Core Media Group, the company behind American Idol and So You Think You Can Dance, has filed for Chapter 11 bankruptcy protection in New York.
Core was founded a decade ago and was recently brought into a joint venture owned by 21st Century Fox and Apollo Global Management. But as Idol has now aired its last show, it appears as though Core envisions some restructuring. In the bankruptcy filing, the company says it owes $398 million to third parties, including from two matured loans from Tennenbaum Capital Partners, Crestview Media Investors, Bayside Capital and Hudson Bay Capital Management. The company reports about $73 million in assets but less than $10 million in cash on hand.
Idol creator Simon Fuller is the company’s No. 1 unsecured creditor and is owed $3.37 million. A payment demand on April 11 from Fuller is one of the factors cited in the bankruptcy papers as contributing to the decision to file for Chapter 11. A declaration filed in court says that after Fuller left in 2010, he was given a profit share of his shows and money as a consultant. A statutory demand for payment served by Fuller in the U.K. brought the prospect that he could commence winding-up proceedings on Core affiliate 19 Entertainment.
As the second biggest unsecured creditor, former Core chief Marc Graboff, who is now overseeing studio operations at Discovery, is owed $1.32 million in severance. Sony Pictures has about a $900,000 secured claim after the sale of film rights to Seeing Double, reported in the filing to be in production by a Core entity. Some of the other companies that have profit shares in Core shows include Creative Artists Agency, Dick Clark Productions and Fox Broadcasting.
Over the years, Core’s mission has changed. It was originally set up to manage the intellectual property of Elvis Presley and Muhammad Ali, but by 2013, those assets were sold to Authentic Brand Groups. The purchase of Fuller’s 19 Entertainment in 2005 is the company’s crown jewel and it continues to own the recording rights of such stars as Kelly Clarkson and Carrie Underwood, who have appeared on Idol. Core also owns Sharp Entertainment, which produces unscripted programming like Man v. Food, Extreme Couponing and My Crazy Obsession.
According to a declaration made in court in conjunction with the Chapter 11, “Despite its long-running success, however, the Company has recently experienced deterioration in its financial performance, primarily attributable to the decline in ratings for American Idol and the corresponding decline in revenues from IDOLS-related broadcast fees, international tape sales for rebroadcasts, touring fees, sponsorships and IDOLS-related merchandise sales.”
Core says its capital structure is now “unsustainable” given the ability to replace Idol, and while it still is getting money from Fox for So You Think You Can Dance, it has been facing a financial crunch. It cut its employee base by entering into a shared services agreement with Endemol, under which Core got legal, financial, HR and marketing support while Endemol gets $2 million annually and other financial considerations, but that outsourcing agreement was terminated last year.
The slipping Idol fortunes have backed the company into a tough place. In 2014, earnings from the show decreased by $15 million, according to court papers, and overall, the company says it suffered a total revenue decrease of $35.6 million for the first half of 2015. In the past two years, Core’s 19 has been trying to make up some of this money in a court proceeding against Sony Music over money generated by sales and distributions of Idol artists.
“Additional negative ripple effects included, among other things: a decline in re-broadcast fees due to reduced broadcast hours; the loss of both Coca-Cola and AT&T as main sponsors of American Idol; and the closure of the American Idol Experience theme park attraction at Walt Disney World,” states the court papers. “This decline culminated on May 11, 2015 in FOX announcing that it would no longer air the American Idol series in the United States after its fifteenth season.”
Core, run by president Peter Hurwitz and chief financial officer Scott Frosch, now says it hasn’t secured new business lines sufficient to service the debt. The company has been engaged in discussions with its lenders, including Tennenbaum and Crestview, and reports that it has “reached an agreement in principle to restructure” and “is confident that it will be able to finalize and document a global deal in the near term.”