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3S Records (3S) will capitalize on the growing entertainment market across the world through the production and promotion of high quality entertainment. Located in Boca Raton, Florida, the company will become highly profitable through the sale of pre-recorded music product (compact discs, DVD's, MP3's, cassettes), in addition to revenues generated from ancillary profit centers, 3S will own and control the masters (master copies), copyrights and licenses of its product, which will enable 3S to create immediate revenue streams while growing its music catalog into a multi-million dollar asset.
3S has formed an experienced management team. The years of experience maintained in both the business and creative sides of music production will enable 3S to create profitable revenue immediately. 3S maintains strong affiliations in the music, film & video industries. This provides 3S the opportunity to generate revenue from the world’s largest music markets including Japan, Germany, the United Kingdom and South America.
The company has established a record label to handle a variety of music genres including Hip Hop, Rap, Pop, Rhythm & Blues, Alternative Rock, Jazz, Country, Urban and New Adult Contemporary. 3S has compiled an exciting and diverse roster of recording artists. Selected over the past year, these highly talented veteran and debuting artists will enable 3S to quickly penetrate the music marketplace.
3S will distinguish itself from other independent record companies through its marketing and promotional plan. Intense, calculated and relentless promotional campaigns will enable 3S to earn massive revenues through the growing popularity of “singles,” as well as traditional full-length albums. 3S will utilize the success of its pre-recorded music to develop profit centers in independent distribution, merchandise and concert promotion.
Base on conservative revenue projections, 3S will generate over $3.9 million in sales revenue throughout fiscal year 2002 – 2003, $5.4 million in 2003 – 2004, and $10.8 million in 2004 – 2005.
3S’s founders are seeking $3 million in equity investment capital for this exciting company. These funds will be used to: a) establish corporate offices, b) maintain overhead expenses, c) acquire and secure artists, d) fund project production budgets and e) fund multi-faceted marketing and promotion budgets. A staged infusion of capital over the course of the first ten months of operations will provide 3S with the necessary financial resources. A linked offering composed of common stock, preferred stock and debentures is being offered by 3S.
As 3S reaches the aforementioned levels of profitability, several lucrative exit scenarios become realistic including the opportunity to be acquired by a major record company and, depending on investor preferences, the ability to liquidate ownership positions.
COMPANY DESCRIPTION
Introduction
3S Records is a multimedia entertainment company, which will supply profitable audio and visual entertainment to a diverse, international consumer group. 3S is committed to the belief that quality entertainment can be realized without compromising commercial appeal.
3S distinguishes itself through the commitment it undertakes with each of its artists. Contrasting the typical scenario in which a record company spends more money producing the music that they do in its marketing and promotion, 3S will utilize a stable of experienced and resourceful producers to ensure the highest quality product within established production budgets. This will guarantee the impetus necessary to create “winning” products in the marketplace.
3S is composed of three internal divisions. 3S Music, 3S Video and 3S Ancillary. The company will compete and earn revenue immediately through the creation of several lucrative profit centers, beginning with pre-recorded music (compact discs [CD’s], DVD’s [sound and picture combination], CD ROM’s, and cassette tapes). Additional income will be produced from distribution, video, merchandising and concert promotion.
Each of the albums that 3S produces and owns will create valuable short-term streams of revenue. Owning and controlling the rights to each of its albums will enable 3S to grow its music catalog into a valuable asset, one of several-hundred revenue producing titles.
The talented group of individuals who have united to form this innovative company, combined with industry affiliations and will catapult 3S into the future as one of the industry’s leading entertainment companies. 3S’s co-founders are Mr. Dane Banks, Mr. Mikael Manley and Mr. Andrew Schefter. This assemblage is poised to utilize its combined skills to ensure the growth and profitability of 3S.
3S Music is 3S’s primary thrust for the first several tears of operations. Responsible for the cultivation of talent, the production of pre-recorded music product and its marketing, the success of 3S Music will lay the groundwork for additional 3S profit centers. 3S Music and its associated labels strive to fully maximize the success and profit potential of each artist.
3S Records will produce and promote mainstream Pop, Dance, Alternative Rock and R&B. The growing popularity and profitability of these music genres dictates quality product supported by solid promotional and marketing strategies and budgets.
3S Records will create and produce Urban, Rap, and Hip Hop genres. Digital production capabilities lower production costs enabling projects to be completed at one-third the cost of projects in the other music genres. This allows 3S to recoup its investment and realize profit with a lower break-even point.
3S Music and its associated labels will produce and release twelve projects in the first three years of operations. A second phase consisting of sixteen productions for artist follow-up albums and newly acquired artists will begin in late 2005.
The majority of 3S’s projects will be produced at Illusions in Boca Raton. A multi-million dollar facility, the quality of Illusions equipment, the architecture of the studio and its atmosphere are conducive to creating the highest quality projects in a cost- and time-effective manner. By pre-purchasing large blocks of studio time, 3S will have access to the two studios in this facility at a heavy discount.
3S will utilize a variety of independent record producers for the studio production of its projects. Producers will be hired on a per project basis. These producers will be paid up-front fees and will also receive royalties (2 - 3%) from unit sales. Networks of producers are available to 3S for the specific genre of music. Additionally, each of 3S’s Vice Presidents has a production background, which will ensure the delivery of quality product on budget.
A plethora of options are available to satisfy 3S’s requirement for quality manufacturing and reproduction of compact discs, DVD's, cassettes and videos 3S will outsource this function to one of many manufacturing outfits in this industry. These vendors will be selected based upon quality of product, ability to meet delivery deadlines, payment terms, inventory and storage options, as well as price. Several manufacturers that 3S is currently considering are 3M Company and Masterdisk.
Chief among 3S’s goals is to design and provide creative and effective marketing for its artists. As music is being produced in studio, promotion and marketing strategies will be formulated. It is crucial that the marketing plan for each new release is in motion several weeks before the product is completed in studio.
3S will employ multifaceted promotional strategies for its product releases including: hiring regional independent record promoters and creating radio promotions, Internet sites, broadcast videos, dance club promotions, in-store/co-op promotions and promotions to the general public through print, video and television mediums.
To support the sales of pre-recorded music, 3S Video will produce and release music videos for each album released by the company. Existing affiliations in the video sector of the industry will allow the company to produce top quality video productions while minimizing costs. At this stage, music videos will be created for one to two songs on the album that will be released as “singles,” as a prelude to the full album release. 3S Music will contract with independent record promoters to interface with radio station program directors and music video network directors. Public relations firms will be hired to publicize and promote 3S’s recording artists.
3S Video & Television is established initially to support pre-recorded music products through the production of broadcast music videos. Understanding and capitalizing on the close relationship between audio and video entertainment will quickly propel 3S’s products in the marketplace.
Rivaling radio in terms of the most powerful promotional tool for pre-recorded music sales, broadcast music videos are a crucial instrument to ensuring successful product launches. 3S will produce one to two music videos for each new project completed by the company. Videos will be created to appeal to the target audience of each particular song.
3S has created relationships with several firms for the production of music videos. Specifically, Mars Media, Planet and RSA are three full service production companies that have relationships with 3S.
Broadcast music videos will be distributed to such networks as MTV, VH1, Much Music and M2. Independent record and video promoters will be hired to gain maximum airtime and exposure for company videos and artists. Furthermore, these promoters will work to gain exposure for videos in non-traditional music settings such as bank lobbies, department stores, airplanes, stadiums, retail establishments and other public settings.
The third division of the company, 3S Ancillary, will be responsible for additional business opportunities related to the sale of pre-recorded music. Initially, distribution, merchandising and concert promotion will be developed. As the company grows and matures, diversification into other revenue generating opportunities will occur through 3S Ancillary
3S Music will utilize its distribution network to allow for the distribution of projects for smaller, independent record labels. A key factor affording 3S the opportunity to capitalize on this is the ability to claim top dollar from international distribution companies that will enable it to earn a middleman fee on the distribution and manufacturing of other companies’ products. 3S will earn between $2.00 and $2.50 for each unit manufactured and distributed.
Company founders will have discussions with numerous record labels across the country that are interested in working with 3S. Partnerships with these companies will be dedicated by the strength of company management, the quality of both their artist and product and the size of their marketing and promotion budget.
The independent distribution division of the company will be incrementally increased over a three-year period with four independent projects being distributed in 2003, six projects in 2004 and twelve projects in 2005.
A lucrative profit center for 3S, merchandising opportunities will be created upon and around company artists and products in concert venues and retail outlets, alike.
Concert merchandise (t-shirts, sweatshirts, hats, programs, posters, buttons, etc.) is typically sublicensed to a merchandising company specializing in retail operations at large concert venues. 3S has several relationships with merchandise managers involved with many national sports franchises and arenas around the country.
Retail merchandising strategies will bee coordinated and planned with the assistance of advertising agencies and public relations firms. The chief objective will be to create alliances with apparel manufacturers for 3S artists, similar to the manner in which athletic show manufacturers attach an athlete’s name or image to a particular shoe. Of course, these opportunities will become more readily available as the artists’ reputations increase. Nonetheless, 3S will work to make inroads in this realm early on.
The company is preparing to design and release a line of 3S casual wear, including such items as shirts, hats, and jackets. Distribution of these products to music-related retail outlets will occur through 3S’s pre-recorded music partner. Distribution to mainstream apparel outlets will also be secured.
As a related means to increase exposure for the company artists, 3S will plan and promote several live concert shows a month. Shows will be staged at a variety of major concert venues throughout Florida. Revenues will be generated from the sale of tickets, concessions and merchandise. Early on, the company will plan and promote two shows per month. This will allow 3S the opportunity to attract outside talent to perform in the South Florida area, including Miami, Ft. Lauderdale and the Palm Beaches. It is anticipated that as this division of the company grows, regional promotion contracts will be established allowing for expansion and increased revenues.
It has become common practice to classify all but the major labels (those having their own distribution systems) as independent labels. Knowledgeable music industry professionals have described independent labels as “the lifeblood of the business.” In fact, in 1995 independents accounted for over 19.2% of the music industry’s market share.
Lacking large budgets for project production and marketing, independent record companies have had to be more resourceful over the years. Such facets of the business as intense talent scouting (Artist & Repertoire) and grass roots marketing campaigns have been utilized to compete with major record companies. Furthermore, independents cannot rely on the occasional “big hit” record, but rather have established and grown music catalogs to provide streams of revenue.
In growing a music catalog it is imperative to compile a reliable group of artists who are dedicated to producing quality music. This enables the company to steadily increase the number of unit sales for a particular artist over a two to three year album process.
Major recording companies frequently invest in independent labels when confidence in the company’s roster and management exists. In these strategic alliances and joint ventures, the lager company may invest money to: a) assist in completing album projects, b) manufacture compact discs and tapes and, c) assist with marketing and promotion plans.
Although independent distribution channels (Johnson, Wallace and Cordoba) exist, many independent labels choose to utilize the independent distribution services offered by major labels. This is an attractive choice for independents, due to the breadth and reach of the distribution in addition to the clout that the majors possess with retailers. In these situations, independents can “piggy-back” on the reputation of the major.
Several U.K. companies that started as independent firms and joined forces with a major include Clover, Maid and Roots. Similar success stories are documented with U.S. based companies such as Nothing, Bad Boy, Appleton, Chatham and Mill Point. From the outset, these companies demonstrated creative leadership, quality product and determination.
Industry Sales Volume in the
U.S.
The U.S. record business, which grossed two billion dollars in 1970, exploded to four billion dollars in sales by the end of 1978, with a unit volume of 726 million records and cassettes sold. Sales fell sharply over the course of the next six years, mainly due to the declining American economy and the popularity of home cassette taping. It was not until 1988, when unit volumes reached 726 million, that the industry exceeded the pinnacle reached ten years before. Recent calculations of industry figures indicate more than ten billion dollars in sales and a volume of more than 955 million units.
3S has formulated a simple but successful approach to market its products. The chief marketing objective for 3S’s pre-recorded music video and programming products centers around the design and implementation of a strategy that will cost-effectively deliver that product to the intended target market.
This will be achieved through a marketing plan consisting of the following tools: publicity, community outreach, advertising, art direction, radio promotion, independent promoters, broadcast music videos, touring, retail co-op advertising, motion picture tie-ins, alternate distribution outlets, Internet, dance club promotions, mailings and telephone follow-ups.
Considering the onslaught of product released to the music/video market each month (1,200 new releases) worldwide, it is crucial to ensure the visibility of each project. The financial success of an album can be guaranteed through the establishment of proper marketing and promotion budgets. However, without the dollars necessary “to win” success is a “crap shoot.” With properly established budgets, 3S Music will generate large streams of profits from each of its projects. The marketing and promotion budget will be divided into twelve to fifteen-month campaigns, each consisting of three phases.
Phase I begins with the creation of music videos for approximately three songs from the new album project. Once these have been shot and edited, the first “single” and its video counterpart will be released to the public. At this point independent promoters will canvas radio stations, video networks and dance clubs (depending on the genre of the release) to ensure proper air play for the first single. Within the next six weeks, a second single release will be promoted to the public. This strategy will enable 3S to achieve two important outcomes—increasing the number of singles that are sold in retail outlets, and building anticipation for the release of the full-length CD/cassette.
Phase 2 concentrates on the publicist, print advertisements and media exposure. Riding the momentum of the single releases, the market will be primed to hear and learn more about the artists through articles in both trade and non-trade magazines, as well as radio, television and Internet interviews. Furthermore, the publicist will also be able to create valuable exposure for the charity/non-profit organization that the artist has been chosen to assist and promote.
Phase 3 begins with the release of the full-length CD/cassette. This will be accompanied by intense in-store and retailer co-op advertising. Retailer programs will be designed to acquire valuable listening posts, end-cap displays, window/wall posters, point of sale advertisements and co-op advertising in mailers and store circulars. Additionally, the third and fourth singles will be released during this phase. The systematic release of singles will sustain the artists’ popularity while increasing and prolonging sales of the full-length album. Furthermore, during Phase 3, the artists will make promotional appearances at clubs, retailers, radio stations and charity events in conjunction with scheduled concerts.
Despite the fact that radio no longer possesses the sole influence on record sales, sharing the spotlight now with video resources, it is still a heavyweight medium for record promotion.
With so many changes occurring in the radio and video industries—the ale of radio stations for tens of millions of dollars, for instance—along with the fragmentation of radio formats and escalating success of video, promoters have been forced to realize that they are in a business and must therefore approach their jobs in a far more business-like manner than is traditional. Promoters are now more concerned about the facts and figures rather than simply trying to impress program director with the great new song they have to offer.
Major record labels utilize both in-house and independent promoters to assist in the effort to maximize the airplay of a new song or album. An in-house radio promotion staff makes financial sense assuming the company maintains a steady and consistent release schedule to a specific genre or radio format. Personal relationships with radio stations format directors is the name of the game in this arena. Bombarded by new song and album releases each month, program directors are inclined to assist those with who they are familiar and friendly.
3S Music will utilize the services of outside radio promoters. Known as independents, these promoters have established networks and relationships with radio station program directors. Most independents position themselves and focus within a specific music genre.
3S Music has created a network of independents that will be hired to interface with radio stations. Specifically, 3S Music will create and design goal oriented and incentive based contracts with independent promoters. Measurable criteria will include some of the following: peak chart position obtained, number of weeks on the charts on which a specified position was obtained, number of weeks on the charts on which a specified position was obtained.
3S Music’s promoters will focus their efforts and attention on reporting stations. A reporting station is one that trade papers/magazines and tip sheet publishers telephone each week to learn which recordings were and are planned to be programmed. This information is gathered and tabulated from all around the world. It is presented to the public in the form of a chart that shows such information as current chart position, previous chart position, artist, record label, etc.
The promotion of pre-recorded music is inextricably bound to TV-related transmissions of music, including conventional TV, cable, pay-per-view and direct satellite. Sales are increased immediately when music is linked to visual entertainment, whether the medium is a movie musical, a TV broadcast, or a music video. Broadcast and cable companies now transmit dozens of video shows, and their impact on record sales is clear—videos not only increase record sales, they break new acts, and prolong the chart life of new recordings.
In addition to canvassing radio stations, independent record promoters will also devote substantial time securing airplay for music videos. Boundary TV and similar outlets guarantee videos, considering the national and international reach of these networks. Music videos will offer exposure to those markets presently unexploited.
A sample 12-month campaign for an album:
|
Broadcast Music Videos |
2 at $60, 000 each |
$120,000 |
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Independent Promoters |
2 at $4,000 per month
for 6 months |
$48,000 |
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Publicist |
$3,500 per month for
9 months |
$31,500 |
|
Touring/Promotional Travel |
$2,500 per month for
6 months |
$15,000 |
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Print Media |
$4,000 per month for
9 months |
$36,000 |
|
In-Store/Co-op |
6-month campaign |
$40,000 |
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Promotional CD's/Mailings |
4,000 CD's/1,000 Cassettes |
$6,000 |
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Total Marketing &
Promotion Budget |
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$296,500 |
The genre of music dictates the approximate marketing and promotional budget amount. For instance, due to the breadth of the mainstream market, some projects will require twice the amount of another project.
Perhaps one of the most effective marketing tools, concerts and promotional appearances are instrumental in “breaking” a new act and creating a loyal fan base. Public relations personnel in conjunction with the artist’s management will create and plan these promotional tours which will be directed toward the particular target market. For instance, the artist may make an appearance at a local record store, provide an interview for a radio station, and perform in a concert the same evening.
In addition to the long-term benefits of creating a loyal customer base, 3S will utilize these opportunities to immediately sell copies of the artist’s project, as CD’s and cassettes will be available to merchandise tables at concerts and appearances.
Dance clubs are effective mediums to test market new recordings. Prior to the commercial release of mainstream singles, the songs will be distributed to clubs to test public response. 3S will work closely with its independent promoters to establish networks of clubs throughout the country, which will be utilized to test new releases. Results from these activities will provide crucial information in a timely fashion, allowing the company to tweak (remix) a recording if necessary. Furthermore, 3S Music expects to increase sales by promoting music videos of new releases to be played in clubs. Dancers who become surrounded by the club’s multiple screens and overpowering sound systems may be stimulated to later walk into a store and purchase a copy of the product (audio or video) to continue enjoying the music at home.
A key piece in the promotion of new product releases is the “creation of mass interest” in the marketplace. This is done in the motion picture industry with sneak previews, interviews with starring actors/actresses and directors, television commercials and print advertisements. The coordination of these activities is the responsibility of the publicist(s).
3S will utilize publicists to create the buzz in the marketplace about new projects and artists. Initially, this important function will be outsourced to credible public relations firms until such time that it is feasible to internalize this position at 3S. Publicists will arrange and promote appearances and interviews (talk shows, industry publications, mainstream magazines) and create written materials and ad copy about the artist to catch public attention.
Combined with concentrated airplay and print advertisements, the impact created from the publicist’s strategy creates the most powerful advertisement, word of mouth. Music buyers, who hear the “talk” and hear the music on the radio, are more inclined to enter a music store to make a purchase.
Advertising campaigns will concentrate on the types of exposure that fashion designers have mastered in the realm of advertising. A variety of media will be used including print, broadcast, point-of-sale and direct mail. With a mass consumer product such as music, it is feasible to reach specified target segments by placing advertisements in mass print media-magazines and newspapers.
Some advertising will be cooperative with the store and 3S sharing costs—for example, a print page or media buy that promotes a 3S product in conjunction with the retailer. Co-op advertising may be paid all or in part by the retailer who is reimbursed by 3S from a co-op budget determined by the retailer’s volume of purchases from the label. T justify the high expense, several 3S Music releases will be pushed in one ad, thus pulling down the “cost-per-thousand” expense per release. From time to time record stores may request that 3S finance a print media campaign in their area. 3S will initiate print ads when trying to coordinate advertising with the promotion of concert appearances by a 3S artist.
As a pillar of the company, community outreach will play an integral role in both the company and artist positioning. To this end, each 3S artist will be aligned with a specific charity or community organization. Supporting the company’s philanthropic desires, artist participation will enhance public image while generating exposure and revenue for the chosen charities.
More specifically, a page inside each compact disc will be devoted to a charity or non-profit organization. Additionally, space on each artist’s World Wide Web page will be reserved for a non-profit organization. Furthermore, 3S Entertainment will lend additional support to these charities through corporate fund raising opportunities and donations from company revenues.
Traditional distribution channels into music related retail establishments give 3S the opportunity to reach retail outlets throughout the world. 3S will closely coordinate product launches and utilize the distributors’ clout with retailers to design specific strategies for enhancing advertising and marketing presence within retail establishments. These strategies focus on point-of-sale advertisements, in-store advertising opportunities, print, radio and television co-op opportunities.
One such strategy to be implemented, once the company has several artists on the market, will be to present retailers with the opportunity to place an attractive 3S aisle end-cap display in their establishment. The display is intended to promote four to five 3S artists’ compact discs simultaneously.
3S will also design other in-store advertisements such as counter-top point-of-sale advertisements, window posters and banners. In addition to listening posts (product displays which allow a potential buyer opportunity to sample the product prior to purchase), 3S artists and products will also be advertised in retailer newsletters and bulk promotional mailings to the public.
Additionally, 3S is examining the prospect of distributing products through network marketing channels. The recent explosion of network marketing concepts has produced millions of distributors and consumers worldwide, providing an effective means to reach the public. The distribution breadth of individual companies will be evaluated to determine if access can be gained to selected target markets.
3S will submit songs to motion picture studios as an additional means of providing promotional support to company products. The promotional mileage created from being included on a soundtrack for a major motion picture is enough to assist in moving several hundred thousand copies of the album.
In response to the growing popularity and necessity for a presence on the Internet, 3S will create and design a web presence for itself. Utilizing the latest web site technology, 3S’s web site will be intended to advertise the company, announce and advertise new releases, sell company products and merchandise and offer e-mail communication. Furthermore, utilizing the latest technology, visitors to the web site will be able to sample music clips from 3S’s artists. Management has secured a domain name for the site.
Furthermore, 3S will create space on its web site for each artist signed to the company. Allowing for increase public exposure, the public will be able to learn more about the artist or group. Additionally, space will be provided to promote chosen non-profit organizations and charities through this electronic medium.
3S’s independent promoters will mail promotional copies of the product to a large number of radio, cable and TV outlets. Independents have the experience and the established networks to use select mailing lists, ones that include mostly influential stations or stations where the promoters possess personal contracts. Mail campaigns will be followed by telephone calls. The success of this kind of telephone follow-up will be based upon the suitability of the recordings mailed, and the already established rapport between our promoters and the radio/TV programmers.
The promotion and marketing facets of the record business are vital to 3S’s overall success. A quality product is only the first step in the equation for hit records, videos and programming. 3S will ensure its financial success through consistent and balanced marketing strategies designed to reach desired target markets.
Goals and Objectives
The strength of 3S’s management team is derived from the blend of experience, creativity, savvy and energy. The following individuals who occupy key positions within the company are dedicated and prepared to ensure 3S’s success and profitability.
Dane Banks,
Mikael Manley, joins 3S Records with an impressive array of experience as both a performer and a producer in the music industry. He is phenomenal guitarist, keyboardist, percussionist and bass player and has performed with numerous artists. He is not only the lead guitarist for the legendary Commodores but has expanded his repertoire to include composing, songwriting, arranging and producing. A native of Dayton, Ohio, Manley received his formal musical training at Sinclair College (Dayton, Ohio) and Howard University (Washington, DC). While in Dayton, Manley studied with and collaborated with Walter “Junie” Morrison, original keyboardist and lead vocalist for the Ohio Players. Manley moved to South Florida where in 1984, his single, It Must Be Nice, reached the Top 20 in the Miami market and was featured on the hit network television program, Lifestyles of the Rich & Famous.´ In 1987, Manley began what would become a very fruitful association with Frank Cornelius of the Cornelius Brothers and Sister Rose. Their jointly released single, Fat Bottom Girls, was in regular rotation on Black Entertainment Television (BET). Later Manley formed the male singing group, Shades of Gray, with Manley singing lead. The group was quickly sought after for their live performances and served as the opening act for Peabo Bryson, R. Kelly, and Tony Terry. Over the years, with numerous groups, Manley has opened for or shared the same stage with Brian McKnight, Stevie Wonder, Freddie Jackson, The O’Jays, Natalie Cole, Silk, Mya, Gladys Knight. Isaac Hayes. He also performed on Motown Live with Boyz II Men, Diana Ross and the Temptations. Manley has added reggae to his musical Pantheon. Some of Manley’s reggae songs have already received airplay from top radio announcer Barry G., in Jamaica.
Andrew Schefter has quickly become one of the industry’s most sought-after producers in both the film and video markets. Since graduating from the University of Kansas in 1992 with degrees in English Literature and Film, Mr. Schefter has been working in film production acting as a Producer, Line Producer, Unit Production Manager or Assistant Director based out of Miami Beach in commercials, music videos and motion pictures. His clients and past work include Bell South, Sprint, Pringles, Baskin-Robbins, Kodak, Export A, Mattel, ToyMax, Infiniti, DeBeers, Mellon Bank, Chase Manhattan, Thomasville, Home and Garden TV, Playboy, Jennifer Lopez, Gloria Estefan, Trick Daddy, Enrique Iglesias, CBS's Grapevine, Larry Clark’s Bully for Lion’s Gate, Empire with John Leguizamo, Isabella Rossillini and Denise Richards, Irish Eyes with Daniel Baldwin and Wings Hauser, Chapter Zero with Penelope Ann Miller, Dylan Walsh, Colm Meaney and Lee Majors, Last Marshal with Scott Glenn and William Forsythe, and Landfall with Francis Sternhagen, Josh Hamilton and Jean Louise Kelly as well as many others. When not working in film production Mr. Schefter serves on the Board of Directors of the South Beach Film Festival and researches new advances in motion picture technology.
The following is a description of the key roles and responsibilities attached to the daily operations of 3S Music.
Each of the label Vice Presidents will be directly responsible for all of the functions within their particular label. Label Vice Presidents will solely handle the majority of these functions for their particular label with the assistance of shared administrative staff. As each label grows in terms of sales revenue and the number of recording artists, additional staff will be added to provide necessary support. Wherever possible and feasible, staff will be shared between labels in an effort to minimize unnecessary overhead.
The department is responsible for selling the company’s product to wholesalers and retailers. It develops sales campaigns, determines policies for discounts, special deals and returns, takes orders for product and oversees sales activities on local levels, provides financial assistance to accounts for advertising and oversees billing. The sales department consists of members of a national sales team—senior executives, salespersons and other employees of the branch distribution system. This work is done in-house by small labels or contracts with regional concerns to handle these functions in different parts of the country.
This department may also be referred to as “Artist Development.” Found in most medium to large record companies, product managers coordinate and oversee all aspects of a current release, including packaging, advertising, tours, publicity, promotion and sales activities. This entails close liaison with personnel from other departments within the label. The object of this department is to oversee the overall career growth of signed artists, giving whatever input necessary for the artist to achieve and/or sustain commercial success.
The function of the publicity department is to bring press and other media attention to the artist that will, either directly or indirectly, aid in the sale of records. Inherent in this goal is the continued visibility of the artist in newspapers, magazines, trade publications, on radio and television programs and special industry awards shows.
3S labels will employ and outside promotional staff to seek the greatest possible exposure for artists and products through radio and video air play. Representatives deliver new products to radio stations and closely monitor their play lists to see if their song is being played. The same approach is taken with regard to video outlets. A large part of the success of a record is predicated upon the amount of radio airplay it receives. The competition is fierce. As such, a record should not be randomly promoted to radio stations.
This department has broad responsibilities that include talent search, contract negotiations, interim artist management and development (unless the artist has other management), tour support and publicity.
A general breakdown of Artist and Repertoire (A&R) responsibilities include scouting for talent, locating songs, pre-production functions such as providing creative input, scouting producers, planning budgets, etc. They also include production functions such as reviewing tracks, determining album sequencing of tracks, recommending singles, monitoring mastering and manufacturing, creating excitement with the label itself, etc.
This department handles the clerical aspects related to A&R and supervises various administrative activities. The responsibilities include planning and monitoring budgets, examining studio bills, preparing studio reports, ordering references and parts, collecting information for label copy and packaging, monitoring and reporting on contractual options, copyrighting works for a single or album and obtaining mechanical licenses.
This department is primarily responsible for creating and supervising marketing campaigns, including developing marketing concepts, creating and executing graphic art, creating editorial copy and designing “point-of-sales” stimuli posters, banners, window displays, etc.
3S has developed a sound, conservative financial plan that provides the founders, investors and employees the opportunity to financially capitalize. The following paragraphs provide valuable details and insight to the figures that comprise the plan.
The financial rationale accurately describes the various assumptions that comprise the pro forma income statements, statements of cash flow and balance sheet. In all cases, these assumptions follow a conservative approach.
Sales Revenue
Income Statement
3S will generate the majority of its revenue from the sale of pre-recorded music product. This includes compact discs (CD’s), cassettes, CD singles, cassette singles, vinyl albums and enhanced CD’s. For purposes of revenue forecasts, management has projected varying unit volumes for each of its projects. Sales will occur within a 15-month time frame from the release date. Based upon the intensity of 3S’s marketing plan/budget for its projects, the following unit projections will be quickly attained and surpassed.
2002 50,000 units/release
2003 70,000 units/release
2004 125,000 units/release
2005 250,000 units/release
3S will gross approximately $6.00 for each full length CD sold, and approximately $5.00 for each full-length cassette. The current retail price for CD’s and cassettes averages approximately $13.50 and $11.00, respectively. Currently, the industry is reporting five CD’s sold to each cassette.
In addition to the sales revenue generated from the full-length CD’s and cassettes, revenue will be earned from the sales of “singles.” The retail sales price for singles is $7.50, resulting in gross revenue of $5.00 per CD unit for 3S. 3S will release two to three singles from each full-length album project. Revenue projections in the financial models are based upon the following estimates of singles sales:
2002 2 Singles 20,000 units per single release
2003 4 Singles 25,000 units per single release
2004 6 Singles 50,000 units per single release
2005 8 Singles 50,000 units per single release
Additional 3S profit centers will include distribution, video revenue, merchandise revenue and concert promotion revenue. Initially representing less than 5% of the company’s revenue, the magnitude and scope of these areas will increase as 3S and its artists’ reputations increase.
Cost of Goods Sold is comprised of artist/producer royalties, mechanical royalties and product manufacturing (CD’s, cassettes).
Artist/Producer Royalties will be paid from the gross revenue figure of $6.00 for CD’s and $5.00 for cassettes. On average, the artist and producer receive a royalty percentage of 8% and 3% respectively. Royalties attributed to singles will vary depending on the volume of singles shipped. Recording artists and producers will accumulate and earn royalties for each unit sold after the project’s break-even point has been reached.
Manufacturing of CD’s and cassettes will be subcontracted. Applying discounts available with large quantity purchases, 3S will obtain a price of $1.00 per CD and $0.90 per cassette. As unit totals increase, manufacturing costs are expected to drop 10-15%.
It is management’s intention to minimize F&A expenses in an effort to keep overhead expenses manageable. A full list of applicable expense items including associated monthly amounts is available upon request.
Accounts Receivable – A/R are conservatively projected with 45% of A/R collections occurring in a 1-29 day period and the remaining 55% in a 90-120 day period. The majority of A/R will be outstanding from the distribution company, which receives payment directly from retailers and will subsequently remunerate 3S. Because of the extended nature of A/R in the industry (typically 60 days), 3S will utilize A/R Financing to assist its cash position in the first 27 months of operations. A 3.5% A/R financing fee is incorporated in the financial model. The size, strength and reliability of 3S’s distribution partners will provide a traditional financial institution or an A/R factor with the proper security to create a working relationship for 3S’s paper.
Inventory – Inventory for album releases and upcoming product has been conservatively projected. Despite the fact that lead times for manufactured products are approximately two weeks, 3S’s financial model calculates inventory purchases in the following manner: 30% - 60 days prior to sale and 70% - 30 days prior to sale. The majority of the pre-recorded music product will be stored with the manufacturer and shipped directly to the distributor’s fulfillment/distribution centers. A small amount of sample (1,000 – 2,000 units) and promotional products will be kept on hand at 3S corporate offices.
Accounts Payable- For purposes of this financial model, A/P is separated into two categories: Manufacturing A/P and Artist Royalty/Mechanical A/P. Adhering to the conservative approach, the model is constructed with Manufacturing A/P being paid in the same month that the expense is incurred. Artist Royalties will be accumulated and paid biannually, in August and February.
Project Production Budgets – These vary depending on the genre of the project. Established relationships and affiliations in the industry enable 3S to produce its projects over a 90-day period, for approximately half the typical cost paid by a major label record company. Projects produced through 3S require $120,000 while some while require as little as $50,000.
Marketing & Promotion Budgets – These vary depending on the particular genre of music. Projects produced and released from 3S will be allocated approximately $775,000 while some projects will utilize as little as approximately $250,000. Marketing budgets will be expired through the course of 12-month marketing campaigns.
The following assumptions are made in the projected Balance Sheets:
Cash – The financial model is designed to portray the accumulation of cash in the company. Cash outlays related to dividends on common/preferred stock, employee profit sharing and capital expenses, etc., have been intentionally not included. Moreover, the plan does not address the tax implications of “holding” this amount of accumulated earnings.
Property and Equipment – Property and equipment acquisitions include initial office equipment., pre-production studio equipment and leasehold improvements (office/studio). For purposes of the financial plan, these assets are depreciated over 60 months.
Audio/Visual Masters – Combined production expenses for all radio and video projects. These items are depreciated over the course of 120 months.
Deposits – This line of the balance sheet relates to utilities deposits required for corporate offices.
Copyrights and Trademarks – Included are the filing and legal fees associated with copyrights and trademarks for each of 3S’s projects. These items are amortized over a 180-month period.
Organizational Expenses – Legal, accounting and other professional fees necessary in the organization process. Amortized over 60 months.
Investment Opportunity
3S is offering several simultaneous investment opportunities to cater to short and long-term investor needs and requirements. 3S seeks to keep the structure of the financing simple and flexible. 3S is incorporated with 10,000,000 shares of stock. The Board of Directors has authorized the issue of 3,000,000 shares of common stock, in addition to debentures for the first and second phase of the offering.
Phase 1 of the offering is composed of 750,000 shares of common stock and 750,000 debentures (50%). Phase 1 is a linked offering meaning that for each share of $1.00 common stock purchased, a $1.00 debenture must also be purchased. 3S possesses the right to repurchase the debentures at $1.00 within a five-year period from allotment. 3S founders will collectively own 500,000 share of common stock.
Once Phase 1 had been fully subscribed, 3S will issue 500,000 shares of common stock at $1.50. Additionally, 500,000 shares of $1.50 preferred stock will be available. The preferred shares will carry a 13% dividend to be paid annually. The shares in the second phase will also be a linked offering: two common shares linked together with one preferred share. 3S will hold the right to redeem the preferred shares from holders at $2.50. This action can take place within eight years of issuance.
The founders will be issued warrants for: a) options for 2,000,000 shares of common stock at $2.00/share within five years, and b) an additional option for 1,000,000 shares of common stock will also be available at $5.00/share within eight years.
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