Gaia Inc (GAIA) 2010 Q4 法說會逐字稿

Welcome to the Gaiam fourth quarter financial results conference call. All lines have been placed in a listen-only mode until the question-and-answer session. (Operator Instructions). I would now like to turn the call over from John Mills from ICR. Sir, you may begin.

Thank you. Good afternoon, everyone, and thank you for joining us today.

The following constitutes the Safe Harbor statement of the Private Securities Litigation Reform Act of 1995. Except for historic information contained herein, the matters discussed in this call are forward-looking statements that involve risk and uncertainties, including but not limited to general business conditions, integration of acquisitions, the timely development of new businesses, the impact of competition, and other risks detailed from time to time in the Company's SEC reports. The Company does not undertake any obligation to update forward-looking statements.

On the call today, representing Gaiam, Is Mr. Jirka Rysavy, Chairman; Ms. Lynn Powers, CEO; and Mr. Steve Thomas, Chief Financial Officer. Now I would like to turn the call over to the Company's Chairman, Mr. Jirka Rysavy. Please go ahead, Jirka.

Thank you, John. So I would like to welcome everyone on our fourth quarter call.

And for the fourth quarter 2010 our revenues were $83.3 million, compared to $87.6 million for same quarter last year. The revenue decline was primarily due to the Company decision to reduce direct response television advertising and catalog circulation, and did not have a meaningful effect on bottom line. Our operating expenses decreased $4.4 million, or 300 basis points, as compared to fourth quarter 2009. Our quarter income from operation reach a historical record of $6.8 million or 8.1% of sales. The net income was $4.2 million, or $0.18 for the quarter, compared to $4 million or $0.17 for fourth quarter 2009.

For the year, the revenue decrease about 1.5% to $274 million from $278 million, and there was the chance the decrease is -- definitely also as a result of reduction of direct response television advertising and catalog circulation. In conjunction with other savings that we implemented during 2010, we lower operating expenses by $15.2 million,or 470 basis points over 2009. Operating income for the year improved $6.9 million to an income of $6.2 million for the year, compared to a loss of $780,000 in 2009. EPS increased $0.17 to $0.18 per share for the year, compared to $0.01 per share in 2009.

We ended the year with 65,000 doors, and our store within a store increased 34% to 14,700 from about 11,000. The store in store presence is an important advantage for us to control our space and to improve sales as well as maintaining our leading strategy position in retail. We increased again our market shares according to Nielson VideoScan. As December 31, 2010, our fitness DVD market share grew to 40%, up from 34% in 2009. The fitness categories as a whole expanded 3.3% in 2009, compared overall DVD shrinkage, including theatrical. We grew also our nontheatrical market share to about 7% from about 5% in 2009.

We ended the year with $28.8 million in cash and no debt, even after paying about $15 million for our acquisitions and advances for our new titles, and also two annual cash dividends.

As we move into 2011, we will look to expand [about] digital strategy by finalize our launch of Gaiam TV and -- somewhere in the summer -- and continuing to build our digital content library. We plan to continue to make investments to strengthen the library through both complimentary acquisitions and internal developed content. Our digital plans for 2011 also include the launch of several wellness mobile applications based on proprietary content, and also further take advantage of the transition to mobile digital media. We also recent to the launch branded daily TV fitness show on Oprah Winfrey Network.

And overall, our posting operating income record for the fourth quarter and successfully transforming our organization to more efficient and streamlined model by taking $15 million out of it, we are poised to a return to revenue growth in 2011. The growth will be driven by additional selling space in our 34% expanded store within the store presentation, as well as renewed growth in our [New York] business, which Lynn will talk more about. So even with the remainder of DRTV optimization still hitting the first quarter revenue by about $8 million, and will cause our first quarter to come to be about 5% negative, we expect very good growth for the rest of the year, ending the year with annual comps about 10%

And now I will turn it over to Steve, our new addition to the team, [although Steve has been] with us for a long time, and later will tell you all the details. So welcome Steve here, and so Steve will tell you the numbers, and Lynn will tell you about what [the] functioning [is] our -- he is with us for like what five years right now, and he was the Chief Accountable Officer for a long time. And he was going to also take our investor relations. [So]that's what he's done for the last three months. Steve?

All right, thank you, Jirka.

Overall we are very pleased with overall improvements in 2010. The $6.8 million in operating income for the quarter was our highest quarterly operating income ever. In addition, we improved operating income by -- for the year by $6.9 million over last year. For the fourth quarter of 2010, net revenue was $83.3 million, a 4.9% decrease from $87.6 million for the fourth quarter of 2009. The decrease was primarily from optimizing our direct response television and catalog businesses.

Net income from our business segment of $35.8 million for the fourth quarter of 2010 was a 6.6% decrease from the $38.3 million recorded for the same quarter last year. The $38.3 million in Q4 of 2009 was a 44% increase over 2008.

Net revenue generated by our direct to consumer segment for the fourth quarter of 2010 decreased 9.4% to $27.4 million from $30.2 million for the fourth quarter of 2009, aswe continued to reduce catalog circulation and optimize direct response television media spend to maximize profitability. Compared to last year's fourth quarter, we reduced circulation by approximately 17%. We believe the catalog business has reached its optimal base, and we expect the business to grow again this year. In addition, we reduced media spend for direct response marketing programs by 32%. Lynn will discuss more about our business and direct consumer segment results in just a moment.

Net revenue from our solar segment increased to $20.2 million for the fourth quarter of 2010 from $19.1 million for the fourth quarter last year. For more information about the results of Real Goods Solar, aseparate earnings call willed be held tomorrow, March 10, at 8.30 AM Pacific Time.

Gross profit for the fourth quarter 2010 was 49.8% of net revenue, compared to 52.3% for the same quarter of 2009. Decreased direct response television revenues and increased lower margin solar sales impacted our gross margin.

Our selling and operating expenses for the fourth quarter of 2010 decreased 11.8% to $31.2 million from $35.4 million for the fourth quarter of 2009, reflecting optimized variable costs as well as payroll and infrastructure cost control measures. Corporate G&A expenses decreased to $3.6 million for the fourth quarter of 2010, compared to $3.8 million for the same quarter of the previous year. As a percentage of net revenue, total expenses declined 300 basis points to 41.7% for the fourth quarter from 44.7% for the same quarter last year.

Operating income improved to $6.8 million for the quarter, our highest operating income ever, from $6.7 million for the same quarter of the previous year. Our net income improvement to 42.2 -- $4.2 million, or $0.18 per share for the fourth quarter of 2010, from $4 million or $0.17 per share for the fourth quarter of 2009.

We are also pleased with the results for the year. Income from operations improved by $6.9 million to $6.1 million for 2010, from an operating loss of $0.8 million last year. Net income increased $4 million to $4.3 million, or $0.18 per share, compared to $0.3 million or $0.01 per share last year. For the year end of December 31, 2010, we recorded net revenue of $274.3 million, compared to $278.5 million for last year. The significant improvement in operating results for 2010 is primarily due to cost control measures centered around reduced catalog circulation and direct response media expenditures. Total operating expenses for the year decreased $15.2 million, or 470 basis points compared to 2009.

As of December 31, 2010, our balanced sheet remains strong. We ended the year with $28.8 million in cash, and we continue to carry no debt. In 2010, we paid annual cash dividends for the first time in the Company's history, paying both our 2010 and 2011 $0.15per share dividends. The total dividend distributes in 2010 were $7 million. The 2011 annual dividend was paid early in order to make tax benefits available to our shareholders.

During the year we made $2.7 millions in capital expenditures, and invested $8 million in media content and advances, including the acquisition of the licensing rights for the Discovery Channel library from its previous licensee, as announced earlier in the year.

Inventory turns for fourth quarter of 2010 declined to 5.2 times from 6.3 times for last year's fourth quarter. We purchase additional inventory to postpone the cost pressures we anticipate from increases in labor, fuel, raw materials and currently exchange rates in 2011.

Our day sales outstanding for the fourth quarter of 2010 increased to 47 days from 40 days in the fourth quarter of 2009,reflecting higher receivables from large retailer accounts, which are on longer pay cycles, and a delayed payment of more than $3 million on a large Real Goods Solar commercial project that was collected after year end. Approximately 83% of our receivables in the trade division are comprised of our top ten customers. Overall, we pleased with our collection efforts and our ability to minimize credit risk.

Depreciation, amortization, and stock compensation expenses totaled $2.5 million for the fourth quarter of 2010. Capital expenditures were $800,000, and media rights were $1.1 million. We had 23.3 million common shares outstanding as of December 31, 2010.

For 2011, we expect a return to revenue growth, starting with the second quarter. This growth will be driven by the additional store within store placements we gained in 2010, and a resumption of growth in our direct segment.

Now, I'll turn the call over to Lynn to provide more detail on our performance and growth initiatives by business segment.

Thanks, Steve.

First of all, I'd like to join Jirka in welcoming Steve on the call. Steve has been with us for close to five years, most recently as our Chief Accounting Officer, so he understands our business very well. We are happy to have him onboard as our new CFO and look forward to his participation of future calls as well.

I'll start off by saying how pleased I am with what we have accomplished over the past year. We have successfully transformed our infrastructure to a leaner, more efficient model, capable of delivering record profitability in a challenging economic environment, well positioning ourselves for growth and preparing our media library for the digital future. During 2010, we reduced our infrastructure and direct marketing costs; repositioned our catalog business, which will now start to grow again this year; began to refresh our direct response pipeline; and broadened our retail distribution by adding a Reebok license. Also began to prepare for the digital future by building out our digital asset library and delivery system. We have accomplished all of these goals while delivering $0.18 earnings per share and our highest operating income ever in the fourth quarter.

Our strategic plan to reduce marketing spend remained a top priority in the fourth quarter for the direct consumer segment,particularly in our catalog and direct response TV businesses. We reduced operating expenses by $11.3 million in these businesses. Across the board cost savings, combined with improved performance from our solar business, helped to drive operating income of $6.1 million for the year, compared to a loss of $781,000 in 2009.

With the more efficient infrastructure in place, we now turn our focus towards brand and product investments in 2011. We're taking a two-fold approach to growing our revenues. First, we are making internal investments in our products, brands, and content, including increasing catalog marketing in the back half of 2011, filling our DRTV pipeline, digitizing our entire media library, and adding content. At the same time, we are evaluating several complimentary acquisitions that will further leverage our infrastructure while providing diversity case of our consumer offerings.

We focused our efforts in the direct segment on repositioning both our catalog and direct response TV business. After emphasizing proprietary products and optimizing the size of our catalog in 2010, we are now able to profitably grow that business by beginning modestly in the first quarter and anticipating double-digit growth by Q4. We begin growth on the direct response TV division in the fourth quarter. Efforts to build the DRTV pipeline with products and talent that support the trade business and the brand will continue through the first half of 2011, with reduced advertising spend on existing programs to protect profitability. We expect first quarter revenues to be impacted by approximately $8 million. While the repositioning impacts revenues, we do not anticipate any change in earnings.

Now I would like to discuss the results for our business and direct to consumer segments while highlighting upcoming opportunities for 2011. Revenue in the business segment was $97.2 million for the year, compared to $98.2 million in 2009, or 1% decline. While the latter half of the 2010 did not show positive comps in the segment, it should be noted that these revenue comparisons are on top of 24% and 44% comps in third and fourth quarter of 2009, asretailers finally filled their shelves with inventory. The challenging economic environment made for an up and down year in the retail sector and had a bearing on the results of this business.

We feel that our emphasize on store within store and category management, along with new product offerings and context, including the Reebok and discovery brands, has been effective in diversifying and strengthened Gaiam's position at retail. The most obvious indicator of our strengths is our depth of distribution and continued growth of our store within store initiatives. At the end of the year total domestic doors were 65,000, down from 70,000 at the end of 2009. While we didn't lose any accounts, the lower number reflects the store closure at Blockbuster and Hollywood Video.

We expect to see some additional store closures in light of Borders chapter 11 announcement. However, we do not anticipate this to have a significant impact on our business segment, as we remain focused on emphasizing increased higher quality space with many of our current retail partners through store within store growth. The third quarter Best Buy / Gaiam fitness roll out and the Reebok brand at Target drove store within store to 14,700 at the end of the year, up 34% from 11,000 at the end of 2009.

While the overall DVD market continues to be impacted by the broader reach of digital, we expect the segments in which we compete to continue to outperform the overall DVD market. According to Nielson VideoScan, the overall DVD market declined 9.4% in 2010, yet the fitness segment was up 3.3%. We plan to continue to exploit the lagging transition from digital of the fitness and nontheatrical DVD markets by providing additional content offerings in those specific segments. This strategy proved successful this past year, as we increased our DVD market share in both fitness and nontheatrical fourth quarter -- fourth straight quarter, ending the year with market share 40% and 7% respectively. Our fitness market share was up over 5% from 2009, which was at 34%. We from acutely aware of the changing media landscape, but believe there's significant opportunity to derive profit from the DVD market, given our current strategy.

Now that he with have covered the 2011 results, I would like to update you on some of the key business segment opportunities for 2011. First, we are happy to announce that our Gaiam branded daily half hour TV show debuted recently on the of Oprah Winfrey Network. They are currently running back to back half-hours that are titled Gaiam's Wakeup Workout, whichwill offer a terrific branding opportunity for us.

In November, we began our new role as category captain for all fitness equipment in Target's sporting good department. In this new role, Gaiam works closely with Target's management to provide expertise in market insight and category efficiency, aimed at improving overall category performance. Our new role at Target speaks to Gaiam's leading strategic position in the fitness market.

On March 1, we launched the first in a series of titles from the Biggest Loser host, Julian Michaels, called Ripped in 30. Already this release ranks number two on Amazon.com among all fitness media titles. Jillian Michael's videos sold over 1.2 million units last year according to Nielson's VideoScan statistics.

Our role of category manager for fitness media at retail continues to thrive as a result of offering an improved and optimized overall assortment for consumers. The end of the year we had over 5,700 doors of category management, compared to 4,000 at the end of 2009. We believe our leading role as category manager at retail is one of the reasons the fitness DVD market shows sustained growth while the overall DVD market continues to decline. With our broad distribution, we are positioned to expand our role as curator of fitness and nontheatrical content in the DVD market. Category management will be key strategy for us in growing the market for fitness and nontheatrical digital content delivery as well.

We mentioned on the last call that we now have the personnel and infrastructure in place to support our store within store strategy for digital with all of our current retailers, as well as with digital-only distribution channels. Since then, we have successfully negotiated new agreements with Netflix, Hulu, Amazon Digital, YouTube, RoxioNow and OverDrive, with several more partners expected to be signed in the near future. These companies represent many of the key players in the digital distribution market, and when combined with our in-house digital distribution capability, and our enviable position of owning our own content, Gaiam is well positioned for the accelerating transition of the media market. We are also working on mobile applications for our content, including apps for our Mayo Clinic wellness series.

Finally, we are looking for complimentary acquisitions in the media space, where we can leverage our existing infrastructure, retail distribution, and our digital platform.

Next I would like to review our direct to consumer segment results. For 2010, revenue in our direct to consumer segment declined 14%, as compared to last year, on a planned reduction catalog circulation of 20%, and reduced media spend in our direct response TV business. This revenue decrease was strategically designed, as we once again reduced prospecting and media spend to maximize profitability. We will continue to optimize our overall media spend for direct response marketing during the first half of 2011, which while negatively affecting revenues and comps, will not have a material impact on operating income.

Now I would like to turn our attention to opportunities in the direct to consumer business. 2011 will be an important year for our direct to consumer segment. Having been very conservative in this sector with marketing, circulation, and product development costs, we are going to focus on growing this business in a number of ways. We plan to increase a proprietary offering in our direct business.

As an example, we are expanding our apparel category, as it has been one of the strongest selling categories in 2010. This strategy should have a positive impact on our gross profit, because proprietary products, especially soft goods, are one of our highest margin categories. Although we see this emphasize on proprietary soft goods as key to 2011, there are risks with rising commodity prices that are present. We continue to monitor raw material pricing and review alternative sources of these materials to minimize exposure. And we believe that our pricing strategy has room for additional margin at this time. We also continue to use the direct channel as an incubator to develop new products that can eventually be sold at retail.

Gaiam TV, an online subscription service, will launch during the summer. The goal of Gaiam TV is to utilize digital content to create relationships and add superscription members. We believe we have an opportunity to curate content for consumers interesting in healthy living, sustainability, edutainment and responsible entertainment. We believe we are in a unique position to offer this service, since we have a large loyal customer base, rights ownership in the majority of our titles, and a vertical infrastructure for content production and digital distribution that includes an in-house studio, post-production facility, and digital rights management system.

As I mentioned earlier, we will invest in our direct response TV platform with products that will help grow revenues and compliment our brand. We have a number of innovative fitness products and content that capitalize on intense fitness training, which is popular in direct response marketing today. We made a decision to continue to reduce first half advertising spin on existing programs in this division to protect profitability,shifting the focus of our DRTV resources towards preparing new programs for launch. This decision will move the revenues of planned DRTV launches until the second half, with minimal impact to full year profitability.

Finally, we are looking at possible content acquisitions in both the fitness and nontheatrical categories to compliment our existing library and bolster our offering for our digital direct platform. Overall, we are focused on maintaining a streamlined cost structure, optimizing our advertising spend and catalog circulation, and most importantly, expanding our brand and market share through investments in new product offering, membership models, complimentary acquisitions, and is digital delivery of our extensive media holdings. The fact that we own the vast majority of our media content and have the built to produce and distribution digital content through our in-house studio and production facility uniquely positions us for the digital transition. We plan to integrate our developing digital capabilities with our extensive distribution of both media and products to enhance our overall customer offerings. We believe this strategy positions the Company to best achieve our mission to make positive change in the health and well-being of our customers.

Looking back, 2010 might be considered the year of cutting costs and right-sizing our infrastructure. In 2011, we believe this is the year of investment and preparation for a sustained period of growth. With our leading fitness market share, the addition of 3,700 new store within store presentations, our unique digital positioning, and our strong balance sheet, we have established a sound foundation for growth.

I would now like to open up the call for questions.

(Operator Instructions). Our first question comes from Mark Argento, Craig-Hallum Capital. Sir, your line is open.

Thank you. Good afternoon, everybody.

Hello.

Hey, Mark.

When we are thinking about some of these next generation distribution channels, the Gaiam TV, the digital content, what -- how material do you think that could be to revenues this year? Just trying to figure out what -- kind of what the wrap might look like there. And then at what point in time do you start to actually spend marketing dollars behind trying to drive people to Gaiam TV, either key word, Google ad words? Actually start to spend some marketing dollars behind that to really get after the -- that opportunity?

We are kind of further into digital than might appear from the outside. We spent over last year doing different prep work. So we kind of build a lot of stuff -- it is quite unique -- for delivery we are using [severite] players, which pretty much is Netflix and us. We have -- we basically have the exact same capabilities as Netflix, except we can deliver the higher quality as well. You can download in our system, where you cannot on Netflix. But for us it is pretty much -- it is proprietary content. We aren't distributors, so it is exclusive context.

And we expect in the summer, when we launched the Gaiam TV, we also launch it on platforms like iPhone, and iPad, and the new Android Google system,and the Honeycomb. And we are also getting in places like [pa-raku] and being carried by different providers, which we will announce shortly. We already have some contracts. And so it will be bigger than it might appear from right now.

The predicted revenue in dollars, I'm not sure I'm can venture there, because it is more kind of how much the consumers will do. But I think with the recent traction on Netflix we have good hopes. We have a lot of titles already prepared. It's actually -- the site is fully functioning, we just kind of getting customer experience, kind of feedback and stuff. But it's all functioning. And we are also expanding in the new clubs, like Gaiam University, and so we would start to get in some launch, and after like Labor Day. You asked when we'd start with marketing dollars. But so we expect that will be some pop in revenues there, but how much I wouldn't venture to say right now. Because --

And, Mark, just a little more color on marketing. Once we get the bugs out, we will start marketing this to our direct consumer base. And I think that's another thing that positions us in this digital market, is we have a loyal customer base that gets our emails and gets our catalogs and belongs to some of our clubs. So we have an opportunity to market Gaiam TV to them with a relatively low marketing cost. So we will start that towards the end of August, probably.

That's helpful. Can you talk a little bit more on the retail side of the business? I know it seems like you have been doing more and more with Target, and maybe the taking over of the Reebok brand at Target. What kind of results are you seeing? Is there opportunities to even do more with Target in that category? And now that you're category manager, what does that mean on the products -- the fitness product side relative to the media business?

On the fitness product side, what it means is that we really are like -- we are a true partner with Target. We are working with them to make sure they are optimizing that entire fitness category, and that includes of course Reebok and the Gaiam brand. I think the results over time will be spectacular there. We are brand new in the process. We just hired the person mid fourth quarter, but already we are seeing an impact from that.

And we don't have -- we just started with this Reebok, so we don't have a full year. So there's a bump also help to the next year, becausewe would have full year of the shipment.

Sure. And then in terms of the opportunity to -- you have this really good platform, you've got your content, you've got really good distribution. The opportunity to layer on additional content has always been an opportunity for you guys. You hadn't really pulled the trigger on much of anything over the last couple years as you have been focused more on the platform. What are you seeing out there? Are there interesting acquisitions that could really fit nicely on your platform now that you have the digital component a little bit more built out? Some thoughts around that would be helpful.

It is definitely with the digital platform and being able to go through the digital resellers, but also directly a lot. So I think it will strengthen -- definitely [allow] direct business. It was mentioned that [they're] business anyway. We kind finished up the catalog optimization, and we'll start to grow the business again,and this will just compliment that. I think you will start to hear again from the summer back on [of our] subscribers, and we will try to kind of go back there, because that business we kind of cleaned up, and so they wouldn't lose much money, and we can grow it. And so the acquisitions are kind of targeted to a lot of that part, so people who get digital rights. We also have all the international rights, which is also interesting, because with the Internet it's kind of easier if you have international rights as well.

And so the acquisitions are targeted to people who get that kind of play, because some people have media, but don't really have the digital rights. So that's really kind of one of the differentiatorsas we look at acquisitions, there's also some people that don't have that, and the prices -- issue for last year. We look at acquisitions, but people still expect -- even if they get in trouble, they expect it kind of the multiple that was there two years ago. And they also hope that the business will improve. And I think people start to see reality, sowe kind of farther than we were before expect that we are actually going to see some acquisition announced. I would say within six months, but we'll see how it goes. It might be even the second quarter.

So I think the price is getting more in line with what we are willing to pay, and since we kind of expected that if the players are weak, with a weak balance sheet, it is the kind of reality set -- getting more kind of settled in. And also as the bank expires [in part], because they kind of think they are going to change. But the bank line expires -- starts to expire right now, and the bank is not willing to renew it [based on] cash flow, so that's end of good trigger for closing some of these deals.

Got you. That's helpful. And then just shifting over to Real Goods. I know there's the call tomorrow, but from a strategic perspective, any thoughts on divestiture or spin off? Any kind of new thoughts about what to do with that asset, that business?

Well, currently kind of our thought is -- I was kind of, as far as way [as that], it is more proper for the Real Goods call. But from the market, where we kind of determine [what] is probably the best way is maybe to make some kind of horizontal acquisition and grow the business, which might dilute Gaiam below 50%, so we'd deconsolidate the balance sheet and income statement. So it is more kind of probably direction immediately, because the price is -- we open to export anything, but there's [first got] to be some opportunities, so it is kind of the current thing -- thinking.

Great, thanks guys.

Thanks, Mark.

Our next caller in cue is Robert Routh from Phoenix Partners Group. Your line is open.

Yes, thank you. Good afternoon guys. A few quick questions. First, could you talk a little bit about what the Gaiam TV offering -- I have seen the initial site, but -- and the number of challenges you have on there. What is your ultimate goal in terms of how many different categories or number of channels you think that can support? And how many hours of programming do you currently have that you think that you can put on that particular platform in order to make it kind of the Gaiam TV experience, whatyou want it to be?

Well, we kind of looking at customer experience and how to break the categories. Should we, for example, offer fitness separately and make it more interactive, or not? So that will be determined over the next two months. Currently, the platform works. It's a [serverite], as I mentioned. Has probably like 1,200 hours on it, or 1,200 titles. And we current -- we own over 2,000 titles, so we need to -- not every title we necessarily think belongs there. So those determinations will happen over the next two months.

But I think we expect that we would have a very good launch platform in the summer, and we are acquiring -- we kind of mentioned, we spend $8 million for buying the content, and [even some] advances for new titles. So we are at rapid pace to kind of acquire more titles,especially on the digital side, which is kind of separated from the acquisition when we talk, to acquiring the content for that. It's -- we expect to have a very unique proprietary mix of [lots of] content, and it's pretty much exclusive content for the Gaiam Television. And we expect to be -- you can subscribe, you can rent, or you can buy a la carte.

Okay. Great. And I notice you didn't mentioned much about the Spiritual Cinema Circle operation, and obviously that's a small but interesting business. Would that fit in with Gaiam TV in any way, shape, or form? And is that a growing business at the moment, or is it -- kind of what are you thoughts with respect to that particular business?

It's the all part of the same unit, we call Gaiam [continuity]. So we kind of talk about for a couple of years the transition of our transactional business to a relationship business. So this is a big part. So we have a whole new division -- we didn't really talk about it; you'll start to hear about it the summer -- which basically combines all the subscriptions services together with these digital deliveries and stuff ina place where you basically pay differently than one time. So if you are going to buy one time, it will go through like a gaiam.com offering, but once you kind of have some longer -- or a relationship like Spiritual Cinema where you basically buy effectively a subscription, you -- they all get combined. And [they will] come as a offering that you can buy all these different places together as a bundled discount, and then we start to market. But we probably won't talk about it much [til] the third quarter.

Okay. Is it safe to say that's it is a growing business? Or it's at least holding its own at the moment?

Definitely. It's not -- it's our -- I would say from the focus of new developments, definitely. That's where I spent most of my time. Very much. That's kind of -- I really believe that because we so uniquely positioned, being -- have everything in house from developments, scripting, post-production, digital deliveries, studios, to relationship with all the vendors. And still have very good 65,000 doors, and we control almost 15,000 store in stores, so it really can be leveraged as we are getting these digital rights. Because even as digital or DVD decline, they still carry [today] 60% or 70% of the P&L. And so if you negotiate it right, it is very very helpful to acquire those digital rights to have that market share and grow market share in the [power]. So that will all kind of be used to promote these digital platforms.

Okay. Great. And there's two other quick questions. Given that you now have a television presence with on -- with Discovery on OWN, I see you a very big win, given the following. Do you have any intentions internationally to expand with your television offerings or partner with anyone? And not only with that, but I know years ago you had a lot of things internationally that was done one way, and then you changed that. I was wondering if you would give us a little bit of a sense as to what your opportunities are in the international marketplace, given the brand and that nobody that I am aware of has quite the brand recognition that you do in the categories you operate in. It seems it is the marquee brand. And dealers should be knocking on your door to get your programming as well as your products where they are.

This existing -- we do licensing internationally for the physical product, but for digital, the platform that we built, it is actually on a launch. It is international, so you can buy -- it has a sophisticated way how you kind of look at where you are actually subscribing, which rights. So let's [say you] subscribe from Germany. You would see a different offering than if you subscribe from Sweden or from the United States. So automatically show you different titles what we have rights for that specific country, and you can subscribe right now from anywhere in the world. So it's kind of a world offering.

As far as the languages, we start to produce our last -- I think for use in several languages, but as we go, we start to look at which languages -- if you subscribe from Germany today, you still see USsite. But we will kind of expand that over next year, but -- so that's already all built in, and [so] as far as the physical product, we will continue doing licensing.

And in places like Canada where we do have a strong partnership, we've -- and where they sell the Gaiam brand as a store within store, we see huge growth. And we do -- and I do agree with you, Rob, there is a tremendous amount of opportunity international, both on the broadcast and on the store within store and licensing side. And that's a huge area of opportunity and growth for us that we will focus on second half of 2011.

Okay, great. Yes, it just seems like there's optionality. There's a call --

Absolutely.

There's an embedded call option, and it's not reflected in the stock [so] that I just want to be sure you are ready, if you can do what you -- you're able -- you can get your content there if needed, and it looks like you can.

We can, both on the digital front as well as on the licensing side, and we now have a business model through what was accomplished in both Canada and Australia that can point the way, so that we can open up other countries.

Yes, there's also -- because how we are position, we are not really -- we do TV, we are definitely not a TV company. We do some videos like the documentaries, but we don't do that. We don't, not really. We have direct business, we're in store. So we are very uniquely positioned to kind of push -- use that footprint to push the digital, and so I personally have high hope for what's going to happen over the next 12 months with it, because we probably -- I would say from all existing kind of studios, we're by far the best position to take advantage of it. And we have very good balance sheets. So I really have a high hope for that.

That makes sense, and then I agree. I just don't that stock reflects that optionality, and it is important but hard to quantify. The last question is, obviously in a lot of years you have had celebrities that have gravitated to the Gaiam brand, and you've done a lot of things with a lot of them. I'm just curious, now that your Gaiam TV is launching and all of these other things that are kind of coming together at this time, when it comes to the celebrity focus and how they are endorsing your brand, how is that continuing to go for you guys?

Well, I think if the celebrity such as someone like a Trudie Styler, who is a terrific talent for us, not only because she lives the lifestyle and epitomizes who we are, but because she loves to talk about it on national TV and in national magazines. So we are finding that that's really working for us. And it also works to help expand our brand internationally like you were talking before, because they are recognizable throughout the world. And so just talking about the UK, with Trudie's new titles, that's where we get that entrance to the UK to try to build our store within store presence on top of that. And we will be continuing to utilize that in the future.

Yes, we shied from celebrities for pretty much last year, because we felt our brand wasn't strong enough in the case you have a celebrity hiccups. You know how celebrities are. And so -- it's like -- so we were careful, but now we feel our brand is strong enough, and as Lynn is saying, now [we're experienced]. We were very careful. Our --the kind of celebrities we pick, we try to get somebody who kind of has the young age behind them, so we didn't have too many surprises. But with the Gaiam TV and being on Oprah and having all of this stuff, it definitely will probably expand.

Great. Thank you very much.

You're welcome.

Thanks, Rob.

There are no further questions in queue. I would like to turn the call back over.

Thank you very much. So we'd like to thank everybody for being with us, and talk to you in early May for our first quarter. Thank you very much.

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