Cineverse Corp (CNVS) 2018 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cinedigm Corp. Fiscal 2018 Third Quarter Earnings Call. (Operator Instructions) And as a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Jill Calcaterra, Executive Vice President. Ma'am, you may begin.

Thank you. Good afternoon, and thank you for joining today's Third Quarter Fiscal 2018 Earnings Conference Call. Participating in today's call are Cinedigm's Chairman and Chief Executive Officer, Chris McGurk; Chief Financial Officer, Jeffrey Edell; and, our General Counsel and Head of Digital Cinema, Gary Loffredo.

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, February 14, 2018, and Cinedigm does not intend and undertakes no duty to update future events or circumstances. In addition, certain financial information presented in this call represents non-GAAP financial measures.

And now I'd like to turn the call over to Chris McGurk.

Thanks, Jill, and thanks, everyone, for joining us on the call today. Here's the agenda for the call. First, I'll review where we stand regarding our game-changing transaction with Bison Capital and the initial steps we have taken to implement our new strategies. Then I will summarize the 4 key elements of our strategy to drive positive free cash flow and EBITDA in our overall content distribution and OTT business. I will then review operating developments in our businesses and finish by discussing our new initiatives in the Investor Relations area, a key arena of focus for us now that we have completed the Bison transaction.

After that, Jeff will then review our financial results and discuss the dramatic progress we've made in strengthening our balance sheet as well as next steps for future refinancing. He will then go into more detail about the new high-margin, lower-risk revenue and profit streams we will be generating through our portfolio of new deals in our digital OTT streaming and services business that we believe will have a positive and significant impact on our financial results. In addition, Jeff will provide more detail on our enhanced streamlining process and cost-efficiency efforts, which both also support our drive to positive free cash flow and EBITDA. After that, we'll take your questions.

First, we closed and funded our game-changing transaction with Bison Capital on November 1. We then received CFIUS approval, completing the last regulatory step in closing this transaction. On December 29, Bison funded a $10 million low-interest loan to Cinedigm for additional working capital, completing their $40 million total investment and finalizing the deal.

In connection with that closing, we retired the remaining approximately $50 million in convertible notes that we have been carrying on our balance sheet, completing the full elimination of the $64 million in notes issued in 2015. In a few minutes, Jeff will describe how that refinancing, combined with the new Bison loan and further reductions in our Digital Cinema debt, this has significantly enhanced our balance sheet and provided important new working capital. He will also describe the prospect of a significantly enhanced new revolving credit facility.

Besides being the catalyst for our vastly strengthened balance sheet, Bison has enabled the new strategic vision for the company. Cinedigm is now poised to be the first true U.S./China independent studio, uniquely well positioned to deliver content and OTT channels and services, the fastest-growing segment of the entertainment business, to consumers in both territories, the 2 largest markets in the world.

This is a massive opportunity for us to become an important 2-way pipeline for independent content and OTT services into and out of China, particularly in the streaming space, a projected $65 billion business with China and the U.S., by far, the 2 largest and fastest-growing territories in that segment. In China alone, the online video market will soon be more than a $33 billion business, twice as large as the U.S. theatrical market ever was. This surging spending on streaming content is unprecedented and is a tailwind for rapid growth, and we intend to take full advantage of it given our new and unique position.

Now many observers have been very surprised that we were able to close this Bison transaction when, over the last 18 months, virtually every other deal in media, entertainment and technology involving Chinese investment and U.S. companies has faltered due to Chinese or U.S. regulatory issues or other high-level concerns. Unlike those other deals, the Bison transaction with Cinedigm closed because it delivers clear benefits to consumers of entertainment content in both countries and supports the regulatory agenda by providing additional premium independent content choices and streaming options in both China and the U.S. This is a win-win situation provided by Cinedigm with our long-standing expertise and success in both of those key businesses. For that important reason, the regulatory authorities encouraged and supported our transaction with Bison, and therefore, our deal closed where others failed.

Now working closely with Bison, their related media companies and directly with the appropriate regulatory bodies in China, we are moving forward on this high-potential strategic plan for content distribution in channels in China and for Chinese content in channels in the United States.

Immediately following the closing of Bison investment, key members of the Chinese cyber authority came to Los Angeles to meet with our management team. This important government agency regulates content in China and is, in fact, chaired by Chinese President Xi. The cyber authority is looking for cooperative ways to reciprocally bring more independent, non-Chinese content and channels into China and to distribute Chinese content in streaming channels in the U.S. While together in Los Angeles, we shared Cinedigm's history and expertise in OTT, indie film distribution, content aggregation and much more.

Following those meetings, in December, we were invited by the cyber authority to attend the World Internet Conference in Wuzhen, China, which they cosponsor. During that conference, Bison and the cyber authority introduced Cinedigm to several top entertainment partners in China, forging the way for future business. I also did several widely released print and broadcast press interviews in China to announce that we were working with Chinese partners and regulatory authorities to bring significant new independent entertainment content into the country. This was very well received, and we are optimistic that our close working relationship with Bison and the regulatory agencies will help solidify a competitive advantage for us in China.

As an immediate result of those activities, in January, we announced a strategic alliance with Chinese entertainment company Starrise Media to release a significant number of independent films into China theatrically and to digital platforms there. Reciprocally, this alliance also paves the way for Cinedigm to distribute hundreds of Chinese films into the North American marketplace. In both territories, there will be a strong focus on digital distribution. That deal will result in meaningful new revenue streams for Cinedigm in the near term.

This alliance is the first step in our new strategy for China and should be the first of many other announcements, new initiatives and partnerships in that regard. It creates the opportunity for both Cinedigm and Starrise to have unique access into the 2 biggest entertainment marketplaces in the world with experienced boots on the ground in both key territories.

While the initial focus of the alliance will be on premium feature films for each territory, future plans may also include television and short form content as well as providing content to and servicing new OTT channel deployments with other key partners in China and in North America, where we are also in the process of developing plans to launch new Chinese content channels.

From a financial perspective, the deal with Starrise as well as other potential similar partnerships will provide Cinedigm with 3 new income streams. By releasing independent films theatrically, delivering home entertainment content to Chinese platforms, including mobile, TV and the Internet, and bringing Chinese content to platforms in the U.S., Cinedigm will generate significant new distribution fees in all 3 areas. We expect revenue from these higher-margin, low-risk opportunities to begin flowing in the next fiscal year. Potentially, we believe the Starrise alliance with Cinedigm could generate up to $15 million in annual revenues. So just through this deal alone, China distribution and content will provide an immediate and significant boost to our revenues and profitability in the near term.

I want to reiterate that surging spending on digital content and streaming in China and the U.S. has created an unprecedented tailwind for growth. With the Bison deal completed, Cinedigm is now right in the middle of that business in both territories with a unique opportunity to be an important 2-way independent content pipeline into and out of China. We are now moving rapidly to take advantage of that huge opportunity as evidenced by our close working relationship with Bison, our direct relationship with the Chinese regulatory authorities and the Starrise alliance.

While we implement these key new China-U. S. strategies for content distribution and OTT streaming, we recognize the importance of creating sustained overall positive free cash flow and EBITDA in those businesses, and we have a 4-part plan to do so. First, we remain committed to cutting costs and promoting efficiencies in all aspects of our business. While we have already cut over $11 million in operating cost over the last 2 years and are running the leanest, most cost-efficient OTT operation in the business, we are pursuing additional measures that Jeff will describe in more detail to further streamline operations.

Second, the working capital provided by the Bison investment will better enable us to take advantage of the improved competitive environment in independent content distribution, where several of our competitors have disappeared through consolidation, to invest in more high-return premium content and drive incremental revenues. In addition, we believe our fine-tuned greenlighting processes, which has led to high-performing recent film titles such as Hickok and Gangster Land, which will generate a combined 166% IRR, will enable us to employ our additional capital to achieve higher margin results. Another example of this is our recent success with Hallmark Christmas titles, where net sales are up 43%, largely driven by online demand at various accounts, including Amazon. While we focus on growing our digital business, we also recognize that we can selectively and opportunistically generate increased profits as a last consolidator in the declining physical DVD and Blu-ray business. An immediate example is our next Super Bowl DVD, where we expect to outpace last year's performance in physical by 20% to 30%.

Third, in our OTT business, the success of our current channels, plus our demonstrated expertise in providing an array of services and content for the entire OTT streaming ecosystem, has led to a series of new deals that will generate significant new revenues at higher margins and with much lower risk. Our 3 owned and operated channels, Docurama, Dove and CONtv, have been important calling cards to demonstrate our capabilities, and now they are helping us attract new business and higher-margin financial opportunities with strong, branded, deep-pocketed partners that will represent the vast majority of our deals going forward. Jeff will describe those deals and profit models in more detail in a few minutes.

Finally, the new revenue and profit streams from our China initiatives will also provide significant new high-margin results, as I just described. Based on these 4 initiatives, we will drive toward positive free cash flow and EBITDA in our overall content distribution and OTT streaming business.

Now let me spend a couple of minutes on our business operations. From an OTT perspective, as I just noted, we are very encouraged by the high volume of quality deal flow. We have closed 3 significant new platform deals, one with XUMO announced earlier this week, one with VIZIO announced this morning and one with a top 3 telecom and media company, which we will announce pending launch in April. In addition, we have several more distribution and channel deals ready to close in the near term.

Recently, we announced the 24/7 CONtv channel on a wildly popular social video service, Twitch, using an ad revenue-sharing model and are extremely pleased with our early performance, which already numbers in the millions of views per month. Twitch, a subsidiary of Amazon, which began as a game-oriented platform for millennials, has more than 100 million visitors per month. Twitch is the leading live streaming video service in the world. Based on CONtv's success, we're now working on 2 other potential channels with Twitch.

Our first distributed channel, WHAM, a lifestyle channel focused on the incredibly large and fast-growing eSports and gaming businesses, will launch by March 31 with almost 300 hours of original programming. The WHAM deal is a third-party distribution deal, where Cinedigm delivers channel management services and takes 20% of gross revenues off the top while bearing no incremental cost and no financial risk. As you will see, this model is a key template for our future OTT deals.

This morning, we announced a significant new distribution deal to embed our Dove Channel in VIZIO SmartCast and VIZIO Internet Apps Plus devices. VIZIO users will now be able to access free, linear and premium subscription offerings from Dove Channel, which also includes hundreds of hours of ad-supported programming. VIZIO is a top 3 consumer electronics device manufacturer. And since launching in 2002, VIZIO has sold over 75 million products, including televisions, sound bars and other devices. This deal affords us critical placement usually only available to companies like Netflix, Amazon and Hulu and reflects the rising consumer value that manufacturers, telcos and MSOs are placing on our portfolio channels.

We are also in significant conversations with other prominent Fortune 500 media and broadcasting companies about providing content, OTT services, digital aggregation, channel joint ventures and cross-promotions for future initiatives. Further demonstrating our OTT channel management capabilities, we are close to closing another third-party distributed branded OTT channel focused on younger females under a management services and financial arrangements similar to the WHAM agreement, where we have no investment risk while sharing significantly in gross revenues.

And earlier this week, we announced the launch of our digital first linear networks in video-on-demand services on XUMO. XUMO provides over-the-top VOD and live premium digital channels direct to consumers via smart TVs, mobile and streaming device integrations. XUMO has strategic partnerships with companies, such as LG Electronics, Hisense, VIZIO and Panasonic, to provide one-click access for consumers. Through the partnership with XUMO, Cinedigm's channels will now be made available and readily accessible in over 45% of all smart TVs sold in the U.S., which equates to more than 20 million households nationwide.

In our entertainment distribution business, we are focused on leveraging our enhanced streamlining process, which has been so effective recently with titles like Hickok, Gangster Land and Stagecoach as well as distributed slate deals, including Hallmark and the NFL. This will take advantage of both additional capital for content investment from the Bison transaction and a much more open playing field competitively due to industry consolidation. Additionally, our advantageous position in China and new joint venture with Starrise Media should help us bring in more premium, high-return content, given our ability to secure Chinese distribution rights with a quality partner in China.

I'd now like to provide an update on our Investor Relation efforts. No one is happy with where our stock price is at, particularly given the dramatic strengthening in our balance sheet and the new strategic business vision that resulted from the Bison transaction. Admittedly, for the past year, we have been less than aggressive on the IR front, given the pending Bison transaction, and we thank all of you for your patience with us during that period.

Now with Bison closed, our China strategy out of the gate and aggressive plan to achieve overall positive free cash flow and EBITDA and a number of exciting new low-risk, high-return deals with major partners on the OTT front, we are about to undertake a new wave of aggressive Investor Relations efforts to relay our new narrative and growth plans to the investor community. To that end, we have hired Hayden IR to work with us regarding investor roadshows, new investor outreach, potential new analyst coverage, investor conferences, China investor outreach and other marketing plans. Stay tuned for some immediate next steps in this area.

And with that, I'll turn things over to Jeff. Jeff?

Thanks, Chris. First, let me highlight some quarterly financial metrics for everyone. For the quarter, consolidated revenues were $18.5 million, Digital Cinema revenues were $8.4 million, content and entertainment revenues were $10 million and consolidated adjusted EBITDA was $5.5 million.

Over the past year, our focus has been on obtaining new capital to fund investments in the content and OTT businesses and obtaining a new strategic partner. This led us to the Bison deal and the opening of a key content and channel pipeline into and out of China. At the same time, we have continued to focus intense efforts on operating cost efficiencies and on deploying new technologies, processes and systems. Having cut more than $11 million in annual expenses through mid-2017, we're now much leaner organization poised for more rapid top line growth.

During this upcoming fiscal year, we expect to deploy 3 new key systems to enhance operations -- operation. These 3 systems will address rights management, digital content reporting and human resources management. Importantly, we're now going to be able to extend our operations into China and generate significant revenues and profits from the content pipeline into and out of China while we leverage Starrise's infrastructure there with our own existing operations in the U.S. This will lead to better profit margins on all the incremental revenue sources Chris described. We have already established a greenlighting process with Starrise or coordinating our activities with the Chinese regulatory authority and expect to launch our initial film there within the next few months. Starrise believes that each individual film release could generate approximately $500,000 of profits to Cinedigm.

Additionally, in the OTT streaming area, we're structuring our new deals to be self-funding in terms of incremental overhead, including minimum monthly overhead payments, minimum guarantees and minimum revenue shares to cover cost. This will also generate improved profit margins. I'll speak to this in detail just momentarily.

As Chris also mentioned, we have made tremendous progress in reducing our corporate debt and strengthening our balance sheet. The Bison transaction allowed us to retire 100% of our remaining approximately $50 million in convertible debt back in November. Importantly, we eliminated substantially all of this debt at more than a 50% discount to book value, thereby increasing the book equity of the company by over $25 million.

The payoff of the convertible debt also served to reduce annual interest cost by approximately $2.5 million. Additionally, and as part of our new strategic partnership with Bison, we are working on a global refinancing of our entire balance sheet to further reduce interest cost and improve cash flow. We hope to be able to report shortly that we have obtained a new replacement revolving credit facility, potentially adding up to $10 million in liquidity. This new credit facility could reduce interest cost by up to 2.5%.

During the third quarter, we paid down approximately $42 million in net overall corporate debt, and since 2013, we have been able to significantly pay down overall company debt by over $200 million with an approximate $66 million debt reduction for the fiscal year-to-date alone.

In our content distribution business, our revised greenlighting process is now bearing solid results. Given our scale and relationships with thousands of suppliers and distribution outlets, we have access to a vast amount of significant, precise and timely market intelligence to analyze and ascertain pricing, market trends and comparable sales data. The results of this analysis from the data generated by our greenlighting team gives us unique competitive advantage in acquiring content. We now target a minimum 25% IRR on all new investments in content. As Chris mentioned, we are already generating very positive results from recent films, such as Hickok and Gangster Land, which projects an overall 166% combined IRR.

Additionally, our base CEG distribution business is benefiting from a buyer's market, given that several independent studios have recently closed down due to consolidation and other factors. With competition declining, combined with our new Bison China distribution relationship, we have been able to ratchet up both the physical and digital distribution fee percentages, in some cases.

In our OTT business, we are now evolving away from the owned and operated OTT channel model to a higher margin, hybrid channel model due to the continued dramatic shift in the pay television industry. According to industry sources, up to 20% of all pay TV subscribers will subscribe to OTT-based skinny bundles from providers like AT&T, DISH Network, Verizon, YouTube, Hulu and others in the near future. The lower average selling price of between $20 to $40 per month for these services have providers dropping expensive, little-watched networks to maintain margins.

This presents an opportunity for Cinedigm to provide high-value low-cost channel and programming that more adequately addresses the rapidly shifting taste and demographics of the skinny bundle customer. The benefit for Cinedigm under this model is a far faster time-to-market for channels, immediate advertising revenues with linear streaming and access to large addressable audiences to gain viewers and subscribers with minimal marketing and technology spend. In light of this and given our new 4-year track record of best-in-class OTT app technology, extensive channel distribution deal and experienced team, we are attracting considerable high-quality partners to launch channels under a services and distribution model versus the prior owned and operated approach.

Under this distribution model, we'll be generating 4 revenue streams at higher margins and low risk -- lower risk than in previous owned and operated model. First, we generate application or app development revenue from the design and development of OTT direct-to-consumer applications from our partners. This is typically going to garner us in the 30% to 35% net margin range. Second, we'll receive ongoing SaaS revenues from the continued operation of these applications also in that 30% to 35% margin. And third, we'll receive distribution fees from all revenues generated from channels that range between 20% to 25% of gross revenues, often against the monthly minimum revenue guarantee. Our fourth area is the continuation of the current existing owned subscription-based channel business, where we derive monthly revenues. We expect these businesses to continue its growth. However, leveraging third-party distribution platforms with higher-margin, lower-risk metrics is our strategy and focus going forward.

The operation of the distributed channel business mentioned above is highly cost-effective as it leverages our existing SG&A and utilizes low-cost, high-quality offshore resources for technology and development. Under this new model, we believe we can watch up to 4 to 6 channels annually with greatly reduced risk. Our focus is on launching well-capitalized channels with strong established national brands or concepts that serve a desirable audience for our distribution partners. We believe that our model is superior to others in the industry, who are unable to provide the basket of services that we offer as a full-service content and streaming services studio.

Our initial example of a third-party channel strategy is the WHAM channel focused on eSports. This channel is set to launch by March 31. The WHAM deal was a revenue-sharing deal with no investment on Cinedigm's part. However, Cinedigm retains a minimum monthly overhead charge and receives 20% of gross revenue off the top from all channel sources. In addition, we receive a small equity component in the WHAM entity itself. By leveraging our OTT track record and expertise, we believe this type of deal will allow us to financially participate in a significant number of potentially profitable OTT channels with almost no financial risk.

Our current 3 owned and operated OTT channels are now generating approximately $3.5 million in annualized revenues. And currently, we have approximately 5.5 million app downloads, 900,000 registered users and 90,000 active subscribers across these 3 channels.

In closing, I just want to reiterate that in addition to all the financial upside and much-needed capital that we obtained from our new Bison partner, the new Bison relationship has already opened up a multitude of new revenue streams for us both domestically and internationally. It'll also enhance all aspects of our existing revenue base, better leveraging our streamlined overhead structure Combined with our expansion into the higher risk -- higher-return, lower-risk OTT deals and business models I just described, we are looking forward to the positive impact that this should have on shareholder value.

Now I'll turn the call back to Chris.

Thank you, Jeff. As we have discussed, the Bison transaction opened the door for a dramatic strengthening of our balance sheet and a new strategic vision for Cinedigm that reinforces our core assets and competencies, the first true U.S./China studio uniquely well positioned to deliver OTT channels and services and entertainment content in a 2-way pipeline to the 2 largest and most important entertainment markets in the world.

Our Bison deal closed when many other Chinese investments and U.S. media, entertainment and technology businesses faltered over the last 18 months. It closed because it supports the regulatory agenda by delivering clear benefits for entertainment consumers in both countries. This is a win-win situation provided by Cinedigm with our deep expertise and long-standing successes in independent content distribution and OTT streaming and the key reason our deal closed where almost all others failed.

And already, the viability of this strategy has been reinforced through our ongoing direct coordination with the highest level of Chinese regulatory authorities, our meetings with significant content distribution platform partners in China, the positive reaction to our press interviews in China and our new reciprocal independent content and distribution strategic alliance with Starrise Media. We closed the deal in November, and 2 months later, we announced the joint venture with boots on the ground in China and we're ready to go to start generating revenues and profits in both China and U.S. from that deal, which we think is pretty remarkable that we move with such speed. And that, again, shows you our relationship that we've been able to establish through Bison with China and with the Chinese regulatory authorities.

At the same time, we're committed to driving toward positive EBITDA in our content distribution and OTT businesses, propelled by the key initiatives that Jeff and I described, not the least of which are all the significant new third-party joint venture and servicing deals in the OTT area with new financial models, greatly enhanced margins and lower risk. We are leveraging our expertise in channel success to expand our business from owned and operated channels to include these new financial models and lines of business, many in partnership with significant, branded and deep-pocketed Fortune 500 players. Importantly, we are now ready to take this new narrative to the investment community here and in China with a renewed and aggressive approach to investor relations and with a new IR adviser.

With that as a backdrop, I would now like to open the call up for your questions.

(Operator Instructions) And the first question comes from the line of Terry Hackett of Hackett Management.

Gentlemen, you've been very busy. Guys, you didn't mention the inherent value in the digital projectors. Can you summarize what the value might be and what your game plan is in utilizing them in the future?

Terry, this is Chris, and I'll turn it over to Jeff and Gary to specifically answer the question. But this is an awful long call, and I apologize for that, and we had a lot of ground to cover and the one area that we didn't focus on is obviously Digital Cinema. And the only reason is because of the length of the call. So I'll turn it over to Jeff.

Gary, do you want to hit this question? Because it falls in your directly in your little bailiwick.

Sure. So we are continuing to pursue our option to sell the Digital Cinema projection systems when the VPF term ends, which is as early as 2020. We've started preliminary discussions with certain exhibitors on this, and there's a possibility that we may sell some early. We haven't given a range on what we expect as we enter into definitive agreements. And we do actually sell some, we will report that. But until that happens, we will not report it.

Yes. And Terry, just to add to that, there's over 4,700 projectors, somewhere in that range, 4,000-ish projectors that could be available at different points in time.

Okay. Well, it definitely will be an additional source of cash, won't it?

We believe so. And again, I think I mentioned it a lot on these prior calls that another benefit of the Bison transaction is there may be opportunities to redeploy these projection systems over in China where, I think as we all know, the theatrical market is the complete opposite of what's going on in the U.S. and is still growing at more than 30% a year. And they're opening up new theaters right and left still over in China, particularly in the smaller cities and the rural areas. So there could be an opportunity to put that in China.

And the next question comes from the line of [Joshua Horowitz of Home Global].

What specific milestones should we be looking for or call over the course of this year to track your progress against the opportunity set? Am I looking for specific distribution deals, content deals? Am I keeping an eye out for anything China-related? What is really the main opportunity here that we should be paying attention to?

Well, as Chris mentioned and he outlined multiple sources of revenue in the future and some plans, so how I would sort of look at this, I'd go one, we have the new Starrise arrangement, which is the beginning of our China involvement. And in that situation, we're looking to do 2 to 3 films this year, 50 or so television shows that will go direct to, say, the Internet over there, and there'll be several hundred coming here. So one measurement would be the number of films and the relationship with Starrise and how that goes. Next would be the -- we talk about 4 to 6 OTT channel launches. We don't necessarily mean they're going to be brand-new channels, for instance, but they could be derivations of existing channels or leveraging other opportunities. So I would also look at the number of channels we launch because again, we pick up a good percentage of the gross revenue from there. So those would be 2 things I'd look at. Third is that we're just striving as best we can to maintain, if we can, the whole physical business in DVD, et cetera. That business, the entertainment group, we're trying to maintain the GAAP revenue in that group as we're expanding in these other areas. So those would be 3 things. And then, obviously, we mentioned some initiatives and systems initiatives we're doing that you could check off to make sure we're doing those things as well, and we did give you a 90,000 subscriber base on the base OTT channels. So those are just certain things.

Yes. I think -- Joshua, this is Chris. Look for -- again, I mean, Jeff spent a lot of time talking about the new models of deals in our OTT business now. We're expanding away from the owned and operated model that was really our calling card for the business into these higher-margin, higher-return deals with some of the big players that are jumping into the OTT space and spending millions of dollars to build out their platform. So we just announced a deal with XUMO. We just announced a deal with VIZIO, and that's a big deal. VIZIO is a top 3 consumer electronics provider here in the U.S., and now the Dove Channel is going to be embedded in all of their TVs. We -- I mentioned that we've -- we signed a deal this quarter with a top 3 telecom provider that's launching an OTT service. Look for that to be announced, and then look at the type of deal when it's announced to confirm that it syncs up with what Jeff told you. And then over the short term, we hope to announce a deal for another third-party distributed channel with the same kind of very favorable financial terms that we had under the WHAM deal, where we have virtually no risk, I'd say we have absolutely no risk, but Jeff makes me say virtually no risk, and we take a big percentage of revenues off the top. That's -- we're leveraging our experience in the space now to provide these kinds of services in a high-return, riskless way and look for more announcements of deals along on that model as well.

(Operator Instructions) Our next question is from the line of [Melvin Leventhal], a private investor.

Jeff, Chris, this is Mel. I have owned the stock and followed every quarterly conference call for the past 4 or 5 years. Each one has been highlighted by new initiatives, retirement of debt and announcement of deals, and the year -- Cinedigm has managed to be the worst-performing stock in my portfolio over that period of time. Turning to a specific question though, we have revenues our top line of $18.5 million. It's a reduction of 20% over a similar 3 months ending in 2016. The 9-month figures also show a reduction in revenues. Can you explain those reductions?

Yes. I'll let Jeff get to that. But to hit your first point, again, as I mentioned in my remarks, we're very frustrated by the stock price. We're very focused now. Having gone through a period literally of 2.5 years where we transformed the company and transformed the company's story, moving it away from a sunset business in digital distribution to now, hopefully, have the opportunity to be a key player in the streaming business, which is a $65 billion business and the biggest part of the entertainment business, we did that, at the same time, completely transforming our balance sheet as well as strengthening our balance sheet. Obviously, all that changed, the kind of thing that doesn't necessarily translate into a robust growth in stock price, but we're hopeful now that we've come through the strategic transformation of the company. We've completely strengthened our balance sheet, we've got a strong partner in Bison, and we've got a strategy that we're now implementing on very quickly, aided by our relationship by the government authorities over in China and this IR effort that we're now going to focus a lot of attention on, we're hopeful that we'll finally begin to see some growth in the stock price. But with that, I'll turn it over to Jeff.

So what I just want to add to that is, again, I feel we all are hurting, and we fully understand those of you who invest in the stock and are on the call that it has not performed as other stocks in the -- certainly, in the NASDAQ or the rest of the market. So we feel that, and we're sorry about that. A lot of times, we don't have much control over performance. I mean, we have very little control over performance of the stock. It's not really within our purview. But in terms of what we can control and answer those questions, the Digital Cinema business, remember, these were 10-year contracts set up between 2005 and 2010 -- or 2012 rather, and so we knew this is not a surprise that the revenue is dropping in this area. So the main reduction in revenue is coming from the contractual reduction in Digital Cinema revenues, and this relates to studios and the number of releases and the utilization of projectors. And Gary can get into that a little bit more. On the physical side of the business, remember, we're also dealing with the world where DVDs and Blu-rays are all transitioning to digital. And this -- the combination of these things are actually the first thing that precipitated Chris coming onboard and now transforming this business into more of an OTT strategy play that will leverage the company's assets and content and distribution abilities to create more value. There -- we believe, I know if you look at companies in the future, like today, Roku-type companies and so forth, you'll see the tremendous value created by companies that actually lose a lot of money, but have a great footprint. And so we want to take advantage of that kind of trend, and hopefully, in the future, you'll be seeing more of that from us in our OTT strategy and potential acquisitions and so forth to create more value. We have had a lack of capital, as everyone's aware, and the lifeblood of a content business is the ability to invest capital to generate distribution fees. We've got very minimal now overhead in the company, and so we're poised to generate 20% to 25% margin on all incremental revenues that we could throw on top of that. And that's the plan for now. And then also remember, the company several years ago did not do a good deal with Gaiam and were -- we paid for that, and so now we're in a place where we've corrected all those past situations and moved on with a very positive plan. And so we're looking forward to creating value in the future.

And there are no further questions at this time. I'd like to turn the call back over to Chris McGurk for the closing remarks.

I want to thank you all, again, for your support and patience in putting up with our a very long presentation today, but I think you can see we had a number of very important areas that we wanted to cover with you.

And I think hopefully, you can see how excited we are now that we have the Bison deal closed. We're moving forward really aggressively over in China, both with Bison, the regulatory authorities and now with this exciting new deal we have with Starrise, which is going to generate incremental revenues and profits for us over the near term.

So stay tuned. Look for more activity out of that strategy and more announcements in our OTT business, where we laid out a number of exciting deals for you today. And as I said, there are more in our immediate future, so look for more announcements in that regard.

So thank you all, and we'll talk to you again in a couple of months.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.