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Rentrak Corporation (NASDAQ:RENT)

Q3 2013 Earnings Call

February 07, 2013, 05:00 pm ET

Executives

Bill Livek - Vice Chairman & CEO

David Chemerow - COO & CFO

Cathy Hetzel - Corporate President & President, AMI Division

Marty Graham - President, Home Entertainment Division

Analysts

Matt Chesler - Deutsche Bank

Todd Mitchell - Brean Capital

Rich Tullo - AFCO

Christopher Ferris - Noble Financial

Operator

[Abrupt Start]

……..Fiscal 2013 Third Quarter Financial Results Conference Call.

During the call the company will be making forward-looking statements that are subject to certain risks and uncertainties. Please refer to the Safe Harbor statement contained in today's press release and also to Rentrak’s periodic filings with the SEC for a complete discussion of those risks and uncertainties that could cause actual results to differ materially from those you might perceive today.

Additionally, Rentrak will be discussing certain non-GAAP financial results. The news release issued earlier today contains a reconciliation of these non-GAAP financial results to their most comparable GAAP measures. These reconciliations can also be found on the company's website at www.rentrak.com. The website also contains supplemental financial information that provides historical trend data in Rentrak’s various lines of business.

Now I would like to turn the call over to Bill Livek, Vice Chairman and CEO of Rentrak. Please go ahead sir.

Bill Livek

Thank you operator and thank you everyone for joining us today. I am here with David Chemerow, our COO and CFO from whom you will be hearing from shortly as well as a number of our executive management team are also here to participate in the question-and-answer session later.

Rentrak is the census like currency for precisely measuring the movies and TV Everywhere. By linking viewership information with information about the products that consumers consume and prefer only Rentrak can provide clients with the knowledge necessary to manage their businesses and more precisely target their advertising with the largest multi-screen coverage anywhere Rentrak is uniquely positioned to track shifting consumer habits everywhere whether that's being viewed through broadcast, cable television, OnDemand, mobile or over-the-top TV; Rentrak is measuring it all. I am proud to report that our third quarter consecutive quarter of year-over-year consolidated revenue growth this quarter coming in at 12%.

Now I would like to review each line of business starting with Home Entertainment. This quarter as anticipated, we saw a reversal of some of the challenges in our Home Entertainment business. At our Investor’s Day, we told you we would reverse this trend and we have. In addition to adding new stores to our Pay-Per-Transaction or PPT service Warner Brothers has resumed providing store based retailers with release content on the initial release date with kiosk and by mail retailers receiving content 28 days later. Warner Brothers did not play a substantial role in our third quarter results, but we anticipate a growing contribution because of this change in the fourth quarter and moving forward.

We are looking forward to some big releases in our fourth quarter, including Skyfall, Argo and the last installment of the Twilight Series. This also will bode well for our Home Entertainment division. As you know, I have never viewed our Home Entertainment business as a legacy business, but rather as a significant generator of cash and operating income. It's a business that our investors should love. It generates cash that we have used for our very high growth and high margin movie and TV measurement businesses.

Now I will move to our Television Everywhere business. As with the movies, we follow TV consumption wherever it occurs. Consumers are watching a record amounts of television, but not just on live television, but via OnDemand and through many platforms. Our most recent clients such as CBS Distribution and The Weinstein Company, RADiUS-TWC recognize the importance of following the consumer across all platforms.

OnDemand TV viewing is becoming increasingly important to the industry and Rentrak is capturing that information about what is being viewed from a variety of sources including all cable MSOs, digital download measurement in over 120 countries from sites like iTunes, Xbox and Amazon and from various websites that stream entertainment content among others.

Many TV shows now build a considerable audience from the day the show airs through in past one month worth of live viewing. This area of TV viewing known as free OnDemand has been growing 20% each year over the last few years; it’s very exciting to win from this growth and know that Rentrak’s census based measurement will play a very large role as the appetizing market continues to develop a lot OnDemand viewing. Our ability to provide this type of information is critical to the television advertising business as they discover how to monetize the reach of the consumer watching outside of the live TV window.

In the next few days Rentrak will be releasing the industry’s first total television viewing report which will show the sites of time shifted viewing on TV hour and video OnDemand up to 20 days after the first live television airing of ad supported primetime network and cable programs. For example, our research shows that primetime network programs can get up to almost 50% of their 28 day total audience within this window, as was the case for Vampire Diaries or almost 40% for Grey’s Anatomy as a result of the additional DVR and video OnDemand viewing. In cable for example, that number increased to over 60% for Hot in Cleveland. Rentrak is clearly in the middle of helping the industry monetize how consumers are increasingly changing their viewing habits.

Only Rentrak is the full census measurement, the provider that is accurately measuring for a full month and beyond as clients continue to figure out how they are leveraging those ads. Our ability to capture this audience helps remove the challenges of buying airtime on VOD by advertisers and their agencies given the lack of transparency surrounding this platform. We now have about 60 television networks participating the Rentrak’s VOD transparency initiative. What I mean by transparency is that providing the same audience information to both buyers and sellers. This will allow advertisers and their agencies to better understand the audience provided on the OnDemand platform. You heard me say before that transparency and information sharing among all industry participants is important in creating the growing VOD ad model and Rentrak is helping to move this effort forward.

At the same time, our growing dynamic studio share module is providing movie studios such as Sony, Paramount, Warner Brothers and Disney with a real-time visibility in the competitive VOD information market to help them better understand the trends and consumption of transactional video OnDemand for movies.

And in October, we launched the new version of Home Video Essentials service which tracks consumer growth and transactions for DVD and Blu-ray Disc films and television product from brick-and-mortar stores by mail, online subscriptions and kiosks. This for the first time all three package media channels are being measured at title level, utilizing the world’s largest rental title data base, Rentrak is bringing clients to most in-depth and kindly intelligence available for packaged media in the rental industry.

In our local television business we continue to perform. Our recent new clients such as Quincy Newspapers and Capital Communications is in expanding agreement with great television and others, we are now working with about 210 local television stations with the market potential that is about 2,000 or just getting started.

We have also now captured critical mass in markets like Des Moines, Iowa where we have all but one television station there as Rentrak clients. There are a total of four television markets in which we have all of the TV affiliates as clients. In addition, we have two markets with five affiliates and two markets with four affiliates and 16 markets with three affiliates.

Our strategy requiring anchor TV station and a geographic market then getting additional stations is paying off. As part of our total television viewing agenda, Rentrak was recently selected by the Mobile Content Ventures, a joint venture comprising 12 major broadcast groups that operate the Dyle mobile television service to provide the industry’s first-ever mobile broadcast TV measurement for local markets.

This service uses tablets or cell phones to watch live TV over the air from local TV stations. Since this does not use a consumer self service it let's you watch TV for free whether you are on a bus or eating lunch without eating up your phone’s data plan. Our census like measurement information will provide this venture with substantial insights into consumer viewership of live mobile TV that will allow the industry participants to monetize this platform.

Our local TV station revenue continues to surpass our expectations with third quarter revenue of more than 170% over the same time last year. We continue to believe that we have a long runway in high value products that will be able to replicate this kind of growth for a lot of quarters to come.

Now, let me talk a little bit about National Television. Our National Television performed very well again this quarter as we continue to demonstrate the power of advanced demographics, the products that consumers buy, matched with the TV shows that they watch. This is especially true for highly targeted television networks.

As many of you read in the press recently, the CW Network has been aggressively discussing the value of Rentrak in what we bring in measuring audiences that cannot be fully captured by a sample currency.

Now, I would like to talk with you a little bit about presidential politics or more precisely the presidential campaign that just ended. Rentrak’s singular ability to help clients find advertising sweet spot among highly targeted networks while providing privacy protected advanced demographic information about who is watching TV proved extremely effective for the Obama campaign.

According to the Washington Post “by finding the right programming the campaign stitched together a big audience of highly targeted voters with less waste”. In all the campaigns advertising went 60 networks deep, 60 networks deep that's more than three times the usual buy for a political campaign and that includes Romney’s, spending more than $300 million in television advertising using Rentrak, the Obama campaign estimates that it was 10% to 20% more efficient by stitching together these smaller audiences. None of this would have been possible without Rentrak census like viewership measurement across all of the highly targeted television networks.

This is occurring everyday in the consumer television advertising market but the Obama campaign, we think sort of reached a tipping point to show our consumer product, our customers the power of what can actually be done. Our work with advertising agencies is also making fantastic headway.

In the upcoming TV upfronts, a growing number of agencies are emphasizing the value of using Rentrak measurements services to a wide range of advertisers. In addition to working with companies like MasterCard, Experian and Polk Automotive, today on this call, we're announcing a new agreement with dunnhumby. dunnhumby may not be a household name but is one of world’s leading consumer science companies that analyses data from more than 400 million customers in 28 countries.

In the United States, dunnhumby leverages a single stores privacy protected database of consumer purchasing behavior from over 60 million US households. This agreement will allow Rentrak’s clients to access shopper loyalty card information, integrated with Rentrak’s viewership information to better target and measure a televisions campaign, the ability to reach consumer package goods customers, be they for frozen dinners or high end shampoo, consumer packaged goods advertisers will now better be able to make decisions on TV for planning and buying and then measuring the effectiveness of those campaigns based on sales performance for the positive change in the consumers behavior.

Agency such as Havas Edge which is one of North America’s largest vertically-integrated direct response agencies is now subscribing to Rentrak’s TV information. They will be linking their proprietary data with Rentrak’s consumer television viewing information to maximize their targeting precision and generate optimal sales results for direct response advertisers.

For those of you who are keeping track, we are announcing Havas on this call. Additionally, SherwinWilliams you them as a paint company recently signed on as a new customer of Rentrak utilizing our TV information for the planning and buying and optimizing their key customer segments by using Rentrak’s TV viewing information.

Lastly on television, I would like to mention that we have entered into a full audit with the Media Ratings Council that commonly known as the MRC for our local and national TV measurement services. Given our commitment to transparency and product quality, this comprehensive audit is the next step in ensuring that television advertising industry will have great television information from Rentrak.

Now, I will finish with our movie box office business which continues to perform extremely well. 2012 was a great year for the movies led by The Avengers, The Dark Knight Rises and Skyfall each of which earned a $1 billion worldwide during the year.

Last year, North American box office ended up 6%, while the international box office was up 3%. In September, we started to collect information for our new post track service which provides information about what consumers think about the movies that they just saw compliant to with our real time box office [reviewing] information.

We are in the beta testing phase of this service with two major studios and they are into evaluation process and they have been very positive. We are excited about the potential of post track and are confident that we will have good news to report about contracts in the coming months.

Recently we also announced our collaboration with Majestic Market Research, one of Asia’s largest independent marketing and research upfronts for the collection of movie box office grosses in India. The box office in India is huge and this considerably expands our international coverage for our clients. Geographic expansion will continue to be a big part of our box office growth strategy.

Now, I would like to turn the call over to David for review of our financial results. David please.

David Chemerow

Thank you, Bill. Consolidated revenue grew by more than 12% to $24.9 million. EMI revenue grew by 32% year-over-year while home entertainment revenue declined by less than 5%. As Bill discussed, our home entertainment business surpassed our expectations, as we benefited from an increased number of rental locations participating in our PPT program. The impact of the Warner Brothers change was negligible during the third quarter, but we expect to benefit from it more fully over the next four quarters.

Moving to the AMI segment, AMI represented 55% of consolidated revenue, up from 47% from last year’s third quarter. AMI’s percentage contribution to consolidated revenue declined on as sequential basis, as our home entertainment performance improved. TV measurement grew 99% from the same time last year, as a result of new clients and significant price increases in multi-year contracts. On a year-to-date basis, TV revenue is up 107%. Box Office revenue rose 11% due to the addition of new clients and is up 13% on a year-to-date basis, a bit better than our 12% annual growth projections.

OnDemand Everywhere revenue increased 17% from last year’s third quarter and was up 15% year-to-date. The shortfall from our prior 20% increase projection is primarily the result of a slight delay related to a new service we plan to launch in the coming months. Consolidated gross margin was 45% for the fiscal 2013 third quarter, compared with 48% a year ago. AMI represented 74% of consolidated gross margin dollars versus 65% for last year’s third quarter.

Gross margin within our AMI business was 60% of AMI revenue for the third quarter of fiscal 2013, down from 66% a year ago primarily as a result of faster growth in our TV business which has a lower gross margin than our other AMI businesses. Consolidated operating expenses totaled $12.9 million up 11% from last year’s third fiscal quarter. The increase primarily reflects 22% growth in expenses in our AMI business in support of our expected 100% growth rate for Rentrak TV business.

In fact three quarters of the increase in AMI expenses during the quarter was attributable to our TV business. It should also be noted that as a result of ongoing cost control measures, we reduced costs in our Home Entertainment business by 21% during the quarter. Consolidated operating loss for the third quarter of fiscal 2013 was $1.8 million, which included $1.5 million in stock based compensation costs.

Last year our operating loss totaled $974,000 which included $1.1 million in stock based compensation costs and $186,000 in acquisition related costs offset by $110,000 credit related to the company's stock based compensation agreement with DISH. Excluding these amounts in both periods, our operating loss for the third quarter of fiscal 2013 would have been $241,000 compared with operating income of $234,000 for last year’s fiscal third quarter.

Operating income in our AMI segment totaled $1.2 million or 9% of AMI revenue for the fiscal 2013 third quarter compared with $1.1 million or 11% of AMI revenue last year. Home Entertainment’s operating income was $1.5 million or 14% of Home Entertainment revenue for the fiscal 2013 third quarter versus $2 million or 17% of Home Entertainment revenue a year ago. The decline related mainly to a higher percentage of Home Entertainment revenues being generated by our PPT business.

Our net loss for the third quarter of fiscal 2013 was $1.8 million or $0.15 per share, compared with $1.9 million or $0.18 per share for last year’s third fiscal quarter. Excluding the items previously mentioned for both periods and a tax valuation allowance of $1.2 million for the fiscal 2012 third quarter, net loss would have been $286,000 or $0.02 per share for the fiscal 2013 third quarter, versus net income of $433,000 or $0.04 per share for last year’s third quarter.

Cash generated by operating activities was $1.1 million for the first nine months of fiscal 2013, compared with $5.7 million for the first nine months of last year. Excluding the impact of the amendment to our recent agreement with DISH, Rentrak generated $6.9 million in cash from operating activities for the fiscal 2013 year-to-date period.

Cash, cash equivalents and marketable securities totaled $26.2 million at December 31, 2012, compared with $27.8 million at the end of the 2012 fiscal year. The decline was primarily a result of our $5.8 million cash payment to DISH last quarter, our cash balances include a $2 million investment in the second quarter of this fiscal year in our Sinotrak joint venture. Our Chinese joint venture partner, Sinomonitor contributed 51% of this funding.

Of $1.4 million in capital expenses for the third quarter of fiscal 2013, $1 million was related to internally developed software cost in connection with our essential services. And the remaining $400,000 was related to computer equipment and leasehold improvements related to our building remodel. For fiscal 2013, we expect to incur $6 million in capital expenses, $4 million on internally developed software, and $2 million on hardware.

Before opening the call to questions, I would like to highlight our long-term business metrics. Our TV business should double annually over the next three years with slightly slower growth after that time. As of January 30, the run rate from our contract is currently up 112% over our third quarter of fiscal 2012. Gross margins should be approximately 50% over the long-term with variations due to fixed cost agreements. Our Box Office business should grow approximately 12% annually with some year-to-year variability and with gross margins in the 75% range.

We believe our OnDemand Everywhere business will grow about 15% in the fourth fiscal quarter which is the same as of year-to-date growth rate. In our Home Entertainment business for the fiscal 2013 fourth quarter, we expect revenue to decline at a slower rate than in the fiscal 2013 third quarter. In other words next quarter, we expect Home Entertainment to perform better than its 5% decline this quarter. We will update our annual Home Entertainment guidance during next quarter’s conference call.

Thank you for your continued support and interest in Rentrak. We look forward to updating you again next quarter. Now Bill and I will take your questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from the line of Matt Chesler with Deutsche Bank. Please go ahead.

Matt Chesler - Deutsche Bank

So Bill are you in discussions with any large groups for doing work for large groups that you can’t tell us about on the local side primarily?

Bill Livek

That I can’t answer. Look Matt we are needless to say we are everywhere in our discussions and we are excited about what we are doing with the ad agencies and with the advertisers because the television networks and large groups want to do business with them and as you know we’ve developed a senses like currency in TV and like a basket of currency in the monitory sense, advertisers are using what we are doing with our advance demographics, and the networks are actively engaged along discussions with us as are with large television groups. So I can discuss anything more than that but that's would keep us excited at Rentrak. What we are doing with these advanced demographics are really important as advertisers are constantly striving to be more efficient.

Matt Chesler - Deutsche Bank

Understand, but can you give me a little more to go on to help me understand why the TV essentials line which decelerated in the quarter would reaccelerate, it looks like quite strongly in your fourth quarter. As I look at the quarterly revenue build in that segment, what seems to be implied in your doubling comment on the 112 run rate is a pretty big sequential ramp in the fourth quarter, and I just want to get a little bit more comfort on driving that?

Bill Livek

Yeah, all that David answer that numerically, but remember that this business is a beautiful businesses because we have the long term characteristic of our contracts and with annual price increases. At the same time, these businesses don't grow quarter-to-quarter in a straight line basis; they grow every quarter but its more like the a steer step fashioned. David, would you like to address this more preciously?

David Chemerow

Well, my very preciously answer was going to be Matt the contract are lumpy, and as we see if you go back over the last years, we've had some quarters with big signings, we've had some quarters with somewhat smaller signings but the trends are going in the same direction. So really its the same answer as Bill’s, we feel good about where we are with clients, we are having very good meetings with large clients as well as with smaller clients and we feel good that we will be delivering good continued revenue growth in the business.

Matt Chesler - Deutsche Bank

Okay great. And on the data partnership side, let's say the charter ends up buying Cablevision Systems in the Western states; your contracts allow you to get access to that incremental data; would there be any, would you be interested in that, would there be incremental cost or you have to go back and talk about that with them?

Bill Livek

Yeah, look our business premise at Rentrak is however you return path television because the analytics that you can do for advertisers are unbelievable, that will increase their productivity, specifically on charter with Cablevision I don't think we should comment on that.

Cathy Hetzel

If those systems have the capabilities pull back returns on data then our contract would accommodate them; my knowledge of those systems will be that they currently do have that capability.

Matt Chesler - Deutsche Bank

So your knowledge is a bit those Western state systems do not have the capabilities or might not?

Cathy Hetzel

Yeah.

Matt Chesler - Deutsche Bank

Okay. And then finally if I could just squeeze in one quickie on Home Entertainment, it was interesting to hear that you guys did the down 5% number which was a nice improvement and it really deemed to have the benefit from Warner Brothers and yet. Warner Brothers is such a big portion of the business, I guess I am wondering why wouldn’t, you know, would you be ruling out the possibility that that division could actually grow next quarter, I mean you probably want to be so bold after multiple quarters, I understand but a decline…?

Bill Livek

Matt, at our Investor Day Marty Graham got up there and said that his charter was to prove David Chemerow wrong and he is doing it, okay. And I believe that this business is in the phase of flattening and looking at some growth out, but we are not at a stage that we can give any precise numbers. Our objective is to have this as a cash generator that we can use that cash in our other activities. There clearly is a secular trend that physical rentals are going away, declining. But in the process of that we are executing on the consolidation of the market and as Warner Brothers contributes into the future we feel really good about Home Entertainment. As a matter of fact Marty is smiling ear-to-ear for the last few months. Yeah, and he is very happy.

Marty Graham

But Matt by the same token I do not want to encourage anybody to be projecting the growth in that business. What we said is we will moderate the decline and, but I loved the performance and who knows we might, but that nobody is bringing the words growing as we’re taking a look at the nearing quarters yet. And I’ll be happy to eat crows if we are able to pull something like that off, I have no problem with that. I just want to make sure that we don't get ahead of ourselves.

Bill Livek

David has a microwave in his office. So he can eat a lot there.

Marty Graham

I can warm those crows up. That’s good.

Operator

Thank you. Our next question is from the line of Todd Mitchell with Brean Capital. Please go ahead.

Todd Mitchell - Brean Capital

So, I am taking it from the comments that you made in the beginning of the presentation that you have a TV Everywhere product ready to go to market. One, I guess is that, the right interpretation of our three screen product? And second of all, can you talk a little bit about just conceptually, how you would price something like that, we know that ratings data in the linear is, you know, everything subject to negotiations, but typically look at the percentage of advertising revenue the OnDemand stuff. You know, how do you think about it and how should we think about it?

Bill Livek

I think how we should all think about it as revenues starts flowing into this other screens, we're always looking at placing in the macro basis a percent of the revenue that flows. So, early on, it's going to be a low revenue producer. Later on, as the networks can capitalize on this viewing, we're going to take a greater percentage of it. So the thing I get excited about Todd is looking at the data every month about how many more consumers are watching the primetime schedule, a month out from where it actually viewed.

So if you think about the consumer, they are sitting down on a random evening, and watching three or four episodes of a particular series that was on broadcaster cable, very recently within that window and the advertisers are starting to discover that it is probably a more engaged audience than it is on live television and on the DVR. So that model is developing very quickly and those of you listen to the earnings calls of our network clients, they are all talking about their different strategies. We are in the middle of that; so you should think about upside there, how much upside I don’t think we can give you guidance yet, David?

David Chemerow

Let me also clarify little bit Todd, because there may be a misunderstanding as to the product that Bill was referring to. We are coming out with an industry product within our digital download business which we have talked about in some prior quarters is coming out in our fourth quarter. We are working on multi-screen products but we are not planning to release those into the marketplace during the fourth quarter. So the discussion was absolutely right on for what we are trying to do with some of those products, but I don’t want you to be thinking of the wrong product in this coming quarter.

Todd Mitchell - Brean Capital

Okay, so essentially what this as a VOD product for over the top VOD?

David Chemerow

No, the product we are talking about bringing out is a product that’s measuring the industry consumption of different entertainment products that’s what we are bringing out this quarter in the next month or so as opposed the product that you and Bill were talking about was the product that we are working on, but not a product that we have got in the marketplace.

Bill Livek

Our total television advertising report that’s coming out will show that top 50 programs and their incremental audience in that 28 day window, so if you think about your favorite TV…

Todd Mitchell - Brean Capital

Okay, it’s about new (inaudible) not the means of delivery.

Bill Livek

Right.

Todd Mitchell - Brean Capital

Okay, I got you.

Bill Livek

Look seven days, they will divided up into seven days, 14 days, 21 days and 28 days increment, so three of the shows that I mentioned they have extraordinarily incremental contribution to their audience within that 28 days. We think that’s an important step allowing the networks and the ad agencies to start having discussions about their incremental reach outside of a couple of days or a week. There is a lot of audience there between the first week and the fourth week of viewing and there is not a quick drop off with some people then reporting, it varies greatly by the TV show and varies greatly by the network. That’s what exciting here. So if we look at the Obama campaign as an example, they were very efficient with their message and essentially got 20% more lift simply because they were buying individual programming on these long tail networks. So if you look at some of the highly targeted network programming that is being watched outside the live window in first week window that reach is big, and that's what we are focused on with this report.

Todd Mitchell - Brean Capital

Okay. So its almost analogous to adding a advertising module to your OnDemand as people add advertising to OnDemand, this is as people will monetize later in the window for linear?

Bill Livek

Yes, I think we should look at it. Yeah.

Todd Mitchell - Brean Capital

Okay, all right. And then just one rather quick question David. On this non-stock, non-cash stock comps that runs through the P&L, what can we think of that as sort of on a normalized basis?

David Chemerow

Well I think on a normalized basis for is, let's take a look at this last quarter which was about a $1.5 million and you can annualize that and that's ballpark where it ought to be.

Todd Mitchell - Brean Capital

Okay. And it will be co-linear?

David Chemerow

Yeah, its really linear; the great, all of that is employee stock options or similar kinds to instruments that are priced once and they are amortized over the appropriate vesting period. So while it goes up, as we issue more, it goes down as others vest off, so will it increase gradually overtime, yes, but thinking of it is that roughly $6 million gradually increasing is not a bad place to be.

Todd Mitchell - Brean Capital

Okay, and actually I'm sorry I have one more quick question, I'm sorry, just in terms of gross margin on the AMI business, it seems like its trending downwards, which is to be expected as the linear business becomes more of the mix. Is there in fact at this point it looks like the linear business is actually I mean you kind of guided us to 50% of revenue in terms of the gross margin on that business but we now know because of the structuring of the dish deal that that's not exactly out, I mean is it at the point where because of the way dish is paid and the scaling of the revenues that, that business actually for a couple of quarters is delivering less than a 50% gross margin?

David Chemerow

It’s in the ballpark of the 50% because we have some fixed price deals there, it’s hard to say and it’s hard to make it into an exact percentage. But yeah when we put the pieces together of the guidance I have given, it would imply it’s a little bit less than that. If you take a look over time and not even that much time as it grows it could easily become then higher margin than that. So it’s hard to give you a precise guidance on that Todd.

Operator

(Operator Instructions) Our next question is from the line of Rich Tullo with AFCO. Please go ahead.

Rich Tullo - AFCO

How are you doing, please inform Matt Chesler that Charter did indeed buy Optimum West for $1.6 billion which was what we were telling clients and so that's probably a pretty decent transaction to them. And so my first question is in regards to this new product, is this new product being instituted for advertisers and the cable network as a methodology to make to kind of the pressure on advertising posed by OFFSET, you know, suggesting that there is a long tail in VOD viewership which is not being contemplated at this time and if a great deal of value being created but that's not necessarily what they getting credit for in the (inaudible) is that a correct way of looking at it?

Bill Livek

Let me rephrase, the purpose of what we are doing with our total television viewing report is to set a marker for a month. Even though what we do we can measure 365 days worth of viewing after a live television event. In practice, we want to start with a month 28 days and then show in week increments how it builds from the first week, second week, third week, fourth week and the purpose is so the seller of television, the networks and the buyer of television, the ad agencies can start having the discussion of opening up that inventory. Right now it’s sort of like talking in a black hole. There is zero quantification of what the incremental viewership is. So people are talking in theory because the sample currency by its very nature falls apart after a few days. The census currency is stable month in and month out. So we are hoping with this report to foster that dialog of buyer and seller. So they start running ads up to a month out in that window. It's as simple, Rich.

Rich Tullo - AFCO

Okay, and in this kind of scheme, not scheme in a bad way just system. Is the viewer who watches something multiple times captured and is that a value point or dismissal point or I mean that would seem to be kind of interesting situation from an intelligence point of view as people are kind of contemplating a feedback loop in TV that doesn’t exist in other media?

Cathy Hetzel

Rich, we're doing what we are able to do and that is rolling up the viewing that occurred across each one of these days as Bill said.

Rich Tullo - AFCO

Okay.

Cathy Hetzel

And so overtime, if I understand your question correctly, it will be important to understand that it's the same viewer watching multiple times on different platforms or if it's a bunch of unique viewers that are watching on each of these platforms and of course our plans include a roadmap to get to that point but as Rentrak has always been (inaudible), it's data that we have and turn it into the information that we can provide to our clients in a completely transparent way. This is just our first step in that process to begin the awareness of the fact that this viewing is taking place and there is a past monitorization on behalf of our clients.

Bill Livek

You know, what's exciting Rich is, as you look at all the networks, they are putting more and more and more of their prime time schedule on OnDemand. The consumer is figuring it out. What's really exciting for us what used to be a do not touch button on the remote control for Video On Demand because moms and dads thought they would get a higher cable bill next month because someone was watching a movie, they had to pay for it.

They are now discovering for the first time that they can find prime time TV shows and it appears it’s because when people go to work in the morning and they ask a simple question, what did you do last night? They said I watched this new show and the other person says that sounds interesting I have to watch it next week and someone says anecdotally why don’t you just watch it OnDemand that’s where I watch my programs and they are figuring out that all these shows are there.

So the consumer, it appears he is going through a discovery process to find something to find what we have taken for granted as industry professionals for years. They are figuring out for the first time that’s why you are seeing this 20% compounded annual growth rate in viewership that’s exciting and that’s going to be a big ad business for the networks and we are measuring it and we will profit as that business grows.

Rich Tullo - AFCO

Are you measuring which viewing and do you have a specific report for that?

Bill Livek

I am sorry Rich what viewing?

Rich Tullo - AFCO

(Inaudible)

Bill Livek

Yeah it’s two we are not publishing a report but you can see it in the data that people are sitting down in an event and watching three or four episodes. The things that we talk about anecdotally where I will sit down and I watch three episodes of Two and a Half Men. I am not unusual there is a big chunk of it consumers doing it.

Cathy Hetzel

You start to see the patterns and the data where we think that a great thing about OnDemand viewing is that it (inaudible) needs people back to linear television. So you might be and we frequently see a pattern where six days out or the seventh day someone rushes to watch the episodes before the next episode occurs on the linear broadcast and so the hope that many networks that have is that Video On Demand will help their linear growth as well and we are seeing that in some of the data that we have.

Rich Tullo - AFCO

That's right. I mean you are (inaudible) into view according to discussions that we had a while back was that over the top and TV Everywhere we are growing but really the thing to look at is Video On Demand, is that still the case or what is changed since that?

Cathy Hetzel

We think Rich that the viewership is growing in every single one of these segments and as Bill mentioned in our television on demand viewing is up 20% year-over-year and we continue to see that growth regularly, and then as we get more and more online data and how we see growth online as well and of course we talk about the Mobile Content Venture deal where we are looking at broadcast over the [air] of viewing, every time we continue to get more data sources and how I don't know where the consumer is finding all the time, but they most certainly are watching on every device and in an increasing level.

Bill Livek

The networks that are putting good money in great programming of finding those viewers are coming not just live but well on into the OnDemand cycle and now that is there, and you all hear it in other another earnings calls, they are talking about different ideas of monetizing that, we are the only company that can quantify that as they monetize it. So that's why we are excited about our TV Everywhere measurement service. The consumers move in there.

Rich Tullo - AFCO

Okay on the DVD side, great performance this quarter you know I've been pretty down on that business, continue to be downward but great performance for the quarter. As we look towards what's going on with the post office, and you have a unique position in the industry because you talk with everyone, watch players and people that own the mom and pop stores in the middle of (inaudible) Illinois, is this a game changer for them, if they can provide that DVD real time whereas on Saturday the mail comes today but it doesn't come tomorrow.

Bill Livek

Clearly that's just news of what the post office is planning on doing, but I have been bullish on Home Entertainment and you’ve taking the opposite trade on that for a long time we know. But here's where you got to look at the infrastructure. In the areas that are small town USA, they’ve got lousy internet connections, they are slow. So we believe its going to be a long time before the digital downloading circumvents those retail stores. These …

Rich Tullo - AFCO

I'm really talking about, let's take a step back here, I'm really talking about by mail delivery and their business because I think that's historically would be the gifts and goods for the channel operator, is really the mail order business, I mean so the person continue to like DVD in order to twist their connectivity I think some orders DVDs from that plaster and blockbuster. Netflix is a blockbuster what have you, but if that performance from the post office doesn't enable them to buy the DVDs on their, order the DVDs on their schedule that to me seems like over the long term, post third quarter that's something that could really kind of change the industry around the world, for the small operators.

Bill Livek

I would think your logic has merit, if you are someone waiting for a movie and it doesn't arrive you are going to go to store because you want to watch something on Saturday. So the less there is in terms of mail delivery it should have a positive buyers on our stores, I think that's right.

Operator

Our next question is from the line of Christopher Ferris with Noble Financial.

Christopher Ferris - Noble Financial

David on the operating expense increase in AMI in the quarter up 22%, I think since you've given that broken that number out specifically previously, can you tell us what that growth rate was say over the last the previous three quarters and this is representing acceleration, I'm assuming that it is which is why you gave us that information.

David Chemerow

I gave you that information because it was of relevant of growth being up at that kind of level and we've always disclosed what the growth in or what the OpEx cost has been by division, just haven’t really talked to it that much before. The bulk of it was coming out of TV and I didn’t want anybody to misunderstand and think that all of our AMI businesses were spending heavily. We're spending heavily on TV to support that 100% growth rate and we will continue to do so in terms of doing that. I don’t have in front of me the trend of the growth rates, but I got the numbers and I easily can run some numbers and I will be happy to share with you. It's in the queues and all the public documents, but when we talk a little bit later, I would be happy to run the calculator and share a few of the numbers with you.

Christopher Ferris - Noble Financial

I am just trying to get a sense of what the acceleration was and is that an ongoing? When I look at the operating income number for the AMI division, it's a lot lower than I would have expected. So what I am trying to get a sense of is whether that should be the case going forward or how I should be looking at it?

David Chemerow

I think it's realistic to think of the operating expenses in some ballpark like this. I am not saying it will be 22% but it will be somewhat larger because the (inaudible) and our Box Office businesses would have modest to normal type of operating expenses growth. TV will have a larger growth. For us to continue to grow revenue to 100%, we have to continue to do IT development. We have to do additional research work. We got to do additional work on our products. We will still, even if that's growing at, lets say, 20% or some number like that, if revenues are growing at 100%, there is still substantial improvement in the bottom line operating performance but we're going to continue to have expense growth so long as revenue growth is going along at those clips. Our sales people and customer service people and all of that just to in order to keep up with their business.

Christopher Ferris - Noble Financial

Okay, and when you are talking about the CapEx, can you just go over that and elaborate if you wouldn't mind?

David Chemerow

Sure. For the full-year, we are expecting CapEx of $6 million it’s right about in the range of what we usually are $5 million to $6 million. Four of that is capitalized software where GAAP mixed with the capitalize some for people costs, two of it is hard numbers, servers and also as you know we had some remodeling that we did in our office in Oregon paid for mostly by the state of Oregon and by our landlord but we end up running the CapEx figures straight through our numbers before that reimbursement counts.

Operator

Next question is from the line of Chris Blackman with (inaudible) Capital. Please go ahead.

Unidentified Analyst

Yeah, can you comment about this media rating agency audit that you haven’t done, is that being generated at the request of potential large customers or is that something you all are doing it internally or haven’t done or made the decision internally in hopes of showing the validity of your product and possibly ability to continue to increase prices?

Bill Livek

Let me give a little color on the Media Rating Council, the Media Rating Council was formed as a industry watch dog group. It was chartered originally called the Broadcast Rating Council, the BRC and it was a voluntary audit that research companies in TV would go to so customers advertisers principally would have confidence that what the companies said they were doing they are doing, so they wouldn’t have to do due diligence around are the numbers right. So we are at a point in our development where we have decided that we will be the first census based or census like currency that is audited and accredited by the MRC. We think it is an asset to our shareholders because we think that it will accelerate our revenue and our pricing to our advertising in our agency customers in the network and stations follow it. It’s the normal progression and sort of a breaking through a threshold; you don't go through this type of thing unless you feel really good about the products that you are producing.

Operator

And now no further questions in queue. I would like to turn the call back over to Mr. Livek for closing remarks.

Bill Livek

I would like to thank you everyone. And like I thank you every quarter for trusting us with some of your investment dollar, we are going to keep you apprised of our support in the intervening quarter, and we will see you on our formal call then, thank you again, bye, bye.

Operator

Thank you, ladies and gentlemen. That does conclude our conference for today. We would like to thank you for your participation. And you may now disconnect.

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