India's largest, and the world's third largest, animation company, Pentamedia Graphics Ltd., announced that it was taking a 51 per cent stake in the US-based Film Roman Inc., a leading producer of prime time television animation programming, in an all-cash deal worth $15 million. A Nasdaq listed company, Film Roman reported a loss of $ 2 million on a turnover of over $ 48 million for the year ended 31 December 1999. The acquisition has been carried out at a premium of 30 per cent to the market quote. domain-B feels it is only a matter of time before Pentamedia will take over the entire stake in Film Roman.
Film Roman is also one of the largest and most respected independent broad based feature film production companies in the world. The deal will help Pentamedia, which also specializes in special effects, internet broadcasting and multimedia, further enhance its presence in the world entertainment software market. According to Dr Chandrasekaran, Film Roman, with its current production and development slate of live action television and major motion pictures, will firmly establish Pentamedia's US presence. He is very sure that the only winners in this deal with be audiences worldwide and the shareholders of both companies.
As a result of this acquisition, the board of directors of Film Roman will have five directors from Pentamedia Graphics Ltd. and four from Film Roman. According to Dr. V Chandrasekaran, chairman and chief executive officer of the company, Film Roman will be a key part of Pentamedia's strategy to expand its entertainment and media presence in the United States and other parts of the world.
Reacting to questions from the press, Mr John W Hyde, president and chief executive officer of Film Roman Inc said that ultimately there will be a seamless integration of the two entities worldwide animation production capabilities. Mr. Hyde joined Film Roman 11 months ago, when the company, with over 400 talented personnel, was stagnating due to lack of contracts. Mr. Hyde went about with a four pronged strategy that revolved around cutting costs, aggressively seeking new business, raising the performance level of the people and raising additional capital. Since joining, he has been successful in cutting over $11 million in costs.
While the offshore production aspects of all current Film Roman animated series will continue to be handled through long-standing current contracts in Korea and Philippines, chances are that in future a significant portion of this offshore work will be carried out at digital studios of Pentamedia Graphics located in India, Singapore, Malaysia and Canada.
In response to a question from domain-b on the future potential, Dr. Chandrasekaran said, "the potential of the entertainment industry can be gauged by the fact that globally, more than 245,000 hours of programming is required and this is expected to grow 60-70 per cent every year over the next five years." He said the Indian entertainment software market itself was expected to grow to around Rs 65,000 crore by 2003.
As part of the overall strategy, Pentamedia will infuse significant capital into Film Roman to enhance all aspects of its current operations as well as empowering it to step up development of its growing slate of projects while not changing the way it does business. These projects include both live action and animated theatrical motion pictures, broadcast and cable television series, made for video titles and Internet applications.
For the quarter ended 30 September 2000, Pentamedia Graphics reported a flat bottom line of Rs. 25.80 crore as against Rs 25.61 crore for the corresponding period in the previous year. This stagnation in net profit after tax was despite a 45 per cent growth in total income, which stood at Rs 135 crore in comparison to Rs 98.45 crore in the corresponding period in the previous year. This had largely arisen due to a one time provision of about Rs 20 crore to cover its "perceived" risk on e-commerce activities on Num TV. In the event of no actual write-offs taking place, the provision could also be written back.