One of the hottest themes for investors right now is content. More specifically, it’s digital content. As new technologies have evolved the way most people consume content, whether for educational, informational, or entertainment purposes, companies are scrambling to find enough of it to keep their customers happy. What’s more, new markets are being created that are fueling the demand and driving up what competitors are willing to pay.
Just a decade ago, household names like Netflix, Hulu, Amazon Prime, and even YouTube did not exist. Today, these companies each spend billions of dollars a year adding content to their libraries. What’s more, we may just be at the precipice of this new cycle as more and more networks and services look to launch their own dedicated subscription services to compete.
This burgeoning arms race in the media and entertainment industries has created a booming market for content creators like Quizam Media Corp. (QQ:CA) , which operates Quizam Entertainment and On-TrackTV. The company has found a strategic sweet spot by producing steady, profit-generating projects that carry the potential to become game-changing successes.
Equities.com had the opportunity to speak with Russ Rossi, President and CEO of Quizam Media Corp. (QQ:CA) to learn more about how it plans to become a major player in a trillion-dollar industry.
EQ: To start off, can you give us a brief overview on Quizam and what your operations are?
Rossi: Quizam is a media company that focuses on two areas: education and entertainment. In the past, our background has been strongly focused on corporate education. However, in the last 18 months, we noticed that everything we do would also service itself in the entertainment content side. Rather than recording non-fiction items, we can record, sound, and edit fiction items, so we moved into another busy web asset of entertainment.
We had equipment that wasn’t being used around the clock, and when we looked at some of the entertainment lines and broadcasting mediums on the Internet, like YouTube as an example, we noticed that the majority of content was either education or entertainment.
The final straw was looking at the entertainment market – and the entertainment market is 1000 times larger than the education market. I think, respectively, the entertain market is are about $3.2 trillion, compared to $2.2 billion for education content.
EQ: So it made sense to bridge that gap with what you were already doing?
Rossi: Right. We call it edutainment.
EQ: What are some of the unique strategies that you’ve implemented to help Quizam capitalize on these market opportunities? Can you start off with the learning materials? Is that still going to be a focus of the company as you aggressively get into the entertainment space?
Rossi: Yes, the education aspect of Quizam and On-Track. Many of the top Fortune 500 companies around the world hire us to train their employees on topics including how to use IT equipment, computers and basic software. We’ve had some of the biggest clients in the world, like Shell, Oracle, Compass, etc. These are billion-dollar companies that we’ve trained.
We’ve spent a lot of time and money working on different ways of delivering online training and tried all different strategies, until we finally came up with an online format that worked. It’s basically a three-minute vignette in what we called a “weatherman format”. That was the first jump into success.
The way that you measure success in e-learning or online learning is whether the client actually uses it. That’s the key, because there have been many companies before us, and we’ve spent hundreds of thousands of dollars before this on great e-learning tools that were definitely perfect. But if a person doesn’t want to watch it, then it doesn’t work, and that’s one of the things we learned from one of the IT directors of Shell in the UK. They said, “You can have the best e-learning tool, but if my employees won’t click onto it, then it doesn’t work.”
EQ: That’s true with any content, really. The goal is to get the viewer to want to watch it. So you found a formula that resonated with the viewer?
Rossi: We got the notion that it’s kind of like Nielsen ratings. You measure it by whether people want to watch it. What are the ratings on your learning? We had tried animation, interactive, and even long three-hour lessons with the top guys. We tried everything. When we came up with the three-minute vignette with the small talking heads – we were one of the first to do it, by the way – that’s when we started getting serious traction.
We’re in a world of instant satisfaction, people have a short attention span. If I say to you, “Do you mind watching this video on how to deal with customer service? It’s one-hour long.” The first thing you do is roll your eyes and think, “Oh my gosh, I have to sit here and watch e-stream for one hour.” But if I say to you instead, “There’s 25 vignettes. They’re each three minutes long. You can watch it over the next 20 days, and our online learning system will deliver them to you automatically. Just three minutes a day.” People seem to buy into that. We say that, “inch-by-inch, learning is a cinch. Yard-by-yard, learning is hard.”
EQ: So it sounds like you’ve really perfected delivering information-packed content into really digestible bites that allows viewers to learn at their own pace. Is this an approach you’re looking to take into the edutainment space?
Rossi: That’s a really good question. The first skill we noticed that really lent itself to entertainment is that we’re good at entertaining you while you get educated. You’ll find that our instructors and our actors are really funny. Our vignettes are tasteful. They’re well-done. In many cases, they’re entertaining. We’ve taken that part first. We’re taking the ability to show entertaining vignettes, or entertaining sequences into entertainment. We are right now looking at the webisodes, taking a two-hour movie and turning it into five webisodes, or the one-hour sitcom and turning into three webisodes. So, we haven’t thought about making entertainment into three-minute vignettes, but we have thought about taking entertainment into smaller, digestible bites rather than a two-hour movie.
EQ: In a way, you’re really innovating the way people view entertainment content. Can you talk about your model there, and some of the projects you’ve already launched?
Rossi: When we originally were getting into entertainment, we found many obstacles. It’s a complex process, and a lot of people don’t take you seriously. We decided, “Well, we’ll just go and make our first movie. Then, people will take us more seriously.” When you go through the process of making a movie, you discover many things. One of the things is that filming the movie is actually probably the easiest and the fastest part. It’s a very miniscule part of making movies, but the planning, the pre-production, getting set up to film a movie, that’s a pretty time-intensive and capital-intensive part of the process.
But by far, the biggest component of making a movie is the post-production. I mean, it takes months. It takes many man-hours and a lot of capital. You have to go through that process. But when we finally had a movie, people in the industry were taking us much more seriously.
The first one we did was a family-entertainment film called Gifted. It was an independent film approach, using new actors but a professional crew. We filmed it guerrilla-style all over Vancouver and all over Maui. It had the old appeal of a James Bond series where we have this independent film but with exotic locations.
EQ: That sounds very intriguing. How has the reception been so far for Gifted?
Rossi: We had a pre-screening at the Dunbar Theatre, and it was standing-room only. We had 500 people show. We had some good reviews written about it. As a matter of fact, we got some international sales as well. We viewed it at the American Film Market (AFM) in Los Angeles, so it got a lot of attention. As a debutante and as a coming out movie, I think it’s an excellent movie when you consider that the majority of it has been created by amateurs.
Our second movie was a sequel to this. For Gifted 2, we used a bigger crew and it was a bigger budget. It was much more ambitious. It was filmed in Vancouver, London, Scotland, India, and on Mt. Vesuvius. Again, we went with a guerrilla crew, flying around the world. It’s almost anachronistic – you have these exotic James Bond locations, yet you have a children’s Walt Disney-type film, just not the $10 million budget.
EQ: What part of the process do you own? Do you start with a script, or do you buy the script and then focus on the filming and the post-production?
Rossi: Well, we buy or build. We can do any process. For the first two movies, we own everything we’ve done. For the third one, called Primal Shift, we hired a screenwriter. It’s a thriller; it’s not a family movie. We’re just about to sign another one that’s being filmed in Italy, which is another thriller.
We have the ability to control the whole process, but we’re happy to sub-contract it out. You see, no matter how long the road is, you have to walk along with it to see what it passes by. Because we have the expertise for every single component of making a film, it makes us better managers if we outsource it. For instance, it’s very difficult to know who’s a good editor and who isn’t.
We can control every aspect, and of course, when we sit down and negotiate, people we’re talking to know we know how to do it. It gives us way more credibility, way more respect and the ability to say, “Hey, you’re charging too much for this. Or, “you’re doing a crappy job for that.” We’re totally in-house, but we also outsource some components.
EQ: Would you say that you have a model for the movie projects you pursue?
Rossi: Technology has become much more affordable for film-making, along with editing, acting, and all these components. You look at all these reality shows, with America’s Got Talent and some of these great singers that are coming out. People are being given a chance to show their stuff.
You’re able to make decent movies now for under $200,000. Many independent films have been made for $250,000, and there’s 87 different markets where these movies are sold. At AFM in Los Angeles, in Berlin, and at Cannes. You have 87 markets, and they’ll all give you $20,000. You’re talking about $1.6 million there. It’s actually pretty easy to sell a movie in the range of $500,000 to $1 million in these different markets, like the DVD market, the airline market, Netflix, and so on. It’s not so easy to sell a movie between $1 and $4 million. That’s different. I’m not talking about theatrical releases here. That’s a different animal.
So our model here is to make movies for under $200,000 and sell it for maybe $300,000 to $500,000 each. So you can be guaranteed to make, let’s say worse case, a $200,000 profit per film. We’ll start with three or four a year, and maybe get that up to 10 a year.
EQ: That’s a nice steady and scalable approach that you’re talking about there.
Rossi: The thing is, if you get a sleeper hit among the productions, then you will be doing $50-$100 million and it will be a huge win for us. You have to think about the model here. Making these movies is like drilling for oil, except every oil hole that we drill is profitable. Along those lines, by honing our skill, by listening to our audience, we can get a sleeper hit. If a sleeper hit comes along, the movie will not sell for $400,000 or $500,000. It will sell for $10-$15 million, and that’s the big pay day.
If you look at The King’s Speech, which was supposed to do $25 million, it did $100 million. Look at Slumdog Millionaire or Titanic, which is now at $2 billion with all of its residual licensing. It’s a very serious game, and the trick is to stay profitable while you’re playing the game.
EQ: Using a baseball analogy, you’re hitting doubles and singles and all of a sudden, you’re hitting a grand slam.
Rossi: Exactly.
EQ: I want to get your thoughts on the distribution. There’s high demand for digital content right now from numerous outlets. There are more and more competitors entering the space with their own dedicated subscription services that need more cost-effective content for their subscribers. How are you positioned to take advantage of this trend?
Rossi: As I said earlier on, there’s about 87 different markets around the world in the way these films are sold. For instance, Finland is a market. Italy is a market. The airlines are a market. There are these different film festivals–the big ones are in Berlin, Cannes, and Los Angeles, which is AFM. You have 87 markets represented by about a thousand guys that are coming in to try and buy the rights to your movie, and they bid on them. Right now, the demand is very strong and some of these guys have digital content they’re releasing, and some of them just have DVDS.
Believe it or not, they’re still releasing it in stores like Walmart (WMT) . There are more people coming into the market, but the demand is surging beyond the supply. The demand is surging for several reasons. You’ve got the Indian market developing, you’ve got the China market developing, you’ve got the digital market developing. Those are just some positive trends. If you really think about the mechanics of the digital market, it wasn’t so long ago that TV programming was shared in a household. After dinner, the families sit down and decide what channel they’re going to watch.
Well that doesn’t happen anymore. They all watch their own programs on their laptops and on their digital device. After dinner, they’re all watching their own stuff. Even if they’re watching the same show, they’re all watching it on their own device at their own different times. This has led to an explosion in demand. It’s gone from seven guys watching a TV, or three guys watching a TV, to everyone watching their own TV. That itself is a huge surge. All these things go together, and you’ve got this huge demand for programming and not enough quality shows coming up.
EQ: You’re seeing a lot of places like HBO or Netflix (NFLX) where content is a huge cost concern for them. As more of these companies spin off their own service, that’s only going to continue and drive a bidding war for content. Does that help you?
Rossi: Well, if you look at Netflix, even Netflix has gotten big. And so has HBO. For them to produce a show is already about ten-times the price for me to produce a show. I mean, I was in a Walt Disney movie with a $10 million budget. That was Zac and Cody, and I know for a fact that it would cost us far less to produce. It cost them $10 million. They’ve got a dozen lawyers involved; they’ve got several unions involved. They’ve got supervisors involved, if it’s out of the country. That’s what happens when you become a big machine. There’s always a market for that beginner player or that intermediate player that can be cost-effective. I mean, geez, with the Canadian dollar going down, I’ve already had a 30% increase in calls from Los Angeles and from Europe. The Canadian dollar is making Vancouver and making Canada, in general, a super attractive place to produce.
EQ: Do you have any longer-term goals for doing theatrical releases?
Rossi: Well, the theatrical release is, again, a different animal. They tend to require between $10 and $20 million in printing and advertising. You have to have a strong actor name. Is it in our vision to do a theatrical release? Absolutely. If you look at our Board of Advisors, William Sadleir is on our Board. He is the Chairman of Clarius Entertainment, which is one of the biggest distributors in Hollywood. We are discussing with them on how to do that. We’re not in the game yet. I think we need to have another seven or eight great movies come out, and then we can feel more comfortable releasing something with a star actor. It is going to cost more but will be deemed as high-quality and can have that theatrical draw.
EQ: You mentioned William Sadleir. There’s also Uwe Boll on your advisory board. Can you talk about the people that are getting involved, and the opportunities they see with Quizam?
Rossi: Right. Uwe Boll has come on. He is known for directing films that are a little bit controversial because some of his films are a little bit racy and they haven’t gotten the best acclaim, but he’s been very successful with distribution. He’s like the king of independent film distribution. In the last eight years, he’s sold $500 million worth of deals through these 87 different markets I’m talking about.
Then we’ve got Lewis Shoenbrun, who is an award-winning director of five feature films and he’s been in the movie business now for 30 years, working in New York, Hollywood, and Southeast Asia. He has 45 feature length films that he’s edited. His movies have been distributed around the world. He’s worked with Robert Zemeckis. He worked on Forrest Gump. He worked on The Godfather. I mean, the guy is a veteran of Hollywood editing, and he heads up our post-production facilities in Cebu, Philippines.
We also have Jacqueline Wechselberger. She has over 27 years of experience in the United States and in Europe doing studio finance. She works for CBS, Disney (DIS) , Paramount, Universal, Miramax. She’s done a lot of work for The Weinstein Company, and currently is working with Martin Scorsese on a movie. Very, very seasoned in financing and in distribution.
So, we have someone that’s great at post-production, someone that’s great on production finance, and someone that’s great on distribution. Then, to round the whole thing off into a different level, I’ve got Bill Sadler, who is a top Hollywood guy. I mean, he competes with Weinstein. He has 25 years of finance. He was a right-hand guy in finance and PR for Ronald Reagan. He has a great, new distribution company in Hollywood, which is more for theatrical releases, but he also has a team of script advisors. He has a team of distribution advisors. Being under his wing, we look at the scripts. We send them to his script team for assessment.
EQ: That’s quite an impressive team you’ve assembled right there on your Board of Advisors. What are some upcoming announcements or developments out of Quizam that investors should be watching for in the coming year? Will it mostly be coming out of the entertainment division or from OnTrack as well?
Rossi:I look at the e-learning side as almost like a blue chip. It’s steady growth and steady profit coming in at 12%-20% for the company. We’ve got our bags stocked with a division that’s expanding. We’re continuing to get contracts, and we’re proving our online courses. That’s our safety net of growth. It gives us our cash flow.
On the movie side, you might look at some of the movies that we are signing and creating over the next 18 months. You’ll probably see another three or four that we sign and complete. You’ll see some sales. As a matter of fact, one we’re signing right now—I can’t say what it is but I can tell you that we’ve already got pre-sale offers on it—it’s at the point now where we’re putting up $150,000 for a film, and I’ve already got $75,000 in minimum guarantees on the backside.
So watch what we do with these films, and if we can execute per our plan. I’d be watching what movies we do, and what sales we get for making those movies. I’m pretty confident that each one’s going to be profitable. I think each one is going to probably average around $200,000 profit. It’s like drilling for oil. If every oil well doesn’t bleed dry, then it actually makes you stronger.
EQ: It’s a good mix of stable growth and game-changing potential. Is there anything that we missed, or any closing thoughts that you want to hit on?
Rossi: We started this idea from watching YouTube. We started looking at what content creators on YouTube do well. The majority of YouTube is education and entertainment, and then you couple that with the fact that everyone is glued to their mobile devices or their laptops, and everyone is staying connected and being entertained. We’re in a very, very growth and high-demand arena, which I think positions us really well. I think the stock is undervalued, and I think that based on the price of stock, it can really only go up. I can’t think of a more explosive area to be in right now than the one we’re in.
For more information on Quizam Media Corp., visit quizammedia.com.
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