New Frontier Media F3Q06 (Qtr Ending Dec 31, 2005) Earnings Conference Call Transcript (NOOF)

| About: New Frontier (NOOF)
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New Frontier Media (NASDAQ:NOOF)

Q3 2006 Earnings Release Conference Call

February 7th 2006, 11:00 AM.

Executives

Karyn L. Miller, Chief Financial Officer

Michael Weiner, Chief Executive Officer

Ken Boenish, President

Analysts

Rich Ingrassia, Roth Capital Partners

Eric Wold, Merriman Curhan Ford

James Clement, Sidoti & Company

Adam Weinrich, Brookfield Asset management

Havior Balof (phonetics) with Eastern Tree Financials

Operator

Good morning ladies and gentlemen and welcome to the New Frontier Media Third Quarter Fiscal 2006 Earnings Release Conference Call. At this time all participants are in a listen-only mode. Following today’s presentation instructions will be given for the question and answer session. Operator Instructions. As a reminder this conference is being recorded today Tuesday, February 7th of 2006. I would now like to turn the conference over to Ms. Karyn Miller, Chief Financial Officer of New Frontier Media. Please go ahead ma’am.

Karyn L. Miller, Chief Financial Officer

Thank you and good morning. Welcome to the New Frontier Media Fiscal 2006 Third Quarter Results Conference Call. This is Karyn Miller, New Frontier Media’s Chief Financial Officer. With me today is Michael Weiner, Chief Executive Officer of New Frontier Media, and Ken Boenish, President of New Frontier Media.

During this call Michael will give an overview of the Company’s strategic position, the acquisition of MRG Entertainment, and then I will review New Frontier Media’s results of operations for the quarter. After our commentary we will open up the conference call for question. A replay of this conference call will be available until February 14th at (800)-405-2236 using the pass code 11052886. This call will be archived for 12 months on our website at www.noof.com under Investor Relations “Webcast & Events”. This call is also being webcast. During the question and answer segment those of you listening via internet will be able to ask questions. Please limit your question via email to hpatton, hpatton@news.com.

During this call we may make references to non-GAAP measures, this information including a reconciliation for the related GAAP measure is available on today’s earnings release. A copy of our earnings press release is available at our website at www.noof.com under Investor Relations “New Releases”. All information discussed during the conference call is as of today and the Company assumes no obligation to update information discussed during this conference call.

During this conference call management may make forward-looking statements and intends for these statements to be covered by the safe harbor provisions for forward-looking statements. All statements regarding the Company’s expected financial position and operating results, its business strategy, its financing plans and the outcome of any continuities are forward-looking statements. In addition forward-looking statements may be identified by the use of words such as "believes," "expects," "intends," "seeks," "estimates," and "anticipates," or variations of such words.

The forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth or implied by any forward-looking statements. For more information about these risks and uncertainties please refer to the Company’s press release and its filings of the Securities and Exchange Commission including the Company's Form 10-K in the risk factor section and Form 10-Q.

And now I would like to turn the call over to Michael Weiner.

Michael Weiner, Chief Executive Officer

This morning I am pleased to introduce a stronger, larger and more formidable New Frontier Media. It is a company with a wider product portfolio, a broader distribution base and an even stronger management team. It is a company which produces original content with movie channels to monetize it, a company which has clients that are the most important and prestigious players in broadcast distribution, a company with new connections and opportunities in international markets. A company with improved sales, improved profits and improved revenue per employee. And we are a company with ingenuity to engineer future growth and one with the solid earnings to fund it.

This morning we announced the acquisition of MRG Entertainment. To nearly a decade MRG has been quietly providing a range of outstanding motion pictures and motion picture services for clients here and abroad. The company has three distinct businesses all of which make sense for us all of which are profitable, and all of which were gained from the combination of our two companies.

MRG was founded more than nine years ago by its principles Marc Greenberg and Rich Goldberg. Similar to New Frontier itself they started with a small company and face competition from the biggest names in Hollywood. Through their creativity and uncommon acumen for the movie business they were able to build the company that today boasts $13 million of revenue and 4.8 million in EBITDA annually.

MRG’s production and distribution business are marketed as Mainline Releasing. Mainline produces mainstream movies and erotic entertainment that airs on premium movie channels such as Showtime and Cinemax. Their movies and series which have been included – included such titles as "Indecent Behavior," "Kama Sutra," and "Lady Chatterly Stories" are some of the most popular titles on these premium entertainment channels. Importantly Mainline’s product is not adult entertainment in the classic sense. It is erotic content with engaging story lines and first rate production value. We know that when Mainline’s content is made available as part of the subscription VOD services offered by the premium providers, their titles are often the most viewed of the entire VOD platform.

We regard our entry into the softer end of the adult continuing as of critical strategic importance. First we believe that some viewers find this content can be a substitute for New Frontier’s traditional services, so we believe it is importance to be able to capture revenue for the substitutions. Second, we believe that emerging platforms such as wireless will move carefully, incrementally and slowly from the heavily edited content which they currently allow to the more exclusive content which will come.

We believe that the kind of entertainment provided by Mainline will be an important component of our full exploitation of the wireless opportunity. Mainline’s event business consist of creating original, exciting event oriented content for distribution and sale on satellite and cable platforms. Importantly Mainline’s content appears on an entirely different set of pay-per-view channels and thus New Frontier’s core product. This year channel space with well known productions like Girls Gone Wild and Jerry Springer Uncensored.

Mainline events enjoy wide distribution and profitable sales volumes at premium price points usually around $14.99 per show. Recent Mainline events include "Date With A Porn Star" and a series entitled "Swingers". Mainline also has an established motion picture distribution business called Lightning Entertainment. Lightning represents the work of Mainstream independent U.S. film producers in markets in every corner of the globe. The Lightning portfolio consist of more than 40 motion picture titles. Lightning delivers quality product to foreign markets and increase revenues to American film makers.

As announced in our press release this morning the transaction we have consummated consist of $15 million in cash and $5 million in New Frontier common stock. Based on our present liquidity, we easily could have made this in all cash deal, however our transaction recognizes the critical importance of Mainline’s principles Marc Greenberg and Rich Goldberg and ensures that Mainline’s key management is focused aggressive employees to exploit the growth opportunities, brought by New Frontier. Marc and Rich will continue to serve as Co-Presidents of Mainline and additionally Mr. Greenberg will join the New Frontier Board of Directors.

We believe this transaction is both smart and strategic, it is accretive to our earnings and value from day one, from a straight PE Perspective we’ve transacted MRG at the attractive multiple of 4.6 times EBITDA. We believe that public markets will value this asset at a level of least consistent with the valuation of our existing assets. Like New Frontier itself MRG is highly efficient. The company’s gross margin is over 60% while its EBITDA margin approaches 40%.

In terms of revenue per employee MRG generates nearly $1 million, which is more than double that we’ve gone at New Frontier. In short, we believe that our long and laborious dilutive process has paid off, which we create no strategic synergies whatsoever the deal is a winner at the most basic level, but we do see strategic value lots of it. First, Mainline has a library of content that has been evaluated at 8.5 million, further this library grows by nearly 50 hours every year. These assets have in our opinion been underutilized, we are confident that New Frontier can begin monetizing the value of this library almost immediately in a number of ways.

In Mainline’s distribution business, we see the power of New Frontier’s capital. Mainline’s distribution business, works like a well-oiled machine producing consistent and reliable profits. With access to New Frontier’s capital, the Company will be able to pursue even more exciting distribution opportunities with higher budget releases.

Mainline’s event business marries nicely into New Frontier’s more exclusive business. We believe there is no reason while viewers who purchase for example, an R rated event cannot be up sold to more explicit derivatives of the same concept. For example, an event titled like "Date With A Porn Star" would include an up sold to an explicit or behind the scenes version.

Further, our creative staff in our core business frequently has developmental event concepts, which had not been executed upon as they had been little infrastructure to support it, well now there is. Mainline’s international distribution business gives New Frontier a foothold in Europe and in Far East. Now with real connections on the ground in these territories, New Frontier has the opportunity to seriously consider the process of duplicating it’s success in the United States in overseas regions. And as important as the business metrics, and as important as the great opportunities we see is the collective culture of our new company. Time and time again mergers and acquisitions would look, which look terrific on paper become impossible to manage. Visions of economy and synergy turn to realities of acrimony and lethargy.

Our top management teams have spent most of the past six months working closely together, the culture of our two companies are in my estimation exceedingly compatible. I couldn’t be more enthusiastic about welcoming Marc and Rich the New Frontier family and about the new prospects this partnership brings to all of us.

Lastly, I wish to note that this acquisition does not impact in anyway to stock buyback program, we announced last quarter. In our most recent quarter, our Company continue to perform profitably. Our pay-per-view networks are clearly the top performers in the business and they continue to grow distribution share at the expense of our key competitor. This quarter, we added more than 6 million network homes bringing our total network home count to nearly 90 million. In VOD we’re now seeing the first result of our launch of TEN Real, we’re very happy with these results and believe this concept has enormous room for growth.

Karyn will now provide detail on the quarter and then we’ll be happy to take your questions.

Karyn L. Miller, Chief Financial Officer

Thank you Michael. Looking at the quarterly results of the entire company, net revenue for the company was 11.5 million for the current year quarter, compared to 12 million for the quarter a year ago representing a decrease of 4%. Gross margin percentage for the company increased to 70% from 67% for the quarter a year ago. Then operating expenses were 33% of revenue for the quarter ended December 31, 2005, this compared to 31% for the quarter a year ago which excludes a restructuring reserve recovery of about 0.1 million.

The Company reported net income of 2.9 million or $0.12 per fully diluted share for the current year quarter as compared to net income of 2.9 million or $0.13 per fully diluted share for the third quarter last year. Net income for the current year quarter reflecting the effective tax rate of 38% versus 36% for the third quarter a year ago.

Our effective tax rate is higher for fiscal ’06 as we fully utilize our net operating losses from prior years. The Company reported EBITDA for the third quarter of the current year a 4.6 million as compared to 4.7 million for the quarter a year ago, representing a decrease of 2%. Our reconciliation of EBITDA to our GAAP numbers is included in our press release on our website. The Company has $42 million in cash and marketable securities on its balance sheet at the end of the -- of our third quarter, and of course for our announcement this morning will be using approximately $15 million in cash for the acquisition of MRG by the end of this week.

The Company has approximately 22.9 million shares outstanding as of today and again for our announcement this morning regarding the MRG acquisition, we expect to issue approximately 750,000 shares of our common stock were a $5 million worth of stock as part of the purchase price consideration for the closing which I’ll provide at the end of this week.

Now looking at Pay TV results, quarterly revenue for the Pay TV Group decreased to 10.9 million for the quarter ended December 31, 2005 and a 11.3 million for the quarter a year ago representing a 4% decrease. Our Pay TV revenues comprised of both revenue from sales of our C-Band customers and revenue from our core business of distributing our pay-per-view networks and VOD offerings via relationship cable, DBS and hotel partners.

Reduced quarterly C-Band revenue decreased 22% to 0.7 million for the current year quarter from 0.9 million for the third quarter a year ago. As always, we continue to monitor the margins of this business and worked upon ways to decrease our cost. C-Band market now has less than 134,000 active units. The group’s cable and DBS pay-per-view revenue decreased 2% to$6.2 million for the current year quarter from 6.3 million for the quarter a year ago. We did experience an increase in pay-per-view revenue related to new launches for our Clips and Blox channels of Cox Communications.

The increase in revenue from recent launches was offset by a decrease in pay-per-view revenue from two affiliated systems from two different cable operators. Their new developed content and their pay-per-view platform in transitioned that to the VOD platforms. We continue to believe that these two systems were anomalies and we do not anticipate that any other systems will be reviewing adult content from their pay-per-view platform. In fact, one of these systems actually added back our Blox channel to their pay-per-view line up during our current year third quarter in order to recapture some of these lost sites.

The Pay TV Group’s VOD revenue declined 2% to $4 million in the third quarter of the current fiscal year from 4.1 million for the quarter a year ago. Currently, we provide VOD content to 21.7 million VOD enabled cable customers up from 16.2 million a year ago and to 815,000 hotel rooms in the U.S.

Revenue declines from the quarter a year ago due to the addition of competition to the prime owner of VOD platform which occurred for the first time during the third quarter a year ago, as well as the competition as of the On Command – as well as the On Command sourcing content directly for a portion of their platform combined with the loss of hotel rooms served by On Command. Decline in VOD revenue from competitive content being added to these platforms were partially offset by revenues from new VOD launches with Adelphia and Comcast.

Cost of sales for the Pay TV Group decreased 14% to 3.2 million for the current year quarter from $3.7 million for the quarter a year ago. The quarterly year-over-year decrease in cost of sales is primarily related to a decrease in our C-band call center cost, a decrease in our uplinking and transponder cost as a result of negotiating more favorable rates, a decrease in VOD transport fees and a decrease in depreciation and operating lease cost.

We are expecting further savings of $300,000 annually as a result of a new transponder agreement that began in January of 2006. Quarterly operating income for the Pay TV Group decreased 2% to $5.6 million for the current year quarter from $5.7 million a year ago. This quarterly EBITDA decreased 3% from $6.1 million a year ago to 5.9 million for the current year quarter.

Operating expenses increased 11% to $2.1 million for the current year quarter from 1.9 million for the quarter a year ago. The increase is primarily due to an increase in the sales commissions for the addition of 6 million new network households that we added during the current year quarter.

Moving on to the Internet Group, the Internet Group’s revenue and cost of sales were both flat at $0.7 million and $0.3 million respectively for both the current year and prior year quarters.

Operating expenses were flat year-over-year for the quarter of $0.3 million and operating income was flat year-over-year for the quarter of $0.1 million without giving effect to a $0.1 million restructuring reserve recapture for the period during the prior year quarter. The current year quarter includes no material revenue from our wireless platforms. And looking at corporate overhead or corporate administration, operating expenses were flat at $1.5 million for both current year and prior year quarters. And as I am sure that you saw in the press release we have updated our guidance for our fiscal year 2006 which ends March 31st this new guidance obviously contemplates about 49 days worth of contribution from the MRG acquisition into our news guidance as revenue up $47 million to $48 million. Net income of 10.4 to a $11 million, and EPS of $0.44 to $0.47 of share.

Now I would like to open it for questions.

Questions-and-Answer Sesssion

Operator

Thank you. Ladies and gentlemen at this time we will begin the question and answer session. Operator Instruction. One moment please, for the first question. Our first question comes from Mr. Rich Ingrassia with Roth Capital Partners. Please go ahead with your question.

Q - Rich Ingrassia

Thanks. Good morning everybody.

A - Karyn Miller

Hi, Rich.

A - Michael Weiner

Good morning Rich.

Q - Rich Ingrassia

Is there a DVD distribution business of any kind at MRG?

A - Michael Weiner

No, not currently.

Q - Rich Ingrassia

Okay, Michael you mentioned a growing market for Soft Erotic, but Pleasure never really took up with the MSOs for you, can you explain, I guess on a little more detail, why MRG is different and is it growing more internationally or in ultimate channel such as wireless or telecom.

A - Ken Boenish

Yeah, Rich this is Ken, I’ll take that question, it’s a little bit different than Pleasure because Pleasure was distributed as a traditional adult pay-pre-view network, the content that Mainline produces ends up on premium services like Showtime and Cinemax and those are sold as monthly premium services, the content has proven to be highly popular on both linear premium services and the VOD platform as well. So the premium services like Showtime and Cinemax are purchasing more and more of this type of content because it’s driving views for the MSOs especially on a VOD platform. So its, it’s a little bit different of a target market for us than our traditional pay-per-view services.

Q - Rich Ingrassia

Okay, and then it sounds like also it’s different economic models, so you be paid more in a licensing fee, I assume than on a revenue share of the pay-per-view line?

A - Ken Boenish

Correct, correct.

Q - Rich Ingrassia

Okay.

A - Ken Boenish

And then as far as wireless goes the, the content that, that tells nicely in to our wireless strategy, we don’t -- we see a lot of the wireless carriers kind of easing in to adult fare with contents that is, you know, much less explicit than some of the content there in our current library. So, I think that we can really take advantage of a lot of the content that we’ll have access to featuring Mainline.

Q - Rich Ingrassia

Okay, and then in the past regarding expansion internationally, one of the reasons you had stated before was, was that tastes in operating sort of these if you will varied so widely, you know territory-by-territory, how much of this knowledge do you think you bought with the MRG acquisition?

A - Ken Boenish

Well, between operating in international markets for Kuwait sometime not necessarily in the same capacity that we would but they definitely know their way around the neighborhood, let’s put it that way, and I think that will definitely give us an advantage going forward, when we’re evaluating opportunities on a market-by-market basis internationally.

Q - Rich Ingrassia

Okay and just one more question strategically and then a question for Karyn. Regarding telecom how would you rate your prospects today for landing a DSL based content distributor like a Verizon or SBC and how aggressively are you perusing that kind of opportunity?

A - Ken Boenish

We already have business with Verizon. SBC is then little bit slow getting-off the ground with their DSL through that top product but, I would say that this is, an excellent chance that, that we will be a participant in their business model, its going to take probably, I would say a couple of years before those operators would be throwing off any significant revenue in our direction.

Q - Rich Ingrassia

Okay, and then Karyn if you could just give us a little bit of detail on your tax situation, how much of your provision, how much are taxes in cash and where there any tax benefits in the quarter?

A - Karyn Miller

Well there is -- there is no tax benefit and we are paying pretty much the tax expense that we have on our books, in tax expense. So I don’t.

Q - Rich Ingrassia

You talk on the IRS on the cash.

A - Karyn Miller

Oh it’s on the IRS nowadays.

Q - Rich Ingrassia

Okay. Thank you.

A - Karyn Miller

Thanks Rich.

Operator

Thank you our next question comes from Eric Wold with Merriman Curhan Ford. Please go ahead with your question.

Q - Eric Wold

Hi, good morning.

A - Karyn Miller

Hi Eric.

Q - Eric Wold

Rich took majority of good questions, but a couple or more follow-up on MRG, you mentioned, VOD when you talk about them, how much -- how are they involved in VOD, how much the business would be pay-per-view versus VOD?

A - Michael Weiner

A lot of our existing business is VOD based, but its not, they don’t enjoy revenue on a transactional basis because they sell the, the titles to premium movie services. The benefit there is that we will be realizing some, some revenue from that VOD space where we have none number 1, and number 2 there may be some marketing opportunities for us to market some more of our explicit content through those channels. I am sorry, what was your, the second part of your question Eric?

Q - Eric Wold

That was a good part of it, the other thing on the revenues what would hear about the split between domestic and international on MRG, for the 13 million?

A - Karyn Miller

Good question, I would probably say I would probably say, probably 20% of the revenue is international may be a little more.

Q - Eric Wold

Okay. Now I know that the increased guidance includes, 49 days from MRG, if the acquisition had not happened would guidance have gone up exclusive of that?

A - Karyn Miller

It might have gone up slightly, yes.

Q - Eric Wold

Okay. And then on the wireless side as you all predicted on the guidance, you mentioned that one of the -- the last, you want to say MSOs re-launched TEN*Blox during the current quarter how many households were re-launched.

A - Karyn Miller

11 million.

Q - Eric Wold

Okay. And on the wireless initiatives, you know obviously this -- the softer contents here may helped out but may be just update us on, where you are in the wireless, how many carriers you got, here internationally, how many subscribers that represent that if you can give any sense on revenue run rate I thought that would be helpful.

A - Karyn Miller

The carriers, we have a couple here in the U.S. I mean…

A - Michael Weiner

Yeah I think we’ve got 3 or 4 carriers in the U.S. to carry at least some of our content, internationally we’ve got a few dozen. The carrier content I think would be available to somewhere around 190 million wireless users around the world, but that’s for content that reside down the carrier docket enjoys carrier billing. We are really starting to just get in the first reports of revenue. So, I know that -- probably tried to hear this but its, its still little bit earlier for us to start doing any sort of projections relative to wireless, its still not significant in our eyes. But what is significant is the shell space that we were occupying in the relationships that we were forming in the space.

Q - Eric Wold

Okay, and then on that, now going back to the library that MRG has, the data need to be done what that content differ, in a format they can use which you are currently switching with, with broadcasting with the movie it kind of the same format.

A - Michael Weiner

We would, in order to mobilize that content we would simply in just that content through our digital broadcast facility here in Boulder it’s a pretty simple process. So, no significant cost associated with that.

Q - Eric Wold

Okay, okay thanks guys.

Operator

Thank you. Our next question comes from James Clement with Sidoti & Company. Please go ahead with your question.

Q - James Clement

All right, good morning.

A - Karyn Miller

Hi Jimmy.

Q - James Clement

Hi Karyn, I was wondering if you might be able to share with us what kind of D&A MRG, is may be been running over the last 12 months for modeling purposes and also from a capitalized expense standpoint, what are they looking at an annual basis whether that’s just pure CapEx or the like?

A - Karyn Miller

Well, the beauty of their business is even less capital intensive than our business.

Q - James Clement

Okay.

A - Karyn Miller

They have may be 200,000 or $300,000 worth of furniture and equipment on their books. So, very little capital needed for their business, they outsourced most of their production, their D&A is going to be very, their depreciation going to be almost nothing.

Q - James Clement

Okay.

A - Karyn Miller

The amortization will again be very similar to ours but we would not add it back obviously for EBITDA purposes, because it’s all literally to the amortization of their own content. And I would say that if it slightly different methodology in ours whereas we capitalize our content and amortize on straight line basis there, they actually own their, own all their content that they would be amortizing it. So they, it’s based on how much revenue they earned. So they probably have, probably 4 or 4.5 million in content amortization embedded in the numbers for a calendar -- there on a calendar year right now, for calendar year 2005.

Q - James Clement

Okay, so in other words I got a little bit confused Karyn, my apologies. So in terms of, just that simple question in terms of, on the trailing basis that roughly $4.8 million of the EBITDA, you know that the -- you would attribute to them, from a -- GAAP income statements standpoint, what’s that 4.8 million look like from the operating income standpoint?

A - Karyn Miller

It’s going a less pretty similar because we are not adding back.

Q - James Clement

Pretty similar, okay. Okay Karyn thanks very much for your time.

A - Karyn Miller

Okay.

Operator

Thank you, our next question comes from Adam Weinrich with Brookfield Asset Management. Please go ahead with your question.

Q - Adam Weinrich

Hey guys couple of questions, one on all the content that you incur, they have license at New Frontier. Do you have international distribution right from that?

A - Michael Weiner

No, we do not.

Q - Adam Weinrich

So even with the MRG relationship you would not necessary be able to go and distribute your own content internationally?

A - Michael Weiner

Not with the current library however, we do have opportunities to expand our license to include international markets on contents that we are currently licensed in.

Q - Adam Weinrich

And is that potentially part of your strategy? I mean did you see that as something you guys may try to leverage MRG or is that not contemplated at this point?

A - Michael Weiner

Absolutely we’ve always contemplated going after international markets once we did critical math domestically. Up until now we really been solely focused on the U.S. market because it is such a rich and comparative market and we thought and on a rich reward basis we would much better off paying attention to our own backyard before we try to be a global company. However as we are nearing, as I said critical math in terms of distribution in the U.S., we are definitely looking at markets outside the U.S. to grow the company.

Q - Adam Weinrich

Sure, certainly different tact, can you give us any information on how much if any of the buyback program you’ve executed in the quarter?

A - Karyn Miller

Actually when we announced the buyback, it was probably early December and we were already in a closed trading period.

Q - Adam Weinrich

Okay.

A - Karyn Miller

Obviously seeing trading guidelines as including in the release so our trading window will open sometime in February depending on what’s going on within the company whether we can buy or not.

Q - Adam Weinrich

Okay no problem, last question you talked a little bit about the wireless business, I mean you made some announcement in the iPOD and distributing contents, to the video iPOD and I was wondering if you could discuss if there is been any progress on that or what that business looks like?

A - Ken Boenish

Well, I don’t recall that we made any formal announcements regarding iPOD distribution per se.

Q - Adam Weinrich

Okay, and is there anything you contemplate?

A - Ken Boenish

Our, I think that, our strategy has always been to provide adult entrainment for distribution of the platforms that are owned and operated by Fortune 500 media companies and to the extent of that covers wireless carriers and or people that operate stores for distribution to handheld devices, those are definitely companies that are on our radar.

Q - Adam Weinrich

Okay that’s great. Thanks a lot.

Operator

Thank you our next question comes from Havior Balof (phonetics) with Eastern Tree Financials, please go ahead with your question.

Q - Havior Balof

Hi guys, good quarter. I wanted to ask Karyn, you talked about from a broad perspective, subscribers went from 15 million homes that were, front of the year got 21.7, your revenue was down 4.1 last year to 4. I wanted to ask, how is it, I guess companies like Hustler, Playboy, Video On Demand and Playgirl are getting more attraction on the VOD platform, what do we do in to kind of stem that?

A - Ken Boenish

I guess Karyn, I will take that question.

Q - Havior Balof

Okay.

A - Ken Boenish

What we are doing to stem that is really being very aggressive in exploring new content categories like our TEN Real category that we just launched on the Comcast and Time Warner platforms. The Real content is, early indicators are that, it’s performing very well in that platform and I think competes nicely in the space because it’s so very different from anything that’s available. And other product that we recently launched is called our Four Pack where instead of a 90 minute asset for 10.99, we are selling four full length feature movies put together as one asset for up to $19.99 and providing a lot more variety to the viewer in a single viewing block. So, we are being very aggressive in how we approach the category and I think being very creative in implementing strategies to compete against new players in the platform.

Q - Havior Balof

Is it that the MSOs are opening up more hours, may be they are going from, offering X, 2X on a monthly basis? I mean is the market growing bigger or we losing our share of the market or combination, just trying to get a sense as to what’s happening in the marketplace.

A - Ken Boenish

We’ve actually lost no hours on any of the VOD platforms, all the competition that has been added has been added incrementally, and we’ve actually gained some space on that, few of the platforms with some of those unique content that we’ve added to our VOD offering.

Q - Havior Balof

But if you are going from 16 million homes, being on file to 21.7 and your revenues were flat, there has to be something fundamentally happening.

A - Karyn Miller

Well, I mean last year this time was when Playboy was added to Time Warner’s VOD platform for the first time.

Q - Havior Balof

Right.

A - Karyn Miller

Currently it did, even to our market share of that I think you opt out 20% to 25% of our VOD revenue. So, we’ve actually recovered a lot of that revenue over the last year.

Q - Havior Balof

Okay. Okay, thank you.

Operator

Operator Instruction. And its looks like there are no further questions at this time you may continue with any concluding comments.

Michael Weiner, Chief Executive Officer

I would like to thank you all for being on the conference call. We look forward to next quarter, thanks a lot.

Operator

Thank you. Ladies and gentlemen this concludes the New Frontier Media Third Quarter Fiscal 2006 Earnings Release Conference Call. You may now disconnect and have a good day.

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