Earlier today, Bleeding Cool reported on IDW Media Holdings plans to raise up to $25 million from existing investors by selling them shares of Class B common stock. The news follows an earlier this week that IDW Media Holdings had engaged JP Morgan to assist in "a review of strategic relationships and alternatives to maximize stockholder value and to realize the full potential of its vast content library and pipeline" — in other words, a potential sale.
These moves are in response to IDW Media Holdings taking on a veritable buttload of debt, mainly due to the decision to finance their own television shows. IDW Media Holdings operated at a net loss of $4.1 million in the three-month period from November 2018 to January 2019, which was actually up from the same period a year prior, which saw a $4.5 million loss. For Q4 of 2018, which ended last October, IDW Media Holdings operated at a $28.3 million loss with $41.3 million in cost and expenses. At that time, the company had a comprehensive loss of $35.6 million since October 2017.
You can read about the new stock offering in great detail here, but we also wanted to highlight this interesting portion of the 55-page memorandum sent to stockholders which describes how IDW Publishing makes its money.
IDW Publishing's comic book and trade paperback publications are primarily distributed through three channels: (i) to comic book specialty stores on a non-returnable basis (the "direct market") (ii) to traditional retail outlets, including bookstores and mass market stores, on a returnable basis (the "non-direct market") and (iii) to ebook distributors ("digital publishing"). In addition, IDW Publishing provides clients with custom comic books and artwork/graphic design services ("creative services").
IDW Games expanded the number of distributors and accounts that IDW Publishing sells to directly and also has a direct to consumer business through its website and other forms of direct marketing.
For the three months ended January 31, 2019 and January 31, 2018, direct market revenue accounted for 39.8% and 34.3%, respectively. Non-direct market revenue accounted for 31.0% and 30.2% of IDW Publishing's revenue in the three months ended January 31, 2019 and January 31, 2018, respectively. IDW Publishing's revenue from IDW Games accounted for 9.6% and 9.6% of IDW Publishing's revenue for the three months ended January 31, 2019 and January 31, 2018, respectively. Digital publishing revenue accounted for 8.4% and 9.6% of IDW Publishing's revenue for the three months ended January 31, 2019 and January 31, 2018, respectively. Other publishing revenue, which includes sales to specialty retailers, nonprofit organizations and universities, accounted for 3.0% and 11.7% of IDW Publishing's revenue for the three months ended January 31, 2019 and January 31, 2018, respectively.
Licensing and royalty revenue accounted for 3.1% and 2.8% of IDW Publishing's revenues for the three months ended January 31, 2019 and January 31, 2018, respectively. IDW Publishing's other sources of revenue include direct to consumer sales, creative services revenue, conventions and other, which accounted for 5.2% and 1.8% of IDW Publishing's revenues for the three months ended January 31, 2019 and January 31, 2018, respectively.
There are some interesting takeaways to be gleaned from IDW's report, which compares the percentage of total sales revenue for the company that came from direct market sales, traditional retail sales, digital sales, IDW games, and "other" during the three-month period ending January 31 2019 and the three-month period ending January 31 2018. The numbers show that IDW's sales revenue percentage from direct market sales grew significantly more than traditional retail. Digital comics sales revenue percentage actually decreased from 2018 to 2019. We've prepared pie charts to illustrate the breakdowns:
Though the percentage of revenue from direct market and traditional retail publishing sales grew in 2018, overall sales revenue was actually down. As a result, the company looked to expand revenue in other areas, such as licensing, to make up for the loss. Though the revenue from these other areas did not make up for the loss in sales revenue, IDW was able to maintain its gross profit margin, partially due to cost-cutting. The company had revenues of 5.2 million in Q1 2019, with an operating cost of 1.4 million.
With both direct and book market channels down industry-wide in fiscal 2018, IDW Publishing (IDWP) focused on expanding other revenue streams and reducing costs. IDWP saw growth of 41.5% in licensing and royalty revenues, 21% in specialty/direct-to-consumer sales, 12.4% in games revenues, and 8.2% in digital revenues. Through ongoing negotiations and partnerships with manufacturers, IDWP was able to keep the impact of rising paper prices to a minimum. Combined with other efforts to reduce costs, such as stricter creative cost approvals, IDWP was able to maintain a flat 38.8% gross margin percentage compared to fiscal 2017, despite a decline in revenue. Operational expenses were also down 7.5% over the prior year.
Looking at IDW's recently-released quarterly report, however, we can apply those percentages to the total revenue numbers for IDW, producing the following chart (note: due to rounding in IDW's memorandum, the total percentage in Q1 2019 is off by .1%, or about $7,000):
We can see that IDW Publishing's total revenue was down by 16%, over $800,000. The biggest percentage gain came from "other," described in the memorandum as including "direct to consumer sales, creative services revenue, conventions and other," which grew by about 60%. The biggest drop came from "other publishing," described as including "sales to specialty retailers, nonprofit organizations and universities," which fell by over $650,000. But the biggest takeaway of all, perhaps, is IDW's direct market sales, which held essentially steady in terms of dollars while increasing its share of total revenue by 5%.
The direct market: holding it down for IDW Publishing, for now at least.
IDW projects "an overall flattening of the market" in 2019, though they expect revenue to increase thanks to expected sales of key titles.
In fiscal 2019, IDWP is projecting an overall flattening of the market with increased revenue growth due to key title launches such as: George Takei's They Called Us Enemy, which PRH is recommending an initial print run of 75k copies; the Marvel Action line of products, the trade paperbacks of which are all timed to release alongside Marvel's major tentpole movies; the Dungeons & Dragons vs. Rick & Morty crossover event, which has PRH and retail attention like few titles, including a minimum of 5k copies for retailer exclusives; new releases tied to IDWE's TV shows V-Wars, Locke & Key, and October Faction; a value-added program in development for multiple titles with the mass market; a hardcover collection of the final comic work by industry legend Alan Moore. On the Games side, the follow-up to our $1mm TMNT board game, a Batman Animated board game, and fan-favorite Dragon Ball Z's first game.
Additionally, IDWP will continue to expand its direct to consumer business through both publishing and games product offerings.
Bleeding Cool reached out to IDW for comment on the stock offering memorandum, and will update this article if we receive a response.