Zoo looks to eBook sector as it cuts reliance on films

The Sheffield-based group designs software to speed up and cut the cost of DVD and computer game production.

It recently expanded into the digital book and music market, and has raised £1.7m of capital through a placing of shares to support this growth, particularly in the area of eBooks.

Revenues fell from £9.3m to £8.7m in the year to the end of March because of a short-term slowdown in projects from its largest customer and a reduction in low margin work.

Pre-tax profits came in at £316,000 compared to losses of £537,000 a year earlier.

Zoo’s chief executive Stuart Green said: “I am pleased to be able to report further progress for the group, against the backdrop of great upheaval in the filmed entertainment industry.

“It is a great credit to Zoo that it came through this period with increased profits, which underlines the strength of our busi- ness.”

He said that a number of new opportunities are coming up and Zoo’s solutions are now relevant to a wide range of industries outside its traditional stronghold of Hollywood.

“One particularly exciting prospect is within the eBook market, where Zoo’s suite of tools has been developed to format books for the EST market in a superior and more cost effective way than existing methods,” he said.

“We are delighted to have secured an additional £1.7m of funding from shareholders, primarily to accelerate our presence in this rapidly growing mar- ket.

“Continued support from our major shareholders has also allowed us to reach agreement with the holders of our existing loan notes, which were due for redemption in October of this year.”

Zoo’s technology is quicker and more efficient than traditional methods and reduces costs and time-to-market and the impact of pirate copies.

The home entertainment market has been through a turbulent period over the past year, with upheaval and cost-cutting measures taking place at many of the major Hollywood studios.

This has led to reduced orders, particularly from its major customer, although Zoo said that most of the shortfall in orders has been recovered.

Zoo said that the pressure the studios are under to maximise sales and cut costs provides a significant opportunity for the group.

One of the most important ways for a studio to maximise sales of a new release, especially blockbuster titles, is to distribute the product into as many territories as possible simultaneously.

By doing so, the loss of sales due to counterfeit products and illegal copying is dramatically reduced and the quality is maintained.

“This need to accelerate distribution globally in the shortest timeframe possible makes our toolsets even more compelling,” said Mr Green.

Analyst Andrew Darley at FinnCap said: “Recent newsflow has been the most positive since the 2007 acquisition of Scope7, with evidence of product diversification, customer diversification and sector diversification significantly broadening Zoo’s potential.”

In May, Zoo signed a licensing agreement with blockbuster film company Warner Bros.

Zoo secured the deal with Warner Bros’ subsidiary GDMX, which specialises in digital video compression, DVD and Blu-ray authoring and digital content distribution services.

Warner Bros will use Zoo’s systems to create Blu-ray discs and digital products for video-on-demand providers.

Warner Bros’ executive vice president production operations Brian McKay said: “As a world leader in digital video compression and authoring, we are committed to delivering excellent service and value to our home entertainment clients.”

A fast-growing market

The market for electronic books or e-books is developing at a stellar pace, according to figures from Futuresource Consulting.

Bolstered by growing numbers of e-reading devices such as Apple’s iPad and Amazon’s Kindle, the global e-book market grew by more than 200 per cent in 2010 to exceed 90 million paid-for units. Futuresource said this was largely due to growth in the US, which represented more than 80 per cent of global revenues.

It believes the global balance will begin to shift, with the US contributing just over half of global e-book revenues by 2014 as sales in Western Europe and the UK grow.