Cineverse Corp (CNVS) 2019 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cinedigm Corp. Fiscal 2019 Second Quarter Earnings Call. (Operator Instructions) As a reminder, today's conference is being recorded.

I'd now like to introduce your host for today's conference, Ms. Jill Calcaterra, Executive Vice President. Ma'am, please go ahead.

Good afternoon, and thank you for joining us today for our second quarter fiscal 2019 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 our Cinema Equipment Business, 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, November 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. Overall, our results for the second quarter were in line with our expectations. We added new partnerships with both domestic and Chinese content providers and platforms to distribute content, expanded our ad-supported and subscription OTT footprint with key new partners and continued our business development efforts for the flow of content and OTT channels, both into and out of China.

Over the last several quarters, we have been focused on expanding our OTT footprint in 3 key areas: OEM integrations, scaled ad-supported platforms and scaled third-party subscription platforms.

Importantly, both OEM and scaled ad-supported platforms provide immediate reach, engagement and revenues. And third-party subscription platforms allow us to expand our OTT subscription and viewership base with minimal to no marketing expenditures.

In the OEM area, we closed 2 significant deals. The first is with XUMO, a fast-growing advertising and technology company that delivers VOD and live OTT channels direct-to-consumers through smart TV integrations. Through strategic partnerships with LG Electronics, VIZIO and Panasonic, XUMO has developed technology that enables Cinedigm's channels to be consumed with advertising via a simple 1-click access. No app installs or registration is required.

That model has generated engagement 8x higher than average depending on the specific device used and enables our ad-supported businesses' growth to track right alongside smart TV shipments from XUMO's huge OEM partners. The initial results of our OTT channels on XUMO have been very promising and are currently exceeding XUMO's and our own internal forecast for both engagement and watch time.

The second major OEM deal that I'm very happy to announce on this call is with Samsung, one of the largest manufacturers of smart TVs globally. We're officially launched on select Samsung smart TVs as of today, bringing Dove Channel and CONtv to Samsung's TV plus video service. We think this is an important deal for our linear and AVOD OTT strategy. We expect other channels to launch on this platform in 2019. In the coming quarters, look for additional channel launches as we expand our OTT footprint with other smart TV OEMs, telcos and cable providers.

In terms of scaled ad-supported OTT platforms, we also closed 2 significant new deals with the market leaders in the ad-supported space, Roku and Tubi. Last week, we announced that WHAM Network and COMBAT GO went live on the Roku channel, Roku's free house channel available to the company's 24 million user base, as an expansion into live sports programming. We also recently announced the deal to distribute our entertainment channels, Dove channel, CONtv and Docurama on Tubi, one of the largest independent ad-supported OTT channels available, and we expect to go live this month. With these deals, our networks begin driving immediate revenue from 2 of the largest and most engaged AVOD platforms available to consumers.

Lastly, with regards to third-party subscription channels, we recently launched the subscription version of our channels Dove, CONtv and Docurama on DISH Networks as well as their OTT product, Sling TV, the market leader among virtual MVPDs. We anticipate at least 2 additional deals similar to this with a major MVPD and another major OEM. And we think this trend illustrates how our subscription channels can thrive, both on traditional as well as next-generation programming services.

The rapid expansion of our distribution footprint through multiple deals with scaled platforms this quarter is not an anomaly. With the tremendous ongoing growth of the OTT sector, we anticipate continued expansion domestically and internationally for the foreseeable future. We currently have more than 2 dozen similar distribution deals in the pipeline at various stages of negotiation.

With each new launch or individual platform deal, we are potentially adding 5 or 6 figures per deal in monthly revenues steady state. So we expect our OTT business will scale up very, very rapidly.

As illustrated by this wave of deals I just outlined, we are aggressively taking advantage of the rapidly growing and high potential AVOD OTT market segment. There are a variety of reasons for this. So let me elaborate. The advertising-based video-on-demand market, or AVOD, is estimated at $27 billion in the U.S. alone and is growing at more than 30% year-over-year.

As the OTT streaming market evolves, research now indicates that consumers are generally willing to pay subscription fees for just 2 to 3 streaming video services. Research also indicates that more and more millennials and older viewers, well conditioned to viewing content for free and also very comfortable with ad-based programming, are cutting cords, joining the OTT streaming revolution and making their new channel viewership decisions. That means there is a big and growing opportunity to provide robust, free AVOD offerings for viewers who want much more content and much more diversity and breadth of content than what those 2 to 3 subscription services that they are generally willing to pay for have to offer. So the demand for quality AVOD offerings is clearly huge and will continue to grow rapidly as more and more consumers make their choices in the OTT space.

Not only is the AVOD opportunity massive from a market and growth standpoint, but also from a business model perspective, the financial profile of AVOD revenues is extremely appealing because it is less capital intensive, requires less upfront and ongoing investment in content than the subscription VOD business and continues to utilize our existing library of content.

In addition, the AVOD market is currently being served by an array of smaller-scale competitors and thus provides an opportunity to quickly leverage Cinedigm's broad channel portfolio, our ability to secure quality partnerships with key AVOD players like the recent agreements I just mentioned with Roku, Tubi and XUMO, and also leverages our proven capability to deploy a huge volume of content assets into the business via our library and digital acquisition efforts.

As such, we are working aggressively to take advantage of all this by launching channels and securing multiple new platform partnerships in the AVOD space. This new business should drive a significant increase in OTT streaming revenues as we head into the second half of fiscal 2019.

And at the same time, we are also exploring opportunistic ventures to scale-up even more quickly in this high-growth, high-margin space. This focus on AVOD will continue to enhance our unique ability to generate 4 separate revenue streams off of the huge OTT streaming ecosystem where most of our competitors can only generate a single OTT revenue stream.

In addition to advertising revenues, Cinedigm's 3 other OTT revenue streams are subscription fees, digital content licensing and SaaS service fees. Also, during the quarter, we expanded our premium content library, including the acquisition of 10 seasons of the popular Drama Heartland, which is already resonating solidly in our Dove Channel, worldwide distribution rights to the Aurora Games and North American distribution rights to the military drama, SGT. Will Gardner, to be released in select theaters on demand in digital in January 2019.

It's also important to note that we become more and more successful with the targeted greenlighting of independent film coproductions, which have been key drivers of our studio business and provide very important content fuel for our OTT streaming efforts.

Recent coproduction titles, which have limited investment and risk on our part, such as Traded, American Violence, Hickok, Gangster Land and Silencer have generated projected IRRs of between 52% on the low end and 291% on the high end. Given those kind of returns, we will continue to release more of those film properties as we drive toward profitability in our overall Content & Entertainment business. And we are pleased to announce we started production on another coproduction in the hot Western genre called The Outsider, with very strong cast and multi-generational appeal that should deliver strong results in calendar 2019.

With regard to China. During the quarter, we announced a partnership to produce a China-based multi-season series about literary adventurer, Emily "Mickey" Hahn, which will further expand our content library. This multi-season series targeted as a U.S.-China coproduction will chronicle the life of the fiercely independent American journalist who introduced exotic Shanghai and Greater China to U.S. readers before World War II and is based on extensive, exclusive material, including 2 autobiographies, 1 biography and the vast archives of the Hahn estate.

Besides this Emily Hahn Shanghai project, we also signed an agreement with Youku, China's largest web streaming video service and owned by Alibaba to distribute 30 of their original feature films to all platforms in North America. We expect to announce several similar new distribution partnerships with other leading Chinese streaming and entertainment companies shortly.

During the quarter, we also announced key details about the planned launch in calendar year 2019 of Bambu, our Chinese content OTT channel in North America, aimed at the younger American audience. We are rapidly moving forward with content supply arrangements and programming strategies for this new OTT channel with several top Chinese entertainment companies and will announce the specifics soon.

We expect this programming to include over 70 original films and dozens of recently aired top-rated shows from 2 of the top entertainment studios in China. Based on the very positive response to our announcement from leading North American streaming services, we fully expect to obtain widespread quality distribution for Bambu across the entire OTT ecosystem.

Overall, our support from Chinese media companies and regulators stems from our business model of supporting bilateral content flow and OTT initiatives which are clearly significant positives for Chinese and American audiences, content producers and distributors. That support, combined with the fact that we have the only majority Chinese equity investment in the U.S. media company approved by both China and the U.S. government in the last 2 years, has been intently noticed in both China and in Hollywood, providing a competitive advantage, while at the same time, raising our profile to relevant major players in the content and OTT businesses.

As we have stated previously, we expect all this China activity to generate significant new revenue streams for the company via content licensing, theatrical and digital revenues from Hollywood releases in China and also in OTT.

Additionally, we have been continuing our outreach in Hollywood with our strategic Chinese Partner, Starrise Media, to identify high-profile films with strong potential for release in China. We expect to make some announcements regarding that initiative soon.

And with that, I'll now turn the call over to Jeff for a review of our financial results.

Thanks, Chris. Before I discuss the financial results, I'd like to point out that effective April 1, 2018, we revised our public financial reporting to more closely and directly reflect how we review and evaluate the company's operating performance.

Beginning with the first quarter of fiscal 2019, we now report our financial results in 2 primary segments: our cinema equipment business that we previously called Digital Cinema, Phase 1 and Phase 2 and services, but we've now changed that to avoid confusion with our digital revenues; and our Content & Entertainment business segment, or CEG, as we sometimes refer to it. In addition to the consolidation of segments referred to above and the renaming, we also provide OTT streaming and related digital revenues. Please note that all prior periods of the results, they have been reclassified for comparison purposes to reflect these new reporting segments as well.

Our legacy cinema equipment business includes the nonrecourse financing vehicles and administration for the Digital Cinema equipment that we installed in movie theaters throughout the United States, Canada, Australia and New Zealand approximately 7 to some over 10 years ago. This group also provides fee-based support services to over 12,000 movie screens as well as directly to exhibitors and other third-party customers in the form of monitoring, billing, collection and verification services.

Our Content & Entertainment segment includes ancillary market aggregation and distribution of entertainment content and branded, and the curated OTT digital network business providing entertainment channels and applications. Additionally, under the new accounting ASC 606 that's in effect for this New Year, which standardized contracted revenue recognition across companies worldwide, we now provide revenue breakdowns of our OTT streaming and related digital revenues.

In making these changes, we believe investors will have a clearer view of the primary focus of our strategy, which is to build our streaming OTT network business.

For the second quarter of fiscal 2019, consolidated revenues were $13.7 million. As expected, total consolidated revenues for this quarter declined as a result of the contracted decline in our cinema equipment business as the combination of the 10-year deployment contracts and cost recoupment contracts are at various stages of reaching the end of their terms. We had strong sales activity for the second quarter with total billings in the physical DVD and Blu-ray business increasing 9% year-over-year, while specifically the OTT channel revenues for the quarter were up 23%.

Direct operating expenses decreased in the second quarter of fiscal 2019 to $2.3 million, which is down 11% compared to the prior year period, primarily due to revenue mix, which caused lower royalty costs and lower per-unit fulfillment costs on the majority of the physical distribution business. Year-to-date, direct operating expenses are also lower compared to last year due to a reduction in the content advance amortization in the Content & Entertainment business segment. Also, net interest expense decreased 35% to $2.6 million in the second quarter compared to $4 million in the second quarter a year ago. The decrease is primarily as a result of the reduced debt balances compared to the prior period, particularly the full payoff of our formal -- former convertible debt balance. Our total debt is now $67.1 million or 43% lower than it was 12 months ago.

During this quarter, Bison Capital replaced its prior $10 million loan with a new one. And subsequent to the quarter close, arranged a $5 million financing to replace our mezzanine notes that came due. This shows the substantial commitment that Bison continues to make into Cinedigm.

Additionally, exclusive of our bank revolver, which expands and contracts based on seasonality, the overall company debt has been reduced by $1.65 million during the quarter. The net loss attributable to common shareholders for the fiscal quarter of 2019 was $3.6 million, a 53% improvement compared to $7.5 million loss in the second quarter of fiscal '18. This significant improvement is primarily the result of decreased interest costs due to much lower debt balance, the reduction in depreciation expense as systems continue to go off-line, the full impact of our significant cost streamlining effects are kicking in and the improved margins from the performance in our Content & Entertainment group, and of course, our business shift into OTT streaming.

As mentioned in our prior earnings call, we are making great progress with our investment in our new rights management and content delivery system to reflect our transition and commitment to our OTT AVOD model. Today, we have invested significant capital in this initiative and expect to be testing the results shortly. This new system will allow for better controlled data basing of our content rights as well as enabling us to speed up the delivery of massive volumes of content to digital and OTT platforms worldwide.

This is required for us to continue to be a leader in the OTT space, particularly in the rapidly growing AVOD segment that Chris described. Additionally, this will accelerate our ability to monetize content versus the more manual processes that we have been employing here, and to generate SaaS revenues by licensing our technology solutions to third parties. As Chris highlighted, our greenlighting process continues to prove effective with our results ranging up to 291% IRR for a particular project, which far exceeds our minimum IRR of 25% after-tax threshold.

We attribute this to the fact that we have significant market data by genre, which allows us to determine appropriate investment amounts and content. The Western genre for instance continues to outperform with a key content producer. And we continue to keep that pipeline full with another key Western release due in Q4. Given our size, smarter and constantly evolving greenlighting decisions based on up-to-the-minute market data, we are essentially able to drive enhanced IRRs and streamline our revenues.

With that I'll now turn the call back to Chris. Chris?

Thank you, Jeff. In summary, we are making good progress, expanding our OTT footprint by increasing our library of content and our channel portfolio and launching it all in additional platforms, like the channel launches on Samsung smart TVs I announced earlier. We are also aggressively building our presence in the high-growth, high-margin AVOD market through new channels, platform partnerships and licensing deals, as evidenced by the Tubi, Roku and XUMO agreements I also discussed.

We are also beginning to monetize many of our other new partner agreements and that should provide growing revenues over the next few quarters. In China, where our investment from Bison and business partnerships are allowing us to operate in an advantaged business situation versus our competitors, our new bilateral content and streaming channel agreements, such as our Youku film deal and the planned launch of Bambu will begin to provide us with significant additional revenues and an opportunity to further transform our business into the only company operating as a true China/U. S. content and OTT channel studio.

And with that, we'll now take any questions you may have. Operator?

(Operator Instructions) Our first question comes from Barry Sine with Dawson James.

First, you talked about you've got content in so many different moving pieces and so many different areas. And I know we've talked in the past about how you have unique ways to keep your content cost down. Liberty Media had their Analyst Day today and they talked about the skyrocketing cost of content creation. One of the examples they gave is that Amazon is going to spend $1 billion to create 5 seasons of Lord of the Rings. I don't think you're going to spend quite that much in some of your new series. But could you talk about what you spend on content and the ways that you have to manage your content acquisition and creation costs?

Sure, Barry. This is Jeff. So it's interesting -- remember, we're -- when you move aside small little productions that we could be doing in the OTT space, really, what we're doing is, is we're focused on buying completed movies or catalogs of libraries. So we just look for a content producer, let's just say they could be spending anywhere from $1.5 million to $10 million on a particular movie, but that's their cost, that's their burden.

We develop our own internal IRR and investment strategies based on what it takes for us to get a specific return of more than 25% after tax. So it doesn't matter if you created a movie that cost you 5 or 3 or 2, the deal we would offer you might be $300,000, $400,000, $500,000, $600,000 and that's about all the risk that we're going to take on domestic. And we try to make sure that in a 12- to 18-month period of time, we've gotten back all of our advance, so our returns can kick in. So that's why we are not really tied in necessarily to the ballooning costs of movies per se at this point in time.

And same question on your own coproduced movies and then on the content. I assume the content you're getting from China, you're not involved in the production and paying the production cost, you're just buying those from China?

Yes, I said on the coproduction, this is the first part of your question, this is Chris. Again, it's -- as we said, these costs before, it's really buyers' market right now. We're one of the few independents operating at scale that's actually acquiring and releasing these films. So we're able to pick up all domestic distribution rights for a multiyear period for a fraction of the production cost of these movies. So we're able to pick up North American distribution rights for 10 years or more for a couple of hundred thousand dollars, sometimes for movies that cost $2 million or $3 million or more million dollars to produce. So we're really in an advantageous position there.

For China, again, and I've said it on these calls before, one of the reasons why China and Chinese entertainment producers are so excited about Bambu, our OTT channels for the first time will be able to put different categories of Chinese content, films and TV programs out there for a Western audience to actually view and get feedback on what works and what doesn't work. And I think the point I'm trying to make here is, historically, Chinese content has not been monetized to any extent outside of China. So obviously, that creates a buyer's market for us. So most of the Chinese content we're distributing here we're acquiring for a little or no upfront payment.

So I mean, those are a couple of ways that we're dealing with the fact that the Amazons of the world and the Netflixes of the world are spending billions and billions of dollars on very expensive original programming, we're able because of the way we're structured to acquire and distribute a very, very high volume of independent content across the whole spectrum and do it, obviously, for a fraction of the cost that they're investing and with a much, much more advantageous risk profile.

So no billion-dollar episodes on the pipeline for you?

I don't think so.

Only for your projects, Barry.

Next question. I know in the Q, you break out the results between the 2 segments. I didn't see much breakout in the earnings release. I know there's some disclosure in the EBITDA table. What additional color can you give on that? Or do we have to wait for the Q?

When you say breakout, so what we...

Revenue between equipment.

Yes. So from the equipment side, we no longer -- we do provide Phase 1, Phase 2. We do break out the revenue on one of the schedules there, if that's what you're referring to. Or are you talking about the OTT revenues? What's your specific question?

All of the above. So a full revenue, but I didn't see that in the earnings release, unless I'm missing it.

Yes. No, it's not in the earnings release, but you will see in the Q, there will be a segment on -- and we'll go over that. You will see the revenue broken down on the Q for OTT revenue and you'll also see the revenue broken down for the physical business and also the Digital Cinema business, which we are now calling deployment.

Okay. So -- and that'll have to wait for the Q.

Yes, which is going to come out as soon as we push the button. So literally at the end of this call.

My last question. You announced the relationship with Samsung, which, obviously, is pretty huge. And when I think of Samsung, I think of one of your channels, HallyPop, which should be a natural partner for Samsung. Is that going to be on the Samsung relationship? Is that live yet? Has it been rolled out? Could you give status on?

No. All I'm going to say on Samsung is what I said. We're waiting for -- they're going to formally announce this initiative in the near future. All I'll say right now is we expect other of our channels to go up on Samsung after the first of the year. But right now, I don't want to specify which ones.

Has HallyPop been launched yet?

It's about to.

Our next question comes from Lisa Thompson with Zacks Investment.

So doing a little arithmetic, it looks like the cinema business did $6.9 million in the quarter, that was higher than I expected. It doesn't seem to be dropping off quite as rapidly as thought. Is there anything going on there?

So the cinema business actually for the quarter, Lisa, is even higher than that. We're at $7.5 million if you include the servicer co. business, [on a great base of] revenue.

Because, you said, it was down 31%. So you meant without the services?

I meant compared to -- you're right. For Phase 1 and Phase 2, it's down 31%, including servicer co., we're down 25%, but overall, we're at about $7.5 million on the cinema business. And we've just been able to squeeze out a little bit longer term of revenue. Things have just performed a little bit better. Gary?

That business is proving to be a little more resilient than a lot of people thought.

Gary wants to give more color.

Yes. As you know, that business depends on studio releases. So if studios release more movies than we expected or they move them up in their calendar or move them out of their calendar, it affects revenue. And then it also depends on how wide they book the film. So certain films may go out on a platform release and in a limited number of theaters. And then as it does better, they book it on more theaters. So it's hard to gauge how many theaters they're going to release their movies on.

Do you think that that's kind of a trend or something that's going to continue in the future and this won't drop off as quickly?

Well, we still think it's going to decline. We just don't know how quickly it's going to decline. Like Chris said, it's been a little bit more resilient than we anticipated.

We have been consistently, Lisa, beating our internal expectations every quarter on the amount of the revenues that we generated in that business, literally, for, I think, for the last 8 quarters. So I think that's probably the best response to your question. It's proving to be more resilient than we thought.

You're going to need a fudge factor on your math. Could you have a feel for what this quarter looks like yet?

We don't really give any guidances for next quarter. We can tell you it's going to be lower.

Okay. All right. So just back to Bambu, I'm a little curious as to how that's going to be structured. Are you only going to be using content you get from these new Chinese suppliers? Is it only going to be Chinese? Is it going to be also Taiwanese or any other countries? Or is it strictly mainland China?

Yes, that's good question. Initially, it's going -- the idea is that it's going to be a premium channel with both the subscription and an AVOD component to it. And we're -- we haven't a 100% settled on the content presentation yet, but initially, it's going to be almost all Chinese content, a mix of films and television programming. We're very close to completing several deals over in China with some of the most major entertainment content producers in the country to serve up the programming. We might then after we've launched the channel expand into a broader presentation of Asian content, but I think, at the beginning, it's almost exclusively going to be Chinese language content.

Okay. And so it's something like DramaFever shutting down. Does that give you any opportunity to pick up some Chinese content there? Or just not how it's structured?

Well -- I think DramaFever shutting down and people have asked us about that. We think the rationale behind that was simply AT&T, Warner's basically consolidating the dozens of digital and OTT-related services they have into 1 broad channel. I don't think it really has an impact on us one way or another. Again, given the fact that we've got sort of this advantaged pipeline into and out of China, and we're working directly with the Chinese government. And we've signed 8 or 9 business cooperation agreements or deals with Chinese companies. We're really focused on trying to leverage China right now. And we're not as focused on South East Asia and Korea or Japan, but that could be sort of the next wave for us. We think that the most important thing we can do is successfully launch Bambu into the marketplace and then address other opportunities over in Asia.

Okay. And how far off do you think it is for you to send a movie over there from the U.S.?

We're looking pretty aggressively. We're trying to be selective. We've made a couple of offers for Chinese rights on bigger Hollywood films. I would hope to be able to announce something in the next 60 days or so. But again, it's more important to us that we pick the right movie that we know is going to generate a very nice return to get the ball started for us and our Chinese partners than it is just to pick something and release it. We're being very careful in sort of the discipline that Jeff described in our greenlighting process with our content here in The United States. We're applying that same discipline to this process with our Chinese partner, Starrise, and trying to find that bigger budget American film that we can release into China.

(Operator Instructions) Our next question comes from Austin Moldow with Canaccord.

Congrats on growing the OTT channel revenue, 23%. Can you give last quarter's growth rate as well? And then as it pertains to this quarter, can you update us on how monetization of the ad-supported viewing is going? I know there have been tons of distribution announcements with Tubi, Roku and XUMO and all that. So maybe you can just share which platforms are maybe starting to monetize well and what you're learning there.

Yes. Couple of things I'll say, then I'll turn it over to Jeff. We got to be very careful in this arena because we've talked before about not disclosing sort of the absolute amounts of the 4 components of our OTT revenues for competitive reasons. But in terms of the deals that we cut and a lot of them that I described in my remarks, again, we've got to be careful there because for competitive reasons, we can't -- and for competitive and confidentially reasons, we can't disclose the specific profitability estimates or revenues we're getting from any specific deal. But each one of those deals that I described, we're anticipating a monthly run rate of the 5 figures or 6 figures per month from each deal, the deals that we've already closed and then the dozen or so deals that we have in the deal pipeline.

So as we launch more channels, as we service more deals, as we close more deals, we're going to see a very rapid scaling up of our revenues from advertising and subscriptions. And also from the digital content licensing to service the deals as well. I really don't want to give any more specific than that. I don't know whether Jeff wants to add anything.

Yes. Just a couple of things, Austin. One is, the -- we're sort of stepping into how we're doing our reporting now. Like we said, April 1, '18 was the first period. So this is really Q2. So we're trying to get our legs around the types of metrics that we can start to be consistent with reporting every month. So I don't have the information right in my hands for the channel growth in Q1 compared to Q2. I can also tell you that what we're trying to do, we'll talk about that when we do our analyst call, but I could tell you the other thing we're trying to do is, it's not just our channel business, but we look at our business together, all of our OTT streaming businesses together, and that's something that there is more of a focus on as we move forward.

Okay. Want to try asking one more advertising question. Because across all the channels, you must have a pretty sizable audience that is probably viewing ads or commercials at some point. So the growth from here, I mean, like -- what is the bottleneck to showing more advertising revenue? Is it that the ad load is too low? Or maybe pricing is just getting stuck -- pricing is low because these deals are so new? Or is it really a matter of growing audience?

It's everything you said. It's a combination of all of that. Remember, we've taken a pivot now. We have a base subscription business. And we've moved over to this AVOD concept. So you're looking at money. It takes more to grow it, and you're starting from a low base. We'll -- in the future, again, we're public, we don't like to give out a lot of this information. So in the future, we'll start to provide more of it, impressions, CPMs and so forth, as we start to move forward. Probably, in the next quarter, we'll be able to be a little bit more transparent too.

Okay. That would be helpful. Pivoting to another leg of the OTT revenue segment, the digital distribution. Can you talk to -- because I think in the past, the physical distribution side of the businesses has done pretty well. And I think you said 9% billings growth. Can you talk about the digital distribution business? And I think it's considerably smaller, but maybe what you're seeing there in terms of growth or what the opportunity is there because, I guess, the consumption model is shifting towards access.

Sure. So you'll see it when we release the Q later today, but we're pretty consistent between the 3 months ended this quarter and the 3 months ended -- the 6 months ended. So we're doing around $2.3 million in total OTT streaming and digital together. That's where we're looking at for the quarter. That's the GAAP size, not the billing size. The billing size is much higher. And so that's what we're reporting right now. So it's around $2.3 million, including the channels. That's a GAAP revenue piece, not a billing piece.

Okay. I wanted to ask a question about debt activities in the quarter. I think you said you took on additional -- in addition to replacing the $10 million loan with Bison, you took on $5 million more to pay down, I guess, the 2013 notes. Did you also have to draw down on the credit facility? And then the second question is, what's the -- what level do you plan on paying down the nonrecourse Prospect loan through this year?

I'll let Jeff answer, but just one point. We replaced $5 million in mezz debt with $5 million of lower interest debt from Bison during the quarter. So it didn't increase our debt balance, but go ahead.

Okay. And so Prospect today, literally today, and I'll just give the information for everybody on the call, is $27.4 million. So it's even down from the $30 million that's sitting in the Q -- K that you -- Q rather that you're going to see. So we're able to pay that down a little further. So we're, like I said, right now at $27.4 million.

In terms of overall debt, yes, we are now moving into a cyclically seasonally higher period of time where we're shipping our physical DVDs and Blu-rays into Walmart and our highest period, 40%-ish of our revenue comes during this quarter, the one we're talking in right now, December 31. So the facility will start to move up. It has moved up around $4 million over the last quarter. We believe it will end up going to its cap of $19 million and then drop back down as we get out of Q4 and into Q1 of the next fiscal year, which is pretty normal for us.

And interestingly enough, our borrowing base goes up. We have about $41 million of collateral on our borrowing base as we look at it really on the filing that we're going to do with the banks at the end of this month compared to even if we drew the entire $19 million on the facility. So banks are very well collateralized and there's a lot of solid assets in the company. And when you're dealing with a receivable from Universal and a receivable from Netflix or Amazon or Walmart, those -- that's all great credit to have.

So on a net basis, we are down dropping $1.6 million, $1.65 million in overall debt, which is attributable to the cinema business. From a -- the CEG side of the business, we pretty much -- the Bison note's the same, as Chris said, the mezz replaced the prior mezz note, reduced the interest rate by 1%. The second lien went up a couple of hundred thousand dollars because of the pick. And so really, you just have the seasonal increase in the ABL.

And I'm showing no further questions in queue at this time. I'd like to turn the call back to Mr. McGurk for closing remarks.

Yes. Well, thank you all for listening in on the call and for your continued support. Be on the lookout for more announcements from us as we continue our business transformation and build out our streaming business and our business -- our bilateral business with China. And we look forward to talking to you again in a couple months on our next call. Thank you all.

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