Feasibility Study: Pop-Up Studios
Entrepreneurial practice is not just founded on ideas. Instead, those ideas need to be feasible and consistent with market demands and needs in order to be successful. Entrepreneurial businesses need to have, at a minimum, a viable market, an operational strategy that can be implemented effectively, and an economic position that will allow for its support. The entrepreneurial business also needs to have financial support from private investors, banks, or other sources of funding and business expertise in order to make sure it can be implemented. The feasibility study that is conducted in this report is for Pop-Up Studios, a concept that is intended to support the use and development of user-generated media by providing technical assistance and space for video production. This feasibility study shows that Pop-Up Studios has a potential market, particularly in larger cities, and would be operationally and financially viable. However, the business will need to find financial backers in order to be effective, since without financial support there is no way the business can begin effectively.
The feasibility analysis encompasses five areas of concern. The first area is a description of the business opportunity. Second, a brief market analysis is performed to describe who the target customer would be and how large a potential market there is. Operational and economic issues with the operation of the business are the third and fourth topics of discussion respectively. Finally, the required financial support for the business is examined, and issues with the financial aspects of the plan are discussed. The overall goal of this analysis is not to provide a comprehensive business plan, but to show that the business opportunity is potentially viable should funding be available.
The business opportunity examined in this report is Pop-Up Studios. Pop-Up Studios can be described as the sound stage for DIY video. The studio's value proposition is that it will offer producers of user-generated content for submission to YouTube, independent filmmaking competitions, music competitions, local bands, and other small-scale video and audio production content areas professional-level production facilities scaled to size and affordability. Pop-Up Studios will be located in areas that are light industrial, but readily accessed by members of the public. The first two studios will be located in New York and Boston, with further expansion into major metropolitan areas based on market analysis and demand.
The studios will provide for two distinct needs of the target audience. First, it will provide the physical facilities for elaborate, but small-scale video production.
These facilities will include:
- Soundstages (up to 4,000 square feet) that can be dressed and manipulated as required
- Audio recording booths with room for recording by a band with up to five members
- Professional lighting and sound equipment in order to maximize the capture of information on-set
- Production and post-production studio facilities, including audio and video editing and small-scale duplication of DVD and digital format video and audio distribution.
The second need that the studios will support is professional technical assistance for audio and video production. This type of assistance will include:
- Professional cameramen and sound operators
- Professional post-production specialists, including audio and video editing specialists and sound mixing specialists
Facilities will be available at any time (pending space and time available) and will be rented by the hour. Full-time staff members will oversee these rental periods, and will offer basic technical assistance and monitor use of equipment. For specialist assistance, customers will need to book in advance, and may be limited based on availability of specialist time. Staff required per studio for set-up will include:
- Two facility monitors (who will oversee production and facilities use and assist in basic tasks such as lighting and electrical)
- One administrator (space coordination and booking, administration, office management)
- One audio recording and post-production specialist
- One video recording and post-production specialist
- Contract specialists (visual FX, etc.) for specialty needs
Although contract specialists will be available for referral, customers will be responsible for their own set design, procurement, staffing and casting, props, and all other aspects of the production process not related to the physical location and technical equipment of the film.
There are three key market segments that Pop-Up Studios will serve. Its main market segment will be individuals or groups interested in generating user-generated content (such as YouTube videos) that cannot be easily enacted in available spaces. Secondary markets will include film students and independent filmmakers producing films for contests or independent distribution and community groups or other local groups producing films for local use. The secondary markets are difficult to analyze given the data on hand. However, there is evidence for a growing and enthusiastic primary market. YouTube is currently growing rapidly, with over 4 billion hours of videos played each month and 1 trillion views in total in 2011. YouTube is not just driven by fan interactions. Its partner program, which includes over one million content creators who generate popular materials for viewing, offers a way for content providers to monetize their contributions to YouTube based on the advertising revenue their views generate. Recent figures suggest that content generators have received at least $100 million in content, although exact figures are not available for the earnings associated with any one provider. This means that YouTube offers content providers a viable way to not just share their information, but also to earn money from it, and it is highly popular at doing so. However, facilities for filmmaking are not generally targeted to the small-scale YouTube content provider. For example, while the New York area has a number of very large soundstages (up to 28,000 square feet), there are few facilities suitable for smaller production either in scale or in budget. Instead, most facilities are targeted to Hollywood television and film production. This suggests that, although there are no firm figures on market availability, there are two conditions at play. First, small-scale producers such as YouTube content producers have the opportunity to monetize user-generated content, which could be more effective with professional production. Second, there are few facilities available for such production. This offers a potential market niche for Pop-Up Studios to fill.
Although the discussion above demonstrated that there was a potentially viable market for Pop-Up Studios, it still needs to be considered whether there will be operational issues that may result in failure. Some of the potential operational risks include damaged equipment by relatively inexperienced filmmakers, workplace safety concerns and insurance, and the availability of appropriate human resources.
The main set of concerns is the problem of facilities condition and workplace safety, which is a concern because filmmakers will provide their own sets, props, and other equipment. Leasing production facilities is a commonplace practice for most filmmakers, including large studios, and in most cases the physical outfitting of the set is the responsibility of the filmmaker. However, professional film studios have staff members that are familiar with the safety requirements of the studio and sets. This could dramatically increase the cost of insurance due to the potential for harm from inexperienced users of the space. The danger represented by non-professionals using the space will be mitigated in two ways. First, appropriate contracts will be drawn up that will assign liability appropriately, requiring filmmakers or responsible parties to take responsibility for the set and any injuries that may be caused by it. This would be part of a suite of standard contracts that are traded for the use of space, which is a commonplace arrangement in the film industry. This would need to be consistent with state contract laws regarding space use, which should be determined by a specialist contract lawyer. Second, all filming parties will need to be overseen by a facilities monitor, who will work with the film party in several capacities (basic technical assistance, scheduling, and so on). One of these capacities will be acting as a health and safety officer and ensuring that all sets and film sequences meet state safety requirements and help prevent accidents. The studio monitors will undergo health and safety training as well as first aid and CPR training to ensure they are prepared for their task. There are no clear figures on insurance effects of these actions, and insurers that were queried would not give direct quotes. However, it is anticipated that by providing constant, skilled surveillance of the use of the space, there will be a reduction in the potential risk and subsequently in insurance premiums.
The issue of human resources availability is the reason why initially the facilities will be located in larger cities with existing film networks. However, the BLS Occupational Outlook Handbook indicates that the industries these professionals will be drawn from are not unnecessarily stressed. For example, broadcast and sound engineers, earning a median wage of $19.17/hour, are only expected to grow 10% from 2010 to 2020 (or average market growth rate). This suggests that while the contract and full-time audio and video specialists required are more likely to be found in urban areas, they are neither particularly unusual nor highly paid enough to make Pop-Up Studios non-viable.
Obviously, Pop-Up Studios will not be a viable business opportunity if it cannot be supported financially. A brief pro forma analysis has been conducted to show the required estimated cost for a Boston location, as well as the potential earnings. The New York location will be higher due to the increased cost of operation in New York City, but will also be able to charge more where required. These figures are estimates and many are based on financial assumptions, which are noted where necessary. The total number of hours that the studio could operate during the year is 2,080 hours, giving 4,160 hours each for studio operation and specialist assistance at a maximum with the basic staffing levels. Studio space will be billed at $50/hour, while specialist assistance will be billed at $100/hour. This analysis indicates that using the information available, the studio will be highly profitable if it runs at full capacity. Breakeven analysis also shows that 2,206 hours of studio and specialist time (or approximately 53% capacity utilization) would be sufficient for the facility to break even on its costs. This suggests that, as priced and staffed, the Boston facility is financially viable. However, there are some concerns that need to be addressed. In particular, there is an assumption that content providers will be willing to pay $50 to $100 per hour for space, equipment, and technical specialist assistance. This needs to be examined more robustly through market research in order to determine if this is realistic. If it is not, then a different configuration (such as more remote locations or more, smaller studios) will need to be examined in order to make sure the project is financially viable.
Finally, Pop-Up Studios will need to have financial support and business development support if it is to become viable. Analysis of existing available resources suggests that an angel investor or small group of private equity investors working in the entertainment or technology industries would be most appropriate as an initial investment source, followed by more formal venture capital or bank financing.
There are a variety of different approaches that can be used when funding an entrepreneurial venture. The entrepreneur's personal funds are a common option, particularly when there are few capital start-up costs or few other options. However, in this case the capital costs will exceed the available personal funds for the startup. Furthermore, the entrepreneur would prefer to have professional assistance in matters like establishing the business, reaching customers, and marketing, where more business expertise may be helpful. This suggests that external financing, like an angel investor or venture capital fund, would be a better choice than personal funds. While banks are an option for funding, in this case they would not necessarily be very useful, since many banks require a proof of concept and established market so that risk can be determined.
The angel investor is an option that is highly attractive for this entrepreneurial activity, particularly if someone can be found that would provide expertise in the entertainment, filmmaking, and technology industries that Pop-Up Studios will operate in. Angel investors are single investors that provide a substantial amount of the start-up capital for a business (up to 100%) as well as offering substantial technical and marketing advice in order to bring a product to market. This is distinct from a venture capital fund, which generally takes on funding opportunities at later stages, potentially after the product has been shown to be effective in a basic proof of concept. The entrepreneur actually sees the provision of funds (while necessary) as the secondary form of support offered by the initial investors in this project. Ideally, the initial investors should provide technical and industry expertise and connections that will help Pop-Up Studios be noticed in the entertainment industry. The angel investor (or potentially venture capitalist) will provide invaluable business support for establishing the business. At a later stage, the business can seek out additional funding from banks or, eventually, from an initial public offering (IPO). However, these larger and more flexible sources of funding will need to wait until Pop-Up Studios is well established in the market.
In order to be useful, entrepreneurial ideas need to be financially and economically feasible and consistent with both the demands of the marketplace and the financial support and investment available. This report has provided an analysis of the feasibility of Pop-Up Studios. Pop-Up Studios is a concept that is derived from the rapid growth of user-generated audio and video content that the Internet has enabled. The studios, which will initially be an owner-managed chain (though they could be franchised later), will provide small sound stages, audio recording booths, and video and audio production equipment for rental by amateur film and audio producers. The studios will also provide professional assistance with editing and post-production tasks for those that require it. The market for this type of facility is potentially large, given the expanding popularity of user generated content, although it will need to be supported by the development of extensive marketing efforts in order to alert the intended audience to its availability. The operational viability of the studios is relatively strong, since sound and audio recording specialists are relatively inexpensive and common in terms of a set of skills. This will be particularly true in areas like New York and Los Angeles, but may also be true in smaller cities. The use of large-scale industrial warehouses, rather than central office areas, will help to increase the economic feasibility of the project, although costs will ultimately need to be controlled carefully. The final aspect of feasibility is the development of financial and business supports for the enterprise, which will require some considerable start-up capital and business support. It is suggested that an angel investor from the entertainment industry, who understands the technical concerns involved as well as being able to offer financial supports, would be the best option for initial funding. However, the enterprise will need to eventually seek out additional sources of funding for expansion, which could initially be through banks or even a public offering. This is the most difficult aspect of the project, especially given the current state of new business funding. Overall, however, Pop-Up Studios represents a potentially viable business opportunity that should be explored further.
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