迪士尼 (DIS) 2005 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Pixar Animation Studios' third quarter 2005 earnings conference. [OPERATOR INSTRUCTIONS] Hosting today are Simon Bax, Executive Vice President and CFO and Steve Jobs, Chairman and CEO.

I'll now turn the conference over to Simon Bax.

Please go ahead sir.

Good afternoon and welcome to Pixar's third quarter 2005 earnings conference call.

Before I begin the formal discussion of our financial results, I need to remind you that some of the statements made throughout the course of this presentation are forward-looking, and it is possible that actual results will differ materially.

Among the factors that could cause these results to differ are the timing and the amount of worldwide revenues and distribution costs related to our films, and the timing accuracy and amount of information received from Disney and other sources to determine revenues and associated gross profits.

These forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date they were made.

Additional information concerning these and other factors that could cause results to differ is contained in our 2004 Form 10K, our second quarter 2005 Form 10Q and our other filings with the Securities and Exchange Commission.

Turning to our financial results, our revenues for the third quarter ended October 1st were 45.8 million.

Net income was 27.4 million and diluted earnings per share were $0.22.

These results compared to revenues of 44.5 million, net income of 22.4 million and diluted earnings per share of $0.19 reported in the third quarter of 2004.

For the nine month period our revenues were 233.5 million, earnings were 122 million and earnings per fully diluted share were $0.99, as compared to revenues of 164.6 million, earnings of 86.5 million, and earnings per fully diluted share of $0.73 for the equivalent period in 2004.

Our film revenues for the third quarter were 41.5 million compared with 40.4 million in the corresponding period last year.

Revenues from the Incredibles were 11.8 million, which included domestic pay TV licensing and consumer product revenues.

As expected, home video did not have a material impact on our results.

Finding Nemo continued to be a major contributor to our earnings this quarter with revenues of 13.7 million.

These revenues consisted of domestic and international home video, international television licensing and consumer product sales.

We recognized 16 million in revenues from our library titles this quarter, which included contributions from the Toy Story DVD and re-release as well as international television licensing and consumer product sales across all our [Lively] titles.

Software licensing revenues in the third quarter were approximately 4.3 million compared with 4 million in the prior year period.

Operating expenses were 8.5 million versus 8.8 million in the corresponding period last year.

Other income was 7.4 million, up from 3.1 million in the year ago period, largely because of higher investment balances and higher rates of return on our cash and investments.

The tax rate for the third quarter of 2005 was 33.4%, which was lower than the U.S. statutory rate mainly due to reduced state taxes, a federal tax benefit associated with certain income outside the U.S., a tax deduction related to income attributable to domestic production activities, and tax exempt interest income.

Our fully diluted earnings per share of approximately $0.22 was significantly higher than our prior guidance of between $0.08 and $0.12.

The $0.10 of variance between our actual results and the high end of our guidance was primarily due to the following: $0.03 was the result of the higher than expected contribution from Finding Nemo, $0.05 was due to a one time reduction in our international home video and television expenses; this impacted all of our titles and resulted from updated information received from Disney during the quarter, and the remaining $0.02 was primarily due to various nonfilm related factors, including the lower than anticipated tax rate.

Turning to our balance sheet, as of the end of the quarter cash and investments were over 1 billion, having increased by 189 million since January the 1st, 2005.

This increase was mainly attributable to cash received from Disney for our share of film revenues.

Capitalized film costs were 163.8 million versus 140 million at the end of 2004, reflecting production spending on our current film projects offset by film amortization of 34.6 million.

Looking ahead to the fourth quarter we're today introducing fully diluted EPS guidance in the range of $0.13 to $0.17.

The most significant contributor is expected to be television revenues.

These will include the domestic network television licensing fee for Finding Nemo and international television revenues from all of our titles.

We also expect revenues from the domestic DVD re-release of Toy Story 2 on December 26, the international DVD re-releases of Toy Story and Toy Story 2 in November and December, as well as continuing home video and consumer product revenues from all of our titles.

Now, for more on cost and other developments at Pixar, I would like to turn the discussion over to Steve.

Thanks Simon.

Today I have very little to add to what Simon has just said.

We are deep -- we are in deep discussions with Disney, and I cannot comment on them except to say that we will know if we are going to continue our relationship with them by the end of this year.

This is a few months later than we would have liked, seeing that we are hard at work on a film which will be ready for release in around June of 2007 and need to begin working with our distribution partner, whomever that will be, pretty soon if we're to be ready in time.

But nonetheless it's worth the few extra months of effort if there is a chance of continuing our relationship with Disney, and our discussions right now are very productive.

So that's where we are today.

On our last earnings call I told you that we would be ready to roll out the first three films beyond Cars by this earnings call.

Well, we're not ready.

Besides not having settled on final names for the second and third of these films the real reason for not announcing them now is that we really want to have our future distribution direction settled before we roll them out.

All three of them are amazing and deserve not to be overshadowed by the eventual news about a new deal of one kind or another.

So, please be a little more patient with us, and we will do these things in the correct order.

I do however want to tell you about --- a few things about Cars our studio's 7th feature film, John Lasseter's 4th feature film and our studio's last film under our current Disney deal.

First, the animation is complete and the film looks just stunning.

John is really happy.

The final mix should be completed by mid-December.

And the marketing campaign, which I think is really good, starts in the next couple of weeks with a new trailer attached to the Chronicles of Narnia.

So the production is in its last lap and the marketing is revving up for the release of Cars on June 9th.

We couldn't be happier about how Cars has turned out, and I think it will be a triumphant cap on our successful relationship with Disney or the huge beginning of a bountiful new chapter in our relationship with them.

Three other quick topics.

First Pixar and Pixar's artists are being honored with a 20 year retrospective at the New York museum of modern art which opens next month and runs through February.

We put a lot of work into it, and if you're in New York I encourage you to stop by and check it out; your family might like to see it as well.

Second, Pixar has sold around 125,000 copies of it's six short films online through the iTunes music store to date.

Tomorrow will be one month since they went on sale.

With very little effort, and with no possibility of any returns like you have with physical media, we're delighted at this new source of income and with the ability to directly reach our audience.

And third, our current and future games partner THQ recently announced they have shipped more than 8 million units of games based on Finding Nemo and more than 5 million based on the Incredibles.

These are wonderful numbers and demonstrate how the characters we create have broad and enduring value.

So, the real news this quarter is that our studio continues to do very well and the revenues and earnings for the first nine months of 2005 are up 40% over the same period last year, even without a film being released this year.

With this Simon and I would now like to answer any questions you may have.

Thank you. [OPERATOR INSTRUCTIONS] Our first question is from Jessica Reif Cohen with Merrill Lynch.

Go ahead, please.

I have a couple questions, so I'll just put them all out up front.

Given your cash position, at what point do you decide to do something with it like return capital to shareholders either through a one time dividend or a buyback, I mean is it -- once you reach a distribution deal that you do something?

Second, could you discuss plans to increase production given your increasing capacity both physical and in terms of talent?

Then finally, just a question on Toy Story, well -- first of all could you give the units sold in the third quarter, but why are you releasing Toy Story 2 after Christmas?

Jessica, let me talk about the first one on returning cash, again we have always felt that having a very strong financial footing gives us a great negotiating position since we could finance the production and even the marketing of our films ourselves if we had to.

So, I think the best time to chat about this would be post announcement of a distribution deal, and let's see where we are at that time.

And in terms of increased production, we have nothing to announce today.

We're still on the path to get to a film a year and I think we're looking really good in that regard, but nothing more to talk about beyond that.

And for Toy Story 2, the interesting idea here is that we're going December 26, which is one of the, one of the major shopping days of the year, and we're really trying to take advantage of this phenomenon of gift card giving.

So, it's going to be a different approach.

Actually launch the marketing campaign primarily just the day before, on Christmas day, and then obviously continue it through its initial period of being available.

The Disney home video marking guys think this is a really good idea, so we're going to find out.

Very interesting.

Can you just comment on the Toy Story units in the third quarter?

Basically we have hit our expectations on units, but I don't want to go into any more detail on it.

Okay.

Was that all, Ms. Reif Cohen?

Yes, thank you.

Thank you.

Then we will go to Lowell Singer with SG Cowen.

Please go ahead.

Thanks.

Steve, two questions for you.

On your next distribution deal, whomever your partner ends up being, do you expect to do the television and merchandising distribution on your own and if you could talk a little bit about the progress you have made internally with the merchandising folks you have hired -- the consumer product folks that would be great.

And the second question is, there's obviously some discussion in the market that Disney is moving two of their films to the summer window.

Are you convinced that there's enough room in the summer for them to support both a Pixar film and a Disney film?

Thanks.

Yes, I'd rather not get into specifics about details of a distribution agreement.

So I think when we have one in place some of that stuff will become clear at that time.

In terms of Disney moving their films, you know, what I read into the announcement was that they're just not going to be ready in time, which is a common reason that people move their films.

But in terms of your underlying question, might the summer become saturated with animated films?

I think there's a lot of room in the summer.

These films actually move in and out pretty fast.

And as an example, next summer we've got Dream Works which is going to have a movie in May and, you know, we're going to have Cars in June.

So, you know, evidently Dream Works thinks there's enough of a market to launch their animated film a month before us and get in and out by the time we launch.

So, I think the summer is a long period of time and there's probably room for -- for even more.

Having said that of course we would love the whole summer to ourselves, we wish everybody would cancel all their movies for the summer and we would be the only movie.

Okay, thanks.

Thank you.

Our next question is from Kathy Styponias with Prudential.

Go ahead please.

Hi, thanks.

A couple questions.

Steve, when you suggested that it's worth waiting a couple months to see if a deal with Disney works out, it was my understanding that you were always saying that you were looking to have a distribution in place by the end of the year.

So does --- do your comments mean that you might push out Cars and it won't be a May release any more?

No, no, no.

Cars is a film that will be distributed by Disney.

And there is no possibility of the Cars date moving.

The movie is almost done; we're thrilled with it and it's not affected by these negotiations.

Okay.

So basically your commentary was you didn't expect it to go to the very end of the wire, to the end of the year then?

I'm sorry, I don't quite understand the question.

I thought you had always said that you were looking to have a distribution deal in place by the end of this year.

And you're making it sound like it's being delayed a couple months, I'm just trying to understand what you mean by that.

What I meant by that in my prior comments was that we had hoped to know whether we were going to be going forward with Disney or not certainly by now or even prior to now.

And if we were that would be terrific and if we weren't we would be putting another deal in place that we hope to have in place by the end of the year.

We're obviously going to be a little late on that, we're going to take an extra few months and -- to decide whether we're going to be continuing with Disney or not.

And if we do then we will have something in place I think by the end of the year.

And if we don't then we might not.

And although the timing is not our first choice I think as I said, I think it's worth investing the extra few months to determine whether we going to continue with Disney or not.

We have a very long-term relationship with them and, as I have said, it would be our first choice to continue with them.

Thanks for clarifying that.

The second question I had was: any color or commentary you can give us on the deal between Pixar and Apple with respect to the downloads; is there any reason to believe that the revenue splits might be different from the way that Apple currently operates with the music industry?

I'm not going to go any details about Apple splits with the music industry on our Pixar earnings call here.

But I will say the splits Pixar is getting are the same as all of the partners that are supplying video content to the iTunes music store are getting.

Thanks.

Then Simon one final question for you.

Is the increase we saw in sales and marketing, is that the addition of folks for consumer product and television distribution?

Yes, that does include all of our sales and marketing distribution expenses.

Okay, thank you.

Your next question comes from Doug Mitchelson with Deutsche Bank Securities.

Go ahead please.

Thank you very much.

I know we're dancing around this issue Steve, but I'm wondering if you could at least kind of give us some thoughts as to what's taking so long in the negotiations, is it social issues, is it economic issues, and also there's been some buzz in the marketplace that maybe Disney might make a run at trying to purchase Pixar outright since you're the majority shareholder; could you give us some of your thoughts on whether you would be willing to sell the Company or not?

Again, I'm not going into details -- any details about the negotiations.

I will tell you that we have had some very productive talks.

I like Bob Eiger a lot;

I think he is making a lot of right moves at Disney, and if we can work out some of the issues we would love to continue being their partner, but if they were all worked out we would be having a different conversation today.

So we're continuing to have discussions with them, and as soon as we have something to report I will be happy to report it.

Thanks.

We will now go to Richard green field with Fulcrum Global Partners.

Go ahead please.

Hi, a couple questions.

First Steve, could you address your thoughts on the sequential release pattern for a movie and whether you think that needs to change?

There's been a lot of talk about collapsing windows and how that could leverage marketing dollars particularly by Disney and Bob Eiger.

The second, could you just talk about -- given what you have done with the iPOD, where do you think digital distribution of film content is going, can you envision over the next 12 or 18 months being able to access the Pixar film library online, being able to download it, etc?

Thanks.

Let me take the last part of the questions first.

The biggest problem with digitally downloading movies of course outside of rights issues and outside of protection issues, security issues, is the fact that most people's band width to their home is slow enough that it takes hours.

So, this is slowly changing in this country, but to download a movie takes a long time.

So, I don't think that's going to become mainstreamed any time real soon, especially since I believe that High Def, stepping up the resolution to High Definition is going to be successful, but that of course adds a lot more data.

And therefore a lot more time to download a movie.

So as we become --- as we become accustomed to higher and higher resolutions going from VHS to DVD, going from DVD to High Def DVD over the next few years, the amount of information involved that needs to be downloaded keeps going up and it's going up a lot faster than our internet speeds are going up.

So, we will see how that all works out in the next few years, but there's no obvious breakthrough.

In terms of windows, again the whole-- all of Hollywood is thinking deep thoughts about this and I think there's people that know a lot more about it than us, so you probably want to talk to them.

But one of the things of course that we're seeing is we're already seeing today people with busy lives opting to not go see the middle market movies but rather wait and buy them on DVD, right?

I'm sure you have done that, I know I have.

However, Pixar's movies don't tend to fall into that category.

We have, I think, a pretty terrific audience who trusts us to deliver a certain level of entertainment based on their experience with our last films, and so when we release a film I think it's definitely a theatrical movie going event.

So, I think our films are going to be somewhat insulated from people waiting to buy them on DVD and forsaking seeing them in the theater.

So, I hope that helps a little bit.

Great, thanks.

Maybe I can just add to that one comment.

We are focused on the theatrical release in the May-June time period and that fits in extremely well with a November release on DVD, and we wouldn't be looking to move up the date of the DVD release.

Yes, we're very excited about the early summer theatrical release and the holiday DVD release.

We have had experience of doing that with Finding Nemo and it was very satisfying for us.

Thank you.

Thank you.

We will know go to Spencer Wayne with JPMorgan.

Go ahead please.

Thanks.

Good afternoon.

Just two quick questions.

I guess first for Simon, can you just give us an update on trends you're seeing in the DVD marketplace, maybe talk specifically about what you saw with respect to selling and sell-through of Toy Story 1 in the quarter.

Then secondly Simon, the 163 million of capitalized film production costs; can you give us -- now that Cars is basically complete or pretty close to it how much of that was Cars?

Thanks.

Well, let me take the second one first obviously we don't give a specific costs for any of our films, but the 163 million clearly includes our share of Cars, plus our share of the 2007 film and all of our development.

And it also includes cost of films that have been released that haven't yet been amortized.

So that's that one.

In terms of trends in the DVD marketplace, I mean I really don't think we're in a position to comment on trends in the marketplace.

Toy Story re-release was that, a re-release; we're pleased with the performance, pretty much met our expectations and I don't think that's giving us any indication about what the marketplace is.

Thank you.

Your next question is from William Drewry with CSFB.

Go ahead please.

Hi.

It's Topher Somson for Bill.

Steve, historically you have said that Pixar isn't interested in doing sequels.

Has there been any change in thinking that would make your involvement in sequels possible?

Well, it's not quite what I said.

I mean, as you may recall Pixar is the Company that did the first modern animated sequel with Toy Story 2 and proved that animated sequels could be successful.

So I don't think it's correct to characterize that we're against sequels.

What we said is that if we do sequels to films done under our current Disney deal, then we will never own those films, and we will be sharing a substantial part of the profits of those films with Disney.

And since we have a limited production capacity we would rather devote that production capacity in the future to making films which we completely own and which we keep a much higher percentage of the profits of.

So that is I think a more accurate characterization of how we viewed making sequels to films created under our current Disney deal.

Has there been any change in thinking?

Well, I think that basic philosophy has not changed, I would rather not go into any details of our current negotiations with Disney.

Thank you.

We will now go to Michael Savner with Banc of America Securities.

Please go ahead.

Good evening, thanks.

If you could maybe comment a little bit on trends you're seeing in your negative costs in P&A, like you just mentioned Simon you don't comment specifically, but you have said in the past at the high end negative costs, around 120 million, and one of your peers in the market talks about worldwide theatrical marketing expenses typically being around $150 million, so if you can give some -- some color on what trends you're seeing if those numbers are similar to what you're seeing or those are trending -- continuing to trend higher.

Secondly Simon just housekeeping, the margin spike in the quarter, was that then largely from the one time reduction in international TV expenses and if so if you could give a little more detail on exactly what that means.

And then, sorry, but third and last for Steve, you didn't want to go into a lot more detail on the next three movies, but should we at least assume for now that those are slated for June, 07, 08, 09 or is there still flexibility in maybe accelerating or moving that release schedule around?

Thanks very much

The margin, that's a function of the amortization of our films.

So that's just -- there's not a --- we have actually returned more to the level that we have seen in the past.

So we had a higher amortization with the high revenues of the Incredibles in the prior quarters; this quarter is a more normal margin rate for us, or at least what has been normal over the last couple years.

In terms of negative costs, as you know negative costs are really a function of the time it takes for movies to get made and the length of the movies and is driven primarily, in our case, by salary costs and since we don't on --- especially on non-sequel films we're not -- we don't go out and cast talent in those films for --- that we're paying large fees to, we cast talent based on voices, so we haven't seen any sort of unusual amounts for negative costs.

We've always said the negative cost for Cars would be more expensive than our prior films, but we expect a reduction in our future films after Cars.

And yes, I would be planning on summer 2007, summer 2008 and summer 2009 for the release of the first three films after Cars.

Great, thanks.

So, Simon, just to make sure I understood that -- so, we should think of a normalized gross margin at over 92%, that's what would normal would be.

No, in a course of where there's a major release then the margin has been between sort of 85 and 90 -- low 90s.

It's in that range.

Thanks.

Okay.

Thank you.

Okay, thank you.

Then we will go to David Miller with Sanders Morris Harris.

Please go ahead.

Yes, hi.

Steve, I have a bunch of questions about the Disney negotiations but of course I'm not going to ask them because I want to respect your wishes and not ask any of those questions.

So, just a basic housekeeping question for Simon.

On the Finding Nemo revenue break down of 13.7 million, can you just give us a --- sort of a sub-breakdown there between international TV licensing and home video?

And, that's all I have, thanks.

Yes, we don't usually give specific revenue by film.

But the certainly the Nemo numbers did include international TV.

It also included consumer products, and as you can imagine Nemo has been amazingly successful from a consumer products point of view and continues to exceed our expectations.

Okay, thank you.

Thank you.

Our next question is from Robert Routh with Jefferies.

Please go ahead.

Yes.

Just two quick questions.

First I was wondering if if you could comment given the ongoing debate we're seeing between Blue Ray and HD DVD; where does Pixar stand as far as that goes?

Where would you like to be -- or do you really have no preference as to how that plays out?

Second, I'm wondering if you could you comment on when you plan on expensing stock options and what the impact of that may be.

I'll take the last one, we will start to expense stock options beginning with the first quarter of 2006.

And as far as the, answer to your first question we would like to be wherever all our audience players are.

So, you know, we want to make this the play and the players that are the most popular out there, and right now it's certainly looking like Blue Ray has taken the lead with the majority of studios releasing their disks in Blue Ray and the majority of the computer industry supporting Blue Ray it's looking a lot like Blue Ray is going to win.

But nothing is over until it's over.

Okay, great, thank you very much.

Thank you.

Our next question is from Gordon Hodge with Thomas Weisel Partners.

Go ahead please.

Yes.

Thanks.

A couple questions, one related to the margins again, I'm curious on a film like Toy Story, and then the DVD re-release on Toy Story 2, that was -- I gather those are probably re-releases that may not have been factored into your ultimates, I'm just wondering if that, therefore, has a very high margin and if that didn't affect the margin in the quarter with the Toy Story 1 re-release.

And then also, you've commented or you've -- people have asked about home video trends, I guess I'd be curious, after the dust has settled now for a quarter or so was there anything more you learned about the way Incredibles sold in, then about the returns in terms of was it certain types of stores that were returning this, whether it be grocery channel or new channels, then are you seeing a pick-up at all in terms of reorders for the holidays?

Thanks.

Okay.

In terms of the margin, Toy Story is fully amortized, so there is no amortization on Toy Story.

But that is not the major factor in this period.

The revenues from the library and Nemo being the most significant revenues in the period and with lower amortization rates [inaudible], that's where you're seeing a reduction in the amortization this quarter with only around 12 million of revenues from the Incredibles.

So the Incredibles being the film that's been most recently released has the highest amortization as revenues come in.

What I was trying to comment on as we see Incredibles having passed through its first phase of theatrical and video, you start to see the higher gross margin as more of a standard for us.

I guess I was just curious if Toy Story being fully amortized, whether that didn't help the margin some.

I gather it's pretty small because I know you have a smaller share there.

Yes, it helped the margin some, but it's a small amount.

Okay, great.

I mean, I don't think we can give you any more details on the trends in the DVD business.

Again, we're just not in a position to really comment on general trends.

I guess I'm speaking specifically for Incredibles.

You know, in your guidance for instance on fourth quarter are you assuming reorders related to the holidays, I gather there may be some demand, I would assume.

We're thinking conservative with your projection, not assuming any significant shipments of the Incredibles in the fourth quarter.

Okay.

That helps, thanks.

Thank you.

Our next question is from Ralph Schackart with William Blair.

Please go ahead.

Yes, Steve, can you comment on any digital piracy trends you're seeing in the marketplace today specifically as they relate to Pixar and, perhaps more importantly going forward, how do you guard against piracy, particularly for huge blockbuster titles such as Pixar.

Thanks.

Sure.

Again, you are -- we are definitely, the world is definitely seeing more digital downloads of movies.

But these digital downloads of movies are not in high quality yet and there is some data that suggests that the kind of people that are downloading them probably wouldn't have bought them anyway.

So in terms of how much is digital piracy affecting our bottom line, it is difficult to measure and probably at this point the piracy in terms of DVD piracy is probably still dwarfing online piracy.

In terms of how we protect ourselves, I think there's really only one way, and that is to create legal alternatives, so that people in mass do not get into the habit of stealing content.

What happened in the music industry, as you know, was there was no legal alternative and so people felt that it was their right to be able to download music off the internet because it was so convenient and there wasn't a legal alternative.

And the culture evolved to where people thought about stealing music not much differently than driving 10 miles an hour over the speed limit.

Everybody did it, and there really wasn't that much wrong with it.

And of course that culture is not a healthy culture.

So Hollywood I think has -- is going to have -- Hollywood has time to put in -- it still has the time, although not excessive amounts of time, to put in place legal alternatives; there's lots of experiments going on, I think there need to be lots more, so that people have a wide array of legal alternatives and don't develop bad habits that are much more difficult to change down the road.

Thank you.

Your next question is from Steve Lidberg with Pacific Crest Securities.

Please go ahead.

Good afternoon.

With regards to the discussions on Disney --- I'm kind of pushing out beyond what was originally expected, does that have any implications for hitting the summer of 2007 for the first release beyond your current distribution deal?

Yes, that's a good question.

No, we don't think it does.

It just means we're going to have to work a little harder the first half of next year to catch up, but we don't really foresee any big problems.

And, Simon, in terms of wholesale pricing on DVD's have you seen any changes with regard to that?

No, we haven't seen any changes with regard to that.

Thank you.

Thank you, and our final question will come from Dennis McAlpine with McAlpine Associates.

Please go ahead.

Thank you.

And good afternoon.

A couple quick things.

Would you talk about if you assume that Blue Ray is the dominant High Def DVD, at what point in the development of DVD -- High Def DVD would you start re-releasing your product in that?

Second, would you talk about where you are on film two, what is the critical point --- presumably I guess when a trailer is made when you would start to need a distribution agent to handle that.

And then lastly just in passing, how did you like Chicken Little?

So, your first part of your question in terms of re-releasing titles that we have co-financed with Disney, clearly that would be a discussion that we would have with Disney, and we would probably rely a lot on their video marketing expertise.

But both of us would have a lot at stake in picking the right time and that time would probably be when there's a significant enough number of players out there.

So we would probably not be one of the pioneering titles in High Def DVD but would probably wait until there's significant players to warrant a marketing campaign of the scale we would probably want to launch, we would need a total available market that would be big enough to warrant that.

The second question you had was film two, do you mean our 2007 film?

Yes, I'm sorry.

And your question was what?

At what point would you need to have the services of a distribution agent i.e., like when -- or would you do that yourself in advance of new distribution deal?

Well,there's a lot of things that need to be done in advance of releasing a film, not the least of which is choosing dates and lining up promotional partners, etc., and we have great relationships with a lot of promotional partners as you might imagine; we have worked with them for years.

So a lot of things we can do ourselves in an informal way, but it will help for us to have a distribution partner early next year so that we can just officially start to get a lot of this stuff set in stone.

And we will and I think we will be fine.

And your third question on Chicken Little;

I haven't seen Chicken Little yet.

I didn't have a chance to go see it this opening weekend, and I hope to see it the following week.

Good, thank you.

Yes.

Gentlemen, please go ahead with your closing remarks.

Thank you all for joining us today and --

We look forward to talking to you on the next conference call.

Thanks.

Thank you.

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