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Hollywood Media Corp. (OTCPK:HOLL)

Q1 2006 Earnings Conference Call

May 10, 2006 4:45 p.m. EST

Executives

Matt Hayden - Hayden Communications (NYSE:IR)

Mitchell Rubenstein- Chairman and CEO

Scott Gomez - CFO

Brian Walsh - Associate General Counsel

Analysts

Richard Ingrassia - Roth Capital

Murray Arenson - Ferris, Baker Watts

Nelson Obus - Wynnefield

Jeff Shelton - Deutsche Bank

Andrew Mead - Corsair

Ari Shrage - SAC Capital

Presentation

Operator

At this time I would like to welcome everyone to the Hollywood Media first quarter 2006 earnings conference call. (Operator Instructions) It is now my pleasure to turn the floor over to Matt Hayden of Hayden Communications. Sir, you may begin your conference.

Matt Hayden

Welcome everyone to today's conference call to discuss Hollywood Media's 2006 first quarter financial results. Today's press release announcing these results is available for viewing on the investor relations section of Hollywood Media's website at Hollywood.com or most other financial websites.

Our call will be hosted by Mr. Mitchell Rubenstein, Chairman and CEO of Hollywood Media Corp. At the conclusion of the call there be a short question-and-answer period. At this time I would like to turn the call over to Mr. Brian Walsh, Associate General Counsel of Hollywood Media, to read a cautionary statement about forward-looking statements.

Brian Walsh

Good afternoon, this presentation may contain, in addition to historical information, forward-looking statements within the meaning of federal securities laws regarding Hollywood Media Corp. These forward-looking statements are based on current management expectations and are subject to risks and uncertainties that may cause actual outcomes to differ materially from expectations reflected in forward-looking statements.

Potential risks and uncertainties include the Company's ability to manage its growth and integrate new businesses; the Company's ability to the development and maintain strategic relationships; the Company's ability to compete with other media, data and Internet companies; technology risks and risks of doing business over the Internet; the Company's ability to realize anticipated revenues, cost efficiencies and sources of capital as well as governmental regulations; volatility of the Company's stock price and other risks described in Hollywood Media's filings with the SEC including its form 10-K report for 2005. The form 10-K, includes a discussion of risk factors and can be accessed through the investor relations section of the Hollywood.com website or the SEC EDGAR database at sec.gov.

Because forward-looking statements are subject to risks, we caution you not to place undue reliance on any forward-looking statements. Forward-looking statements made during this presentation speak only as of the date of this presentation. All written or oral forward-looking statements by Hollywood Media or made on its behalf are qualified by these cautionary statements.

Now I will turn the call back over to Mitch.

Mitchell Rubenstein

Thanks, Brian. The first quarter represented a solid start to what we anticipate will be a record year for Hollywood Media Corp, as we demonstrated solid revenue comps on a quarter over quarter basis. Each of our highest revenue-generating segments -- Broadway ticketing, data business and Internet ad sales -- achieved quarter over quarter growth. Both our data business and Internet ad sales segments generated significant sequential growth compared to the fourth quarter of 2005.

Our Broadway ticketing segment faced its typical seasonal decrease in volume during the first quarter, as we moved out of the strong holiday season. But, despite this seasonality we were able to deliver solid revenue growth while reporting a 37.1% increase in deferred revenue as of March 31, 2006 as compared to December 31, 2005. And, a 50.4% increase in deferred revenue as compared to March 31, 2005.

In addition, our launch of Theatre.com for London's West End ticketing delivered positive results and we have confidence in the growth prospects for this market.

Let's now review the financials. Overall for the quarter, Hollywood Media's net revenues increased 18.3% to $24 million as compared to $20.3 million last year. Driven by a 21% increase in our data business; a 189.2% increase in Internet advertising revenues; and a 10.4% increase in Broadway ticketing revenue.

Total operating expenses, which includes cost of revenues ticketing, editorial production development and technology expenses, SG&A, salaries and benefits, and depreciation and amortization expenses for the first quarter of 2006 increased 11.2% to $25.8 million, as compared to $23.2 million for the first quarter of '05.

The operating loss for the first quarter of 2006 decreased by 37.5% to $1.8 million as compared an operating loss of $2.9 million in first quarter of 2005. Hollywood Media's consolidated EBITDA loss for the first quarter of 2006 was $1.3 million, an improvement of $1.1 million or 43.5% compared to an EBITDA loss of approximately $2.4 million in the first quarter of 2005.

Note that the EBITDA loss for the first quarter of 2006 included non-cash expenses totaling $520,000 consisting of stock-based compensation expense of $280,000 and a change in derivative liability of $240,000 relating to the senior note offering in November 2005. EBITDA is a non-GAAP financial measure defined as earnings before interest, taxes, depreciation and amortization.

Depreciation and amortization was $733,906 for the quarter, compared to $570,107 for first quarter of 2005. Interest expense was $624,610 for first quarter 2006. Compared to $44,761 for the first quarter of 2005. Our earnings release posted on Hollywood Media's website includes additional information about this EBITDA data for your review.

Hollywood Media's GAAP net loss for first quarter 2006 was $2.7 million a 9.1% improvement as compared to a net loss of $3 million in first quarter of '05. The net loss per share on a fully diluted basis was $0.08 in Q1 of '06, a 20% improvement compared to the net loss of $0.10 in the first quarter of 2005.

Turning to the balance sheet, Hollywood Media completed the quarter with approximately $5 million in cash and cash equivalents and $4 million in net accounts receivable; compared to approximately $7 million in cash and net accounts receivable of approximately $4 million on December 31, 2005.

The decrease in cash was due in large part to our purchase of $1.4 million of Broadway ticketing inventory during the first quarter of 2006, for sale during 2006.

Now I'll discuss the financial results in our different business segments. Please refer to the press release including the select segment highlights table for additional financial data on our segments, including revenue, EBITDA and net income.

During the first quarter of 2006 our Broadway ticketing revenue was $18.4 million, a 10.4% increase compared to $16.7 million in first quarter of 2005. This revenue growth resulted from increased ticket sales as well as higher ticket prices. EBITDA for Broadway ticketing increased 119.2% to $903,169 in the first quarter of 2006, up from $412,038 in first quarter 2005; while net income increased by 134.3% to $845,245 for first quarter 2006, compared to $360,752 for the first quarter of 2005.

Deferred revenue related to Broadway ticketing, which is a leading indicator of future Broadway ticketing revenues, was $22.4 million as of March 31, 2006, up 37.1% compared to the $16.4 million as of December 31, 2005; and up 50.4% compared to the $14.9 million as of March 31, 2005.

We launched ticketing sales on our Theatre.com website in February '06 for London's West End theatres, by utilizing our URL portfolio which includes both the American and UK spellings of Theater.com and the plural theaters.com, spelt both with 'er' and 're' at the end. Combine that with our established operational infrastructure for ticketing, we were able to bring this new site online at a relatively low cost.

As we previously discussed, more people attended theatres in London's West End in 2005 than on Broadway in New York. I would also like to note we were featured in an article in the London Times on April 1st which highlighted many of the benefits of our Theater.com website, including the full picture gallery, multimedia video features and reviews on shows, with detailed information on key actors.

The data business segment, which includes baseline Studio Systems, Cinema Source, Event Source and Exhibitor ads contributed revenue of $2.9 million during the first quarter of 2006, an increase of 21% compared to the $2.4 million in revenues during first quarter of '05.

EBITDA in the data business increased 70.6% to $1.2 million in first quarter of 2006, up from $676,701 in the first quarter of 2005; while net income increased by 82% to $890,114 in first quarter of 2006, compared to $489,265 in first quarter of 2005.

The increase in data business revenue is attributable primarily to organic growth through both the addition of new customers and increased revenues from existing customers in both our source and baseline businesses. Our data business is primarily a fixed-cost business and operating income in this segment has therefore continued to increase year-over-year as our revenues increase. Overall gross margin in the data business for first quarter 2006 was 75%, compared to 71% in the first quarter of 2005.

Regarding operating costs for our data business, we plan to and are actually in the midst of offshoring a substantial portion of the data input function for our Event Source division to India, which is scheduled to take place fully in July of this year. We estimate this will result in savings of approximately $200,000 annually, which savings should further contribute to profitability in that division.

On the revenue side, our pipeline of potential new business in our data segment is now at approximately $2.5 million annualized, and while we will not close all of these deals, we expect to close the majority of them.

Revenues on the Internet Ad Sales division for first quarter 2006 were $2.3 million, an increase of 189.2% compared to the $788,576 in revenues for first quarter of 2005, due to ad sales generated by Cinemas Online as well as increased ad sales by Hollywood.com's ad sales team.

We saw traffic increases in Hollywood.com following the successful launch of our redesigned website during third quarter of last year. EBITDA loss in our Internet ad sales segment decreased 67% to $143,000 in first quarter 2006, improving from an EBITDA loss of $438,000 in first quarter of 2005. While the GAAP net loss for Internet ad sales decreased by approximately 29% to $442,526 in first quarter of 2006, as compared to lose of $621,784 for first quarter of '05. We expect this segment to continue to improve performance during the remainder of 2006.

We have, through our offshore partner, a dedicated team in India developing and launching new features and functionalities on Hollywood.com and I'll just mention a few recent additions to the site. DVD purchase links, together with DVD specific content through a relationship we now have with Buy.com; custom micro sites, including an Oscar micro site we did which was sponsored by Diet Coke. We are in the process of testing the addition of a new ad unit in the Nav Bar. Under the main title we have added a bidding-based ad unit. We are now testing in-content advertising.

We have added a games area which includes Sudoku and a Hollywood.com Mozilla FireFox plug-in was added. As one of 25 select content providers on FireFox's add-ons page, allowing show time to movie and celebrity search direct from one's browser window.

Turning to our IP division, our intellectual property division had revenues of $285,809 down 13.1% from the $329,061 in first quarter last year. We view the primary reason for the decline is continued sluggishness in this segment of the book publishing industry.

Regarding Hollywood.com TV, in a recent survey by a large MSO of approximately 75 free video on demand cable TV offerings, Hollywood.com TV was ranked number 7 in subscriber usage. We continue to work on establishing Hollywood.com TV's base of advertisers.

Moving to MovieTickets.com, in which we own a 26.2% equity interest, we recently launched a Spanish language version of the site. We previously had launched a French language version. MovieTickets.com has agreements, as previously mentioned, to handle online movie ticketing on exclusive basis for over 70 movie theater chains, which is up from approximately 30 chains at the end of 2004.

Moveticket.com partners include theatre chains with some of the highest revenue-producing locations in the nation, consistently representing over 50% of the top 50 grossing theatres in North America on any given weekend. Moviegoers can purchase tickets online at MoveTickets.com as well as at approximately 100 other websites for which MovieTickets.com serves as the exclusive online movie ticketing service, including Yahoo!, MSN, AOL Movie Phone, Goggle, the New York Times website as well as Hollywood.com.

Thank you for your time and at this point I'll be happy to answer your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from Richard Ingrassia of Roth Capital.

Richard Ingrassia - Roth Capital

Thanks, Good afternoon, everybody.

Mitchell Rubenstein

Hello, Rich.

Richard Ingrassia - Roth Capital

Mitch, last year the prior quarter deferred revenue balance wasn't a perfect predictor of forward quarter revenues, but the ratio was actually fairly consistent. I'm just wondering if there was some unexpected change in the composition of ticket sales this quarter? Or maybe the composition of deferred revenues is changing here?

Mitchell Rubenstein

I'll have our chief accounting officer, Scott Gomez answer that.

Scott Gomez

How are you doing, Rich? The deferred revenue balances as of December 31st, as of the end of the year were classified in deferred revenue. What we have done with the 1Q06 going forward, something of an auditor point that was brought up. In order to establish for ongoing periods, if you move any deferred revenue associated with hotels or restaurant vouchers to customer deposits. That is why we broke out the customer deposit amount right there on the face, and you will actually see the deferred revenue amounts have changed from December 31st, '05 as presented in the 1Q06 Q and the December 31, 2005 that was filed in the K.

Richard Ingrassia - Roth Capital

I think I understand that. What I'm talking about more is how the prior quarter, the December deferred revenue balance indicated a higher revenue. If you use the multiples that were consistent in '05, it indicated higher ticketing revenues for the first quarter of '06.

Scott Gomez

I see. Well, basically on that question, deferred revenue is a leading indicator of future ticketing revenues, but not necessarily for the quarter following the deferred revenue balance. So, for example, the amount on December 31st, 2005 in that case related in part to sales that are going to happen and be booked in 2Q06 and in 4Q06.

Generally, it does relate to the subsequent quarter, but when you are in a seasonally slow quarter like 1Q06 it's less applicable to relate to that quarter. So the deferred revenue that exists on our balance sheet relating to sales up until this point for future periods, up until March 31, 2006 for future period, not necessarily the majority but the largest quarter in which that will appear will be 2Q06, because that is a seasonally strong quarter.

When you look at it on 12/31/05 it is not necessarily indicative of what sales will be in 1Q06 as much as it would be as to the seasonally strong quarters, Q2 and Q4. Not withstanding perhaps what it might have been last year. Does that makes sense?

Richard Ingrassia - Roth Capital

The inventory balance also offers some explanation. I noticed that the ARPU increased fairly dramatically sequentially. I think you touched on it briefly, but was there anything extraordinary to report here in the quarter?

Mitchell Rubenstein

We are getting very strong demand, so there are a lot of big shows. If anyone was watching Good Morning America this morning, they were promoting the heck out of Tarzan, which is a Disney show opening up on Broadway. We're just getting a lot of demand for ticketings. We have increased our buying of these hot shows in order to have inventory for it.

Richard Ingrassia - Roth Capital

Okay. Thanks, that's all I have.

Mitchell Rubenstein

Thank you.

Operator

Thank you. Our next question is coming from Murray Arenson with Ferris, Baker Watts. Please go ahead.

Murray Arenson - Ferris, Baker Watts

Thanks, good afternoon.

Mitchell Rubenstein

Hi.

Murray Arenson - Ferris, Baker Watts

A couple of questions and I apologize if I missed any of your earlier comments. London so far in the second quarter, can you comment on how that's going and just kind of give us a sense of the timing of the ramp-up here?

Mitchell Rubenstein

We actually said, we turned on ticketing late in February of '06, and we are selling at a rate of anywhere from $50,000 to $100,000 per week. It takes about four to six months to start getting organic traffic from the search engines over there picking up your site. So far we feel we are doing really well.

We just in the last few days opened up our office in the West End in London with three employees and all expectations are is we should have a strong summer season and then strong Christmas season there.

Murray Arenson - Ferris, Baker Watts

If I can ask you about the Internet ad sales business, when do you see that reaching an EBITDA breakeven level?

Mitchell Rubenstein

We're not giving any outlook, but the trends are very, very positive. We're approaching it right now based on our numbers, we're almost touching breakeven. 1Q06 is not our strongest internet ad sales quarter. It generally revolves around the big movies which is summer and Thanksgiving and Christmas periods. All of the trends are looking really good there.

Murray Arenson - Ferris, Baker Watts

Okay. And then Hollywood.com, I don't know if you touched on this in your comments or not, but I think you talked about aggregating the various fan pages. I wondered how that initiative was going?

Mitchell Rubenstein

Just for the other listeners, we made a couple of small acquisitions two or three months ago of two fan site businesses involving 150 or so different fan sites. We have put them on Hollywood.com. They are not fully integrated, we just put them up there and are now in the process of doing a very significant integration in India of the fan sites. They are on there.

What we're seeing is that the average page impressions per unique user on our fan site is like 20 times what it is on the rest of Hollywood.com. So it's having the desired effect. That's before there's really full integration. We just tacked it on there.

What we're doing in India, which is really neat, is we're working on giving to the web masters-- so each website has their own non-paid web master, who is like the head fan -- and that head fan will have tools to be able to access from our database and other portions of the site, content about the celebrity or movie or TV show that's the subject of the fan site; and be able, in effect, to create their own fan sites, additions to it, supplements to it and additional content on it very easily.

We think this is a really neat good idea to build community on to the site and to further increase the site's stickiness and page impressions per unique user. So far, so good but we're really at the early stages of it.

Murray Arenson - Ferris, Baker Watts

Lastly, on Hollywood.com TV, if you can just kind of reset the stage for us, what the process is here so we can gauge how long it takes for this to be significant in terms of creating the model, and getting the advertisers on board? Just how do you see that all progressing?

Mitchell Rubenstein

There are really three pieces to it. One is we have significant distribution, as we mentioned, over 15 million subscribers in major markets. Secondly, there is 70 or so free video-on-demand cable networks, of which this fits into that category, and as I mentioned in the presentation that I did, at least in one survey that was done, we are ranked number 7. It just depends on what movies are out, the seasonality and all that, it can go up or down a little bit from there. So we have the usage and we have the distribution platform.

Now, it is just a question of the selling of it, and the advertisers that are out there really like it, and we are engaged in discussions with about a dozen major advertisers about commitments generally ranging between $50,000 and $100,000 per year per advertiser. The deals are definitely taking a while to put together because it is a new medium. There is a lot of other major players like MTV and the NFL network and others that have interactive services that are also meeting with advertisers, so we are seeing progress.

I like the way you said set the stage. The stage is set. Now, we just have to get the ad revenues in. I would like to tell you we are going to turn the switch on, there will be millions of dollars flowing in in the next quarter or two, but it is going to take a few quarters to ramp up.

Murray Arenson - Ferris, Baker Watts

Thank you very much.

Mitchell Rubenstein

Thank you.

Operator

Thank you. Our next question is coming from Nelson Obus with Wynnefield. Please go ahead.

Nelson Obus - Wynnefield

I want to congratulate you for putting the press release out, which gives us some significant granularity in terms of profitability from the segments, and also allows us for the first time to actually see the numbers that you endorse or do not endorse operating leverage in the various businesses. I think it is a pretty interesting picture. We will certainly allow shareholders to value this company for the first time on their own and on a progressive basis.

The one thing I would say is that in terms of other expenses, that is a big number, obviously, annualized and the price of granularity is usually demands for additional granularity. As a shareholder, I would like to see you number one, make every effort to push down any of the expenses, and I know it is a difficult task, that you can into the operating division so we can see what they really are on a standalone basis, imagining… because it is sort of a break-up value story.

Secondly, to provide as much information in regard to the components that make up other expense, but this is a great first start, and I want to thank you for that, okay?

Mitchell Rubenstein

Thank you. I will just add that one of my major motivations in doing this was your comment on the last call and in our previous conversations. I think it was a good suggestion, as I mentioned in the last call. I think it does give that granularity.

On the subject of other, that is primarily your proxy costs, insurance, your audit fees, Sarbanes Oxley costs, things like that. I have a sheet of paper that has that list and I look at that every day and we are looking at ways to reduce those costs as much as possible. I expect that we will be pushing, working our best to push those down.

Nelson Obus - Wynnefield

Well, it is a good thing to share in the investment community, not because we do not value you, but because we are always interested in what the company would look like on a break-up basis. If those expenses go away, in combination with another company or through selling off various assets, that exercise is important for anybody with a value orientation who might buy the stock, so do not take it personally, but you understand where I am coming from.

Mitchell Rubenstein

I do, and again, thank you for the input.

Nelson Obus - Wynnefield

Okay.

Operator

Thank you. Our next question is coming from Jeff Shelton with Deutsche Bank. Deutsche Bank. Please go ahead.

Jeff Shelton - Deutsche Bank

Thank you. Can you comment on the contribution on Cinemas Online for the quarter, and how the integration is going and how that business is doing?

Mitchell Rubenstein

Sure. What Jeff is referring to, to the listeners, is Cinemas Online, which was an acquisition we made in November of 2005, and it is really a platform acquisition for us to get into the U.K. Let me get my notes in front of me.

Cinemas Online in Q1 ’06 in revenue did just over $1.1 million. We are very pleased with it. What it does, for the listeners, what Cinemas Online does as its core business is it develops and hosts websites for theatre chains in the U.K., and rather than charging a fee for doing that, it retains 100% of the ad revenue of the ad inventory on those websites, which it then sells for its own account. So it has an ad sales force in the U.K.

It has expanded beyond just doing websites for theatre chains, to doing other types of services for theatre chains. I will give you a quick example.

We have been putting plasma TV screens in lobby areas of movie theatre chains, and other facilities like hotels and things in particular markets, but mainly movie theatres. We program those via the Internet, and then a section of it is programmed by the theatre chain by computer, and then we retain the ad -- we still get the cap back because we are putting it in the plasmas, but then we retain, Cinemas Online, our company, retains 100% of the ad revenue from that for the same model.

We are just seeing a return on investment of approximately -- well, we got our money back on the CapEx within about 18 months turnaround, and we are adding these plasma screens at a pretty high rate right now into more and more facilities.

So we are just really pleased with how it is selling, because that is part of the organic or core business that we acquired, but we have been using that platform now to leverage getting customers for our data business, because for example, we have U.K. movie show times, so we are now signing up -- in fact, of our $2.5 million pipeline business in our data business that I mentioned, approximately $750,000 of that is U.K. data pipeline business, and by having Cinemas Online, it really gives us not only kind of an office and place over there, but more importantly the relationships in the U.K. with the right companies that basically aggregate and license U.K. data.

So on a number of fronts, it has been pretty successful for us out of the get go, and I am looking for that to be a big part of our future growth of our data business, as well as organic growth.

Jeff Shelton - Deutsche Bank

Second question, you have talked in the past about the ability to tie it directly into the Broadway box office computers. I am curious as to where you are in that process and what sort of opportunity that would get you.

Mitchell Rubenstein

Well, we are working on that as one of our goals. I cannot go into it any further for competition purposes.

Jeff Shelton - Deutsche Bank

Thank you.

Operator

Thank you. (Operator Instructions)

Our next question is coming from Andrew Mead of Corsair. Please go ahead.

Andrew Mead - Corsair

A couple of questions, first one on the Hollywood.com. Last year, quarter over quarter from Q2 growth last year, or Q1, was about 35%, so that is for the new website and, before I forget, new sales team. My question is does that kind of quarter over quarter growth, is that something that it is reasonable to look for in Q2?

Mitchell Rubenstein

I would rather not give an outlook on that because we are still in the middle of Q2, but we have great expectations for hollywood.com to be a flagship property for us. Right now, while it certainly improves significantly, and the new site is great, traffic is up. We had 10 million unique users based on comp score results for Hollywood.com in March ’06, which was their last report on global.

I mean, all the indications are just very, very positive, but I would rather not get into specific percentages and then someone is either going to be disappointed or it will be too low, so we will just see how it plays out.

Andrew Mead - Corsair

Then on the ticketing for the quarter, the gross profit was up pretty strongly from last year, and there might be something I am missing. I know there was a change in the way you account for the fourth quarter, but is the gross profit -- I calculate it at 20% for this quarter versus 14.5% for last quarter. What is driving that increase?

Mitchell Rubenstein

It was 15.06% gross margins for Q1 ’05 versus 20.65% for Q1 ’06. There was a small adjustment in there. If you remove the effect of that small adjustment, it would have been just under 18%. So it would have went up from 15.06% to just under 18%. The reason why the gross margins is going up is basically the sale of higher margin products, like hotel rooms, we sell insurance on the site. It is basically driving a lot of…

Andrew Mead - Corsair

So it is add-ons to the tickets.

Mitchell Rubenstein

Add-ons to the tickets. Correct. Dinner vouchers, someone going to the show and booking through us, their dinner reservations. We have a number of arrangements with restaurants in the theatre district where we do that.

Andrew Mead - Corsair

Okay, the last thing, the $240,000 charge for derivative liabilities, is that something that is going to continue every quarter?

Mitchell Rubenstein

Yes, approximately. Just until the loan is paid off.

Andrew Mead - Corsair

What does it relate to? Does it relate to warrants for attached loan?

Mitchell Rubenstein

Yes.

Andrew Mead - Corsair

So it is a financing cost?

Mitchell Rubenstein

Yes.

Andrew Mead - Corsair

So, you guys can do what you want, but there might be an argument that would not be included as an expense in EBITDA. That’s part of a financing costs.

Mitchell Rubenstein

Right, we have looked at saying that booking that is interest for purposes of EBITDA, which obviously, EBITDA would then look better. We are erring on the side of being super-conservative on that, but we will look at that. We were chatting about that.

Andrew Mead - Corsair

Even just looking at the income statement, if you just -- the way a lot of people calculate EBITDA, they take operating income and add D&A. You know, the $240,000 shows up below the line already.

Mitchell Rubenstein

Right.

Andrew Mead - Corsair

Under other income, but…

Mitchell Rubenstein

It is a good point. We chatted about it. We just did it on a more conservative basis, then we just disclosed that and everyone can do the math.

Andrew Mead - Corsair

Okay, great.

Mitchell Rubenstein

Maybe next quarter we will certainly take that into consideration.

Andrew Mead - Corsair

Thank you.

Mitchell Rubenstein

Thank you.

Operator

Thank you. Our next question is coming from Ari Shrage of SAC Capital. Please go ahead.

Ari Shrage - SAC Capital

I have a few questions. First, on Internet ad sales, that division has been a somewhat underperforming asset for the last couple of years. Have you reached the point now where you think it has turned the corner, and a year from now we can be looking at it as something that is really helping the bottom line?

Mitchell Rubenstein

Yes.

Ari Shrage - SAC Capital

Secondly, on ticketing, excluding the impact from theatre.com as it ramps this year, when I am looking at Broadway ticketing, given the show schedule, the shows that are coming up that you mentioned before, should we expect ticketing to stay at that 10% year over year revenue growth, excluding theatre.com? Or could we see an acceleration, given the shows that are coming up?

Mitchell Rubenstein

We are not giving any outlook. Based on the deferred revenues being as high as they are, and since the first quarter is a seasonally weak quarter, we expect significantly increased Broadway ticketing revenue for the balance of the year versus what we had if you were to annualize Q1 ’06. I would rather not get into how is Q2 going to be versus Q2 ’05, then we get into this quarter by quarter thing, because the fourth quarter is also very, very important.

We are looking for a strong Broadway ticketing year as a whole.

Ari Shrage - SAC Capital

Great. Finally, given that the stock does not reflect what we all think the true asset value is, and assuming the market’s focusing has kind of forgotten you guys because you are not EBITDA positive yet, what should we think about in terms of when can you get the EBITDA positive? What needs to happen? Once you get there, what kind of leverage should we see for the 12 months, once you get into the black?

Mitchell Rubenstein

Good question. In the press release that we put out, we have basically I think demonstrated with the performance in Q1 ’06 on a segment-by-segment basis, in particular the Broadway ticketing and data business leading the charge, how the leverage really is working. Where you go with Broadway ticketing, from EBITDA of just over $400,000 in the first quarter of ’05 to over $900,000 in the first quarter of ’06, so more than a doubling. Similarly, you have that huge increase, $676,000 in Q1 ’05 in the data business, up to $1.15 million in Q1 ’06.

So you see that kind of leverage starting to occur…

Ari Shrage - SAC Capital

Well, in the data business, it seems like basically a very high percentage of incremental revenues just fall to the bottom line.

Mitchell Rubenstein

Exactly, so that the outlook, if you will, assuming current trends continue, is that the EBITDA contributions from Broadway data, eventually Internet ad sales, if that continues to grow, and then ultimately cable TV as revenue generates from there, will start to offset significantly and produce positive EBITDA for the company. That is what management’s job is, and we understand that.

When we look at our asset compilation, we have real winners in Broadway ticketing, the data business, Internet ad sales… we have dropped the EBITDA loss virtually to nothing. Intellectual properties, while we broke it out separately, instead of small, it is really not to be significant one way or the other, but it is still making money.

If we were not a public company, hypothetically, we would be relatively happy with this overall performance of the company. Of course, we are a public company. We accept that, and therefore we need to grow our EBITDA in order to overcome high public company costs, because of Sarbanes Oxley and other things. I am not complaining about it. It is just a fact of life that we understand we have to live with.

We plan to just continue to drive Broadway ticketing, data business, Internet ad sales, to the point where it overcomes overall corporate expenses and the whole company is EBITDA positive.

In the meantime, I think we will start to see improvement across the board.

Ari Shrage - SAC Capital

When you look at your various divisions and their contribution from here to getting to EBITDA positive, which ones are you most hopeful for in terms of incrementally from this point?

Mitchell Rubenstein

Well, our data business is really our jewel, because of the leverage that you mentioned and I mentioned when I made the presentation. We did that -- virtually every dollar of incremental revenue drops to the bottom line. We have the large pipeline, the business already, as I mentioned, and it is just a great collection of businesses.

We are not only growing them geographically now with our U.K. expansion, and then we can grow in other countries in Europe, but we are also licensing in the U.S. datasets to customers who might not have otherwise been interested in those before, as the portals and so on are at arms reach with each other to get more and more better data. We are seeing that our event data is becoming almost must-carry data for the portals, and that was not the case a year, year-and-a-half ago.

So our data, that is just one aspect, DevCon is another great database. So we are adding more and more data that we can license, and we are also expanding geographically, and we have very high leverage, so it is really a neat business.

I mean, Broadway organically is doing really well, and we have the potential fuel of the theatre.com business in the U.K., which just started. I mean, we are literally at the beginning stages of that.

So we are really pleased. The thing that we spend a lot of time on management-wise is really not Broadway or data, because they are -- I do not want to say they are on remote control or automatic, they are not. But we are spending a lot of time working on hollywood.com and getting that to where it needs to be so that can be the one we are talking about is the gem down the road on one of these calls.

Ari Shrage - SAC Capital

Thank you.

Mitchell Rubenstein

Thank you.

Operator

Thank you. (Operator Instructions) There appear to be no further questions at this time.

Mitchell Rubenstein

Thank you, everyone, and look forward to updating you on the next conference call.

Operator

Thank you. This concludes today’s Hollywood Media Corporation First Quarter 2006 Earnings Conference Call. You may now disconnect.

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Source: Hollywood Media Corp. Q1 2006 Earnings Conference Call Transcript (HOLL)
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