Q1 2024 Cineverse Corp Earnings Call
Speaker 1: Good day everyone. Welcome to Cineverse's first quarter fiscal 2024 financial results conference call. My name is Cole and I'll be your operator today.
Speaker 1: Currently, all participants are in a listen-only mode. We will have a question-and-answer session following management's prepared remarks, at which time participants can press star followed by the number one to ask a question.
Speaker 1: If anyone needs operator help, press star zero. Please note that this call is being recorded. I would now like to turn the call over to your host, Gary Lofredo, with Chief Legal Officer, Secretary, and Senior Advisor for Cineverse. Please go ahead. Good afternoon, everyone.
Speaker 2: financial results conference call. The press release announcing Cineverse's results for the fiscal first quarter ended June 30, 2023, is available at the investors section of the company's website at www.cineverse.com.
Speaker 2: A replay of this broadcast will also be made available on the Cineverse website after the conclusion of this call.
Speaker 2: Before we begin, I would like to point out that certain statements made on today's call contain forward-looking statements.
Speaker 2: These statements are based Ar capaco00200000es
Speaker 2: on management's current expectations are subject to risks, uncertainties, and assumptions.
Speaker 2: The company's periodic reports that are filed with the SEC describe potential risks and uncertainties that could cause the company's business and financial results to differ materially from these forward-looking statements. All of the information discussed in this call is as of today, August 14, 2023.
Speaker 2: And Cineverse does not assume any obligation to update any of these forward-looking statements, except as required by law. In addition, certain financial information presented in this call represent non-GAAP financial measures.j
Speaker 2: And we encourage you to read our disclosures and the reconciliation tables to applicable GAAP measures in our earnings release carefully as you consider these metrics.
Speaker 2: I'm Gary LaFretto, with me today are Chris McGurk, Chairman and CEO , Eric O'Peacca, President and Chief Strategy Officer.
Speaker 2: Tony Hewador, Chief Operating Officer and Chief Technology Officer.
Speaker 2: John Canning, Chief Financial Officer.
Speaker 2: You'll land the Macias Chief Content Officer and Mark Lindsay, Executive Vice President, Finance and Accounting.
Speaker 2: All of whom will be available for questions following the prepared remarks.
Speaker 2: On today's call, Chris will discuss first quarter fiscal year 2024 highlight, the latest operational development.
Speaker 2: Outlook and long-term strategy.
Speaker 2: John will follow with a review of our results for the fiscal first quarter and the June 30, 2023.
Speaker 2: I will now turn the call over to Chris McGurk to begin.
Speaker 3: Thanks, Gary, and hello, everyone. Thank you for joining us today.
Speaker 3: We made some very good progress during the quarter toward our previously stated goal of reduced costs, improved margins, and sustained profitability. We reduced operating costs by $2.5 million versus last year's quarter, enabling us to narrow our operating loss by $1.9 million, or 41%.
Speaker 3: We posted a direct-off already margin of 46.2%. Inlying with our guidance target of 45% to 50%.
Speaker 3: These improvements are the direct result of our cost streamlining and margin improvement efforts.
Speaker 3: which have included a 30 position head count reduction, the renegotiation of most of our operating deals, a planned cut can go forward overall executive compensation until we reach sustained profitability, major future cost savings from our offshoring of positions to Centiverse.
Speaker 3: services India and now the calling of lower margin channels from our broad streaming portfolio of enthusiast networks
Speaker 3: As I've noted before on these calls, unlike many of our competitors who have a single streaming channel and only one or two revenue models.
Speaker 3: Our 26th Channel Screening portfolio and multiple revenue streams give us the ability to truly manage our business as a portfolio.
Speaker 3: This provides us with the unique ability to call lower performing channels, particularly those where we are not getting enough content from our partners to refresh programming on a timely enough basis.
Speaker 3: So we are doing this aggressively as we focus on the bottom line, even at the expense of the lower margin revenues.
Speaker 3: We saw the impact of that in our results this quarter. Where our advertising revenues dropped versus last year, mainly as a result of these channel optimization activities.
Speaker 3: Eric will cover that in more detail in a few minutes.
Speaker 3: However, I want to emphasize that we are committed to continuing this process of trading off lower margin channels and related businesses for higher performance performers when we have the opportunity to improve our margins and operating results, which is exactly what we saw this quarter for the $2.5 million reduction in operating costs.
Speaker 3: and 41% reduction of our operating loss versus last year.
Speaker 3: Despite the drop in advertising revenue.
Speaker 3: We were pleased to report overall growth in our streaming digital business for this quarter despite fewer channels, the tough advertising market environment.
Speaker 3: in a seasonally slow revenue period.
Speaker 3: Streaming and digital revenue increased 58% to a record total of 10.5 million from last year's first quarter, primarily driven by our paid subscription streaming business, which was up 44.7% versus last year, and led by growth on our screen box for our channel.
Speaker 3: and also by digital content licensing, which grew 105.9% on the strength of our library sales and new releases.
Speaker 3: The number of paid subscribers to our channels also increased significantly versus last year, up 38%. Sorry sir.
Speaker 3: As Eric will detail, we expect a rebound in our advertising revenues to complement this subscription and digital sales growth going forward, particularly as we aggressively leverage our new ad services group and head into the political advertising season.
Speaker 3: In addition to all of that, the last ball's theatrical phenomenon, Terrifier 2, continues to be a monster performer for Russian home entertainment.
Speaker 3: At least last October , the film has already generated $11.2 million in revenues for the company.
Speaker 3: We are planning a theatrical reissue of the film like this year where we will date you a teaser of the highly anticipated franchise follow up, Terrifier 3. So they did per lease in the fall of 2024.
Speaker 3: All of this has been driven by our unique 360-degree approach to marketing, which utilizes all the promotional power of our 26 streaming channels.
Speaker 3: 70 million monthly active viewers, robust podcast business, and the viral social media influencer and editorial capabilities of our bloody disgusting horror division.
Speaker 3: This cost-efficient and highly effective marking approach helped turn Terrafire 2 into a horror phenomenon and is one of our key competitive advantages.
Speaker 3: Going forward.
Speaker 3: Error will cover this in more detail. However, let me speak for a minute about what we see is one of the most important and unique issues we have undertaken to reduce costs and attain our goal of sustaining profitability.
Speaker 3: Sonneville Services, India.
Speaker 3: Having been involved with the key centerverse personnel in India for over nine years.
Speaker 3: Having acquired 100% of our match point technology operation almost three years ago, and having seen the exciting new streaming and content management technology innovations they have developed, including our current push into AI. We now see Centiverse India is not just a platform.
Speaker 3: for industry leadership in streaming and AI technology, but as a unique and battle-tested operation that can offshore the majority of our support functions in the U.S. at a dramatically reduced cost and with improved efficiencies at the very same time.
Speaker 3: This is why we formed Center for Services India and announced it on our last term's call.
Speaker 3: What makes this unique for us is that we are off-shoreing, not outsourcing, domestic positions to a Cineverse Services India operation that is already a trusted and high-function division or a company.
Speaker 3: This is why we are so confident that this initiative, which we planned to complete by the end of this fiscal year, will not only contribute several million dollars in cost savings, but will improve workflows and efficiencies across the board. It is a unique competitive advantage that we are aggressively leveraging.
Speaker 3: I also want to mention that an independent third party valued our 65,000 title content library this quarter at $26 million to $30 million.
Speaker 3: That compares to a $2.9 million book value for the library as of June 30, 2023.
Speaker 3: Our stockholders' equity as of June 30th was $45.6 million, and we had over $12 million in cash at hand on that date.
Speaker 3: Centroverses other assets include a 26-channel enthusiast streaming portfolio with more than 70 million monthly active viewers and matchpoint. Our industry-leading content management, streaming and AI technology platform that was the driving force behind the $68 million in total revenues we generated last fiscal year.
Speaker 3: As of today, we have zero debt, including a zero balance in our East West Bank willing to credit, which we just extended for another 12 months.
Speaker 3: All of those facts underscore why we believe our equity is so significantly undervalued at this point in time.
Speaker 3: We need to do a better job of stressing these points to the investment community, and we still have a stock repurchase program, in effect, into the first quarter of next year.
Speaker 3: Finally, while Eric will cover the specifics of this in a few minutes, I do want to speak to our status and future as an almost fully technology driven company.
Speaker 3: Centiverse is at its core in innovative technology company.
Speaker 3: We led the charge and the game-changing conversion of theaters to digital technology. We saved the industry billions of dollars in distribution costs.
Speaker 3: and made the theatrical business technologically competitive again with the TV business.
Speaker 3: We spent years developing Matchpoint with a team of talented world-class engineers now at Centroverse India, and it is now an industry leading content management streaming and emerging AI technology platform.
Speaker 3: We were apioneering the fast streaming business with connected TVs. Now the fastest growing segment of the business.
Speaker 3: Beyond that technological heritage, it is now very clear that our proprietary matchcoin technology is the very foundation of all our lines of business.
Speaker 3: for multi-t and streaming, content distribution to add sales and add tech.
Speaker 3: Frankly, we've done a lousy job of communicating this critical point in the past, and we aim to do better going forward by hammering that point home.
Speaker 3: Because Masspoint is the backbone of our business.
Speaker 3: The reason we've had success in establishing partnerships with leading OEMs and tech brains.
Speaker 3: such as TCL and Amagi, and bringing in top channel breads like Bob Ross, sitting Marty Crock, and GoPro, among many others.
Speaker 3: It is already recognized as a leading entertainment technology. And we are confident the recently announced matchpoint AI initiative will also become an industry leader, attract the same quality, same level of quality brands and partners and generate significant high margin revenues in the future.
Speaker 3: To recognize all of this, we hope to provide additional disclosures in the future to reflect the fact that our match point technology is already directly responsible for generating a very significant percentage of our revenues and operating results.
Speaker 3: and will very likely represent an even greater percentage of our results in the future.
Speaker 3: We believe Centerverse should be viewed as a core technology company.
Speaker 3: and our reporting needs to reflect that.
Speaker 3: But for more on this, as we move through the next couple of quarters.
Speaker 3: All that said, powered by Natchquan, we believe we are well positioned to continue growing our streaming technology and content business. Our proprietary technology, now moving into AI, are substantial portfolio of streaming channels.
Speaker 3: for 65,000 Title Content Library.
Speaker 3: and our differentiated 360-degree marketing approach together make up the secret sauce driving center versus gross strategy going forward.
Speaker 3: supported by our initiatives such as Center for Services in Vietnam.
Speaker 3: We remain committed to delivering improved financial performance for fiscal year 2024 as we continue to reduce operating costs and improve margins.
Speaker 3: working toward our goal of achieving sustainable profitability.
Speaker 3: And with that, I'll turn it over to John to go over our financial results for the fiscal 2024 first quarter.
Speaker 4: Thank you, Chris.
Speaker 4: The fiscal first quarter and the June 30, 2023, the anniversary reported total revenues of $13 million, which compares to $13.6 million in the prior year period. As Chris noted, this decrease was primarily due to the impact on our advertising revenue from the intentional elimination of certain lower margin channels.
Speaker 4: be a portfolio optimization and be allocating those resources to higher performing and higher margin streaming properties, which is important to our goal of achieving sustainable profitability in the near term.
Speaker 4: Global streaming and digital revenue increased 6% to a record 10.5 million driven by our robust channel portfolio, increased platform distribution and paid subscription.
Speaker 4: This was led by a 45% increase in subscription revenue and a 106% increase in physical content licensing.
Speaker 4: Airquil provide additional detail on the operational drivers behind our financial results.
Speaker 4: Gross margin for the period was 46.2%, which is in line with our previously provided guidance of between 45% and 50% purposefully or 2024.
Speaker 4: Total off-ex decreased nearly 2.5 million or 14% from last year's first quarter, driven by a reduction in SGNA expense of nearly $2 million. This is a direct result of the cost-cutting initiatives we've implemented since fiscal year 2023, and we expect to gain even greater efficiencies.
Speaker 4: as Centiverse Services India gains momentum in the second half of fiscal year 2024. this January chord we have kept our future for 30 years.
Speaker 4: As a result of the decreased total op-EX, net loss attributable to common stockholders narrowed to negative $3.6 million or 37 cents negative per diluted share, a significant improvement from net loss at $6.1 million or 69 cents negative per diluted share.
Speaker 4: in the prior fiscal year period. Adjusted EBITDA loss narrowed to 1.5 million negative, from adjusted EBITDA loss of 2.2 million negative in the prior year fiscal period.
Speaker 4: We had 12.19 and cash.
Speaker 4: and cast equipment on our balance sheet as of June 30th, 2023.
Speaker 4: and we maintain a small revolving working capital facility of the additional dry powder for key content acquisitions.
Speaker 4: Having paid down 5 million on our revolver subsequent to quarter end, we currently have no outstanding balance on that facility. And we have no long-term debt. As Chris mentioned, we just extended that facility for another year. We feel well positioned to be able to execute on our growth initiatives over the next several months.
Speaker 4: of our strong financial position. We are reiterating the previously provided guidance for fiscal year 2024, which is total revenue of between $62 million and $70 million.
Speaker 4: direct operating margins of between 45% and 50%, and adjusted EBITDA of between $2 million and $4 million. Please keep in mind, these guidance assumptions are based on, among other factors, the company's existing business, current view of existing market conditions.
Speaker 4: margins of between 45% and 50% and adjusted EBITDA of between $2 million and $4 million. Please keep in mind these guidance assumptions are based on among other factors the company's existing business, current view of existing market conditions and assumptions for fiscal year 2024.
Speaker 4: With that, I'll turn the floor over to Eric to discuss the market environment and our growth initiatives.
Speaker 4: I'll turn the floor over to Eric to discuss the market environment and our growth initiatives. Thank you, John .
Speaker 1: Yep, thank you John and thanks everyone for joining the call today.
Speaker 4: First, let me briefly discuss the current streaming business climate, and I'm going to discuss our top-line streaming results, provide some updates on our go-forward channel strategy, and review our technology initiatives.
Speaker 4: So first regarding the current streaming macro environment.
Speaker 4: Despite a lot of hand wringing and negative sentiment, both in the press and the investor community, the streaming business is showing signs of reaccelerating growth after the post COVID hangover in the last 12 months.
Speaker 4: According to comScore, both subscription and ad supporting streaming grew a combined 25% in the first half.
Speaker 4: America and despite many claims of market saturation the average household time spent streaming grew 19% over year Additionally the number of services subscribe for household grew to 5.4 up from 4.7 a prior year
Speaker 4: While CTV advertising has been down around 78% according to Cantar for the first half of the year, most large scale platforms such as YouTube, Meta, and Hulu are showing modest gains in the last quarter. This pre-stage is an improvement in the overall CTV ad environment and a sentiment for the back half of the year has grown more optimistic.
Speaker 4: among our agencies and demand partners. However, despite the significant audience shift to streaming, today only 15% of the estimated 70 billion in video ad spend in North America is spent on streaming.
Speaker 4: with the number of households subscribing to cable falling to the low 30 million range, we see long term trends is very favorable on the ad front. So to sum it all up, all of the key streaming macros subscribers time spent services subscribe to CTV ad share. So there are many, many years of industry growth remaining.
Speaker 4: and driven heavily by a shift from legacy platforms over the next five years.
Speaker 4: So in the face of all of this, siniversis diversified approach to streaming, combined with the technological abilities to achieve superior margins over our peers, positions that's very well compete.
Speaker 5: Now let's look discuss a few of the business highlights and more detail from the quarter. See you in a few minutes questions.
Speaker 5: So streaming and digital revenue increased 5.8% to a record 10.5 million, primarily driven by an increase in our digital licensing to other streaming platforms, as well as growth in our paid subscription streaming business.
Speaker 5: Total subscription revenues were $3.2 million, up 45%, and total subscribers to our streaming services were approximately $1.21 million, up 38%, driven by the success of new release and library acquisition for our flagship services, particularly our screen box horror channel.
Speaker 5: And we also saw some significant growth in our documentary streaming service, Docurama.
Speaker 5: saw some significant growth in our documentary streaming service, Docurama, which happened to grow 42% during the quarter.
Speaker 5: Total ad-based revenue was $3.6 million, down 39%, 0.3%. As Chris and John noted, during the quarter, we wound down several lower margin channel partnerships.
Speaker 5: These were predominantly third-party channels, not channels we own.
Speaker 5: which included the El Rey network, the Country Network, the Elvis Presley channel, and several proprietary FAST channels as well.
Speaker 5: We finalized their wind down during the period, including the Dr. Rama Fast channel, not the subscription channel, and ConTVAnime.
Speaker 5: Additionally, we had a mandatory plan technology migration with the major fast channel platform partner. Due to this migration, we experienced significant reduction in monetization with that partner during the transition in May and June .
Speaker 5: We saw significant recovery subsequently in July and expected to be at pre-transition levels for that partner in the critical busy period at the back half of the year.
Speaker 5: In the quarter, we continued our key strategic shift.
Speaker 5: away from the COVID era approach of high top line revenue and KPA growth at the expense of profits to more measured growth with the focus on efficiency and profits.
Speaker 5: One area we're going to continue to focus on is leveraging our 65,000 title library to generate revenue. As Chris noticed, our business generating revenues from our streaming library was up 40% year over year.
Speaker 5: In prior years, our focus has been to emphasize our own streaming service at the expense of revenues generated with third-party services. However, over the last year, we've seen little to no cannibalization subscribers by making our titles more broadly available, and we plan on dramatically expanding that effort.
Speaker 5: In addition, we plan on leveraging Match Point to scale up the volume of the annual releases of new release titles by hundreds, which should have a significant and material impact on overall revenue.ally players are Mat Eas alpha.
Speaker 5: As we noted earlier, we've been, we've began to focus on eliminating streaming business lines that are unprofitable or far from profitability targets. With a priority on winding down deals for channels we don't own outright or require significant capex to maintain deal rights.
Speaker 5: As I noted earlier, we ended our relationship with authentic brands on the Elvis Presley channel and also went on several other channels.
Speaker 5: We estimate that the P&L benefit from these changes will take effect over the next few quarters. And we'll see we think about a 30% margin improvement in our third party channel business, which should translate an estimated 67% improvement in our streaming gross margin as those shutdowns fully wind off. We'll see you in the next few quarters.
Speaker 5: But Docurama, as I mentioned earlier, is a great case study on proactive improvements and the strength of us having multiple revenue stream business model. So we originally operated that service as a subscription offering and expanded it into fast as a fast channel in 2019. However, as has plagued many predecessor documentary linear networks, that channel struggled to find an audience.
Speaker 5: as a linear network. As it turns out, most people don't like to tune into documentaries in the middle of a show.
Speaker 5: which is the most common way for fast channels to find an audience.
Speaker 5: So we shuttered the fast channel during the last quarter and instead refocused our efforts on the subscription model. The net result has been extremely positive in a short time frame. Operating expenses were down by hundreds of thousands of dollars while our subscriber base grew by more than 42% during quarter.
Speaker 5: So going forward, our approach to third-party channels is going to be very different from prior years.
Speaker 5: rather than capital intensive co-partnerships that require significant investment in capex and streaming rights.
Speaker 5: We're going to focus on fee-based managed technology services and exclusive advertising partnerships.
Speaker 5: These businesses require little to no risk capital and time to market is days to weeks rather than months or even sometimes years.
Speaker 5: Our overall approach to the ad market is changing as well. As advertisers focus on supply path optimization, we're currently ramping up the direct and sponsorship portion of our ad business significantly to capture the best results from calendar Q4.
Speaker 5: We recently expanded our ad sales team and in the quarter had secured direct-dale ad and sponsorship deals with ancestry.com, Hershey's, Taco Bell, Sony Pictures, A24 and more. And most of the benefit is coming in the current quarter on these, but we'd sign those in the prior quarter.
Speaker 5: So our approach is focused on selling omni channel, web, mobile, audio, and CTV, and at 120% premium to our current CPMs. So think, you know, in the $35 range.
Speaker 5: the biggest shift for us.
Speaker 5: is also a focus on managing the exclusive monetization for partner channels. As I noted earlier, we like this approach versus launching new channels because when we work with that partner, the channel is already live, it has predictable and forecastable revenues and cash flows.
Speaker 5: has no capex risk like there is with building a new channel, and could be launched rapidly into the market.
Speaker 5: For example, we recently struck an exclusive monetization partnership with the preview channel. From deal to live, we were generating revenues in approximately three weeks and have since tripled the partner's daily revenue run rate.
Speaker 5: We're also pursuing this model on the audio side, signing large podcasts with scale audiences to our network.
Speaker 5: We call it rapidly scaling this business over the next two years with a focus on owned and exclusively monetized channels.
Speaker 5: Finally, I'd like to close out by discussing what's in store for our technology and the implications for our business.
Speaker 5: As Chris noted, our Proprietary Streaming Platform suite, known as Matchpoint, is the engine that makes everything we do possible.
Speaker 5: It goes far beyond just operating streaming channels and supports a full stack infrastructure that modern media companies need, including rights and media management, content processing, digital delivery, apps, data intelligence analytics, customer reporting, royalties and payments, and accounting support. As the only end to end operating system for media content in the market today, it eliminates dozens of vendors and dramatically simplifies operations. Our cloud infrastructure and modularity make it affordable and scalable while also being extremely cost efficient.
Speaker 5: If that was the only thing Matchpoint did, we think that would be a great business to offer partners. But the Matchpoint platform goes far beyond the businesses of today. It's also perfectly suited to take advantage of the business needs for media companies of tomorrow. Here's a few examples how we help partners get ready for the consumer needs in the next era of streaming.
Speaker 5: First up, AI-based content processing. This ties right back into the recent announcements we made around our AI marketplace. We are using computer vision and machine learning to dramatically improve the speed and quality of adding complementary data around video assets.
Speaker 5: From captioning, meta tags, and screen descriptions to more esoteric elements like mood, tone, and pacing, these data points are the building blocks of critical services for recommendation engines. But in the future, this data can be used to dramatically improve generated video AI and large language learning models, or LLMs.
Speaker 5: Most generative video models rely on data sets known as text-to-video pairs.
Speaker 5: describes what's happening in a given video.
Speaker 5: Most available datasets are open source, very old, extremely limited, and heavily rely on short form and web video content.
Speaker 5: to feed the models. We believe that our capabilities and technology is going to allow us to generate extremely valuable, highly enriched textual data that will enable advanced generative video models for partners and businesses like Runway ML Gen 2, Google's Image and Video and others.
Speaker 5: Also, let's talk about enhanced next generation user interfaces. Despite streaming's rapid rise, the means of interacting and finding content has changed very little over the last 15 years. We believe that the next generation of streaming user interfaces will be natural, intuitive, and dramatically improve.
Speaker 5: Next up and last is FAST 2.0. We've talked a lot on these calls about free ad-supported streaming television and how it's rapidly replacing cable. However, the current user experiences and use cases, which are pre-programmed linear channels and electronic program guides, are basically 80-year-old technology that simply can't compete with the engaging hyper-personalized video apps like TikTok and Reels for user engagement in time spent watching.
Speaker 5: We are currently working on a complete reimagining of the fast experience for users that will have the comfort, look, and feel of cable with the hyper-personalization experience users love from their social video services.
Speaker 5: With simple intuitive onboarding, the user's experience will be so customized that no two users will have the same service.
Speaker 5: Let's sum it up. Not only does Matchweight provide a single enterprise solution as a streaming operating system for the use cases of today,
Speaker 5: We're bringing next generation technology to support FAST 2.0.
Speaker 5: speech-based AI chat and data support for generative video AI. We are deep in this market and I can say that most companies are barely struggling with video delivery and are years away from even thinking about these kinds of solutions. However, we believe that leveraging our extensive India team, we can bring these services to market rapidly. To sum it up, we're quite optimistic about the upcoming quarter with continued growth in our subscription and licensing business.
Speaker 5: margin improvement, managing our cost structure, and exiting low and negative margin businesses.
Speaker 5: And finally, we're committed to investing in technology and scaling MatchPoint with a robust new customer base as we scale up and commercialize its next-gen features.
Speaker 5: Finally, we're committed to investing in technology and scaling Matchpoint with a robust new customer base as we scale up and commercialize its next-gen features. Again, thank you for joining today's call.
Speaker 1: and we look forward to sharing our Q4 results in the coming months. With that operator, let's open it up for Q&A. Thank you. We will now begin the Q&A session. If you would like to ask a question, please press star 1 on your telephone keypad. If for any reason you'd like to remove that question, please press star 2.
Speaker 1: We will pause here briefly as questions are registered. Our first question is from Dan Kernos with Benchmark. Your line is now open.
Speaker 1: Yeah, thanks. Good afternoon. Maybe just Chris and Eric, I guess.
Speaker 5: If we think about the strategy and everybody's obviously being cautious with cash flow right now in sort of this uncertain environment, I guess I just want to understand from you guys a lot of what you talked about, sounds.
Speaker 5: Now if I want to call it a PIDIT, but certainly a lot more technology oriented than you referred that directly in your comments, Eric. And I guess I just want to get a sense for you guys. As we think of things like we used to think about the Merella channel and kind of a broader portfolio.
Speaker 5: How do we kind of reframe the narratives? Is that change at all with the ONO strategy? And I don't know if you're a little bit more cautious in how you go after ONO additions at this point. And then a year from now, if you've got an enterprise at least from Max Point, does that start generating explicit?
Speaker 6: you know, revenues on its own. And just how do we think about kind of the revenue mix and kind of the strategy or just the overall framing of what you want us to kind of take away from what you said to it?
Speaker 3: Well, thanks, Dan. This is Chris. And you just threw an awful lot at us. And I'll let Eric handle the bulk of the response on this. But we don't look at it as a pivot.
Speaker 3: We see it as sort of a recognition of something that we should have recognized all along, but what's always given us a competitive advantage and driven the business forward is our technology.
Speaker 3: And that's what Mashpoint is doing right now. In driving us into new business arenas like the AI, as well as Eric described. And when we took a look at our results and we looked at each piece of our business, it was directly attributable to the fact that we owned this industry leading technology.
Speaker 3: You know, we looked at ourselves and said, hey, that's about 50% of our business right now. And we probably really should be taking a hard look at how we report going forward. In terms of our channel strategy, I mean, you've said on these calls for years, and we've always said at the very beginning when we were adding channel after channel.
Speaker 3: that probably, if people ask us, what are you gonna have 100 channels someday? We said probably a two dozen specific enthusiast channels was probably our limit. And we got up to more than 30. And that's when we stepped back and said, you know what, we've got a unique opportunity.
Speaker 3: as a portfolio company with a portfolio of channels, really to implement Business 101, which is, you know, call the underperformers and focus your resources against the stronger performers. We haven't stopped the idea of Centiverse as
Speaker 3: the Spotify of streaming. We're moving forward very aggressively on that, as you saw from the Amagi announcement. So I wouldn't call this a pivot, I call it a recognition of what we're good at, a rationalization.
Speaker 3: of our portfolio strategy that we always intended to do, and more than anything, an overriding focus on cutting costs and driving toward profitability by the end of this year, versus just focusing on the top line and adding revenues for revenue's sake, even if they're lower margin revenues.
Speaker 3: So I'll stop and let Eric come up finishing the answer to the question. Go ahead, Eric. Yeah, I would just add, if you kind of think about.
Speaker 5: where we take the scale.
Speaker 5: channel strategy that we've been articulating with with Cineverse. We think that it dovetails very nicely with our sort of refocus on MatchPoint. You know, one of the biggest elements of the growth strategy for Cineverse has been, you know, working with OEM partners who, you know, don't have their own scale streaming service and so on.
Speaker 5: You know, it's not just providing an operating system, right? Like, Comcast is doing with Zumo or Roku has. It's also providing partners a branded or co-branded scale experience with a lot of titles and the entire infrastructure to support it.
Speaker 5: and doing it rapidly. So we think that is the fastest way for us to grow that piece of the business. We have transactional capability with our partnership with Row 8. We have tens of thousands of titles.
Speaker 5: with our amagi deal. So somebody, when we partner with them, can stand up. If they stand up, siniverse, either as siniverse or as a co-branded version of siniverse, they're standing up a full turnkey, their own version of a Pluto, Roku channel, or to be.
Speaker 5: in the, you know, immediately versus building out over three, four, five years at really no CapEx risk, no, you know, no employment costs, nothing. So for some partners, that's a pretty attractive result and we're, and we think we have a path to scaling Cineverse up following that direction. In terms of the broader channel portfolio,
Speaker 5: You know, as Chris mentioned, when you talk about a company our size, focus is important.
Speaker 5: And what we don't want to do is focus on small, unprofitable or non-important channels when we have these big opportunities like MatchPoint, like Cineverse. Our horror business is doing exceptionally well. So we have these called super verticals.
Speaker 5: plus Cineverse, plus Matchpoint, really, to me, is where we're gonna be focusing a lot of our time and effort going forward. Got it. That's really comprehensive and helpful. I appreciate it. Eric, just a follow-up to some sort of underlying trend that you stripped out.
Speaker 6: the channel pruning, how did you look from an ad perspective? And are we expecting kind of normal physical analysis here? We keep hearing, you know, kind of choppiness in the general market in Q3 with some of how to do the normal key for that. I just don't know if your thoughts are to appreciate it.
Speaker 5: Yeah, so if you kind of back out the...
Speaker 5: The timing of the technical changes that we had to make, I mean, the half glass full element is those changes were originally scheduled to happen in Q4 last year and we pushed them out as far as we could so we wouldn't impact the busiest time of the year, which I'm glad we did.
Speaker 5: So, you know, we've known about them, they've been there, what we didn't know is how, you know, how significant, we in effect had to remove channels from a program guide and, you know, removed it from people's favorites that had been live for years. So it just takes some time to build that back. But that's been building back, I think we're pacing for that.
Speaker 5: My estimate for the year over year decline would be high single digits. So it's probably about 25% of the decline number was the annual decline. So.
Speaker 5: You know, we are still seeing an impact on the business just the year over year on the ad growth. Part of the week that we've been so focused on expanding the number of lines of business we have in with the whole overall CTV pie.
Speaker 5: Obviously not as good as the the COVID era years, but nobody's doing that well short of some anomalous platforms are very small partners.
Speaker 5: So, you know, we're optimistic, but we have a lot of tools to, to offset any.
Speaker 7: You know.
Speaker 5: unanticipated or anticipated shakiness in the business.
Speaker 6: Perfect. Thanks very much, Eric. Thanks, Chris.
Speaker 3: Thanks, Dan.
Speaker 1: Thank you, Dan. Our next question is from Brian Kistlinger with Alliance Global Partners. Your line is now open.
Speaker 1: To start the set, there's a couple of parts to it. How much the actual releases do you have planned within the next 12 months at this time, and what percentage of them do you expect to contribute a meaningful amount of revenue, and would you say that the planned releases are weighted towards any specific order? By releases, you're talking about theatrical releases or just new releases? Yes, theatrical release. The theatrical. I think in you know, Yelondick and chime in here we have.
Speaker 3: At least five more between you and the end of the year, and then putting Warrior King and Fire, the reissue of Terrifier 2, among others. I think they're weighted toward the third quarter and the fourth quarter of the year. You know, obviously the franchise that we're nurturing, and we think it's gonna have the biggest impact on our business going forward is the Terrifier franchise.
Speaker 3: Later this year, we're attaching a teaser to it for Terrifier 3, which is obviously very highly anticipated. And that's going to be released in late 2024. And we're hopeful through all of that activity that will continue to see sort of the huge positive impact on our home and our team and business and Terrifier to brought with a huge increase to subscribers from a screenbox channel and also a huge transactional video on the tremendous sales, not exclusively into the streaming market and in actually in physical DVD.
Speaker 3: So we're going to keep that train going. And we're at the same time, we're going to be in it in kind of a true franchise building manner. We're working with the producers to try to develop ancillary content, podcasts, making of documentaries, things like that around the franchise. And that'll be our single biggest driver, I think, in terms of new releases in theatrical going forward.
Speaker 3: I don't know, Yolanda, Vecius is our chief content officer. There's also a call if you want to add anything to that, Yolanda.
Speaker 8: Yeah, Chris, you hit all the major points. I would just continue that the franchise building, which is what we focus on, so we continue to focus on horror films, which you'll see about five of those theatrical released in the calendar fourth quarter and third quarter.
Speaker 8: that we are also pivoting in the physical format to more collectibles to continue that growth and build franchises. Great.
Speaker 5: Thanks. Oh, and I would also add one thing. In addition to film titles that are coming, just give everybody a quick update on the various channels.
Speaker 5: So we're currently deep in GoPro, our partner roundtable, hit a little bit of a snag. They've been editing video assets pretty aggressively creating feature length.
Speaker 5: episodes out of the GoPro assets. So we expect that, you know, that channel is moving on pretty rapidly. We expect it to be ready to go to market in the early part of calendar Q4. Tidamarty Cross is being remastered. Those, you know, if you've ever seen these, this content, it's...
Speaker 5: Land of the Lost 1970s, very cool content, very very millennial and Gen X favorites, but it needs to be restored and that process is ongoing.
Speaker 5: We're pegging that for a fiscal Q4 launch for the channel, but we anticipate commercial products to start coming out at the end of this calendar year. In terms of entrepreneur channel, that channel is,
Speaker 5: rapidly going and ready to go and that one should be coming within the next quarter or so. We have some other properties that we're working on.
Speaker 5: going and ready to go and that one should be coming within the next quarter or so. We have some other properties that we're working on that will be announcing in the coming weeks.
Speaker 1: Is there any negative impact from the strike in any way in terms of filming your marketing for the theatrical releases? I know, not yet. You know, right now because we're an indie, it would not signatory. It really has an effect. It affected us at this point.
Speaker 3: You know, we'll see if the slide drags on, but we don't really have any impacts. We don't really anticipate any for the foresee of the future.
Speaker 1: In fact, we received waivers for our talent to promote our upcoming film, On Fire. Great. It's good to hear. It's good to hear about the progress on the direct ad sales team. How large is the team now and are you still continuing to expand upon it? And how long would you say it takes for a new hire to be fully onboarded, trained?
Speaker 5: where we should expect. Sure, so first up, we think the direct team is about five people. We,
Speaker 5: So that team is being built out. We think we're probably looking to add one to two additional sellers. We've got very good coverage. The management of that group is a seller himself. So it's very efficient. And we think it's at the right staffing levels. We may add probably one more senior head and probably some proposal support and more support on the branded content side. So we've got the right team in place. You know, the sort of industry target, and the little known thing is for most of even the biggest platforms.
Speaker 5: You know, if you're getting up to a 30% of your total inventory sold direct, that would be in line with sort of the biggest players. I don't know if that sort of keys up with what you've been hearing, but that's certainly the feedback that we get.
Speaker 5: Sometimes it's a little more, or for most players, it's a lot less. But that's really for us. We think targeting around a third of our inventory to sell direct is a very good space on our own portfolio in this fiscal year, where there could be a tremendous amount of upside on that is
Speaker 5: You know, in the, there's this big block of people in the connected TV space who exclusively manage the advertising piece for a partner. So it's very different than an ad network where, you know, the network is just ostensibly.
Speaker 5: there's this big block of people in the connected TV space exclusively manage the advertising piece for a partner. So it's very different than an ad network where the network is just ostensibly.
Speaker 5: programmatically filling in or competing and bidding on spot. For us it's very different. We're not only are we're fully managing the monetization of the channel for a partner. So we think that is a very in demand service for a pretty broad swap of the CTV environment and both on apps and fast channels.
Speaker 5: And we think between the match point offering we have and other things that we bring to the table, we think we can grow and scale up this pretty quickly. So that business has a much higher ceiling than just our own property.
Speaker 1: There are no further questions remaining, so I'll pass the conference back over to the management team for closing remarks. Yeah, hi, this is Chris. So.
Speaker 3: Thank you all for joining us today. Please feel free to reach out to Julie Milestead or our investor relations firm, the equity group, with any additional questions you might have. We look forward to speaking to you all again at our next quarterly call. Thanks very much.
Speaker 1: That concludes today's conference call. Thank you for your participation. You may now disconnect your line.
Speaker 1: Today's conference call, thank you for your participation. You may now disconnect your line.