TUFF TV Network, LLC Executive Summary
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TUFF TV Network, LLC Executive Summary
Transcript of TUFF TV Network, LLC Executive Summary
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BUSINESS OVERVIEW
TUFF TV NETWORK, LLC3340 Peachtree Road, N.E. • Suite 1800 • Atlanta, GA 30326
Phone: 404-230-9600 • www.TUFFTV.com • Fax: 404-230-5600
JUNE 2014
Notice to Readers:This TUFF TV Network, LLC (the “Company”) presentation contains confidential and proprietary information. All readers acknowledge by acceptance of this presentation that its content is confidential and may not be retransmitted nor copied for any reason. The information contained herein does not constitute an offer to sell securities by or on behalf of the Company. Any offer to sell securities by or on behalf of the Company will be made only through a definitive subscription agreement pursuant to applicable federal and state securities laws. The information and contents herein are estimates and projections presented on a good faith basis, and are subject to change without notification. The Company makes no representations and warranties with respect to the accuracy or completeness of the information contained herein. All readers acknowledge by acceptance of this presentation that its contents are in draft form and not final.
Cautionary Statement Concerning Forward-Looking Statements:In this presentation, when the Company uses words such as “believes,” “expects,” “anticipates,” “plans,” “estimates,” “projects,” “contemplates,” “intends,” “depends,” “should,” “could,” “would,” “may,” “potential,” “target,” “goals,” or similar expressions, or when the Company discusses its strategy, plans or intentions, such comments are made as forward-looking statements. These forward-looking statements represent estimates and assumptions only as of the date of this presentation.
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TABLE OF CONTENTS EXECUTIVE SUMMARY 1 TUFF TV Network, LLC History Management Team Prospects & Goals Competitive Landscape Competitive Advantages PROGRAMMING 6 Content Library Genres Barter Licensed Time-Buys Advertiser Paid Original Production
DISTRIBUTION 8 Domestic Digital Broadcast Online & Wireless Domestic Cable/Fiber Domestic Satellite International Key Partners Technical Facilities
MARKETING 11 AffiliateSales Advertising Sales Consumer & Industry REVENUE CONTRIBUTORS 12 Core Business Growth Revenue Sources Acquisitions INVESTMENT IMPACT 13 Investment Capital Use of Proceeds Valuation
FINANCIAL PROJECTIONS 15 Summary: Revenues & Expenses
APPENDIX A TUFFTVUSABroadcastAffiliates
APPENDIX B TUFF TV Sample Program Schedule
APPENDIX C Risk Factors
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EXECUTIVE SUMMARY TUFF TV NETWORK, LLCTUFF TV Network, LLC (the “Company”) is a Georgia limited liability company and owns the broadcast television network TUFF TV (the “network”). TUFF TV is the nation’s the first and only multi-genre digital broadcast television network targeted at men and the specific pursuits, interests, and hobbies they are passionate about. Launched in 2009, TUFF TV reaches approximately 38 million U.S. TV households, and is ranked amongst the top 20 digital broadcast television networks in America.
TUFF TV was created by its Chief Executive Officer, E. Lamar “Lou” Seals, III, who also serves as Chief Executive Officer of Seals Entertainment Company, LLC (Sealsco). Founded in 1984, the Atlanta-based firm has produced content for numerous Fortune 500 clients and advertisers with credits on networks such as ABC, ESPN, ESPN2, Spike TV, USA, FOX Sports, Speed Channel, Discovery, and Turner amongst others. Sealsco owns a substantial programming library with brand names including MotoWorld, Suzuki Great Outdoors, Wal-Mart Great Outdoors, On The Pole, and American Expeditions.
TUFF TV includes a unique and synergistic combination of programming genres aimed at the male demographic. TUFF TV provides the first-ever mix of these specific genres on one network. Programming content consists of Sports, Lifestyle, Drama, Reality, Talk, Specials, and Movies. Combined, these seven genres represent the highest-rated programming on television geared to men. TUFF TV features popular shows such as Dog The Bounty Hunter, NCAA Division II Sports, XFC MMA, STIHL Timbersports, Music Mix USA, Cold Squad, and select movies from Lionsgate. TUFF Originals are new and original programming created exclusively for TUFF TV. The network plans to significantly increase its original content, which currently includes two reality shows – Auto Wars and Woodwalkers.
The Company projects that TUFF TV can grow to reach approximately 75 million homes in the United States, with a significant amount of cable and satellite carriage in addition to its free over the air broadcast coverage. TUFF TV will soon be available online as a live streaming television network, and will be expanding across all media platforms both domestically and worldwide. The network is ramping up to increase its reach by adding new broadcast affiliates and distribution platforms. TUFF TV is expanding its base of operations from its Atlanta headquarters in 2014. Additional staff and facilities are planned. Distribution, marketing, and advertising sales will be managed in Atlanta for the network’s domestic and international growth plans.
Multicast digital broadcast networks such as TUFF TV are relatively new and are the fastest growing types of television networks. Examples of other types of “diginets” include genres targeted at women, specific ethnicities, music, and classic television. These channels are proven to generate significant advertising revenues with low cost of operations. Similar cable networks targeted at specific male demographics have been sold for between $265 and $850 million each.
Marketplace factors have come together to create immediate opportunities for TUFF TV to achieve rapid growth both domestically and internationally.
1. After years of development, new technologies are currently being adopted in the marketplace and continue to emerge, that allow wider worldwide distribution of video content with minimum cost. Digital technology, along with Internet delivery, has largely replaced analog transmission. 2. In June of 2009, the Federal Communications Commission mandated that the majority of all television broadcasting in the United States must be digital instead of analog. This allows broadcasters and local TV stations to launch four to eight new channels per station in all markets. This increased digital spectrum has spawned national “diginets” such as TUFF TV.
3. The United States is a leader in the international conversion from analog technology to digital technology. Conversely, the worldwide potential of TUFF TV is substantial as more and more countries convert to digital broadcasting allowing increased spectrum for new channels of content delivery. Internet transmission of television networks such as TUFF TV provides a truly global marketplace for content owners.
4. The Company consists of a founder and management team with uniquely relevant experience and unparalleled qualifications in the media and entertainment industry. The Company is led by Lou Seals, a veteran media entrepreneur with over 30 years of marketing and programming expertise.
5. TUFF TV content attracts one of the most desired demographic groups of consumers that advertisers and sponsors covet: men ages 18 to 34. Advertisers pay broadcast and cable networks a premium to reach this demographic. TUFF TV also targets men ages 25 to 54, another highly sought after demographic group. In general, TUFF TV often boasts that it exists for males ages 12 to 80 with a mix of adrenaline and lifestyle programming that guys are passionate about.
6. TUFF TV is uniquely positioned to become one of the premier digital broadcast networks in the United States. Using this free over-the-air platform, with broadcast partners that own hundreds of TV stations, TUFF TV remains the only digital broadcast network of its kind in the United States.
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HistoryTUFF TV launched domestically in the United States on June 30, 2009. TUFF TV is one of the first digital broadcast networks to offer original programming targeted at men and the specific pursuits, interests, and hobbies they are passionate about. TUFF TV was created by Lou Seals, Chairman and Chief Executive Officer of Seals Entertainment Company, LLC (Sealsco). Mr. Seals also serves as the Chairman and Chief Executive Officer of TUFF TV Worldwide, Inc. A related company, TUFF TV Media Group, LLC initially entered into a non-exclusive domestic distribution and marketing partnership with Luken Communications, LLC in March of 2009. Luken Communications, based in Chattanooga, has had the responsibility to provide distribution and marketing services for TUFF TV pertaining to free over-the-air digital broadcasting of the network in the United States. These services include satellite distribution of TUFF TV from the Luken Communications technical facilities, affiliate sales and marketing, and national advertising sales.
The partnership with Luken Communications is ending based on lack of performance, and TUFF TV Network, LLC will assume all operations and expansion of the network going forward. Luken Communications filed for Chapter 11 bankruptcy protection in June of 2013 due to an unrelated situation, and the Company has determined that it is best served to conclude this partnership.
It is important to note that TUFF TV Network, LLC owns all intellectual properties of TUFF TV, including the network’s trademark. The Company is essentially debt free, and has the management resources and expertise to grow and expand upon the network’s accomplishments. TUFF TV remains the only national broadcast television network of its kind targeted to men, and the Company is in a unique position to capitalize on its brand.
TUFF TV is expanding its base of operations from its Atlanta, Georgia headquarters through 2014. Additional staff and technical facilities are being put into place, and all distribution functions, affiliate sales and marketing, and national advertising sales will be managed in Atlanta for the network’s domestic and international growth plans.
TUFF TV currently has 39 broadcast affiliates in the United States, reaching a potential universe of approximately 38 million households. Major markets include Los Angeles, Chicago, Philadelphia, Atlanta, Phoenix, Minneapolis, Orlando, Charlotte, Nashville, and Las Vegas. Upcoming planned new affiliates include stations in New York, Dallas-Ft.Worth, San Francisco, and Boston, among others. Additional affiliates are slated to go on-air over the next 12 months.
Management TeamThe Company plans to bring on additional management through 2014 as it embarks upon its various growth strategies. It is anticipated that future positions will be comprised of marketing, operations, production, and financial personnel. The current TUFF TV management team includes the following individuals.
E.Lamar“Lou”Seals,III–ChiefExecutiveOfficer&Chairman/Director.Mr. Seals, 53, is the Chairman and Chief Executive Officer of TUFF TV Network, LLC. For nearly 30 years, he has been instrumental in creating some of the most dynamic and successful advertiser-supported programming on television. After attending Georgia State University, he formed his first media company in 1981, which later became Seals Communications Corporation in 1984. Mr. Seals has produced and sold over 2,000 sports, entertainment, and lifestyle programs appearing on networks such as ABC, ESPN, ESPN2, USA, Spike TV, TNN, FOX Sports, Discovery Wings, Turner South, Speed Channel, Outdoor Life, and TUFF TV. He is widely regarded as an expert at bringing specialized and niche-oriented content into the mainstream. He has launched the television careers of dozens over the years with his innate ability to discover talent, including the host of “American Idol.” In 2009, Mr. Seals founded TUFF TV, America’s first digital broadcast television network to offer original programming targeted at men. He serves as Chief Executive Officer of TUFF TV Worldwide, Inc., and is also Chairman and Chief Executive Officer of Seals Entertainment Company, LLC.
JohnW.Bonner,Jr.–ExecutiveVicePresident,ChiefOperatingOfficer. Mr. Bonner, 45, serves as Executive Vice President and Chief Operating Officer of TUFF TV Network, LLC. Mr. Bonner is a Founding Partner of TUFF TV. He attended the University of Tennessee, and joined Seals Communications Corporation in 1989. He previously served as Executive Vice President and Principal Operating Officer of Seals Communications Corporation. During his 15-year tenure, he held various positions within the administrative, production, and marketing departments. From 1996 until 2004, Mr. Bonner served as President of the Seals Network Sales division, where he managed the advertising and sales relations with networks such as ESPN, ABC, Fox Sports, and Spike TV. He produced several of the company’s flagship outdoors and motorsports series, including Suzuki Great Outdoors, MotoWorld, and Wal-Mart Great Outdoors. Mr. Bonner serves as Co-Executive Producer of all TUFF TV produced content, and plays an integral role in the packaging, marketing, and distribution of programming on a multimedia basis. He is the chief liaison with various marketing and financial partners associated with TUFF TV.
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Edward A. “Drew” Mearns, III – Executive Vice President, Business Development. Mr. Mearns, 60, serves as Executive Vice President, Business Affairs for TUFF TV Network, LLC. He graduated magna cum laude from Yale University with highest departmental honors in 1974, and from the University of Virginia Law School in 1979. Mr. Mearns began his legal career as a corporate and trust attorney with the Cleveland-based law firm of Jones Day Reavis & Pogue. He later joined International Management Group (IMG), the world’s largest sports management and marketing firm, and served there as Counsel and Vice President responsible for managing the company’s extensive global Olympic sports, athletics, cycling, and triathlon businesses. From 1986 through 1993, as President of Heritage Sports and then with the law firm of Wickens, Herzer & Panza as head of the Banking Practice Group, Mr. Mearns continued to provide legal, financial and commercial consultation services to clients in sports, special events, general business, and international commercial transactions. In 2005, he founded and still serves as Executive Director of the Action Sports
Alliance, which represents women athletes and manages the women’s events for the ESPN X Games.
Chris Hannaford – Executive Vice President, Programming & Development. Mr. Hannaford, 25, serves as Executive Vice President, Programming & Development for TUFF TV Network, LLC. He began his corporate broadcast career in 2009 with Seals Entertainment Company, LLC, after serving as a freelance editor and videographer working in video production and post production. His talents in the production field led to a job offer producing several high profile sports properties on ESPN and FOX Sports Net. In 2010, Mr. Hannaford joined the staff of Luken Communications, LLC, an original partner in TUFF TV, and was assigned various duties in production and programming for the network, including the position of Content Acquisitions Manager. He joined TUFF TV Network, LLC in 2011 as Associate Vice President, Office of the CEO, working for the Founder and Chief Executive Officer of the network, and was subsequently promoted to Vice President, Programming & Acquisitions. Mr. Hannaford is involved with all aspects of the company’s operations, and oversees a creative team that reports to executive management.
Clay Phillips – Senior Vice President, Controller. Mr. Phillips, 31, serves as Senior Vice President, Controller for TUFF TV Network, LLC. He graduated cum laude with a degree in Finance from Appalachian State University. He began his professional career at Ameriprise Financial as a Financial Advisor for high net worth individuals. In 2006, Mr. Phillips began working for Small Business Services as a Business Management Consultant, where he was responsible for the financial and accounting management of emerging and established small businesses. He then joined Accountware Solutions in 2010, in the capacity of Staff Accountant for small to medium-sized companies. Mr. Phillips was recruited to TUFF TV in 2012, and oversees the daily accounting and financial operations of the network, working closely with the Board of Directors to maintain a system of accurate controls. His focus includes both ensuring the fiscal and operational effectiveness of the company, while maintaining internal management controls.
Prospects & Goals The Company is uniquely suited to achieve expanded distribution of TUFF TV based on its management team and history of the network. TUFF TV remains the only digital broadcast network in the United States targeted at men with programming in seven different genres including Sports, Lifestyle, Drama, Reality, Talk, Specials, and Movies. The male demographic, specifically men 18 to 24 and men 25 to 54, is one of the most desirable audiences for advertisers. With a broad mix of original content, TUFF TV is an attractive network for both viewers and advertisers.
There are currently approximately 116 million television households in the United States. Management has set a goal to reach 300 million households worldwide through various distribution platforms. Of these households, 75 million are targeted in the United States. This would be an increase of 37 million households domestically. This goal can be attained by increasing the number of TUFF TV broadcast affiliates in the Top 20 markets, and the Company has determined various ways to do so.
Investment capital will assist in the growth plans of TUFF TV. This capital will not only serve to increase the distribution of the network across all media platforms, it will also be used to enhance the network’s programming by the creation and acquisition of additional original content available exclusively on TUFF TV.
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Competitive LandscapeThere are numerous television networks that target men. The traditional broadcast networks including ABC, CBS, NBC, and FOX offer a substantial amount of content aimed at males. There are some lesser-known broadcast networks such as the CW, MyNetworkTV, Univision, and ION that target men with certain types of dramatic programming.
There are dozens of large and small cable networks that cater to men. These channels offer various types of programming. Many of the small to mid-size cable networks offer specific singular niche content such as hunting, fishing, extreme sports, motorsports, soccer, and hockey.
There are approximately 116 million TV households in the United States. Cable channels dedicated to sports continue to lead the race to attract males. The following chart is a sampling of these types of networks and households reached in the United States.
CABLE SPORTS TV NETWORKS: U.S. HOUSEHOLD PENETRATION
Source: Sports Business Journal
Internet-based television channels, with content targeting men, are once again gaining momentum as technology advances have dramatically improved the ability to offer video online.
All of the major broadcast networks, as well as cable networks large and small, are pushing male-driven content online. Major Internet services including Apple’s iTunes, Google, YouTube, Netflix, Hulu and a host of others are offering a variety of programming geared to men.
Digital broadcast networks, also known as diginets, are an advertiser-driven business model. These channels rely primarily on advertising and sponsorship revenue, and do not by nature collect subscriber and retransmission fees.
Subscriber fees are what the cable television model was built upon. Not only do most established cable networks charge a per subscriber fee to cable and satellite carriers, they also charge advertisers for commercial time. Subscriber fees range from a high of over $5.50 per subscriber per month for the flagship ESPN network, down to 5 cents per subscriber per month for the smallest of cable channels.
In addition to advertising revenues, the large broadcast networks and broadcast affiliate station groups have been able to compete over the past 10 years against the dual stream revenue cable networks by enacting what are known as re-transmission fees. Re-transmission fees are in essence per subscriber fees that broadcasters charge cable and satellite carriers to retransmit individual broadcast signals.
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NETWORKESPNESPN2Fox Sports 1Golf Channel on NBCNBC Sports NetworkESPNewsESPNUNFL NetworkMLB NetworkFox Soccer ChannelCBS Sports NetworkOutdoor ChannelFox Sports 2Sportsman Channel
2013 98,852,000
98,831,00089,180,00082,736,00078,412,00075,774,00075,568,00071,909,00071,321,00058,963,00053,100,00039,430,00037,496,00032,266,000
201198,784,000
98,700,00077,742,00083,327,00075,439,00073,639,00072,384,00056,530,00056,347,00039,085,00044,330,00034,417,00032,037,000 n/a
201298,264,000
98,235,00080,899,00083,936,00078,310,00074,454,00073,067,00061,204,00069,995,00041,149,00048,241,00037,765,00035,859,00030,059,000
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Competitive AdvantagesTUFF TV offers significant competitive advantages. TUFF TV is the only television network that combines seven specific genres of popular and highly-rated programming that men are passionate about into one channel. These genres include Sports, Lifestyle, Drama, Reality, Talk, Specials, and Movies.
Since its launch in June of 2009, TUFF TV remains the only diginet channel of its kind broadcasting in the United States. Currently available in approximately 38 million households, TUFF TV has achieved a sizable universe reach in the last few years.
Unlike some of its niche cable and satellite competitors such as MAVTV, the Outdoor Channel, and The Sportsman Channel, TUFF TV – while still a network targeted to men – offers a broader range of content. Niche television networks are similar to magazines, as each has a certain appeal and a specific audience.
As a digital broadcaster, TUFF TV positions itself differently than its more niche cable and satellite competitors. Cable and satellite distributors are in fact cutting per subscriber fees to networks, not increasing them. Many distributors are demanding that new channels actually pay for carriage on cable and satellite.
When it comes to niche cable and satellite networks such as the Outdoor Channel and The Sportsman Channel, that program nearly identical hunting and fishing content geared to men, there are a finite number of subscribers these channels will reach. Case in point is the Outdoor Channel. Since its launch in 1993, after over 20 years of distribution, it remains one of the smallest cable and satellite television networks in existence.
In December of 2011, NBC’s Universal Sports ceased to operate as a digital broadcast network. Launched in 2006, Universal Sports became a cable and satellite channel in January of 2012. This move from broadcast to cable opened up more than 40 broadcast markets for potential carriage of TUFF TV.
From a financial perspective, TUFF TV offers major advantages. TUFF TV programming is low cost, most of which it receives on a barter basis in exchange for distribution of the content. There are currently no significant license fee payments for its content. TUFF TV does not pay major league costs for rights to its sports programming. Most importantly, TUFF TV does not carry significant debt.
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PROGRAMMINGAn old adage in the TV business has always been “content is king.” This is even more important now, over 72 years after broadcast television first hit the airwaves of America in 1939 with the launch of NBC.
In today’s multimedia world of programming, viewers have more choices than ever before and television is produced for a wide variety of audiences. TUFF TV offers compelling content as part of its library and programming schedule.
Content LibraryThe Company is the beneficiary of a programming library from Seals Entertainment Company, LLC consisting of network quality television programming produced as original content since 1984. This library contains completed series and episodes available for worldwide sales, along with raw footage that can be used to create new programming and sold as archival content.
There are over 10,000 hours of completed content and raw footage contained in the library. Programming from this library has appeared on television, primarily in the United States, on a limited first run basis on networks including USA, ESPN, ESPN2, FOX Sports Net, and Spike TV. Portions of this library content have been used to launch TUFF TV, and remain a part of the TUFF TV programming line-up.
DOS Broadcast & Appraisal Services, Inc. performed an evaluation of the library in August of 2011. The total fair market value of the library was determined at $31,964,100. This includes $20,502,900 for completed programming and $11,461,200 for raw footage.
GenresTUFF TV includes a unique and synergistic combination of seven different programming genres aimed at the male demographic. TUFF TV provides the first-ever mix of these specific genres on a single network.
Sports – One thing is for sure, men are all about sports. TUFF TV offers a diverse range of professional and amateur sports content including mixed martial arts, motorsports, outdoors, basketball, fitness, extreme, golf, and more. NCAA Division II college football is a recent addition to the TUFF TV line-up with more NCAA sports planned in 2014.
Lifestyle – Passion drives interests that become lifestyle standards for men. TUFF TV focuses on interests and hobbies that men are passionate about. Whether it’s cooking, hiking, collecting, music or cruising the open road on two wheels, TUFF TV provides guys of all ages content they crave.
Drama – Like sports and lifestyle, scripted programming attracts male viewers and ranks amongst the most popular on television. TUFF TV features drama including science fiction, espionage, action and adventure, and law enforcement. Scripted dramas are slated to increase as part of the TUFF TV schedule.
Reality – Since its boom in the early 2000s, reality TV has not ceased to expand in popularity. With celebrity prank shows such as PUNK’D, and real life drama such as Dog The Bounty Hunter, TUFF TV will continue to push the envelop with new and entertaining original unscripted programming.
Talk – Talk shows are something men have always been passionate about. Whether the hosts are discussing college sports, politics, or the state of the economy, men like to participate in discussions on all types of topics. TUFF TV has several new talk shows planned, including a popular college football show.
Specials – TUFF TV will continue to provide viewers with one of a kind special shows. From the prestigious Butkus Award, featuring the best in high school, college, and pro football, to documentaries, concerts, and in-depth investigations, TUFF TV offers unique programming geared to men.
Movies – The film category is slated for expansion on TUFF TV over the next 12 months. Movies offer consistent entertainment for men of various ages and this genre of programming can be targeted to specific audiences that advertisers want to reach. New strategic film distributors for TUFF TV are on the horizon. The network has previously aired a package of Lionsgate films.
BarterBarter content makes up a significant portion of the TUFF TV programming schedule. TUFF TV is able to attract library, first-run, and original programming with essentially no costs by providing a portion of its commercial time to content owners, producers, and distributors in exchange for programming.
Content owners are compensated by selling advertising and sponsorships inside of this programming. For example, a half-hour bartered show on TUFF TV would yield the supplier up to 2:30 minutes of commercial time. The remaining commercial time is retained by TUFF TV for national advertising sales and its affiliates for local advertising sales. Barter content gives TUFF TV a cost effective way to acquire and distribute quality, name brand programming. PUNK’D, a popular celebrity-based reality series hosted by Ashton Kutcher that first appeared on MTV, along with Dog The Bounty Hunter on A&E, are examples of barter content TUFF TV has acquired.
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LicensedProgramming that is purchased by a network is referred to as licensed content. License fees vary based upon the type of programming and the cost to produce such content. Typically, scripted dramatic programming such as CSI or Law & Order is more expensive to produce than reality programming due to factors including talent costs, location expenses, and special effects.
One advantage TUFF TV has is that licensing material within the categories of content that TUFF TV specializes can be available on more affordable terms than with other types of programming. TUFF TV would not typically license a historical original mini-series produced by Steven Spielberg, as this would be an expensive undertaking for any network.
Certain content can be licensed at lower costs because TUFF TV does not have large programming rights deals with major organizations such as the National Football League and NASCAR. Independent production and distribution companies that are looking for television exposure to build library assets are more apt to do so at lower licensing rates than established studios.
TUFF TV currently distributes less expensive programming. This includes coverage of events like the Premier Basketball League instead of the National Basketball Association, or XFC MMA instead of the UFC. As TUFF TV grows its distribution and its revenues, the channel will increase its investment of licensed content.
Time-BuysTime-buys are another form of programming on TUFF TV. A content owner or producer will offer to buy a specific time block on the network to broadcast programming to ensure that events and event sponsors are being seen. Most commonly used for enthusiast-driven content such as hunting and fishing or second-tier sports such as volleyball and tennis, time-buys are an excellent source of revenue for TUFF TV.
TUFF TV reserves the right to determine which types of programming are allowed to appear as purchased time on the network. TUFF TV is essentially paid to provide exposure for this kind of content, without sacrificing the quality of its scheduled programming, because producers must meet certain guidelines that guarantee the informational and entertainment value to viewers.
Advertiser PaidProgramming on TUFF TV also includes advertiser paid material. This type of content, commonly referred to as infomercials, is purchased by an advertiser to sell products, providing a block of time for uninterrupted programming. What is primarily overnight programming, advertiser paid shows are sold on a case-by-case basis.
TUFF TV currently allots 35 hours a week (5 hours of overnight time per day) for advertiser paid programming. Not only is this a way to fill the schedule during hours with fewer viewers, but advertiser paid programming is also an added source of consistent revenue.
Original ProductionThe production of original programming will ultimately be one of the single biggest factors contributing to the success of the Company. Original programming drives distribution, advertising revenue, and licensing fees. The TUFF TV content library is a prime example of the benefits provided by original content creation.
The Company’s Chief Executive Officer, Lou Seals, has an extensive background in original program production. With over 30 years of creating, producing, and selling content that has appeared on the biggest television networks in the world, he understands all facets of the original production business model.
The Company plans to invest substantially in the production of original programming. Reality television, one of the most successful genres, is a relatively cost effective form of original content. TUFF TV is actively developing a slate of reality-based shows for distribution on its own network and for sale worldwide.
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DISTRIBUTIONThe Company has created a highly scalable, yet cost effective distribution channel which is central to the success of its model. The ability to originate, distribute, and monetize the network with low initial overhead allows TUFF TV to provide content to end-users through affiliates and partners worldwide over multiple media platforms.
These multimedia platforms include digital broadcast, online and wireless, cable/fiber, and satellite. With a low cost distribution model, the Company is able to offer TUFF TV at little to no additional operational costs to its affiliates and distribution partners. A major push into Internet, international, and HD expansion are key components to the near term distribution plan for TUFF TV.
Domestic Digital BroadcastSince June 12, 2009, all full-power broadcast stations have been required by the Federal Communications Commission to broadcast exclusively in a digital format. Before the switch to digital, consumers watching television with an antenna could receive as few as four networks over-the-air.
Digital technology has changed television by allowing broadcast stations to multicast as many as eight video channels per station per market. Digital broadcast allows the combination of several channels into one channel by the use of subchannels. Now, instead of having just a channel 12, viewers can tune into 12.1, also known as the primary, or any number of additional subchannels, such as 12.2 or 12.3, also known as secondaries.
TUFF TV provides a video stream to affiliate stations, which then broadcast the stream to viewers as either a primary or secondary channel. By offering the network to its affiliates on a 24-hour full time basis, without charging any fees, TUFF TV is in a position to quickly expand its current affiliate base to reach more of the 210 designated market areas in the United States.
Currently, TUFF TV broadcasts in standard definition. With more and more broadcast stations looking for high definition content, it is important that TUFF TV also offer an HD service to capitalize on this opportunity. Additionally, HD has now essentially become a requirement for new networks to launch on primary digital, cable, and satellite platforms. Online & WirelessNetflix, YouTube, Hulu, and other Internet content services are currently some of the fastest growing means of video distribution. Netflix now has over 44 million global subscribers, approximately 33 million in the United States. YouTube receives over 4 billion video views per day worldwide. Hulu reached $1 billion in revenue for 2013. Online giant Facebook currently boasts over 1.3 billion users globally.
Today, streaming video services use as much as 60% of the total Internet bandwidth, and up to 40% of total mobile bandwidth. YouTube garners over 1 billion mobile video views per day. Facebook has more than 1 billion active mobile users. Mobile TV was projected to attain global sales of $10 billion in 2013, up from $1.5 billion in 2008. Mobile TV subscribers reached 570 million by the end of 2013.
To capitalize on viewer demand, TUFF TV is planning to provide streaming Internet distribution of the network through a totally redesigned TUFFTV.com. This new website will increase viewer interactivity, and allow for revenue generating opportunities. TUFF TV is also developing apps for Android and iOS platforms. Worldwide revenue for web video reached $12 billion in 2013, an increase of 78% from 2008.
In addition, the Company has been approached by numerous online distributors such as Geodesic, owners of India-based Mundu TV, to become part of its subscription based Internet Protocol TV (IPTV) service. Mundu has over 5 million downloads internationally with a large subscriber base in Southeast Asia. Globally, IPTV revenue is expected to increase from $17.8 billion to $47.8 billion in 2014, and up to $78 billion in 2016.
Domestic Cable/FiberWith a combined market share of approximately 65% of U.S. television households, cable and fiber television providers such as Comcast, Time Warner, Cox, AT&T U-verse, and Verizon Fios control a significant number of subscribers, and for good reason. Cable and fiber providers typically provide more channels, and have the ability to add channels with little if any infrastructure change.
TUFF TV and the planned TUFF TV HD service are poised to quickly begin distribution via cable and fiber platforms, in addition to the existing digital broadcast reach through its network of affiliates. Although TUFF TV requires its broadcast affiliates to obtain cable carriage of the channel on a market by market basis, TUFF TV as a network plans to ramp up efforts to assist affiliates in this process.
The goal is for TUFF TV to gain cable clearance in every broadcast market through a strong group of affiliates. The bigger and more prominent the affiliate, usually part of a large broadcasting company with multiple stations, the easier it becomes for TUFF TV to obtain cable coverage in the affiliate’s market.
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As a national television network, it is important that TUFF TV achieve a sizable amount of distribution through cable and fiber providers, whether these providers are retransmitting TUFF TV broadcast affiliates locally, or by the marketing of the network directly to cable and fiber distributors. Having the ability to be seen by free over-the-air digital broadcast, and by cable/fiber in the top 50 domestic TV markets, provides maximum advertising revenue potential.
Domestic SatelliteDirect broadcast satellite services such as DirecTV and Dish Network control approximately 25% of the subscription television market. Satellite television market share increases in rural areas where there may be a lack of cable service. There are approximately 34.7 million satellite households in the United States.
Satellite-delivered HD programming is a top priority for both DirecTV and Dish Network. Claiming to have the most HD channels is a huge marketing tool for these providers. Today, if a new network does not offer an HD feed, the chances of it gaining satellite distribution is minimal. Satellite providers, similar to cable operators, typically pay a per subscriber fee to networks. The planned TUFF TV HD channel is poised to enter the satellite television market by initially offering the network to DirecTV and Dish Network at no charge. By gaining satellite carriage, TUFF TV will increase its national advertising revenue.
InternationalThe Company is making plans to expand to the international marketplace, with initial distribution through Internet delivery. As much as possible, TUFF TV retains the right to broadcast its programming on an international basis. TUFF TV content has proven global appeal. Action and adventure programming is popular with men of many different origins. Motorsports programming in particular transcends language and cultural barriers.
Emphasis is being placed on countries with a highly developed web presence, and with a strong demand for content aimed at men. Two of these primary territories include East Asia and South America. China and India in particular have shown interest in the TUFF TV brand. India has over 70 million television households, as well as over 600 million mobile users. Led by Brazil with a population of over 198,000,000, South American countries total a population of approximately 400,000,000.
Television truly is a global medium. Newer technologies have allowed the growth of this medium on multimedia platforms at less cost than ever before. TUFF TV will capitalize on these technologies to spread its brand worldwide. Digital delivery allows TUFF TV to distribute in multiple languages and picture formats simultaneously throughout the world.
Key PartnersDistribution partners on a multimedia basis are vitally important in order to grow the TUFF TV brand. In essence, these companies, like viewers and advertisers, are clients as well as partners. The following is a partial list of current and prospective distribution partners.
9
ABC Owner & Operator GroupAT&T U-verseCablevision CBS Owner & Operator GroupCharter CommunicationsComcastCox CommunicationsDirecTVDish NetworkEntravision Communications
Fox Owner & Operator GroupGannett TelevisionGray TelevisionHearst CorporationIon Media NetworksLIN MediaMako CommunicationsMediacom CommunicationsMedia GeneralMorris Multimedia
NBC Owner & Operator GroupNexStar BroadcastingRaycom MediaSinclair Broadcast GroupSuddenlink CommunicationsTime Warner Tribune BroadcastingUnivision CommunicationsVerizon FiosWeigel Broadcasting
VERSION SM1.1
JUNE 2014
Technical FacilitiesCurrently, TUFF TV is broadcasting from technical facilities in Chattanooga based upon its non-exclusive domestic digital broadcast partnership with Luken Communications. This partnership is concluding, and the Company’s management has determined due to the network’s multimedia and international expansion plans that it will be better served broadcasting from Atlanta, home to its company headquarters. This move is currently scheduled to occur during 3rd quarter of 2014.
The Company is considering several well-known international telecommunications firms as potential technology vendors for both IPTV and satellite delivery of the network domestically and worldwide. These firms are technical providers of the type of distribution services required for expansion of TUFF TV, and offer significant global reach and redundant Internet Protocol facilities.
Internet Protocol technology is a means to distribute TUFF TV domestically and internationally. Internet delivery is a cost effective way to broadcast TUFF TV to its various affiliates and distribution partners. The physical broadcasting center for the network will be housed in a secure facility in Atlanta. Being housed in such a facility provides TUFF TV with redundant access to multiple international carriers and teleports around the world, including those in Singapore, Great Britain, South America, and India.
TUFF TV will continue to be available via satellite in the United States from a broadcast teleport. Disaster recovery will also be in place at ancillary broadcast facility locations should the teleport fail. By making the initial capital investment in state-of-the-art technology, TUFF TV will be able to operate more cost effectively compared to traditional broadcast distribution.
10
VERSION SM1.1
JUNE 2014
MARKETINGAffiliateSalesDigital broadcasting works on the same basic affiliate sales model that traditional analog broadcasting has since the dawn of television. TUFF TV gains coverage and viewers by broadcasting its content to affiliates across the United States. Each TUFF TV affiliate receives the network signal and broadcasts it within a corresponding Designated Market Area (DMA). Each DMA represents a market area where the affiliate is granted broadcasting rights by the FCC.
In the United States, there are 210 separate DMAs. Each DMA is ranked by the number of households within that area. The top ten markets are New York, Los Angeles, Chicago, Philadelphia, Dallas-Ft. Worth, San Francisco-Oakland-San Jose, Boston, Washington, DC, Atlanta, and Houston. These ten markets represent 30% of all U.S. TV households.
TUFF TV currently has 39 broadcast affiliates and reaches approximately 33% of the United States as ranked by Nielsen DMA. To expand coverage and increase viewers, it is important to have a presence in as many DMAs as possible. TUFF TV is putting additional personnel and resources into its affiliate marketing to enhance and expand affiliate relationships.
Advertising SalesGlobal television advertising revenue is projected to reach $171 billion in 2014. Television advertising sales in the United States reached $78 billion in 2013, and are expected to grow steadily over the next six years. Television advertising captures 34% of the total U.S. advertising marketplace according to ad agency giant Interpublic Group. By 2017, TV advertising sales are expected to reach $81.6 billion, representing 38% of all ad spending in the United States. In comparison, online advertising sales are the fastest growing of all segments. Facebook reached 2013 ad revenue of $6.96 billion, up 4.1% from 2012.
TUFF TV programming attracts a core demographic of men ages 18-54. This is a major consumer group for advertisers and brand marketers. Using historical industry data, and updated information compiled from different surveys and various websites including social media, TUFF TV has a proven appeal to the male demographic. Men ages 18-44 make up nearly 55% of the TUFF TV audience. Men ages 45 and older make up another 30% of the viewers. The remaining 15% of viewers are males ages 13-17 and women of all ages. TUFF TV also boasts a 40% loyalty rate on its website, meaning 40% of all visitors to TUFFTV.com have visited the website on more than one occasion.
Since 1923 The Nielsen Company has been the benchmark for television ratings and consumer behavior and demographic information. Nielsen tracks viewing and total audience statistics for all major TV networks and broadcasters, providing detailed information and data that advertisers depend upon when making marketing decisions, and that networks rely upon when selling advertising. TUFF TV is not currently Nielsen rated, which is not uncommon for a relatively new network. It is anticipated that TUFF TV will purchase Nielsen and/or other related television marketing data in 2014. Consistently at the top of Nielsen ratings is programming targeted at men. Several of America’s top 20 rated shows consist of genres featured by TUFF TV. These shows include NASCAR and World Wrestling Entertainment (Sports), NCIS and Sons of Anarchy (Drama), Pawn Stars and Storage Wars (Reality), and SportsCenter and 60 Minutes (Talk).
TUFF TV is a network built for advertisers and sponsors looking to attract male viewers who are passionate about interests and pursuits that comprise the network’s programming. Sponsorships and product placement inside of specific shows and programming blocks allow TUFF TV to maximize advertising revenue. There are several TUFF TV shows that are prime examples of sponsor-supported and underwritten programs. These include Wal-Mart Great Outdoors, Full Throttle TV, and the United Food & Commercial Workers College Kickoff series.
The Company plans to engage a dedicated outside advertising sales firm to market specific TUFF TV commercial time and advertiser paid programming. Under a sales representation arrangement, the firm works on a commission basis and can yield savings in marketing costs, overhead, and infrastructure for relatively new networks such as TUFF TV.
Consumer & IndustryTUFF TV is developing its first major consumer and media industry marketing campaigns. TUFF TV placed its first national print ad in the media trade publication Broadcasting & Cable. Consumer and trade industry advertising is important for TUFF TV on several fronts. Viewers need to know about TUFF TV and its program offerings. Affiliates need to know that TUFF TV is available for carriage. Advertisers and sponsors must be pitched continuously to spend marketing dollars on the network.
Important to TUFF TV is a presence at several major trade industry shows, both domestic and internationally. These include the National Association of Television Program Executives (NATPE), the National Association of Broadcasters (NAB), the National Cable and Telecommunications Association (NCTA), and the International Market for Television Programs (MIPCOM). NATPE brings together broadcasters, cable and satellite distributors, and new media distributors and is centered on content. The NAB is the largest annual gathering of TV station owners and broadcasting groups with a technology slant. The NCTA is the premiere conference of cable operators and networks focusing on distribution. MIPCOM is one of the largest international conventions of content suppliers and buyers in the entertainment industry.
11
VERSION SM1.1
JUNE 2014
12REVENUE CONTRIBUTORSCore Business GrowthThe Company sees significant potential growth in revenue and profits with its core domestic digital broadcasting business. By consolidating operations in Atlanta, which will include all domestic and international marketing and technical functions, the network will run more efficiently and be more effective. Increasing the network’s distribution through the signing of additional affiliates is the first priority. Affiliate sales of TUFF TV under Luken Communications have been slower than expectations, which is why the Company will be assuming all affiliate marketing as the Luken Communications partnership concludes . TUFF TV management has targeted a goal of reaching 75 total affiliates by 1st quarter of 2015. This should be attainable using proper management and the addition of qualified affiliate sales personnel.
Additional affiliates provide more distribution for TUFF TV, which equates to increased advertising and sponsorship revenue. Advertising sales under Luken Communications have been minimal. The Company is assuming all advertising sales as the partnership with Luken Communications concludes. With proper management and more qualified marketing personnel, TUFF TV can increase its domestic advertising revenue substantially. The contracting of an outside advertising sales representation firm can provide additional revenue for specific day parts on the TUFF TV schedule.
The online and wireless possibilities for the TUFF TV brand are relatively untapped. A major emphasis is being put forth to enhance TUFFTV.com through a total rebuild and redesign of the website. Monetization of TUFF TV and its programming through wireless platforms, online streaming media, and downloads, both domestically and internationally, is a major initiative in 2014. Consumer website purchases, using TUFFTV.com as an online and wireless referral hub of goods and services aimed at men, offer additional revenue potential.
Revenue SourcesMultimedia platforms are expanding rapidly, and have begun to create new sources of significant revenue for content owners and distributors. Brand and content licensing are ways to monetize TUFF TV intellectual properties. Below is a list of areas with market statistics that can provide new and additional sources of revenue for TUFF TV.
Television – Global revenue of all forms of television reached $385 billion in 2012, with $150 billion concentrated in the United States. Annual industry growth rate is expected to remain at approximately 1.7%.
IPTV – Internet television reached global revenues of $21.9 billion in 2012. Revenue growth is projected to reach $47.8 billion in 2014 and $78 billion in 2016, a Compound Annual Growth Rate (CAGR) of 28%.
Mobile TV – Global mobile TV revenues should reach $10 billion in 2013, up from $1.5 billion in 2008, a CAGR of 46%. Mobile TV subscribers worldwide will grow at a CAGR of 47% between 2011 and 2013, attracting 570 million subscribers.
Web Video – Worldwide revenue for web video is projected to reach $12 billion in 2013, up from $1.2 billion in 2008, a CAGR of 78%.
Subscription TV – While approximately 55% of households pay for television services, 45% of television revenue comes from subscriptions.
Brand Licensing – Licensing of brands brought in $5.5 billion globally in 2012, and should grow to $7.9 billion in 2015, a 13% CAGR. TUFF TV intends to aggressively market its brand, through apparel and other products.
Library Licensing – The licensing of the TUFF TV content library is a relatively untapped source of additional revenue. Worldwide syndication and marketing of this programming is being planned.
New Divisions – The creation of new divisions of TUFF TV is actively being considered. These include, but are not limited to, original programming production and publishing.
AcquisitionsThe Company has been studying and researching possible media and media-related acquisitions over the past 12 months. Company management has identified existing television networks as strategic fits and potential acquisition targets. In each case, TUFF TV offers additional programming genres that are synergistic with the core content and audience demographics of these networks. In one case, there is a likely merger between two of these networks in that both focus on the identical programming genre and audience. Acquisition of another television network is one of the quickest ways to grow the Company and increase revenue. It is also one of the more costly maneuvers, in terms of investment capital, depending on the size of the acquired network.
On the other hand, steadily funding the expansion of TUFF TV also requires investment, and will take time. The networks under consideration as potential acquisitions range from the age of 7 years to 17 years. By contrast, TUFF TV is now in its fifth year of existence. There are other strategic media-related acquisitions, both domestically and internationally, that can be considered. These range from production companies to programming libraries. Observations and lessons learned by Company management over the past three decades, from working with some of the largest media companies and TV networks in the world ranging from Walt Disney
VERSION SM1.1
JUNE 2014
INVESTMENT IMPACTThe impact of investment in the Company, given the fact that it is carries relatively low debt as an operational media concern, is substantial at this point. With existing operational costs that are minimal in comparison to other similar networks, investment capital will be deployed to maximize growth both domestically and worldwide, consolidate operations, and increase revenues.
Investment CapitalThe Company plans to raise up to $1 million in crowdfunding investment to expand TUFF TV in 2014 under the Invest Georgia Exemption (IGE). Capital contribution is planned in various stages. Stage One is anticipated at $250,000. Stage Two is planned for $250,000. Stage Three is planned for $500,000. This investment will have an immediate impact on the network by providing funds and infrastructure that will fuel overall distribution growth and advertising sales.
Investment capital will allow the Company to increase its cable, satellite, and broadcast distribution on a domestic and international basis. TUFF TV will expand its affiliate sales efforts while implementing a formal consumer marketing campaign and an increased industry promotional presence. A special section of the new TUFFTV.com website will be launched to provide increased marketing support to all TUFF TV affiliates.
TUFF TV has designed its operational requirements to be scalable from an investment perspective. Personnel and new content costs can be adjusted accordingly depending upon distribution benchmarks and advertising sales revenue. In raising up to the maximum of $1 million annually allowed under the IGE, the Company is also seeking additional capital from various other prospective investors that specialize in the media and entertainment sectors. Use of Proceeds The Company has outlined the use of proceeds for Stage One investment under the IGE. These uses are described below. Stage Two and Stage Three investments will generally follow the same basic use of proceeds as Stage One.
13
Stage One Proceeds to TUFF TV Network, LLC $250,000
General & Administrative 70,000 Distribution 70,000 Licensed & Original Programming 50,000 Marketing 25,000 Promotional & Advertising 20,000 Professional & Consulting Fees 15,000
Total Net Proceeds: $250,000
VERSION SM1.1
JUNE 2014
ValuationValuations for television networks are derived from a combination of factors such as distribution footprint, subscriber fees, retransmission fees, advertising revenues, programming assets, number of viewers, subscribers, cost of programming as a percentage of net revenues, competition within the genre, niche targeting ability, and cash flow margin. While valuations may be subjective in nature, there is solid history and performance in which to compare the present and future value of TUFF TV.
Management and its advisors have currently valued TUFF TV as a domestic television broadcast network at $20 million. This valuation is based upon the current and near term distribution of TUFF TV, and the intellectual properties of the network including the TUFF TV trademark. This trademark has been owned personally by the Company’s Chief Executive Officer since its registration. On May 5, 2014, it was officially contributed as an asset to the Company by the Chief Executive Officer. Depending on the type of investment, and the background of prospective partners, management acknowledges the Company’s valuation may change accordingly.
For background purposes in regards to values of television networks that are comprised of genres similar to TUFF TV, for instance cable network Speed Channel rebranded as Fox Sports 1 in August 2013, this network was sold to Fox Cable Networks in 2001 for $850 million. In 2006, Outdoor Life Network, now known as NBC Sports Network and at the time a companion network to Speed Channel, sold an 83.2% stake to Comcast for $550 million. Comcast already owned the remaining interest in the channel. In May 2013, the Outdoor Channel, established in 1994 as an all hunting and fishing network, was purchased by Kroenke Sports & Entertainment for $268 million.
The Company has implemented a strategy of increasing the value of TUFF TV by focusing on three crucial areas: distribution, sales, and programming. Company management understands that to maximize advertising revenues, TUFF TV needs to obtain distribution across all media platforms. To obtain the distribution necessary to build a sizable audience, compelling and high quality programming is required by broadcast stations, cable systems, satellite carriers, Internet providers, and all other distribution partners. Each of these areas have distinct needs and challenges. However, all three are dependent upon one another and are critical to the success of the Company.
14
VERSION SM1.1
JUNE 2014
FINANCIAL PROJECTIONSThe following TUFF TV financial projections are based upon current and projected affiliate growth, and do not include the additional integration of potential affiliates. TUFF TV management has taken a conservative approach and has forecast expenses on the higher side and revenues as lower side baseline estimates. The Company plans to aggressively market the young network across all multimedia platforms, and has dedicated the appropriate funding to start building a strong brand and presence worldwide.
Year 1 Year 2 Year 3Revenues Advertising Sales - Direct Response Advertising Sales - National SpotPaid Programming - Direct ResponseNational Sponsorship SalesLocal Advertising SalesBroadband SalesWireless SalesInternational SalesBrand LicensingGross Revenues Less Sales Commissions (27.75%) Total Net Revenues Expenses Original Programming Licensed ProgrammingGeneral & AdministrativeDistributionMarketingPromotional & AdvertisingTotal Expenses
Operating Cash Flow
15
$1,400,000750,000
50,0004,500,000
500,00075,00050,000
1,250,00037,500
8,612,500
2,389,969
6,222,531
2,250,0001,000,000
875,000450,000200,000150,000
4,925,000
$1,297,531
$1,150,000500,000
30,0002,000,000
375,00030,00018,000
625,00018,000
4,746,000
1,317,015
3,428,985
1,250,000500,000750,000375,000150,000100,000
3,125,000
$303,985
$900,000250,000
25,000500,000125,000
15,0009,000
125,0009,000
1,958,000
543,345
1,414,655
575,000250,000625,000300,000
75,00037,500
1,862,500
($447,845)
VERSION SM1.1
TUFF TV USA BROADCAST AFFILIATES (as of 5-1-14)
Rank Designated Market Area (DMA) Affiliate Channel DMA HHs % of US2 Los Angeles KFLA-LD 8.3 5,665,780 4.892%3 Chicago WPVN-CD 24.1 3,534,080 3.052%4 Philadelphia WFMZ-TV 69.3 2,963,500 2.559%
Philadelphia Verizon FiOS 4709 Atlanta WTBS-LD 26.5 2,375,050 2.051%
12 Phoenix (Prescott) K38IZ-D 38.2 1,855,310 1.602%15 Minneapolis-St. Paul K60EJ 47.1 1,748,070 1.509%16 Miami-Ft. Lauderdale WKWT 42 1,663,290 1.436%17 Denver K32EY-LD 27.4 1,574,610 1.360%18 Orlando-Daytona Beach-Melbourne WHDO-CD 38.1 1,490,380 1.287%
Orlando-Daytona Beach-Melbourne Summit Broadband 6919 Cleveland-Akron (Canton) WIVM-LD 39.2 1,484,530 1.282%
Cleveland-Akron (Canton) Mathlan Cable 129Cleveland-Akron (Canton) WIVN-LD 29.3Cleveland-Akron (Canton) W27DG-D 39Cleveland-Akron (Canton) WIVD-LD 39Cleveland-Akron (Canton) WIVX-LD 51
25 Charlotte WHKY-TV 14.3 1,157,920 1.000%29 Nashville WRTN-LP 6.5 1,043,440 0.901%33 Salt Lake City KPDR-TV 19.2 921,240 0.796%
Salt Lake City K15JH-D 15Salt Lake City K32EY-LD 27Salt Lake City KJDN-LD 39
35 Cincinnati WBQC-LD 25.6 908,440 0.784%37 Greenville-Spartanburg-Asheville-Anderson WASV-LP 50.4 849,340 0.733%42 Las Vegas KHMP-LD 18.4 726,010 0.627%
Las Vegas CMA Cable 14, 2244 Birmingham (Anniston and Tuscaloosa) WRTD-LD 46.4 719,200 0.621%47 Albuquerque-Santa Fe KYNM-LP 30.2 690,740 0.596%
Albuquerque-Santa Fe K26CI-D 27.452 Buffalo WBXZ 56.5 634,280 0.548%55 Fresno-Visalia KVBC-LD 13.8 580,180 0.501%58 Albany-Schenectady-Troy WYBN-LD 14.3 548,560 0.474%
Albany-Schenectady-Troy Mid Hudson Cable 2163 Lexington WOBZ-LD 9.3 490,920 0.424%65 Charleston-Huntington WHJC-LP 27.2 457,600 0.395%67 Wichita-Hutchinson Plus KSMI-LD 51.4 454,040 0.392%68 Flint-Saginaw-Bay City WHNE-LD 26.4 448,960 0.388%78 Rochester, NY WBGT-CD 46.3 402,300 0.347%
TDS Cable TDS Cable 13Comcast Cable Comcast Cable 20
87 Chattanooga WOOT-TV 6.4 360,150 0.311%98 Burlington-Plattsburgh WYCU-LD 26.2 317,960 0.275%
Burlington-Plattsburgh TDS Cable 13Burlington-Plattsburgh Comcast Cable 23
110 Boise KCDL-LD 42 267,470 0.231%121 Eugene K47AV-D 47 240,480 0.208%124 Yakima-Pasco-Richland-Kennewick KYPK-LD 38.4 233,630 0.202%
Yakima-Pasco-Richland-Kennewick K380I-D 38.4131 Wilmington WTMV-LD 29.2 194,070 0.168%
Wilmington WTMH-LD 21.2Wilmington WTMQ 41.2
132 Chico-Redding KGEC-LP 26.2 193,000 0.167%133 Columbus-Tupelo-West Point-Houston WO7BN-D 7.4 189,750 0.164%
Columbus-Tupelo-West Point-Houston W34BJ-D 34.4141 Beaumont-Port Arthur KAOB-LD 27.6 166,880 0.144%144 Wichita Falls & Lawton KDGL-LD 23.2 159,780 0.138%149 Erie WLEP-LD 9.3 157,250 0.136%164 Missoula K34MJ-D 34.3 115,760 0.100%173 Rapid City KRPC-LP 33.4 100,510 0.087%
Total 38,084,460 32.888%
Total Markets: 39
Notice: TUFF TV makes no representations in regards to any of the information contained on this document, or the accuracy thereof. Information is subject to change without notice.
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RISK FACTORS ASSOCIATED WITH TUFF TV NETWORK, LLC (“COMPANY”) AND THIS OFFERING:
GENERAL
TheCompany’sactivitiesmayrequireadditionalfinancing,whichmaynotbeobtainable.
TUFF TV Network, LLC has limited capital resources. Based on the Company’s expectations as to future performance, the Company considers these resources and existing and anticipated credit facilities to be adequate to meet the Company’s anticipated cash and working capital needs at least through December 31, 2014, although there can be no assurances as to the accuracy of this estimation. The Company will, however, need to raise additional capital to fund the Company’s future operations, invest in new program development and expand the Company’s business by way of one or more strategic acquisitions or alliances. Unless the Company’s results improve significantly, it is doubtful that the Company will be able to obtain additional capital for any purpose if and when the Company needs it. As a result, the Company may experience significant liquidity and solvency problems in the future, which could force the Company to cease operations if significant additional financing is not available. Adequate financing may not be available on terms which are acceptable to the Company, if at all.
LackofProfitableOperatingHistory.
The Company does not have a history of profitable operation. There can be no assurance that the Company will ever be profitable. The Company’s ability to achieve profitability will depend upon a number of factors, including, but not limited to, whether the Company:
• Has funds available for working capital, project development and sales and marketing efforts; • Has funds for the continuous upgrading of its production operations and facilities; • Achieves projected sales revenues; • Controls operating expenses; • Continues to attract new business; and • Withstands competition in the Company’s marketplace.
Our auditors have raised substantial doubts as to our ability to continue as a going concern.
Our financial statements have been prepared assuming we will continue as a going concern. Since our inception, we have experienced recurring losses from operations, and these losses have caused an accumulated deficit of $863,930 as of December 31, 2012. We generate only minimal revenues and we continue to experience operating losses. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. We anticipate that our operating expenses will continue to increase and we will continue to incur substantial losses in future periods until we are successful in significantly increasing our revenues and cash flow. There are no assurances that we will be able to increase our revenues and cash flow to a level which supports profitable operations and provides sufficient funds to pay our obligations. If we are unable to meet those obligations, we could be forced to cease operations in which event investors would lose their entire investment in our company.
MANAGEMENT AND OPERATIONS
TheCompanydependsheavilyonitsseniormanagementwhomaybedifficulttoreplace.
The Company believes that the Company’s future success depends to a significant degree on the skills, experience and efforts of its Chairman, CEO and other key executives. Any of these executives would be difficult to replace. They are not bound by employment contracts, and there can be no assurance that either of them will not elect to terminate their services to us at any time. The loss of their services may irreparably harm the Company in such a manner that it may not be able to overcome any such loss in management.
The Company may be unable to successfully compete.
The Company’s industry is highly competitive, and many of the Company’s competitors are better capitalized and financially stronger than the Company. Further, there are no restrictions on the ability of others to reproduce our business model, and there are no significant barriers to entry into our industry.
If we fail to develop and distribute popular programs, our viewership would likely decline, which could cause advertising revenues to decrease.
Our operating results depend significantly upon the generation of advertising revenue. If we fail to program popular shows that maintain or increase our current number of viewers, our advertising revenue could decline and adversely impact our business and operating results.
Expanding the Company’s business depends on the Company’s ability to increase demand for the Company’s products and services.
While the Company believes that there is a market for its planned expansion of its products and services, there is no guarantee that the Company will be successful in its choice of products or technologies or that consumer demand will increase as the Company anticipates.
The Company’s ability to operate and compete effectively requires that the Company hire and retain skilled marketing and technical personnel, who have been in short supply from time to time and may be unavailable when the Company needs them.
The Company’s business requires us to be able to continuously attract, train, motivate and retain highly skilled employees, particularly marketing and other senior management personnel. The Company’s failure to attract and retain the highly trained personnel who are integral to the Company’s sales, development and distribution processes may limit the rate at which the Company can generate sales. The Company’s inability to attract and retain the individuals the Company needs could adversely impact the Company’s business and the Company’s ability to achieve profitability.
The Company may suffer from a business interruption beyond its control, and the continuity of its ongoing operations might be affected.
The Company’s operations may be adversely affected by business interruptions that are beyond its control. While the Company may take reasonable steps to protect itself, there could be interruptions from computer viruses, server attacks, network or production failures and other potential interruptions that would be beyond the Company’s reasonable control. There can be no assurance that the Company’s efforts will prevent all such interruptions. Any of the foregoing events may result in an interruption of services and a breach of the Company’s obligations to its clients and customers or otherwise have a material adverse effect on the business of the Company.
Thereisalimitationontheofficersanddirectorsliability.
The Company’s governing instruments (including its Amended and Restated Operating Agreement) limit the personal liability of directors and officers for breach of fiduciary duty, and the Company provides an indemnity for expenses and liabilities to any person who is threatened or made a party to any legal action by reason of the fact that the person is or was a director or officer of the Company unless the person is adjudged to be negligent or guilty of willful misconduct in the performance of his or her duty to the Company.
Ouroperatingresultsmayvarysignificantly,andhistoricalcomparisonsofouroperatingresultsarenotnecessarilymeaningfuland should not be relied upon as an indicator of future performance.
Our operations are influenced by many factors, many of which are beyond our control. These factors may cause our financial results to vary significantly in the future. Factors that can cause our results to fluctuate include, but are not limited to:
• Carriage decisions of distribution providers; • Demand for advertising, advertising rates and offerings of competing media; • Distribution providers’ capital and marketing expenditures and their impact on programming offerings and penetration; • Seasonal trends in viewer interests and activities; • Pricing, service, marketing and acquisition decisions that could reduce revenues and impair quarterly financial results; • Our ability to react quickly to changing consumer trends; and • Changing regulatory requirements.
Our expense levels are based in significant part on our expectations of future revenue. An unanticipated decline in revenue for a particular calendar quarter may disproportionately affect our profitability because our expenses would remain relatively fixed and would not decrease correspondingly. Therefore, our failure to meet revenue expectations would seriously harm our business, operating results, financial condition and cash flows.
Seasonal increases or decreases in advertising revenue may negatively affect our business.
Seasonal trends are likely to affect our viewership and, consequently, could cause fluctuations in our advertising revenues. Our business reflects seasonal patterns of advertising expenditures, which is common in the broadcast industry. For this reason, fluctuations in our revenues and net income could occur from period to period depending upon the availability of advertising revenues. Due, in part, to these seasonality factors, the results of any one quarter are not necessarily indicative of results for future periods, and our cash flows may not correlate with revenue recognition. The inability to successfully integrate acquisitions could adversely affect the Company’s results.
A part of our business strategy is to pursue attractive acquisition opportunities if and when they become available (although no such opportunities are pending at the time of this Offering). The success of an acquisition is subject to numerous internal and external factors, such as the management of additional sales, administrative, operational and management personnel, the ability to consolidate information technology and accounting functions, overall management of a larger organization, competitive market forces and general economic factors. It is possible that the integration process could result in the loss of key employees, the disruption of ongoing businesses, tax costs
or inefficiencies or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers, suppliers, employees or other third-parties or our ability to achieve the anticipated benefits of such acquisitions and could harm our financial performance.
RISKS RELATED TO THIS OFFERING
Purchasers in this Offering will have no voting rights in the Company by virtue of holding Class B Interests, and their ownership interests may be redeemed by the Company upon the occurrence of certain events.
The Company’s capital structure consists of two classes of membership interests – Class A and Class B. All of the Class A membership interests currently are owned by our three founders. The holders of Class A interests possess all of the voting power of the Company. The holders of Class B membership interests, which are being offered in this Offering, have no voting rights in the Company, except those provided by law. Consequently, the holders of Class A interests have total control over the management and affairs of the Company, including significant corporate events such as a merger or sale of the Company or its assets, and the holders of Class B interests have no such control. For a description of the terms of the Class A Interests and the Class B Interests, including voting rights, distribution provisions and liquidation provisions, see the Company’s Amended and Restated Operating Agreement.
Class B Interests being sold in this Offering may be redeemed by the Company upon the occurrence of certain events.
All Class B Interests, by virtue of operation of the Company’s Amended and Restated Operating Agreement, are subject to redemption (forced repurchase) by the Company upon the occurrence of certain significant corporate events and at a price described in the Company’s therein. For a description of the terms of the Class A Interests and the Class B Interests, including the events related to redemption of the Class B Interests, see the Company’s Amended and Restated Operating Agreement.
There is no established trading market for the Company’s membership interests.
There is currently no established trading market for the Company’s Class A Interests or Class B Interests, and no active trading market for them is likely to develop in the foreseeable future. Therefore, you may be unable to sell your Class B Interests when you wish (if at all) or at a price that is acceptable to you.
The Class B Interests are subject to restrictions on transfer under federal and state securities laws.
The Class B Interests are being offered and sold pursuant to exemptions from the federal and Georgia securities registration requirements and therefore are subject to restrictions on their subsequent transfer. During the period in which the Class B Interests are being offered by the Company and for a period of nine (9) months after the last sale of Class B Interests by the Company in this Offering, Class B Interests may be resold only to persons resident within the state of Georgia. The Class B membership Interests sold in this Offering, and any Class B Interests that are presented for transfer during the above-described period, will contain a legend stating that they have not been registered under federal and state securities laws and setting forth the above limitations on resale, and such restrictions will be noted in the Company’s ownership records.
Risk of Dilution.
The Company will likely need to raise more cash, possibly a significant amount, to make the business or a particular venture a success. The Company will likely issue new equity interests to other investors to raise this needed capital. Issuing new equity interests in the Company will dilute the percentage of the Company that you own, possibly by a significant amount.
The Company has full discretion to reallocate the offering proceeds.
The Company intends to use the net proceeds from this Offering for the purposes and in the amounts described in ‘Use of Proceeds’ of this Subscription Agreement and the related materials being provided to potential investors in this Offering. The Company’s estimates of its allocation of the net proceeds of the Offering are based upon the current state of its business operations, its current plans and current economic and industry conditions. These estimates are subject to change based on material factors such as delays in project development, changes in the level of competition, adverse market trends and new business opportunities. The Company retains broad discretion to make material changes in the allocation of the proceeds of this Offering.
The Company does not intend to pay dividends for the foreseeable future.
The Company has never paid cash dividends on our Class A Interests or Class B Interests and we do not anticipate doing so in the foreseeable future. The payment of dividends on our Class B Interests will depend on earnings, financial condition and other business and economic factors affecting us at such time as our Managers may consider relevant. If we do not pay dividends, our Class B Interests may be less valuable because a return on your investment will only occur if the price of such Class C Interests appreciates or there is a redemption event as detailed in the Company’s Amended and Restated Operating Agreement.
We are not providing any tax opinions regarding the taxation of the Class B Interests.
Neither we nor our counsel will render any tax opinion or advice with respect to this Offering. Accordingly, each investor should discuss the tax considerations of an investment in the Class B Interests as it relates to him or her with his or her own tax advisor. Certain actions of the Company or an investor could result in negative tax consequences for the investor and investors are urged to consult their counsel to discuss such aspects.
