Cineverse Corp (CNVS) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cinedigm Corp. fiscal 2015 first-quarter earnings call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the call over to John Neuhaus, Executive VP of Corporate Communications. Please proceed.

Good afternoon and thank you for joining today's first-quarter fiscal 2015 earnings conference call. Participating in today's call our 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 report 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 would like to turn the call over to Chris McGurk.

Thanks, Jill, and thanks, everyone, for joining us today. We had our full fiscal year-end 2014 call less than two months ago, so today I will provide a very brief update on our quarterly results and business status. After that, Jeff will review our financial results, followed by Adam who will discuss our key business drivers. Then I will 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 the 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 catalog-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 will 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 fulfillment 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 two 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 to date, 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. Now I am going to turn the call over to Jeff to review the quarter's financial results.

Thank you, Chris. As I pointed out on our last call, Cinedigm's public status and business ambitions require an ever-more sophisticated financial organization backed by cohesive systems and financial reporting processes. In the 60 days since I have 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've also made a number of adjustments and investments this quarter to, quote, 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 it 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 $22.9 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 have 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 consolidate 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-deployment 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?

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 are focused on six key points.

Number one, we 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 thresholds 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 launch Con TV 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 subscriber additions and growth in 2015 around our channels. Support our OTT channels launch with low-cost original programming that can both premiere 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.

Though we are currently in another seasonally slow quarter, we are already seeing positive results from this plan. Let me know address in more detail how we are 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-month GVE sales process. We are seeing results already. 38 new customers signed since January, representing over $50 million of annualized gross billings and we are managing a deep new sales pipeline beyond that. This includes recently announced partnerships with Great Point Media, Rapid Eye, Viva, and Vmi, each who plan to produce and deliver three to five movies a year for multiplatform distribution beginning in fiscal 2016.

We believe our focus on more commercial genre 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 are targeting. A faith-based movie that can also be core content for our Dove OTT channel.

Number two, we have and will continue to re-examine all of our labels to ensure they meet profitability standards. Through that process, for instance, WWE will leave us at 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 catalog, 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 and 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 existing Cinedigm infrastructure. We are laser focused on the Con TV launch as we acquired content, secured advertisers, and put in place customer acquisition plan.

All signs point to the fact that we have a terrific opportunity here with Con TV, as well as the upcoming Dove Channel in 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 Con TV, 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 Con TV 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've 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/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 issues 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 to 18 months, in addition to the $7 million to $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.

Now I will turn the call back to Chris.

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 highly curated content directly to consumers on every connected device and platform. The enormous potential of this new digital delivery ecosystem is clearly evident now in the industry.

The Chernin Group's $500 million deal with AT&T called Otter, AT&T's proposed acquisition of DirecTV, Disney's up to $950 million acquisition of the multichannel digital network Maker Studios, the acquisition of multichannel digital network Fullscreen at $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's Blaze 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 or larger than most of these existing narrowcast OTT channels.

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 base content distribution business is about a 15% margin business, these new revenue streams, combined with the advantage of our already existing infrastructure, and digital studio should drive 40%-plus margins for us in OTT and potentially create a much higher multiple business for us than traditional distribution.

Just like the early days of Netflix, Amazon, and Hulu, we need to invest now to garner these 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.

Con TV 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 merchandising 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 and 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 to 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. We are now happy to answer any questions you might have.

(Operator Instructions) 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. I just wanted to get a sense for 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.

Then, secondly, just a follow-up on the comments you made about the WWE. I guess you were optimizing your library. You mentioned that the returns were I guess below par. I am just trying to get a sense; are they just lower than you guys want or were they actually negative? Thanks.

So 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 have taken a conservative view and reflected necessary write-downs and reserves related to what you just asked about. So I believe we are covered from a universal perspective.

James, this is 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 will 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 -- had us losing money and we are not in the business of servicing customers where we lose money.

Okay, thanks.

Andrew D'Silva, Merriman Capital.

Good afternoon and thanks for taking my call, guys. Just have a few questions 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 regards any of your distribution relationships where they impacted all? Walmart and Target, for example. Any color on that would be great.

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. 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, a Walmart or a Target or a Best Buy, they, too, go through these all the time and so understand where and what happens. I would say we are very confident. We have strong relationships, number one, and they are all very happy with God's Not Dead right now and its performance and our ability to support them.

As an even example on Walmart, where 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. 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. So we feel pretty good about all of that.

Okay, great. Then just transitioning a little bit; excluding recent content acquisitions that you have been on and the opportunities with the OTT stations, could you kind of I guess 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?

As we said last call we are not going to be giving guidance given the volatility and unpredictability in the business. And 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 to this.

As we've talked on the -- an example that we think we have added new business that when it gets to an annualized full scale, which is going to kick in in the next fiscal year, annualized billing out of that of $50 million-plus hopefully. That may not all hit our revenues because it depends on distribution or licensing royalty transaction. Typically, as we said in the past, those are 20%-ish fee deals so that contributes -- 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 have 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 that 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 the exact timing of when movies are released and when things happen.

Andrew, as we said a couple times in the remarks, we are all looking forward to the point that is going to start in the next calendar year when the three new streams of revenues begin to kick in from our OTT channels: advertising, merchandising, 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.

I absolutely see that. You are 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. Then my last question; could you just provide me with what the DEG revenues were for the quarter?

Yes, I think it was --

Sure, $7.2 million.

$7.2 million.

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

(inaudible) one thing is I think we were clear is the next -- this quarter they were 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 will start to see a normal seasonal uptick in what we are doing and more revenues and earnings that come from that.

Got it, perfect. Thank you very much.

Eric Wold, B. Riley.

Thanks, good afternoon. First question follow-up question on the last one talking about kind of the $50 million in gross billing you have from these customers.

Not looking for guidance per se on a quarterly or annual basis, but think about it, if they represent $50 million of -- over $50 million in gross billings and they kind 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 will kind of be up and running and kind of churning through? I guess that's the first question.

This is Adam. I will go first. I think as we described in our remarks, the business that we are adding both here and in the OTT side will really ramp in and get closer to scale that we want over the next 12 to 18 months.

With a lot of the customers that we are adding in our pivot in the home entertainment space, they are producing and then need to deliver to us movies -- 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 and nine- 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 have announced in the last few months.

We expect to get the first movie delivered to us typically nine months, maybe 12 months after we've announced a relationship. Sometimes it's a little sooner because they are down the path, sometimes it's a little longer so that kind of 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.

Okay. Then on the strategic partners or discussions you have been having, I'm going to assume that the content that you have and the content that you are developing for these channels you would want to keep proprietary and so you wouldn't be looking to kind of license that or kind of get an investor that are going to pull that somewhere else.

So assuming that's the case, will the investments be focused on kind of 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?

This is Chris. That was a really good question, Eric. We actually would be looking, depending on the deal, for maybe co-production dollars to help accelerate the growth of these channels.

We have had interest in both Con TV and the faith channel and a couple of other channels that we haven't announced. Actually, we've had an interest in Docurama. We just have to evaluate the merits of the 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 are getting optionality here. We've got big players with very deep pockets who we are talking to right now who really like our plan, like our channels, and we like the optionality that it gives us. 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 are 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.

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 -- as 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 baseline level of revenue and profitability for a channel, at least projected, before you give the green light on that or not?

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 and I think you can see with the branded partners that we have 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 would be going a little too far in saying that we would hope that each one of these channels that we launch has an opportunity to get between 500,000 and 1 million subscribers over that three- or four- or five-year timeframe. That's what we are looking at as our objective.

And if you do the math on that, where you are charging subscription fees of between $4 and $10 per subscriber, add on top of that advertising revenues and merchandising revenues, I think you can see that in a very quick period of time we will be building big new revenue streams for the Company and hopefully create a lot of value for our shareholders.

Thanks, Chris. Thanks, guys.

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

[Ron Chaz], Cinedigm.

I am not with Cinedigm. I am a shareholder and I was going to withdraw the question because you responded to Eric -- I just didn'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 to it just now.

Thanks for the question, Ron, but I do think we answered it. If you are a shareholder, you are with Cinedigm, so we appreciate that very much, Ron.

Just a modest clarification, okay?

[Svi Rye, Vapor Capital.]

Thanks. Just, I know it's early, but could you give us an update on whether it's unique visitors or ad sales on 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 has progressed in the last couple months?

It's Adam. Similarly, we are selling out all our ad inventory. As we said before, with 175,000 sort of downloads and people 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.

Then following that with a rollout of a subscription video-on-demand service to go with today what is going to be an advertising video-on-demand service, so we are 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 are having with branded partners who would bring both content and another level of awareness and customer base.

That is the channel where, 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've 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 kind of move down that path.

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

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 and that's the expectation.

Okay, good. It will be interesting to get an update on how that impacts sales and visitors over the -- by the next quarter.

Last question, curious as to the TV 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 in EBITDA, thereabouts.

Sure. 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 would not expect us to try to internally allocate, well, 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 set up for the new customers we are adding, the growth we are adding in the OTT channels. But 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 is what we are very focused on as we reinvigorate growth by adding the new customers we have added and doing the things we are doing.

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

(Operator Instructions) 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 demos so you can secure the customer base you are looking for?

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 is not our intent at all.

As I said, we have got three free 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 1 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 sort of building out and marketing for 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 holding between 20 and 25 comic cons and more than 1 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. We think sort of attacking those potential subscribers directly at the comic cons and then through Wizard World's database is the exact way to go toward building for that 500,000-plus subscriber level, which is our long-term goal. And 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 and an audience in order to acquire subscribers and build to that critical mass very, very quickly.

Jim, this is Jeff. I 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 turnstiles. So that's a key item that we will be able to leverage as well.

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?

Jim, it's Adam. God's Not Dead was released by a production company called Pure Flix, who has been a customer of ours for quite a while. In fact, it was a customer of the GVE business we acquired. And so they released that movie theatrically and we were hired as part of our relationship with them to do the physical home entertainment distribution of that.

It really fits in the example of what we talked before, more and more of those kinds of relationships we are adding into our customer base. High-quality producers of movies and television who we have prearranged relationships that we take their output that meets certain parameters and then we distribute it. In this case, we distributed that only in the physical. In most of the cases we are 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 -- more and more of our model going forward, which is to source that type of content rather than cataloging libraries and labels from the kind of legacy part of the business and the National Geographic and Discovery 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 that fits genres and has cast-driven [help] and all those pieces. So I think it's a very good example of where we see our business going.

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 have had just numerous inquiries and offers from producers to come here and have us distribute their product and have a relationship going forward with the Dove channel. And I think you can expect to see more announcements from this space actually in the next couple of weeks of more product, exciting product in this genre.

How big a distribution fee did you get? And was -- were you just pleasantly surprised that this was actually pretty successful for the budget the movie probably had? It was somewhat of a surprise hit, if you will.

Yes, I think it was just -- we never disclose our specific distribution fees, so I will tell you at the onset you are 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 they weren't -- everyone was not completely surprised because, as I said, that genre has a very, very, very dedicated following who will go out and support these movies, both in theaters --.

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. That's what we are seeing in the market and we have had reorders on our big initial shipment already. So we are not surprised about how well it's going in DVD. 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.

All right, thanks very much.

[Gary Simon, Blythe Partners].

Thank you. Guys, thanks for the transparency and the clarity and really 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 am 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.

I will let Adam or Jeff get into the detail, but just at a high level I think one of the advantages we have in the OTT space and why we are attracting this interest from other potential strategic investors and partners in this space is I think, as we described on the last call, it's really -- in terms of the cost structure it's really a marginal business for us, because we already have invested in most of the content and the infrastructure in our digital studio.

We can launch these channels at basically and 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 are not subject to the huge upfront costs in this business that new entrants or some of our competitors are subject to.

And with that context, I will turn it over to Adam or Jeff for a little bit more detail.

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.

Until we then -- as we launch channels and then incur marketing expenditures and all those other things, that's when the real expense incurs. So our upfronts before we launch the channel to the consumer and then begin incurring marketing and customer acquisition expenses is manageable and reasonable and certainly was less than seven figures this quarter.

You will know when we are starting to -- when we launch a channel and we are starting to spend more dollars because we will do it, we will be showing it, we will explain it. But a lot of that, and the beauty, what we like out of 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 are not buying TV commercials and you won't see a Super Bowl ad and those kinds of things. It's much more digitally oriented, tied to results. And so in some ways -- in fact we were looking at some analysis the other day and the comment was always we hope we have really, really, really high marketing expenditures because that means we are usually paying someone for a subscriber who has signed up.

Right, no, no, I understand that. And as revenue comes in, if we are matching the expenses to the revenue, that's fine. The more you spend, the more you generate. That's understandable.

Just wanted to confirm that the current quarter or the prior quarter and maybe even the next quarter because there's, what, a six- to nine-month lead time in getting the revenues starting to gain traction so that it's not impacting the current numbers. The only negative, the big negative here is the back office issue, which seems to be basically rectified.

Right, that's correct.

Okay, thank you.

Thank you. With no further questions in the queue, I would like to turn the call back over to the speakers for any closing remarks.

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

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.