Kew Media: How The Production Group Behind ‘The Inventor’ & ‘Dance Moms’ Collapsed After One Acquisition Too Many

The Inventor
The Inventor: Out For Blood in Silicon Valley HBO/Jigsaw

EXCLUSIVE: After nearly three months navigating perilously choppy waters, with some of its best talent abandoning ship and a steady drip of damaging press, Canada’s Kew Media Group finally sunk last Friday. The global producer-distributor’s eight directors resigned, scores of others lost their jobs, and the company will now be stripped of its assets. For insiders caught up in the wreckage, the postmortem has begun on how this still-young company unraveled, taking down with it a profitable UK distribution arm that had a library boasting some of the biggest TV shows of 2019.

Founded by media financiers Peter Sussman and Steven Silver, KMG announced itself to the world with a $50M IPO on the Toronto Stock Exchange in 2016. It embarked on a spending spree, acquiring or taking stakes in around 15 companies over two years including Dance Moms producer Collins Avenue’ Alex Gibney’s Jigsaw Productions, which made HBO’s Elizabeth Holmes film The Inventor; and UK distributor TCB Media Rights. Distinguished former CBS president Nancy Tellem was an eye-catching board appointment, while sales house Kew Media Distribution was busy striking drama co-production deals with ViacomCBS broadcaster Channel 5 and selling shows including BBC hit drama Line of Duty. In short, KMG was looking and functioning like a serious force in global TV production and distribution.

That was until November 2019, when the company dropped a bombshell that ultimately led to its collapse. In a statement to investors, it said CFO Geoff Webb supplied KMG’s lenders with reports containing “inaccurate information regarding working capital.” It resulted in KMG defaulting on its $100 million credit facility — provided by America’s Truist bank (formerly SunTrust), Toronto-Dominion Bank and the Bank of Montreal — and sparked a panicked fire sale of some of its biggest assets. In the end, it was too little too late.

Line Of Duty
‘Line of Duty” Season 5, starring Stephen Graham, right World Productions/BBC

KMG insiders said Webb’s irregular reports were a symptom of the group’s problems, not the reason for its downfall. “He was not exactly thrown under the bus, but the bus certainly reversed over him a few times,” observed one source.

Deadline has spoken to half-a-dozen people close to KMG to establish the reasons for its collapse, with consensus emerging around a number of theories. The sources, who spoke on the condition of anonymity for fear of reprisal, said KMG overreached with its acquisitions, adopted an unorthodox approach to producers sharing resources, had little central strategy, and made the mistake of dipping into the accounts of its distributors KMD and TCB to cash flow the business when things turned sour. KMG’s administrator FTI Consulting declined comment.

KMG’s strategy of listing to raise capital is an unusual one in the television business. It was known as a special purpose acquisition company (or SPAC for short) and little more than six months after it had launched on the Toronto Stock Exchange, it took stakes in 11 companies in one fell swoop. “They knew they had to go quickly to get scale,” said one person close to the company. But the tension with being publicly traded is that investors need to see evidence of consistent growth, which is why KMG kept spending on acquisitions. Several insiders pinpointed the same deal as the moment KMG overreached.

In July 2018, KMG completed the $21.5M acquisition of Essential Media Group, an Australian production company with a foothold in Los Angeles, making shows including HGTV’s Mom & Me; Restored for the DIY Channel; and drama Rake, an ABC show in Australia adapted by Fox in 2014. One insider said that Sussman and Silver were strongly warned against the deal by a number of senior colleagues, but they persevered because they were optimistic it would provide a welcome boost to the share price.

“The one that was disastrous was Essential because they paid a lot of money and they lost a couple of really big contracts just as they bought it. That was the turning point,” added another source. A third person said CFO Webb made clear prior to the Essential deal that KMG would need more investment to safely finance the takeover. The company did amend its Truist-backed credit facility, but the source said this did not prevent cash issues later emerging within the group. Essential CEO Greg Quail declined comment.

Mom & Me
Essential Media’s “Mom & Me” HGTV

As the cash issues became apparent, KMG started dipping into the bank accounts — or “treasuries” as they are known internally — of distribution arms KMD and TCB, according to five people familiar with the matter. One source said that between $14M-$17M was taken out of the KMD treasury and not returned, although Deadline has not been able to verify this figure. Some of the money was royalties owed to KMD’s production clients for international sales of their TV shows, but the source said it was used to help producers within the group when they had cash-flow issues, such as delays to productions, and was put towards other corporate overheads. “They were taking money, but we were last to get it back,” said a KMD insider.

Those familiar with KMG’s operations also highlighted the unorthodox way it was run as a collection of companies. The model of many sprawling production groups sees indies sharing back-office functions, such as legal, finance and HR, while the creatives in charge maintain a level of independence. It’s a simple principle that can generate important cost savings. But KMG insiders said there was very little in the way of shared resources and expertise between the group companies. “They glorified in the fact that these indies were on their own,” said one person. Another added: “Apart from an early meeting in Toronto, there was no real effort to bring together creatives to solve development issues or share best practice on things like winning commissions in the U.S.”

Some used KMG’s two UK distributors, KMD and TCB, as an example: Both companies had their own London offices and at times butted heads over clients. What’s more, KMG’s indies were not obligated to distribute their shows through the sales houses. “It was encouraged but not coerced,” said a source. This light-touch central strategy was indicative of the way Sussman and Silver ran the group, according to several insiders, with many noting that they spent a lot of time on the buy-and-build agenda, rather than managing the existing assets. For example, KMG did not have board members on all the companies it owned, according to records seen by Deadline. “They were busy hopping around the world looking for acquisitions and not running the companies,” one person observed.

Advisory firm FTI Consulting was appointed to carve up KMG after its collapsed last week. The company is already well in the process of selling the group’s assets, with deals for subsidiaries including TCB and Awesome Media & Entertainment, which co-produced Channel 5 drama The Small Hand, expected to be wrapped up this month. TCB’s most recent earnings, filed in late February, show a healthy, growing company with revenues of £16M ($20.5M) and a £3.2M pre-tax profit.

“It is encouraging that there has been a strong level of interest in parts of the group, including TCB Media Rights, that continue to trade normally outside of any insolvency process,” said FTI’s senior managing director Simon Kirkhope. Other subsidiaries including Two Rivers Media, which made The Small Hand with Awesome, and Collins Avenue got out before the collapse last week. The latter was acquired by The Content Group in January.

Leaving Neverland
Kew Media Distribution sold Leaving Neverland internationally. HBO

The same can not be said for Kew Media Distribution, a once-thriving sales house that insiders say is an “innocent victim” of the missteps at KMG. FTI is now in the process of winding down the 24-year-old company. Some 31 employees were made redundant on Friday, while another 15 — including finance and contracts staff — have been kept on for a short period of time to assist the administrators. The 15 were told that they would lose their statutory redundancy pay if they walked out, according to a source. It is understood there was some relief when staff received their February pay packet.

News of the job cuts was communicated by FTI on Friday and not by KMG’s management. “There was nothing from Toronto HQ which said sorry. Everyone was called into the office, or dialed in on a call, and told by the administrators themselves,” said one onlooker. There is visceral anger among KMD employees — one insider compared KMD to an ice cube that has been allowed to melt over the past three months. There is also huge sympathy for the distributor among the wider group. “I feel very sorry for them,” said one former colleague.

FTI said: “As there were no potential purchasers for KMD specifically, we regrettably have no choice but to cease the wider operations of KMD immediately, resulting in a number of redundancies. We are working together with the relevant authorities to offer support to the employees affected.”

As well as Line of Duty, one of the biggest dramas on British television, KMD sold shows including HBO and Channel 4’s buzzy Michael Jackson documentary Leaving Neverland and Worzel Gummidge, a drama featuring The Office star Mackenzie Crook and Michael Palin. Its most recent earnings for the nine months to December 2017 showed its EBITDA profit stood at £3.8M, while an insider said the company generated a record margin in 2018. Staff say KMD’s demise is partly a result of the company being used as an ATM by the rest of the group. There are also deep misgivings about clients not being paid the royalties they were owed because KMG’s purse strings were being closely policed by Truist bank after the group defaulted on its credit facility. As a result, several customers terminated their contracts, including Leaving Neverland‘s Amos Pictures, while others supported a petition to wind-up KMD, served by film distributor 101 Films. One insider said news of the winding-up petition, first reported by Deadline last month, prompted up to 30 other clients to terminate their contracts.

KMD’s website says it manages the international rights to a library of more than 11,000 hours of TV and digital content, but its hard to determine the value or volume of its assets following KMG’s death spiral. Some of its contracts will remain valid, others will not. Each termination attempt will have to be evaluated, said a source. This was also something noted by FTI, which said: “All customers and rights owners should continue to meet their contractual obligations to KMD while a long-term solution is finalized to transition or sell KMD’s extensive library of content.”

The KMG postmortem may have begun, but there are still plenty of loose ends to tie up for a company that had ambitions to compete with global studios, but was never quite the sum of its parts.

This article was printed from https://deadline.com/2020/03/kew-media-group-collapse-analysis-1202872027/