Float Like A . . . ? – Nation Media plc


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Nation Media plc, parent company of BoxNation, is about to be floated on the London Stock Exchange (specifically, on AIM, its “international market for smaller growing companies”). It seems that BoxNation subscribers, of whom I am one, are being asked whether they are interested in investing. Should we be? Let’s have a closer look.

BoxNation has three principal shareholders: the family of promoter Frank Warren, an Indian broadcasting company called Zoom Communications Ltd. (of which I have never heard, but which evidently provides certain services to BoxNation), and Bill Ives, owner of Rainham Steel. The current capital raising involves a “Placing” of shares with large investors, expected to raise £5m, and a simultaneous “Offering” to the general public which aims to raise £1.5m-£3.5m. Bill Ives is going to invest another £500,000 as part of the Placing, which will bring the total amount he has invested in the business to (as far as I can tell) £3.8m. Rainham also provides money to BoxNation by way of a loan of ca. £3.5m.

In 2013, the first year for which the business had meaningful numbers, BoxNation had losses of ca. £4.8m on revenues of ca. £9.7m. It is not unusual for a business in this early stage of development to be loss-making, especially in an area as volatile as broadcasting & media. However, it does look as if business was much tougher than anticipated. The offer documents state that since last July BoxNation “has undergone a re-financing which has significantly altered its net asset position”. This appears to be a euphemism for “it went bust and had to be rescued”. At any rate, £500k of debt to Bill Ives was converted into equity and he injected cash of a further £2.8m to settle various liabilities of the company (which it presumably could not settle itself), including amounts outstanding to affiliates of the other major shareholders.

The principal source of revenue for the company is, of course, viewer subscriptions. The company states that “[a]t around 155,000 subscribers the Company is likely to cover fully its current operating and event costs and show positive cash flow. At around 200,000 subscribers the Company is likely to be significantly profitable.”

How are they doing against these targets? Well, according to their own information, they started in January 2012 with about 15,000 subscribers, rising to ca. 50,000 in mid-2012. Then, thanks to a huge marketing effort around Haye-Chisora, one of the biggest all-British fights of the year, numbers briefly touched 150,000 before falling back to about 100,000 by year end. They drifted down from there to about 75,000-80,000 for most of 2013 before rising to ca. 125,000 in late September 2013 for Mayweather-Alvarez and falling again to about 100,000 by the end of last year.

In other words, positive cash flow (155,000 subscribers), never mind profitability (200,000), seems a long way away. So what is the strategy for the business going forward? According to the company, it has three elements:
• to set up an HD version of the channel, in particular to support PPV events
• to license content to other Pay TV platforms and overseas broadcasters
• to improve online and mobile and develop commercial revenue sources such as advertising, sponsorship and gambling

Here are the problems as I see them. Please note that this is just my opinion, not investment advice. It goes without saying that anyone considering buying shares should consult with a financial professional and not rely on something they read on some stranger’s blog. With the disclaimer in place, here goes:

1. First, what are the prospects for growth in the UK? According to BoxNation’s research, in the UK there are 6,989,000 boxing fans of whom 2,729,000 are “very interested in boxing”. BoxNation has a database of 250,000 names, most of whom are existing or past (cancelled) subscribers. However, it is really hard to believe that any of these real boxing fans haven’t already had a look at BoxNation over the last couple of years and made their minds up about becoming subscribers. Could they be persuaded otherwise? Well-marketed, big all-UK events might deliver subscription spikes (as Haye-Chisora did). But if the business plan is to be sustainable Nation Media appears to need long-term subscribers, which occasional big fights clearly don’t deliver, as shown by all the cancellations after the major events last year. What they need is big fights every month, so that each subscription payment is justified as a PPV fee in its own right. Besides Frank Warren, BoxNation works with smaller UK promoters including Ricky Hatton, Frank Maloney and Barry McGuigan (who at least has a potential star in Carl Frampton), which provides regular, good UK-focused content. The channel also has some fighters who can pull in a somewhat bigger crowd – currently, Tyson Fury and Derek Chisora are probably top of the list. But if that hasn’t done the trick already, it’s hard to see how BoxNation will double subscriptions (and so get to profitability) by appealing to the UK market. BoxNation’s big problem in the UK is the stiff competition provided by Sky, which has an exclusive agreement with Matchroom Sports, owned by Frank Warren’s big rival Barry Hearns. There’s an obvious Catch-22 for BoxNation: the bigger Sky is, the greater the exposure it offers fighters, so the more they will want to be on Sky (and with Matchroom) rather than BoxNation, and without the fighters, the harder it is for BoxNation to attract more subscribers and compete with Sky. According to the offering document, “Frank Warren has long considered that Sky was losing interest in boxing”, but not much evidence of this is provided: in fact, as the document grudgingly acknowledges, “Sky and Matchroom recently extended their deal until 2016”. Also, although the document suggests otherwise, the 20 nights a year of non-PPV boxing Sky have contracted to broadcast is actually quite a lot (after all, there are only 52 weekends in the year), and Sky supports it with other programming too (notably their regular boxing news show “Ringside”). What’s more, in my opinion anyway, Sky’s coverage isn’t bad at all: certainly, their recent coverage of the Lee Selby fight, with an undercard including Rees-Buckland, was better than any UK action BoxNation have shown lately. I suspect a lot of those millions of boxing fans identified in the documentation are already getting everything they want or need from Sky.

2. Secondly, how about the ambition to license content to overseas broadcasters and other Pay TV platforms? I’m not sure what other Pay TV platforms they mean (they are already available on Sky and Virgin). As for overseas, well, there are smaller broadcasters who take British fights. But with the best will in the world, I have my doubts about the depth of international demand for the undercard at York Hall, or pictures of Tyson Fury’s moobs.

3. Thirdly, will HD and PPV make a difference? HD strikes me as an absolute minimum requirement rather than a positive. All other sports channels have it. As for PPV, it depends on the fights they get. A lot of the UK PPV fights will end up on Sky: partly because that’s what Sky are good at, and partly because Sky still has its agreement with Matchroom, who have many of the most exciting UK fighters (including both Carl Froch and George Groves, whose rematch in May will certainly be the big event of the year in the UK). There’s also international PPV of course, but this always suffers from being shown at impossible times in the UK. Are people really going to pay to watch a fight that starts at 4am? Of course they can record it and watch it in the morning, but by then they will have seen the result, and the whole purpose of PPV – seeing the action live and exclusively – is undermined.

4. Finally, what about other revenue sources, such as the gambling and advertising they suggest? Well, these might help – but it isn’t clear to me why BoxNation will be able to do this any better than anyone else. After all, there are a million places to place a bet online already. Also, BoxNation announced last year that it had signed an agreement with Media Corp, another AIM-listed company specializing in online gambling, but nothing seems to have come of it yet. And anyway, all these other forms of revenue, whether sponsorship, gambling or advertising will ultimately depend on the number of subscribers the channel has. I might mention in this connection that I have been a subscriber for a while, but I don’t remember BoxNation ever trying to sell me anything other than its programming.

Ultimately, it is inescapable that the prospects for the company depend on finding and keeping new UK subscribers. Quite apart from the points raised above, there are two big problems with this. Firstly, what has primarily driven UK interest in boxing is the popularity of individual British fighters. McGuigan, Eubank, Benn, Hatton, Calzaghe, Bruno & Hamed, to name a few, all caught the public imagination. But there are really no such fighters at present. In the absence of such figures, boxing feels like a mature market, with only limited potential appeal outside a core fan base which isn’t growing much. Secondly, and perhaps more problematically in the long run, boxing is terribly uncertain. No one knows what fights will be made from year to year, or even month to month. Whole years can go by without any big fights being made. Boxing is not like tennis, football, or other big sports, which offer predictable events according to a well-established calendar. For this reason it is doubtful that the sport lends itself to the sort of subscription model BoxNation has chosen – even if BoxNation could get the big fights and the big-name fighters.

According to the offering materials, existing shareholders have invested £12.5m in BoxNation to date. According to morningstar.com, the new capital raising values the existing company at between £11.44m and £14.3m (the exact amount depends how successful the flotation is). In other words, the company’s value has increased either barely or not at all since it was created – exactly what you would expect for a struggling company in a mature or declining market. And given the fact that the company appears to be having difficulty sustaining even half the numbers it needs for profitability, it is hard to believe that even this valuation can be right.

One final note. I like BoxNation. I watch it a fair amount. I even rather like Steve Bunce, who gets more airtime than Kim Jong-Un. BoxNation shows a lot of action, and fighters, we would otherwise never see, from the UK and elsewhere, including both minor and major events. If it ever disappeared, I would miss it. I just don’t see how the numbers stack up.