Starz Entertainment Corp (STRZ) 2007 Q1 法說會逐字稿

Welcome to the First Quarter Fiscal 2007 Analyst Conference Call. [OPERATOR INSTRUCTIONS] I would now like to turn the conference over to Peter Wilkes. Please go ahead.

Thank you for joining us today. Jon Feltheimer, our CFO, will begin with remarks and then we will open the call for questions from our analysts.

The matters discussed on this call include forward-looking statements. Such statements are subject to a number of risks and uncertainties. Actual results in the future could differ materially and adversely from those described in the forward-looking-statements as a result of various important factors including the risk factors as set forth in Lions Gate's Form 10-K filed with the Securities & Exchange Commission on June 14, 2006.

The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking-statements that may be made to reflect any future events or circumstances. Now I will turn the call over to Jon.

Thank you Peter. Good afternoon. Thank you for joining us at a different time than is usual for our Q1 call. Joining me on this call are Michael Burns, our Vice Chairman, Steve Beeks, our President, Jim Keegan, our CFO and Rick Prell, our Chief Accounting Officer.

We generally prefer to wait until the morning after our earnings release to discuss our results to give you more time to read our announcements. But we know that many of you will be following Marvel's webcast tomorrow. Fortunately our Q1 financial results are pretty straightforward.

Our pre-tax income improved by $16.7 million from the prior year's quarter and overall our business plan is financially on track. We remain well positioned for a very successful year, with significant cash on hand, our highest backlog ever and a great slate of film, television and video product going forward. Talk

Our backlog has in fact grown to $240 million, more than 60% higher than at the end of any previous quarter. And we continue to maintain a significant cash balance as well as $215 million dollars in our unused credit facility. Our revenue variance compared to the prior year quarter primarily reflects the timing of television deliveries. And we expect that revenue will be made up by the end of the year because our television business is more robust than ever.

We now have 11 primetime series scheduled to air in Fiscal 2007. These include two new editions since our last call in June, White Boyz in the Hood, for Show Time, which actually started out as a video project with one of our in-house executives and turned into a backdoor pilot and subsequent series commitment from Show Time.

And from Matt Weiner, Executive Producer of The Sopranos, Mad Men a new series set in the world of advertising recently, for AMC, which recently achieved record ratings with their movie Broken Trail. Ten of our eleven television series are for cable rather than broadcast networks. And our Television operation reflects the changes in our overall business. Revenue diversification, the emergence of large niche audiences, not only in film but television as well. New buyers particularly the cable channels and a strong TV-to-DVD market.

It also underscores the strategic fit between our business model and the fundamental changes transitioning our industry from the a marketplace dominated by old-line media companies to a digital marketplace with tremendous opportunities for content companies like Lions Gate that were built not only to generate hits, but to succeed in a niche oriented business.

Just looking a the television side of our business, when Michael and I started here in 2000 the main buyers for television series were the major broadcast networks ABC, NBC, CBS, FOX, the WB and UPN. Now there are literally scores, Lifetime, Showtime, HBO, A&E, USA, ABC Family, Discovery, TVland, Spike, Oxygen, TNT, TBS, WE, Comedy Central, MTV, VH1, just to name some, with new players like AMC emerging all the time.

For those of you who wonder where the growth will come from in Lions Gate's business, consider this. When we started six years ago our television revenues were $8.3million. Last year they were $133 million and we are on track for more growth this year. All in a business with low overhead and positive free cash flow. We're seeing a similar landscape in packaged media when we started six years ago. The major buyers for DVDs were the established retailers, Wal-Mart, Blockbuster, Best Buy, K-Mart and Target. Now in addition to those major retailers Steve and his team are selling to new players such as Netflix, Starbucks, PlayStation 3, Blockbuster on Line, Xbox 360, Amazon and many others.

In spite of the maturation of the North American DVD market, the truth is that the Lions Gate's packaged media business grew 13% year-over-year in Fiscal 2006 and it grew 18% quarter-over-quarter. This growth in our full packaged media business doesn't reflect the emergence of mobile download and broadband businesses that did not exist six years ago.

We have new video-on-demand deals with [In Demand], TVN, Cablevision, and EchoStar. And instead of distributing through Warner Brothers and paying a distribution fee, we now have new direct distribution deals in place to deliver content to 20 million V or D enabled households.

We also have digital delivery deals in place with Cinema Now, Movielink and iTune with upcoming announcements with at least two more major industry players. While we will not be sharing the $900 million that Rupert is getting from Google for Myspace, we welcome the vibrancy of sites like Myspace and U2, for giving us the ability to market effectively and efficiently directly to the consumer as we are currently doing with our film release, The Descent.

In addition, in the ongoing discussion of our new channel brands, especially the Horror Channel, on which we expect an announcement shortly, it's amazing to see all the potential carriers and partners that currently exists. Let me talk about just one digital company, I am a little biased because we own a 21% stake on an undiluted basis. In the month of July alone after Cinema Now announced download of burns, it achieved nearly as many buys as in the previous three months combined.

And although these digital revenues are only a drop in the bucket for us at this stage, they reflect a critical area of future growth for our business. It is important to note that this is growth in addition to our core business, not to at the expense of them. As Forester pointed out in its latest media technology forecast, there is no evidence that VOD revenues are cannibalizing revenue streams from our traditional DVD or other core business. In fact we continue to believe that these will be higher margin incremental revenues.

So when we talk about growing our business not only at the top line but on the margin as well we're eliminating the middleman in digital distribution, increasing margins through self-distribution of theatrical titles by Lions Gate UK\ with last year's Redbus acquisition. And with the acquisition last month of Debmar-Mercury we are improving margin from The Dead Zone and our movie packages as well as third-party products.

On the box office front, our year is off to a solid start with the heart of our film slates yet to come. Early orders for the Akeelah DVD are strong and we have already sold the pre-television window to two cable buyers. The Descent, which had an almost $9 million opening weekend is a perfect example of our film business model.

When we bought this film for $1 million we didn't look to open at number-one at the box office. Especially with the four pictures that ranked ahead of last weekend, having a combined production budget of nearly $500 million. With an acquisition price of $1 million and a spend of about $18 million in P&H, the release of The Descent nationwide in 2000 theaters. We expect to ultimately generate $50 million in North American revenues from which we will take our distribution fee and a portion of the back end. This will be a very profitable movie for us.

Looking ahead at the next couple of months we see our slate continuing to gain momentum with Crank releasing nationwide on Labor Day Weekend. The US vs. John Lennon is shaping up as our strongest entry yet from our documentary division on September 15th and expanding September 29th. Employee of the Month is generating terrific buzz in advance of its October 6th release and Saw III at Halloween. If what we have heard anecdotally about the reaction of this past weekend's movie goers who watched the premier of Saw III trailer is correct, we are very well positioned for the next installment of the Saw franchise.

One interesting footnote to our current film business is not only the creation of franchises, but of the repeat relationships we are generating and without a lot of high-priced overall deals.

Dane Cook goes from a starring role in Employee of The Month in October, to a starring role in a Good Luck Chuck to be released in '08. Academy Award Nominee Terrence Howard goes from Crash to Pride, Jason Statham stars in Crank next month and then segues to Rogue with Jet Li next year.

Jessica Alba also in Good Luck Chuck is now slated to do a remake of The Eye with the Cruise/Wagner Company, coming back Cruise, another film for us. We are releasing Larry the Cable Guy's second movie for us, at the end of this fiscal year. We are planning a new project with Monster Ball's Academy Award winner, Halle Berry.

And with Gardner, we'll be getting from our partners at Marvel, who produced The Punisher for us, the successful DVD release Ultimate Avengers and this month's Ultimate Avengers II with the least six more direct-to-video titles to come. There is our relationship with Marc Burg and Oren Coolus, the principles of Twisted Pictures who brought us the Saw franchise. And we can never forget our relationship with Tyler Perry, himself a franchise with whom we are now in business through Debmar-Mercury on his new, first-run syndicated comedy series, House of Pain. In addition to his remarkable feature films and DVD catalogues.

This again speaks to our ability to attract entrepreneurial partners who remain in business with Lions Gate to repeat product over the long term. And in addition to investing in talent we continue to grow our content leadership by investing in product and accretive acquisitions that help us to accelerate our organic growth.

Debmar-Mercury, the leading independent television syndicator gives our growing television business the ability to self distribute and establishes a strong Lions Gate presence in television syndication with the South Park franchise, two major film packages from Revolution and Tyler Perry's House of pain. Our new deal for the distribution of more than 2,000 library titles from Studio Canal deepens our library and our relationship with an important supplier, as does the extension of our deal to distribute 1,600 Republic titles.

We're looking at a number of other deals consistent with our acquisition strategy, internationally and domestically, to continue expanding strong growth areas such as television, our library and music publishing. We grew Lions Gate by investing in content and staying agnostic to platform. And we will continue that way while cable companies, telcos and broadband players all compete for spectrum, broader pipes and bundled offerings, they are only expanding our customer base because those customers will need content and we will be there to provide it.

I know that some of you have several analysts calls today, so without further ado I will open the calls for questions. Thank you.

[OPERATOR INSTRUCTIONS]. Our first question comes from the line of Lowell Singer from Cowen & Company. Please go ahead.

Thanks. Good afternoon fellas. Just wanted to ask you a couple of questions about the film side of the business, really from an industry perspective. Your thoughts, as we sit here today on compression of DVD windows relative to theatrical releases. There does appear to be a move towards really spacing those windows together and I was wondering what the pros and cons of that are?

And then second, there continues to be discussion about long-term rates that pay cable networks are going to pay for films. I'm wondering if you think from an industry perspective that should cause us some concern and more specifically for Lions Gate what you think the potential longer-term impact of that could be? Thanks.

I think that we are still pretty sensitive Lowell, to the needs of both the cinema owners, theatre owners as well as the players in the video business. And I think, we think 16 weeks is still about the right amount between the windows. And I don't think we see really compressing them much more than that. There are times, particularly as a public company, where you are trying to get certain revenues in -- within your fiscal year and you move a movie a couple of weeks and so maybe the window changes a little. But I think in general we think that is the right windowing.

We have got, in terms of pay television, we've got about 2.5 years left on our Showtime deal. I still believe at the end of the day that the core product for the pay channels, really when you think about it, what they really have to sell is our product. We are really a major studio in terms of being able to supply the product. I think competitively against the other studios we are frankly a better bargain because we are doing the same size film slate and I think our movies are very attractive to some very large desirable audiences for them.

I think as well as we go down the road, again, we will be looking at our film product in 2009 which would probably not even be released to pay until the end of that year, call it almost 2010. I think you will be looking at lots of new incremental players and revenue streams at that point. Perhaps we will all be rationalizing how to put together that window. But I still think, again, that our product is still critical to the, pay television networks and I think it will remain a strong component of our revenue stream.

Lowell Singer Okay, thanks.

The next question comes from the line of [Jalotta Masolana] from Credit Suisse. Go ahead please.

Thanks very much. Two questions. Could you please sort of a walk through your cash flow statement and just talk through the major changes in the cash flow generation and how they are likely to turn or not turn in upcoming quarters?

Secondly, with regard to digital, the music industry is currently getting up to 10% of revenues from digital. How long do you think it's going to take for you to get to that same sort of level?

Jim, would you answer that first question please?

Sure, if you look at our cash flow statement you will notice that basically our receivables decreased significantly. You see about a $90 million decrease, and that caused an influx of cash. But then on the other side you will see the accounts payable line item also decreased by about $68 million.

Net/net, when you look at first quarter last, first year last year to the first quarter of this year the real change in what occurred is that we paid payables down significantly. Our payable number is at $121 million this compares to about $136 million in the prior quarter. The other movement within the cash flow statement, you'll see deferred revenue moving a little, and you'll see other items, other assets move a little, but the real movement is within receivables and accounts payable.

This is Steve Beeks, I will try to answer the question with regard to digital and how fast that is going to move. You are right the music industry now receives approximately 20% of its revenue on singles, from electronic download, but only 5% from album sales. So obviously that's been growing a little more slowly.

And this is -- it is a new market, as John mentioned, it's growing dramatically. It's grown dramatically just over the last three or four months of electronic sell through, and the download to burn with Cinema Now it's hard to estimate how long it's going to take us to get to that 10 or 20% level, but I would estimate definitely inside of five years.

Yes, I think the other thing that I would add is it's a much simpler calculation in the music business. When you think about digital delivery for us it's everything from a digital set top box delivering video on demand to broadband space delivering download to own or download to burn.

So I think probably you would be surprised at even at this point at how much revenue is coming in from digitally enabled, if you will, devices. -- but going down the road obviously we see significant growth.

Thank you very much.

The next question comes from Mike Savner from Bank of America Securities. Please proceed.

Thanks very much, good afternoon. Couple of questions as well. Maybe if you could just comment on direct operating expenses, it seemed to be really light in the quarter, lighter than we've seen in the last couple of years even given the revenue. So just wondering what was going on there.

Second, I think this time last year you gave us some kind of broad outlook for the home video business, your library business for the duration of the year in terms of $200 million in revenue and obviously there were some margin issues that seemed to be getting a little bit better. So maybe a quick update on where you see the library product, given some changes you've made.

Lastly, I was at least, very pleased to see finally some closer matching between your EBITDA and free cash flow, even if it's negative at this point it's nice to see it closer together. So Mr. Keegan, maybe if you can tell us how to think about that over the next couple of quarters. What would cause that to separate dramatically, if it will or maybe it won't? That would be helpful as well. Thanks guys.

First, in your direct operating expenses, it's due to the mix of the revenues, you saw there only about $7 million of television revenue. That revenue tends to have DOE of about 90%. And the other revenues from video tend to have DOE of probably 39 or 40%. So it's just due to the mix of the revenue that causes that.

Mike, this is Steve I'll answer your question of -- with -- I mean, home entertainment in general, library margins specifically, and what I've indicated before, library margins fluctuate quarter-to-quarter depending on the product mix.

We have put a lot of focus on that mix over the last several of months, as we've indicated, with positive results. So library margin is up quarter-to-quarter in both of the last two quarters and the margin for Fiscal Q1 is very close to what it has been historically, for the library.

I want to reiterate that while we've been talking about library P&L margins, the library is expected to generate in excess of $70 million free cash flow this Fiscal year on revenues of approximately $200 million. So we are definitely still on track to hit that bogey.

Thanks.

In terms of the EBITDA and free cash flow going forward, if you'd look at our prior highlights of our financial statements you would see that our accounts payable line item tends to track up every quarter from now on through the year, I would anticipate that happening.

I would look at my [inaudible] other line that people want to focus on. It's adjusted slightly right now, it's come down. It only makes them in concert with year end I don't see that much movement in it. But I do see payables coming up. And in fact the two -- I do absolutely see the EBITDA and the free cash flow coming together but they will be held apart always, do to amortization of film costs, the film costs associated with the acquisition of Lions Gate UK. The film costs that are now going to be associated with Debmar. So once again, whenever we buy a company just as with Artisan, we have the value of the film costs and that amortization creates a spread between cash and free cash flows -- I mean, EBITDA and free cash flow.

Thank you very much.

You're welcome Mike.

Thank you. And our next question comes from the line of David Miller from Sanders Morris Harris. Please go ahead.

Hello, good afternoon. A couple of questions, Felt, on the timing of television series deliveries compared to the prior year quarter, what was the difference between the delivery system last year at this time versus now? Going forward, is that going to be sort of a smoothed process where you make up that delta over the next three quarters or do you make it up immediately in the current quarter, or how does that work? If you can flush that out that would be great.

And then also, Steve, you guys obviously knocked the cover off the ball pretty much in tandem with Madea's Family Reunion on the DVD sell through frame. Can you talk about how many units of the stage plays you cleared in tying in the revenue synergies there? Thanks very much.

David, I do not have a clever answer for TV deliveries. It really depends on when the networks are going to air the series. We have a bunch of new series. It is really just a question of timing and it will definitely vary from year to year. Although obviously when you have a TV series and expect a number of them to be ongoing, now that's the kind of consistency we're looking for, but it's not consistency quarter-to-quarter its consistency over the fiscal year.

Steve?

Specifically with regard to the Tyler Perry plays, obviously as you mentioned we had a great campaign with Madea's Family Reunion, and the two plays that were released at the same time, Madea Goes to Jail, and Why Did I Get Married, were both plays that had not been previously released. So this is the first time that we've had plays that had not been in the market before. Those have sold incredibly well. We shipped to date after six weeks, we've shipped in excess of two million units and the sell through rate is very healthy, it's over 80%.

Two million of the stage plays alone?

Just the stage plays.

Okay, got it. Thank you.

You're welcome.

Thank you. And our next question comes from the line of Gordon Hodge from Thomas Weisel Partners. Please go ahead.

This is Jacqueline in for Gordon Hodge. I was wondering on the VOD revenues if you could tell us how much those amount to now, if any? And also what percentage of your library do you have VOD rights to?

I can't answer your first question. We have not broken that number out. In terms of percentage video-on-demand, I think we've said before well over 50% of our library. And my guess is in terms of what is a more typical VOD, meaning not broadband delivered, Internet delivered, virtually all of our library, so a significant portion of it.

Okay, thanks.

Thank you. And our next question comes from the line of Barton Crockett from JP Morgan. Please go ahead.

Okay, great. Thank you very much. First just a housekeeping question here, I assuming that your statement that you are on track with your business plan means that the guidance is basically unchanged, that you have for this year, is that correct?

That's correct. We're not changing our guidance right now. Obviously, as always our numbers tend to track very much the success of our film business and also the scheduling of our films. But at this point we are comfortable with guidance.

A second thing also on the housekeeping. I know there was some color on library, but will you give us a library revenue figure for the quarter?

Yes, Barton, the library revenue for the quarter was 112 it compares with 94 million in the year ago --.

52.9 for the first quarter of this year, actually Steve.

Right.

And that other number was what, a trailing six months or something or?

I was giving you home entertainment numbers.

Okay, all right. Great, so, okay cool. And then in terms of -- I was just wondering if you could give us an update on where you are with your syndication efforts for your TV series. What you're current outlook is in terms of what's coming out and what is likely to move into syndication and the timing of that? I'll leave it there. Thank you.

Well, we are currently syndicating, going out with Dead Zone both in terms of broadcast syndication as well as to cable networks, and while we discuss whether we will do new seasons of it as well. That's the main show. I think we've alluded to the fact that through Debmar-Mercury we're looking at the first run show, House of Pain, whose tests have been fantastic. I hope there will be something to announce on that shortly. Of course we're always open to people who want to buy the backend of shows early. A show like Weeds, for example, or anything that's significant and we'll be looking at selling right now also the backend of Missing. So those are the main priorities right now.

In terms of The Dead Zone, any color on how that's working, what the contribution is from the syndication at this point, or what it could be as you walk through this?

I'm not prepared to give color. We have a number in our financials, but I'm not prepared to comment on it right now.

I guess just one final thing on a housekeeping item, in the statement of cash flows you had it would appear to be 25 million more sales investments, auction-rate securities, spending on it, 165 spend, 190 gain. Could you just give us color on what was going on there it seemed to be a 25 million or so, of cash so I'm just wondering what happened there?

We tend to take all our available cash as much as possible and just purchase the auction-rate securities. So its not a source of cash, it's just how it's -- the statements are inclined to show every purchase and every sale as a separate line item. It's more our housekeeping internally.

Thanks.

The next question comes from the line of Eric Handler from Lehman Brothers. Please go ahead.

Thank you very much. As a follow-up to another question. Do you have any idea at this point how some of your TV deliverables will play out for the rest of this year? When we would expect to see strength, because normally most of your revenue is in first and second quarters of the year? And obviously this year, in your first quarter it would obviously be somewhat backend weighted. And then also can you give us a sense of what your -- if you look at the revenue that you got from iTunes and downloads such as Cinema Now, what that might have been and how that compared to say the fourth quarter?

I can answer your first question. I don't think we have probably enough color on the second. We talked before about the kind of money we were getting just from Weed. I think growth of -- at this point I am prepared to say is about $700,000 coming in from downloads for Weed. It might be a little bit more right now. I think a pretty substantial number given it's only airing in 14 million households. But the TV, I would say if you looked at it for the rest of the year, is pretty even for the next three quarters. You know what kind of number we are looking at, I think you can extrapolate. But I think that is pretty much how it is going to come in.

Thanks.

We have time for one more question, and that will come from the line of Matthew Harrigan from Janco Partners. Please go ahead.

This is probably more of an industry note, but can you comment on how Blu-ray is faring, you've had a number of announcements on that? And also it looks like we haven't had quite the pace of consumer product announcements on the direct-to-video side as we once had, given what's gone on in the DVD market. Is there some change in sentiment on the efficacy of that on the part of certain of your partners? Or do you think we're just going through a bit of a lull or am I just misperceiving the situation?

Hello Matthew, this is Steve. With regard to Blu-ray, I would say as we indicated before this is all about Q4 when there will be more machines out. So far there is just the Samsung machine and there will be several other manufactures bringing out machines in October and November. We have at least one more Blu-ray release planned for the remainder of the year. So I think that it's too early to tell.

Sales have been about what we anticipated. And until we get an installed base of players out there we don't anticipate this taking off, but I would say that this fourth quarter and the first quarter of next year it's going to be the consumer electronics gift of the time or purchase of the time.

In terms of direct-to-video we have announced, at least for us in the past -- or at least this year we're focusing more on direct-to-video pictures supplied through Alpha Deals for which we pay no minimum guarantee. And we have done that, we've changed the mix, so we're taking less risk but we still have just as many releases or approximately just as many releases on a monthly basis. We release anywhere between five and six direct-to-video pictures per month. I think actually the direct-to-video business has seen health and growth particularly with the -- with Warner Brothers announcing that they just started a new unit. With Universal going heavily into it with American Pie sequel, with Carlito's Way. And now they're just, I think next week, releasing Bring it On III. So I think you are actually seeing more activity in direct-to-video movies particularly in higher budget direct-to-video movies. So that market actually shows some health.

Thanks Steve.

Sure.

We have room for two more questions.

Yes sir. And our next question comes from the line is David Bank from RBC Capital Markets.

Thanks very much. Two questions, the first is can you talk about what kind of contributions if they are material, you are expecting from Studio Canal and Debmar, financially? And the second question is, you're movie downloads on iTunes, when do you think we're going to see it?

Well we can't break out a contribution specifically from Studio Canal.

How about Studio now and Debmar combined?

Well I wouldn't look at it that way. You might look at a little differently, I can maybe guide you a wee bit in the sense that we paid including debt, I think we've announced it was 27 and we picked up some cash. But if you sort of ballpark it, 23 million, $24 million and we've said it's an accretive transaction. I think you can do the math yourself. But we're not prepared to break out those numbers at this time.

In terms of movies down Steve?

In terms of iTunes, movie downloads, we -- I would think that most likely some time by the end of the year. We know when they are planning on launching, but since they have not announced it publicly I don't think it is our place to say anything more about that.

All right, thanks, guys.

Calender year.

Thank you. And we have a question from Michael Kelman from Susquehanna Financial Group. Please go ahead.

Good afternoon guys. Just considering the acquisitions you've made over the course of the past year, the Debmar-Mercury, Redbus, Mach 8. Can you speak a little bit about your strategy behind those deals? Whether you purchased them more from a desire to enter a particular market such as TV syndication or whether they're driven just by the opportunity presenting itself at that particular time?

I think we are always going to be opportunistic. I think each deal has been a little bit different, but they usually have similar characteristics. Number one, when we buy a business we tend to buy management. That's really important, I think I said at the time when we made the deal with the Redbus people that we were buying a company very much like the Lions Gate of the UK.

As well, we tend to look at proprietary rights, and in that particular case we got a pretty significant library in this territory. And three, we look at distribution, about extending our footprint and particularly extending it in a way where we recapture margin. I think it is what we did in that case, I think it's the same exact thing that we did with Redbus. We've got a great management team. I know both of these guys very well for 20 some odd years. They come in with rights, as I mentioned before, not only had we previously hired them to distribute syndication of The Dead Zone, but also of our movie packages. But they have these revolution movie packages which are significant movies.

South Park, which is doing really well in syndication, they've got Tyler Perry. I believe it -- they announced today a new series that they, the strip rights of about 175 episodes. So again very much the same. It's margin recapture or improvement, it's additional proprietary rights. It's distribution footprint, which is in this case now we are, I would say, the largest independent syndicator of content and its management. So those tend to be the criteria upon which we base our decisions.

Terrific, thanks a lot.

Our last question comes from [Berna Barshey] from Engleside Investors. Please go ahead.

Hello, a couple of questions. First on the TV business, I wanted to know what kind of cost increases are going to be associated with the increased number of TV shows you're doing for the fall? And also you mentioned briefly in passing that the TV business is free cash flow positive. So I just wanted to sort of understand what the margins look like in that business prior to syndication?

And finally, just in the Film Obligations line, there's been a lot of stuff in the press about the Crash payments that people are -- that's being held up by the producer, a dispute that's going on. I was wondering if any of that is sitting in your Film Obligations line and is something that could come out in one fell swoop at some point in the near future? Thank you.

The last one I guess I will answer. We are completely up and current with any participation payments associated with Crash. So any controversy on that is not attributable to us.

Its Mike, I want to add that when we make a deal to acquire a film we typically make that deal with the producer of the film, and we pay according to our contract and participations. And as Jim has said, we are fully paid up with the producers of Crash.

The question, I'm not quite sure I understand, Berna, if you could repeat -- when you say additional cost reflected in having more shows, what do you mean by that?

Well in terms of development people and just general overhead, as well as I think you said you would, you've said in the past that you won't cash deficit fund TV shows, so I would assume that they are still EBITDA positive. But just on a general overhead basis, you go from having three shows on TV to 11, you would think there would be some kind of incremental costs on that.

We've added almost no overhead in our television business at all. We argue amongst ourselves as to, because of allocation, what number it is, but somewhere between 2.5 million and $3.5 million for entire television production unit, I'd say it's on the lower side. In any case, we really have not added overhead there. They're doing a terrific job.

And in terms of use of cash, yes it's true that typically after we look at tax credits, loans, interest free loans, various kinds of financing, international revenue, video revenue, pretty much on an upfront basis. And certainly after the first year of a series gets going we tend to be cash flow positive. And overall my reference was to the fact that overall, and I think I mentioned this earlier in the year when I did our guidance, that overall not only is our television business cash flow positive, but actually there is more free cash this year, the free cash flow number is considerably higher than the EBITDA or net income number.

Okay, thank you.

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