FAB Universal: Management Caught Red-Handed Covering Up Piracy

| About: FAB Universal (FU)

On Monday, November 18th, 2013, my investigators caught FAB Universal's (NYSEMKT:FU) Chinese management in the act as they attempted a full-scale cover-up of the pirated U.S. movies on FAB's kiosks. In today's report, I present "before" and "after" videos of FAB's Beijing kiosks documenting the removal of the pirated U.S. movies. My investigators interviewed FAB's kiosk operators and discovered that FAB was removing all of the pirated U.S. movies over anti-piracy concerns after FAB's "copyright licenses had expired." What a convenient coincidence!

Where did all the $0.13 Pirated U.S. Recently Released Movies Go?

Prior to the publication of my report, FAB's Beijing kiosks were loaded with pirated recently released U.S. movies. On November 6th, 2013, my investigators filmed this video recording of all of the movies available for download from FAB's 5C Intelligent Media kiosk at its Dong Fang Yin Zuo (Oriental Ginza Mall) location (东直门外大街48号东方银座商场3层). The following sample screen-shots highlight a selection of over 50 pirated U.S. movies FAB offered on this kiosk prior to the publication of my report:

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The following is a complete list of pirated U.S. movies FAB offered on its Dong Fang kiosk as of November 6th, 2013:

After Earth

Phantom

This is The End

Gayby

The Heat

Aftershock

Empire State

The Call

Blood of Redemption

Tom and Jerry's Giant Adventure

Pain & Gain

The Purge

The Croods

Silent Hill: Revelation 3D

Admission

Skyfall

Hummingbird

Dark Skies

Man of Steel

Truth or Dare

Snitch

The Host

Evil Dead

Broken City

Fast & Furious 6

Spiders

Hatchet 3

Paranormal Movie

Scary Movie 5

The Haunting in Connecticut 2

Hangover 3

The Numbers Station

Air Force One is Down

A Haunted House

12 Rounds 2

Pawn

Jack the Giant Slayer

Fright Night

Oz the Great and Powerful

Gambit

All Superheroes must die

Argo

Rise of the Guardians

Space Soldiers

Jack Reacher

The Life of Pi

The English Teacher

The Mark 2

Stoker

Olympus has fallen

The Place Beyond the Pines

Die hard 5

Vehicle 19

R.I.P.D

Hansel and Gretel- Witch Hunters

Iron Man

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Good-Bye Pirated U.S. Movies, Hello Breakdancing!

On Monday, November 18th, 2013, my investigator returned to visit the FAB Beijing Hui Long Guan Wan Yi department store kiosk and discovered that FAB management had deleted all the pirated U.S. movies as well as many of the Chinese movies. The staff explained that due to anti-piracy concerns in China, FAB had recently removed all the U.S. movies from its kiosks, claiming that FAB's "copyright licenses had expired." What a convenient coincidence: FAB's U.S. film distribution rights expired simultaneous with publication of my report!

On Tuesday, November 19th, 2013, my investigator returned to visit the Dong Fang kiosk and found that FAB had similarly removed all of the pirated U.S. movies and many of the Chinese movies. A video recording of the revised list of movies available for download from the kiosk can be seen here. The video clearly shows the complete removal of all the U.S. movies (as well as UK and Canadian movies). The following screen-shots from the video show the complete removal of all the pirated movies which were replaced with old Chinese, yoga, and instructional dance videos. In the absence of pirated copies of cool movies like Iron Man, Man of Steel, and Skyfall, will FAB customers and franchisees really want to continue spending millions of dollars on FAB's kiosk business model?

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I challenged FAB in my November 14th, 2013 report to publish the complete addresses of all of its approximately 4,000 purported kiosks in Beijing so that investors and researchers could independently confirm their existence. FAB has failed to provide this list.

FAB management has now been caught, red-handed, conducting a full-scale cover-up of its pirated movie business. Without pirated content FAB's $0.13 per movie download franchised kiosk business will collapse. Thousands of franchisees will soon be demanding their "guaranteed minimum" return on investment. This scheme will soon implode.

Disclosure: I am short FU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.