Cinedigm (CIDM) FQ4 2014 Results - Earnings Call

| About: Cinedigm Corp. (CIDM)

Cinedigm Corp (NASDAQ:CIDM)

Q4 2014 Earnings Conference Call

June 25, 2014 16:30 ET


Jill Newhouse - Chief Marketing Officer

Chris McGurk - Chairman & CEO

Adam Mizel - COO

Jeffrey Edell - CFO


James Marsh - Piper Jaffray

Andrew D'Silva - Merriman Capital

Quinn Goldman - Park City Capital


Good day ladies and gentlemen and welcome to Cinedigm Digital Cinema Fiscal 2014 Fourth Quarter Earnings Call. (Operator Instructions). I will now like to turn the conference over to Ms. Jill Newhouse. Ma'am you may begin.

Jill Newhouse

Good afternoon and thank you for joining today’s conference call. Participating in today’s call are Cinedigm's Chairman and Chief Executive Officer, Chris McGurk, and Chief Operating Officer, Adam Mizel and our new Chief Financial Officer, Jeffrey Edell.

Before I hand the call over to management, please note that on this call, certain information presented contains forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties and assumptions. Potential risks and uncertainties that could cause the company's business and financial results to differ materially from these forward-looking statements are described in the company's periodic reports filed with the SEC from time to time. All of the information discussed on this call is as of today, June 25, 2014, and Cinedigm does not intend and undertakes no duty to update future events or circumstances.

In addition, certain of the financial information presented in this call represents non-GAAP financial measures.

And now, I'd like to turn the call over to Chris McGurk. Chris?

Chris McGurk

Thank you Jill. Thanks everyone for joining us today. I will begin with a brief update mainly focusing on our high potential over the top digital networks business. After that Adam will review our financial results and key growth drivers and then we will introduce our new CFO, Jeff Edell. Then we will answer any questions you may have. So let’s get started.

As we discussed previously on these calls, we have been engaged in a three year process to completely transform Cinedigm to take full advantage of the game changing digital revolution. Our restructuring efforts including the sale of two non-core divisions, the acquisition of New Video, the acquisition of Gaiam Inc’s Entertainment Unit referred to as GVE and the complete refinancing of our balance sheet were all vital pieces of that transformation. As a result of these strategic moves Cinedigm is now one of the leading independent content distributors in the United States holding direct relationships with over 60,000 physical store fronts and digital retailers including Walmart, Target, iTunes, Netflix and Amazon as well as all of the national cable and satellite TV, video on-demand platforms.

As the industry continues to shift to digital in theaters, the home and mobile and this transition is indeed happening much more rapidly than anyone ever expected. We have quickly pivoted the company to be a major player in the emerging over-the-top digital networks business. A business with much higher potential margins and valuation multiples than the traditional entertainment business and one with tremendous value creation upside for Cinedigm.

We believe the strategic moves we have made to transform Cinedigm have positioned us to be a leader in this new era of digital entertainment distribution and content consumption. Audiences are now rejecting the old and outdated viewing rules established by the entertainment industry giants and instead are demanding to see the entertainment content they want whenever and wherever they want it on the digital devices of their choice. The enormous potential of this evolving digital channel entertainment ecosystem is evidenced by a plethora of recent digital network activity.

The Chernin Group’s $500 million deal with AT&T, AT&T’s proposed acquisition of Direct TV, Disney is up to $950 million acquisition of the multi-channel network, Maker Studios, the speculation about multi-channel network full-screens, potential premium valuation, DreamWorks new YouTube channel and Vice’s private auction to major media companies to name just a few.

In the midst of this activity, we believe that Cinedigm is very well positioned to succeed in the over the top channel business for several key reasons. The enormous depth and breadth of our 52,000 title film and TV episode library, our digital assets and deep long standing relationships as launch partner with every major digital platform and device, our marketing expertise, our flexible releasing strategies where we do not play by the rules of the larger entertainment companies that need to protect their legacy businesses and old school distribution windowing and our strength in capital base.

And brand partners will also be a very compelling part of our OTG strategy. As evidenced by our Comic Con and Dove Foundation Channel announcements we clearly believe that partnering with strong brands is the most intelligent way to launch the OTT business. Partner brands can bring several key complimentary assets including strong name recognition within their demographic target audience and have then a loyal customer base that can be converted to subscribers quickly and cost effectively, buy merchandise and also attract advertisers and access to programming, curation expertise and marketing machinery and data bases relevant to the target audience.

If we successfully implement our strategy with these brands the Cinedigm Digital Channel essentially will become direct to consumer narrowcast versions of Hulu or Netflix or Amazon. From a shareholder perspective this OTT strategy is extremely important because for the first time it opens up three new streams of revenues and profits for us that previously were available only to the large entertainment conglomerates with all of their billions of dollars of investment and infrastructure in all pre-digital distribution.

These three new recurring profit streams are advertising, subscriptions and merchandising. These new stream should create economics for us similar to those of Netflix and Hulu. We have doubled the margins of our base entertainment distribution business. We can launch channels quickly and more cost effectively than our competitors because we already operate a profitable distribution business with the necessary infrastructure to support the new channels. That gives us a real economic advantage, the very low breakeven points and a lower risk profile versus competitors. Importantly Cinedigm’s OTT economic advantage should quickly help build a much higher multiple business than our base distribution business. This has been evidenced by the recent M&A activity in this digital channel sector that I just described.

We successfully launched our first OTT digital channel Docurama in May. This channel is now available on a 165 million devices and we have already had over a 165,000 downloads of the Docurama app on Roku alone. And we expect that number will continue to grow as new platform partners introduce the app.

Advertisers are responding very well to the channel. Our June inventory was fully sold out and Lexus has been a key advertising partner. Our second digital channel called ConTV in partnership with Wizard World Comic Con will launch in fall of 2014. ConTV will include films, TV series and original programming targeted to the large 18 to 44 year old fan boy and fan girl audience including titles from our 2000 episode anime library, our horror and sci-fi collection and other key Comic Con oriented properties.

Wizard World has 24 Comic Con scheduled over the next 12 months with an expected attendance exceeding 700,000 customers each typically spending $200 to $300 at the shows. Comic Con's fans are rabid entertainment enthusiast, collectors and technology savants ideally positioned to support a Comic Convenient focused network. They are also the prime demographic target. So we have already received tremendous interest from potential advertisers and sponsors. The key digital platforms are also eager for the channel’s launch.

In just last week we announced plans with the Dove Foundation to launch an OTT channel targeted to families and kids seeking high quality, family friendly and faith based content. The Dove Movie Channel will feature selections from Cinedigm’s library in those genres as well as acquired content and some short form programming.

This faith based film genre has become one of the hottest areas of entertainment programming. As evidenced by the recent success of the films Heaven Is For Real which is nearing $90 million at the box office and God's Not Dead which has generated $60 million at the box office and these are films Cinedigm will be releasing into DVD in August and will also be included in our Dove Channel.

With over 90 million self-described evangelical Christians and 76 million family households in the U.S. the potential audience who approve faith and family entertainment content is enormous. Historically consumer seeking faith based and wholesome family programming have found very limited viewing options. Our Dove movie channel will provide these audiences with the approved and rated content they want when and where they want it.

These three channels are just the beginning for our digital networks business and we expect to announce more branded OTT channels in the coming weeks and months as we build our channel portfolio.

We could not have achieved this rapid progress in the digital network space without the successful completion in March of an underwritten public offering led by Piper Jaffray that provided us with roughly $30 million. As I referenced earlier the shift to digital and the OTT channel business is happening much faster than anyone expected and this new capital has made it clear to our existing and potential OTT channel partners that we have the resources and commitment to quickly grow the business. We have also utilized this capital to support several accretive new genre movie slate funding’s which will benefit our channels and we continue to closely evaluate additional content library acquisitions, low-cost original content and potential acquisitions in this digital area.

As always we remain very balanced and cautious in our evaluation of these acquisition opportunities particularly since all of the recent high profile and high priced M&A activity in the digital network space has created a seller’s market.

Given the success we have already had lining up partners for our channels we are currently focused on attractive opportunities to invest behind our own internal development which also has the clear benefit of not having to pay those overheated multiples.

However be assured we’re positioned to move rapidly when and if the right accretive acquisition opportunity presents itself.

Now let’s talk about our base business. It's important to note that during this time of historic shift to digital in the overall entertainment distribution business, Cinedigm’s capabilities in all facets of content distribution from physical and digital distribution to theatrical releasing in digital networks are entirely inter-related in a virtuous circle. They all support and feed one another. For example, content owners want a full service distributor that can manage the physical to digital transition and that is direct with all major retailers. So, even in this time of declining physical sales our large physical footprint and partnership with Universal for physical manufacturing is a key differentiator.

We also secure superior shelf space and marketing support from our retail and digital platform partners like Walmart or iTunes because our theatrical releasing business provides valuable first-run content on top of our large volumes from our library. Movie producers value our scale in our digital channel distribution as a unique offering compared to our competitors. Our digital networks benefit from a growing library, our new releases and our ability to monetize this content across all physical and digital platforms and not just for an OTT channel. And so this cycle continues.

To feed this pipeline during fiscal year 2014 we released 14 movies theatrically and acquired the distribution rights to 10 independent movies and have plans to release at least 10 movies in fiscal year 2015. Kelly Reichardt's film Night Moves starring Jesse Eisenberg and Dakota Fanning was released subsequent to fiscal year-end and we have five movies now in our upcoming release slate including Open Windows starring Elijah Wood and Song One starring Anne Hathaway. Additionally subsequent to fiscal year 2014 we announced several slate output deals and are finalizing several more as we add this new line of original movies to our platform.

This is another example of how we’re putting our strengthened balance sheet to work and Adam will speak more about this in just a moment. As we discussed in our last call, our base business is not without it's challenges, particularly over the short term as we accelerate our digital OTT pivot. We continue to deal with the overall market decline in physical sales by focusing on more commercial product and aggressive marketing. We also are refilling our sales pipeline which is largely dormant for a year at GVE while the division was up for sale by their parent company.

And we need to complete the transition of our back-office to Universal, a very involved and complex process that unfortunately has already caused some shipping and reporting issues. Finally as I mentioned previously the shift to digital is happening much more rapidly than anyone anticipated. So we will accelerate our investment in OTT now. Quickly launch a portfolio channels and grab beachfront real estate in this space immediately while we have competitive first mover advantage versus our less nimble more larger and more well-capitalized potential competitors. All of this will put pressure in our near-term financial results but ultimately all this short term activity should help strengthen our base distribution business and create a strong and sustainable OTT business with doubled margins and higher potential valuation multiples from all of our new recurring revenue streams.

Finally we’re very pleased that entertainment industry veteran Jeff Edell has joined us in the role of Chief Financial Officer. Having worked closely with Jeff at DIC Entertainment while I was a Director there I know he can create an effective financial operation and manage a first-class financial effort at a public company. He is a classically trained CFO holding a CPA that he earned while working at KPMG and with significant private and public company experience as well as a deep track record in finance and accounting, reporting, systems, M&A activities and business development. He has extensive experience in new media and technology which will also serve us well over the long term.

I know Jeff will be a great addition to our management team and he will introduce himself later in the call.

And now Adam will review our financials and discuss key growth drivers.

Adam Mizel

Thank you Chris. I will begin with the brief review of our financial results and then discuss our general expectations for the fiscal year ahead. Revenues for the fourth quarter were $31.7 million a 61% increase from 19.6 million in the year ago quarter. Adjusted EBITDA from continuing operations for the quarter was 16.9 million in comparison with 15.3 million in the year ago period. Non-deployment revenues for the fourth quarter were 20.3 million, a 206% increase with 10.4 million of this revenue growth attributable to revenues of GVE.

Adjusted EBITDA from non-deployment operations for the quarter was $6.1 million up from 2.7 million in the year ago period. Growth in non-deployment EBITDA was offset by lower virtual print fees as 30 wide releases were released in this quarter as compared to 36 in the prior fiscal year. Now to discuss the fiscal year 2014 total results. Revenues increased 29% at $104.3 million during the fiscal year as the CEG business expanded by $27.3 million or a 170% year-over-year of which 21.3 million is directly attributable to revenues of GVE earned from October 21st through the end of our fiscal year. Organic CEG growth was driven by expansion and distribution fees earned from one, the recent acquisitions of physical and digital distribution rights of home entertainment titles. Two, expanded fee revenue and monetization of our library of now over 52,000 movies and television episodes and three, revenues from theatrical releases that have reached the home entertainment window.

This growth is partially offset by $4 million decrease in our non-controllable deployment and services revenues due to as we have discussed a little bit earlier a reduced releasing calendar, as a 118 wide titles we will release this year as compared to a 135 wide titles in the previous fiscal year. Constraint booking patterns on many tent-pole and wide studio releases as there is 118 wide titles were crowded into the peak summer and holiday seasons and confronted limited screen space and three several underperforming blockbusters received smaller releases and historically common given the constrained screen environment.

The company reported adjusted EBITDA including it's Phase I and Phase II subsidiaries of 55.7 million for the fiscal year down 1% in comparison to 56.4 million last year. The approximately $4 million reduction in EPS and service fees we discussed previously all directly reduced adjusted EBITDA dollar per dollar offsetting the solid growth in CEG EBITDA.

Adjusted EBITDA from non-deployment business was a $9.5 million during the fiscal year increasing 59% from 5.9 million for the previous year. We also repaid $41.1 million of our non-recourse debt from the recurring EPS cash flows we continue to use to delever. As Chris outlined earlier we have a tremendous opportunity to leverage our core content distribution business to drive shareholder value creation as we pivot into the digital networks arena. OTT Digital Networks offers Cinedigm the opportunity to build a high-growth recurring revenue entertainment business with expected 40% to 50% EBITDA margins on top of our 15% plus margin distribution infrastructure. We believe we can launch each of our channel efficiently with approximately a $2 million upfront fixed investment due to our existing infrastructure and deep content library then upon a successful channel launch each channel can and hopefully will acquire and additional marginal investment to increase our content rights which we can also uniquely monetize both on the channel and in our core physical and digital distribution markets and to accelerate customer acquisition and marketing expenses.

Our goal is to launch channels that each can within 2 to 3 years command 200,000 to 1 million subscription video on demand subscribers each paying us $4 to $10 per month depending on the channel and content as well as 100s of 1000s to million plus of advertising video on demand viewers generating strong $10 to $20 CPMs.

Some examples of successful OTT Channels include Glenn Beck’s direct to consumer TV. This channel is rumored to have 450,000 to 500,000 subscribers all paying $9.95 a month to access curated and conservative political content, generating roughly 60 million in annual revenues. The Chernin Group paid approximately $100 million for 60% of Crunchyroll and anime channel with approximately 350,000 estimated subscribers each paying 695 a month and generating $25 million to $30 million annually in revenue. The potential for our OTT business is huge and real. Just like Netflix, Amazon and Hulu we will invest to achieve this high value recurring revenue subscriber base. As such we currently maintain very flexible budgets to respond to market opportunities. We have already announced three channels with one to two more in the pipeline assigned. Our required investment in aggregate will be higher than what we assume just 60 days ago and we’re thrilled because of the great opportunities these new channels represent. We can make these aggressive and value creating decisions because of our strong capital base.

In addition as we look forward into fiscal year ’15 we continue to expect our solid base content distribution business and our stable recurring revenue digital cinema servicing businesses to provide strong and increasing cash flow to Cinedigm as they have in the past as well as a platform to support our digital channels. That said as we discussed in our last call we immediately focus post-closing the GVE acquisition on rebuilding a relatively bare a new sales pipeline that was neglected during in almost 12 month corporate sales process. We’re seeing results already. Fifteen new customer signed since January representing over $30 million of annual gross revenues.

But a limit [ph] amount of this revenue in business will flow into fiscal year ’15. New distribution label customers typically do not contribute to revenues for 5 to 7 months post signing due to long lead times and securing retail shelf placements and clearing/negotiating digital licensing and rental platform shelf space.

In addition our new content production partners like RapidEye, Viva and VMI plan to each produce 3 to 5 movies a year for our multi-platform distribution but again they need to make those movies first, revenues will typical arrive 9 to 12 months after signing a deal. We’re purposely seeking to diversify our content slate outside the traditional festival acquisition circuit of quality new releases we can distribute in all channels. Our key customers like Walmart, Netflix, Amazon and iTunes to name a few place a high value on these new releases and we can increase our revenue diversification.

As Chris mentioned earlier we’re securing these new customers because our strengthened balance sheet enables us to credibly make multiple-year financial commitments. In addition to these already closed producer contracts we expect to add 2 to 3 more in the relatively near-term. We generally expect each of these partnerships to add $1 million to $2 million of EBITDA per annum at full volume very meaningful to the performance of our base business. In particular they will start to contribute later this fiscal year but even more so next year as these partners reach full production scale. This area is and will continue to be an accretive and important use of our capital raise.

Fortunately several of our recent labels including the National Hockey League and others are signed with an up lead time [ph] to contribute to the all-important Q3 holiday season. As a reminder our first two fiscal quarters are always the seasonally slowest quarters of the fiscal year with much lower sales and earnings than the holiday Q3 and Q4.

Given this seasonality the issues with Universal that Chris mentioned on the physical conversions and the normal course 6 to 12 months of lead time to see the impact of newly signed business on our financial results and the launching of our digital channel commencing this fall, our growth will clearly be in the second half of our fiscal year. We’re focused on the opportunities ahead as we lead the land grab [ph] in digital channels and revitalize our content distribution engine.

I will now turn the call to our new CFO, Jeffrey Edell to make a few comments.

Jeffrey Edell

Thank you Adam. I’m very pleased to be part of the Cinedigm team and I appreciate the confidence Chris, Adam and the Board has put in me during this very exciting time at Cinedigm. To reiterate what Chris said Cinedigm is exceedingly well positioned to succeed in the quickly transforming entertainment distribution landscape and a growing organization of this size and ambition will require an ever more sophisticated financial organization backed by collusive systems and financial reporting processes. We’re committed to making the appropriate investments in people and systems to achieve this goal. We need to be on top of our financial game and I’m confident my extensive experience and track record will help get us there. My background in New Media including my role as Chairman of Intermix Media the parent company of popular social networking giant MySpace as well as my venture capital experience in the social media and entertainment arenas provide me with deep experience and insights that should contribute great added value to Cinedigm. I’m excited to be here at Cinedigm and I look forward to taking a more active role in these calls in the future.

And now I will turn the call back to Chris for some closing comments.

Chris McGurk

Thank you Jeff and thanks Adam. The digital revolution that Cinedigm has been preparing for and facilitating is officially here in full force and I’m pleased that our efforts over the last three years have positioned the company so well for this moment.

As we have just reviewed our digital networks business is moving forward full steam ahead with three over the top channels already announced and more in the pipeline. For this new channel business content will be king and strong brands will dominate and Cinedigm strategy revolves around both of those key elements. We look forward to growing this high margin and potentially higher multiple OTT business significantly over the next year opening up three new recurring streams of revenues and profits for the company. We will also expand our physical and digital distribution business during this time of challenging industry change.

Cinedigm is now positioned strategically as the only small cap public entertainment company poised to take full advantage of the valuation upside potential from the industry shift to digital. We believe that is a very strong hand to play for our shareholders.

We thank you for your support, time and attention today and look forward to sharing our continued progress on next quarter’s call. And we’re now happy to answer any questions you might have.

Question-and-Answer Session


(Operator Instructions). And our first question comes from James Marsh from Piper Jaffray. Your line is open. Please go ahead, sir.

James Marsh - Piper Jaffray

I have three quick questions here. First Chris, you talked a lot about the advantages of rolling out over the top networks, can you talk about some of the challenges to rolling those networks out and just I guess specifically what you guys are doing to avoid those potential pitfalls. Secondly I will just (indiscernible). On the Dove Channel could you just remind us what the timing there is and what whether that will be a subscription or an advertising based channel? And then just lastly Chris I think you mentioned Universal shipping and the reporting [ph] issues, I was hoping will get a little bit color on that front.

Chris McGurk

Okay. Well the easy one first is the Dove Channel roll out. We’re looking at the probably toward the end of the first quarter of next calendar year for that roll out and we’re going to launch out similar to the way we’re going to launch the Comic Con channel which really is a hybrid channel. It will be both advertising and subscription based, there will be a pay via [ph] in it. So the second question, the Universal issue, we have a huge volume of both film and television content in our library of rights since we acquired GVE and transitioning all of that over to the back-office at Universal and transitioning it into their systems, into their reporting, et cetera, et cetera we knew was going to be a huge challenge from the beginning and I think it would have been highly unlikely for us to get through that without normal transitionary issues and we have experienced some in the last couple of weeks. We’re not sure the magnitude of those issues yet which will impact this quarter not last quarter and we will have a better idea of that within the next couple of months.

Finally you asked me about sort of the challenges and pit falls of launching these channels, I think the biggest issue that we have is as we said our strategy is to match up our library of content with branded partners that can bring an audience to the table. I think probably our biggest issue is trying to sort through really the literally 10s if not 100s of opportunities we have in this space and really try to hone in and focus on those channels that we can launch in the most effective way, grab that beachfront real estate that we talked about and grow our subscriber and our advertising base as quickly as possible. That really is the challenge that we’re facing right now. We think that the three channels that we have announced so far have huge potential and really leverage our library and our brands. We have got a couple of announcements probably coming in the next 60 days and those announcements we have honed in on after having evaluated 10s of opportunities out there in the marketplace.

So our biggest challenge again is to identify those opportunities that we can jump out and be a first mover, secure an audience, leverage our library and create a sustainable stream of those revenues that I talked about.

Adam Mizel

The only thing I would add on that last set of points that Chris made is that as we have always said the two most expensive pieces of launching these channels are the content and the customer acquisition and so I think when you look at risk they should be in those two areas, we bring a lot of content so that reduces risk. We’re often creating original content and/or at a low cost or acquiring some additional library content to broaden the offering so that we have what we believe is a compelling offering at launch and so we need to do that and do that in a timely basis and then on a cost effective basis get those customers in the door both on AVOD and SVOD sign-up. That’s why we go on the brand partner route because we think that minimizes that risk because our partners bring an embedded customer base and relationship set that we can market against very quickly. I think getting that momentum in critical mass on the customer side which generates revenues then makes the next five steps a lot easier because you’re investing your revenues; you’re not investing your capital. So doing both of those things are really the key focus and doing them well for our launch is what we have to get right and if right now, we have a lot to do and we won't launch these channels until we have those two things right because if you do -- if you launch it too soon then you only have one chance to make that first impression.

So that’s where we’re focused and I think the risks and the opportunities and we think we structured it appropriately to mitigate the risks.

Chris McGurk

And one of the thing that just jogged in my mind about the -- bandwidth is very important to us here too. I mean we’re not a giant studio, we’re not General Electric, we got around a 100 employees in total and we’re very mindful of the fact as opposed to some of our competitors out there who are saying they are going to do 100s of channels, 100s of niche channels in this OTT space, we think we have got a strategy that makes a lot of sense in partnering with brands that bring a ready audience to the table. We will be happy with 10 or less channels as long as those are the right channels that are very effective against the audiences that we have targeted and our goal is to release probably ultimately between 5 to 10 of these channels as opposed to 100s of channels out there because it's more important for us to launch the right channels and get them right and not stretch our bandwidth too thin.


(Operator Instructions). Our next question comes from Andrew D'Silva from Merriman Capital. Please go ahead. Your line is open.

Andrew D'Silva - Merriman Capital

I just have a few quick questions for you. First off could you breakout your segment revenues for the quarter as well as what services revenue were for the fourth quarter and full year of fiscal year ’13 since software is no longer included in the historical figures?

Chris McGurk

I don’t know if I have it in my fingertips, it will be in the 10k that will be filed tomorrow. But as we said quickly in the comments I mean and now since the non-deployment revenues for the quarter were $20.3 million that’s the combination of servicing and content. I have to dig them all out and I’m happy to look for it but why don’t you keep going because that will take a couple of seconds.

Andrew D'Silva - Merriman Capital

Okay that’s fine. Could you then provide a little context on where you’re on your J-Curve for theatrical content acquisitions? Should we start to see it smooth out since you’ve already had a pretty strong release schedule last year with 14 films and then do you have an estimate on how many theatrical releases we should expect fiscal year ’15?

Chris McGurk

I think our goal this year is 10 to 15 releases, one of the reasons we are entering this production partnerships that we talked a bit about in our comment is that they will provide for us a very steady predictable stream of theatrical releases with 3 to 5 new movies from each of these producers every year most of which we do theatrical and every other ancillary market in addition to what we may acquire at festival or a screening will have a steady stream of you know it's that point hopefully 12, 14, 15, 16 movies that we supplement with one-off acquisitions and so this is sort of that transition year where we will continue to release movies that we have been acquiring and as we said we think at least 10 of those and then the question for us is how many come out of our production partners really the last fiscal quarter because they are gearing those up as we speak and there are a couple of people we’re talking to now who has some movies more or less in the can that we may find ourselves releasing this fiscal year if we get a deal done with them.

Andrew D'Silva - Merriman Capital

Are you still able to acquire though the content or at least help produce the content at favorable terms? I mean a year ago we were talking about between $250,000 to $750,000 for an acquisition cost for a theatrical release to film?

Adam Mizel

Yes we’re looking at very similar things and in fact one of the reasons we’re creating the partnerships with various producers is and I think Andrew you’re not talking about what’s in the past and in some ways if you liken it to the general cause of the venture investment cycle, there is seed round which and I think in the film world would be funding a script all the way to pre-IPO which in the film world would be buying a movie at a film festival. We think it's prudent to have cult movies coming from multiple stages along that spectrum because at different points there is greater or lesser levels of inefficiency effectively in the pricing and one of the reasons we’re moving into these producer deals is we can secure a much more predictable stream of product, we also think the economics right now are good or better than going to a festival and competing with lots of buyers at a screening. I think that festival dynamic is already starting to change and pricing is becoming a little more attractive and a year from now we may be more aggressive in the festival side. So we want to be able to move the levers where we see the best economic opportunities.

Chris McGurk

Again emphasizing our per film investments in these multi-picture deals are about the same as what we were investing before in the festival circuit. In here we have the ability to have more input into the commercial elements in the film, the casting those kind of things and in the genre which is going to improve hopefully the revenue profile of these pictures for us at the same level of investment.

Andrew D'Silva - Merriman Capital

And the last question I have other than segment revenue breakouts is, could you provide some metrics for Docurama. I believe you said you had a 165,000 application downloads. Do you know how many unique visitors have actually viewed films off the application and then could you give a little bit of a color on some CPM metrics you’re able to obtain at this point?

Chris McGurk

We really only have four weeks of data and it's coming in right now. So I think in the next call in August we will have 3-4 months of data and we will be able to lay that out for you. It's not really meaningful right now.

Adam Mizel

And to answer your first question, the content and entertainment segment had 17.5 million of revenues in the fourth quarter, the services segment 2.8 million rounding it off and then the deployment segments for the rest, 8.5 in Phase I and 2.8 in Phase II.


And our next question comes from (indiscernible). Your line is open. Please go ahead.

Unidentified Analyst

Chris, recently I was reading the what went on at the Gabelli Conference and reading about what Bud Mayo had to say and the possibility of Monday through Thursday nights in the Cinemas streaming in the live concerts, religious shows, sporting events to try to create some cash flow to theaters when they are dark during the week and the idea came, I just wondered if you have ever been approached with Broadway shows of possibly buying that content and creating a channel for Broadway shows after they have closed taping them in HD and doing those through some of these other channels, networks, platforms and/or directly through your service division into Carmike and Regal and some of the theaters on those Monday through Thursday nights, the possibility. I just wonder if anybody in your organization has looked at that because it already has built-in advertising exposure and for all of these people around the country who cannot afford to go to New York or to pay those expensive tickets to the shows and it would give a revenue stream to the shows after they have closed and I just wondered if that’s anything you all have ever looked at?

Chris McGurk

This whole area of alternative content in theaters Monday through Thursday remains a big upside opportunity for the business and other than the Metropolitan Opera I don’t think anyone is really figured it out yet in an economic way that can create a lot of value. We think there is an opportunity that exists there and I will tell you this whole area of bringing Broadway to theaters is something we have talked about and it is one of the channel ideas that we are having a conversation about. The issue specifically for Broadway is there are a lot of union issues and things like that that make it difficult to really pump that content into theaters in a profitable way but that’s not to say that we can’t work that out and figure a way to do that.

So it's something that’s sort of on our development list and we’re working on. I do think that for the channels that we have already announced, once they reach critical mass there maybe an opportunity to bring those over the top channel presentations back into theaters. I think Comic Con is a perfect example where you could in markets where the Comic Con's don’t go with their live conventions and you could designate, Monday or Tuesday night, the first Monday or Tuesday night of every month as ConTV night in your local theater. Encourage people to come in the same way they go to the Comic Con's dressed up in their Star Trek and Star Wars outfit and do a couple hour presentation maybe a mix of a live presentation from a Comic Con with some recorded shows that maybe run on the Comic Con channel and just create regular programming in theater on an ongoing basis and I think that might be a perfect way down the road to sort of fill that void in theaters during the week. I know theater owners would love the idea and it would be a way for us basically to further monetize our channel, drive subscribers and interest advertisers in the Comic Con concept.

So that’s an idea for the future for our current channels, we’re going to continue to look at the idea of bringing Broadway plays to the middle of the country and we will see how that develops.

Unidentified Analyst

I’m in talks with some people in Broadway that have three shows running now, Tony winning shows and we’re putting our heads together and seeing what we can come up with and it's diverse content for the theaters and -- thank you very much.

Chris McGurk

It's a good idea and get in touch with us for the show (indiscernible) maybe we can have a conversation.

Unidentified Analyst

Michael, (indiscernible) remember that.

Chris McGurk

We got it. Thank you.


Thank you. And our next question comes from Shriram from Sabre Capital [ph]. Your line is open. Please go ahead.

Unidentified Analyst

Question about Docurama, how are you going about building awareness for that channel and how far in advance are you selling the ad-inventory?

Chris McGurk

The last question, I mean basically the ad inventory we use -- we are working with an ad-network partner and it's generally sold in the -- anywhere from I think spot to 30 to 45 days in advance, as Chris said we have been sold out so far so it's getting sold reasonably well in advance that’s one. In terms of advertising and marketing it, we really relied upon good press, good word of mouth. We’re not spending high dollars on the marketing of it. We’re getting good placement from the platforms like Roku and we will be live on Android and iOS very shortly with very good placement so we’re relying on that to start and we’re having a number of interesting conversations with branded partners to join us in the Docurama effort. We decided to launch that one that channel in advance of having a partner because we had such an extensive library and an established albeit modest brand. We want to get out there and get it going and we thought that would be the right way to attract the right partner and whereas the result of having an number of very interesting conversations with very interesting partners to join that effort and I think that would be the next step up in terms of marketing and energy because we will be leveraging the brand and that customer base and so that’s when we have done it in different order than the other channels and in some ways I think that was because it was first.

Unidentified Analyst

Got it. And so I take it then there is no thought about putting real marketing dollars behind this, it's just let it grow word of mouth organically and through partners?

Chris McGurk

Yes I mean I think it gets to James’ earlier question, what’s the risks throughout these channels? Well you start to incur much more significant risk if you have to invest millions of dollars in marketing and customer acquisition. Our strategy is to partner with a brand who brings customers content relationships that will effectively reduce that upfront marketing investment, we would rather share ownership and have economic alignment through an ownership share with a brand you can bring customers then to say we have to go spend significant dollars to try to acquire customers and breakthrough the noise.

We think that’s the right trade both short and long run and that’s what we’re approaching all of these channels in that model.

Unidentified Analyst

And then last question, you explained as it relates to the guidance you gave for the fourth quarter in February, you explained on the deployment side part of the shortfall. What was the big driver on the non-deployment side of the business where you’re short of the guidance you had given in mid-February?

Chris McGurk

We were about in the range of our EBITDA guidance for our non-deployment business, it's $6.1 million. We said 5.8 to 7.1 I believe. The revenue variance as we have talked about many times can often depend upon the mix of licensed and effectively own the product where we consolidate all revenues, all expenses including the -- have a royalty expense out to our content owners versus a distributed product where we are just the distributor and the only thing that hits our financials is our fee. So the mix of what we sell can impact revenues ultimately they have similar dollars of margins, they can have obviously different percentages of margin because of what I just described. So on our non-deployment business we were right where we expected to be in our guidance from an EBITDA perspective.


Thank you. And our next question comes from Quinn Goldman from Park City Capital. Your line is open. Please go ahead.

Quinn Goldman - Park City Capital

It sounds like very clearly you’re going to be kind of ramping up your investment in growth, so I was wondering if that’s going to detract from kind of the debt pay down plan you guys have got for 40 million a year or so. Thanks.

Chris McGurk

No because the pay down of our non-recourse debt is driven by the virtual print fee revenues in the deployment businesses which are effectively as we have talked in the past (inaudible) and wrapped in a separate subsidiary this non-recourse to the company that all happened. So we should be paying down that $40 million to $45 million of non-recourse debt every year as we have been for the past couple of years and we will keep doing that until we pay that down. So that one is changed.


Thank you. And I’m showing no further questions at this time.

Chris McGurk

Okay. Thank you all for your support and we look forward to updating you on the next call. Thank you.


And ladies and gentlemen thank you for participating in today’s conference. This concludes our program. You may all disconnect and have a wonderful day.

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