MEDIA CFO — Episode 006 — Roland Wieshofer, former Chief Financial Officer of Blumhouse Productions, talks to Tobias Jaeger about the growing role of the entertainment CFO, from accountant to overall financial advisor
We sat down with veteran entertainment CFO Roland Wieshofer, for a double episode special. Roland started his career as supervising accountant and built a deep finance and accounting expertise in film and digital. Roland was instrumental in modelling and building one of the first streaming ventures as well as the financial management of some of the most successful film production companies.
Roland Wieshofer has built his career in finance and accounting over the last three decades, serving in increasingly significant positions in industries such as construction, automotive, and manufacturing until he transitioned into the media and entertainment industry more than 15 years ago. When relocating to Los Angeles, he started a deep dive into the entertainment industry where he served as VP Finance, Chief Accounting Officer, and Chief Financial Officer at companies like CinemaNow, Exclusive Media, Media Rights Capital and, until recently, Blumhouse Productions.
“And I just said ‘Look, given where you’re at with the company in the startup phase, unless you can tell me that the economics of this business are any different, fundamentally, than any other business that I’ve been involved with in the past I can’t see why I can’t quickly learn the nuances of your business and apply finance whatever rules to it.’ And so I guess he was a little bit taken aback by that. Or maybe even as a challenge and said ‘Okay, you know what, I will give you three months to prove yourself and if after that three months I feel like you actually get the business then you can have the full-time job.’”
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Tobias Jaeger: Roland, welcome to the program.
Roland Wieshofer: Thank you.
TJ: Thanks for being here. Thanks for making the time. I’m obviously very excited that we get a chance to talk because I feel you’ve been in the industry for a very long time in various financial positions obviously. And I know you started in accounting so I am wondering what made you change to the dark side and join the entertainment industry. How did you get into that?
RW: Well I was, in a way, forced into it. Or at least in my mind I was forced into it because my wife Marni was offered a position with Lionsgate as Chief Financial Officer in Los Angeles. Because it started in Toronto but then they were taken over with different senior management, asked to move to LA, and she said to me, she goes “Do you want me to apply for the job in LA? Do you want to move to LA?” And I’m like “Yes.”
RW: Yeah, exactly. Versus Toronto? For sure. Sounded exotic enough but then when we got there of course I was like okay, with my manufacturing background what am I going to do in LA? Not much. I think I had an interview with a window manufacturing company that didn’t sound very exciting. And so I thought well how do I get into the entertainment industry because that’s the industry to be in.
TJ: I was about to say, there’s probably other things but because the entertainment industry is so visible … Like there could be the most magnificent things being produced there and you don’t know about it.
RW: You don’t know about it, yeah. And California being what it is, manufacturing tends to leave where entertainment doesn’t.
TJ: That’s true. That’s true. So take us through your journey a little bit more. You started in accounting. How did you get into that and then where’d you go from there?
RW: Well, I guess the best way to describe it quickly is that-
TJ: We’ve got time. This is a podcast so we can talk on for hours.
RW: We don’t have to break for commercials or anything?
TJ: Nope. No, no.
RW: Okay, good. You know, I’m in my undergraduate program in college and I’m thinking business is what I want to do, but then when you’re in the middle of it you think about okay, well what does business actually mean? And I remember the day I went into the career center at college and I was looking around and I saw a pamphlet for chartered accountants and how you become one and all that sort of stuff. And I thought that was pretty intriguing and maybe this is a path toward continuing your education and getting into business through this way. I don’t think I’m much of a marketing person so, that’s what a lot of other people like to do. Then I thought well maybe I’ll do my MBA at some point in time, whatever. So I just went to the career fairs and said how do I get a job with you guys sort of thing and they said “Well, take all these extra 20 courses and you should be good to go.” And so that’s what I did.
TJ: We’ll see you in three years.
RW: Yeah, exactly. See you in three years. But I mean it was a really good experience. I mean at the time luckily technology was such that there was a computer in one room off in the corner that you could use if you knew how to use it but otherwise nobody used computers. It was paper and pen. So they needed to hire a lot of people.
TJ: You needed to get a license to operate the machine.
RW: Right, yeah. So I was one of, I don’t know, 40 or 50 people that were hired to start in the fall of … What year was it? 1987 or something like that. But no, the education was great. It was difficult to get through to the end but it was rewarding nonetheless and by the time I finished that I was already married with a kid so I just wanted to make it a bit more challenging on myself to actually get the designation. And then I went and did my MBA. I mean almost a year later I enrolled right away and started doing that part-time, which was the most painful way to do an MBA which is work at the same time as you’re doing your MBA.
TJ: Yeah, I can imagine.
RW: With a kid at home as well. So that’s why, interestingly, it took me just over six years to complete my part-time MBA, which is the absolute limit that they allow. After that you have to retake courses.
TJ: Isn’t that a lot of life if just working within the parameters?
RW: Exactly, yeah. And stretching the edges of the envelope I guess. It was a good experience though. There you get to take the courses you like and that appeal to you. And the ones that I thought were most relevant. And by the end of that experience the world had changed again so that, whereas previously people used to pay extra to have an MBA on their staff, now it was we’re not paying extra for the MBA, however the MBA may help you-
TJ: Glad you just made it.
RW: Yeah, I know. The MBA will potentially give you a competitive edge against someone else that might get promoted or hired or whatever like that. So I’m like maybe that’s a better way to look at it is all the education helps you in your decision making as you continue through your career. So from there I left public practice, which was the accounting firm, and went to various different … I went internal audit at a bank and trust company which was incredibly boring and I left that less than a year afterward.
TJ: It’s like I got to get out of here.
RW: Yeah, that was just terrible. And then I went to an eyewear retailer that was at the time one of Canada’s largest and they were going through some financial difficultly and they had angel investors coming in and new executives that were running the place after they put their own money in. So I was hired to be kind of sort of an assistant controller position but to help in the transition there’s a lot of due diligence that had to happen and I had to work with this one guy that was brought in on a consulting basis who was 90 years old. I mean he was like really, really old. But I mean he knew his stuff obviously. He’d been around forever. So it was an interesting learning experience for me dealing with this guy. We got along quite well. I could do all the heavy lifting that he needed and he got all the glory but that was fine. At the end of the day the transaction went through and-
TJ: Great preparation for the entertainment industry.
RW: Exactly, yeah. So that was really fun. It was sort of my first taste of a private company where a potential acquire comes in and what’s involved with doing that.
TJ: While kind of turning it around at the same time I guess.
RW: Exactly. I mean you had to shift the strategy and there’s a financial way obviously to deal with legacy capital structure issues. And then once that sort of cleaned up on a go forward basis you’re like okay, now we’re going to do this differently. Which was fine except for the fact that within a year after the acquisition completed, we moved offices, everybody was in place in the go forward company, and these guys all of a sudden decide that maybe there is no way to make more money on this and maybe it is an old industry that has its problems. So as they started looking at different escape routes I found one of my own.
TJ: I was about to say, it sounds like you were looking for one as well at that time.
RW: Yeah. And then very interestingly I got a call from a partner at the accounting firm that I was working at and he said “I have a client who you will probably know as the largest home building supply company in southern Ontario over the greater Toronto area and he is looking for a German speaking accountant because he’s going in partnership with a couple of guys to build homes in former East Germany after reunification.” One of the companies was I guess “invited” by the government at the time to build affordable housing. Because as you probably know a lot of East Germans lost their homes and whatever and claims from people in the west and it was not a fun time for a lot of people.
“People don’t realize how small the industry is and everybody knows everybody. And because so many entertainment companies go under … My visualization of what happens is is every employee in a building, the building will blow up and all these employees get shot into the air and land in different new companies all over town. So you never know who you’re going to come across again when you go to your next opportunity.”
TJ: I can imagine, yeah.
RW: Yeah, so I thought wow this is really interesting. I hadn’t thought about using whatever German I learned as a kid growing up in a German household in my career. I mean the guy that hired me, he’s Italian-Canadian so the reason he wanted a German speaking CFO was because he obviously didn’t speak the language and he needed somebody on the inside of the company running it to tell him what’s actually going on as opposed to what he’s being told. That was a lot of responsibility at that time in my career and it was really interesting for me in a couple of ways that I could sort of go up a level in my career, again, work in an entrepreneurial environment, a brand new startup type thing, and also be able to travel over here and work on the ground and learn how things are going and live reunification. Visit my grandmother who was still living in Berlin at the time. It was very, very exciting. And we’re talking ’93 to ’95 sort of thing. So I mean where we’re sitting here now and doing the podcast, when I came over here it was a parking lot.
TJ: Yeah, this was no man’s land. I think the death strip is not far from here.
RW: Yeah, exactly. Exactly.
TJ: Just taking down the towers.
TJ: Yeah, no, that’s true. But I mean that’s such a fantastic thing. You said you didn’t even consider language an asset that you could use and then all of the sudden here’s this opportunity. It must have felt like a door is being kicked in, swung wide open, and you could use that on top of technical knowledge you had.
RW: Yeah. No, exactly. Besides growing my career in a traditional sense, I mean in a very personal way I got to live and learn all of the stuff I’d only heard about through my parents and their friends and even coming over as a kid and visiting my grandmother in what was West Berlin at the time and all that sort of stuff. When you’re a child you view things, obviously, very differently and so as an adult coming over here things start to make more sense about what people had told you in the past and what prejudices people had and all that sort of stuff. And between that and dealing with these, I’ll say poor, as in inexperienced, East Germans that had a free market economy thrust upon them and they-
TJ: Yeah, all of the sudden, new rules. Here’s a new rule book. Do well.
RW: Yeah, right. Exactly. And unfortunately the new rule book says judgment must be used a lot of the times and that is hard when you don’t have the experience. So dealing with banks was especially interesting over here and it was the wild west is just the only way I can describe it. And it was a very exciting time to be here. At the end of the day unfortunately we couldn’t make the company work. It was one of those situations where you had to be a very early entrant into the home building business here with lots of money. It’s kind of like putting cash down as soon as the doors open to get the best pieces of land at the cheapest prices or else the prices quickly skyrocketed to market rates and then you really couldn’t make much money doing that. So that fun, adventurous, entrepreneurial thing was over. Like most entrepreneurial ventures, they flame out and die. They don’t all grow into big, beautiful companies. But that kind of is what it is and my wife sacrificed a lot because I was here for about 15 months and she had her own career and we had two kids by that point in time and it wasn’t easy. But she dealt with it, obviously, very well. And then only to have me come back not having succeeded in that particular venture, but that’s when I got a job at Paramount Canada’s Wonderland, which the arguably quasi-entertainment company. Obviously Paramount is fully entertainment. But theme parks is not the same thing as film and television.
“You have to be a bit of a glutton for punishment to want to continue in the entertainment industry. I think the lesson that I took out of the internet experience was that, fundamentally, all we were doing was offering a new avenue for distribution. And at the end of the day distribution companies thrive on volume. So it should have been readily apparent that if you’re a pioneer in the space that is really just distribution and all you’re getting is early adopters, you’re not going to get the volume to be profitable.”
TJ: Different animal, yeah.
RW: Different animal. But that was not as sexy as you would think.
TJ: It sounds great. Probably it did sound great to your kids.
RW: Oh yeah, of course. Especially when I told them that I get to play in the park an hour before it opens to the public for free. But that’s only so much fun for a while.
TJ: When I grow up I want to work at the park like my dad.
RW: Yeah, exactly. It would be better if that park was in California because winter time in Toronto there’s not much park to go to.
TJ: That’s true. Need a big dome over it.
RW: Yeah. Anyway, yeah, cold and miserable. But it’s interesting actually, I thought I saw a path potentially there to something because obviously it’s part of a much larger organization and it’s across Canada and the US. But fortunately, or unfortunately however things would have gone, another opportunity arose where I got a phone call saying “I understand that you had worked in Germany before and you’re chartered accountant and everything so would you be interested in doing sort of what you did before except the company you’d be working for is a large automotive supply company?” One of the largest in the world actually, whose owner and founder is Austrian. So they were buying up a lot plants in Germany and Austria. So they just bought one in the Black Forest region of Germany and would you be willing to come on board and go abroad for six months to help integrate that plant into the system that is Magna? So I was like “Sounds great. Except let me ask my wife because I already went away once before already.”. And as luck would have it I guess she was all for it. And she was pregnant at the time so she … Well we were pregnant. She gave birth just I think a couple of months before I was supposed to go over there. So she had maternity leave and so actually got to come with me with the other kids for the first month or two of the six months. So it made it a lot easier to handle overall. And the company, being a much bigger company, was much better about letting me go home, having them come over, and seeing each other more often and giving more support that way as well as guaranteeing me a job when the six months was over. So that, again, was another way to use language to get a competitive edge in the job market. And I enjoyed it almost as much as being in Berlin except of course it was the opposite end of the country. But in that six months it was sort of a turnaround exercise, which was something I hadn’t done before. We got to go to France and buy up the other 50% of another plant that we had looked at and then went to Switzerland and bought a machining company at the same time. So it was an awful lot done in six months. So it was a lot of fun and exposure.
TJ: Newborn so no sleep. Lot of work, no sleep.
RW: Exactly. But everything to build that resume and keep going forward. To what end, we’re not sure yet but I mean that’s kind of what it’s all about I guess at the time.
TJ: In the end it will all make sense.
RW: Yeah, exactly. So that was fun and I came back and they gave me the job at the one plant and again this is like pure, textbook manufacturing company type stuff. So the only thing that made it sexy may be that it was cars as opposed to baskets or something like that. But the other opportunity they gave me at that time was to move to a larger plant facility that had a sister plant in Germany and then to help head office in getting the right numbers out of Germany to consolidate and all that sort of fun accounting stuff. Which I was working on and was quite enjoying the ability to travel back and forth and have a bit more responsibility than just sort of one plant location type of thing and as well we were starting to expand abroad. So I went to Brazil to look at a site for building a plant down there. And we were looking at Asia’s aftermarket car parts business. It was all going in a very healthy direction until the phone call came about Los Angeles and then my wife being CFO of Lionsgate down there. And of course it was a little bit difficult to say yes even though I said earlier it was a quick yes. Just simply because it was a very interesting job that I was at and I thought it was kind of cool. The part that made it a little easier to say yes was the fact that they had a very odd compensation structure in this company so it was very focused toward the people working in the plants making the parts and the people that were plant general manager and assistant general manager and like the people that were on the floor and running the thing were all well compensated. But really any sort of admin support, which is what I would have been, was capped at a very low salary.
TJ: Interesting. You would think it’s the other way around to increase the pressure to get people to work hard on the floor.
RW: Yeah. Well that or just attracting talent. And for that reason I was like it’s fun but I’m not really getting compensated the way I should be compensated. It was the right number at the time for me at that point in time but it shouldn’t be the highest I ever achieve sort of thing in the game that we play of compensation with various companies. So that was why I said yeah, let’s go and I can leave this behind and try something else. And then we quickly moved to LA in 2000. And I’ll say the last time that my language skills gave me an advantage was the fact that the first job that I got in Los Angeles was with Mandalay Pictures where the only reason they hired me was because they were looking at going public at the time on the ‘Neuer Markt’ which was an exchange over here that was born out of the internet boom I think. And since that film company financed most of their productions through German tax shelters, which don’t exist anymore but existed back then, they thought this is a natural progression and the way to explode the value of the company, et cetera.
RW: But for it to work they needed all these different corporate structures over here and ‘Geschäftsführer’ and this company and that company and all that sort of stuff and so they were like “We’ll work with you but you can be that guy.” And I was like “Okay, that sounds interesting depending on how it’s structured and how much personal liability I’m exposing.”
TJ: I was about to say there is an element of liability.
RW: Yeah, exactly. Yeah, it says ‘mit beschränkter Haftung’ which was limited but not total.
TJ: That’s true.
RW: Anyway, so that was … But again, that looked like something that would not only get me into the entertainment space, but also vault my career. And so the first task I was given by the CFO was to take a stack of prospectuses that were being handed out to German investors, who invested because it was entertainment and because they got a big tax write off, and translate the economics of what was being told in that prospectus into a spreadsheet and model so that the CFO understood.
TJ: Just reverse engineer this.
RW: Yeah, pretty much.
TJ: Make the numbers work.
RW: Yeah. And so you get to what return are we promising these people? Because as I’m sure you know, the entertainment industry is not a constant margin return business model. So you always want to know okay, what are we actually promising here? Because I don’t want to be sued down the road. So I took that opportunity and learned the entertainment industry economics and the terminology in a foreign language just to make it interesting and translate that all into English and build a numbers-
TJ: Had to challenge yourself.
RW: Yeah, I know. I mean it would have been too simple if somebody had just given me English language prospectuses to do all this stuff with. But fortunately my wife had already been in the industry for a number of years so I could ask her stupid questions like what’s a completion bond? I don’t know. What is this?
TJ: I was about to ask how did you go about that? Because obviously even if I think you after high school decided I want to do this, there isn’t one course, one study, that you could do and then after that you know the industry. Like you would in finance or accounting or if you want to go into banking for example. How did you go about this in kind of learning more about it?
TJ: Other than your personal mentor.
RW: Yeah, I know. But that was actually a very important and good resource because you’re right, there was nowhere else I could turn to to say okay, how does it work and then look at the stories and stuff. I mean all i could really do is apply business logic assuming that this industry like any other industry follows basic economic and finance rules.
TJ: The laws of gravity.
RW: Yeah, exactly. If those don’t change then I should be able to figure this out at some point in time and after that it’s just terminology and structure. So that’s really what I did. I mean it took me six months to go through all this and figure it out and then model it out. At which point in time I was finally able to present what I had learned to the CFO. Which by the way I would have thought that he would have been a better resource to help me understand what I was going through. But he was busy in his own right and I think part of me was a little bit embarrassed to ask him the questions because you don’t want to seem completely ignorant to the guy you’re making a report to.
TJ: Which in hindsight would have been totally all right because you’ve never been in this industry before right?
RW: Yeah, he knew that ahead of time.
TJ: Yeah, and I think it’s always quite refreshing when somebody comes in and asks, not stupid, but basic questions and makes me go like huh, yes actually why are we doing it this way? Especially if you come from something super solid like manufacturing where there is no hiding. There is one reality. And so, I mean in hindsight it seems quite normal that you would have said why is … Especially in this industry, there is some creativity applied even in the most dry commercial business decisions or the way it’s presented.
RW: Yeah, no, I mean if I were in his shoes, like if it were me today in that position, I would have been more than happy to explain the basic economics of the business so that you at least had enough information to go off of and then be more efficient and effective. And by the way this CFO is still a very good friend of mine that I meet with regularly and he, in hindsight, would have been happy to sit with me and take me through all that. But my own ego I guess prevented me from going to him and asking him for help. I’d rather torture my wife in the meantime.
TJ: After a long day’s work, so explain to me how does this work?
RW: Yeah, I know. Exactly.
TJ: Well I understand why you would be cautious. I remember when I started getting interested in the industry and were kind of looking also, kind of like you described, for information and how does this work and I bought a lot of books that were supposed to be the go to source. And I found that since they had been written like five years ago, and were still the only title on the subject, that they were actually outdated. Although it was perfect information at the time. And then you would go to a market or a conference and talk to people and they’re like “Yeah, that’s not how it works anymore. This is like what, five years ago?” Oops. So I think having not been in the industry for such a long time you got the knowledge that was at the time the most current version in practice. Which of course in financial management or accounting that’s the most important thing, that it’s current right?
TJ: So where’d you go from there? You took the company public.
RW: Yeah, no, I wish. So of course the day I presented my model to the CFO he informed me, of course after reviewing it, that this was great, this is exactly what I wanted, good information, but the only problem is that I actually needed to fire you about two months ago because the opportunity went away to go public in Germany and we’re cutting half the staff and it’s a bit of a bloodbath at the company. So I was like “Oh, okay. I’m glad I got paid for two extra months then I guess. That’s all I can be happy about.”
RW: But I mean that kind of is what it is. It’s one of the early lessons that I learned in the industry is that independent entertainment companies unfortunately do come and go a lot. There’s not a high success rate for those companies in the industry so you just have to be, I guess prepared, or be in a position where whatever knowledge you have is transferrable. Which it is and most people can do that and that’s not a problem. But also the second biggest lesson is that you have to make sure that your reputation is pretty clean. People don’t realize how small the industry is and everybody knows everybody. And because so many entertainment companies go under … My visualization of what happens is is every employee in a building, the building will blow up and all these employees get shot into the air and land in different new companies all over town. So you never know who you’re going to come across again when you go to your next opportunity. So you really never burn bridges because it’s a high risk business and people want to know that they’ve made the right hires and all that sort of fun stuff. But anyway, at least I got to put that one down in the column where okay, now I can say I have entertainment business experience that I have to leverage into my next job. And so the next opportunity that came up actually was an internet startup. But in the entertainment space. It was born inside of an entertainment company. And with the objective to build an online distribution model. So it was the first company to stream a feature length film on the internet. And this was in 2001 so the quality was horrendous but I guess technically they were able to stream the entire movie.
TJ: Technically it worked. It was a horrible experience. And we’re about 10 years too early with this but we can do it.
RW: But it qualifies as proof of concept so we can go out and raise money based on that. So anyway, it was funny because I met with the CEO at lunch and he looked over my resume and said to me, he goes “You know I have to be honest with you. You have nothing on your resume that I’m looking for.”
RW: Yeah, exactly. That’s interesting. I guess I should have been prepared for that ahead of time. And I just said “Look, given where you’re at with the company in the startup phase, unless you can tell me that the economics of this business are any different fundamentally than any other business that I’ve been involved with in the past I can’t see why I can’t quickly learn the nuances of your business and apply finance whatever rules to it.” And so I guess he was a little bit taken aback by that. Or maybe even as a challenge and said “Okay, you know what, I will give you three months to prove yourself and if after that three months I feel like you actually get the business then you can have the full-time job.”
TJ: So you learned the rocket science.
RW: Within three months. So eight years later … You know, I was there all the way to the bitter end. But it was a lot of fun because it was entrepreneurial, again, a growing startup. Internet was very sexy back then so what can you do within that space. I had never been through fundraising. Actual equity rounds in a private company where you do the dog and pony show. And we went through five rounds and raised most of our money from public, both entertainment and technology companies.
TJ: Interesting. Okay.
RW: At the time, so-
TJ: Bigger peers in a sense that were kind of saying “Oh, there’s something to it. Let’s make a bet on it.”
RW: Yeah, well at the end of the day despite the fact that I started with the first stream was a horrendous viewing experience, everybody believed that this was the future. I mean it was a very easy story to tell. And very compelling.
TJ: How right they were.
TJ: Just took it a little while.
RW: Well that’s just it. The reason why we had to keep raising money is because despite the fact that every round you promise that the future’s just around the corner, it just took a little bit longer. We were right about the future, we just weren’t right about the timing of it. The interesting thing was we had up rounds. We never had a down round.
TJ: Which is a great signal.
TJ: You can’t compete with that. When you do the next round they’re like look …
RW: Yeah. I mean it’s validation for the valuation for the next round as well as very defensible when you go to sell the company. Because obviously you should have a control premium on top of the valuation and all that sort of fun stuff. But what unfortunately ended up happening is the 2008 financial crisis hit just when we needed more money again. And we had had four or five pubic companies looking at us to put money in and were going for final approval. And then in September when the markets really started to crash after Lehman, they all pulled out one by one. The boards were all no we’re not making any risky bets, we’re just going to-
TJ: All the governance people all of the sudden screaming “no, we can’t do that”.
RW: No. The good times were over. So the very last company that we were waiting for, which was a personal relationship with the CEO actually, he came out of the board meeting and said “Yeah, they said no to the investment.” And so the CEO obviously saw the writing on the wall as everybody else did and said to him “Would you be willing to buy the company for the amount of your investment?” And he said “Mmm, okay.” Right away. And being shrewd, they just bought the assets of the company and the name brand and whatever and left the liabilities to whoever the stupid shareholders were that invested all those other years prior. And so I had to then hustle in about two months and get them through diligence so that … I mean I only had so much money left in the bank and all the people that were being hired by the acquirers, they expected to be paid like were previously. And I had enough money to pay them for two months and then after that it was going to be there’s no more money. So anyway, made that happen literally a day or two before payroll, where the new company took over the next payroll. Which by the way didn’t pay me because as an executive I had to go. So that was my one altruistic business experience so far to keep everybody else’s job but not mine. And by the way be cast off into the world of looking for an executive position in a company in the middle of a financial crisis, which made life not easy at all. But the interesting side note to that experience, besides once again doing something purely entrepreneurial and seeing it fail, understanding why it did and learning from that, was the added bonus that the company that bought our company for a very low price was a public company so they very quickly turned the story that we were using in raising all the money previously and told that story to their analysts so that their stock started going up as they were also believing, call it drinking the kool-aid, that this was going to be the future and was going to add a lot of value to the company. So their stock ended up going-
TJ: So they bought the story.
RW: They bought the story. Well I mean the stock went up fivefold I think within the first eight or nine months. I mean the market was very volatile anyway. But they’d gone up enough in value that they could then use that stock as currency to buy another company that was a much more stable, predictable technology company that had a ton of patents that were kicking off royalties. And so to bring that in so you’re taking our business that sucks cash still but tells a great story and merging it with a business that is just throwing cash off and doesn’t require a lot of management. So they took that, and of course it was a stock swap so they didn’t have to use any money. Stock goes way down and then as the story builds again the stock goes up again and so now we’re only two years down the road, maybe two and a half years down the road, and then there’s another much bigger tech company that says okay now we want to buy you guys and one of the big reasons is because you have this streaming service that does movies online and blah, blah, blah. And I only know all this because one of the other executives was … He was sort of a COO type technical guy that was able to stay with the company through all this. At least that division of the company. And so he told me this all after the fact. So the final acquirer paid close to a billion dollars for this public company and they, in the purchase price allocation, attributed $300 million of value to what was our division, our company, that we had to sell for nothing just two or three years prior. Which insult to injury I guess is what comes to mind on that one a little bit. Yeah.
TJ: I mean it’s interesting to see because you see this every once in a while that there’s almost self fulfilling prophecies where somebody has a great pitch and it can go this way but most of the time as you said it unfortunately doesn’t. And I always found it quite interesting how, for example in the tech industry, it seems a lot more forgivable to fail than in the entertainment industry. Which I think sometimes actually has a similar risk profile in terms of you have projects and they might work and they might not. It’s the same as having an app or a portal or website or platform you’re working on and depends on so many factors and people and market conditions.
RW: Yeah, absolutely.
TJ: And if you’re in Silicon Valley it’s more like okay, so how often have you failed? Oh okay, you have a couple more times to go until you’ll have your unicorn. And in the entertainment industry it’s like oh you failed, okay so I guess-
RW: Anybody can fail. I’m looking for the guy that succeeded.
TJ: Exactly. So I always found that quite ironic that there’s such a different standard applied to something that in some respect is quite similar. You mentioned the global financial crisis. How do you think that has affected, for example the entertainment industry? Because obviously there’s a lot of industries that were maybe even fundamentally changed. Do you feel it had an affect on entertainment companies?
RW: Oh absolutely. I mean a financial crisis like that one, like most, call it recessions or whatever, the thing that dries up that is the lifeblood of the entertainment industry is money. And not that it’s not the lifeblood of every other industry but entertainment companies need a lot of money very often. They don’t just need a little bit of money and then they’re okay for the next five years. So it’s not like you can necessarily have enough money in the bank to weather a three year recession or whatever. And also the industry attracts the type of investors that aren’t afraid of the risk involved in investing. So in a downturn people are looking for safe havens, not more risky investments. So it’s kind of like my internet company thing where when things are tough then they all scatter and they’re all gone. And so a lot of money dried up for a lot of companies in that time and so a lot of companies went under as a result. But again, like my exploding building analogy these people land somewhere else and try and build up a new company that looks like it has a new spin but it’s really the same thing. Not that it’s a bad thing but it’s just a different thing. But it has to look different because you’re trying to attract new investment.
TJ: Bit of fresh new color.
RW: Yeah, exactly. A new paint job, a new office, and everything will be fine. I mean that’s really the fundamental thing. And then it’ll happen again. I mean versus today where there’s so much money. I think more money than the industry has seen in probably forever going toward television and entertainment. Just content generation in general. This too will end. Like it always does.
TJ: It’s foreseeable. So having had that experience it still didn’t discourage you to go back to automotive or manufacturing or something.
RW: Yeah, I know.
TJ: You’re like you know what, this is actually quite nice.
RW: I know. You have to be a bit of a glutton for punishment to want to continue in the entertainment industry. I think the lesson that I took out of the internet experience was that fundamentally all we were doing was offering a new avenue for distribution. And at the end of the day distribution companies thrive on volume. So it should have been readily apparent that if you’re a pioneer in the space that is really just distribution and all you’re getting is early adopters, you’re not going to get the volume to be profitable. So it really just took a long time to get to the point where it’s not just early adopters, it’s mainstream and then you have the volume and then you can make the money. Because the bulk of the money that’s generated goes to the content creators or owners of the content, the IP. So I decided after that particular venture that I really should try and get into a traditional entertainment company that generates content and the whole notion that content is king and the golden rule, whoever holds the gold makes the rules and all that sort of stuff. It would serve me a little bit better to be on that side of the equation versus the one trying to figure out how to make money out of pennies per transaction.
TJ: Yeah. So how did you go about that? How did you find that opportunity?
RW: Well again, trying to leverage whatever I had and leveraging the sexiness that was that internet company because it told a great story and at the end of the day I could argue that I was there and I built a company that ended up being worth $300 million. Doesn’t matter that I sold it for three and made no money personally out of it. The concept was clearly … Time proved out that concept.
TJ: It didn’t stop there. It did go on.
RW: It did go on and I was ultimately validated on that.
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Special thanks to Marni Wieshofer, Nigel Sinclair, Marc Schipper, and Charles Layton for helping to make this conversation happen.
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ABOUT MEDIA CFO
Media CFO focuses on the finance, strategy, business affairs, and legal side of the global media & entertainment industry. The guests on the podcast range from veteran studio executives to new, disruptive market entrants. MEDIA CFO takes a look under the hood of the global entertainment industry and talks to the unsung heroes: dealmakers, lawyers, entrepreneurs, financiers, service providers, bankers, investors, and agents. The podcast offers unique insights into the daily work and life of those, who run and build this industry by visiting them on location and having in-depth, in-person conversations.
ABOUT TOBIAS JAEGER
Tobias started his first own firm during his studies at Maastricht University in the Netherlands and has lived, worked, visited, and studied in over 43 countries on 4 continents. Tobias loves to connect people from around the World to make great things happen. Previously, he has done so at Business Associates Europe, SAP AG, StrategosPoker, Aramark, and entrepreneur academy. Today he is a Managing Partner of AXIOM Venture Capital, a family office focussed on the media & entertainment industry and Tobias serves as the Chief Financial Officer of London-based television and content studio Colibri Studios.
The conversation was originally recorded in Berlin in February 2019.
© 2019, Colibri Studios of London