Bulls and bears taking sides on Venture Group.

Bulls and bears taking sides on Ventura Group

Ventura Entertainment Group Ltd.: Hollywood's next powerhouse, or another start-up production outfit doomed for Wall Street's cutting-room floor?

For now, Ventura's numbers are in the red. Last week, Ventura Entertainment reported a loss of $2.6 million, or 38 cents a share, on revenues of $3.08 million, for a truncated eight-month fiscal year ended June 30. (The company recently switched its fiscal year to end June 30 instead of Oct. 31.)

But like fans of the Brooklyn Dodgers, bulls say "wait 'till next year," when the 54-employee North Hollywood-based producer will win by making low-cost television fare for domestic and foreign broadcast, and commercials.

For example, this week the two-year-old Ventura begins shooting 13 episodes of "Hollywood Detective," a one-hour serial slated to air on the Arts & Entertainment cable network next March, starring Gregory Peck's son Tony. It's the first domestic series ever shot for cable television. Ventura claims.

The company has eight other television projects underway, completed or seeking financing.

Ventura Entertainment is the brainchild of Harvey Bibicoff, 51, the chairman and chief financial officer most recently connected to Long Beach-based retailer Leo's Stereo Inc., and Irwin Meyer, 55, president and chief executive who co-produced the Broadway musical "Annie" in the 1970s.

Bulls say management, plus product, will mean profit. "Ventura is excellently financed, they have a superb management team," said Robert Grossman, analyst with the New York-based Stratton Oakmont brokerage house, which underwrote a recent Ventura secondary stock offering. "Starting in next year's first quarter, this company will be in the black, with $40 million in revenues and $4 million to $6 million in profits." The company should generate $18 million in revenues making commercials, more than $7 million from producing live entertainment, and $15 million from television production fees, said Grossman.

But bears said Ventura Entertainment is overpriced, given the iffy future of new production outfits - at $8.625 a share, and with 7.82 million shares outstanding, it is worth about $67.4 million on Wall Street.

Short-traders (speculators who bet a stock will go down) also note the company may still be undergoing a Securities and Exchange Commission investigation, and that shareholders have never been told the No. 2 Ventura officer, Meyer, served a short stint in federal prison in the 1970s.

"Ventura will need to earn $5.2 million (annual profit) to justify its current stock price," wrote Paul Marsh, entertainment industry analyst at Bateman Eichler, Hill Richards Inc., in recent confidential report obtained by the Business Journal.

"Given management's hefty payroll and limited revenue upside on new projects - because the company is not taking any major production investment risks - we believe Ventura will run out of cash before generating meaningful earnings momentum." (Marsh's report is excerpted on page 10).

In a public report released last week, analyst Mark Matheson of Newport Beach-based Cruttenden & Co., said: "Investors have become over-enamored with the prospects for the company, thus causing current share prices to bear little relation to current fundamentals or the valuation placed on other companies in the industry."

Last week Matheson said he thought Ventura stock would go down to $1 a share.

Bibicoff and Meyer last week replied that fiscal 1990 losses were to be expected, and that short-traders are planting rumors.

"This is our second fiscal year in business, and we knew from the beginning it would take us three years to become profitable," said Bibicoff. "But we have achieved our goal of becoming a recognized, accepted and respected supplier of TV programming. This is not a short-term deal."

Bibicoff added: "There is a major attempt on the part of short-sellers to drive this stock down."

The game plan of Ventura is to produce commercials, television serials and made-for-TV movies for less money than competitors. According to the company's 10-k filing last week, it has seven television shows in various stages of production, and two completed.

The company also produces commercials through its Harmony Pictures subsidiary, purchased in March. Harmony has made commercials for such big names as Mattel, Arco and Burger King, and in recent years grossed about $16 million a year.

In its television fare, Ventura sells initial domestic broadcast rights, as in the "Hollywood Detective" deal with A&E, for a sum that nearly covers production costs, said Meyer last week.

But foreign rights, and syndication rights, belong to Ventura, and after initial showing on A&E, "Hollywood Detective" becomes a part of the Ventura Entertainment library.

To help keep production costs down, Bibicoff and Meyer last June bought a 100,000-square-foot studio in Orem, Utah, from the singing Osmond family in a $2.3 million deal that included issuing 13.6 percent of the company's stock to Jimmy Osmond, 26.

Away from Hollywood's unions and other costs, "it cost us $500,000 an hour to produce `Hollywood Detective' - for good quality programming, with stunts, car chases, period pieces - on a show that other producers might spend $1 million per episode producing," said Meyer.

Ventura will not break even on the show this year, but in later years, when it becomes part of the company's library, profits may be made, said Meyer.

Meyer spent four months in federal prison in 1976 after pleading guilty in a tax-evasion case. Last week, he said that other co-defendants who fought the tax shelter case were exonerated but he settled with the federal government to get the matter behind him.

The matter is not disclosed in Ventura's prospectuses or other financial disclosure statements, a fact pointed out much last week by short-traders.

Chairman Bibicoff said last week that Meyer's incarceration happened more than five years ago, and so does not need to be revealed in offering papers.

A securities lawyer last week said a matter is "material" and should be disclosed if, when disclosed, it would cause a potential investor to "raise an eyebrow."

Ventura may still be the subject of an SEC inquiry. In November 1989, the SEC requested information regarding public statements made by the company, the formation of a publicly traded subsidiary, the Ventura Motion Picture Group, and relationships between the company's principal stockholders, certain underwriters and market makers in the stock.

In some circles, Ventura Entertainment has been admired as a Hollywood company that can raise money, while others go begging. It raised $3 million in its initial public offering last year, then another $4.8 million in a May secondary offering. Ventura this year also raised $5.5 million from the sale of stock of its subsidiary, Ventura Motion Picture Group.

The company is well-poised to translate capital into profit next year, said company officials. "1991 should be a good year for us," said Meyer last week. "It is very promising."