7:28am PT by Eriq Gardner
Fuse Media Cites "Cord-Cutting" Trends in Chapter 11 Bankruptcy
Fuse Media has filed for bankruptcy. A Chapter 11 filing Monday night in Delaware nods to the transformation in the pay-TV marketplace for declining revenues.
The Glendale, Calif.-based company is the largest independently owned cable television network, and focused on reaching millennials and a multicultural audience, Fuse brings a mix of lifestyle and music with shows including T-Pain's School of Business, Big Boy's Neighborhood, Future History and the award-winning Fuse Docs franchise. The company, which employs about 100 full-time employees, also operates music-centric FM and digital platform Fuse.TV.
According to bankruptcy documents, Fuse generated $114.7 million in net revenue last year primarily through affiliate fees and advertising revenue.
However, states CEO Miguel Roggero in court papers, bankruptcy has been brought on by rapid changes in the media marketplace, particularly competition from Netflix, Hulu and other video-on-demand services. That's led to "cord-cutting" and "cord-shaving," he says, adding, "Each quarter the Company receives less revenue from its traditional pay-TV distribution partners as the result of the decline in subscribers receiving the Company's networks. And new sources of revenue for the Company, although developing and in progress, have not grown sufficiently to offset revenue declines in the legacy business. As a result of these trends, the refinancing of the Company's debt was not viable."
Earlier this month, Roggero took over from Michael Schwimmer, who helped build the company 16 years ago when Dish Network made an investment in SiTV Media. After rebranding as NUVOtv, the company made another transformation after acquiring assets in 2014 from the Madison Square Garden Company. At the time, affiliate fees were projected to reach nearly $500 million by the end of the decade.
Not only has Fuse struggled to get there amid marketplace trends, but the company got dropped by Comcast at the beginning of the year and is also fighting in court with DirecTV, which in February, claimed Fuse had breached its affiliate agreement by failing to offer an early right to terminate an affiliate agreement. DirecTV claims Fuse has failed to provide satisfactory programming content and is offering more favorable promotional previews to new subscribers of another distributor.
To make Fuse's situation even more dire, the company finds itself servicing existing debt. According to bankruptcy papers, the outstanding principal balance on its senior notes is $242 million. As for unsecured creditors, Fuse lists Showtime Networks, Buena Vista Television, Universal Studios, Comcast and MGM Studios as each being owed hundreds of thousands of dollars.
Fuse is bringing a prepackaged Chapter 11 plan to Delaware court, hoping to de-leverage the balance sheet through restructuring and trimmed contracts.
States Roggero, "Upon doing so, the Company will be better able to effectively support its core linear networks business, as well as pursue growth areas, such as virtual multichannel video programming distribution (e.g., YouTubeTV and HuluLive), advertising supported distribution (AVOD) and complementary areas such as live events and music festivals. The Company also will be well-positioned post-emergence to explore strategic transactions that can accelerate greater growth in new areas for stakeholders."