Cinedigm's (CIDM) CEO Chris McGurk on Q1 2014 Results - Earnings Call Transcript

Aug.14.14 | About: Cinedigm Corp. (CIDM)

Cinedigm Corp.. (NASDAQ:CIDM)

Q1 2015 Earnings Conference Call

August 13, 2014 5:00 p.m. ET

Executives

Chris McGurk - Chairman & Chief Executive Officer

Jeffrey Edell - Chief Financial Officer

Adam Mizel - Chief Operating Officer

Jill Newhouse - Executive V.P of Corporate Communication

Analysts

James Marsh – Piper Jaffray

Andrew D’Silva – Merriman Capital

Eric Wold - B. Riley & Co.

Zvi Rhine – Sabra Capital

Jim Goss - Barrington Research

Operator

Good day, ladies and gentlemen, and welcome to the Cinedigm Corp. Fiscal 2015 first Quarter Earnings Call. At this time all participants are in a listen-only mode. Later we will have a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the call over to Jill Newhouse, Executive V.P of Corporate Communication. Please proceed.

Jill Newhouse

Good afternoon, and thank you for joining today's first quarter fiscal 2015 earnings conference call. Participating in today's call are Cinedigm's Chairman and Chief Executive Officer, Chris McGurk; Chief Operating Officer Adam Mizel; and our 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, August 13, 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 McGurk

Thanks Jill, and thanks everyone for joining us today. We had our full fiscal year in 2014 call less than two months ago. So today I'll provide a very brief update on our quarterly results and business stats. After that, Jeff will review our financial results followed by Adam, who will discuss our key business drivers. Then I'll follow up with a review of our high potential OTT Digital Networks business and strategic outlook. So let’s get started.

Two years ago, we acquired the largest aggregator of digital content in North America, New Video to complement our digital theatrical business. At that point, we began to develop a strategy to pivot the company to become a strongly positioned first mover in the emerging over-the-top digital network business. As many of you know, we began to highlight that objective in our earnings and our investor calls. Last October, we acquired GVE to expand our library of physical and digital rights, strengthen our distribution machine and secure the content and infrastructure necessary to accelerate the launch of our digital OTT networks. With both of those acquisitions completed, we quickly built a two-part plan to drive our business forward in a rapidly changing entertainment landscape.

First, we shifted our home entertainment content acquisitions toward long-term partnerships with producers of high quality; cast driven, genre content that performs much better than traditional catalogue-based titles in the current environment. Second, supported by this more focused commercial content, we accelerated our effort to be a leader in the over the top digital network business. In this OTT business, we can clearly leverage our infrastructure and library in partnership with well-known brands to build high margin, direct to consumer, narrowcast channel versions of Netflix, Hulu or Amazon, each with multiple new high margin recurring revenue streams. And we have now seen numerous signs that this two-part strategic approach has been the right call, and we’ll share more about that with you shortly.

However, as this quarter’s financial results demonstrate, the industry’s rapid shift to digital will not always create a smooth and predictable path for us. The first fiscal quarter is historically weak due to seasonality. So we had low performance expectations going in. However, in addition to seasonality, the underperformance of the GVE acquisition as compared to expectations, and the accelerated decline of the physical DVD business in general, the main drivers of our disappointing non-deployment quarterly results were one-time events, linked to the completion of our integration of GVE into Cinedigm, which caused significant issues with the shift of our physical goods manufacturing, replication and distribution to a new back office fulfilment partner.

Simply put, the transition was much more challenging than we expected. Results were negatively impacted through lost sales and returns by up to $20 million of distribution and royalty sales, and up to $4 million to $5 million in EBITDA in the quarter alone, which exceeded our estimates of the impact when we first raised concerns about this issue on our call with you just a few months ago. However, we have now worked through these challenges with our back office partner and are clearly getting back on track.

For example, we are now managing the physical distribution of our largest title today, God’s Not Dead, which did $60 million at the box office. The results for this title in its first retail week have already significantly exceeded our DVD sales expectations. Look for more of these high impact faith-based and other more commercial genre titles in our release slate going forward as our new distribution partnerships ramp up, providing new content that will also help drive the growth of our OTT business. In a minute, Adam will go into more detail about our operating plans to enhance execution and drive growth in our base business while we pivot into OTT.

And now I’m going to turn the call over to Jeff to review the quarter’s financial results.

Jeffrey Edell

Thank you, Chris. As I pointed out on our last call, Cinedigm’s public status and business ambition require an ever more sophisticated financial organization, backed by collusive systems and financial reporting processes. In the 60 days since I’ve joined Cinedigm, we have begun the process of making the necessary and appropriate investments in people and systems to set the company up for future success, including the higher levels of required SOX 404 compliance work. We have also made a number of adjustments and investments this quarter to “reset the deck” preparing us to manage our growing business in the coming months and years. Finally, I will also be evaluating our financial reporting methodology and a key objective of ensuring that is optimally aligned with the transformed Cinedigm.

Now to review our financials. First, we saw solid results in both our deployment virtual print fees and our digital cinema servicing operations. We paid down over $10.1 million of our non-recourse debt due to the stable and recurring revenues generated by these virtual print fees. Revenues increased $4.3 million or 23% to 422.9 million during the quarter, despite being our industry’s seasonally slowest quarter. The CEG business expanded to $7.1 million in revenues, an increase of $3.9 million or 118% year-over-year, of which $2.2 million is directly attributed to a lower than expected increase in revenues resulting from the GVE acquisition. The remaining increase is attributed to organic growth from the addition of new physical and digital distribution rights.

As Chris just outlined and we noticed in our June earnings call, this growth was limited due to certain missed sales and higher than anticipated physical returns resulting from the conversion to a new physical goods back office partner as well as the overall transition and integration of our home entertainment business acquisitions. We took this opportunity to provide for adequate reserves and other impairments in the quarter to address the issues that arose around this conversion. We estimate the negative impact from these factors alone in the quarter represented approximately $4 million to $5 million in EBITDA. At the same time we continued to invest in our strategic growth plan, including adding seven key hires to the OTT team during the quarter, with several more planned in the next quarter.

The company reported consolidated adjusted EBITDA of $7.2 million in the quarter, a decrease of 26% in comparison to $9.7 million in the prior year quarter. Adjusted EBITDA from non-deployed businesses was a negative $4.9 million during the quarter from a negative $1.7 million in the prior quarter. The main drivers for the loss were the one time issues I just outlined. However, before I turn things over to Adam, I would like to emphasize how excited I am about Cinedigm’s shift into the OTT arena and the expectation of new recurring revenue streams from that business, which should provide both significant growth and less financial volatility over the long term. Adam?

Adam Mizel

Thank you, Jeff. While the industry continues to rapidly evolve, we have developed and are executing upon a detailed operational and strategic plan to drive Cinedigm’s continued growth and leadership position in content distribution. We’re focused on six key points. Number one, to continue to add new home entertainment customers with content that supports the digital, physical and OTT demand drivers today and in the future. Number two, eliminate customers that do not meet our return threshold due to the changing physical sales landscape. Number three continue to attack our cost base to ensure a right sized infrastructure while aggressively managing our fulfillment services supply chain and partnership for physical DVD.

Number four, focus resources to successfully launched ConTV in the late fall or early winter and our other new digital channels in the first two calendar quarters of 2015. We have every expectation of seeing significant subscribers’ addition and growth in 2015 around our channels. Support our OTT channels launch with low cost original programming that can both premier on our channels and be distributed in our home entertainment infrastructure. This IP can also then be utilized for sequels, remakes and new formats for years to come. Continue to explore accretive M&A, strategic partnerships and investments in our OTT channels that can accelerate growth.

Although we’re currently in another seasonally slow quarter, we’re already seeing positive results from this plan. Let me now address in more detail how we’re executing against this six point plan. Number one, as we discussed during our last call, we immediately focused on rebuilding the sales that were below expectations and were neglected during the almost 12 months GVE sales process. We’re seeing results already. 38 new customers signed since January, representing over $50 million of annualized gross billings and we’re managing a deep new sales pipeline beyond that. This includes recently announced partnership with Great Point Media, Rapid Eye, Viva and BMI, each who plan to produce and deliver three to five movies a year for multi-platform distribution beginning in fiscal 2016. We believe our focus on more commercial genres and talent driven content is the appropriate strategy to drive strong digital and physical results.

As Chris mentioned earlier, our very successful DVD release last week of God’s Not Dead, is an example of the types of content we’re targeting, a faith-based movie that can also be core content for our Dove-OTT channel. Number two, we have and we’ll continue to re-examine all of our labels to ensure they meet profitability standards. Through that process for instance, WWE will leave us to the end of this year as they did not accept a renewal proposal that allowed us to earn an acceptable return. This was an easy decision for us as WWE has underperformed expectations and is at best now a lower volume breakeven customer. This will be addition by subtraction. We believe the DVD back office fulfillment issues that drove most of the downside in the first quarter are behind us. They arose mainly because of the breadth of our catalogue, complexity of our business and an accelerated transition timetable.

Our new head of entertainment operations who has previously led major studio conversions while at Summit in DreamWorks, has made a huge difference here in a short period of time. Our supply chain partners have thrown significant resources at the problem and we are now north of 95% of optimal performance levels. Despite the short term issues, we believe we have the right supply chain and business partners for the long run.

To ensure success number four, we are scaling up our OTT team and resources. We expect that group to grow to 15 to 17 employees by the end of this quarter, while continuing to utilize the exiting Cinedigm infrastructure. We are laser focused on the ConTV launch as we acquire content, secure advertisers and put in place customer acquisition plans. All signs point to the fact we have a terrific opportunity here at ConTV as well as the upcoming Dove channel and our existing Docurama offering. We expect one to two additional channel announcements in the months ahead.

Just last week, number five, we announced the acquisition of a new original series for ConTV, The Fight of The Living Dead, that features nine YouTube stars with a reach of over 10 million fans. We are excited to launch this series in late fall using the flexible windowing strategies available to us, including early access for ConTV subscribers. We have more new programs lined up for the channel as well as a production team working on both live streams and recorded panels from upcoming Wizard World Comic-Con. This new business area will be a key component of our future growth.

Number six, as Chris, will outline in greater detail momentarily, we have been approached by a number of strategic partners to invest in our channels individually or as a group to create content acquisition and production partnerships and to or to align with Cinedigm given our first mover position in OTT channels. We are exploring all of these opportunities through three lenses; accretion, acceleration of growth and lowering of execution risk.

In conclusion, we believe the majority of the first quarter’s transition issue are now behind us and we are well positioned for the future as our two part growth strategy takes hold. However, even with our larger scale, we are still operating in investment mode in a business that by its nature experiences significant swings in quarterly performance and seasonality impact. Over the next 12 months to 18 months, in addition to the $7 million and $9 million of stable recurring servicing EBITDA that we generate annually, we expect to emerge with a more stable home entertainment business and a rapidly growing and high margin OTT business with new recurring revenue streams that will also have the added benefit long term of reducing the volatility in our financial results.

And now I’ll turn the call back to Chris.

Chris McGurk

Thanks Adam and thanks Jeff. Digital technology now allows flexible entertainment companies like Cinedigm to completely circumvent the established studio, cable and satellite infrastructure and deliver a highly curated content directly to consumers on every connected device and platform. And the enormous potential of this new digital delivery ecosystem is clearly evident now in the industry. From the Chernin Group’s $500 million deal with AT&T called Otter, AT&T’s proposed acquisition of DirectTV, Disney’s up to $950 million acquisition of the multi-channel digital network Maker Studios, the acquisition of multi-channel digital network Fullscreen at a $300 million valuation by Otter, the WWE and NFL’s launches of their own OTT networks, and News Corp’s attempt to acquire Time Warner with a key goal of repositioning HBO to battle Netflix, are all strong examples of the industry’s realization that OTT streaming channels will be a huge part of the future of the entertainment business.

Already the audiences and revenues attached to these streaming channels are sizable and rapidly growing. The ultimate general entertainment example of this is Netflix, of which our channels will be narrowcast versions. Netflix now has 50 million subscribers, passing HBO’s subscriber level after just seven years as a streaming subscription service. Crunchyroll, the popular narrowcast OTT anime network, now has an estimated 375,000 subscribers each paying about $7 per month, generating roughly $30 million annually. The Chernin Group paid $100 million for 60% of this channel. Another example is Glenn Beck [lace] TV which is expected to have over 450,000 OTT subscribers, each paying about $10 per month, and is generating approximately $53 million annually from subscription fees alone.

Importantly, we believe that our Comic-Con and faith-based potential audiences are as large as or larger than most of these existing narrowcast OTT channels. In just last week, Strategic Analytics announced that the OTT video market reached $10.7 billion in revenues this year, an increase of 21% from the prior year. By 2019, OTT revenues are projected to reach $18 billion, surpassing DVD revenues.

Over the last two years, we have completely pivoted Cinedigm to become a first mover in this burgeoning business. This will open up three completely new, high margin recurring revenue streams for us; subscription fees, advertising and merchandising. Whereas the biggest content distribution business is about a 15% margin business, these new revenue streams, combined with the advantage of our already existing infrastructure in Digital Studio, should drive 40% plus margins for us in OTT, and potentially create a much higher multiple business for us in traditional distribution. And just like the early days of Netflix, Amazon and Hulu, we need to invest now to garner this high-value recurring revenue streams.

Our OTT channel Docurama is already available on 165 million devices with 175,000 uploads on Roku alone. In the coming weeks, Docurama will be available on Android and iOS for the first time, providing the next leg of growth for this channel. ConTV, with branded partner Wizard World Comic-Con, is already garnering consumer and advertising excitement, as is our faith and family Dove movie channel with branded partner, The Dove Foundation. All three of these new channels will be up and running in the first half of next calendar year, and have generated very strong industry interest from producers, potential investment partners and advertisers.

Additionally, we have two more high potential channel ideas with well-known branded partners in the pipeline. As all this activity indicates, we believe we can quickly build a portfolio of channels, each with the ability to attract multiple hundreds of thousands of subscribers within three years, with each customer paying $4 to $10 per month in subscription fees, and with strong advertising and merchandizing revenues on top of that. The math for all of this is quite simple and it adds up to a 40% plus margin business for us. On top of that, the OTT business quickly has the potential as evidenced by all the recent transactions in this space I just mentioned of much higher multiples in value creation, with even more value creation on top -- opportunity on top of that because we will be owning audiences with well-defined demographics that want direct access through our curated content.

Our efforts to grab beachfront real estate in this OTT space are attracting significant industry attention. As we are now engaged in a number of strategic discussions with entertainment entities and financial groups that understand the strength of our positioning in the OTT space are attracted to our public currency and are seeking strategic and or financial partnerships with us. We believe this interest clearly validates our strategy and supports our aggressive company pivot to OTT. We think that is a 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 are now happy to answer any questions you might have.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of James Marsh with Piper Jaffray. Your line is now open. Please proceed with your question.

James Marsh – Piper Jaffray

Great. Thanks. Two quick questions here. First on this back office transition, it sounded like you guys have taken all the appropriate write downs and impairments at this stage. And I just want to get a sense of how comfortable you are with additional write downs from here. I just want to moderate that risk or just get comfort that that risk is moderated going forward. And then secondly, just to follow up on the comments you made about the WWE and I guess you are optimizing your library. You mentioned that the returns were I guess below part. Just trying to get a sense, are they just lower than what you guys want or were they actually negative? Thanks.

Chris McGurk

This last quarter it was a good opportunity for me to take a look through all the accounts and I feel pretty comfortable that we’ve taken a conservative view and reflected necessary write downs in reserves related to what you just asked about. So I believe we are covered from a universal perspective.

Adam Mizel

James, it’s Adam. On the WWE renewal, that business over the last 24 months has declined significantly as they have shifted their business model accordingly. And so when we look at the expected revenues going forward and the expected return rates that go with that and ultimately the margin we’ll earn and the cost in servicing that business, we made a proposal to them that we thought was profitable and made sense for us and should make sense for them. They didn’t want to do that. They were looking for a deal that I think would have relied on us -- at us losing money and we are not in the business of servicing customers while we lose money.

Operator

Our next question comes from the line of Andrew D'Silva with Merriman Capital. Your line is now open please proceed with your question.

Andrew D’Silva – Merriman Capital

Good afternoon and thanks for taking my call guys. Just have a few question for you. With that back house transition that you were talking about, did you have any other attrition or impact from either your content relationships with Discovery, National Geographic etc.? And also in the same regard, any of your distribution relationships, were they impacted at all Walmart and Target for example? Any color on that will be great.

Adam Mizel

Sure. Andy, it’s Adam. Certainly the transition was neither fun for us nor our labels, our customers, but we have good long term relationships and they understand and we communicated with them significantly. And I think people are satisfied and are fine. We have not had any other fallout or concerns from that and we have pretty good – we talk with our customers quite frequently. As it relates to our retail partners Walmart or Target or BestBuy, they too go through these all the time. And so understand where and what happens. I’d say we’re very confident we have strong relationships number one and they are all very happy with God is Not Dead Right Now and its performance and our ability to support them. And as a new an example out of Walmart, about a month and a half ago they did a big -- they do an annual sales conference here in Los Angeles with their big distribution customers and typically they only invite the major studios because it’s focused on the major studios. We were the only independent studio invited and we were invited for the first time this year because I think that demonstrates the importance that they see in our relationship and the role we are playing for them. We feel pretty good about all of that.

Andrew D’Silva – Merriman Capital

Okay, great and then transitioning a little bit. Excluding recent content acquisitions that you’ve been on and opportunities with the OTT station, could you just quantify what your annual content revenue run rate would be going forward on a gross basis and then potential non-deployment EBITDA that we could expect from that if it’s in any way possible for you to do that?

Adam Mizel

As we said last call and we are not going to be giving guidance given the volatility and unpredictability in the business. I think as we said on the call we are having significant success in adding new customers who over the medium and the long run we think will contribute significant billings and ultimately EBITDA out of it. As we talked on the -- an example that we think we’ve added new business that when it gets to an annualized full scale which is going to kick in in the next fiscal year, annualized billings out of that of $50 million plus hopefully, that may not all hit our revenues because it depends on distribution or licensing royalty transactions. Typically as we’ve said in the past those are 20% dish fee deals. So that contribute so you can start to get to the gross margin from that that that will contribute.

There’s modest incremental overhead that we need for some of that business, but not much. So that’s what we see we’ve added. That goes against business we may lose because we don’t see it being profitable like we described in the WWE and or the natural pressures that every year there are certainly on the DVD business. So we certainly believe we are adding business that will continue to drive the stability and the performance of our home entertainment distribution arm. We’ve got to let that roll in and we can’t predict exact timing of when movies are released and when things happen.

Chris McGurk

And Andrew, as we’ve said a couple times in the remarks, we’re all looking forward to the point that’s going to start in the next calendar year when the three new streams of revenues begin to kick in from our OTT channels, advertising, merchandizing and importantly subscriptions, which as Jeff said over the long haul are not only going to help grow our business significantly, but they’re going to help over the long-term to smooth out the volatility of our results.

Andrew D’Silva – Merriman Capital

Absolutely. You’re riding on some big macro trends. I was just trying to get a sense of how the next couple of quarters would shape up in the meantime. And my last question, can you just provide me with what the DVD revenues were for the quarter?

Jeffrey Edell

Yeah. I think it was –

Chris McGurk

Sure. $7.2 million.

Jeffrey Edell

$7.2 million.

Andrew D’Silva – Merriman Capital

Perfect. Thank you so much guys. Have a good day.

Adam Mizel

And I’d just one thing is I think we were clear is the next – this quarter that we’re in is a seasonally relatively slow quarter and business is skewed in this industry to our fiscal third and fourth quarters. And so that’s where we’ll start to see a normal seasonal uptick in what we’re doing and more revenues and earnings to come from that.

Operator

Our next question comes from the line of Eric Wold with B. Riley. Your line is now open. Please proceed with your question.

Eric Wold - B. Riley & Co.

Thanks. Good afternoon. First question, a follow up question on the last one talking about kind of the $50 million in kind of gross spilling you have from this customer. Not looking for guidance per se on the quarterly or annual basis, but if you think about it, they represent over $50 million in gross billings and they will start coming in staggered. When would you expect to kind of be on the full run rate of achieving what you think that $50 million is? Is it 18 months, 24 months from now that you think all those is going to be up and running and turning through? I guess that’s the first question.

Adam Mizel

This is Adam. I’ll go first. I think as we described in our remarks is that business that we’re adding both here and in the OTT side, we’re really ramping and get closer to scale over the next 12 to 18 months. With a lot of the customers that we’re adding in our pivot and the home entertainment space, they’re producing and they need to deliver to us movies which – and television, but particularly movies that are first released theatrically and then enter the home entertainment markets. And so that’s why there is generally a 9 to 12 month lead time on when we have announced some of these new partnerships with the Great Points and the VMIs and the Rapid Eyes, all of which we have announced in the last few months. We expect to get the first movie delivered to us typically 9 months, maybe 12 months after we’ve announced the relationships. Sometimes it's a little sooner because they’re down the path. Sometimes it's a little longer. So that gets us into this time next year we would hope to be seeing a more steady stream of that new product coming through to us.

Eric Wold - B. Riley & Co.

Okay. And now on the strategic partners’ discussion you’ve been having – I'm going to assume that the content that you have and the content that you’re developing for these channels, you’d want to keep proprietary. And so you wouldn’t be looking to, kind of license that or get investors who are going to pull us somewhere else. So assuming that’s the case, will the investors be focused on an earlier monetization of the opportunity you see? And how do you balance that between giving up too much too soon if you see a big opportunity down the road on one of these channels?

Chris McGurk

This is Chris. That was a really good question, Eric. We actually would be looking depending on the deal for maybe core production dollars to help accelerate the growth of these channels. We’ve had interest in both ConTV and the Faith channel and a couple of other channels that we haven’t announced . Actually we’ve had interest in Docurama. We just have to evaluate the merits of this specific proposal, how quickly it can help us grow an individual channel or our channel business in aggregate and what the value creation opportunity would be versus us trying to build that business organically in a standalone way.

The good news is we’re getting optionality here. We’ve got big players with very deep pockets who we’re talking to right now, who really like our plan, like our channels and we like the optionality that it gives us. So Adam said in his remarks that we’re going to look at each one of these opportunities in terms of how it moves the value creation agenda going forward, whether these are accretive opportunities, where they get us down the road. So we’re going to evaluate each potential opportunity on its own merits with an overall goal of accelerating our plans in that high potential business and creating value for our shareholders.

Eric Wold - B. Riley & Co.

Thanks. And just last question, as you kind of sit around and think about ideas for future channels and kind of go through the analysis of those, what would you consider to be a -- when you think about the number of subscribers, what you charge per channel, the merchandising opportunities, the advertising opportunities, what would you consider to be kind of the base line level of revenue and profitability for a channel is projected before you kind of give the green light on that or not?

Chris McGurk

I made some of these comments in my remarks, but as opposed to some of the other folks out there in the market who are launching OTT channels and are going at it from a very micro niche standpoint, our objective here I think you can see with the branded partner that we’ve chosen, is to kind of marry up our library and our strength, our digital studio, our relationships with each one of these platforms with branded partners who have easy access to a pretty big audience against concepts that we think have the ability to acquire multiple hundreds of thousands of subscribers in a very quick period of time. So I don’t think -- I‘d be going a little too far on saying that we would hope that each one of these channels that we launch has an opportunity to get between 500,000 and a million subscribers over a three or four or five year timeframe. That’s what we’re looking at as our objective. And if you do the math on that where you’re charging subscription fees of between $4 and $10 per subscriber, add on top of that the advertising revenues and merchandising revenues, I think you can see that in a quick period of time, we’ll be building big new revenue streams for the company and hopefully create a lot of value for our shareholders.

Eric Wold - B. Riley & Co.

Thanks Chris. Thanks guys.

Adam Mizel

In emphasizing on what Chris said, we believe the opportunities we’ve announced so far all fit within those parameters and that’s part of what we’re excited about getting them launched and out there because we can get going on that path and all of the reinforcement we’ve received from advertisers, potential customers, our partners tell us we’re on the right path there and we need to execute.

Operator

Our next question comes from Ron Chez with Cinedigm. Your line is now open. Please proceed with your question.

Ron Chez – Private Investor

I’m not with Cinedigm. I’m a shareholder, and I was going to withdraw the question because you responded to Eric. I just couldn’t get much of a chance in terms of your expectation or some kind of a rough model for what you would like these channels to accomplish. So if you want to say anything more about that, that’s fine, but I think you got it just now.

Chris McGurk

Thanks for the question. I do think we answered it and if you’re a shareholder you’re with Cinedigm. So we appreciate that very much, Ron.

Ron Chez – Private Investor

Just a modest clarification, okay?

Chris McGurk

Okay. Thank you.

Ron Chez – Private Investor

Thank you.

Operator

Our next question comes from the line of Zvi Rhine with Sabra Capital. Your line is now open. Please proceed with your question

Zvi Rhine – Sabra Capital

Thanks. Just I know it’s early could you give us an update on whether it’s unique visitors or ad sales in Docurama? I think on the last call you had mentioned that you were sold out as it relates to ads for I think the month of July. Can you speak to how that’s progressed in the last couple of months?

Adam Mizel

Hey Zvi, it’s Adam. Similarly we’re selling out all our ad inventory. As we’ve said before with 175,000 for downloads and people who are using that for views, it’s not yet a major revenue generator. The key next steps for that are the current launch this week and next week on Android and iOS, which will dramatically expand the potential subscriber base and we expect to see a lot more subscribers rolling in and then following that with a roll out of a subscription video on demand service to go with today what is an advertising video on demand service. So, we’re really ramping that one up in that order.

And as Chris said, I think the interesting and significant upside there will be some of the partnership conversations we’re having with branded partners who would bring both content and another level of awareness in customer base. That’s the channel where we -- because of the size of our library made the decision to launch it on our own, but with limited marketing investment and as the starting point to then attract the right partner to bring it to the next level rather than the other way we’ve done that with both Wizard World and Dove where we started with a partner. There’s not a better or right or wrong answer. It was because of the content we already secured and owned in the documentary space. So I think we expect a lot to be happening there over the next six to nine months as we move down that path.

Zvi Rhine – Sabra Capital

Okay. And so the positioning for iOS on Apple TV, that’s actually occurring this month, within the next week will be launched?

Adam Mizel

That is the plan, yes. In fact I was just looking at the almost live version of the App and it looks really good. So that’s the plan. That’s the expectation.

Zvi Rhine – Sabra Capital

Good. Will be interested to get an update on how that impacts the sales and visitors by the next quarter. Last question, curious as to the GVE business today. If you could give us some insight into where it is in terms of revenues and EBITDA for the last 12 months. What’s the contribution from that just to get a sense of where that is relative to what it did in 2012, which I think you guys had published at $45 million in revenue and $14 million EBITDA, thereabout.

Adam Mizel

The challenge there would be that we don’t track those businesses separately. They are all one business. So when you look at new customers and new things that we are doing, you don’t -- you wouldn’t expect us to try to internally allocate this goes in this column and that goes in that column. As we certainly said in our remarks, that business has not performed to the expectations we had at the time we purchased it overall. It’s been that plus everything we are doing has been a critical setup for the new customers riding, the growth riding in the OTT channel. But as you can see in the financial results of our entertainment business as a whole, it’s certainly not where we would like it to be and that’s where we are very focused on as we reinvigorate growth buying and the new customers we’ve added and doing the things we are doing.

Zvi Rhine – Sabra Capital

Okay, I may have a few other questions to circle off with you later today or tomorrow.

Operator

Thank you, (Operator Instructions) And our next question comes from the line of Jim Goss with Barrington Research. Your line is now open. Please proceed with your question.

Jim Goss - Barrington Research

Thanks. First I was wondering roughly how many of these channels or streams are you envisioning as part of the whole process to meet your business objectives. And could you talk a little more about the process of establishing visibility in targeted memos until you can secure the customer ratio you are looking for.

Chris McGurk

Thanks Jim. This is Chris. I think I mentioned some of our competitors before who are launching these micro niche narrowcast channels. Some of them are talking about launching hundreds of channels over the next couple of years. That’s not our intent at all. As I said, we’ve got three channels either launched or announced right now. We’ve got two more with big branded partners in the pipeline. And our intent is probably over the next I’d say 18 months to maybe have five or six channels out there in the market, but with a much higher objective than some of these niche channels. The goal is to partner up with branded partners who have easy access to a big audience and a marketing machine against that audience with a goal ultimately of going out there and acquiring between 500,000 and a million subscribers for each one of the channels over a long period of time. I think maybe our Comic-Con channel is a good example of how we want to go about building it up and marketing to that subscriber base.

We partnered with Wizard World Comic-Con because they are the largest provider of Comic-Con conventions in North America. Over the next 12 months they are going to be doing between 20 and 25 Comic-Cons and more than a million fan boys and fan girls are going to go through the gates of those Comic-Cons, which obviously creates a perfect opportunity to sell subscriptions in bundles when they go through the gate. And also in addition to that, our partner has a huge Facebook following and mailing list of that fan boy and fan girl audience. And we think attacking those potential subscribers directly at the Comic-Cons and then through Wizard World’s database is the exact way to go towards building towards that 500,000 plus subscriber level which is our long term goal. I think that is a really good example of how we want to go about doing this. Again we are marrying up our content capability, our digital capabilities with partners who bring a brand to an audience in order to acquire subscribers and build to that critical mass very, very quickly.

Jeffrey Edell

Jim, this is Jeff.. Just one thing to add to that. Keep in mind too that the magnitude and the number of influencers that show up at these conventions could give us even a greater breadth than just people walking through the dream style. So that’s the key item that we’ll be able to leverage as well.

Jim Goss - Barrington Research

Okay. And one other separate thought. With God’s Not Dead, I wonder if you could provide a little added color on how your relationship came about, what your interest has been to this point and what you would have in the future. And is this a template of sorts and how likely is such content to be available to you?

Adam Mizel

Jim it's Adam. God’s Not Dead was released by a production company called Pure Flix who’s been a customer of ours for quite a while. In fact was a customer of the GVE business we acquired. So they released that movie theatrically and we were hired as part of our relationship then to do the physical home entertainment distribution of that. So it's really – it's an example of what we’ve talked before more and more of those kinds of relationships we’re adding into our customer base. High quality producers of movies and television who we have prearranged relationships that we take their output that meet certain parameters and then we distribute it. In this case, we distributed that only in the physical.

In most of the cases we’re doing all theatrical, physical and digital and OTT rights. So in that sense, the different rights we have may depend, but I think it's a very good example of our model going more and more model going forward which is to source that type of content rather than catalogue and libraries and labels from the legacy part of the business and the National Geographics and Discoveries and now formerly the WWEs because that business has less and less legs we see in the physical market as compared to the new content, the biz genres and has cast developments in all those details. So I think it's a very good example of where we see our business going.

Chris McGurk

And I think our announcement of the Dove channel is only going to help us in this whole faith-based area which is one of the hottest genres in Hollywood right now. We’ve had these numerous inquiries and offers from producers to come here and have us distribute the product and have a relationship going forward with the Dove channel. I think you can expect to see more announcements in this space actually in the next couple of weeks of more product – same product in this genre.

Jim Goss - Barrington Research

How big are distributions slated to get? And were you just pleasantly surprised that this was actually pretty successful for the budget the movie probably had? It was somewhat of a surprise.

Chris McGurk

Yeah. I think it was just – we never disclose our specific distribution fees. So I will tell you at the onset, you’re not going to get that information because it violates our confidentiality agreements with these producers. I think everyone was surprised a little bit at the Box Office because it was a very low budget production. I think it was less than $5 million and did $61 million at the Box Office. But everyone was not completely surprised because as I said, that genre has a very, very dedicated following who will go out and support these movies both in theatres. And obviously we weren’t that surprised at how well it's done in DVD in its first week and a half because that audience once it supports it in theaters want to buy the DVD. And that’s what we’re seeing in the market and we’ve had reorders on our big initial shipment already. So we’re not surprised about how well it's doing in DVD. And we just need to capitalize on our success here in pulling more of this product that can drive revenues for us in DVD and then source content for our channel as well.

Operator

Our next question comes from the line of Gary Simon with [inaudible] Partners. Your line is now open. Please proceed with your question.

Unidentified Analyst

Guys, thanks for the transparency and the clarity and really I appreciate the job that you guys are doing. The question that I have is as you guys – as you put it aggressively pivot to the OTT business which is probably like most of the other businesses with a J curve. I'm trying to understand given the time lag between doing all the work and developing the business, and then starting to generate revenues, what kind of expenses are impacting or what level of expenses are impacting the current income statements so that we could understand the negative numbers that are coming in on a quarterly basis and we can project where the revenue is going to go. But just trying to understand how it's negatively impacting the current business.

Chris McGurk

I’ll let Adam or Jeff get into the detail, we just at a high level I think one of the advantages we have in the OTT space, and why we’re attracting this interest from other potential strategic investors and partners in the space, and I think as we described on the last call, it's really in terms of the core structure it's really a marginal business for us because we already have invested in most of the content and the infrastructure and in our digital studio. We can launch these channels basically at an incremental cost because we already have the marketing acquisition digital teams in place and all the content in place. So that really gives us a leg up and we’re not subject to the huge upfront cost in this business that new entrants or some of our competitors are subject to. And with that context, I'll turn it over to Adam or Jeff to provide you more detail.

Jeffrey Edell

It's Jeff. The only thing I want to add is our look at this business and investment for this year is under $2 million in terms of internal, plus being able to leverage our existing infrastructure as Chris referred to. So it's not significant.

Adam Mizel

Until with the – until we when, as we launch channels and then incur marketing expenses and all those other things, that’s when the real expense incurs. So upfront before we launched a channel to the consumer, and then begin incurring marketing and customer acquisition expenses is manageable and reasonable. Certainly was less than seven figures this quarter. So though when we’re starting to – when we launch a channel and we’re starting to spend more dollars because we will do it, we’ll be showing it, we’ll explain it. But a lot of that and the beauty of what we like about this business, a lot of the marketing investment will be tied – should be tied to customer acquisition directly, affiliate, your referral fees, and other things like that versus we’re not buying TV commercials and won’t take Super Bowl ads and those kinds of thing. It's much more digitally oriented, hide your results. And so in some ways, in fact we were looking at some analysis the other and the comment is always, we hope we have really, really high marketing expenses because that means we’re usually paying someone for a subscriber who signed up.

Unidentified Analyst

No, I understand that and as revenue comes in, if we’re matching the expenses to revenue, that’s fine. And the more you spend, the more you generate, that’s understanding. Just wanted to confirm that the current quarter or the prior quarter and maybe even the next quarter because there is what, a six to nine month lead time in getting the revenues starting to gain traction and so on, that it's not impacting the current numbers and the only negative -- the big negative here was the back office issue which seems to be basically rectified.

Adam Mizel

Right. That’s great.

Operator

Thank you. And with no further questions in the queue, I'd like to turn the call back over to the speakers for any closing remarks.

Chris McGurk

Thanks. This is Chris. I just want to thank you all again for all your attention and support and we look forward to talking to you on our next call. Thank you all.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Have a good day everyone.

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Cinedigm (NASDAQ:CIDM): FQ1 EPS of -$0.14 misses by $0.09. Revenue of $22.85M (+23.3% Y/Y) misses by $7.31M.