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Hollywood Media Corp.

Third Quarter 2005 Earnings

November 9, 2005

Here's the full text of the prepared remarks from Hollywood Media's (ticker: HOLL) Q3 conference call:

Good afternoon. My name is Eduardo and I will be your conference facilitator today. At this time I would like to welcome everyone to the Hollywood Media Corp. Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. If you would like to ask a question during this time please press star, then the number one, on your telephone keypad. If you would like to withdraw you question, please press the pound key. Thank you.

It is now my pleasure to turn the floor over to Jeff Stanlis of Hayden Communications. Sir, you may begin your conference.

Jeff Stanlis:

Thank you and welcome everyone, to today's conference call regarding Hollywood Media's 2005 Third Quarter Financial Results. Today's press release announcing these results is available for viewing on the Investor Relations section of Hollywood Media's website at www.hollywood.com. On the call today is Mr. Mitchell Rubenstein, Chairman and CEO of Hollywood Media Corp., as well as Laurie Silvers, President of Hollywood Media. At the conclusion of the call, there will be a short question-and-answer period. At this time, I'd like to turn the call over to Mr. Brian Walsh, Associate General Counsel of Hollywood Media to read a cautionary statement about forward-looking information. Brian:

Brian Walsh:

Good afternoon. This presentation may contain in addition to historical information forward-looking statements within the meaning of federal securities laws regarding Hollywood Media. These forward-looking statements are based on current management expectations and are subject to risks and uncertainties that may cause actual outcomes to differ materially from outcomes reflected in forward-looking statements. Potential risks include the company's ability to manage its growth and integrate new businesses, the company's ability to develop and maintain strategic relationships, the company's ability to compete with other media, data, and internet companies, technology risks and risks of doing business over the internet, the company's ability to maintain and obtain sufficient capital, its ability to realize anticipated revenues and cost efficiencies, governmental regulations, volatility of stock price, and other risks described in Hollywood Media's filings with the SEC including its Form 10-K report for 2004 as amended. The Form 10-K for 2004 includes a listing and discussion of various risk factors in the business section in Item One of Part One, and can be accessed through the investor relations section on Hollywood Media's website at hollywood.com or from the SEC's EDGAR database as sec.gov.

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

Mitchell Rubenstein:

OK, thanks, Brian. The third quarter of 2005 was successful on a variety of levels. First, we recently introduced our completely redesigned Hollywood.com site and the response from consumers has exceeded our most optimistic expectations. We expect this will benefit our ability to drive future ad sales. Second, we continue to grow revenues and announced strong, double-digits results. It's important to note that the third quarter is traditionally slower than the second quarter and certainly slower than the fourth quarter as the second quarter includes the Tony Awards, which is the driver for our Broadway Ticketing position, and the fourth quarter holiday season always drives stronger Broadway ticket sales. Finally, we began to see the initial benefits from our efforts to reduce expenses. The company had positive operating cash flow during the third quarter 2005 of $127,000 versus negative operating cash flow of $1.9 million in third quarter 2004, and the 17.5% narrowing of our operating loss.

In the second quarter's call, we discussed our ongoing initiatives to reduce our SG&A. We expect to accelerate this positive trend as our other cost reduction initiatives come online, and this should be evident in our fourth quarter results and our results in 2006. As an example of our cost cutting, we are estimating that expenses for accounting services and consulting fees in fourth quarter 2005 will be approximately $1 million less than those same expenses in fourth quarter 2004. Our goal for our Broadway Ticketing division was to generate more than $80 million in ticketing revenue for 2005. For the first nine months of 2005, we have $60.9 million in ticketing revenue and are on pace to achieve and surpass the $80 million revenue goal for this division, especially since our fourth quarter is typically one of the strongest in terms of ticketing revenue. Already through September 30, 2005, our ticketing revenue is up 54% year-over-year. On a consolidated basis, our company-wide revenue through nine months of 2005 is 99.7% of the total revenue for all of 2004, putting us on pace for a record year in revenue.

Let me provide some specifics on our third quarter results. Net revenues for the three months ended September 30, 2005 increased 52.7% to $23 million compared to $15.1 million for the same period of 2004. Total operating expenses increased 40.5% to $25.4 million from $18.1 million for the same period last year. The company's SG&A expenses decreased 11.8% to $2.6 million compared to $3 million last year, a benefit from improved efficiencies and cost reduction initiatives. Total operating expenses as a percentage of revenue decreased 9% quarter-over-quarter. The company's positive operating cash flow in the quarter was $127,000 compared to negative operating cash flow in Q3 '04 of $1.9 million. The net loss for the third quarter of 2005 was $2.5 million or $0.08 per fully diluted share based on 32 million weighted average shares outstanding, compared with a net loss of $4.8 million or $0.17 per fully diluted share based on 28.3 million shares for third quarter of last year. The loss included depreciation and amortization expenses of $600,000, our burn on Hollywood.com Television of approximately $200,000, and $100,000 on a new accounting system which we expenses this quarter.

Now I'll discuss the financial results of our different business segments. During the third quarter of 2005, our Broadway Ticketing business delivered a 63% revenue increase to $18.9 million compared to $11.7 million last year, driven by 87.2% growth in Broadway.com and 1-800-Broadway Ticketing revenue, and $309.3% growth in high margin hotel package sales. We are very pleased with these results. We continue to see strong conversion rates which measures the ratio of visitors to purchasers of tickets. Deferred revenue relating to Broadway Ticketing, a leading indicator of future Broadway Ticketing revenues, was $15.8 million as of September 30, 2005, up 82% as compared to deferred revenues as of September 30, 2004 and up 39.3% compared to the $11.4 million on December 31, 2004. Our third quarter 2005 gross margin in the Broadway Ticketing division was 12.9%, up from the 12.3% for second quarter 2005, and also up from the 12.5% for third quarter 2004.

Now I'll discuss the financial results of our different business segments. During the third quarter of 2005, our Broadway Ticketing business delivered a 63% revenue increase to $18.9 million compared to $11.7 million last year, driven by 87.2% growth in Broadway.com and 1-800-Broadway Ticketing revenue, and $309.3% growth in high margin hotel package sales. We are very pleased with these results. We continue to see strong conversion rates which measures the ratio of visitors to purchasers of tickets. Deferred revenue relating to Broadway Ticketing, a leading indicator of future Broadway Ticketing revenues, was $15.8 million as of September 30, 2005, up 82% as compared to deferred revenues as of September 30, 2004 and up 39.3% compared to the $11.4 million on December 31, 2004. Our third quarter 2005 gross margin in the Broadway Ticketing division was 12.9%, up from the 12.3% for second quarter 2005, and also up from the 12.5% for third quarter 2004.

Now I'll discuss the financial results of our different business segments. During the third quarter of 2005, our Broadway Ticketing business delivered a 63% revenue increase to $18.9 million compared to $11.7 million last year, driven by 87.2% growth in Broadway.com and 1-800-Broadway Ticketing revenue, and $309.3% growth in high margin hotel package sales. We are very pleased with these results. We continue to see strong conversion rates which measures the ratio of visitors to purchasers of tickets. Deferred revenue relating to Broadway Ticketing, a leading indicator of future Broadway Ticketing revenues, was $15.8 million as of September 30, 2005, up 82% as compared to deferred revenues as of September 30, 2004 and up 39.3% compared to the $11.4 million on December 31, 2004. Our third quarter 2005 gross margin in the Broadway Ticketing division was 12.9%, up from the 12.3% for second quarter 2005, and also up from the 12.5% for third quarter 2004.

Our internet ad sales division recorded $874,000 in sales during third quarter 2005, a 69.7% increase from $515,000 in third quarter last year. Most importantly, the top to bottom redesign of the Hollywood.com website successfully launched last month, and we expect it will further drive additional ad revenues in this division as the much expanded functionality enhances the user experience, including the ability to access detailed information on movies, TV shows, and entertainment events. Time spent on the site per average user has increased substantially since this launch, and with the additional page impressions, we will have more add placements available to sell to advertisers. And with more available ad impressions, we'll have greater capacity to participate in more and larger ad campaigns. The new Hollywood.com website offers consumers a variety of new functions and improvements, including exclusive broadcast and user blogging, intelligent search, deeper database information, and vastly expanded editorial content, news and features.

Turning to Hollywood.com television, we added Bresnan Cable as the new regional MSO during the quarter, bringing the total number of MSOs carrying Hollywood.com Television to seven. The channel is being offered to approximately 14.5 million subscriber homes or approximately 80% of the total universe of cable TV, free video-on-demand enabled homes within the U.S. as compared to 7.8 million subscribers as of September 30, 2004, which is an increase of 86%. We are on track to meet our stated goal of reaching approximately 15 million subscribers by year-end, and over 20 million subscribers during 2006.

Our intellectual property division had revenues of $317,000, down 42.8% from $554,000 in third quarter last year. The publish industry has been sluggish lately, and this has affected our growth since this division creates book projects, which it then licenses to publishers.

Regarding company-wide results for the nine-month period ended September 30, 2005 net revenues increased 47.7% to $72.8 million compared to $49.3 million for the same period of 2004. Total operating expenses increased 45.3% to $80.6 million from $55.5 million for the same period last year. The net loss through September 30th, 2005 was $7.5 million or $0.24 per fully diluted share, based on 31.3 million weighted average shares outstanding, compared with a net loss of $7.7 million or $0.28 per share for the same period in 2004, based on $27 million weighted average shares.

Turning now to the balance sheet, Hollywood Media completed the quarter with $2.9 million in cash and cash equivalents, and $2.5 million in accounts receivable compared sequentially to cash and cash equivalents of $3.2 million and accounts receivable at $2.4 million as of June 30, 2005. Shareholders’ equity was $43.1 million compared to $47.1 million as of December 31, 2004.

Our cash position was only slightly less at September 30, 2005 compared sequentially with our cash position on June 30, 2005. The small reduction in cash relative to our net loss is partially a function of advanced sales of Broadway tickets, which occurred during the third quarter of 2005 but are not yet booked as revenue as we recognize revenue once the before it occurs.

Our cash position has historically increased in the fourth quarter and we believe our current cash position will be sufficient to fund operations throughout 2006 based on anticipated financial and operational results.

I'll now turn the call over to Laurie Silvers, the President of Hollywood Media, who will discuss some of our many operational developments. Laurie.

Laurie Silvers:

Thank you, Mitch. As I discussed last quarter, we are focused on several initiatives to streamline our business operation and reduce expenses. These are well underway and I'd like to provide an update now.

First, as the information systems reason out the following on October 1st we installed a new accounting system which will enhance our internal controls. Also, we have licensed the new Broadway Ticket information system. This new and advanced system is being deployed in a test environment and it will substantially improve the efficiency of our processing while eliminating a signifireducing labor cost.

Our next major initiative involves replacing significant aspects of our data entry and IP services through offshore outsource providers. We now have an outsourced IT team in place in India and this is already starting to show cost benefits, which, when combined with off-shoring parts of our data entry processing for our data business, is anticipated to result in approximately $1 million in cost reductions during 2006. This will also have the added benefit of enabling our businesses to scale more quickly and cost effectively to meet future expected growth both in the U.S. and abroad. The IT team in India contributed significantly to the back-end development of our new Hollywood.com website.

Finally we have greatly reduced our auditing and SarbOx consulting fees and the full effect of these statements will be evident in our fourth quarter results. As Mitch noted, we are estimating that expenses for accounting services and consulting fees in the fourth quarter of '05 will be approximately $1 million less than those expenses in fourth quarter of '04.

Turning to Movietickets.com in which we own a 26.2% equity interest, we now have agreements to handle online move ticketing on an exclusive basis for 61 exhibitors, up from 32 a year ago, an increase of 90%, and we continue to explore strategic opportunities for the Movietickets.com.

Looking at Hollywood Media as a whole, we have demonstrated continued strong growth so far in 2005, and we're poised for a record fourth quarter and a record year of revenues. Coupled with our cost reduction initiatives, we are excited about the company and its future earnings potential.

Question-and-Answer Session

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