Cineverse Corp (CNVS) 2011 Q3 法說會逐字稿

Good day, everyone, and welcome to the Cinedigm Digital Cinema Corp. third-quarter 2011 earnings conference call. Today's call is being recorded.

Listeners are cautioned that some of the material discussed today may include forward-looking statements regarding Cinedigm's business and expected financial results. Words like anticipate, believe, estimate, or expect are generally forward-looking statements.

Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they are based on information currently available in certain functions and there can be no assurances that they will prove correct. You should not rely on anything in these forward-looking statements as a promise or representation as to the future results. You are encouraged to read the Company's Securities and Exchange Commission filings.

Now I would like to turn the presentation over to your host for today's call, Mr. Chris McGurk, Chief Executive Officer; Mr. Adam Mizel, Chief Financial Officer and Chief Strategic Officer; and Mr. Gary Loffredo, General Counsel. You may begin.

Hi, this is Chris McGurk. Thank you, operator.

Good morning, everyone, and thank you for joining us today for Cinedigm's third-quarter and first nine months of fiscal 2011 investor conference call. With me today are Adam Mizel, CFO and Chief Strategy Officer, and Gary Loffredo, our General Counsel.

As you are all probably aware, I joined Cinedigm as CEO at the beginning of this year after a period of about six months when Gary and Adam served the Company as interim co-CEOs following the retirement of Founder Bud Mayo. Adam and Gary did an outstanding job during that period, making important and lasting progress with our overall business strategy. They are now working with me in an office of the CEO to manage the Company.

We all feel the transition has been very smooth and positive to date. Importantly, this transition has focused attention on the Company's strategy and product lines from all of our key constituents in the studio, exhibitor, and content provider businesses. We appreciate that keen interest because we believe we have a very positive story to tell across all of our product lines.

Already that renewed attention on Cinedigm and our compelling business model has provided us with multiple opportunities to reintroduce the Company to both existing and potential business partners.

Now I would like to go through a quick review of our third-quarter and nine-month performance year-to-date. Then Adam will follow by covering more detailed financial and operating results. After that we will be pleased to answer any questions you might have.

The third quarter of fiscal 2011 ending December 31, 2010, was another period of strong progress for Cinedigm. There were several important milestones achieved during the quarter, highlighted by the first-ever positive adjusted EBITDA performance from our non-deployment businesses.

Our overall financial performance during the quarter was solid and consistent with our expectations. Revenues increased 7% in the quarter and over 11% in the last nine-month period, as well as over 11% sequentially when compared to the second quarter of the fiscal year. Again, as noted, our adjusted EBITDA for the recently completed quarter, exclusive of Phase 1 and Phase 2 deployment results, was a positive $366,000 as compared to a loss of $1.3 million in the prior year.

We are proud of this achievement as it clearly indicates the success of the Company's strategy to provide a complete line of complementary business and technology products and services to our customers. We fully expect these positive results to continue in the current quarter and the foreseeable future as we expand our network of digital systems in the marketplace through our Phase 2 deployment program.

We also benefited from continued cost control initiatives and prudent financial management over the past year. Since the beginning of 2010 we have reduced non-core staffing levels and G&A costs by an annualized amount in excess of $2.3 million. We view our capital as a key resource and will continue to seek to reinvest in the growth of our units to maximize returns to our shareholders. All of this added up to our solid financial performance and has positioned us well for continued strong growth.

As we have done in the past few quarters, I would now like to take a few minutes to review Cinedigm's current strategy. Cinedigm is a digital cinema services and content marketing and distribution company, driving the conversion of the exhibition industry from film to digital technology.

The Company provides a digital cinema platform that combines technology solutions, software services, and electronic content delivery services to content distributors and movie exhibitors. Importantly, Cinedigm has secured 10-year-plus contracts with Hollywood movie studios to pay us virtual print fees, or VPFs, each time a movie first plays on a digital screen in which we have installed digital equipment.

The digital equipment we provide exhibitors is tied to usage contracts that run through 2022. Based on these contracts, Cinedigm currently has over $197 million in non-recourse financing to purchase the equipment for our Phase 1 and Phase 2 screens. Furthermore, we own the residual cash flows and the equipment in Phase 1.

Cinedigm is currently in the process of deploying up to an additional 10,000 Phase 2 screens under a similar model with studios and exhibitors. However, in Phase 2 Cinedigm operates in a cost recoupment model in which we act solely as a servicer and are paid only service fees.

Around this deployment and services capability, Cinedigm's digital cinema platform provides a number of critical services. We receive license and maintenance fees for the software necessary for the operation of the deployments and we operate a combined satellite, hard drive, and broadband digital theatrical content delivery network on behalf of our movie studio partners.

Cinedigm leverages this digital cinema platform with applications that capitalize on the new business opportunities created by the transformation of movie theaters into network entertainment centers. The three main applications currently provided by Cinedigm include -- one, our digital entertainment, origination, marketing, and distribution business focused on alternative content and independent film; two, our operational and analytical software applications; and three, our preshow advertising and theatrical marketing business.

We believe we offer the broadest and highest quality platform and application package in the industry, and we offer that platform to our customers as an integrated, connected, and optimized total solution, as well as a la carte to meet more specific individual customer needs.

All-in-all our mission through all of our product lines is to provide the services and content that give the consumer a better, more broad-based, and exciting experience in the theater. We will accomplish this by providing new opportunities to view content in digital and in 3-D, in live and interactive formats, and with branded entertainment programming. Our programming distribution vision includes content such as sporting events and weekly sports league programming, music concerts and festival broadcast, classic film series reissues, documentary series, and first-run independent films.

For independent film, we intend to use our platform to create a new release model that more closely aligns the interests of exhibitors and independent producers and incentivizes them to nurture and grow the business. Our content vision also includes a host of other special big-screen cultural events and content series, like our current monthly Kidtoons program, that dramatically expand the consumers and theater viewing options.

Importantly, both the event and branded programming series we will distribute, like Kidtoons, will enhance and reinforce the socialization and community aspects of the theatrical experience. Our programming will provide like-minded audience members with a regular destination where they can meet and interact with others who share a common passion for the entertainment choice they are viewing together up on the big screen. And our expanded array of in-theater programming and series should also generate numerous opportunities for sponsorships and promotions.

By achieving this vision we will create increased revenues from both ticket sales and concessions for our exhibitor partners and provide our studio partners and other content providers with potential new revenue streams. We believe Cinedigm is uniquely positioned to deliver this mission and programming distribution vision and rapidly build our business system.

With that summary as a backdrop, Adam will now provide an overview of our continued strong performance in the third quarter and the first nine months. Adam?

Thank you, Chris. First off, I know you are all interested in our deployment progress. During the third quarter we installed 604 digital systems and, as of today, we have signed another 614 to new master license agreements, bringing our total Phase 2 signed and financed screens to 2,983.

As of today, the total number of Phase 2 installed systems has increased to 1,713 as we are rapidly installing our backlog. We expect our total installations to continue at a similar pace.

Each of these screens generates immediate and long-term cash flows from service fees as well as additional revenue opportunities from software, content delivery, and distribution fees. As we have consistently stated, each 1,000 screens we deploy adds $2 million to $2.5 million of non-VPF EBITDA in the initial 12-month period post installation from service fees, software license and maintenance fees, and delivery fees.

We are pleased that our recent accelerated deployment program and the resulting improved EBITDA results validate these projections. These deployments will drive significant growth in our cash flows over the next 24 months.

Our current active pipeline continues to expand and now sits on an additional 4,000 screens, which would bring us to more than 10,000 screens between Phase 1 and Phase 2. Our goal remains for the combination of Phase 1 and 2 to reach approximately 12,000 to 14,000 screens by the fall of 2012.

Now on to reviewing our operating businesses and their financial results. Our consolidated revenues from continuing operations for the third quarter ended December 31, 2010, were $21.1 million, which is an increase of 7.2% from last year's third quarter and a nearly 12% increase from our fiscal second quarter ending September 30.

First, we will discuss our asset-heavy Phase 1 and Phase 2 deployment segments, which include the VPF revenues, expenses, EBITDA, digital cinema assets, and non-recourse debt associated with the deployments.

Phase 1 VPF revenues decreased approximately $480,000 year-over-year or 4% to $11.6 million. This slight decline is attributable to the final contractual 7% reduction in VPF rates with the major studios starting in November 2010, partially offset by improved screen turns compared to the prior year. We continue to earn our Phase 1 service fees of 5% of the total VPF revenues and expect the unit's performance to remain consistent with recent results.

Phase 2 deployment revenues were $2.3 million in the quarter versus $480,000 last year, due to our continued ramp up in installations. We had 1,654 screens active at December 2010 versus just 227 at December 2009.

We should note here that 894 of the Phase 2 systems are from our exhibitor buyer program and do not generate recognized VPF revenues for us since we passed through these dollars to our exhibitor partners net of service fees. They do generate revenue for our service company and our software division and are, therefore, an extremely important part of the rollout. Also recall that the VPFs generated from this asset base, other than the service fees we earned, are all pledged to support the underlying non-recourse debt.

Our Services segment provides a variety of services to our Phase 1 and Phase 2 deployments, as well as the third-party customers through Cinedigm Digital Cinema Services, DMS, and our Software division. These businesses produced a total of $4.8 million of revenues in the quarter, including intercompany service fees earned from our deployment subsidiaries, and this represents 117% increase from last year. We are poised for further growth in terms of both revenue and adjusted EBITDA as our Phase 2 deployments grow in the balance of the fiscal year.

While we continue to experience short-term delays in the installation schedule of approximately 400 Phase 2 deployments due to financing and/or exhibitor scheduling changes, these installations are expected to occur in this quarter and the next fiscal year's first quarter.

Our Digital Media Services unit, or DMS, which delivers movies, trailers, and other content to theaters across the country every week for a variety of content owners from the largest Hollywood movie studios to the smallest independent movie distributors, benefited from operating leverage this quarter as its revenues grew 22% though EBITDA lagged due to increased shipping rates on hard drives from FedEx and UPS. We recently negotiated a round of further volume discounts to address this cost.

We estimate there are now approximately 16,000 digital screens in North America versus approximately 8,000 at the beginning of our fiscal year. As a result, we today deliver our average feature to 750 sites as compared to 375 sites at the beginning of our fiscal year and our recent 3-D deliveries are typically going to over 2,000 sites. We expect this growth to continue as our owned and other digital installations accelerate.

Our Software business continues to experience strong growth from the Phase 2 deployments, which generate license and maintenance fees for our Theater Command Center, or TCC, product, software that allows a theater to operate like an iPod. On top of this, we are experiencing renewed growth in our domestic and international theatrical distribution and TCC sales as evidenced by a recently signed seven-figure multi-year India transaction to license both a portion of our DMS delivery infrastructure software and our TCC software.

In addition, we are finalizing several new significant arrangements with new and existing studio distributor and exhibitor customers, and have recently launched several international TCC pilots. We hope to have further announcements to share with you as we complete these new agreements.

As a result, revenue grew by 110% year-on-year in our software business and EBITDA by over 270% year-on-year. We have recently added additional resources in this unit to support this growth and to assist us in the deployment and development of the next generation of digital cinema-related software products. We are excited by the opportunities we see in the software space.

Our Content and Entertainment segment includes our pre-show advertising business, UniqueScreen Media, and our alternative content and independent film distribution arm, the Content and Entertainment Group or CEG. This segment produced $3.7 million of revenue this quarter compared to $5.5 million last year, with this decrease attributable to the reduced number of content events in the quarter versus prior year.

USM's in-theater advertising revenues increased 4% and national advertising revenues generated by the partnership with Screenvision increased 22%. Both of these increases reflect improved overall advertising conditions when compared with the depths of the recent recession and operating improvements undertaken within, USM's salesforce.

In addition, USM has recently renewed several existing customer contracts and added a small new customer from its expanding pipeline. This unit has overall scene a year-to-date more than tripling of cash EBITDA relative to fiscal year 2010.

CEG's content distribution revenues decreased due to an expected reduction in events and independent film distribution in this fiscal quarter in contrast to the prior year. We expect to gain additional traction at CEG this quarter from our previously announced YuGiOh 3-D distribution and the recently secured Memento re-release. We have a strong pipeline of content distribution events that has grown since Chris's arrival with Memento being the first example to close.

Our overall adjusted EBITDA was $12.9 million for the quarter, a 19.4% increase over last year's quarterly adjusted EBITDA and $10.8 million -- and a 24.4% increase over our second fiscal quarter. This strong quarterly EBITDA performance is consistent with our revenue gains, in particular from the Phase 2 deployed screens, and even out pages of those revenue gains due to the positive operating leverage embedded in the growth of our service fees and our continued focus on cost controls.

Direct operating costs are down overall, primarily because of lower event-related variable costs within CEG, partially offset by higher content delivery costs from the DMS business. Our SG&A costs have increased year-over-year, though primarily due to non-recurring expenses related to our recent CEO search process and other recently completed restructuring steps, increased travel cost, and a new policy of accruing for certain year-end audit costs quarterly that we previously recognized only at year-end.

The non-recurring costs related to the CEO search have been added back to adjusted EBITDA for the quarter and year-to-date periods. We are also now including stock-based compensation expenses in our SG&A and direct operating expense line items rather than presenting this separately on the P&L. Excluding these charges, our SG&A hey levels are modestly lower versus prior periods due to prior cost-cutting efforts and an ongoing vigilance toward expenses.

Aside from our CEO transition costs, our expense base has stabilized and future increases, when they occur, will generally be tied to greater top-line growth rates. To that point, we are bringing on additional resources in connection with recent business wins in software and expanded digital cinema sales activity.

Adjusted EBITDA in the quarter, excluding the Phase 1 and Phase 2 deployment subsidiaries, was $361,000. This represents a continued significant improvement compared to negative $1.3 million last year the quarter, negative $489,000 in the fiscal first quarter, and negative $178,000 in the fiscal second quarter. As our deployments continue to grow and as we add new software, service, and content distribution events, this performance should continue to improve in the quarters ahead.

Our interest expense totaled $6.8 million in the quarter, a decrease versus $9 million last year. The interest expense on our (inaudible) debt was $3.1 million with the $1.4 million paid in cash and funded from our interest reserve accounts and the remainder accrued as an increase to the debt balance.

This interest reduction was predominately driven by lower costs on the non-recourse Phase 1 credit facility as a result of the refinancing that occurred in May and partially offset by increased non-recourse Phase 2 interest expense, an additional non-recourse debt added with our new installations. Of course, interest on all of our non-recourse deployment-related debt is fully funded by virtual print fees coming in and we incur no debt or interest at all on the exhibitor buyer systems deployed.

The balance sheet reflects total cash and investments of $22.9 million versus $26.5 million at September 30, of which $13.8 million is set aside as either restricted cash for investment securities, to pay interest on the (inaudible) notes, as debt service reserve funds for the Phase 1 facility, and future purchases of satellite dish equipment.

Our receivables portfolio is growing as our business expands and continues to be in good shape with the majority representing studio contracted payments and adequate reserves on the remaining customer base.

Finally, a few words on the current quarter ending March 31. We expect improvements in our operations and cash flows that were evident in the most recent two quarters to continue. Service fees earned from our deployments and exhibitor buyers will grow with our expanding Phase 2 installations in pipeline. As we have discussed, these deployments generate positive operating leverage with additional software license and maintenance fees and delivery fees.

Finally, this quarter our recently completed software contracts, increased feature film deliveries, and strong content distributions will also support our improving results. We are now past the November 2010 final contracted Phase 1 7% VPF rate reduction with the six major studios.

Finally, as industry-wide digital cinema deployments expand we expect to benefit accordingly and look forward to a year of continued improvements in our financial results. Now I will turn the call back to Chris.

Thank you, Adam. In conclusion, Adam, Gary, I, and the entire Cinedigm management team are very pleased with our current performance and very excited about the future.

Although it has been only five weeks, I have been very encouraged by my experience with Cinedigm. We have plenty of challenges ahead, yet the opportunities are boundless. Perhaps most important, I think we have an outstanding, unified, and highly motivated team from top to bottom. It's my responsibility to maximize their potential and add whatever I can to expand our terrific platform and diversified prospects.

As always, we very much appreciate your continued interest in Cinedigm. Thanks for your time and attention. Now we will be pleased to answer any questions you might have.

(Operator Instructions) Eric Wold, Merriman Capital.

Good morning. A couple quick questions. First of all, I apologize, Adam, I was running through and trying to write down everything I could. Could you give me the number of exhibitor buyer screens installed or deployed again in Q3?

Sure. What I mentioned was the total exhibitor buyers' screens out of the 1,713 that have installed and I think I said the number was 854.

854, okay.

894. Sorry about that, Eric.

Okay. Then you mentioned that you expect in the current quarter, in Q4, the pace of installs to kind of match where you have been going so far. So with about -- it looks like about 300 or so installed in the first month, a little over the first month the quarter, that is kind of the pace you are referring to? You can almost multiply that by three to get it for the full quarter?

No, no, no. I think we expect it to keep pace with the 600 per quarter. The first step is signing exhibitors to master license agreements and then the next step is ordering and installing the system. So we have a total of 2,983 signed so far, we have 1,700 deployed so there is a backlog of 1,300 systems that will be deployed over the next six to 12 months.

And then we continued to sign more exhibitors. We have signed 60 exhibitors so far in Phase 2 and we continue to sign more exhibitors.

Okay. Lastly, as you are talking to exhibitors, you know when they have got a deadline of now less than two years about -- what tends to be, if anything, the biggest pushback or what is a major reason why they decided to delay it from now till maybe next year? Is financing an issue or is something else there?

I think there is a couple of issues. Some exhibitors are looking around for alternatives to deploying, some are just waiting for their competitors to install, and as we reach critical mass -- like I said, we have signed 60 exhibitors so far -- the rest of the exhibitors are picking up speed and focusing on this and trying to arrange their financing.

So I think the focus will increase over the next year and the exhibitors that have not signed yet are -- will be signing.

Eric, one of the things we take advantage of is our good relationships with a number of the studios. Often they get on the phone with various exhibitors and reinforce to them that there is a deadline, that this is important. If they want to benefit from the program, they should get going.

But you often have to do that. It's a conservative industry and despite what seems to be obvious evidence, it is still a large and complicated financial and business decision. And so you keep moving it all forward.

I think that, as you see, we sort of go in lumpiness where we seem to get a bunch of exhibitors to sign up and then it takes another month or two and another bunch sign up. There is just no rhyme nor reason to the process. Gary and the team bang on it continually and we are making a lot of progress, but you just can't control their decision making timing and process.

Understood. Thank you, guys.

(Operator Instructions) Kris Tuttle, Research 2.0.

I actually had two questions. One of them is you have mentioned the software transaction in India and it sounds like it's fairly favorable. I wondered if you might share a fewer details about what that is about, who is with, is it something that is going to scale over time. Kind of as an additional moving part, how should we think about that?

And then the second question maybe is more for Chris -- welcome aboard, Chris -- is some people have questioned the ability to build a content model in this business in that theaters and venues have failed to find a repeatable type of event, be it sports or music, that could bring people back in kind of on a regular schedule to really create something of a large and growing sustainable business. So I would be interested at a high-level of your insights on whether that is possible and what kind of strategy you think might be more effective to make that more vibrant.

Okay, this is Chris. I will let Adam give you some of the specifics on the software trends action in India, but that is a deal we are doing with two major partners and we are not prepared at this point to tell you exactly who those partners are because we are just sorting out the final details. But we are hopeful to announce that in a couple of weeks.

We are thrilled about the deal because it really is a signal that we are becoming noticed as a technology and digital technology leader here domestically. And we think that this deal in India kind of plants the flag for hopefully an expansion of that internationally. I don't know if you want to share anything else on the deal, Adam?

Chris, when we have permission from all of our partners we will probably do a press release on it, but it is an example of more and more what we are doing in that business in multi-year agreements with large global players that involve significant upfront license fee and ongoing maintenance fee and then ongoing professional services. So a very, in that sense, traditional software model that we think is building both near term and annuity-like revenue base and is expanding our platform and the connections to it.

As we look at the next generation of digital cinema products and technology that we are constructing, a lot of it goes around sort of creating a portal-like marketplace in the middle. In many ways, as in this country and around the world, theaters convert to digital they produce a huge amount of new data and information that historically has not been available and a lot of our software harnesses that, gathers it, provides analysis, reporting of it, and transactional capabilities. And I think it is a part of the business we are going to continue to drive forward, and this transaction is one example of those kinds of things that we are doing.

And to your second question, Chris, about the ability to build a sustainable alternative content business, repeatable business, I think everything I have seen I think there is tremendous upside in the alternative content arena. And I think -- the issue has been up to this point no one, we haven't and I think our competitors haven't, really tackled the alternative content business as a business and really looked at the kind of categories of product, based on research and based on market dynamics, that have the real potential to create big, sustainable businesses.

However, the business has kind of been tackled over the last couple of years on almost a trial-and-error basis, but there have been a couple of really strong examples of content series that have worked very, very well. One of them being our own Kidtoons product and the other being the competitive Metropolitan Opera, which has been a huge success and kind of surprisingly.

I think our objective right now at Cinedigm is to really look at this business and put together probably the first comprehensive business plan to tackle and develop it. Internally we are in the process right now of preparing a comprehensive analysis of the potential alternative content distribution marketplace and putting that business plan together for Cinedigm to roll out and become a key player in the market, leveraging our platform and leveraging our exhibitor relationships.

And while we are doing that we are in the process of pursuing, really, a host of new potential projects and programmatic series that have come our way over the last few weeks since I have come on board. We mentioned Memento as an example, but -- as one of those, but there are several more in the queue and we hope to make announcements in the next few weeks.

But I think there is a real upside in this business. Again, I think it's just a matter of really tackling it like a business, and going after it and researching it and attacking those kind of product categories that have the highest potential for success on a programmatic, repeatable basis.

Okay. One last -- so on the India business we should think about that as you are essentially licensing your elements or major chunks of your technology platform to some partners who are going to presumably bring what you can do as a first step into that geo. And in return you guys will be getting some upfront and ongoing fees of some sort. Then beyond that you have got opportunity to do some things globally; you talked about a portal and things like that.

Is that, at least structurally, the right way to think about it until more details are out?

That is right. Fundamentally, as we look at the international part of our growth strategy a lot of it is around technology and infrastructure. We don't intend to be building the same sales, marketing, and deployment organization we have focused on in North America, but a lot of the infrastructure we have, whether on a license or on a service bureau basis, we are leveraging or can leverage. India is an example of that.

There will be a number of other software things we are working on with existing studio distributor customers and exhibitor customers in this country as we license and do more software work there. And so I think we are touching more and more of both the distribution and exhibition industry domestically and globally with technology to enable them to take advantage of all of the opportunities that digital cinema provides.

I think that is the shift that is going on. As we are now at almost 16,000 screens in this country, there is a much greater focus of -- in the customer base of, wow, how do I actually manage my business that is digital and what can I do differently. And they are looking at companies like us or we are coming to them with ideas on how to do that and providing the tools and capabilities to do that.

Okay, thanks. I will yield the podium here.

(Operator Instructions) Kris Tuttle.

Okay, one last one since I know you guys are hard to pin down. Going back to the alternative content market and appreciate your answer there. Does your thought about running it as a business extend further downstream into consumer content platforms like WebTV, Netflix, iTunes as modern examples? But do you incorporate that part of the industry in your thinking about these things as a business or are you really focused on the venues?

Kris, this is Chris. First I just want to say I don't think we are hard to pin down.

Oh no, I just mean you guys are busy. We are all -- getting you all in one room that takes --.

We are always available. No, Kris, that is a good question. I think a key part of the model that we are looking at right now for alternative content and for indie film focuses on the downstream markets. When you are looking at DVD, VOD, non-exclusive VOD, free TV sales, pay-TV sales, Netflix, etc., part of our model is to put together a distribution paradigm for the downstream markets and then actually cut our distributor partners in on a piece of the downstream revenues and profits.

In doing so I think we have fundamentally changed the releasing model for alternative content and for indie film because we have made our exhibitors basically our partners, not just in the theatrical release of that content but in the downstream profit flow. And I think that is going to be a very, very attractive distribution model for both studios and content providers.

One of the really interesting things, as I have spent the last couple of weeks visiting all my studio friends -- as you know I worked at four studios over the years -- and talked to them about our alternative content model, I have been very pleased at the warm response that we have received because I think they look at us as a little company that is going to go out there and beta test a new revenue paradigm that hopefully they can take advantage of with their content downstream once we have tested it and once, to your earlier point, we prove the types of product categories that really seem to work given this model.

So that was a very good question and absolutely we are looking at it as kind of a comprehensive revenue and profit model that takes into account all the downstream markets besides theatrical.

Okay, I appreciate that. Thank you, guys.

(Operator Instructions) I am not showing -- Jon Gold, Federated Investors.

Good morning. I fell off the call for a second so I apologize if you covered it already. But is it possible just to talk for a minute about the risk profile that you will look at as you continue to develop the content inside of the business, and how that will play into the cash flows being generated by the existing business?

Sure. First of all, as I said, I don't know whether you dropped off on my answer, but we are in the process of putting together the comprehensive business plan for that piece of the business. And I think it's really important to underscore here that preliminarily we are not talking about investing in content.

We are talking about providing a fully integrated distribution model for alternative content and indie film where we may put up marketing dollars, but we will take fees. And it's a fee-based model. So we are not talking about investing in the production or the acquisition of alternative or indie content, just to be clear, in terms of the risk/reward profile of that business.

I think if you look at major studio or independent distribution of content right now, when you are looking at a pure distribution model it's either a [rent-a-system] model or a model where the studios put up P&A in exchange -- and take fees and aren't investing directly into content. It's a much more favorable risk/reward profile than a profile that assumes direct investment in content.

Fantastic. Thank you very much. That sounds great.

You are welcome.

(Operator Instructions) I am not showing any questions at this time. I would now like to turn it back over for any closing remarks.

Thank you all very much. As I said, it's a pleasure to be on board and we look forward to talking to you in the future. Thank you all very much.

Ladies and gentlemen, this does conclude today's program. You may now disconnect and have a wonderful day.