Cineverse Corp (CNVS) 2015 Q2 法說會逐字稿

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

I would now like to turn the call over to your host for today, Jill Calcaterra, Executive Vice President of Corporate Communications and Investor Relations.

Ma'am, you may begin.

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

Before I hand the call over to management, please note that on this call certain information presented contains forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties, and assumptions. Potential risks and uncertainties that could cause the Company's business and financial results to differ materially from these forward-looking statements are described in the Company's periodic reports filed with the SEC from time to time. All of the information discussed on this call is as of today, November 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. I will begin by reviewing our base home entertainment distribution business, as well as the high-potential OTT digital networks we are launching. After that, Jeff will review our financial results, followed by Adam, who will discuss our key business drivers. So let's get started.

As you are all aware, we have been engaged in a multi-year process to completely transform our company to take full advantage of the sweeping changes digital technology has created in the entertainment industry; and, in doing so, drive long-term shareholder value creation. We have fully restructured Cinedigm from our pioneering roots as a digital theatrical deployment company to become a fully integrated premium content studio now poised to be a leader in the high-potential digital over-the-top network business. As a result of the strategic moves, Cinedigm has become one of the leading domestic distributors of premium entertainment content in the United States, holding direct relationships with all key physical and digital retailers and national cable and satellite TV providers.

And now we are leveraging our strong position as a premium content distributor to stake our claim in the emerging over-the-top digital networks business. Cinedigm has the library depth, the digital assets, strategic platform alliances, nontraditional releasing and marketing expertise, and the right plan, management team and technological capabilities in place now to become a leader in this new business. We believe OTT will be the industry's key growth driver in the future. And our view of the upside potential of this business has been reinforced by recent market activity, which I will review in a minute.

But before we delve deeper into the OTT opportunity, I would like to review the significant progress we've made in our base business. First, we believe the transition issues with our back-office fulfillment partner, which impacted our last quarter, are now behind us. And our strategic pivot to partner with high-quality content producers is beginning to address the GVE performance issues we inherited. We have implemented operational and tracking improvements. Our DVD returns have returned to more normalized levels, and retail sellthrough has rebounded. All of that is reflected in our results this quarter, which, although still a seasonally slow period, like the first quarter, showed a return to positive EBITDA in our non-deployment-based business from last quarter. And we are cautiously optimistic that this rebound has continued in our fiscal third quarter as well.

Additionally, we are pleased that our pivot from distributed catalog deals we inherited from GVE to higher-potential film output deals that we discussed in our last call with you is rapidly filling our sales pipeline. These partnerships with content producers, who create high-quality genre and cast-driven titles that perform well in ancillary markets, and also supply premium content to our OTT channels, will greatly enhance our base business and improve our margins. Our very successful DVD release in August of God's Not Dead, where we shipped over 1 million units at an extremely high consumer sellthrough rate, is a perfect example of this, a premium, faith-based film that generated solid revenues in our base business while also demonstrating our strength at distributing the core content that will drive the success of our Dove faith and family OTT movie channel that launches next year.

Now let's review our OTT opportunity and our plans in more detail. The enormous potential of this new digital delivery echo system is clearly evidenced by the plethora of significant strategic business investments and acquisitions that have recently occurred in the space, including announcements by Disney, AT&T, Legendary, LionsGate, DreamWorks, Hearst, The Chernin Group, and many others. All these entertainment heavyweights clearly see that the future is all about making programming available to consumers when and where they want to see it on the device of their choice. And that's exactly what makes OTT distribution such a game-changer for the entire business, and specifically with Cinedigm, with our 50,000-plus film and TV episode library.

And the statistics supporting the OTT business are extremely compelling, as well. Strategy Analytics reports that 72% of US users now view video on mobile devices at least twice a week, and 34% of millennials watch more online video than TV. And 82% of connected device owners belong to subscription video services, with 46% subscribing to three or more services, according to McKinsey & Company. And there's still room for even more explosive growth. Just 14% of homes had an OTT living room device at the end of 2013. That number is projected to double in 2014, and land at 330 million devices by 2017, based on research from Parks Associates.

Cinedigm will take advantage of this huge opportunity, based on our unique approach to the OTT market, which leverages both our core and differentiated assets. We are not competing with the broadly focused general entertainment OTT channels; but, rather, are intent on building a narrowcast version of a Hulu or a Netflix or an Amazon by delivering specific content to avid, well-defined audiences whenever they want to see it on the device or platform of their choice, all while circumventing the traditional entertainment distribution infrastructure.

With our huge library of premium content rights and digital expertise as key assets, Cinedigm's recipe for OTT success in this new digital ecosystem is clear. Content will remain king. And strong, authentic bands will dominate, generating three completely new recurring revenue streams for the company -- advertising, subscriptions and merchandise. We launched our first advertising VOD OTT digital channel, Docurama, in May, featuring nearly 800 documentary films as we made our first foray into the space as a beta test.

Today, with very minimal marketing investment, we have approximately 227,000 app installs across Roku, iOS, Xbox, Amazon Fire, Western Digital, TiVo, Opera and Samsung. And we are adding approximately 7500 installs each and every week. Roku is our largest platform, and we are consistently in the top 3% of Roku channels in terms of popularity and download velocity. We will continue to expand our efforts, including a new Thanksgiving week promotion with Roku, as we also discuss bringing a high-quality branded partner to the channel and then adding a subscription VOD component at that time.

CONtv, in partnership with Wizard World Comic Con, will launch in early 2015, targeted at the huge 18-to-44-year-old fanboy and fangirl audience. We are very excited about the potential of this channel. We have great content set to go at launch, with over 1500 hours of programming, including library films and TV episodes, original series, and panels and guest appearances from the floors of the comic cons. Importantly, CONtv's fan-based millennial demo leads the pack when it comes to watching programming on a device other than a traditional television set. According to comScore, 44% of millennials are already watching TV on desktop computers, and 49% are watching TV on tablets.

So we believe CONtv will soon be delivering content exactly the way its avid consumers want to view it. And through our initial survey of over tens of thousands of potential viewers, over 93% of respondents want CONtv. So we expect to rapidly launch out of the gate with an avid fan base, as well as build viewership quickly through the talent and affiliates that already support the comic cons.

Another channel we are very excited about is The Dove Movie Channel. Set to go live in spring 2015 via a partnership with the Dove Foundation, this channel will be targeted to families seeking high-quality, wholesome, family-friendly and faith-based content -- a very large and avid potential audience. As I mentioned earlier, the recent success of God's Not Dead has underscored our strong distribution capability in this arena. And we are signing many new content deals, like our recent Chesler/Perlmutter output slate that should provide a steady stream of high-potential, premium faith and family content for both our OTT channel and our base business.

And our efforts to grab beachfront real estate in the OTT area are generating 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.

From a shareholder's perspective, we believe we can deliver rapid growth; and, at scale, significant higher-margin recurring revenues and profits from these channels at a relatively low level of investment and risk. The recent M&A investment activity I mentioned previously in this sector supports this high value creation potential.

Now I'm going to turn the call over to Jeff to review the quarter's financial results. Jeff?

Thank you, Chris. We are pleased with our results this quarter. Consolidated revenues increased 23% to $23.7 million from $19.2 million in the prior-year quarter. Consolidated adjusted EBITDA increased 11% to $12.4 million from $11.2 million in the prior-year quarter. Non-deployment revenues, the entertainment and services area, increased 77% to $11.9 million from $6.7 million in the prior-year quarter. Finally, non-deployment-adjusted EBITDA increased 273% to $1.2 million from a negative $700,000 in the prior-year quarter. Additionally, during the quarter, we paid down $14.2 million of non-recourse and corporate debt as we continue to use our stable deployment cash flows to deleverage.

As Chris mentioned, based on the operational initiatives that we have been implementing in our content distribution business that Adam will describe in more detail shortly, our base non-deployment business performance performed nicely during the quarter compared to the first quarter, and that rebound has continued so far into the third quarter.

While we are cautiously optimistic about our results going forward, we are still working hard to rebuild the GVE sales pipeline and drive additional revenue growth, which we hope should more than compensate for the general decline in the physical DVD business.

However, I want to reiterate that our performance thus far in the current quarter shows good progress in successfully implementing our operating initiatives to address these issues. As an example, given the quality of our content and our strong retail relationships, we increased our retail facings this holiday season, even though, on average, our retailers reduced overall DVD shelf space for all suppliers in an aggregate by 10%. So we are clearly outperforming the industry on this metric, and hope to see that continue as it translates to our bottom line.

Additionally, we have made significant progress during this quarter, with our required SOX 404 compliance work, which needs to be in place by the end of the fiscal year. And our initiatives surrounding the migration towards a single and more robust accounting and reporting system are ongoing, with the end goal of having a more efficient closing process and a more detailed management reporting system that will aid us greatly as we continue to better manage our business operations and growth strategies. We are also focused on putting proper controls in place and reporting to support our emerging and high-growth OTT businesses, which will require timely and accurate reporting, both during and after its launch. I am pleased to report that each of the above-mentioned initiatives are on-time and on-budget.

Now I will turn the call over to Adam. Adam?

Thank you, Jeff. On our last call, I outlined our six key areas of focus to drive the business forward. Let me update you on the progress we have made in each of these areas.

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. As we discussed during our last call, we have been focused on rebuilding the sales pipeline that was neglected during the almost 12-month GVE sales process. We are seeing results already. 35 new customers signed since January, representing over $50 million of projected annual gross billings. The feature delivery [lines] for these deals have firmed up, and we are excited by the slate we see coming together for the next year. We have a number of additional potential customers in our near-term pipeline that we expect to further add to our growth in the next fiscal year, as we capitalize on our unique position as the largest distributor of independent content. We believe our focus on more commercial, genre, and talent-driven content is the appropriate strategy to drive strong digital and physical results.

Number two, eliminate customers inherited from GVE that do not meet our return thresholds, due to the changing physical sales landscape. As I mentioned on our last call, WWE will leave us at the end of this year. And we have since ended another label partnership that was no longer profitable for us.

Number three, continue to attack our cost base to ensure right-sized infrastructure, while aggressively managing our fulfillment services supply chain and partnerships for physical DVD. Now that we've gotten through the supply chain conversion, we took steps during the quarter to achieve synergies and reduce overhead costs, while also redeploying resources towards our OTT business. We expect to see the financial benefits of these steps modestly in Q3, and fully in our fiscal fourth quarter.

Number four, focus resources to successfully launch CONtv in the early 2015, and our other new digital channels in the first two calendar quarters of 2015. As Chris mentioned earlier, this is a key focus area. We continue to grow our core team, as we have added five key hires. We are commencing beta testing of our CONtv app currently. We have complemented our library with major licensing and original program additions that will allow us to launch CONtv with over 1500 hours of content, and we have begun pre-marketing to Wizard World customers. We also continue to grow Docurama to over 227,000 app downloads with a very limited marketing budget, and expect to ramp up these efforts this quarter, with feature promotions on Roku and other platforms. Finally, we're accelerating our content and brand development for The Dove Movie Channel, as we line up that launch for late spring to follow CONtv.

Number five, support our OTT channel 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. We are launching CONtv with 4 to 5 original programs, including the Fight of the Living Dead reality drama that takes top YouTube stars and drops them into the middle of a zombie apocalypse in an abandoned women's prison; two major game show concepts to produce live at the cons, with preferred audience access for our subscribers, and both live and recorded panels at the cons, cosplay, and other user-generated content from the Wizard World Comic Cons. The fan reception to these concepts in our surveying has been tremendous. We will then, after appropriate windowing, take much of this content to other distribution channels for further monetization.

Number six, continue to explore accretive M&A, strategic partnerships, and investments in our OTT channels that can accelerate growth. This remains an ongoing focus as our expanding footprint and imminent channel launches are attracting significant interest. Cinedigm has a unique position in this hot market space, and we intend to capitalize upon it.

We are already seeing the positive results from this six-step plan. We are pleased with our performance in the second quarter, and are seeing encouraging signs in the first 40 days of fiscal Q3, as our improved product lineup and strong retail placement is a testament to our operating focus.

We are achieving strategic synergies between our home entertainment distribution and OTT businesses. Our capabilities in each area have made us a more attractive partner. We are securing broad home entertainment distribution rights, as we're on the industry cutting edge with OTT. And we are leveraging our growing library and our channels, and to attract additional partners.

As we compete in the market, we estimate our library and existing infrastructure enables our OTT channels to save at least $4 million to $8 million of hard launch costs, as compared to a startup without these assets.

We will maintain our laser focus on these operating steps, as well as on attracting and retaining the key talent necessary to support our growth in fiscal year 2016. Our team is focused on the opportunities to drive significant shareholder value growth over the next 12 to 18 months.

Now I will turn the call back to Chris.

Thanks, Adam. And thanks, Jeff. In summary, we are very pleased with our performance this quarter, and are excited about the high potential launch of the CONtv digital network and the Dove Movie OTT channel next year. Together with our digital cinema business, which continues to generate strong recurring revenues, and rapidly pay down its non-recourse debt, Cinedigm is now positioned strategically as the only small-cap public entertainment company poised to take full advantage of the valuation upside potential from the industry shift to digital.

Additionally, we continue to evaluate strategic opportunities with entities that value our premium content distribution capabilities, our over 50,000 film and TV episode library of rights, our digital OTT networks business, and our public currency, reinforcing our direction, vision, and current position.

As a reminder, management and the Board own over 25% of Cinedigm's outstanding equity, including options and warrants on a fully diluted basis. So you can be assured our interests are aligned with our shareholders.

All in all, we have a clear roadmap for where we are headed, and the entire management team is focused on producing results.

And with that, we are now happy to answer any questions you might have.

(Operator Instructions). James Marsh, Piper Jaffray.

Just a few questions here -- first, Chris, you mentioned some of these strategic discussions that are underway. I guess I understand why others might be interested in getting involved with you guys. But what are you guys most interested in, in acquiring. Or what are you looking to get out of these types of relationships? What are you guys looking for there?

James, obviously, I'm not going to answer this question in too much detail. But we are looking at opportunities, strategic opportunities and partnership and JV opportunities that can help accelerate our growth plans, primarily in the over-the-top space. We think that, again, as I said, we've got a great set of assets that we can apply against this business, and really stake our claim and build out beachfront real estate very quickly. And if there are opportunities out there to partner with people and forge alliances that will help us do that quicker, in a bigger and better way, and give us leverage in scale and bring additional capital to the table, we're going to look at that very closely.

You guys have been pretty busy on the output deal side over the last, I guess, 6 to 9 months, with Moguldom and VMI and Rapid Eye. Are there any genres that you guys think about that you might be more aggressive in trying to secure? Is there anything missing, as you guys look at your portfolio that might be interesting, in particular?

I wouldn't say there's anything missing. I think we've got a very good, broad-based portfolio of content with specific strength, as we've said before, in certain genres, whether that's anime or family programming or a lot of retro TV episodes. But now what we are really doing is we're focusing our acquisition efforts to make sure that the product that we are bringing in can help support the accelerated growth of our over-the-top networks.

So, obviously, we're out there looking at a lot of family content right now, and faith-based content, like God's Not Dead, to help support our Dove faith and family movie channel; and a lot of genre content, whether it's more anime, more horror films, more science fiction, more old TV episodes, more martial arts-type product that the fanboy and fangirl audience are going to want to see on CONtv.

That's helpful. And then just a last question -- I think, originally, you guys talked about CONtv being a fall 2014 launch. And obviously now it's first quarter of 2015. Are there any particular reasons why it's taken a little bit longer to get that launched?

Sure. Hey, James. It's Adam. A couple of things. Number one, we wanted to get the technology platform, right, and then you have to get it through Q&A in all of the major digital platforms. And we don't control the timeline at Apple or Xbox, or any of those places. And that can take some time that we can't predict.

We also put in some features into that platform that we think -- in the app -- that are pretty unique that will, I think, enhance viewing and enhance usability and excitement, as compared to other services out there. We felt it was worth developing them. That's one.

Number two, we wanted to make sure we had the appropriate lineup in terms of breadth and depth of content. And that was on both the original side, in particular, in certain licensing, but mainly on the originals. And if we put that together with Wizard World and looked at the lineup of when they were going to have comic cons around the time of when we wanted to launch, we made that -- we really wanted to line that up well. And once we concluded we couldn't launch it in October-early November, you would expect they're not doing a lot of comic cons in the holiday season. And we didn't want to launch outside of the cons, which is huge for momentum, consumer awareness, getting the fan base excited.

Okay, that makes complete sense. All right. Thanks, guys. I'll get back in the queue here.

Eric Wold, B. Riley & Company.

A few questions, one on CONtv. Kind of following on the last answer, you mentioned obviously launching around the conventions. Maybe give us a sense of how the marketing will work with Wizard, or how exactly it will be marketed to the attendees there. And then of the 1500 hours upon launch, how much of that is exclusive content to CONtv that can't be found anywhere else? And going forward, I know you talked about later in the cycle, taking some of the content out to other channels. What is your sense of how much of the content on CONtv, going forward, would be considered exclusive?

Sure. So, a couple things. In terms of how we will market to fans -- and I think that's one of the things we're most excited about -- with Wizard World, we have a partner with a 1.5 million fan email database; 600,000 to 700,000 attendees per year in their 25 to 30 cons. And basically all of those people will be getting some form of membership into the app. If you buy a ticket, you will become and AVOD subscriber. If you buy a premium ticket, which is around 10% to 20% of their customer base, you will have bundled in with that an SVOD subscription to the app.

So we are working aggressively to roll out to that fan base. And that's -- we've done a lot of surveying in there, and we are building that excitement there. So we are going to be able to very quickly add them to our customer base. And then, we've got to give them the offering that they are excited about.

We're also going to be able to leverage affiliates who are already advertisers and marketers at the cons, and create an affiliate marketing campaign with those people so that they drive members to us and they get paid. And the same with a lot of the talent that Wizard World already brings to all the comic cons who we are creating talent partnerships with, to incent them to drive their fans through social media to subscribe to the channel. So we have a lot of avenues. And we will roll those out and ramp those up pretty quickly in the few months following launch, as we try to build a lot of momentum. We've also used our relationships with the digital platforms to get front-and-center placement, like we've done at Roku and other places, to make it work and to give us that momentum there.

To your second question, on the exclusive amount of content -- I don't, off the top of my head, know the answer. There's a decent amount. But what I'd say is, that's not the driver. More important is curation and depth of it. Part of the challenge for many in this audience and in other of the channels we're launching is not that the content -- they can't find pieces of it in different places. It's they can't find enough of it that fits their interest level in one place. Because if you look at this, call it the department stores -- Netflix, Hulu, whatever -- they are a mile wide and an inch deep. That's their strategy, other than in certain limited verticals. And they are not, then, serving the needs of an avid fan base, whether it's a CONtv, whether it's a Dove, whether it's a Docurama. And a big chunk of the value we provide is bringing all that content with curation into one place, enhancing that with original programming and certain exclusives.

But it's that entire package and the social experience that goes with being connected to like-minded people of interest that makes it work for you. If you take a channel like Crunchyroll that has 400,000-plus subscribers, we provide them, through license, probably half of the anime. And we provide -- that will be on CONtv, it will be other places. The point is, they can get it all in one place. So I think that's the value proposition, versus I have to have massive exclusive original programming.

Although, our research did show that one of the things that the potential con viewers really want to see is footage from the cons, panels and guest interviews, and that kind of thing. And obviously they are going to get a shot at seeing that before anybody else, if they subscribe to the channel. And we think that's huge, along with the original programming offering that Adam talked about, all of which will -- all those shows which will debut on CONtv.

Perfect. And once CONtv and the platform is up and running, how quickly can you use that? Or how useful will that be to use that to launch other channels? And how many additional channels beyond DOVE channel and CONtv are likely in next fiscal year?

The buildup is pretty quick. What you then have to do is re-skin it and re-customize it for the niche. But the basic, underlying technology platform is the same. And then the question in terms of the time of launch is a combination of doing that, acquiring the breadth of content to supplement our own library in the right period of time, and the branding and marketing customer acquisition strategy. And as we said in the past, our goal is to launch several channels a year. So we think we've got the first two of 2015 scheduled, obviously. And there's a number of those in the pipeline behind that in conversations we are having. But we are really laser-focused right now on getting the channel launched, and launched successfully.

Thank you. And then last question -- going to the 35 content partners you signed, or distribution deals, and the $50 million in gross billings annually, when -- looking at when those guys have signed and what their pipeline is, when do you think that $50 million in gross billings annualized would be reached? And what would be the estimated Cinedigm revenue from that?

Basically, we expect to start getting deliveries of the initial titles from a number of these producers somewhere in our fiscal fourth-quarter. So it will have minimal impact, financially, because that will be an either modest theatrical release, probably not even the home entertainment release. But we do expect that revenue run rate to kick in fiscal year 2016. That's number one.

Number two, I think we've said in the past, generally speaking, our fees -- assuming they are distributed versus license -- but our fees basically typically are in the mid-teens as a percentage of gross revenues. They go to our fees and our gross margin.

Perfect. Thank you, guys.

Andrew D'Silva, Merriman Capital.

Just continuing with the OTT chat, can you maybe elaborate on how the Wizard World relationship works? And is there an opportunity for you to get into some of the largest cons -- the San Diego Comic-Con, and then the New York Comic Con, as well?

I'll go. Sure; to the last point, we are having a lot of conversations with -- there are over 1000 different cons that are staged in the United States annually -- not just comic cons, but whether they are horror cons or Hello Kitty con -- you go down the list. And so we talked to a lot of the operators of those events about how we can work together maybe filming panels, creating content together, or an affiliate-based relationship where they have a financial incentive to drive their own customers to subscribe. So we are certainly doing that.

We know the people at San Diego very well, and we talk to them about a lot. And we know the people in New York very well, and we talk to them a lot. So that's part of the ongoing dialogue we have.

And in terms of Wizard World, they are a great partner. As we said, we chose them as our partner because they are the largest operator of cons in North America. They share a similar entrepreneurial spirit and approach. And we think the combination of their customers, as Chris said, the ability to film things at the cons, and provide that sort of behind-the-velvet-rope experience to viewers is a unique advantage.

Okay. But there's no exclusivity or limitations in the agreement, where you couldn't do some filming of discussion panels at other comic cons that are not within Wizard World's universe.

Oh, no. They are out there with us, with all the relationships. It's a very open community there. And the goal, for both Wizard World and us, is to make this channel as successful as possible.

Okay. Okay, good. And then maybe you can just touch on this a little bit. I know there's a big macro shift from physical to digital right now. Are you seeing that translate in your own business at all, as far as a greater percentage of your overall sales are coming from digital versus physical from maybe a year ago today?

Adam again. That transition is absolutely occurring. Though we are still getting significant physical sales, it's still -- physical is still more than half of all entertainment revenues. And really, for us, the big components of revenue are physical, subscription, video on demand, in particular. And then we certainly have a transactional. But those first two, physical and SVOD, are what is most common in the indie space. And we see both of them doing pretty well, . And that's part of why we said we are encouraged by what we are seeing so far in this quarter, because both physical and digital are performing well.

Yes, over time, there will be more digital revenue as a percentage of the business. But both of those businesses are growing for us right now.

Okay, great. And then just a last question, since your Q won't be out until tomorrow, I take it -- can you just break out your revenue and your adjusted EBITDA for your services segment, please?

Sure. Isn't that what we mentioned earlier? So the revenue on the services side is -- $11.9 million is the revenue for the entertainment and services side, with the $1.2 million of the EBITDA for the quarter.

Oh, I meant servicer codes, just that division -- if you could break it out so we could have the separate segments as they would be reported in the Q.

Oh, sure. $2.9 million is the servicer co Q2 revenues. And $2.1 million, $2.15 million, would be the servicer co EBITDA, Andrew.

Perfect. Thanks a lot, guys. Good luck going forward.

Zvi Rhine, Sabra Capital.

A couple questions -- as it relates to the non-recourse debt on the deployment side of the business, I believe that prospect note becomes callable in February of 2015. Have you guys -- are you looking into that? Do you think there's a possibility to refinance that, given it was issued two years ago, and some of the initial term loan has been paid down aggressively?

I think that one of the -- we are not planning on that. You never know. I think that when we look at the overall capital structure we put together in that refinancing, it was very efficient. There are certainly call premiums when it becomes available for call. I don't think you should be expecting that to happen. I think we've got a pretty efficient cost of capital on that part of the business.

Okay. And then to switch to Docurama, on the weekly downloads, the 7500 that you talked about, which services are driving that? Is it coming mostly from iOS? Is it still Roku?

Roku is certainly still the biggest. But we are seeing the other services increasing. In particular, I think the second-largest actually is Xbox, which is interesting, and then iOS, as well. But we are not on Apple TV with that service; we are on the App Store. So that's why it is not as big as Roku or Xbox, which are living room devices. And I think Docurama has been more of a living room viewing channel, not -- but people are watching it on their iPads, for sure.

And in the last call, you had mentioned that you are going to develop an Android app as well. I don't believe that has been released yet. Is there a timing on that that you expect that to happen?

Yes. Our development partner is late, fundamentally. And you can imagine, we are all over them, and very frustrated. I would hope in the not-too-distant future, because that's what they keep telling us.

And then last, it seems from the reviews I've read dating as early as May -- so when this was launched, through my recent experience -- I'm actually a big Docurama fan, to be quite honest. The ads on the app are seemingly inconsistent in their timing. They are repetitive, and seem to be unregulated. And that obviously can potentially create a negative experience, and turn off users. Why hasn't this been addressed? Are you guys not monitoring some of the reviews that are out there? And I imagine this isn't isolated to a few (technical difficulty).

No. In fact, we are in the process of bringing in our own ad network partners to place ads on the app. We have been -- as we described at the beginning, we partnered with a company that got us that app up quickly, and who provided both app development and advertising network support. And we have been disappointed, as you can get a sense, on both of those. We are bringing in our own ad networks, which I think will change exactly what you are describing. And, ultimately, Docurama will port over to our new -- the CONtv built tech platform, once that's up and running' and probably in combination when we bring in another partner, a branded partner to support that app.

So in the meantime, we are getting good feedback on the content and people's enjoyment of that. And you are absolutely right; we are going to improve the ad stuff, because I'm also not getting the revenues I want from it.

I will echo -- I'm a fan of the content -- that's me; not a fan of how the advertising is being placed. But hopefully, that gets rectified in the near future, because I think it has some powerful (multiple speakers).

No, no. Your input is well taken. And, again, as I said in my remarks, we launched Docurama with an idea that that would be a beta test for us for the entire OTT concept. And we've learned a lot since May that we are focused on now, and we are going to apply against Docurama and the other channels that we are launching.

Okay, great. Thanks, guys.

Michael Fox, Park City Capital.

With regard to the potential strategic initiative on the deployment business, of potentially monetizing that by selling it to a financial buyer that might have a lower cost of capital, and improve your balance sheet and provide you guys cash to invest in more exciting growth opportunities, particularly the OTT and content opportunities that you guys have talked about primarily as the growth opportunity so far in the call, can you just give your thoughts on that?

Well, we always look at the best ways to maximize value and to maximize value out of assets. I would say that a sale of the deployment business is certainly unlikely. First of all, I think your presumption that financial investors have a lower cost of capital is probably -- I wish it were true. But I don't think it typically is, number one.

Number two, to do financial transactions around that part of our business, there's a number of change of controls both with the movie studios and with the lenders that would make it certainly challenging. So that's not something that I would expect us to do.

Okay, thanks.

Gentry Klein, Cetus Capital.

I have a few questions. Firstly, can you tell us what the revenues were for Gaiam for the quarter? I know last quarter you broke it out. I think last quarter in Q1, Gaiam was about $2.2 million of revenues. What was that in this quarter?

Gentry, I don't know where you are getting that. We don't typically break out or even track Gaiam revenues anymore. It's consolidated into our overall content and entertainment group.

(multiple speakers) I got it from the 10-Q (multiple speakers).

Gentry, what you are referring to is when we acquired Gaiam last October 22, for that quarter, the fiscal third-quarter when we owned it for a couple months, we broke out those revenues as the new revenues, and we broke out the revenues that previously we didn't capture in the quarter that were retained by Gaiam. That was in the December quarter. We didn't own it in the September quarter. And as Jeff said, we have consolidated everything into one business. There are no two businesses. It would be an impossibility to even know what the answer to your question is.

Okay. I had calculated $2.2 million. But you all are saying that -- I'm struggling a bit with the value proposition at Gaiam. You spent $50 million on it, and it seems like it has been extremely underwhelming. And it's not clear to me what we got out of that. Did we -- it was running at $15 million of EBITDA at the time of purchase. It's difficult for me to hear you say that you can't tell us what the contribution of that business is. As shareholders, I think we have the right to know what that underlying business is. Did we spend $50 million properly? Are we getting a return on that money? And you are saying that it's now consolidated. It seems, frankly, pretty anemic growth in the CEG business. It really questions whether or not that was a good transaction.

Gentry, this is Chris. I will say, at a macro level, what the Gaiam transaction did for us is it basically turned us into a premium content distributor that had the muscle to compete with anybody else in the business in every platform of distribution, both physical and digital. And it really gave us the library and the wherewithal now to become what we believe is going to be a leading player in the over-the-top business, where we believe the bulk of the value creation is going to be in this industry going forward.

So from a macro level -- and I won't get into the numbers -- that's what the Gaiam transaction did for us. It gave us the distribution machine and the muscle, really, to do all the things that we've been talking about on this call.

Okay. Switching gears to OTT, the Docurama launch has been five or six months now. There's no Android app. The reviews, I believe Kindle, the Kindle reviews, are frankly terrible. There hasn't been an iOS review in a couple of weeks, at least.

How can we get comfort that you are going to successfully launch Comic Con -- CONtv and Dove, when Docurama seems like it hasn't really worked that well? Can you at least give us the revenues of Docurama? How do we bridge Docurama's status right now in terms of what they are executing on in Docurama? And how do you think CONtv and Dove are going to be these huge channels?

I think, as Chris said multiple times, and what we've said in multiple calls, we launched Docurama as a beta app to get us into the space and to learn a huge amount. That's what we did. We launched it as an advertising-only service, which is not our model. Our model for CONtv and for Dove is a freemium model, which is a combination of ad-supported and premium subscription video on demand. We have a different platform and different approach to that.

We've learned a huge amount from Docurama. And we've built into it a lot of knowledge, and that's informing our marketing and our programming, and every other decision we are making. We are also able to bundle that in discussions with some of the major platforms as we roll out our next couple of apps, for better placement, better promotion, and better support, which is what we intend to do.

And finally, as we have said all along, our general -- we spent nothing, almost, on marketing purposefully. Because our general approach, which is why we've partnered with Wizard World on CONtv, why we partnered with Dove on the Dove channel, is to partner with brands that bring a combination of their brand, a customer base, and content that accelerates the launch and roll-out at a much lower cost on the customer acquisition side, when combined with our content.

So I think, overall, we are pretty content with where we are, and it's following the plan we expected. And when we launch -- I think between what we've accomplished and what we're doing with our partners, when we launch the next couple channels, I think the answer is that's what we are excited about; that's what we are seeing in pre-sales of ads; that's what we are seeing in conversations and surveying of customers and pre-marketing the concept. And we will launch it. You will see when we do. We are excited, and we will prove that.

Yes, and I also think, Gentry, it's -- if you would hesitate a little bit to draw conclusions based on Internet reviews that you see, of three or four people responding to the app on different platforms -- the conversations we've had with our platform partners have been uniformly positive. They like the app. They like its presentation. And we feel -- obviously, there's room for improvement. And this was a beta test, as Adam said. But net-net, we feel pretty good about Docurama where it is right now, and its impact in the marketplace.

Gentry, one other thing. This is Jeff. Most of the reviews that come through Kindle, Amazon, and so forth -- those are people that have to get used to some of these things. And if you see a lot of the negativity is around -- they don't want to see ads. Well, guess what? It's an ad-supported network. And this is the future, if people are not on an SVOD sort of platform. So they have (multiple speakers).

Jeff, though, to be fair, if they don't want to see ads, they are probably also not going to pay for this channel. And my concern is -- look, I'm hopeful that you are going to bring in a partner. But my concern is that documentaries have always been the bread and butter of the company. And we pride ourselves on the documentary offering and library that we have. And now we have our first OTT channel. And it sounds like, if anything, it's characterized as a beta test. And we haven't seen any success of this first OTT channel. And it seems like we are now pivoting to these other two channels. And I think we should be reemphasizing our focus on this first OTT channel that we launched.

No, no. As I said in my remarks, we are in active discussions right now with a couple of potential branded partners for the channel that would bring to our documentary channel what Wizard World brings to CONtv, and what the Dove Foundation brings to our Dove movie channel. And our plan is to launch the channel as a freemium service, exactly -- relaunch the channel as a freemium service, as I mentioned in my remarks, once we find that branded partner, and follow the model that we think is appropriate for this business, which is the CONtv freemium model.

Got it, okay. The last statement I'll make is on the -- what people have talked about on this projector business. To the extent that's the services business, doesn't back the non-recourse debt, I would advocate for spinning out and perhaps giving it to shareholders in a separate vehicle, to project your business in the associated non-recourse debt. Because I don't think the stock is appreciating the fact that the debt is totally non-recourse. And I believe that services business is separable from that business. So I would be an advocate for spinning that out.

Okay. Duly noted. It's an interesting thought.

I'm all set, thanks.

Howard Steinberg.

Most of my questions were answered. A quick question on the prepaid and other current assets. We were at $8.4 million at the end of June. We are at $18.6 million now. What is the major increase there?

Well, remember, as Adam mentioned, we are now getting going with a model of picking up additional content, and content partnerships that may involve advances. So there is a significant amount of investment being made in the future revenue streams by making those advances. And they started very much so during this last quarter in discussion.

And can you just give a little example of -- is it like shelf space, so to speak? What are we prepaying?

No. It could be having a four-picture deal or five-picture deal, or a one-picture deal with a content partner that's going to give us much higher returns than we currently get in our base business. So we would give them some form of an advance, and then we recoup that advance against all revenues, and it's fully crossed.

Understood, okay. Just on the -- back on the legacy business, where do you see it over the next five years? Do you see us just as a collector of the old fees that were established? Are there any international aspirations, as far as more conversions that are still out there around the world? Where do you see us going with the legacy business?

I think, as we've said on a number of calls, we basically do view that business as a stable management of the existing asset base, and eventually runoff of that business. Almost all of the conversions around the world are done. We did a bunch in Australia and New Zealand and the Caribbean. There are a couple of small territories left that we have some conversations about. But, as you can imagine, if a part of the world is not yet converted, there's some set of issues that make it a little more complicated.

So we have never -- and we haven't viewed that as a growth business, but as a financial asset that sits on our balance sheet, and then we continue to service those. It's useful. We have a lot of credibility and relationships with those studios and exhibitors because of what we've done there. And we use that as part of opportunity sets for things that we are doing in the content space. But that's really the only tie-in.

And can you speak a little bit about international aspirations of the digital over-the-top?

Yes. This is Chris. I'll talk to that, Howard. Right now, we are already engaging in a number of conversations with potential international partners, particularly on CONtv, because they get the concept. The idea would be to try to partner with strong local or pan-territorial distribution partners who have the same high level of relationships with the different digital platforms in their territories, and can go out and acquire and bring local content to the table. So we are engaged in a bunch of those conversations.

Obviously, it's likely that we won't close any of those discussions, although you never know until we've actually launched CONtv, early next year. But the idea is, particularly if the launch is successful here, to begin to expand our footprint internationally with that channel. And then, hopefully, that will serve as a template, and get us strong local partners who could also partner up with us on the other channels that we launch later in 2015 and beyond.

Okay, great. Thank you. Congratulations on this continued transformation. It's terrific to watch, and be a part of, as a shareholder. Thank you.

Ron Chez.

OTT generates no revenue right now, and so it's a little bit like what you had described previously with theatrical distribution. So in this quarter, can you identify the cost associated with developing OTT businesses?

Ron, some of the things I mentioned earlier is that we have the systems in place; we have the tracking in place to set things up and track things. But at this point in time, OTT is amalgamated with the entertainment business. We have some costs that are capitalized, and some that are running through the P&L. But it's all absorbed in the numbers that you see.

And, Ron, for a lot of competitive reasons, right now we don't want to be telling people what we're spending. But you are correct that we are certainly making meaningful investments in that business. And we think it's obviously the right thing to do.

Okay, I'll leave that. And you've spoken before on what you expect the subscription price to be. What is the expectation now?

I think we will announce the pricing when we announce that to the channels for the consumers. But, generally, in any of the channels we look at when you look at the world competitively, they are priced between $5 and $10 per month, per channel, so -- per subscriber. So we will announce the specific ones for CONtv when we roll that out to the public.

Do you see pressure that you had not anticipated in pricing, in the ability to price successfully?

No, Ron. Actually (multiple speakers).

Or is it pretty much the same?

Yes. I spoke a little bit about the research that we were doing both inside the comic cons and outside the comic cons. I talked about how 93% of the respondents said they would watch -- they wanted a CONtv. We also obviously did a lot of research on potential pricing, as well as our programming presentation. And the feedback we got completely supported what Adam just said, in the $$5 to $10 range.

Okay, and last question -- I think you spoke to this, but I'm not sure. The intent is to improve the quality of Docurama, correct?

Well, yes, of course. We always want to improve the quality of our different services, based on feedback that we get from our audience. But I will say, again, that we are pretty pleased with the response to Docurama so far by our platform partners and by our viewers. And I think it's underscored by the growth in the pickup of the apps. A lot of the customer reviews you see are three or four comments on a platform.

So we feel very good about the quality of Docurama. Of course, we're going to try to make it better. And again, as I mentioned, we are trying to find -- and we are in discussions with potential branded partners that could hopefully even take it to an even higher level, when we flip to a freemium model, if we can find a partner at the level of Wizard World/comic con that we have on CONtv.

And just to put the record straight, on Roku we are in the top 25 best reviewed apps on Roku, right up there next to Netflix. On iTunes, we have generally five stars, top reviews. So let's put the debate on the right level. On Amazon, it's mainly people [as we talked earlier] who are complaining about advertising. That doesn't lead to a conclusion they wouldn't want to pay for a subscription app. We haven't rolled out a subscription app.

So I think, as Chris said, we are pretty pleased about it. And as we've said, we have done this with very minimal investment in advertising. And we expect that to keep growing, and to keep improving. And, ultimately, we've already attracted a lot of interesting partnership conversations because of that app that's out there, and the success it's had. So I think the tone of where we see it, and where the market is seeing it, is a little different than some of our earlier conversations.

They are different. And just one more question about that -- do you want to comment at all about advertising revenue that has been generated? Or is that not something you want to talk about?

Look, we are generating nice, let's say -- we're generating what we think is reasonable, but not acceptable yet. Because we are not selling enough of the inventory, because of the ad network problems we described earlier. We're going to fix that, because we are bringing in ad networks; that's one of the benefits of everything else we're doing with our other channels, is we have many more resources to enhance what Docurama has got on the ad side.

But the key is, we've got a lot of users. They are downloading the app, and they are watching it, which ultimately is how we will monetize it, with better placement and better sale of ads.

Okay, thank you.

Thank you. I would now like to turn the conference back over to Mr. Chris McGurk for any final remarks.

Thank you. Well, on behalf of Jill, Jeff, Adam and myself, and everybody at Cinedigm, we want to thank you all for being on the call today. And we thank you for your attention and your continued support. And we look forward to talking to you on the next call. Thank you, and goodbye.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect. Have a great rest of your day.