Cinedigm Corp. (NASDAQ:CIDM) Q2 2023 Earnings Call Transcript

Cinedigm Corp. (NASDAQ:CIDM) Q2 2023 Earnings Call Transcript November 15, 2022

Cinedigm Corp. reports earnings inline with expectations. Reported EPS is $-0.03 EPS, expectations were $-0.03.

Operator: Good day, ladies and gentlemen. Today, we are hosting our Conference Call to discuss Cinedigm’s Fiscal 2023 First (sic) Quarter Results. My name is Adam, and I will be your conference operator. Currently, all participants are in a listen-only mode. We will have a question-and-answer session at the end of the call. Please note that this call is being recorded. Your host for today is Gary Loffredo, COO and General Counsel. Please go ahead.

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Gary Loffredo: Good afternoon, everyone. And welcome to Cinedigm’s fiscal 2023 second quarter results conference call. Before we begin, I would like to point out certain statements made on today’s call contain forward-looking statements. These statements are based on management’s current expectations and are subject to risks, uncertainties and assumptions. The company’s periodic reports that are filed with the SEC described potential risks and uncertainties that could cause the company’s business and financial results to differ materially from those forward-looking statements. All of the information discussed on this call is as of today, November 15, and Cinedigm undertakes no duty to update it. In addition, certain financial information presented on this call represents non-GAAP financial measures and we encourage you to read our disclosures and the reconciliation tables applicable to GAAP measures in our earnings release carefully as you consider these metrics.

I am Gary Loffredo, President, Chief Operating Officer and General Counsel of Cinedigm. With me today are Chris McGurk, Chairman and CEO; John Canning, Chief Financial Officer; Yolanda Macias, Chief Content Officer; Erick Opeka, Chief Strategy Officer and President of Cinedigm Networks; and Tony Huidor, Chief Technology and Product Officer. All of whom will be available for questions following the prepared remarks. I will now turn the call over to Chris McGurk to begin.

Chris McGurk: Thank you, Gary, and welcome, everyone, and thanks for joining us on the call today. Before getting into a recap of our strong Q2 2003 (sic) performance, which was led once again by record streaming advertising revenues, I’d like to start off by addressing the recent outstanding success of what we call our 360-degree business and promotional approach to horror, which is the hottest genre in entertainment today. Cinedigm has always been a leading distributor of core content and as the category continued to outperform in the last couple of years, we saw an opportunity to take advantage of that trend even further, particularly in streaming, where horror content is still underrepresented and fans are still being underserved.

So in 2021, we acquired Bloody Disgusting. the biggest name in online horror with millions of followers. And then we acquired the Screambox horror streaming channel to further consolidate our position in that lucrative genre. And just over a year later, those investments are now paying off big return. As you have certainly read out over the past month, our acquisition and release of the very low budget and artfully crafted MD phenomenon Terrifier 2 has led to an unprecedented successful box office run and an incredible amount of buzz around the film and its iconic central character Art the Clown. Critically acclaimed and the best reviewed horror movie in years, Terrifier 2has generated more than $10 million at the domestic box office, despite virtually no traditional release marketing effort, increasing its box office for three straight weekends, which almost never happens with a wide release.

As the film became a viral phenomenon in large part due to our extremely affected PR and social media marketing efforts via Bloody Disgusting. The New York Times allotted the film in our viral marketing efforts, calling it, quote, an unexpected and unlikely hit with a little horror movie that could. Forbes was amazed that the film would likely, quote, outperform most of this year’s designated award season releases and Yahoo! News called it, quote, the Sleeper Horror Hit of the Season. Released on October 6th, none of Terrifier 2success is reflected in this second quarter earnings report as the financial upside from the film will begin to be reported in our next fiscal quarter and beyond. However, I am focusing on this success now, because it clearly underscores Cinedigm’s winning business strategy in regard to enthusiast fan bases and streaming content in general.

Here’s how we are leveraging the norm across our business. While still in theaters on Halloween, we also launched Terrifier 2 on our Screambox, horror streaming channel, fueled by continued heavy viral marketing by Bloody Disgusting, the film has already driven increased traffic on Screambox of more than 250%, with subscriptions up more than 295% compared to the channel’s previous high month. On November 11th, we also released the film onto Transactional VOD across a wide footprint that includes Amazon Prime, iTunes, Vudu, Google Play, Microsoft and Red Box, where it is performing extremely well and exceeding our expectations. In December, we are shipping the film in DVD and Blu-ray of Walmart and Best Buy, among many other outlets. And then after that, it will be available for additional licensing to streaming and other platforms.

We are also considering other ancillary options to support and extend the film, including graphic novels, podcasts, additional editorial, documentaries, television, NFTs and potential rerelease into theatrical. All this activity across the entire entertainment spectrum is what our 360-degree approach to horror is all about, leveraging our capabilities in marketing, viral promotion and distribution across virtually every distribution channel in the ancillary market, not just in streaming, but on traditional platforms as well. This gives horror enthusiasts the content they want, when and where they want it, in a way, most of our competitors cannot do because they lack our reach, our assets and our acumen in the genre. While we will report a more accurate assessment of the film’s upside impact on our results in our next quarterly earnings report in February 2023, the tremendous success of Terrifier 2 has clearly made a compelling statement about Cinedigm’s leadership and capabilities in the lucrative horror space and we believe this will lead to more breakout titles in the future.

And beyond the horror genre, we are absolutely committed to bringing this 360-degree approach to our other enthusiast genres where we have the same capabilities, including Asian content, anime and family content. Before I move off of Terrifier 2, I would like to commend Damien Leone, the multitalented creative force behind the film for having the scale and perseverance to create this film and then turn it into such a tremendous artistic, critically acclaimed and commercial success. Leone’s production partners and the entire cast and crew on the movie epitomized the true essence of independent film making and everyone at Cinedigm is extremely proud to be associated with their film. Now on to our second quarter. Our results in the quarter underscore once again how Cinedigm continues to perform very strongly from a financial standpoint in contrast to many other players in our sector who have faced some headwinds due in large part to their single channel and/or single revenue model strategies and lack of presence in the fast-growing advertising supported and FAST businesses.

We have a diversified business model that captures revenue streams across the entire entertainment business spectrum, subscriptions, advertising, software-as-a-service, content aggregation, content licensing and releasing. That sets us apart from our competitors and is driving great results. In what is seasonally our slowest quarter, the second quarter, we increased consolidated revenue by 39% compared with the previous year quarter, grew total streaming revenue by 78%, grew ad revenues 102%, our 10th straight quarter of record ad revenue growth and we increased our paid subscriber count by 48% over the prior year quarter to 1.06 million subscribers. Our revenue and net income results exceeded the average expectations of the analysts who follow the company and exceeded our own internal expectations.

Now we generated these stellar results because Cinedigm’s extraordinary executive team is delivering exactly what we have promised, having now rolled up seven streaming content and channel acquisitions, including the aforementioned Bloody Disgusting and Screambox, expanding our enthusiast channel portfolio to 30 channels, building our content library into one of the largest modern streaming libraries in the world with over 50,000 films and TV titles, and leveraging our highly automated proprietary Matchpoint distribution platform across multiple revenue streams. John will cover our financial results in more detail and Erick will delve into the early success of our key business initiatives that we launched this year to further drive the business forward, including Cineverse, our flagship channel that debuted in September with several streaming channels and thousands of hours of content across multiple genres.

Cineverse is the key initiative that will drive home our goal to become the Spotify of independent streaming video content. We are very well positioned across our streaming, technology and content licensing businesses heading into our seasonally best two quarters of the year. And with the success of our horror strategy and Terrifier 2 included as an additional kicker to our results, we expect to report very strong performance in the next two fiscal quarters and significant topline growth for the full year as we move closer to our goal of sustainably positive cash flow and profits. And with that, let me turn it over to John for a more detailed review of our financial results.

John Canning: Thank you, Chris, and good day, everybody. I will touch on a few second quarter highlights, then I will update you on our outlook for the year. Before I begin, I want to reiterate that our Q2 results reported today do not reflect any of the tremendous success of Terrifier 2, which we look forward to sharing with you on our next earnings call regarding Q3 results in February. While we have previously laid out our aggressive year-over-year revenue growth and sustainable profitability expectations, we continue to stand by our intention to achieve those objectives and are making great progress on all fronts. Our key second quarter financial results for the quarter ended September 30, 2022, include, consolidated revenue of $14.0 million, compared to $10.1 million in the prior year quarter, an increase of 39%.

Total streaming revenue increased 78% to $8 million, driven by another record increase in ad-supported revenue of 102% and a 38% increase in subscription revenue over the prior year quarter. Erick will get into the drivers for this increase in his comments. Overall content and entertainment revenue was $11.4 million in the quarter and grew by 66% over the prior year quarter. This was driven by organic user growth, increasing market demand for Cinedigm’s extensive connected television ad inventory and the launch of new streaming channels versus the prior year period. Similar to last quarter, in Q2, Cinedigm once again delivered total revenue on all component revenues, which exceed our own internal growth plans for the quarter. Our adjusted EBITDA was negative $1.3 million in the current year quarter, compared to a positive adjusted EBITDA of $0.7 million in the prior year quarter, due to a decrease in legacy Digital Cinema system sales and eligible VPF systems as we winds down that legacy business, as well as higher direct and SG&A costs immediately following Q1 acquisition activity.

While our M&A strategy implicitly involves capitalizing on synergies in both revenue generation and cost savings, realizing these synergies typically lags a quarter or two. Net loss was $5.8 million or $0.03 per share, compared to a net loss of $300,000 or $0.3 million or zero dollars per share in the prior year quarter. This was also driven by the reduction in legacy Digital Cinema equipment sales and additionally included a non-operating charge of $0.6 million for the company’s investment in A Metaverse Company, formerly known as Starrise Media Holdings Limited, as well as the previously mentioned increased direct and SG&A costs immediately following that Q1 acquisition activity. Our balance sheet remains very strong with just under $10 million in cash and our only debt is a small revolving working capital facility we just took on to provide additional dry powder for key content acquisitions like the aforementioned Terrifier 2.

While we continue to monetize the remaining Digital Cinema assets, as we showed with great success in our most recent fiscal year results, we will continue to emphasize the importance of looking at our overall results, unencumbered by the Digital Cinema business as it nears this end of life. Despite the Digital Cinema wind down, we fully expect to generate substantial full year total revenue growth for the company this year versus last year, where our consolidated revenues were $56.1 million, up 78% over the prior year. On our last earnings call, at the end of June, we highlighted that our annual streaming revenue more than doubled in our fiscal year ended March 31, 2022 and we expect that streaming growth engine to continue to produce 50% plus year-over-year annual growth for the foreseeable future, especially given our related updated growth initiatives, which Erick will discuss.

Our M&A-driven synergistic expectations both topline and bottomline and streamlining initiatives are already starting to produce benefits. As both Chris and I have stated previously, we stand by our intention to achieve $7.5 million in annual cost savings in the coming several quarters. With that, I will hand it off to Erick.

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Erick Opeka: Thank you, John, and thanks for everyone for joining the call today. Before I discuss the significant progress we made during the quarter on our business objectives, I wanted to spend a few minutes clarifying Cinedigm’s strategic thinking in our long-term position in the market versus our peers. The promise of digital delivery of media so far has been a boom for consumer access to content. It revolulize — revolutionize news and information access 25 years ago and it changed the music industry forever 15 years ago. Today, for example, you can subscribe to several different music streaming services and have access to more than 80 million tracks and more than 5 million podcast episodes. For a while, it seemed video content will be moving in that direction.

We, as a company, were there at the beginning of the streaming revolution that began with Apple nearly 14 years ago and helped build some of the biggest companies in the business like Netflix, Amazon Prime and more, delivering tens of thousands of those hours to those services. But today, video streaming has move — is mostly moving away from these broad access models like Spotify and instead moving towards massive tentpole movies, billion-dollar series Extravaganzas and a shift back towards the Dreaded Bundle. Our research has shown that major streaming services have simultaneously cut the size of their third-party library significantly, while at the same time, having increased prices by up to 66% over the same period. If you think shrinkflation is bad when it comes to consumer goods, the major streamers have the beat, users can look forward to less content, bundles that you didn’t ask for at rapidly rising prices.

It will make the old cable model look downright attractive. The fact we find most telling, and frankly, surprising is the top 10 streaming services account for just 4% of available films and series. Shockingly, 96% of all content ever made is just not readily available to consumers. This just isn’t a quandary or peculiar fact. We look at it as not only a business problem but a cultural one. The world’s rich motion picture cultural heritage is at stake, and if the moves by the biggest players or any indication, it’s going to get even worse. At Cinedigm, we are looking at the world differently. Since we began in streaming, our focus has always been on enthusiast services, those that are vehemently passionate about a given topic genre or style of media.

When we began on this journey, we started launching specialized channels to help fans stream their passions with more than 30 channels and over 50,000 hours of movies and shows, we are now entertaining over 80 million people a month and most of them at very low or no cost. Fans love this model has exemplified this month by our successful release of Terrifier 2. We are providing access to films that speak to our audience passions, whether they be uncompromising horror, truth speaking documentaries or emerging talent right for discovery. And this is where Cineverse fits into the mix. What if we took that 96% of film intelligent shows and made them all broadly available, but under that same enthusiast ethos that I described. Well, that is our vision as a company, to build Cineverse into the Spotify or dare we say Google of video streaming.

Our goal is to make as much of the world’s content available to everyone with a focus on celebrating entertainment culture and you, the fans. Long-term, that means gathering hundreds of thousands of hours of programming and then providing the world’s best curation alongside the world’s best next-generation search tools and recommendations. Ultimately, we want you and your peers to have fun streaming your passions instead of pulling your hair out every time you search for something. But beyond being a potentially great business, there are some even bigger things at stake if we succeed at this mission, the democratization of access to media, empowering creators, sharing diverse voices and preserving the world’s cultural media heritage. We, as a company, are up to the task and we hope as investors are ready to join us on this mission as well.

Now let me tell you how we took our first steps on this journey beginning this quarter. First, we launched the 2.0 version of Matchpoint, our company’s proprietary streaming operating system as the backbone that does everything that I just described, much like Major League Baseball’s MLBAM, which became the backbone of Disney streaming, Matchpoint 2.0 powers the entire streaming stack from content management, streaming apps, delivery, analytics, reporting and other critical operating tasks. Our new framework is designed to be highly scalable to meet the future growth needs of our ambitions I just described and we are currently moving every single service and every piece of content we have and have acquired onto the platform. Next, we launched Cineverse on September 15th and while in its early stages, we have launched tens of thousands titles across every genre and along with more than 30 linear channels.

We expect to rapidly scale this service over the coming quarters and we have already signed more than 18,000 hours of additional films and series. We expect to be making big announcements soon about distribution, content and new features and capabilities in the coming weeks and months. A big part of Cineverse is the continued support of all of our enthusiast verticals, which in addition to being robust standalone businesses are also core verticals within the Cineverse apps as well. During the quarter, we expanded distribution with key partners, including DISH Network Sling TV, Amazon Freevee and top out-of-home network Atmosphere. Additionally, we expanded our channels onto several streaming television providers, including new deals with Philo and Fubo.

We also struck the first-ever carriage deal for Cineverse on Vidgo, another fast-growing virtual television provider. We expect many more of these sorts of deals in the coming quarters to grow the business. Next, we continue to expand Cinedigm’s direct ad sales business through our new Cinedigm Ad Solutions group, having made several key hires who are already actively selling this quarter. Our Ad Solutions team have also fully reengineered the ad tech stack, which led to record performance in the quarter. Increasingly, we are being sought out to monetize third-party partners have been expanding that business in earnest since embarking on it in the current quarter. To-date, as evidenced by our results, we have not seen the same softness in ad revenues as seen by some other streamers.

While we are obviously not immune to the macroeconomic conditions in the marketplace, we think a rapidly scaling distribution base, improved monetization and economic growth of the third-party ad sales and our position earlier in the growth curve than our peers could mean a much smaller impact of any macro ad business downturn. Finally, I wanted to mention the significant growth of our podcasting business. Over the quarter, we expanded our total show count to 30 unique podcast series in greenlit several critical shows that launched after quarter end. Most importantly, Mayfair Watcher Society, which rose to number two on the Fiction Podcast Charts and number 50 overall on Spotify last month. We view this business as not only a revenue driver, but also a significant test bed for IP that can be up level to movies and shows and distributed broadly.

We also look at this as a major base of future monetization as we expand into adjacent verticals like e-books and audio books, leveraging the vast IP and IP relationships within the Cinedigm library. All this additional distribution expansion of ad efforts led to outstanding performance in the quarter on our key business performance indicators. Total streaming minutes in the quarter rose to approximately $2.17 billion, up 78% over the prior year quarter. Our total ad-supported streaming audience, including web, mobile, social and connected TV increased to approximately 81.9 million average monthly viewers, up 149% over the prior year quarter. Total subscribers to the company’s subscription video streaming services increased to approximately 1060,000 , representing an increase of 48% over the prior year quarter.

And last, we achieved the $20 million social media subscriber milestone during the quarter and launched the company’s first social content partnership with Snapchat. We think that $20 million — 20 million member number is significant because of the impact it has on driving attention awareness for feature film releases as you saw with Terrifier 2. And then, lastly, we grew our cumulative podcast downloads to over 66 million downloads to-date and are in talks to potentially expand the IP of that with major partners. So, overall, we put up strong KPI performance despite what has traditionally been the slow quarter for us. Looking forward with the tailwinds of Terrifier 2, expanded distribution and a traditionally strong third quarter, we remain excited for both the near-term and long-term prospects for our streaming business.

With that, let me turn things over to the Operator to take your questions.

Q&A Session

Operator: Thank you. The first question today comes from Dan Kurnos from Benchmark. Dan, please go ahead. Your line is open.

Dan Kurnos: Yeah. Great. Thanks. Good afternoon. Maybe we start with Terrifier. Obviously, we call it a very success for you guys. I guess you are still evaluating the economic impact, maybe either Erick or Chris, can you guys just talk through sort of the flow-through to the bottomline from that movie, whether it’s monetized through all your different monetization channels, kind of what the blended margin of that sort of looks like? And then subsequently, kids are hard to come by, as we all know and I know you guys want to expand sort of that replicate that success. But how confident are you that you can do that in either other genres or even within horror, how does this scale and how do you kind of recreate what this success?

Chris McGurk: Well, thanks, Dan. This is Chris.

Dan Kurnos: Yeah.

Chris McGurk: Let me take that question. We are never going to be explicit about the financial results and expected financial results about any specific piece of our content, film or TV. That’s not fair to the participants in the film or TV program itself. But let me just tell you that, the thing that really sets Terrifier part versus other film releases is the fact that we spent a de minimis amount of money marketing the movie and almost all of the marketing was done virally. And I will tell you, it’s probably going to reach $11 million at the box office and on a box office to marketing ratio, it’s probably one of the most successful films of all time. So clearly, without that marketing spend, the traditional marketing spend, it’s going to have a disproportionately positive impact on our bottomline as you just take that out of the equation.

So you have got the see attrible piece. Then you have got Screambox and we have added a substantial number of subscribers already based on the exclusive run of the film on Screambox, which started on Halloween. I think I told you that we were up almost 300% versus our previous best subscriber month already and at $4.99 a month. And with the content we have coming up on Screambox over the next few months we think we are going to hold a substantial number of those subscribers. So that clearly is going to have a big, big impact. We ship — we are shipping a huge amount of DVDs and Blu-rays into the physical distribution market this month as well. And we just went to a transactional video on demand on a number of platforms, including Vudu and Amazon Prime, and as I mentioned in my remarks, it’s doing really, really well.

It’s outperforming what you would expect based on the box office of the film. And then we will have additional licensing opportunities after that and we hope to develop a whole state of ancillary content around the movie, including graphic novels, podcasts, NFTs, maybe a documentary, et cetera, et cetera, et cetera. So without getting explicit here, it’s going to have a very significant impact on our revenues and a disproportionately positive impact on our bottomline, because of the fact that we didn’t spend millions of dollars in marketing to get the movie out there. And we are — to your second point, we are extremely encouraged that there will be more successes like Terrifier 2 in our future, because we have added through these acquisitions that we have done and through our own capabilities, a real expertise and an acumen and identifying what’s going to work in the marketplace in the genres where we have released tons and movies, where we have streaming channels, where we think we have capabilities and expertise and data that our competitors don’t have.

So you are going to look for additional successes in horror. We think we have that same capability in anime and Asian content, and we have that same capability in family films. And we don’t think that this is going to be a one-off event, but we are going to have more successes like this in the future across the spectrum of our channels.

Dan Kurnos: Got it. That’s very comprehensive. Thanks, Chris. I appreciate that. And then maybe also for you and/or for Erick, I guess, you gave some color just around the initial rollout of Cineverse umbrella channel. I guess I am just trying to get a sense in this market that’s obviously increasingly shifting towards AVOD and FAST, which shouldn’t be a surprise to anybody. How you are thinking about — do you just want to get it out as quickly as you can, how are you thinking about the content backstop? How are you thinking about monetization in sort of a choppy CPM environment? Just help us understand sort of kind of the plans on Cineverse going forward and how you think about maximizing the opportunity you have to kind of roll out this umbrella channel?

Chris McGurk: Great. I will let Erick answer that. But first, let me just put a point here. When you talk about FAST and ad-supported, don’t discount the fact that we just crossed 1 million paid subscribers this quarter. because we have a different subscriber business than what people think of when they think of streaming with Netflix and Disney+ spending millions and millions of dollars to acquire subs. That business, for us, which we got into early on, we are not — we are spending virtually nothing to acquire those subs. So it’s an extremely profitable business for us, because we are so successful in these enthusiast verticals that we have out there, the subscriber growth is really happening organically. And that’s a meaningful number of subscribers and it’s still a meaningful business for us that continues to grow. So I just wanted to point that out. But let me turn it over to Erick to answer your question about Cineverse.

Erick Opeka: Yeah. So our — the focus really is on partnerships at this stage. So as we announced last quarter, I think, beginning of this quarter that we are reporting here, Vidgo partnership, our expectation is to announce more partnerships where Cineverse comes bundled with OEM devices, other streaming services and platforms and so on. We think that’s a cost-effective way to grow the base. The service has a great array of content not available on other services. So we think it sells itself once you get it into the hands of consumers. So that’s going to be our primary focus. Number one is leveraging those partnerships. Number two is we have a very substantial application base out in the market today. We have tens of millions of apps already out there.

We can leverage that app base to drive — we are — as we update the portfolio of streaming services, having the ability for people to sample Cineverse and if they like it, download the app from within other apps in the Cinedigm family, we are going to be leveraging that. And then, lastly, we have 80 million people captive across our footprint every month heavily marketing to that audience is going to be a cost-effective way to scale and grow the sub base. And beyond that we — that doesn’t mean we are not going to make traditional investments in customer acquisition. The further partnership with OEMs is not off the table, further paid marketing placement and other things to drive business in a smart way, secondary to leveraging the assets we have will be the model.

Dan Kurnos: Got it. Super helpful. Thanks. Congrats on the film and look forward to see what comes next.

Chris McGurk: Thanks, Dan.

Operator: The next question comes from Brian Kinstlinger from Alliance Global Partners. Brian, your line is open. Please go ahead.

Brian Kinstlinger: Great. Thanks so much for taking my question and lots of exciting news to talk about. I wanted to first follow up on Terrifier 2. Maybe, Erick or Chris, if you can share your plans and strategy now, maybe on an annual basis, if you formulated it yet, given the success on plans for wide releases and smaller releases on an annual basis? Is there a target yet? Is there a quarterly target? How are you thinking about that right now?

Chris McGurk: The answer, Brian, and thanks for your question is, it depends. We are — we don’t have a set plan to take movies wide like we did with Terrifier 2. It really depends on the potential of the movie. We never want the company to get into the game that the major studios and a lot of independents are in where they spend so much money in marketing movies and wide release. With Terrifier 2 as a matter we took it out as an event release the first weekend and it did so well that we went wide after it, which I think was a very smart approach. Again, we avoided the cost of going live in more than 1,000 theaters, and yeah, we got a great result and it’s going to end up being very, very profitable for us. But I think as I — in my answer to the last question, as we move forward, we are going to continue to have a very robust business releasing films in a limited release and the end date VOD and we will probably be doing one or two wider release movies, hopefully, in the same way we did it with Terrifier 2 in a smarter, much more profitable way than the traditional releasing business.

So I hope that answers your question.

Brian Kinstlinger: Yeah. Great. And then on Cineverse, I understand it’s new, it’s just been launched and you talked clearly about the ways to monetize it. How should investors think about the timeframe when this becomes meaningful now way you think it becomes meaningful to revenue generation? Is that a couple of quarters away? And then as platforms maybe take on Cineverse, will that lead to churn for individual channels? Just wondering how that impacts really?

Chris McGurk: Sorry, I missed the last part…

Brian Kinstlinger: Well, I guess, I am curious for someone who took — if Cineverse has the Bob Roche channel, it has the always

Chris McGurk: Sure.

Brian Kinstlinger: has a variety of channels.

Chris McGurk: Yeah.

Brian Kinstlinger: And does that mean if I have those channels, I am going to get rid of those agreements with Cinedigm. And then — and so there’s a little bit of cannibalization, but your Cineverse more than offsets it, I am just trying to think about the puts and the takes?

Chris McGurk: No. Yeah. So I think the answer there is, so if you really think about where we are going to take Cineverse, as I described during the call, the idea there is — this is — this goes far beyond Cinedigm’s 50,000-title library, right? We have a great library, but the reality is we are about one piece of a vast content ecosystem that just isn’t readily available. It would be like if Spotify only had the top major labels and left off 40 million, 50 million tracks off of Spotify. It would just be an incomplete platform. So our goal really long-term, is to make this platform the place where if it’s not the major streamers, it’s going to be on Cineverse, right? We want to build that base up. So we are starting with our 50,000 titles gives us a huge leg, a huge starting point and we added another 18,000 in licenses in the current quarter as well.

So the amount of content that we have acquired and what we bring is already bigger than any other streaming services. But we — but to make it Google or Spotify level of utility, we are going to be adding hundreds of thousands of titles over the next several years. So in the long-term, that doesn’t — our strategy is in parallel. We still think all of these enthusiast verticals, are great businesses, have different distinct use cases and business models that are generating a ton of revenue by themselves and then Cineverse is sort of a different play where we leverage the content we have, but it doesn’t — not at the expense of the other platforms. So we think for the foreseeable future, those two business approaches can coexist. In fact, we are going to, in the coming quarters, start to really kind of focus and simplify branding and other things, so that our whole ecosystem really reinforces Cineverse beyond just being 30 discrete channels, if that makes sense.

Brian Kinstlinger: Yeah. Okay. And on the — a little bit more on the micro level, speaking of enthusiasts, there’s Elvis enthusiasts, there’s Real Madrid enthusiasts. We haven’t heard much about those channels. I am curious, because there was a lot of promise for them and there are enthusiast proud. Can you speak to, A, any stats on the Elvis channel, how it’s played out? And then on Real Madrid, we haven’t heard much about the technology there on the improvements you are making to better monetize it? That would be helpful.

Chris McGurk: Sure. So, on the linear business we don’t break out any of the individual channels at the dollar level. But what I can say on both of those channels is we have seen significant strides in revenue growth on both of them since they launched for — in particular, for Real Madrid, with all of the interest around World Cup and the channels programming sort of pivoting to general soccer news, information, more information about the business in general, looking at the highlights and things like that. The channel is actually done — I know we have always had a longstanding issue with monetizing during games, because you don’t — there’s no cuts like in American Football where there’s a cut every 10 minutes. We have been working on the tech.

We can control it and roll it out on our own apps. We are still waiting for other partners to facilitate that to have it work on there. But that doesn’t mean we are not advertising on the channel. We are advertising 90% of the other time that is on the channel and that monetization has been effective and growing substantially. So we think both of those channels have a lot of prospects. On the Elvis front, I think, we had a big wave with the initial launch of the movie and now it’s really about us sustaining that wave with new programming and content, which we are working on right now.

Brian Kinstlinger: Great. And you talked about advertising discussion around the market, not just connected TV but elsewhere. How are you seeing CPMs, is there some pressure, is there not really, because there’s a shift to FAST and advertising-supported television, sorry, on television streaming and our fill rates just as strong right now?

Chris McGurk: Well, I think, the big thing to think about and I would love to compare us to in the same breath as Pluto. But keep in mind, Pluto has the might of Viacom, the combination of non-Pluto assets with — non-specific Pluto assets, the entire Viacom of interactive assets are in that mix and that they — looks like they had their first year-over-year revenue decline. That’s just simply the law of big numbers and them being at a much further along stage in their growth curve than we are. We are where Pluto was five years or six years ago in terms of the growth curve. So we have a lot more growth to go before we start to hit headwinds and hard year-over-year comps law big numbers type thing. So that’s number one. The second piece is, if you kind of look where we are in the value chain for streaming, I actually think we are very well positioned even with any sort of macro headwinds across advertising in general.

As players look and say, wow, expensive brand advertising at $35 to $60 CPMs, maybe not the most cost effective move for us, but how do we still stay top of mind and let’s look at more cost effective alternatives in the spot and programmatic markets. So that’s where parties can really make — hit 80 million people across our platform, premium connected TV inventory and a big swath of that and advertise against high quality movies and shows and brands that — and — but for far less than they would be paying to Via — to Paramount or Netflix or others. So we think, that said, that doesn’t mean that we still have a tremendous amount of headroom. We are in the low-teen CPMs on average. We think there’s 30% to 40% headroom improvement even with the macro conditions and still be competitive and that doesn’t even take into account we have made tremendous success on the direct sales side.

On the direct sales side, we had one of our best months ever in October just a few months after we launched the service. So we think those kinds of trends, all combined, make us poised very well to compete in an environment where some of the biggest players are crying uncle.

Brian Kinstlinger: Great. Those details are super helpful. Last question I have, it’s a smaller piece of your business, but nonetheless, a focus to grow and create and monetize 66 million downloads on podcasting is pretty impressive. I know it’s early. You have got 30 podcasts. Talk about where you hope to add content there? And how do I think about revenue from that — the contribution either on a go-forward basis or an existing basis on that type of downloads, if you are able to share?

Erick Opeka: Yeah. So we haven’t broken out that business specifically in terms of revenue. But I will tell you that, it’s now — at these volumes, it’s certainly at a full year run rate is a multimillion dollar business for us at this stage of the game. We think the implications — obviously, it’s an ad-based business today. We think two key ways of monetizing. In the short-term, obviously, it’s — and we are having a tremendous amount of success direct selling that inventory. What’s unique is, while we have connected TV inventory and people can hit it programmatically, if they want to do a 360 campaign of web app, connected TV, social and podcast in a specific content vertical, we have the ability to do that and that a great example is in this last quarter, while we were writing the horror wave it not flat forget there were tons of other fantastic horror movies as well and they were all advertising with us.

So I think that’s — that kind of a model and approach, that 360-degree approach that we talk about, how we can turn things into, turn properties into hits like we did with Terrifier also works for us to be able to monetize for ourselves and for other people, leveraging all these different assets. So that’s the immediate impact on podcasting. The — on the longer term vision is, if we are generating new IP, normally, when you develop movies and shows, you have a team of development people, burning cash, trying to create ideas, pitching ideas, sometimes banging their head against the wall. With us, we go from concept into production in a matter of weeks and months and if the shows a hit, we have the opportunity to turn that into movies and shows with a proven track record in the marketplace and a built-in fan base.

So we think there’s an opportunity long-term to not only produce these things ourselves, but potentially work with much bigger partners upstream as we prove the value in creating and generating IP.

Brian Kinstlinger: Thanks so much for answering all my questions.

Chris McGurk: Thanks, Brian.

Operator: The next question comes from Terry Hackett from Hackett Management. Terry, please go ahead. Your line is open.

Terry Hackett: Good morning, gentlemen. I kind of like to stay on the macro scale here with a couple of thoughts and questions. First of all, management is to be congratulated. I don’t think the market appreciates how important your pivot was a few years ago to aggregating the channels and the genres. It was a great move and I think you have effectuated it very well. Nor do I think they understand how the wind down of the system sales has distorted the revenue side of things. So I was wondering when are we done with having to compare system sales to revenue and we can just basically deal with NewCo and what it is doing so well. And the second thing is that you have talked about the $7.5 million in cost savings over the last two quarters, and if you look at that and divided by the number of shares, and if you look at your great revenue gains that you have had and will have, it just seems to me the crossover point on positive cash flow and income has got to be in the very near horizon.

And so good job and I just kind of get a macro feel of what you just did . Thanks, Chris.

Chris McGurk: Yeah. Thank you, Terry. Those are all really good points. And I agree that our investors need to continue to wake up to some of the points that you have made. And I think what you are going to see over the next couple of quarters should get everybody’s attention. And yes, I think, it was a smart move that we launched this enthusiast business years ago, because we view it as sort of perfectly complementary to what was going on at a macro level in streaming with Netflix and Disney and everything else. So we are not really competing with those services. And I think the second thing that we did that was very smart, as we talked about is led by Erick and Tony Huidor, we made a pivot into the ad-supported business and the FAST business back in 2017 when everyone was just still focused on subscription and that obviously is paying huge, huge dividends.

We are still going to have some impact from Digital Cinema over the rest of this fiscal year. But I think in the next fiscal year, it’s going to be totally behind us and we won’t have to worry about that complication going forward. And I think your point on the cost savings is very well taken. We made some of those cuts this quarter. Our performance this quarter doesn’t fully reflect the cuts that we have already made in the operational streamlining, but you are going to see more and more of it impact our results starting next quarter. And I think, hopefully, people will be surprised and excited by how our financial performance is really coming together on both the top and the bottomline starting with next quarter. So thank you for those comments and questions, Terry.

Operator: Since there are no further questions, I would like to turn the conference back over to Chris McGurk for closing remarks.

Chris McGurk: Thank you, Operator. Again, thanks, everyone, for joining us today and for your continued interest in Cinedigm. Please follow up with Julie Milstead with any other questions you may have. You can reach her at investorrelations@cinedigm.com. We look forward to speaking with you again when we report our third quarter results for the fiscal year 2023 in February.

Operator: This concludes today’s call. Thank you very much for your attendance. You may now disconnect your lines.