Gaiam's CEO Discusses Q4 2013 Results - Earnings Call Transcript

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 |  About: Gaiam, Inc. (GAIA)
by: SA Transcripts

Gaiam, Inc. (NASDAQ:GAIA)

Q4 2013 Earnings Conference Call

March 17, 2014 4:30 p.m. ET

Executives

Norberto Aja – Investor Relations

Jirka Rysavy – Chairman

Lynn Powers - CEO

Steve Thomas - CFO

Analysts

George Kelly – Craig-Hallum Capital Group

Mark Argento – Lake Street Capital Markets

Robert Routh - National Alliance Capital Markets

Operator

Ladies and gentlemen thank you for standing by. And welcome to the Gaiam Incorporated Fourth Quarter Conference Call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, today’s conference is being recorded Monday, March 17, 2014.

I would now like to turn the conference over to Mr. Norberto Aja with JCIR. Please go ahead, sir.

Norberto Aja

Thank you, operator, and good afternoon, everyone. Thank you for participating Gaiam’s 2013 fourth quarter conference call. Joining me today on the call are Gaiam’s Chairman, Jirka Rysavy, Gaiam’s CEO, Lynn Powers and Steve Thomas, Gaiam’s CFO. Following some prepared remarks, we will open the call for your questions. But before we get started, I would like to take a minute or two to read the Safe-Harbor language.

The following constitutes the Safe Harbor statement of the Private Securities Litigation Reform Act of 1995. Except for historic information contained herein, the matters discussed on this call today are forward-looking statements and involve risks and uncertainties including, but not limited to general business conditions, integration of acquisitions, the timely development of new business, the impact of competition and other risk details from time-to-time as described in the SEC reports.

The risks and uncertainties associated with the forward-looking statements are described in today’s news announcement and in the company’s filings with the Securities and Exchange Commission including the company’s reports on Form 10-K and 10-Q.

Gaiam assumes no obligation to publicly update or revise any forward-looking statements. Today’s call includes non-GAAP financial measures within the meaning of the SEC Regulation G, when required a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today’s press release as well as the company’s website.

With that, I would now like to turn the call over to Gaiam’s Chairman, Jirka Rysavy. Please go ahead.

Jirka Rysavy

Thank you, Norberto and good afternoon everyone. During the fourth quarter of 2013, we sold our non-branded entertainment media distribution business and discontinued our direct response television operation. As a result, we now report this business as discontinued operation and we have reclassified our financial results for all the prior periods.

2013 revenue from discontinued operation were $50.3 million. Net of discontinued operation, our revenue for 2013 increased $28.2 million or 22.2% to $155.5 million. The organic growth was 21.7%.

Revenue for the company business segment grew 22.5% to $103.4 million and direct to consumer segment revenue increased 21.5% to $52 million. At the end of the year, we took $11 million of non-recurring charges primarily related to restructuring and repositioning of the company after the sale of the entertainment unit and discontinuance of the DRTV business. These charges included $7.1 million in non-cash impairment, $2.5 million in severance costs, and $1.4 million in transaction-related and other expenses.

Since the sales of entertainment distribution and discontinuation of DRTV, we eliminated about $5 million of operating costs most mainly payroll and system expenses. Where this [ph] exclusion of Gaiam TV losses brings the pro forma year to about $3 million of operating profit compared to about $4.2 million operating loss in for 2012.

During the year we recorded a gain of about $27 million from monetizing the majority of our Real Goods Solar Holdings and we used this $11 million of non-recurring charges and losses from Gaiam TV and potentially small portion of our NOLs to offset all the taxes on the gain.

We founded Real Goods Solar as our subsidiary in 1999 calling the unit Gaiam Energy Tech until its IPO. At December 31, we had cash of $32 million and no debt, pretty nice comparison to our net debt of $6.3 million at the end of 2012.

We also have an additional of $50 million in the Real Goods Solar and Cinedigm stock, receivable from Cinedigm which is related to the sale of the entertainment distribution, our real estate and NOLs. Our current ratio improved to 3.0 from 1.7 at the end of the previous year and will continue to improve as we keep monetizing this $50 million of non-operating assets.

During the year, our business, excluding Gaiam TV, grew 21.7% to $150 million. Direct to consumer segment started its transition to focus yoga, fitness and well-being, and most importantly it returned to growth. During the year, the direct to consumer business represented approximately one-third of the revenue while the sales through 4500 branded store in stores and total 38 million retail doors accounting for the remaining two-thirds.

Our video subscription business is also progressing nicely. The conversion rate from the free trials to subscription continues to increase. Now it’s running well over 70%. Gaiam TV is a global offering with subscribers now in over 100 countries. Over 6000 videos are available for streaming exclusively through Gaiam TV platforms and we plan to add an unlimited download feature which is very unusual in the industry into our service offering during the next quarter.

This month the annualized revenue for the unit reached $10 million, and for the year we expect more than double the $5.7 million we generated last year. We are still working with our consultants to assess our deferred tax assets for GAAP reporting purposes so these results are preliminary and subject to assessing GAAP valuation allowance. We will file the finals in our Form 10-K by March 31.

Because of intention to focus both on Gaiam business and the growth of Gaiam TV, we believe that each of these businesses is a unique shareholder return opportunity. Therefore we intend to separate the video subscription unit and the Gaiam-branded business into two separately traded companies – public companies. The current thinking is that the separation will take form in the kind of tax free dividend in the late fall.

We intend to focus Gaiam branded business on yoga, health and well-being and subscription business on video streaming of conscious media. Overall we are unlocking value on our balance sheet, streamlining the company structure and reducing expenses. We are looking forward to leverage this business focus and financial strength and further increase in shareholder value. Going forward we see a rapid growth of our operating margin.

And now I would like to turn the call over to Steve who will try to explain to you how the last year activities look through the GAAP reporting lens, so Steve.

Steve Thomas

Thank you, Jirka. I will spend a few minutes reviewing the financial results in greater detail and offering additional perspective on the performance for the year. Let me begin by highlighting that the results we reported earlier today and that we will discuss on this call do not include any contributions from GVE, our former non-Gaiam branded entertainment media business, nor do they include contributions from our discontinued direct response television marketing operations. Both business segments are reflected as discontinued operations in the current year and all comparable reporting periods.

As a result of the foregoing, the company needs to reassess the value as deferred tax assets which could result in a GAAP non-cash valuation allowance between zero and $23 million, reflecting the current total GAAP value of the deferred tax assets at the end of the year. The company has not yet completed its tax planning and audit for the quarter and year ended December 31, 2013 at the time of this call. So the results reported below are preliminary and subject to assessing the need for a GAAP tax valuation allowance. When completed, the company will file its Form 10-K with the Securities and Exchange Commission by March 31, 2014.

Beginning with the income statement. Consolidated net revenue for the year increased $28.2 million or 22.2% to $155.5 million with our business segment revenue increasing $19 million or 22.5% to $103.4 million, and our direct to consumer segment revenue increasing $9.2 million or 21.5% to $52.1 million.

On an annual basis, gross profit margin was 42% of net revenue compared to 44.4% in the comparable year ago period as we experienced stronger growth in our lower margin fitness accessory business than in our higher-margin media business.

Total operating expenses for 2013 increased to 55.9% of net revenue from 52.4% for the full-year 2012. The increase was due to $11 million of charges related to the restructuring and repositioning of our business after the sale of GVE and the discontinuance of the DRTV business. The approximately $11 million of non-recurring charges comprised of $7.1 million for non-cash impairment charges, $2.5 million for severance costs, and $1.4 million was incurred for brand repositioning and other related costs. This led to an operating loss for 2013 of $21.6 million compared to $10.2 million in 2012.

After recognizing our gain from sales of Real Goods stock, income from continuing operations was $3.5 million compared to a loss of $19.2 million in 2012. 2012 included $18.4 million of equity losses from holding the Real Goods stock.

Excluding the restructuring and repositioning charges, operating expenses would have declined to 48.9% of net revenue for the year compared to 52.4% in 2012. While the operating results of the discontinued business have been removed from these results, in accordance with GAAP, the corporate overhead assigned to these units is still included in the continuing operating expenses. We're implementing changes to our overhead structure and after completion of our restructuring activities representing over $5 million of annual cost savings.

Moving to bottom line. Net income for the year was $0.4 million or $0.02 per diluted share compared to a net loss for 2012 of $12.9 million or $0.57 per share.

Moving to the balance sheet. We ended the year with a total cash of $32.2 million and no debt compared to cash of $9.9 million and $16.2 million in borrowings from our then outstanding credit facility at December 31 of 2012. Following the sale of GVE, we fully repaid borrowings and terminated our credit facility.

Our current ratio at December 31, 2013 was 3, a metric that continues to reflect the health of our balance sheet and our ability to fund our growth. Inventory turns improved to 4.3 times in 2013 from 2.9 times in 2012.

Taking a brief look at our cash flow statement, we reported $15.6 million use of cash in continuing operations for 2013. The main reason for this was the continued investment in the Gaiam TV business and increases in accounts receivable, other assets and a decrease in accounts payable.

We recorded a total of $65 million of cash provided by continuing investing activities from the sale of our Real Goods stock, repayment of a loan made to Real Goods Solar and the sale of our entertainment division which together amounted to $74.7 million. These activities were offset by additions to property, equipment and media rights and acquisitions of businesses for $9.7 million.

For the year, capital expenditures were $3.4 million comprised of $1.7 million for property additions and an additional $1.7 million of media assets. Depreciation and amortization was approximately $4 million for the year.

Going forward we will continue to look for ways to improve our operational efficiency and unlock the value of some of our assets on our balance sheet. For example, we are exploring how we can more effectively utilize our headquarters, a campus of approximately 13 acres and a 150,000 square feet of office space through optimization and/or transaction. We are also reducing overhead costs after the sale of GVE, including the closure of our office space in New York City.

With the recent improvements to our balance sheet and return on investment from the sale to GVE and Real Goods Solar stock, the full payoff of our debt and our targeted operational expense reductions, we now have the added financial flexibility to invest in and support our repositioned yoga, core yoga, fitness and well-being business and to leverage our resources in a more focused and efficient manner, support both organic as well as acquisition-based growth around our core initiatives.

With that, I’d like to now turn the call over to Lynn who will provide some additional detail on the status of industry and our business. Lynn?

Lynn Powers

Thanks, Steve. Let me begin by announcing that the Board of Directors has agreed to pursue the separation of Gaiam and Gaiam TV into two publicly traded companies. This will allow Gaiam TV to operate more independently and nimbly as well as achieve a higher degree of clarity and transparency in its relationships with customers and investors.

During the fourth quarter, we sold our non-Gaiam branded entertainment unit, GVE to Cinedigm generating a strong return on investment for our shareholders. We also decided to close our direct to response television business at the end of 2013.

The proposed spin-off represents a final step that will allow Gaiam to present a clear strategic path and define our goals solely around what we believe to be one of the most unique, authentic, well respected and recognized yoga, fitness and well-being brands. I believe that organic revenue growth of 21.7% during the year reflects the strength of our brands.

With over $32 million in cash, no debt, and a commitment to prudent expense management, including plans to further reduce corporate and other expenses throughout 2014 in addition to the over $5 million annualized savings already identified in the last 120 days, we have the foundation to focus on a rapid expansion of our operating margin.

Looking ahead, this year, we’re pursuing four initiatives to drive organic growth. Our first initiative relates to Gaiam Restore, our line of wellness products. Launched in 2012, Restore addresses the growing consumer demand for preventative, restorative, and stress relieving solutions. Though the Gaiam Restore line is relatively new, it has become one of the top performers at Target. We plan to leverage our broad distribution footprint of 38,000 retail doors to expand placement of Restore.

But the demographic need for wellness solution is also creating new distribution opportunities for Gaiam Restore as well. For example, Walgreens currently has a Zen zone concept in 500 doors and is looking to expand to an additional 1000 doors within the next year to 18 months. Gaiam products already command a fourth of section in those stores.

Our second initiative this year is SPRI by Gaiam, our fitness and workout accessories brand. Historically SPRI has been offered only in the professionals gym market. We launched SPRI into fitness retail market in 2012 Sports Authority as well as across Australia at the Rebel Sports. It was the best brand launch ever at Rebel Sports.

We are confident we can grow SPRI’s retail presence, particularly because of our fourth quarter introduction of cross-training products under the SPRI Cross Train brand. In little over a year, Sports Authority has become one of our top four accounts showcasing the high level of consumer acceptance of SPRI and brand potential for growth. We intend to market SPRI and SPRI Cross Train to other sporting-goods retailers.

Our third initiative for the year is to enhance our ecommerce branding both through our Gaiam ecommerce site as well as through third party ecommerce platforms. We have begun repositioning Gaiam.com around the recommendations from IDEO, a highly regarded brand positioning company that we engaged in late 2012. We are updating our look and creating a more engaging, interactive and simplified shopping experience. To that end, we are executing on our social media strategy to engage with our customers via popular sites such as Facebook, Pinterest and Instagram.

Our direct to consumer segment, which includes contributions from our ecommerce sales, eco travel and our Gaiam TV subscription platform, grew its net revenue 21.5% to $52 million for the full year. This is exclusive of DRTV which is now reported as discontinued operations and reflects the success that we had during the year in turning the business around after a decline in 2012. Coming off the year in which our business with Amazon grew 70%, we know that consumers are searching for Gaiam online and believe that our ecommerce branding will help drive traffic at Gaiam.com.

Our final core initiative for the year is Gaiam innovation. This year we returned to our history of product innovation to create more excitement for the consumer. We added new designers in the product development area and they designed a great new balance of our share [ph]. We are also using new and innovative technology in our high end yoga mat. An example of our innovation is reflected in the Gaiam Sol Dry Grip Mat, a 3 mm PVC mat, the thin polyurethane top coat that prevents slipping even in the hottest and sweatiest studios.

With a compelling array of products and the ability to offer branded store within store experiences to retail consumers, we can both expand existing accounts and add new ones. We currently have about 14,500 store within store placements in the U.S. These four-foot sections are branded and contain only our product making the in-store experience more welcoming for the consumer and more efficient for the retailer.

Reflecting our ongoing success to expand our distribution footprint in our current accounts, revenue from our top 25 accounts in fitness, media and equipment grew by over 29% in 2013 compared with 2012. And on the new account front, we continue to make headway with Walgreens and their Zen prototype stores.

Our success is reflective of healthy growth in the yoga industry. According to Yoga Journal’s Yoga in America 2012 study, the overall yoga market, including classes, equipment, clothing, vacations and media was approximately a $10 billion market in 2012 compared to a $5.7 billion market in 2008. That translates to an annual growth rate of 16%.

During the same period, the number of yoga practitioners grew 7%. The fact that spending has grown almost 10 points faster than participation indicates that consumers are committing money to supporting their practice. While we acknowledge that the plain field is getting more crowded, we are confident that Gaiam stands out relative to the competition thanks to our deep experience, authenticity and our emphasis on specialized products for yoga pilates and fitness that should afford us an edge versus our peers which tend to have more of a multipurpose approach.

When it comes to yoga, Giam is the most recognized brand in yoga for non-apparel and accessories. Based on consumer research, Gaiam’s brand also translates well to yoga and fitness apparel. For these reasons, we’ve identified category extension into apparel and distribution expansion into European markets as our two medium term business initiatives going forward.

As we’ve mentioned before, a branded fashion represents an attractive growth avenue for us. We are confident there is an opportunity for a mid price point women’s fitness fashion line focused on yoga pilates and other non-impact activities. We’ve hired the design team, a consultant for fit and an internal team of people to work with the design team. We have shown the concept to a few retail launch partners with positive response and are looking in an early 2015 release of our Gaiam apparel line. We’ll have a soft launch in our direct business in late 2014.

Given the brand awareness among our consumers, our long-standing relationship with the fitness studios and our retail partners, we feel confident we can leverage this opportunity to create a mid price fashion that would resonate with consumers and bring to the mark at a unique and compelling offering. We intend to market this offering to our current retail distribution.

Our business initiative to expand the Gaiam brand into European markets begins this year. We've already demonstrated success with the Gaiam model in Australia through a JV and in Canada through licensing agreement. With the growth of yoga, fitness and well-being market in Europe, we believe we have a huge opportunity to be the global brand for this category. We’ve instituted multilevel packaging, contracted with a third party logistics company in the UK, opened John Lewis with a full Gaiam store within store and lunched Gaiam.com.uk.

We showcased our line at Expo and got good response from some of the largest retailers in you Europe. We will be dedicating resources to opening accounts across Europe with both Gaiam’s broad products and expect this business to grow quickly during the coming years.

We believe these business initiatives are very attractive because they reflect our strategy to grow by leveraging the tremendous value of our brand across all distribution channels, the unique resources we have around fitness, health and well-being and our strategic initiatives to grow the business as a unified global brand. The Gaiam brand is the cornerstone of our future success across all these initiatives and creates dynamic and meaningful relationships with consumers that allow us to evolve our relationship with them over time through a compelling mix of seamlessly connected products, services, experiences and digital interaction.

In summary, we’re pleased with what we were able to accomplish in 2013 and so far in 2014. We now have a more focused business, stronger balance sheet, double-digit comp growth and an improved operating structure to execute on our growth initiatives and gain market share. We’re confident we can leverage our brand and believe it has many options, including more solution-based wellness products, online community, apparel and physical locations.

As a leader in the expanding yoga, health and wellness markets and armed with media solutions, brand positioning and brand research, we see some very compelling growth and investment opportunities ahead for us. We believe that we now have the right plan and resources in place that will enable us reach our goal to be the market leader in yoga, fitness and well-being across multiple platforms and categories.

This concludes our prepared remarks. So I’d like to turn the call back to the operator. Colin?

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of George Kelly with Craig-Hallum Capital Group.

George Kelly – Craig-Hallum Capital Group

Hi guys, I guess just to start, you mentioned a couple times that core operating margin – you mentioned that core operating margin in 2013, I forgot the number you gave me but you said going forward it should scale – and we should see some margin expansion. Can you give more details of kind of your expectations for 2014 and maybe what that core operating margin was for 2013?

Jirka Rysavy

I don’t think we said anything, we just said that was, if you kind of effect all the changes that would be positive from negative 2012 and we see dramatic expansion in 2014 of operating margin. We didn’t provide any numbers.

George Kelly – Craig-Hallum Capital Group

Okay. Just could you give sort of – I mean is it mid-single digit percentage realistically?

Jirka Rysavy

We’re not prepared to do guidance.

George Kelly – Craig-Hallum Capital Group

And then affecting that would be an investment in Gaiam TV this year, what are your expectations for – are you close to breakeven there or how much do you expect to invest?

Jirka Rysavy

Gaiam TV on operating basis lost about $8.5 million in 2013. If we would not separate the business and focus just on operating number than rapid growth especially in the international with growing run rate of about $10 million would be profitable probably by end of the second quarter. But with separating, we plan to invest primarily in international which we already have like 15% of sales with no marketing expenses and following the Netflix who invests a lot, we want to invest in languages and the operating platforms, all the devices are going to (inaudible) pretty much – we pretty much are done with, we have like want to go and so that will probably this, that will take additional six months probably or 6 to 9 months depends how fast we decide to grow. But if we would operate as operating business right now, just let organic growth we’d be profitable by end of the second quarter. The revenue we expect to more than double for in 2014 from the 2013.

Operator

(Operator Instructions) Our next question comes from the line of Mark Argento with Lake Street Capital Markets.

Mark Argento – Lake Street Capital Markets

I guess my question, around the spin, could you – so you’re planning on this fall and then will all the media assets go into Gaiam TV or you will leave like the fitness DVD business, will that stay with the core Gaiam?

Jirka Rysavy

The assets, whatever they were created, so the titles for Gaiam where they are created by the brands they will stay, they would be license to Gaiam TV for the SVOD.

Lynn Powers

But they would remain with the brand, Mark, and would also be -- continue to be able to be monetized as DVD or digital download through iTunes.

Mark Argento – Lake Street Capital Markets

Got you. But then you’d also share – you’d have some type of publishing relationship with Gaiam or Gaiam TV could have that content as part of their platform as well, or how would you do that?

Jirka Rysavy

Of course.

Lynn Powers

Yes, a licensing agreement with them for SVOD.

Mark Argento – Lake Street Capital Markets

And then so the core -- remaining core business would really focused on really unlocking the value of the brand, so more in the fitness product side and then would you continue to do the catalogue or what are some of the different avenues you’re seeking to [renew] (ph) the leverage of the brand?

Lynn Powers

Well, first of all, we will continue with the catalogue for at least the balance of this year that we will start moving marketing dollars away from catalogue circulation and move it more into the website, into certain new product innovation and into social media. We think that’s a better way to connect with the customer over the long term as well as looking at some digital opportunities there.

Mark Argento – Lake Street Capital Markets

And last question, in terms of how does your installed base of retail doors look? I don't have the most up-to-date number, are you guys around the 50,000, 55,000 doors or where do you sit today?

Lynn Powers

When we sold the entertainment business, our doors went to about 38,000 doors. And as I stated in the prepared remarks, we think there is lots of opportunities, it’s not only to grow our business within those 38,000 doors by the new initiatives but also to add some doors on as we expand Gaiam Restore because of what’s happening overall with the drug stores like CVS and Walgreens trying to get into health and wellness.

Operator

And our next question comes from the line of Robert Routh with National Alliance Capital Markets.

Robert Routh - National Alliance Capital Markets

A few quick questions. Given that you're now separating Gaiam TV from the core business, I guess first is structurally, [indiscernible] spin-off tax for the shareholders, there seems to be an asset back common stock or are you considering using a tracking stock structure in case it doesn't work or you’re not happy with it, and you want to roll it back in? And then just kind of a follow-up to that given that you’re doing this and spokes [ph] in the operations, have you considered talking to any of the distributors on the Gaiam TV side, buy buying the cable companies who you’ve obviously Internet [ph] connection in order to get back to this position, and signing like stars at flat rate deals without pay Gaiam TV x million a year for the right to give it away free for a period of time to those subscribers who subscribe to Internet services or is that an opportunity that you haven't explored as a way to jumpstart kind of interest in -- without spending your money?

Jirka Rysavy

So the first, we’re planning to use the common stock for distribution for the spin-off, we did not consider really seriously tracking stock but we’re still in the process of evaluating it. So it's not the process that’s finalized. So we would in the board meeting probably look at all these options but more the plan right now is to use the common stock in a tax free dividend.

The other part, yes, we did talk to, already to pretty much all the majors, the cable companies, so we are talking to them. We already signed and have several thousand subscribers on Verizon FiOS and we’re talking right now with the largest companies but it's not free. We kind of -- the deal’s there, it’s through cable but it's like SVOD service as well which we’re providing the content for. So but it will also work on the -- through the cable providers.

Robert Routh - National Alliance Capital Markets

So would it safe to say that with these talks continuing, you could see some more I guess increased distribution and marketing of the Gaiam TV service by these distributors maybe going forward, it could help you guys or is that not safe to say?

Jirka Rysavy

No, and yes, we would have the relationship like we have with Verizon right now, with the several large cable companies to distribute our content but it is not free as you mentioned. It is a subscription service, so they do pay per month on their cable or phone bill.

Robert Routh - National Alliance Capital Markets

And then as far as the core business, now that, that’s going to be focused on the consumer-products business with the apparel coming in 2015, late ’14, given the focus there and obviously it’s a different investor base that looks at the media assets versus the consumer assets for the most part, but it's also a different valuation methodology as well as the distribution mechanism. I am curious, now that that's going to be, and you talked about getting rid of the DRTV business, are you in any talks with any of the home shopping channels like HSN or QVC because given what you have and the proprietary nature of that, it would seem like a natural fit for one of those companies to have the Gaiam an hour once a week and just sell a lot of the products that you have and all the brands that you currently manage, I am curious as to whether or not that's something you are looking at?

Lynn Powers

It definitely is. In fact, we are in talk with QVC right now.

Robert Routh - National Alliance Capital Markets

And just one another question, obviously you said -- acquisitions as well as organic growth, on the library side, I know you guys have the big library, you own all the rights to it and obviously that doesn’t get fair value in your stock if you don’t realize it’s not on the balance sheet based on what it's worth. But as far as other companies that are out there that do what you do, because there aren’t any companies that do as well as you do with the health and wellness, what's out there? What other libraries are out there that could make sense, is there anything for sale? Do you see anything near-term that you could acquire that could really buttress that business or is it more a matter of you have the cash, just wait and see what happens?

Jirka Rysavy

We bought several libraries over the last year or 18 months and mostly we focus on libraries that are of our space, we don’t want to buy anything from the studios. And we clearly will continue to do that. We also, obviously when we made acquisition as we bought like My Yoga online that comes with a pretty good library which we will be exclusive, so we might do some more of those because the multiples are very lucrative if you buy this as a multiple you get library kind of with it and – but for us as a Gaiam TV the production is actually much more important because about two-thirds of all the viewing – of the views in a month are generated by our internally produced content. So the production is much more important to us than actually buying the libraries and we can produce those, the content right now for an average of about $4000 an hour, which is very different to like $4 million an hour what Netflix would do and drives the view percentage much higher because we niche curated content, so people really look for something like that, it's exclusive. So you cannot see in the world and so we try to the position as a complementary service to services like Amazon Prime, Netflix and those because like more than half of our subscribers have Netflix service as well. So the production is going to be long-term or more important than acquisition.

Robert Routh - National Alliance Capital Markets

And would that be similar to the deal, I know you guys got the rights to Jillian Michaels right after, over a period of time, I think that happened last year. Are you looking for other personalities in all that or is this just internally produced Gaiam content where you’re trying to develop new stars personalities etc. with the health and wellness [ph] knocking on your door that want to kind of establish a franchise since you guys have the brand already or is it just totally going to be developed internally?

Lynn Powers

Actually we do both. We look for new emerging talent where we go out and develop that talent and then obviously with our retail footprint of 38,000 doors and our direct relationship with iTunes on the digital side, well known talent also seek this out.

Operator

And our next question comes from the line of Ray Rayers [ph] with Abby Ventures.

Unidentified Analyst

So how many subscribers do you have on Gaiam TV right now?

Jirka Rysavy

Well, the simple method is, you take the revenue and our average subscription is $9.95. It’s little – some subscribers have multiple subscribers to different services that we offer. But I think it's -- I would say, I don’t know right now exactly but I would say 10 million, it’s probably around 80,000.

Unidentified Analyst

And what has been your conversion rate from a free trial to the paying subscribers? Has it remained constant from last quarter, has it gone up, down?

Jirka Rysavy

It’s increasing pretty steadily for several quarters. We were trying to hit 70s, went to low 70s, now we’re more in kind of mid to high 70s. So it’s growing. So far keeps growing. One point I'm sure we will stop, I am not sure we can practically do more than 80 but -- or 80 low 80s, I don’t know. We had already some weeks when it crossed 80 but I think looking probably like mid to high 70s is probably the number what we would target.

Operator

And there appear to be no further questions at this time.

Jirka Rysavy

George, do you have more questions since you kind of appeared to be kind of cut off, or if you don’t, we would – please dial in, if not, we would thanks everybody for participation and we will talk to I guess George after this call if he cannot get on the line. So thank you very much.

Lynn Powers

Thanks everybody.

Operator

Ladies and gentlemen that does conclude the conference call for today. We thank you all for your participation. You are now free to disconnect your lines.

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