CKX: Entertainment Content King
Overview
We are engaged in the ownership, development and commercial utilization of entertainment content. As more fully described below, our primary assets and operations include:
• 19 Entertainment Limited (“19 Entertainment”), which owns, among other properties, proprietary rights to the IDOLS and So You Think You Can Dance television brands, both of which air in the United States, and, together with local adaptations of the formats, around the world;
• An 85% ownership interest in Elvis Presley Enterprises (the “Presley Business” or “EPE”), which owns the rights to the name, image and likeness of Elvis Presley, and certain music and other intellectual property created by or related to Elvis and the operations of Graceland; and has partnered with Cirque du Soleil for the creation of Elvis Presley-themed shows and projects around the world, including the recently opened Viva ELVIS in Las Vegas, Nevada; and
• An 80% ownership interest in Muhammad Ali Enterprises (the “Ali Business”), which owns the rights to the name, image and likeness of, as well as certain trademarks and other intellectual property related to, Muhammad Ali.
Our existing properties generate recurring revenue across multiple entertainment platforms, including music and television; licensing and merchandising; talent management; themed attractions and touring/live events.
19 Entertainment
Overview
Through our subsidiary, 19 Entertainment Limited, we own proprietary rights to the IDOLS (including American Idol ) and So You Think You Can Dance television brands, both of which air in the United States and, together with local adaptations of the formats, around the world. 19 Entertainment’s strategy is to create and retain an ownership interest in entertainment content and to seek to enhance the value of its content through the control of multiple complementary revenue streams including, for example, television, music, sponsorship and merchandising, touring and artist management.
In January 2010, we entered into a long-term agreement with Simon Fuller, the founder and former Chief Executive Officer of 19 Entertainment, pursuant to which Mr. Fuller will continue to executive produce and provide overall global executive direction with respect to American Idol and So You Think You Can Dance and our new multi-platform property If I Can Dream . The terms of the agreements with Mr. Fuller are more fully described below under “Transaction with Simon Fuller.” In connection with this transaction, management has initiated a thorough review of each of the businesses currently conducted by 19 Entertainment and decided to focus its efforts principally around its established IDOLS and So You Think You Can Dance brands and its new multimedia brand If I Can Dream . As a result of the decision to concentrate primarily on these three brands, management intends to exit most of the other businesses within 19 Entertainment by the summer of 2010. These businesses will either be closed, sold or transferred, including potentially being sold or transferred to Mr. Fuller’s new entertainment venture, XIX Entertainment. These changes are expected to substantially reduce 19 Entertainment’s spending on new development projects and associated selling, general and administrative expenses. The Company expects to incur cash and non-cash charges in 2010 as a result of this process. The amount of such charges will depend on a number of factors including the final determination of which businesses the Company will exit, the amount, if any, of sales proceeds generated or liabilities assumed as part of the sale or transfer of businesses and the ultimate scope of the reductions in selling, general and administrative expenses.
IDOLS Brand
19 Entertainment’s multi-platform approach to the commercial utilization of its entertainment properties is best illustrated by the IDOLS brand. In 1998, 19 Entertainment created what was to become the concept for “Pop Idol,” a televised talent contest for musical artists that allowed the viewing audience to participate in and ultimately select the winning performer via text messaging and telephone voting. The audience participation generates a pre-established market for the winning artists and other finalists who 19 Entertainment then has the right to represent with respect to artist management and merchandising. In the United States and the United Kingdom, 19 Entertainment also enters into exclusive recording agreements with the winning artists and other finalists. The first television program based on this concept was Pop Idol , first broadcast in the United Kingdom in 2001 and in the United States, under the name American Idol.
American Idol — Fox Agreement
19 Entertainment, Fox and FremantleMedia have entered into a series of agreements, the most recent of which was entered into in November 2005, which together encompass the terms under which Fox is granted the right to air American Idol in the United States. Fox has been granted a perpetual and exclusive license, including the right of first negotiation and last refusal, to broadcast any non-scripted television programs featuring the American Idol brand or based on the American Idol format, or featuring contestants who appear in their roles as American Idol winners, intended for broadcast within the United States and its territories. Under the terms of the 2005 amendment, Fox guaranteed production of four additional seasons of American Idol through and including American Idol 8 , which aired during the first and second quarters of 2009, with an automatic renewal for up to two additional seasons upon the show achieving certain minimum ratings in 2009 and potentially 2010. Based on ratings for the 2009 season, the show was automatically renewed for 2010 and began airing in January 2010. Based on the early ratings for the current season, we expect that the automatic renewal for 2011 will be triggered.
Fox pays FremantleMedia a flat license fee per episodic hour, as well as a premium license fee for each hour in excess of the initial season order. These fees are used by FremantleMedia to fund American Idol series production costs, excluding the fees of the judges and host and certain other costs, over and above the license fees, which are paid directly by Fox. FremantleMedia retains the balance of the Fox license fees minus production costs, and pays 50% of the balance directly to 19 Entertainment. Under the terms of the 2005 amendment, Fox pays an additional contractual license fee directly to 19 Entertainment and FremantleMedia.
In addition to license fees, Fox also pays bonus fees depending on where the American Idol series is rated and ranked in the 18-49 age demographic. 19 Entertainment and FremantleMedia each receive 50% of the ratings/rankings bonus, with 19 Entertainment receiving its share directly from Fox. 19 Entertainment also receives an executive producer fee and a format fee per episodic hour.
Ryan Seacrest Agreement
On July 7, 2009, the Company entered into two agreements with Ryan Seacrest, the host of American Idol , and certain of his affiliates to (i) ensure Mr. Seacrest’s availability for three future seasons of American Idol (years 2010, 2011 and 2012) and acquire Mr. Seacrest’s prime time television network exclusivity for future potential projects during the term of the agreement, and (ii) obtain the right to use Mr. Seacrest’s personal goodwill, merchandising rights, rights to his name, voice and image, and rights of publicity and promotion related to American Idol . Under the terms of the agreements, the Company paid $22.5 million upon execution of the agreements on July 7, 2009 and will pay Mr. Seacrest an additional $22.5 million in monthly installments during the term, for a total guaranteed amount of $45 million. The Company is in the process of negotiating with Fox and Fremantle for compensation related to Mr. Seacrest’s services on American Idol . The amounts paid by such parties, if any, will either be paid directly to the Company or remitted to the Company by Mr. Seacrest.