parkinson said the company is working with several private investment groups in an attempt to secure funding.

But even without the big name franchise, Hannover House is significantly increasing its library of video and literary properties in 2010.

Last year, the company had one release to DVD and Blu-Ray, a drama called “Hounddog” starring Dakota Fanning. Hannover House also released “War Eagle, Arkansas” to 11 theaters in Arkansas and later expanded the release to eight additional theaters in out-of-state markets.

In 2010, the company plans to release six films to theaters, 30 films to DVD and Blu-Ray as well as six books.

“That’s a tremendous increase in volume and cash flow,” Parkinson said.

Parkinson has been in the film distribution business since 1984 when he moved from Kansas to Los Angeles and got a job in the emerging home video industry.

“It was the beginning of the VHS boom and it’s something I just sort of fell into,” he said.

In 2002 he moved to Northwest Arkansas and bought Hannover House, a book publishing company at the time, with the intention of adding DVD sales.

Shefte, who initially served as Hannover House’s loan officer at The Bank of Fayetteville, joined the company in 2006.

Hannover House offered its first theatrical release in 2005, a surfer comedy called “Off the Lip.”

The company now has over 150 titles in its library.

This year, Hannover House will expand into the Video on Demand business, which will allow it to stream its films directly to the customer through cable television and Internet providers.

“We expect the Video on Demand business to grow in 2010,” Shefte said. “That business has a lot of benefits for companies like us because we can avoid the packaging and shipping costs.”

The company would also benefit from the direct payment stream when a customer purchases a movie through video on demand.

The duo is also looking into cutting down on shipping costs by opening their own DVD pressing facility.

Hannover House currently has its DVDs manufactured in California and then shipped to a warehouse in Springdale before they are packaged and shipped to retailers throughout the country.

“There is an inefficient component in using a third party,” Parkinson said.

The company is also in the midst of plans to build a new facility in the Fayetteville industrial park.

Parkinson said the proximity to Wal-Mart is part of why the company chooses to stay in Northwest Arkansas.

“There are a lot of reasons why, even if we eventually put an office in Los Angeles and New York, that we still want to have our headquarters in Northwest Arkansas,” he said. “We’re centrally located, and it doesn’t hurt to be next door to our largest customer.”

It’s also where Parkinson and Shefte want to live.

“The cost of living is low and the quality of life is high,” Parkinson said.