19 Entertainment cutting back in London
'Idol' renewal meeting with Fox set for next weekNEW YORK -- "American Idol" producer 19 Entertainment expects to cut at least half of its $30 million in annual selling, general and administrative expenses in London by reducing staff there as part of an effort to scale the office back "dramatically," as management put it, and focus the business on the U.S. market and core brands "Idol," "So You Think You can Dance" and "If I Can Dream."
The update on the plans following the departure of 19 founder SImon Fuller from a day-to-day role at the company came Tuesday as 19 parent and holding firm CKX reported its latest financials. On a conference call, chairman and CEO Robert Sillerman also said he and Fuller will meet with Fox executives in LA next week to finalize a long-anticipated renewal of "Idol" through 2014 that has been in the works since September.
Sillerman said the process has been "tortuously long" and pointed to Fox's deal talks with Simon Cowell as one factor contributing to the delay. Agreements on key deal terms were reached late last year, but "an on-air issue" he didn't specify remains outstanding, he said, adding he expects a deal to be finalized quickly.
One key remaining issue seems to be the pay for the services of "Idol" host Ryan Seacrest. WHile he signed a contract with CKX/19 last year, CKX said in its annual report Tuesday that 19 is "in the process of negotiating with Fox and Fremantle for compensation related to Mr. Seacrest's services on "American Idol," but didn't provide further details. The company said it could get money for Seacrest's role on "Idol" services either from the partners directly or via a reimbursement from Seacrest.
The report gave details about CKX's July 2009 deals with Seacrest that ensured his availability for 2010, 2011 and 2012 and acquired Seacrest's prime time TV network exclusivity for future potential projects during the term of the agreement. The company paid Seacrest $22.5 million upon execution of the agreements and is paying him an additional $22.5 million in monthly installments, for a total guaranteed amount of $45 million.
As far as 19's London office goes, Sillerman said the firm will refocus its business on the key U.S. market where it expects to get most of its revenue. While it will not close the London presence, the office there will be scaled down dramatically, he said, but wouldn't give further specifics as employees were still being notified about their future.
CKX reported Tuesday that 19 Entertainment boosted its revenue 15% in 2009 thanks to an additional fall run of "Dance" and other programming that more than offset declines at "Idol." But the firm's bottom line declined amid lower foreign syndication and sponsorship revenue for "Idol."
CKX posted 19 revenue of $263.5 million for 2009, up 15%, and said its Elvis Presley business revenue rose 10.4% to $60.6 million. Muhammad Ali revenue rose 5.1% to $4.2 million last year. That left CKX's total 2009 revenue up 13.9% at $328.3 million.
Operating income before depreciation, amortization and non-cash stock compensation (OIBDAN) fell 30% to $67.5 million for 2009.
19 Entertainment posted a 32% decline here to $63.3 million, while Presley results rose 60% to $26.7 million and the Ali business grew more than 7% to $1.1 million.
"For the full year we were able to generate significant revenue growth and experienced only modest declines in adjusted OIBDAN despite the reductions in advertising and promotion spending arising from the global recession and our increase in development spending," said Sillerman.
The recent deal to restructure the firm's partnership with Fuller and focus 19 on its hit properties will "drive improved performance by significantly reducing unproductive development spending and related overhead," Sillerman said.
"Management intends to exit most of the other businesses within 19 Entertainment by the summer of 2010," the CKX annual report said. "These businesses will either be closed, sold or transferred, including potentially being sold or transferred to Mr. Fuller's new entertainment venture, XIX Entertainment."
Sillerman told analysts Tuesday that CKX didn't make use of a right to make an investment in the new Fuller company by a certain deadline, but he will bring up such a potential move when they meet next week.
In another highlight from the CKX annual report, 19 recognized a non-cash impairment charge of $2.5 million to reduce the carrying value of U.K.-based model agency Storm Model Management due to Fuller's departure from a full-time role at 19. The company acquired a 51% stake in Storm in the third quarter of 2009 and expected Fuller "would be a key contributor to its growth and operations."