Chicken Soup for The Soul Entertainment Inc (CSSE) 2019 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Chicken Soup for the Soul Entertainment's First Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call may be recorded for replay purposes. It is now my pleasure to hand the conference over to James with Hayden. You may begin, sir.

Thank you, and welcome. With me on the call today are William J. Rouhana, Chairman and Chief Executive Officer; and Scott W. Seaton, Vice Chairman to review results of the first quarter as well as the business update. Following this discussion, there will be a moderated Q&A session open to participants on the call. During this call, management will make forward-looking statements. These statements are based on the current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the cautionary text regarding forward-looking statements contained in the earnings release, which also applies to the content of this call.

I would now like to turn the call over to William Rouhana, Chairman and CEO. Bill, please go ahead.

Thanks, James, and good afternoon, everybody. Thanks for joining us today. Plenty to talk about, most of this call will be about Crackle. Q1 was clearly a transitional quarter for us. As many of you know, we launched our Crackle Plus joint venture yesterday and closed all of the related transactions. We also focused on integrating our new management team during Q1 and also our new Crackle employees. So we've been laying the groundwork for the future of our business. And today, we'll get to talk about Q1 results as if we owned Crackle, so that you can see what our business would have looked like and what this means to our business going forward.

As most of you know, the first quarter is typically a seasonally slow quarter in our industry. It's not the time of the year when new shows are launched and it is a smaller portion of the year from an advertising perspective. That said, last year in the first quarter, we had several shows and movies which contributed to a higher-than-normal quarter for us. And one of the key benefits of our Crackle Plus joint venture is that it's going to reduce, though not eliminate, the seasonality of our business. And the pro forma results that we're going to talk about are the best indicator of our business. And I think validate our excitement about the joint venture and also demonstrate the beginning of its potential. To calculate our estimated pro forma numbers, we combined the actual Crackle revenue from Q1 and the actual Chicken Soup for the Soul Entertainment revenue from Q1. We then deducted actual Chicken Soup for the Soul Entertainment costs and the projected Crackle costs based on the operational changes we have already made to our technology marketing, content acquisition and SG&A costs. We accounted for acquisition-related transaction costs, transitional operating costs and other nonrecurring expenses to arrive at our estimated adjusted EBITDA. Results are unaudited, but they show you the way we intend to report adjusted EBITDA moving forward. So I think they are useful.

Beginning with the top line, first quarter total revenue was $2.5 million on a GAAP basis. On a pro forma basis, revenue would have been $13.5 million, a relatively strong quarterly result than what is seasonally a light quarter for the ad industry. Typically, I would now speak to our online networks business first. But I want to save that to the end since I have a lot more to say about that. So let me just quickly review the other 2 business units.

In television and short form video production, we usually recognize most of our revenue in the fourth quarter, as you mostly know. And last year, we had an exceptionally good first quarter in this business unit with $2.2 million from television and short form revenue production. We strategically accelerated episodes to be delivered in the fourth quarter of 2018 that would have otherwise been delivered in the first quarter of 2019. And we -- but we did deliver 5 episodes of Chicken Soup for the Soul’s Animal Tales for $300,000 of revenue in the quarter. The remainder of Animal Tales delivered in the second quarter -- oh, and by the way, we just announced that we've renewed that for a second season. As you know, our approach to this line of our business is to produce content only after we have obtained sponsor commitments that exceed the cost of production, reducing our operational and financial risk and providing us with reliable content for our online network business. Looking forward, we expect the results in this line of business to exceed last year's results in television and short form production.

In our television and film distribution business, last year's first quarter included the release of a significantly successful film, which resulted in about $1.7 million of revenue in Q1 of 2018, including $500,000 from Internet streaming and $1.2 million in home-video. This year, our first big release was in April and that was The Man Who Killed Don Quixote. And as a result, the first quarter of this year, we had only $1.5 million of revenue in television and film distribution.

Now turning to online networks and the deal we just closed. I would like to reiterate some of the important data points in terms of what Crackle Plus means for us as well as our estimated pro forma results as if we had Crackle in the first quarter, and a bit about our strategy moving forward. With Crackle, we now have over 10 million active users on our owned and operated networks, plus millions more on our ad rep network. And we intend to grow both of these parts of our business aggressively. We have over 26 million registered users of our service, over 38,000 combined hours of programming, over 1.3 billion minutes streamed on a monthly basis, 90 content partnerships and over 100 different networks on the combined VOD services that we own. This makes us a leading, if not the leading AVOD service in the U.S. And scale and addressable ad technology enable us to give advertisers broad reach in one place.

Looking at the Crackle business. There was a lot of investment during the development and brand building phase of Crackle. And we've made some adjustments as we move into a monetization and commercialization phase. We saw 3 key areas where there was an opportunity to cut costs and enhance efficiency: content acquisition, marketing and technology. We also reduced the combined SGA as a result of cost synergies. Looking first at content acquisition. Crackle Plus has access to library assets from Sony Pictures Television, Chicken Soup Entertainment and Screen Media. With a combined 38,000 hours of programming, 19 content partners, 100 networks, we have rich choice for consumers. We have to offer this choice without overwhelming them with too many choices. We'll continue to group together specific types and genres of content to help customers seamlessly find the content they are looking for as well as consistently refresh content offerings. The vast majority of our content for the online networks business is now made available to us on a revenue-sharing basis. We've cut marketing costs and will use our large audience to market across our various owned and operated networks. Interestingly, we recently looked at the difference between airing one of our Chicken Soup for the Soul Entertainment original series on a cable network versus streaming it as an original on Crackle. And we found we can get many, many more viewers my streaming on Crackle. So that's an option to follow up on with our upcoming original series.

Moving to technology. We migrated Crackle to a shared platform with the other Sony networks, which reduced tech costs by 2/3 to around $5 million a year. And our SG&A was reduced. We hit the ground running and we've integrated Crackle operations into the operations of our business. We have our structure in place for our G&A now, and we announced our new organizational structure to our employees yesterday. We've got clear visibility into what our tech and marketing costs will be. And we're using the numbers that I -- that we now know will be our numbers applying the first quarter revenue and deriving the estimated pro forma that would have occurred if we had run the business in the first quarter.

Allowing for acquisition-related cost and using the methodologies described in our press release, we arrived at the joint venture adjusted EBITDA. And here is what it includes from Crackle. Gross billings for Q1 of $15.9 million. Estimated revenue for Q1 of $10.9 million, estimated pro forma content cost of approximately $3.3 million, estimated gross profit of about $7.7 million and estimated pro forma G&A, including tech and marketing costs of about $4.5 million. This results in estimated pro forma adjusted EBITDA of $3.2 million for Crackle for the first quarter.

Turning to our growth plans. We plan to grow each of our 3 lines of business, but to focus primarily on our Crackle Plus division. We've retained Crackle's strong sales force and are already in discussions to add new partners to our ad rep network. Additionally, Crackle had been and continues to grow organically. Revenue increased from Q1 of '18 to Q1 of '19 by 52%. We had a revenue increase on Crackle owned and operated networks of 33% year-over-year. We increased the gross billings for our ad rep network by over -- by 100%. As I noted on our previous earnings call, we're going to continue to be acquisitive. I don't know if you remember, I joked on the last call that if you own an AVOD network, you should call us. Well, I repeat the offer today because I got several calls after the last call. From small and large players in the industry for a variety of reasons are interested in doing something strategic. Critical mass attracts critical mass in audience and content and these are the major focuses for -- in acquisitions for us, and we're committed -- remain committed to the role of strategy I mentioned on the last call. As I mentioned earlier, we expect our reported second quarter results to be much better than the first. We already booked a lot of revenue for the rest of the year. For the ad business, in fact, we have about -- over $16 million billed for the remainder of 2019 already. As before, our first and second quarter results will be a little weaker than the third and fourth quarter will be the best. It's a pattern that repeats itself annually and is normal for the business. It's a really exciting time for the company, and we're pleased that we really -- that for the first time, we can give you some sense of the order of magnitude of what it means now that we have Crackle Plus up and running. With that, I'll turn it over to Scott for a review of the financials.

Great. Thanks, Bill. So total revenue for Q1 2019 was $2.5 million compared to $6 million last year. As Bill mentioned, the decrease was primarily the result of things getting pushed to the second quarter and an exceptionally strong first quarter in the year-ago period. On a pro forma basis, revenue for the first quarter was $13.5 million. By line of businesses, online networks, which again includes VOD networks and Popcornflix, generated $0.7 million in revenue in Q1 2019 compared to $600,000 last year. On a pro forma basis, online networks would have been $11.6 million. Television and film distribution generated revenue of $1.5 million in Q1 2019 compared to $3.2 million in 2018, reflecting not having a major successful film release in Q1 2019, which had generated a lot of revenue in Q1 2018. And that our first major release for 2019 was in the second quarter. Television and short form video production generated revenue of $300,000 in Q1 2019 compared to $2.2 million in 2018. Again, this difference is attributed to an exceptionally successful first quarter in 2018 with series from Q4 2017 being pushed into Q1 2018. Specifically, we delivered 7 episodes of Hidden Heroes Season 3, 3 episodes of Vacation Rental Potential and secured a licensing deal for Being Dad in the first quarter of 2018. As Bill mentioned, based on April results and other insights, we expect revenue to be higher in the second quarter. Gross profit for the quarter ended March 31, 2019, was $500,000 or 26% of total revenue compared to $2.6 million or 46% of total revenue in the year ago period. As required by GAAP, the gross profit calculation includes noncash amortization and the cost of revenue, which for the quarter totaled $800,000. Without this noncash film library amortization expense, gross profit would have been $1.3 million or 52%. Estimated pro forma gross profit for the quarter ended March 31, 2019, including Crackle, would have been $8.2 million. Operating loss for the quarter ended March 31, 2019, was $2.7 million compared to an operating loss of $200,000 for the year-ago period. Without the noncash film library amortization charge, operating loss would have been $1.8 million. Estimated pro forma operating income for the quarter ended March 31, 2019, including Crackle, would have been $800,000. Adjusted EBITDA for Q1 '19 was a negative $900,000 compared to $1.6 million last year. On an estimated pro forma basis, adjusted EBITDA would have been $2.5 million. So turning to our balance sheet. At March 31, 2019, the company had cash and cash equivalents of $3.8 million compared to $7.3 million at December 31, 2018. We have outstanding debt of $7.3 million at March 31 compared to outstanding debt of $7.6 million as of December 31, 2018. Finally, with respect to the Crackle Plus joint venture, we put our online networks business into the joint venture, which generated $4.4 million in total revenue last year, and we gave Sony $4 million CSS e-warrants at an average exercise price of $10.33. Sony put Crackle into the joint venture, which generated $72 million last year in gross billings and more than 2/3 of that in -- as revenue. In light of the operational changes, Crackle is now expected to generate positive cash flow beginning immediately. So that's one of our 3 sources of cash we want to talk about. Positive cash flow. In terms of ownership, 99% of the Crackle Plus JV equity is owned by Chicken Soup, 1% by Sony for the first 12 to 18 months. After which time, Sony is entitled to 48% of the Crackle Plus joint venture or $40 million of our convertible preferred, which trades under ticker CSSEP, which cannot be converted to common. So to repeat, Chicken Soup has 99% for the first 12 to 18 months. Sony has 1%. And during months 12 to 18, Sony must decide between 48% of the JV or $40 million of CSSE preferred. Again, that cannot be converted to common. So the joint venture has provided working capital in the form of accounts receivable that are currently being paid. I should also mention the company has received a letter of commitment from its bank to increase our existing loans from $8.5 million to $20 million, which expects to be completed in the next 2 to 3 weeks. So good liquidity. Now I'd like to turn the call back to Bill.

Thanks, Scott. I just learned that our 10-Q, which is filed, has not yet necessarily shown up on the -- on people's screens. I'm not sure why. So you might not have the information relating to the statement of operations of the like, which we filed. Should be any minute, if it's not there already.

Let's turn to our -- let's turn to questions, operator, and we'll try to do the best we can to give people as much information as possible.

(Operator Instructions) And our first question will come from the line of Dan Kurnos with Benchmark Company.

Q1 was so, so 2 months ago, Bill. So who cares about the P&L for Q1, right? Let me ask you...

It's kind of irrelevant, I agree. But it is -- you need to see it, so.

Yes. Let me ask you a couple of questions here just to kind of get the mundane out of the way here. Just on TV, film and distribution in the short form. Just so I understand you right, you do expect to grow those year-over-year even with the tough comps. You did say that correct?

Yes, we do. They're both likely to grow meaningfully. But they're going to be small compared to the rest of the business. But they will definitely grow.

Got it. So it's going to be pretty back-half weighted obviously given sort of the pace of the year?

Yes. I mean, the production business, I don't think we're ever going to be able to get it out of being the back-end weighted. And the traditional distribution business is usually a little smoother, but this year we didn't have a big -- we didn't have a real big distribution movie until April. So 3 of the 4 quarters will be better. 1 was weaker.

Got it. And then just on the number that you did give in the release. Just so we understand, or people understand some of the math here. And thank you for kind of walking through your expectations on how you got to that pro forma EBITDA. Like what level of synergies do you still have left or is that a fully synergized number in the pro forma?

I think that number is pretty good. That number is pretty synergized, I would say. We really made all the adjustments, Dan, that we planned to make in the last 30 to 45 days so that we could -- we had a cooperative partner in Sony and so we are hitting the ground pretty much really where we want to be. I mean, the focus now needs to be on growth. And we kept the vast majority of the sales force because they're really quite good. And the combination should allow us to have increased CPMs and, I think, pretty meaningful uptick over time. And this first quarter is not usually the best quarter in advertising, so I think there's lots of reasons to think it'll grow from here. And it'll all start to drop to the bottom line.

Yes. No doubt Q1's usually the weakest. So I guess the question, Bill, is since taking over or at least making the announcement, I know you gave us some kind of year-over-year metrics. But just so we understand the trajectory here in essence, is there anything you can share kind of on a sequential basis if that's relevant or kind of how you expect the acceleration to occur over the next few quarters, understanding obviously there is sort of a natural uplift in CPMs as you go throughout the year.

Yes. The reason I gave you the year-over-year comps was because, you know, my guess is that this is the way it will look for the year that it will -- that we'll see each quarter will sort of be a similarly ahead of the prior year. I mean, we're halfway through Q2 and the numbers appear to be up over last year. Similar percentages. So 50% increase in revenue year-over-year in Q1 of '19 versus Q1 of '18 I think is pretty good. I don't know yet what the impact will be of the combination in terms of further uplift. I think there will be some, because I expect the Popcornflix site to actually benefit disproportionately, frankly, from this in terms of revenue increases and CPM increases. And the other thing that's I think pretty clear to me is that the ad rep business is going to grow not just by natural growth, but also by the addition of -- I guess, with natural growth, additional of other -- addition of other customers who want us to represent them. I mean, it's a pretty powerful place to be with approaching $15 million monthly active users to go out to advertisers with and if you add other companies to that, they're going to benefit as are we. So a bunch of different things that I think will lead to growth, Dan. Hard to go beyond that in terms of giving you a projection.

Have you actually been able to go -- I mean, what's been the reception with advertisers with new logos, with existing relationships on the combination, like, if you haven't been able to get the actual uplift in pricing yet or if commits are, let's say, they are usually 6 months in length maybe, so maybe there is repricing in the back half of the year. I don't know if that's the way that it's structured or not. But just at least maybe color around sort of the reception from the combination and your ability to go back to these guys and what they're saying to you.

I think we've had a really good reception for this idea of Crackle Plus from the major ad agencies and I tried to give you some color on that by giving you an indication of the backlog we already have. And that's the nonprogrammatic side of the business. You know this business has a big programmatic piece as well which is not affected by the sales force. But the nonprogrammatic sides that I gave you is already over $16 million booked for the rest of the year. And it looks like it's going to far exceed the goals for the year by the time it's done. And that -- much of that, Dan, has actually happened since the time of the announcement because it is the time to do it. So it's the time of the year where people make these kinds of commitments. So I can't say that I know for sure what the impact of the announcement is, but I can tell you it hasn't been negative. So -- and we've been listed by a number of the very large firms as kind of a special place for people to be thinking about placing their ads. And you've probably -- there have been a few press releases about it like VideoAmp and some others indicating that Crackle is a part of their plan for the year in a big way.

Great. And I'm glad you brought up programmatic, Bill. Because, look, I mean, we've seen -- and I think BuzzFeed just lost like $100 million because they were not -- in revenue, annualized revenue because they weren't programmatic-ready. It sounds like Crackle as a decent programmatic offering. Can you just kind of talk to that? What portion of the business it is? And then kind of what your expectations are given what's been a pretty changed landscape earlier on this year.

Very -- there's a big programmatic component to the Crackle business, I'd say roughly half. And it's with all of the top players in the space. Typical programmatic stack where you have multiple providers of ads who you go to as they bid. It's a well-run part of the business and grows as well year-over-year. Pretty -- actually more I think that the direct business grows. But I still think there's a big need for the direct business, so -- where we customize campaigns and the like. But it's a very big part of the business and I think will remain that.

Great. And just one more, if I could. Just on thinking about -- Bill, look, I know you want to be acquisitive, right? And obviously be having public currency with other guys hanging their shingle out there right now in Tubi, Zumo, you name it. Pick a funny named AVOD service. But in terms of balancing, you have liquidity and Scott, I don't know if you want to just chime in on what exactly the receivables are so we have a sense of what cash could be coming in the door. But balancing build, the combination, you said you scaled back marketing but the combination of bidding for just incremental content and shows and ramping user adoption versus keeping your powder dry for just layering in another large player, which obviously would have natural customer acquisition to it, but also may be some overlap.

Yes. So it's not -- the reason that I think acquisitions are the appropriate way to go right now, Dan, are -- isn't really relating to anything other than the fact that the cost of acquiring customers is lower than it is to acquire them if you go out and get them. And I think the more critical mass we have the more controlled owned and operated customers we have, the more irresistible we become to advertisers prior and the higher the CPMs go. Once we get to $20 million a month, which would be my goal for the end of the year, you're really in sort of a very special tier in this business. And you're almost a must buy, at least, right now. So we try to push towards that end. I think the fastest way to it is acquisition. And there are a number of smaller companies that have to decide what they're going to do because it's not smart to stay small in this space. And so in the ways that you know I like to buy things, there are opportunities to arbitrage that and maybe a smaller company with 1 million user that gets 1 CPM into our world where we can get another and pay appropriately or whatever the right word is for that. And not dilute ourselves. But as far as the operating costs go, we have the right amount of marketing. We have the right content costs. They're all rev share now. Not all, but 90% rev share. And if you look at the way we have structured the business and if you look at the pro forma, it's based on that structure. We have a very good gross margin, 60% range against this business. So I feel like we're okay in that. I don't think we need -- I really -- Crackle is generating cash. I don't expect it to be a consumer of cash at all. It's not like our other businesses which will require reinvestment in programming and other things and where we reinvest the cash regularly to continue to grow. That's not the way to grow this business right now. I don't think. So that's -- so our strategy is exactly what I said, to continue to acquire.

And our next question will come from the line of Mike Grondahl with North Capital Markets.

This is Michael on for Mike. Maybe just 1 on sort of the pipeline of TV business going forward this year. Is it safe to say there was a little bit of delay with kind of the distraction of making sure this gets closed as soon as possible with Crackle?

Yes. I mean, look, the first quarter was transitional in a couple of ways. If you look back, we had to focus on Crackle and we also had to allocate capital based on the cost of acquiring the company. So we were going to put other things on hold, defer them, delay them in order to make sure that the acquisition occurred. But we also announced early in the quarter that we had brought in some new senior managers. And we've gone through organizing ourselves around the fact that we're going to grow a lot in the next year or 2. And that process also slows things down, Mike. So the combination of setting up an organizational structure for a much bigger company and focusing on an all-consuming acquisition, which is as we've said before, more than double. But now you guys can do the math and know that it's much more than that. Our revenue, those things do have you slow other things down. We still have a pretty good pipeline in our production business. And we still think it's going to grow, as I said to Dan a minute ago. And the Screen Media business is very -- it's very full for the rest of the year and should be considerably bigger than it was last year by the time we're done. So, yes, anyway, that's answer to your question.

And then just maybe just a housekeeping one. On the ad revenue already billed, was that a pro forma number that you mentioned or is that pre-transaction?

Are you asking me about the $16 million of backlog or the $13 million that we -- that is the pro forma for the first quarter that was actual? Which one? Which number, there's been a lot of numbers today which I -- which we've done deliberately, so you guys...

That's the $16 million.

$16 million is booked business already for the balance of the year. You can book in advance. It's the first time we have actually had a nice substantial backlog business in our world. It's nice to say because it starts to make things much more predictable, which is what this overall transaction is going to do for the business without a doubt. Things are going to get much more predictable or they are much more predictable.

And our next question will come from the line of Austin Moldow with Canaccord.

I want to ask about the scale of the combined Crackle Plus platform. So just using the numbers you've put out in the press release, the 10 million monthly users, the 1.3 billion minutes per month. I think if I've done the math right, the -- that sort of engagement comes down to -- comes out to a little over 2 hours per user per month. I think some other AVOD platforms out there are closer to 10 or so. So what do you see is the strategy to increasing viewing time, and the engagement of your ad-supported viewers on Crackle and your other platforms?

That's a really good question, Austin. I'm not sure I know the answer right now. The -- there is -- the big difference, I think between us and others is that we are a true VOD. And a lot of the numbers, and I'm not sure which ones you are looking at, but a lot of the numbers I'm seeing include reporting from people who do a streaming kind of business of preprogrammed networks and they're online, it's true, I mean, it's the conversation you and I had in my office where they are -- and so you're looking at 2 very different experiences. There may not be anybody in the room while some of these things are streaming. In order to -- for our customers, they make the choice. They want to watch the program. That's -- they start it, they finish it, they can rewind it, they can fast-forward it. They don't have to choose a network and then sit there and wait for the network to deliver the programming. I think they're probably much more engaged and I expect that in the end, that's going to be the most important thing because they'll watch the ads. So I don't know if I -- if my focus is as much on that number as yours is. But I'll let you know as we learn more.

Got it. And I wanted to ask about content offerings and the size of the library that you think is necessary in this new, more crowded AVOD, and in general streaming environment. So I know Tubi is making a sort of concerted effort this year to spend more on acquiring content and I know you have sort of a lot more from Sony available too now. So do you see anything in the way of acquiring additional content outside your existing networks or existing distribution channel in 2019?

We will definitely acquire other content. But that's part of our regular way of doing business in Screen Media. So we'll continue to do that. And part of our strategy is the fact that we do that in a profitable way separately from the network. It gives us access to content for the network at a reduced cost. And so we will be able to -- we will definitely continue to do that. That's happening every day. And we are finding that -- this is really an interesting side note to all of this -- we're finding that a lot of people are coming to us now and saying can we give you AVOD rights for all AVODs because you have Crackle. And therefore, if we give you all our rights for all AVODs and you distribute on Screen Media, we think you're going to get a better deal. Well, that's not really true but they are -- there is a pretty -- it is happening that way. It's kind of interesting. So I think there are going to some other things that we didn't anticipate happening that will happen that hopefully, will be positive. And so content acquisition, I don't really see as that much of a challenge right now. Content creation remains a key part of our originals programming strategy and it's going to be done the same way it's been done before with sponsor-driven programming. And we'll -- I believe that business will grow a bit this year too based on everything I see. And that will give us yet another set of content to think about. Now we in Q4 decided not to put 2 of our series on linear networks because we were holding them back for Crackle. Obviously, we thought we were going to use them in Q1 but since we didn't close it until yesterday, that wasn't possible. But now we have them and we will put them on Crackle and we should generate, as I think I said in one part of the script, a considerable amount more than we would've been able to generate from linear television for them. And that will endure the benefit of our originals business. So one thing we have not yet really fully taken into account is how much of the revenue share that we have -- that we are pro forma-ing for our networks business is actually going to go to us in our acquisition and originals business. We haven't yet figured out how much of that is actually just going to go to another one of our pockets. And the way we did these numbers today, it was based on the assumption that none of that would. And that's just not true. It's not -- that's not the way it's going to come out. We just don't know how much of the overall revenue from the network business will come from stuff we source and therefore, we're paying ourselves the revenue share. So there's a lot of content related stuff there but I'm not worried about it right now.

And our next question will come from the line of Allen Klee with Maxim Group.

I'm not sure if I missed this with all the numbers, but did you provide on a pro forma basis what Crackle's, JV's revenue and EBITDA were -- would have been for the whole quarter?

We did. That was the gross billings of $15.9 million, the estimated revenue of $10.9 million. The difference there is that we only get to recognize as revenue our rep fee when we are selling ads for someone else's network. When we sell it for our own network, we, of course, get to recognize all of it as revenue. So that's that difference. And then we went through pro forma estimated content costs of $3.3 million, estimated pro forma gross profit of $7.7 million, estimated pro forma G&A, including our tech and marketing costs of about $4.5 million, which resulted in an estimated pro forma adjusted EBITDA of about $3.2 million for the Crackle part of our venture.

Great. And you did mention how you thought you got the -- you felt pretty good about the adjustments were made in there. But does that mean that you felt good about where the margin comes out to right there or there's more opportunity to improve from that EBITDA margin that you just mentioned?

So I'm going to speak with forked tongue right now. Because what I said was I'm comfortable that we've gotten all the synergies out of this. And then a little later, I said but we haven't taken into account the possibility that we are paying ourselves for the programming -- for some of the programming. We've truly -- we've expensed that even though probably some of it is going into our own pocket. So I think the place that we have the biggest opportunity to improve margin going forward is going to be in the management of programming costs. We do have a rev share agreement with both Sony and the Chicken Soup and Screen Media libraries and with many others. But the mix of programming that comes from our own libraries and our own programming creation will have some impact on that line. And it's obviously something that will be beneficial. So there is some room there, I would say there's little to no room in tech marketing SG&A. We have that where it should be. We've done that going in. Obviously, I do think we'll grow the top line. So the one place in the cost structure where I think there is some room for improvement is in that content cost line. Because I didn't account for the portion of it that will go to our own companies.

You've mentioned last year you had a movie release that you got distribution rights on in the first quarter. And this year it happened in April. I was just curious, do you have any other movie releases that you are planning for 2019?

Oh, yes. We've got a whole bunch of them lined up in the Screen Media portfolio and there is -- they're all organized now. We actually had The Man Who -- this was The Man Who Killed Don Quixote that we released this quarter. And we actually had it in the first quarter, but we moved it to try and get away from another big release and only all we did was manage to get ourselves closer to the Avengers. So that wasn't necessarily the best result. But yes, we usually have 1 big one per quarter, Allen and then a bunch of little ones that generate revenue for the year. And that's the way it is this year, except for Q1.

Okay. And then you used to talk about the number of half hours of your own TVs that you were planning to do for like last year. I'm not sure if you're moving away from that, but I was kind of wondering if the way to think about -- what you were thinking about for the last year versus this year that way? Or maybe is there a way to think about the amount of 2018 production that was thought to originally happen in the fourth quarter. What that represented in revenue that has gotten pushed into '19?

Yes. So I'm not suggesting we're going to make less original programming. And in fact, I think I have suggested that we're probably going to make more. It's just that when the total portion of the business is 3/4 online networks and 1/4 the combination of distribution and originals, it feels to me like the emphasis and understanding and analysis really belongs on the 3/4, which is why I've given so much more information about the networks business to try and give people as much information about the stuff that really is going to make the difference for us, I think, going forward. I do -- as I said earlier, I do expect to grow both of the other lines this year, so. And I think we have to make that the last question. So operator, thank you.

Thank you. Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program, and we may all disconnect. Everybody, have a wonderful day.