From The Founder's Desk
columnist: Walt Thiessen

Topic: Nolan Chart News
Why American Liberty TV is a more viable approach than Break The Matrix

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The relaunching this week of the breakthematrix.com website as a social networking website rather than a radio and TV network may have more to do with the fiscal realities of offering an IPO than with any real benefits of online social networking. This may make American Liberty TV a better option for breaking the media matrix.

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by Walt Thiessen
(Libertarian)
Thursday, April 24, 2008

When Trevor Lyman and Rick Williams announced a couple of months ago that they were forming a new company, Basic Media Inc. for the purpose of taking on the major media in radio and television, it created a stir among the Ron Paul Revolution grassroots and the liberty movement as a whole. What could be more natural than for the creator of the highly successful money bomb websites to become involved in such an effort? Notwithstanding some other articles that have been published on this website by another columnist regarding what happened internally with their blimp project, most people have felt that this new venture was a worthy project.

Last week, however, their original website came down at Break The Matrix and was replaced by a one-page site announcing that a new social networking website would be launched in its place. The newly revised site is now up, and it is indeed a social networking site. There is still a mention of plans to build a radio and a TV network, but they are simply listed as "btm Radio...coming soon" and "btm TV...coming soon." No other information about becoming a new radio and TV network can be found anymore. Why?

I haven't been in direct contact with them for a few weeks, so I'm merely engaging in speculation here, but I think I may have figured out what's going on. At the least, my guess seems reasonable to me.

In pursuit of my own American Liberty TV project, I recently contacted an attorney who specializes in securities law and stock IPOs. Matthew Clary is an established attorney from Fairfax, Virginia with more than 25 years of experience in the business. I had a very enlightening phone conversation with him, where he gave me a fairly complete overview of what's involved in stock IPOs. Here's what I learned.

Traditionally, a company that goes public will have $10 million in revenue and $1 million in earnings before they ever explore the possibility of doing a public offering. It's extremely rare for a startup (such as Basic Media, Inc.) to do an IPO, because the risks to the company itself and to the investment banker who makes the offering are so high. Most public offerings are underwritten by an investment banking company. There are two kinds of underwritings: "firm commitment" underwritings and "best efforts" underwritings.

In "firm commitment" underwriting, the investment banking firm has an agreement with your company that as soon as the SEC registration is completed they will pay you for the public offering. The investment banking company is buying your company's stock issue and then reselling it to their customers.

In "best efforts" underwriting, the investment banking company makes no promises as to whether the stock will sell. Unlike the "firm commitment" underwriting, they are not agreeing to buy the stock offering. The amount that will be raised is uncertain.

In both instances, there is an agreed upon percentage of the offering that the investment banker earns for selling the IPO, in addition to various other expenses. In a firm commitment underwriting, the investment banking firm will charge 7-10% commission, with another 3% for other expenses. In a best efforts underwriting, the expense is a considerably higher.

From the perspective of the company offering the IPO, the expenses beyond the investment banking costs are significant. Legal and accounting fees may end up being 1-2% or more of the offering, and lawyers and accountants don't do these things on a contingent basis. So you have to be well enough financed to begin with in order to be able to pay their fees.

It is also possible to do an offering where the offering is only based on a letter of intent between the company offering the IPO and the investment banker, and the entire process remains in this stage all the way up until the offering is closed. Essentially, in this model the relationship between the investment banker and the issuer is one of trust. Obviously, investment bankers don't enter into this kind of IPO lightly, because they have a reputation on Wall Street to maintain. This would be an impossible form of offering for Basic Media Inc to be pursuing, so I doubt that's what they're doing. Clearly, Basic Media must be pursuing the "best efforts" underwriting method, since no responsible investment banker would even consider any other option for a pure startup like they are.

Even if Mr. Williams, who is an L.A. attorney, handles all of the legal work himself (which isn't advisable since securities law is a very specialized branch of law), he's still looking at needing a minimum of about $50,000 to $100,000 up front before the IPO even gets launched. This raises the question: where are Trevor Lyman and Rick Williams going to get their initial funding from? Unless they've got some significant funds in the bank, this could be a major stumbling block.

Assuming you have sufficient funding to even begin the process, the next step is to develop a relationship with an investment banking company. This is where you must convince the investment banker that your venture is worth supporting, and this is likely the next stumbling block for Basic Media to overcome. Unless they get lucky enough to find an investment banker who is a huge Ron Paul supporter and willing to risk his company's reputation on a pie-in-the-sky offering, the project likely ends here. It's quite possible that Rick Williams has contacts through his legal business that might lead him to just such an investment banking firm, but the fact that they have not announced any such relationship with an investment banking firm leads me to believe that they have been unable to find one. I have little doubt that if they had found one they would have trumpeted that fact to the heavens by now.

So if they don't have an investment banker behind them, how do they propose to proceed? This fact, combined with the large amount of up-front money needed to even begin to pursue an IPO leads me to believe that they're currently stuck in the mud, which is why Trevor started putting together the social networking website in place of what was there previously. Again, I have no hard evidence from Basic Media confirming any of this; it is solely my own speculation, but it's speculation based on what I've learned by talking with an expert in the IPO field.

Attorney Clary also noted that there are now also some companies that offer what he termed, "internet only" public offerings. They have mostly emerged over the past 5-8 years, and they provide a little more flexibility, but they are more risky and don't have much of a reputation in the investment banking community. This might be the only option available to Basic Media. The cost to the company with this kind of IPO in terms of commissions is over 20%, to help compensate for the higher risks involved in the IPOs they help to launch. They all work solely on a "best efforts" basis. This means that Basic Media, if they choose this route, will commit to turning more than $1 million of the $5 million they hope to raise over to investment bankers, not to mention all the accountants and attorneys.

After the relationship with the investment banker is established (if it is established at all), the next step is filing the registration statement with the Securities and Exchange Commission. Clary described this as a fairly in-depth, detailed process that requires the input of lawyers, accountants, the company itself, and many sleepless nights drafting and redrafting the registration statement which is then submitted to the Division of Corporate Finance of the SEC for review and approval. In general, it takes the SEC roughly 30 days (depending upon how active the IPO market is) to respond with comments back from the SEC in which they will take exception to various statements made in the registration statement and will want you to modify those statements. You have to continue this process until the Division of Corporate Finance of the SEC is satisfied with every aspect of the registration statement and the company's responses.

This raises a question: what will the SEC say about an IPO to fund a venture whose purpose is to make it possible to create radio and TV broadcasting that takes potshots at all forms of government regulation, including SEC regulation? I suppose it's always possible that they'll just let the entire registration process proceed without incident, but there's a nagging little voice in my head that keeps saying, "Yeah right! Wanna buy some Florida swampland?" I think it's fair to say that at this point you're entering into a regulatory quagmire, because the SEC can and does impose itself on nearly every aspect of the IPO process hereafter.

As Clary said to me, "There's a lot of back-and-forth. It's a process...let's just say that. Ultimately, you [hope to] end up with an agreement between the investment bankers, the SEC, and [your] company where the SEC agrees to declare the registration statement effective as of a particular time and date." Meanwhile, you're paying the underwriter's expenses for all that's being done on your company's behalf (which apparently includes a lot of high-priced travel expenses), which amounts to the equivalent of roughly 3% of the stock offering, or $150,000 for Basic Media's proposed $5 million offering. Again, this is all due and payable regardless of whether they sell a single share of stock on Basic Media's behalf.

This is why I believe that the donations model I'm pursuing with American Liberty TV is a much more viable approach. So long as I make no promises to those who donate to the cause (and indeed I make no such promises and will continue to make no promises) then the SEC never becomes involved. We'll still have to deal with the FCC (as will Basic Media) but that's a far less onerous process. While a donations model does not involve any return on investment for those who give their money to the cause, it avoids most of the regulatory mess that could easily allow the powers-that-be to defeat us in our efforts to put the truth on national TV.

I am releasing a second video today which discusses in broad terms my speculations about Basic Media and about the demo newscast we're preparing. The video also shows a clear contrast between what happens when you use cheap camcorders compared to using professional TV cameras. I included this section because a number of critics of my plan complained that I was focusing too much on the need for professional equipment. The video effectively shows how wrong-headed such thinking is.

Once our demo newscast is released, we will reschedule our fundraising for the program. The goal will continue to be to get 100,000 people to give just $100 each ($10 a month on a subscription plan) in order to raise the necessary funding.

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2008 Walt Thiessen, all rights reserved.
Published: Thursday, April 24, 2008
Last modified: Thursday, April 24, 2008

The views expressed in this article are those of Walt Thiessen only and do not represent the views of Nolan Chart, LLC or its affiliates. Walt Thiessen is solely responsible for the contents of this article and is not an employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.

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