An Interview with National Lampoon CEO Daniel Laikin

| About: National Lampoon. (NLN)

On July 28, The Wall Street Transcript interviewed Daniel S. Laikin, Chief Executive Officer of National Lampoon, Inc. (NLN). Key excerpts follow:

TWST: May we start with a short history and an overview of your company?

Mr. Laikin: The National Lampoon Magazine was founded in 1970. It became the most successful humor magazine ever. They followed that success with the National Lampoon Radio Hour, featuring Chevy Chase, John Belushi, Gilda Radner, which was really a precurser to Saturday Night Live. They had the National Lampoon Lemmings off-Broadway show, they had National Lampoon Records, National Lampoon Books, and actually had four Grammy nominated albums back in the 1970s. They were having a lot of success back then. In the mid-1970s, they pulled an article from the magazine, developed a script, took it to Hollywood and that became National Lampoon's Animal House, the most successful comedy film to that date. They went right back into the magazine, pulled another story, this one written by John Hughes, and that became National Lampoon's Vacation starring Chevy Chase.

Following these successes they were having in the film industry, in the mid-1980s, the company stopped focusing on what had made them successful, which was the creative community and the magazine, and they moved to Hollywood and became a film company. So that was the beginning of the decline of the company at that time. In 1988, management of the company was taken over by Tim Matheson, the actor who played Otter in Animal House, and one of his partners. They ran the company for a couple of years, didn't get a lot accomplished and ultimately, around 1990, merged into a small public video distribution company called J2 Communications.

Throughout the 1990s, J2 lived off the residuals from Animal House and the Vacation movies, and would do trademark license deals for additional revenue. So they did a deal in the early 1990s with New Line Cinema for Loaded Weapon and Senior Trip, in the mid-1990s they did a similar deal with Showtime for three made-for-Showtime films, late 1990s they did a deal with Fox Family Channel and again, for three made-for-Fox TV movies.

In 1999, the company decided to launch, hoping to recreate what the magazine had been in the 1970s, which was a creative wellspring of content to leverage into all media. They thought they needed some capital to build their site. That was how we discovered the company. My background had been investing in technology and Internet companies. So I saw what they were doing, understood back in 1999 their strategy and their ability to launch online and actually went to the company and told them I would invest what they were looking for. They ended up turning me down, but I went in the open market at that time and bought about 25% of the stock as a friendly shareholder. So I became the single largest shareholder. I was purely an investor in the company back then. I did start bringing some technology and limited entertainment relationships to the company. I got push-back management at that time and ended up going to battle for control over the company and spent a couple of years fighting for control of the company.

Where we are today and what we have done over the past few years is, number one, we have re-energized the brand, but we have aggressively built distribution platforms in all areas of media. So today we are active in everything from film to television to radio to publishing and very big online today. We reach, we believe, one out of every four college kids in America today through one of our platforms and we really reach them in multiple ways and through multiple platforms. Our films are watched every day across the country and actually around the world. Our College Television Network is seen on over 200 campuses every week. Our online platforms reached over 10 million viewers on a monthly basis. We have built a strong reach into the advertising community's most coveted demographic, which is the 18 to 25, 18 to 34-year old male. We have over 96% brand recognition in the 18 to 24 year-old demographic. When you widen the demographic, we show over 93% brand recognition in ages 15 to 60, and we've managed to successfully leverage the brand and our intellectual property. We have done a lot of things in the last few years, we've thrown things against the wall to see what stuck, what made sense as businesses, and we've now identified the businesses that truly make financial sense, and we've pulled back and de-emphasized the businesses that don't. We are now very focused on two primary areas of our business, film production and distribution, and Internet and online media. So we are still active in and generating and growing revenues in the other areas, but we believe that in the near term, our largest growth will be from these two areas.

TWST: Would you slice your business segments based on the contribution that you currently receive in terms of revenues?

Mr. Laikin: The film production and distribution side of our business will account for, near term, about 60% of our revenue, which also encompasses film licensing. The balance of the business is primarily online media. We have become the most trafficked humor Websites on the Internet. We are generating over 5 million unique visitors per month on our comedy network online, and that's just counting US traffic, and that continues to grow. I think we will see a ramp up of revenue there, but we are really seeing a ramping of our revenue across the board.

TWST: What is the strategy for producing or for distributing new movies as well as driving traffic through your sites?

Mr. Laikin: The strategy on the film production and distribution side is that we are now producing up to four original National Lampoon films per year. It's the first time in the history of the company that we own, control and distribute our own films. We are building our own library. The strategy behind that is to truly build value and take control of the National Lampoon brand in the film business. So that's the production side.

On the distribution side, we have been picking up somewhere between five and 10 films per year that we take distribution rights. We market these films, we distribute films, we collect revenue on these films, we also take trademark licenses on some of these films. It's a business model that is not that different from a Lionsgate model or other film studios where we become the distributor. So that's the film strategy.

On the online strategy, it is to continue to grow our online traffic. We do it a number of ways. We have been acquiring a number of online sites that have existing traffic, we built traffic on our own site through our content, and we have built a number of vertical online networks. We have the National Lampoon Humor Network, which is an affiliate network of between 30 and 50 humor/comedy Websites that we control advertising, we build traffic, and we leverage content across a lot of these sites. That was the first online ad network we launched. We then launched what we call the Drunk University Network, a little bit edgier and not necessarily advertiser-friendly, although there are stable advertisers that will come to us on a regular basis. Again, that's between 20 and 50 sites, primarily the college demographic. We just recently announced the launch of what we called the ZAZ Network. The ZAZ Network is anchored by the National Lampoon ZAZ Report, which is a female-focused humor, celebrity and gossip site, and we built a network around that. So we are aggregating a number of female-focused sites and, again, we control advertising, we sell the media on those and we are very involved in the content.

The other kind of major online initiative for us is what's called the National Lampoon Video Network. We have launched National Lampoon Video Channels on most of the major Internet video portals. We have a National Lampoon Channel on YouTube, National Lampoon Channel at Yahoo, on Joost, on Veoh. It allows us to expose our content, our video content across the entire online video world. Today, that's over 120 million people who either view or download online video. Our partners in most of these cases are the major video sites, like YouTube or Veoh, or Yahoo; they sell the advertising, we're on revenue share with them. It positions us very well going forward to ultimately offer these videos and offer our movies for sale, make them available for download on all of these partner platforms.

TWST: What will happen to the areas that you are de-emphasizing? Will you phase them out of your operations eventually?

Mr. Laikin: One area that we de-emphasized was live events on college campuses. We did some college tours, all sponsor-driven, but we've really de-emphasized that business. We do not go out and aggressively look for sponsors, but we have found that in some cases it is driven by advertisers, and we make ourselves available in those instances. We did have a small tour this past spring and we have another one coming up this fall called the National Lampoon Lemmings Tour. Our sketch comedy troupe will hit a number of college campuses. We have the sponsor in place.

The other piece of that is, we have just completed production of 13 episodes that we call National Lampoon's Lemmings in partnership with ManiaTV, which is an online television/video network. We have produced, and we are continuing to produce National Lampoon-branded sketch comedy. So we have a lot of content, we have been producing where we are truly monetizing that. It's not a primary focus of our business by any means, but it's a great incubator for content, for ideas, it is a revenue generator and a profitable area of our business. I don't believe that we will phase it out, but I don't know that it will ever become one of the major revenue-generating areas of our business.

TWST: As you continue to transform the company, what would you consider as your major challenges?

Mr. Laikin: The major challenges are to make sure that we stay relevant to our audience. The 18 to 24-year old audience is constantly changing. The beauty of the National Lampoon brand is we are so well known and so ingrained in the population today. Our National Lampoon Vacation films, whether it's Christmas Vacation or European Vacation, are seen on TV almost every day across the country and around the world. We want to make sure that we continue to reach and build an audience. "National Lampoon's Van Wilder," the original, was released about five years ago and it became almost the new "Animal House" on college campuses. Van Wilder 2 was released just a couple of years ago and Van Wilder III will be going into production. So we've been lucky to be involved in and be able to build on franchises like that, and to continue to be relevant to the audience, but that's always a challenge. There are obviously other challenges and day-to-day business challenges; it's growing revenue, it's building businesses, it's being able to go out and find and hire the best people in our industry.