For Broadcast September 03, 2008

Producers' eyes will have lit up when they read about the £10m fund that DCD Media is making available to them in exchange for international distribution rights - but the real winner could be DCD.

The new fund is backed by an unnamed private equity company, which has decided to treat TV programme-making in much the same way that UK films are sometimes financed. The idea is that with the offer of money upfront, DCD will be able to attract more rights to distribute programmes. But this is not traditional gap financing. Instead, the plan is to offer producers 30% of the estimated value of the finished programme sale in an upfront fee.

DCD's own producers, such as September Films, will be able to bid for the money, but chief executive Chris Hunt wants the new fund to help build its distribution business beyond the "usual suspects" and to at least double its circa £7m in distribution turnover.

Hunt's calculations go like this: if £10m represents 30% of the gross sales forecast under the new scheme, then that equates to £33m in total gross sales.

Taking a typical 25% commission, DCD could be looking at £8.25m in new distribution turnover. Hunt believes that the £10m fund will actually roll over twice in four years so it could generate double the £8.25m in new revenue.

How much of that new turnover could drop to the bottom line? Plenty. DCD needs to pay off the producer, repay the fund and pay some increased staff costs. But even with a typical 5% cost of sales, a lot of this new money should be DCD profit.

Good news for the AIM-listed company which (as of 1 September) has net debt of some £8.4m on a market capitalisation of £15.3m.