CHF Media Fund
Think of TV and film and high risk is often what springs to mind. Big budgets, overpaid stars are just some of the problems. However, there are interesting niches that have high-growth potential, but without the high cost of a full-on Hollywood blockbuster – one example is children’s TV. CHF Media EIS and SEIS focuses on animated kid’s TV.
- Mix of EIS and SEIS investments
- Exciting children’s animation projects
- Experienced management with proven success
- Regular share allotments
Manager video interview
CHF Media fund is a media EIS and SEIS offer, focused on children’s animated programmes. The genesis of CHF Media Group lies in the 1970s with a firm called Cosgrove Hall that made many of ITV’s big animated hits of the 1970s and 1980s, including classics such as Danger Mouse and the BAFTA-winning Wind in the Willows. During this period, Cosgrove Hall simply made the programmes and ITV owned the rights and generated revenue through advertising. Following OFCOM’s ban of fast food advertising during television programmes aimed at children in 2008, ITV sold off the rights and virtually closed down its children’s TV division. In 2011, the original founders of Cosgrove Hall decided to reform under the CHF Media Group banner.
Why invest and what to watch out for
- Highly experienced team with a proven track record of creative and commercial success - six BAFTAs and two international Emmys
- Target return equivalent to five times net investment after a five-year period – but of course this is not guaranteed
- Invest in shows already in production - including the third series of Pip Ahoy! – as well as new show concepts
- Between 30% and 50% upfront income tax relief
- Unlimited Capital Gains Tax (CGT) deferral in respect of EIS investments and 50% CGT wipe out in respect of SEIS investments
- Loss relief if the investment doesn’t work out
What to watch out for?
- Despite the team’s experience, success is not guaranteed. There is no guarantee that the new show concepts will ever get produced. For those already in development, there is no guarantee the show will be successful enough. So there’s no guarantee your investment will grow in value or indeed that you will get your capital back
- It is anticipated exits will be within 3 to 5 years from the date an investee company’s show is first broadcast. It could take two years to get from concept to broadcast so it’s a long-term investment
- EIS and SEIS investments are not for everyone. Before you invest you should read carefully the documents and ensure you’re comfortable with the risks
- Tax rules can and do change
Watch CHF Media Group Showreel
Pip Ahoy!, narrated by Sir David Jason and Stacey Solomon and aired on Channel Five, was the first show back, and launched as an EIS.
It originally raised £4.5 million and subsequently a further £1 million. According to CHF’s management it is one of the most popular children’s shows on Channel 5. It has been sold around the world and recently reached China. The TV programme is supported by the sale of toys, apps, and educational books. Licensed toys are a huge market with annual sales of around £3 billion in the UK and $230 billion globally (2014). CHF Media Group aims to get a slice of that market.
Within the current offer, investors typically receive shares in four companies (this can be higher or lower) in a mix of SEIS and EIS. SEIS funding will go towards projects at the concept stage, whilst projects that reach the production stage will receive EIS funding. A typical EIS/SEIS split is 80:20, however CHF Media will try and accommodate investors’ requests of different allocations, subject to availability.
Each investee company is what is known as a special purpose vehicle (SPV) and has been set up to own all the intellectual property rights of an individual project such as Pip Ahoy!. Investors receive approximately 50% of the shares in the company and CHF Media Group the balance.
With the SEIS monies, the SPV will develop the idea until ready to show to a broadcaster. Some shows or concepts will be designed to monetise fully at the SEIS level.
Projects which are being developed to secure broadcaster contracts will typically involve producing a show bible, scripts and a short pilot. If a broadcaster is interested, a whole series of typically 52 × 11-minute programmes is commissioned. At this point EIS money will be raised. It takes about 18 months to finish 52 episodes, with most of the content, storyline and music created in house. The storytelling is key in children’s TV; this sits at the heart of CHF’s previous success. The SPVs would typically engage CHF Entertainment to perform all of these functions, including production, licensing and merchandising.
Creative Commercial Committee
CHF has a “Creative Commercial Committee”, which is at the heart of this offer and key to its success. It is responsible for identifying prospective shows or concepts that not only offer excellent family entertainment but also the potential to generate significant commercial returns to investors.
Interestingly, CHF typically lets an anchor broadcaster air the series for a nominal fee as the SPV will aim to make its money from merchandising and selling the broadcast rights globally. A well-received show could be sold to over 80 territories to broadcast at approximately £50,000 a time. The real added bonus is the merchandising deals, which are expected to produce the bulk of profit. Merchandising deals are arranged typically on the basis of an upfront licence fee plus a royalty on every item sold.
One further point to mention is that the programmes are expected to qualify for tax credits under the Creative Sector Tax Credits introduced by the Finance Act 2013. The relief is in effect a 20% rebate on certain qualifying expenditure incurred by each SPV in producing a show.
The CHF Media Fund targets a return equivalent to five times net investment after a five-year period. However, this is not guaranteed and the management were keen to stress the best results are typically generated over the very long term.
CHF’s management may make an offer for the 50% of the underlying SPV it doesn’t own after three to five years. However, if investors don’t take up the offer, the management could switch to paying dividends out of any profits (these would be taxable). An alternative exit route is via a trade sale to a company that buys intellectual and media rights.
The SEIS companies are very early stage and there is no guarantee any broadcaster will commission the show for a longer run. With more established shows, the typical model in the UK is to give the broadcast rights away and rely on merchandising and overseas sales – if these don’t come through then profits could be inhibited. Obviously the intellectual property owned by the SPV should have a value in the open market.
The underlying SPVs pay the charges so investors get tax relief on the full amount they invest. CHF’s initial fee is 2.5%. and the annual management fee 1.75%. There is also an annual secretarial fee of 0.3%. CHF Media group may be entitled to monitoring, deal arrangement and other success fees. There is no explicit performance fee. CHF benefits from any profits through its 50% ownership in the individual SPVs.
Media and entertainment is a fascinating sector for investors. CHF appears to have an interesting formula of seasoned professionals who know what TV channels are looking for. In their previous incarnation as Cosgrove Hall they received nine BAFTAs.
The strategy of utilising SEIS for very early stage projects before migrating to EIS is interesting, as it aims to reward those taking the most risk with maximum tax reliefs and lowest prices. The TV programmes produced can almost be seen as a loss leader as the big money is made from merchandising.
This review is not intended to be advice or a personal recommendation to buy the investment mentioned, nor is it a research recommendation. Wealth Club aims to highlight investments we believe have merit, but investors should form their own view on any proposed investment. 31.05.2016
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