KC Underweight Deal: Is A Regional Film Studio Scalable?

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Summary

Today we are taking a close look at the strengths and drawbacks of a regional film studio, Mid-Atlantic Studios, currently raising on WeFunder. As the name suggests, Mid-Atlantic Studios is based in the Mid-Atlantic region of the U.S. and is an original studio working towards growing the filmmaking industry in its home geography.

The studio tries to hire talent locally and aims to create a sustainable filmmaking environment. True to form, it is looking looking to attract investors from the MidAtlantic region as will to engender a vibrant film hub. The stated long-term goal of the venture is to create jobs and wages for writers, actors, and other technical staff in it’s home region.

Mid-Atlantic Studios already has two projects underway, and one more is on its way. As with many a startup, the studio is planning to keep budgets lean for the foreseeable future.

It’s worth mentioning that Ron Newcomb, the founder of Mid-Atlantic Studios, has over two decades of experience in filmmaking. He is using his talent and work experience in developing distribution outlets for the films produced by Mid-Atlantic Studios.

The concept of a regional film studio sounds promising and warms the heart. That said, there are several drawbacks. The most significant of which is the scalability of the business. As a regional studio it’s inherently restricted – for talent, filming locations, and distribution.

Below we take a closer look at this hindrance, as well as a few other concerns related to Mid-Atlantic Studios funding round and concept.

Lack of Scalability

Producing film is an inherently capital intensive and time intensive business. That’s why the best studios in the US produce movies that will have distribution to millions of Americans through established national channels such as movie theater chains and streaming services. Mid-Atlantic Studios has yet to establish itself as a production house that will garner any meaningful distribution outside of regional movie houses.

Digital distribution of content is a plus and it’s certainly easier to attempt this business model today than it was in the past – but ultimately, it will be quite tricky for Mid-Atlantic Studios to scale its operations and grow beyond its self-defined boundaries.

Additionally, Mid-Atlantic Studios will be competing with other big studios that have access to a broader pool of talent, money and distribution to win. Without significant capital backing from larger investors and buy in from the broader media industry, it will be hard for Mid-Atlantic Studios to be a viable at-scale business.

High Valuation

Mid-Atlantic Studios was valued at $4.28 million before the equity crowdfunding round. We’ve reviewed the company’s past operations and plans and the valuation seems to be unjustified considering the company only came into existence in 2018. Management has produced no profitable films under the Mid-Atlantic banner.

This isn’t necessarily a problem: We here at KingsCrowd are used to reviewing startups with little-to-no operating history. That said, we are also used to a more modest valuation in such cases or much larger market opportunities. It is quite likely that the studio will inevitably run into an array of problems, expenses, complications, and delays: all of which cost money and more importantly time.

No Capital Raised, Yet

As with any other venture, Filmmaking requires a lot of resources – time and money. The company needs to have ample financial, technical, and human capital to be successful at making a profitable film let alone building up a regions film industry.

Mid-Atlantic Studios has not yet raised any capital – an automatic red flag. Moreover, the company is also restricting its potential by trying to raise capital from it’s home geography. Our concern is that the company may not be able to raise enough financing to be able to execute on its vision.

Risks related with the Filmmaking Industry

Mid-Atlantic Studios is also subject to the obvious risks associated with the filmmaking industry. Even if the company can drive films to completion, the success of it will depend on the audience’s unpredictable reaction. Even the best studios have flops now and again.

The completion and commercial success of a motion picture are dependent on several uncontrollable factors like talent availability, financing, critical reviews, distribution strategy, piracy, and other tangible and intangible factors.

We remain on the sidelines as to the question of whether or not Mid-Atlantic Studios will be able to generate optimum returns on investors given all these risks, especially at the current bloated valuation.

Rating

We are assigning the rating of an Underweight Deal to Mid-Atlantic Studios.

Though management has a laudable goal, the studio shows signs of not being able to become a viable long-term business with a meaningful upside exit for investor. This, on top of the obvious difficulties associated with any film-creative work, makes the deal concerning in our view.

As always, It is advisable to investors to perform their own due diligence before investing in any crowdfunding deal. The strength of the crowdfunding market comes from each individual weighing the strengths and weaknesses of startups before making their investment decision.