Flixster membership and revenues slumped after the first two years which will happen to any revenue generating website that fails to engage its members, Jonathan Sasse, our Marketing Director, took a member based startup website from zero to over 8 million members in three years. He likes our concept and we are confident he will do it for FlixPik. At eight million members, our profit goes through the roof. We are eager to get funded and give Jonathan the opportunity to bring eight million members to FlixPik in three years.
Jonathan Sasse, Marketing Director
We are a startup venture. No one has done before what we seek to accomplish. We do not have a prior operation on which to base our financial projections. We may do better than plan. We may do worse. Highly unlikely we will hit our projections exactly. But, still, investors should know our objectives in forming FlixPik and on what we base our projections. The following is a summary of how we made our financial forecast.
$5 Million Funding Goal
Our company will be guided by Management by Objectives principles. A basic of MBO is to set out where you want to finish and work back to what you must do to get there.
Our overarching objective is to build a large, growing, profitable website that will be attractive to a public company acquirer or an IPO (initial public stock offering). To accomplish that goal, we must have an attractive website that engages and retains our members. To be successful, a large number of active members must join in creating our entertainment and a significant portion of members will purchase downloads, dvds, and streaming of the entertainment they helped create.
To accomplish our goals of member growth and retention, we must have an active website which to us translates to one new film per month with the series of selections, daily film reports, music addition, editing, .... that go with each film to engage our members.
An accepted 'rule of thumb' in the film industry for a quality film without name actors and costly special effects is $3 million and that is our target - quality films.
Participative audio/ visual entertainment has been ignored by the film industry. But, once we establish the viability of participative film making, we anticipate competition from many sources. It is important we get off quickly and obtain a dominant market share before competition comes after us. To us, that means front end marketing at over $5 million.
Add these elements - new film per month, $3 million per film, and $5.2 million for 'shock and awe' marketing - and we require $25 million funding. We have matching funding offers which will allow us to match initial $5 million funding with $20 million debt to obtain the needed $25 million funding needed.
We can back off the desired elements - new film every other month, $1 million films, and do heavy marketing when we have cash flow - and the numbers drop to $15 million or $8.5 million, but $25 million gives us our best chance to be successful.
Assumptions and Logic Used
Rather than inventing numbers, we used a smoothed out replica of the first year growth of Flixster, a member based website for film fans, We believe our website will have more to engage members, but did not enhance Flixster's first year growth in our forecast.
Pricing for downloads, DVDs, and streaming are changing rapidly as new technology becomes more dominant in the entertainment market. For first year projections, we used current pricing from the cable companies and other sources to estimate our product prices as follows:
Download - one time rental $ 3.99
Download - purchase $15
DVD purchase $18
We, conservatively, estimate member purchases at 5% to 10% of member base although we expect a much larger percentage of members to engage in creating films with us and buying downloads, dvds, and streaming of what they helped produce.
We estimate distribution costs as a percentage of sales as follows:
We consider web advertising as a secondary revenue source and estimate the web advertisement broker fee at 15% of sales and web advertising sales at $10 per million pages read which are current industry norms.
We do not anticipate hiring more than fifty full-time employees first year per operations location. Like other film companies, we will hire part-time employees and many contract employees. In fact, we expect to hire about twenty part-time script readers at $2,500 per month each and about 250 contract cast and crew employees.
Costs for insurance, facility rental, utilities, and other corporate expenses come from past experience with other companies.
We loaded first year web development and maintenance costs in at $0.64 million and webhosting at $0.564 million first year and increase as traffic increases.
In our first year, we plan to produce shorts, offer access to our members for independent film producers, and open up other sales opportunities,. We included estimated costs but not revenue from these expansions in our income projections.
For our films, we project ten months from start to completion and sale of downloads and dvds.
Three Year Income Forecast
Using these assumptions and projections, we developed a summary income forecast as follows:
1st Year 2nd Year 3rd Year
Members 3.60 5.25 5.85
Sales $21.4 $105.7 $148.5
Net Income $(22.4) $35.8 $51.5
Did we overestimate or underestimate?