DCD MEDIA (DCD)

Previous Stock Tip

These companies are all previous recommendations from the Red Hot Portfolio that I have subsequently recommended and then sold from the portfolio at a later date. By no means are these companies intended to be buy recommendations for you to go out and invest money towards their shares. For the opportunity to start making serious money from the recommendations I am making now, just start your no obligation trial!

DCD MEDIA (DCD): Whither TV? We sell – Sep 2007

RHPS Recommendation – SELL

DCD has successfully placed 10.625 million new shares at 80p, with some of these bought by directors. However, the share price has slipped below this level, and DCD must now deal with the integration of its three recently acquired production companies, while coping with the rapidly changing environment of the TV industry, as viewers increasingly access entertainment via their computers. With this uncertainty, I have reconsidered my view.

DCD MEDIA (DCD): Buys 3 TV Programme Producers - Aug 2007

RHPS Recommendation – BUY

DCD is increasing its exposure to programme making through the acquisition of three separate TV production companies: Prospect Pictures, which makes cookery and mid-afternoon programmes; September Holdings, which produces factual entertainment including “Hollywood Lives”; and West Park Pictures, a producer of documentaries, that has a five year contract with Stephen Fry. DCD is attracted to production by the new regulatory environment that permits programme makers to retain the commercial rights to their shows for future exploitation. DCD is raising £12.5m to finance the deals and is also proposing a one for 100 share consolidation. The integration of three companies all at once brings some risks, but still a BUY.

DCD MEDIA (DCD): Jul 2007

RHPS Recommendation – BUY

DCD’s subsidiary Box TV has been commissioned by ITV1 to produce “Affinity”, a two-hour drama based on the novel by Sarah Waters. This project has an estimated turnover in excess of £2m, while the international rights for the production will be exploited by DCD Media’s in-house distributor NBDtv.

DCD MEDIA (DCD): Jun 2007

RHPS Recommendation – BUY

DCD’s distribution subsidiary NBD TV, made its highest ever sales at the world’s biggest television market, MIP TV, at Cannes. DCD’s business model involves both production and distribution and there are obvious synergies between the two. BUY.

DCD MEDIA (DCD): Biggest Ever Commission - May 2007

RHPS Recommendation – BUY

Subsidiary Iambic Productions is to produce a new Saturday night prime time entertainment series for ITV. This is Iambic’s biggest commission ever and will consist of two shows entitled The Truth About Boy Bands. It promises to “lift the veil on the gritty reality of iconic male groups over the last four decades.” I can hardly wait!

DCD MEDIA (DCD): Reassuring Interims - Apr 2007

RHPS Recommendation – BUY

Interim results reassured, with DCD recording a small profit on turnover of £13m. Its media production subsidiaries are busy, and DCD’s integrated model, which enables it to sell its own content in the form of DVDs, is working well. BUY

DCD MEDIA (DCD): The Last Enemy - Mar 2007

RHPS Recommendation – BUY

For the BBC subsidiary Box TV is to produce The Last Enemy – “a shocking and compelling look at howtechnology could transform Britain into surveillancesociety”. This £5.9m production will be Box TV’s biggest ever project, while DCD could generate further revenue from the worldwide exploitation rights. BUY.

DCD MEDIA (DCD):“Favourable outlook” - Jan 2007

RHPS Recommendation – BUY

Chairman David Elstein told the AGM that DCD has a ‘full slate’ of large-scale projects ‘contributing to a favourable outlook for the 2008 financial year’. BUY.

DCD MEDIA (DCD): Thank you for the music - Dec 2006

RHPS Recommendation – BUY

Subsidiary Iambic Productions is to produce two new programmes, “Abba – Thank You For The Music”, and a documentary about the new Cirque du Soleil show and the associated Beatles CD “Love”. The share price has fallen since the final results, due to DCD’s decision to adopt a more conservative accounting policy. However, broker Cenkos points out that all of DCD’s divisions are performing strongly, and that DCD is demonstrating the ability to integrate acquired businesses, achieve economies of scale and lessen risk by reducing exposure to single projects. Director Richard Price has bought 512,905 shares at 0.91p. BUY

DCD MEDIA (DCD): Beating sales expectations - Nov 2006

RHPS Recommendation – BUY

Full year results from DCD Media, which makes and distributes programmes with a focus on music, revealed sales of £13.3m, well ahead of the forecast £9.8m, and “turnover expectations for the group have been raised”. Heavy costs for goodwill and rights amortisation, group reorganisation and the set up costs of the DVD and Education divisions, pushed the bottom line into loss. But DCD is confident for the coming year and is poised to make further acquisitions. BUY.

DCD MEDIA (DCD): Quick! This market-leading TV and DVD producer is going cheap! - Oct 2006

RHPS Recommendation – BUY

Chris Hunt had flown in from New York on Saturday, immediately raced up to Leeds to see Robbie Williams in concert, and then returned home to Bristol on Sunday.

Yet he was still full of energy and bonhomie the following day when I met him in the offices of DCD Media in Wardour Street.

Yes, we were down in Soho, London, the heart of media land. But Chris is no media luvvie. As we talked, he trotted out a stream of facts and figures that left me in no doubt – he knows all about profit and loss. I’m making shares in his business a strong “buy” today.

Take this for example: A classical music DVD typically sells for about £20. How much does it cost to manufacture? Well, with all those free DVDs dropping out of your Sunday newspaper, you won’t be surprised to hear that they cost well south of £1. That leaves a very tidy margin to be fought over by the distributor and the retailer. And it explains why DCD Media has just established its own DVD label.

Or how about this example that Chris Hunt gave me of just how profitable the entertainment industry can be? DCD’s subsidiary Iambic Productions recently made a programme about a certain well-known pop group from the 1970s. One TV station paid £395,000 for it. Sales to other TV stations will bring in about £200,000. But the cost to Iambic? Only £150,000.

The reason for such huge profit margins in the business of entertainment right now is change. Rather than sitting and watching whatever the broadcasters choose to dish up, we are now able to call up programmes and shows that we really want to watch – or listen to – and having them delivered by TV, computer, or mobile handset. This is threatening established business models, but it gives terrific opportunities to the more nimble operators, of whom Chris Hunt is one.

DCD has a very experienced chairman, too. David Elstein was Managing Director of Sky Networks, Head of Programmes at Thames TV, and CEO of Channel Five. With his help, Hunt has identified two specific areas of opportunity.

The Wind in the Willows, Coldplay and models in their undies

The first opportunity got started in 2004, when the TV regulators, Ofcom, published a new Code of Practice. Prior to this, independent producers made programmes for low profit margins, and were then forced to watch in envy as the broadcasters exploited all those juicy rights for repeats and overseas sales. Now though, the ‘indies’ can retain all the overseas rights, transforming their profitability.

In 2005 came the BBC’s ‘Window of Creative Competition’. This allowed the indies to aim for 50% of new BBC commissions, instead of the previous ceiling of 25%. This has added about £1bn of potential new demand for independent programme makers. DCD has seized upon this opportunity, buying two strong indies to grow its own business.

BOX TV makes TV dramas which sell particularly well overseas. Current productions include ITV’s Bon Voyage, and The Wind in the Willows which will be shown on the BBC this Christmas. Done and Dusted, meantime, films rock and pop concerts and then sells the production to TV stations or DVD producers. It was filming the Robbie Williams concert Chris Hunt saw in Leeds, and also filmed the North American tours of Coldplay and Kelly Clarkson.

Now part of DCD, Done and Dusted has a high reputation in the industry. It’s been appointed to produce and direct the MTV Video Music Awards. And it also staged and televised the Victoria’s Secret Fashion Show, apparently a very popular event involving scantily clad supermodels in their undies.

DCD rules the TV market for arts shows

Chris Hunt’s company also owns Iambic Productions, a television production company that specialises in highbrow arts shows. It has made programmes about the King’s Singers and Maria Callas, but it is not too proud to produce the Abba show. It’s planning to film a poker series, too. Specialist art programmes attract an audience who know what they want, and are prepared to pay for it. This is the second strand of DCD’s strategy. “Niches,” Chris explained, “will do well.”

Until now, producing entertainment for specialist tastes has been uneconomic. Potential revenues were too low. But suddenly arty entertainment has become

a seller’s market, and DCD finds itself holding the whip hand.

Today’s satellite television channels are cheap to run, and new innovations such as pay-per-view and video on demand are also changing the equation. Most developed countries now have dedicated arts channels. Here in Britain we have ArtsWorld and the Performance Channel, for instance. They all need to fill their schedules.

DCD also gets to profit from sales of arty DVDs, too. This is a market for collectors, who know what they want and are willing to pay the price. The gifts market also guarantees strong sales. “How often do you think a classical music DVD is played, on average?” Hunt asked me. The answer was just 0.84 times! In other words such DVDs are bought as presents for Granddad or to sit on the collector’s shelf – and many never get out of the box.

Chris Hunt’s company has a good grip on such apparently illogical spending habits. DCD has acquired the first and third largest catalogues of arts and music audio-visual content in the business. So it dominates the world market, with a 60% market share of distribution.

Last year DCD merged its arts business, Digital Classics Distribution Limited, with an acquired company called NBD Television, which distributed pop and rock music programmes. It’s achieved about £200,000 of cost savings by putting the two together, but a far greater benefit is the establishment of the DVD label. This means that DCD can now control distribution, and keep the 30%-40% margin that it used to pay to the middle man.

But DCD isn’t resting just yet. Chris is expanding the DVD label into popular music and comedy (including a new Ronnie Barker release), and is launching internationally as well as selling by website and direct response advertising. And unlike sales of DVD films, which are now in decline, DVD sales of music are still rising fast - another factor helping to power DCD’s growth and profitability.

RHPS Verdict: DCD’s ownership of niche content and its control over distribution make it well placed for the broadband era. The acquisitions of the last year have transformed the scale of the business. Following a confident trading statement in August, I believe that the forecasts (page three) could well be raised when annual results are announced later this month. Despite the low share price DCD has a market capitalisation of £34m, so the shares are quite easy to trade. BUY

To take advantage of the recommendations RHPS is making today, start your no obligation trial now!

The figures refer to the past and past performance is not a reliable indicator of future results. The past recommendation highlighted here is a small company share.By their nature, such investments can be relatively illiquid and, as a result, hard to trade. This makes such shares more risky than other investments. Please seek independent financial advice if necessary. These figures do not include the bid-offer spread, unless otherwise stated. Since the service began on 01/12/98 running through to 31/07/07, the average overall performance of the shares recommended is up 19.91%.All gains exclude dividend payments and dealing costs, unless otherwise stated. Profits from share dealing are a form of income and subject to taxation. Levels and bases of, and reliefs from, taxation are subject to change, and depend on individual circumstances. Full portfolio available on request. Fleet Street Publications Ltd is authorised and regulated by the Financial Services Authority. FSA No. 115234.

www.fsa.gov.uk