Media Arts Group, Inc.

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Media Arts Group, Inc.

900 Lightpost Way
Morgan Hill, California 95037
U.S.A.
Telephone: (408) 201-5000
Toll Free: (800) 366-3733>
Fax: (408) 201- 5192
Web site: http://www.mediaarts.com

Public Company
Incorporated: 1990
Employees: 524
Sales: $132.09 million (2001)
Stock Exchanges: New York
Ticker Symbol: MDA
NAIC: 453920 Art Dealers; 511199 All Other Publishers; 453220 Gift, Novelty, and Souvenir Stores

Open practically any home decorating magazine, page through its contents, and one would be hard-pressed not to find a reference to artist Thomas Kinkade or the company he founded, Media Arts Group, Inc. Based in Morgan Hill, California, just south of San Jose, Media Arts is one of the country’s most visible and successful designers, manufacturers, and publishers of art, home decor, gifts, and collectibles. Media Arts oversees licensing agreements for all of artist Thomas Kinkade’s prints and the decorative accessories inspired by his art. A host of other “life affirming” artists have signed on with Media Arts as well. Marketing its products through companies such as The Bradford Exchange, Hallmark, QVC, and Avon, Media Arts Group and its premier artist Thomas Kinkade have built a small art-based empire in a few short years. What Martha Stewart has done for entertaining and home and garden enthusiasts, Media Arts aspires to do for art lovers through its “visual content managing.”

An Art Partnership: 1990s

In 1990 two friends, artist Thomas Kinkade and businessman Kenneth Raasch, joined together to found Media Arts Group. Kinkade, a graduate of Art Center College of Design in Pasadena, California, was determined to make a living doing what he loved—painting. Kinkade, the self-proclaimed Painter of Light, and Raasch settled on a company based on a lifestyle brand of art production and distribution using Kinkade’s and other prominent artist’s names and works.

Media Arts opened the first of many Thomas Kinkade Galleries in 1992. The galleries sold good quality reproductions on canvas, prints, and gifts and collectibles based exclusively on Kinkade’s work. Kinkade never sold his original artwork but offered signed prints and high-end canvas lithographs with original highlighting.

In 1994 the company acquired John Hines Studios Limited and established licensing agreements with other well-known artists including humorist/illustrator Gary Patterson. In a move to continue company expansion, Media Arts Group went public in 1995. On the heels of its initial public offering Media Arts experienced tremendous growth. The company opened galleries in 26 locations and formed its first wholly owned subsidiary, MAGI. MAGI’s business was directed towards the production of gifts and collectibles for the entertainment industry.

The year 1995 proved to be a banner one for Media Arts Group. Business Week’s May 22 issue ranked the company third on its list of 100 hot growth companies. Additionally, the company posted record sales that had increased 217 percent over those of the previous year. Much of the jump in sales was initially attributed to the company’s acquisition of John Hine Ltd. but its subsidiary, Thomas Kinkade Stores, was also expanding and growing.

In fiscal 1996, Media Arts Group experienced a slight downturn and reported losses of $673,000 on revenues of $54 million. The previous year’s profit was recorded as $3.8 million. A marked decline in sales of its miniature cottage and small collectible figures resulted in the downturn, according to company officials, and management took measures to cut costs by $3.6 million to offset the losses and bring the company back on track.

Throughout 1996 and 1997 Media Arts spent a significant amount of its resources launching a line of independently owned galleries in addition to its corporately owned Thomas Kinkade Galleries. The efforts paid off with revenues climbing by 57 percent.

The push of retail storefronts served the dual purpose of bringing the Thomas Kinkade name into the mainstream of American art and art-related collecting and fostering licensing agreements with other retailers, including furniture giant La-Z-boy, Crown Craft, and Avon. La-Z-Boy devoted a whole line of its upholstered furniture to the Kinkade name.

Kinkade’s name brand was increasingly associated with an image of nostalgia and old-time family values, an opportunity many home stores recognized as a significant market share to tap. Companies took notice and responded to the large group of consumers looking to create the Kinkade-look or atmosphere through their home furnishings.

In 1998 Media Arts Group opened 11 new galleries and saw its licensed distribution outlets reach 103. Many of these stores were independently owned and operated Thomas Kinkade Galleries and exclusively sold Kinkade merchandise. The independent stores were an unexpected bonus to the company. Through licensing Kinkade outlets, the cost of operating the stores was left to the independent owner and the company made a good profit on the merchandise the store sold at retail.

By the summer of 1998 the company opened eight additional Thomas Kinkade Signature Galleries and two company owned stores. Although in a move that seemed to run counter to what had worked in the past, Media Arts bought back several galleries at this time, including the Signature Gallery on Catalina Island off the California coast.

A 1998 Forbes article summed up Media Arts Group’s appeal, “Media Arts sells not so much products as image, and sentimentality…. Thomas Kinkade’s luminescent pastoral scenes, reproduced by the thousands every year, have captured the hearts of middle America and turned San Jose, California-based Media Arts Group into one of the fastest growing companies on the 200 list.” Kinkade’s commercial appeal was illustrated by the reaction he received while guest appearing on QVC shopping network. Kinkade’s television appearance in January 1998 helped sell more than $2.2 million worth of items during an hour of air time.

Although Kinkade’s original artwork was the inspiration for many gift and collectible pieces, much of what sold under the Kinkade name as a brand was not directly associated with his art. This lifestyle licensing was so successful that Warner Books published a book based on the inspiring artist’s thoughts and devotions, entitled Lightposts for Living, in 1998.

As if books, art, furniture, gifts, collectibles, and home decor were not enough, in 2000, US Home, a national builder, was licensed to build the first Thomas Kinkade home. The model was based on a house featured in one of Kinkade’s most collected prints.

Media Arts took its first steps to join thousands of other companies and retailers on the Internet when in April 1999 the company created another subsidiary to focus on computer-generated sales. Exclaim Technologies Inc. was developed as an ASP (Application Service Provider) and produced the software known as “Marketplace.” Exclaim and US Web/CKS and IBM developed web sites for Media Arts, including the www.ThomasKinkade.com site.

The company had hoped to use Exclaim for its own use but also anticipated that its software would become popular among other gifts and collectible merchants who wanted to enhance their Internet business. Exclaim was a comparatively costly start-up but, like many Internet content providers, Exclaim’s value to the company would only be determined over time.

Media Arts had grown to a sizable 400 employees by June 2000 and had made plans to build a new corporate headquarters in Morgan Hill, just south of San Jose, California. Four buildings were planned with two of the four to be completed within the year, a 61,000-square-foot corporate office building and a 155,000-square-foot production facility.

In addition, during the same period the greeting card company Hallmark announced its plan to produce an everyday collection based on the art of Thomas Kinkade. Hallmark had contracted with Media Arts since 1995 for seasonal Kinkade merchandise, but the new contract for a 40-unit product line was welcomed by the company.

Diversifying Its Product Offerings

In an effort to “diversify its product offerings,” Media Arts Chairman Craig Fleming announced that the company had successfully signed British artist Simon Bull to a five-year licensing agreement. Bull had been recognized by the U.K.’s Fine Arts Trade Guild as a Best Selling Original Print Artist and brought an international reputation and following that was highly appealing to the company’s plans to expand worldwide. Artist Howard Behrens also joined the ranks of Kinkade and Bull. The commercial success of Media Arts’ featured artists helped attract other artists to its management offers. Thomas Kinkade was now recognized at “the most commercially successful living artist,” but it was apparent that Media Arts wanted to ensure that, should things break off in the future with Kinkade, the company had other prominent artists to merchandise.

Company Perspectives:

The mission of Media Arts Group, Inc. is to create the preeminent visual content management company in the world and to change the way people look at art through the development of life-affirming, emotionally uplifting images, and message driven products, rooted in traditional family values. With our successful business model, Media Arts Group, Inc. is positioned to be the dominant force in art publishing, home decor, and gift products in the coming century .

Media Arts’ newest retail chain, the Masters of Light Galleries, were multi-artist galleries and reflected the latest company trend towards diversification. Company Chairman and CEO Craig Fleming explained the marketing strategy of the Masters of Light Galleries in a press release stating, “the Masters of Light Galleries will be very event driven, with approximately two to four artist appearances per year. We know from our experience with Thomas Kinkade that one of the keys to building a strong customer base is to develop relationships between the artist, the gallery owner and the collector.”

At the same time that Media Arts was enrolling artists and completing its Morgan Hill construction project, the company made plans to retain the New York public relations firm Porter, LeVay & Rose. Fleming issued a statement reflecting the company’s strategy in contracting with Porter, LeVay by saying, “We are pleased that Porter, LeVay & Rose will be helping us communicate with the investment community, our shareholders and business news media. Our goal is to heighten the company’s visibility and shareholder value as we diversify our product offerings, pursue the potential for new licensing and distribution opportunities and broaden our Internet exposure.”

Soon after signing the public relations firm, Fleming resigned from his post at Media Arts, and the company named one of its board members as acting chairman. The economy in 2001 was experiencing a downturn and Media Arts took several steps to keep corporate earnings up. Thomas Kinkade himself completed a tour of all the company’s U.S.-based Signature Galleries, drawing crowds of collectors. The company now had 5,000 distribution centers and galleries worldwide, but despite its efforts Media Arts reported a decline in revenue in fiscal 2001.

In February 2001 Media Arts signed a five-year contract with renowned artist Robert Lyn Nelson. Nelson, known for his marine life art, joined Kinkade, Howard Behrens, and Simon Bull in selling reproductions of his work at the company’s Masters of Light Galleries.

A month later an unveiling at New York’s Art Expo revealed original artwork by Kinkade, Behrens, and Bull in their role as official artists for the 2002 Salt Lake City Winter Olympic Games.

Media Arts not only gained international appeal by its Olympics’ release, but the company continued its advances into the international marketplace by opening Thomas Kinkade Signature Galleries in Toronto, Canada, and Glasgow, Scotland. Signature Galleries were already established in two of England’s upscale shopping districts.

In April 2001 Media Arts announced the opening of the first Howard Behrens Studio Gallery, in Monterey, California. Proclaiming Behrens as “the world’s foremost palette knife artist,” the company hoped to parlay the artist’s name into a mini-industry, just as it had done with the Thomas Kinkade name. Media Arts planned to open three additional Behrens galleries by March 2002.

The new Media Arts world headquarters was completed in the summer of 2001. A new chairman and CEO, Anthony Thomopoulos, brought more changes to the company. Thomopoulos had served on the board of directors since July 2000, and had previously held leadership posts at ABC Entertainment, ABC Broadcasting, Amblin Entertainment, and was formerly chairman of United Artists. Thomopoulos announced that the corporate move to the outskirts of San Jose would mean a significant savings to the company. The company estimated that its relocation saved the company $1 million annually.

An interesting corporate development occurred when in 2001, Thomas Kinkade, Media Arts’second largest shareholder and its Art Director, led an attempt to take control of the company by purchasing all of the outstanding shares of common stock. Kinkade’s offer of $6.25 a share was considered by the company’s board of directors. The offer was determined to be insufficient and shortly thereafter Kinkade withdrew his offer. Kinkade explained his change of heart saying that his decision was based on “current economic uncertainties and the difficult lending environment.”

While it was clear that Media Arts Group had aspirations to become one of the corporate retail giants in its art branding distribution, whether or not it could continue to grow exponentially in the softened economy remained to be seen. Specialized retail industries had often suffered during recessionary times or strained economic conditions. The company’s attempts to hire seasoned veterans with entertainment connections, and the diversification in product and artists that Media Arts Group was exploring boded well for broadening the company’s appeal beyond the collectors interested in Thomas Kinkade.

Principal Subsidiaries

Lightpost Publishing, Inc.; Thomas Kinkade Stores, Inc.; Thomas Kinkade Media, Inc.; MAGI Sales, Inc.; Exclaim Technologies, Inc.

Principal Competitors

Interiors, Inc.; National Picture & Frame Company; Martin Lawrence Limited Editions.

Key Dates:

1990:: Company is incorporated when Thomas Kinkade partners with friend Kenneth Raasch.
1992:: Media Arts opens first Thomas Kinkade Gallery in Carmel, California.
1995:: Media Arts signs distribution agreement with Hallmark.
1998:: Company signs licensing agreements with retail giants Crown Craft, Avon, and La-Z-Boy.
1999:: Media Arts receives $20 million line of credit from Bank of America; launches new private satellite network and its Impressionist Masterworks Collection.
2000:: New corporate office and production facility is built; Craig Fleming is named chairman.
2001:: Buyout attempt by Thomas Kinkade is unsuccessful.