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Edited Transcript of CSSE.OQ earnings conference call or presentation 14-Nov-19 9:30pm GMT

Q3 2019 Chicken Soup for The Soul Entertainment Inc Earnings Call

COS COB Nov 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Chicken Soup for The Soul Entertainment Inc earnings conference call or presentation Thursday, November 14, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher Mitchell

Chicken Soup for the Soul Entertainment, Inc. - CFO

* William J. Rouhana

Chicken Soup for the Soul Entertainment, Inc. - Chairman & CEO

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Conference Call Participants

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* Allen Robert Klee

National Securities Corporation, Research Division - Research Analyst

* Daniel Louis Kurnos

The Benchmark Company, LLC, Research Division - MD & Internet, Publishing & Broadcasting Analyst

* Lisa R. Thompson

Zacks Investment Research, Inc. - Senior Technology Analyst

* Jeff Majtyka;Ellipsis

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Chicken Soup for the Soul Entertainment Third Quarter 2019 Earnings Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to Jeff Majtyka from Ellipsis IR.

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Jeff Majtyka;Ellipsis, [2]

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Thank you, Andrew, and welcome, everyone. With me on the call today are Bill Rouhana, Chairman and Chief Executive Officer; and Chris Mitchell, Chief Financial Officer, to review results for the third quarter as well as provide a business update and an update on the Crackle Plus joint venture. Following this discussion, there will be a moderated Q&A session open to the participants on the call.

During this call, management will make forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding expectations, intentions and strategies regarding the future. Included in these risks are forward-looking statements based on management's current expectations and assumptions and are subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from projected results. Given these uncertainties, listeners are cautioned not to place undue reliance on any forward-looking statements contained in this conference call. Please refer to the cautionary text regarding forward-looking statements contained in the earnings release, which also applies to the content of this call. Additional risk disclosures can be found on the company's filings with the SEC. As a reminder, on May 14, 2019, Chicken Soup for the Soul Entertainment created a joint venture with Sony Pictures Television launching Crackle Plus. On today's call, management will make comments on certain GAAP-based and non-GAAP pro forma financial information of the combined company that includes Crackle's financial results for the relevant periods prior to the closing date as if the acquisition occurred on January 1, 2018.

The non-GAAP financial measure the company uses is adjusted EBITDA. Management believes that adjusted EBIDTA provides useful information in that it excludes amounts that are not indicative of the company's core operating results and ongoing operations and provides a more consistent basis for comparison between periods. The earnings release contains a reconciliation of adjusted EBITDA to net income or loss, which is the most directly comparable GAAP measure. Please refer to the company's recent filed amendment #1 to the current report on Form 8-K/A filed with the Securities and Exchange Commission on July 30, 2019 for further details relating to the historical financial statements of Crackle, Inc. and pro forma financial information of Crackle Plus. If you have not had the chance to review this Form 8-K/A, now would be a good time to retrieve it.

I would now like to turn the call over to Bill Rouhana, Chairman and CEO. Bill, please go ahead.

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William J. Rouhana, Chicken Soup for the Soul Entertainment, Inc. - Chairman & CEO [3]

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Thanks, Jeff, and good afternoon, everyone. Glad to have Jeff and the Ellipsis team here with us today. We had a highly productive third quarter that provides solid early validation of our mission to build a leading AVOD network supported by a valuable content library and our unique distribution and production operations. We successfully executed in all 4 areas of our Crackle integration plan. In about 5 months, we've taken a business losing approximately $50 million a year and put it on the cusp of sustainable, profitable growth. At the end of the third quarter, we began to invest in initiatives that enable that long-term growth. Early in the fourth quarter, we are also beginning to see the fruits of our efforts to transform our distribution and production operations as we build a low risk, high-value content engine to fuel our AVOD networks. With my time here today, I want to provide an update on our execution for the third and fourth quarter results and developments in context and offer some bigger picture color on the opportunity in front of us in what is a very dynamic AVOD market. Chris Mitchell is here with me as well, and will add some color around the quarterly results, and then we look forward to your questions.

So let me first provide a quick summary of results. We delivered record top line performance with revenues up more than 40% over Q2, led by our first full quarter of operations of our Crackle Plus networks despite transitional and seasonal impacts.

Net revenue totaled $17 million, of which $14.4 million was contributed by our Online Networks business, and the balance primarily came from distribution of television and film content through Screen Media. While this represented record top line performance for our company, it was lighter than we would have liked due to some temporary technical issues associated with the update of our branding of the Crackle app on the Roku platform. As a result, a sizable number of ads were not served at a later part of the third quarter, resulting in about $1 million in revenue impact. The issue has been fully rectified and ad-performance normalized on our Roku app before we exited the quarter. However, this issue, combined with lower seasonal viewing trends we usually see in Q3, impacted our performance. We're pleased to report that the seasonal trends have corrected as well. Total streams on Crackle grew nearly 17% in October over September returning to levels last seen in July and among the network's high for this calendar year. Some of this improvement is due to the tremendous early success of our new series, Going from Broke, which I will discuss shortly. But overall, in the 5 months since Crackle Plus subsidiary closed, unique visitors to our networks are up 21% and total streams are up 9%.

eCPMs remain strong in the $8 to $20 range on Crackle, and we do expect Popcornflix rates to approach those levels as we have begun to execute on our initiative to consolidate its ad stack on to the Crackle platform. Midway through Q4, I can confidently say that we expect continued strong growth in both audience and revenue as we close out the year. Adjusted EBITDA for the third quarter totaled a modest loss of $4 million. There are several factors to consider in evaluating our near-term EBITDA performance. The first was the unexpected impact of the Roku glitch, which has now been rectified. Secondly, we began to ramp up our network marketing efforts partially in connection with our series, Going from Broke. Third, we are not yet benefiting from the changes in our production model and are carrying modest losses of approximately $1 million year-to-date as we reconfigure it. Finally, and most significantly, we will not be recognizing approximately $4 million of revenue and approximately $3 million of adjusted EBITDA associated with the library acquisition until the end of Q4 instead of Q3 as originally anticipated.

Despite lower adjusted EBITDA than we expected, Q3 was a good transitional quarter that provides an early glimpse of the significant ramp in growth we expect to see in 2020. In the near term, it's worth reflecting a bit on what we're doing and why. As you can see, our transformation is happening in 2 parts at the same time, which isn't easy to do but will prove valuable in the coming quarters. The first and most important aspect of our transformation is our focus on the business of building and acquiring ad-supported, video-on-demand networks, or as we've been referring to them: AVOD. Make no mistake that AVOD is the current and future growth of this company. I'm sure you're all well aware of the enormous amount of activity in the streaming world where much of the focus is on the global subscription VOD or SVOD battle, SVOD War now at hand among Netflix, Amazon, Apple TV, Disney+, Hulu, HBO Max and more. Consumers have choice now, and they're going to pay for the best options to get their content where and when they want it.

As consumers cut loose from the cable bundle and move to streaming subscriptions, the traditional ad-supported TV model, an $80 billion business, would appear to be at risk and it is. Consumers not only have greater choice for where to spend subscription dollars, they also have a choice as to how they want to spend to get great content. So as the global SVOD wars play out, the AVOD side of the market is rising rapidly, just not as prominently in the headlines. According to a recent report by WARC, W-A-R-C, ad spending on AVOD platforms is expected to reach $47 billion by 2023, which accounts for only 5% of the global ad spend. That growth comes as nearly 1/3 of U.S.- based broadband households are now using ad-based OTT services, up from 24% in 2018 according to a Parks Associates recent report. AVOD has a proven model that we believe is becoming more relevant to consumers as they seek access to broader arrays of programming while limiting the money they're spending on subscriptions. We also see tremendous appetite for advertisers as eyeballs move away from traditional ad-supported television networks to streaming platforms.

In this quickly evolving and growing market, we have already established our scale and leadership. We are among the largest AVOD networks for television and long-form content. Based on a recent survey by Magid, Crackle is #2 in viewership behind only the Roku channel. And if you add our 7th-ranked Popcornflix property, we offer advertisers access to the largest audience in AVOD. In total, our AVOD networks have an estimated share of about 16%. And as we've previously said, we're focused on growing that share through acquisitions of other AVOD networks. Additionally, as a result of our successful marketing test on Going from Broke, we now see opportunities and a roadmap to grow organically as well. Moreover, we are positioned in the most attractive part of the AVOD sector. In AVOD, you hear lots of names thrown around, most prominently, YouTube; and others like Pluto, which was acquired by Viacom for $340 million in cash. When we talk about AVOD, we're speaking specifically to viewing films and TV series on demand. Short form providers like YouTube are a separate segment of the market and a number of long-form players are focused on streaming of existing linear networks.

Essentially, porting the cable channel to a streaming platform to follow the eyeballs. While these and other networks compete for advertiser dollars, our strategic focus on the VOD market positions us uniquely to create shareholder value. To drive growth in audience, any AVOD network needs access to great content, and for us, that's a competitive advantage. Between Chicken Soup for the Soul's brand and titles owned by our Screen Media subsidiary, we have access to over 49,000 hours of programming. That's a large library for a company of our size, and we're focused on growing it through strategic content acquisitions by Screen Media. Our recent acquisition of the Foresight library illustrates our strategy to grow our content library and Screen Media for exhibition on our Crackle Plus networks. This library has 13 films including Peter Berg's Oscar-nominated Lone Survivor with Mark Wahlberg; and rom-com, And So It Goes, starring Diane Keaton and Michael Douglas.

Foresight also has 2 upcoming film projects: Best Sellers starring Michael Caine, set to go into production next month; and Wally's Wonderland starring Nic Cage set to start filming in January. The primary goal of our Distribution and Production business is to fully service and support the growth of our AVOD networks. We're doing this by profitably growing the library, which drives revenue for Screen Media and faster audience growth in our Network business. And using innovative outsourced studio partnerships like the newly formed Landmark Studio Group to derisk and lower our production costs of newly produced content. The creation of the Landmark Studio Group is the first example of moving production capabilities out of house to be more cost-effective and to reduce production risk. Landmark Studio is launched in partnership with David Ozer. It is a newly created independent production agency where, to put it in the simplest terms, David and his team offset production cost for a scripted series and films through guarantees prior to beginning production. This supports our goal of delivering great content to Crackle Plus Networks and adding more hours to our content library. Landmark already has a dozen promising film and television projects in various stages of development. So we'll get to see the benefits of this model in 2020. We also secured outside funding for Landmark that, again, derisks our production exposure. Our upcoming projects include The Fix produced by Grey's Anatomy Ellen Pompeo; The History of Gangster Rap produced by Ice-T and featuring Dr. Dre, Snoop Dogg and Ice Cube; and Safehaven, directed by Brad Turner who directed Homeland and 24.

David brings his experience in growing IDW to Landmark. So we're confident in his ability to add successful new programs to our business. We plan to create additional production entities similar to Landmark, which will help us derisk and scale our Production business by launching that activity outside the company. Our latest series, Going from Broke, which debuted in October on Crackle, is a great example of what's possible when we premier exclusive content on our growing network. The series was executive produced by Ashton Kutcher and puts a spotlight on the epidemic of student debt. Our series shines a light on the issue and provides financial skills on how to make practical changes to get out of debt. The series hit 1 million views in just 5 days, and as of yesterday, broke 5 million views in only 4 weeks. The series has generated an estimated $0.5 million in ad revenue on Crackle to date, validating our believe that compelling [OnPoint] content will find valuable audiences. And in line with our content development strategy, the series was already profitable because 100% of production costs were offset by sponsor and brand integrations prior to beginning production. We're going to use the same model to grow our future EBITDA. Going from Broke is a great early win and an example of our ability to be nimble in identifying what our audiences want and how to get it made cost-effectively.

We're continuing to execute on each of these activities as we build our distribution and production business to support our AVOD networks. We have a number of opportunities in the pipeline, so stay tuned. There will be traditional costs -- transitional costs to executing on the strategy, and you'll see us doing some things differently than we have in the past. One example is we are moving away from significant in-house TV series production. As part of this strategy, we are bringing these formally distinct businesses together to reflect our new business model and to best reflect our team and maximize our opportunities. We will report distribution and production as combined businesses beginning next quarter giving us a 2-segment structure, networks focused on AVOD in Distribution and Production.

So with that as a backdrop, it's clear our strategy is beginning to bear fruit, the strong financial start for Crackle Plus, the momentum for Going from Broke, the launch of Landmark as well as the Foresight library acquisition are all evidence of rapid progress. To continue that focus -- to continue that progress, we're focused on evaluating potential M&A opportunities in the AVOD space, growing our existing AVOD networks, building our production pipeline through deals like Landmark and growing our content library through deals like Foresight. In addition to our near-term priorities, we are also taking a close look at how to best build our business for the future. The Going from Broke experience has been instructive as we've seen strong marketing drive, not only for the viewership of the series but also growth in the audience across the network as consumers who are -- who come from Going from Broke look at more of our content. We think there is a meaningful opportunity to accelerate our growth and better position us for long-term planning by investing more in resources and our marketing capabilities and in talent to grow indirect -- our direct and indirect sales operations.

Making these investments in the near future will also support our growth in becoming the leading AVOD platform. We'll be talking more about our initiatives here on future calls. In Q4, all the pieces of our transformed company will be in place for the first time. The Foresight deal, in particular, will be an immediate contributor to performance with strong library sales and a pipeline of presales for 2020. We see strong Q-on-Q growth, quarter-on-quarter growth in Q4, which is especially noteworthy in that it is the first quarter in which we will have not added additional months of operations of Crackle to the period. We also anticipate solid adjusted EBITDA performance, though I would caution that results will reflect the cost impact from our marketing investments. All in all, however, we see a strong Q4 that sets us up for what we believe will be an exciting 2020, a rapid top line growth as we build our AVOD Networks business and fuel that growth when expanding and -- expanding Distribution and Production business.

To wrap up, we're making great strategic progress and seeing early validation of our revitalized business model. We think we are in the right place at the right time as a truly exciting opportunity in AVOD takes place. Major entertainment players are positioning for the biggest platform change since the dawn of television as we move to streaming. Increasingly, AVOD will play a major role in this revolution. We're positioned to win because we bring unique assets including leading scale, proven content and a nimble production strategy, strong partners and an operating approach that emphasizes low risk and capital preservation. Thanks again.

And now I'll turn it over to Chris.

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Christopher Mitchell, Chicken Soup for the Soul Entertainment, Inc. - CFO [4]

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Thank you, Bill. Our financial results for the third quarter of 2019 reflect the transformation underway in our Online Networks and Distribution and Production businesses. Bill has already discussed the current trends that are most relevant to our business. So I will focus on a quick review of our results and balance sheet. We delivered on our expectations to significantly increase revenue in the third quarter.

Total revenue for Q3 2019 was $17 million compared to $6.6 million in the year ago period. Online Networks, which, again, includes the Crackle Plus joint venture, generated $14.4 million in revenue in Q3 2019, compared to $1.8 million in the year ago period. Television and Film Distribution generated revenue of $2.6 million in Q3 2019 compared to $2.5 million in the year ago period. Television and Short Form Video Production generated revenue of $100,000 in Q3 2019, compared to $2.3 million in the year ago period. Profitability trends for the third quarter reflect the business developments discussed by Bill.

For CSSE as a whole, gross profit for the quarter ended September 30, 2019 was $3.2 million or 19% of total revenue, compared to $4 million or 61% of total revenue in the year ago period. Operating loss for the quarter ended September 30, 2019, was $9.6 million compared to an operating income of $900,000 for the year ago period. Without the noncash charges described above, operating loss would have been $2.7 million. Adjusted EBITDA for Q3 2019 was a $400,000 loss compared to $2.2 million last year.

Turning to our balance sheet. At September 30, 2019, the company had cash and cash equivalents of $6.2 million compared to $7.3 million at December 31, 2018. We had outstanding debt of $15.8 million at September 30, 2019, compared to outstanding debt of $7.6 million as of December 31, 2018. In the third quarter, we completed our preferred B share issuance and closed our increased credit facility of $16 million with Patriot Bank. With Crackle now operating at cash flow positive, combined with disciplined expense management, we are in a solid liquidity position. And while we will be opportunistic as we grow our business, we have no near-term need to raise additional capital. As of close of business yesterday, we had approximately $10 million in cash on hand.

As Bill indicated, we are on a positive growth trajectory in Q4, and we expect that to continue in 2020 as we benefit from our first full year of performance of our transformed business.

I'll now turn the call back over to Bill.

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William J. Rouhana, Chicken Soup for the Soul Entertainment, Inc. - Chairman & CEO [5]

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Thanks, Chris. I'd like to open the call for questions now, operator.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Dan Kurnos with Benchmark.

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Daniel Louis Kurnos, The Benchmark Company, LLC, Research Division - MD & Internet, Publishing & Broadcasting Analyst [2]

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Bill, let's just go down the line here. Start with Crackle. I guess I'm just trying to figure out what the real run rate is of this thing at this point. You guys had pro forma numbers of $65 million in '18. You do $14.3 million including Popcorn in the quarter. I know there was some noise with Roku, as you called out. You also mentioned something about the acquisition of a library. I don't know where that would have gone, the $4 million of revenue and $3 million of EBITDA. So just starting with revenue, just help us think about what happens understanding there's some seasonality here. But what's kind of the underlying run rate for Crackle here? And what were kind of -- what were sort of all of the add-backs in the quarter?

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William J. Rouhana, Chicken Soup for the Soul Entertainment, Inc. - Chairman & CEO [3]

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Okay. So the quarter for Crackle would have been $1 million roughly higher than it was, which was $14.4 million, I think. So it would have been about $15.4 million for the quarter, Dan, so roughly $5 million a month for the lowest seasonal quarter. I think you can expect fairly significant rise in Q4. And for the year, it's probably going to come in -- it's looking like it's $6 million-ish a month on average when you get done. So not far from what -- the number you cited. The library acquisition was something we had planned to do in Q3, but completed it in Q4. And so that'll add $3 million to $4 million of revenue and a significant amount of EBIDTA to Q4 that was expected in Q3. And then the other thing that impacted Q3 was that we didn't complete -- we completed the Landmark deal in Q4. We have another one of these production agreements underway right now. And as a result, we've been carrying about $1 million of expenses, which we expected to recoup from that transaction in Q3 but that will happen in Q4. And then there's a tiny little bit of additional marketing expense that we added in Q4 -- in Q3 because we started to see some positive results from the Going from Broke marketing dollars that we were spending. So all in all, those are all the differences.

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Daniel Louis Kurnos, The Benchmark Company, LLC, Research Division - MD & Internet, Publishing & Broadcasting Analyst [4]

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Got it. That's very helpful. So with that kind of backdrop, 2 high-level questions on sort of the streaming market and then your outlook. Just one, obviously, CBS-Viacom, CBS already starting to put some stuff on Pluto, and it sounds like some other guys with -- like Sinclair, some other guys, although I think Sinclair is more of an SVOD play. Longer term, they're getting a lot of their content now onto AVOD platforms so I'm just curious how you view the necessity of adding more content to your platform. And then from a cost perspective, you kind of framed up some long-term margin expectations around Crackle. It seems like things were a lot more expensive this quarter, but it's hard to tell with all of the moving pieces. So I don't know. Is there a way that we should be thinking about long -- how's your thinking on long-term margins for Crackle changed from the last time we talked?

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William J. Rouhana, Chicken Soup for the Soul Entertainment, Inc. - Chairman & CEO [5]

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I don't think they've really changed much with the one exception being that if we continue to see the kind of return we're getting on the marketing dollars we are currently spending on Going from Broke, I would probably start to spend more marketing money, Dan, because we grew -- if I remember the number correctly, I think 13% month-over-month between September and October. It's being driven almost entirely by the combination of new people coming to see Going from Broke, which we've been promoting and then staying and watching other things. If we see that continuing, I finally have an organic growth strategy that is worth pursuing and focusing on. And so we might do that, assuming that we see that continuing. So far it is continuing. In fact in the last couple of days, the Going from Broke viewership has been increasing again. So I think that's -- I'm not sure what that is yet, but it's certainly a sign of a way to go about building the network that makes a lot of sense but it will cost a little bit more money that I expected on the marketing side but it'll also grow much faster. So that's the 1 caveat, I would say, in terms of overall margin expectations. The other thing that, of course, affects the margin a bit is the mix between ad rep partners, and O&O and that kind of bounces around month to month, but -- and it was less good in the third quarter than it will be in the fourth. Does that help you?

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Daniel Louis Kurnos, The Benchmark Company, LLC, Research Division - MD & Internet, Publishing & Broadcasting Analyst [6]

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Yes. No, that helps. And just your thoughts on sort of some of the combinations, CBS putting stuff on Pluto.

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William J. Rouhana, Chicken Soup for the Soul Entertainment, Inc. - Chairman & CEO [7]

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Yes. It's really, really interesting. I mean we still have a very, very substantial backlog of pretty well-known people who are trying to get us to put them on our network on a rev-share basis, and I think that will continue for the foreseeable future. The big SVOD wars for me are really beneficial to us in a couple of ways. One, we are taking advantage of the very dramatic increase in the amount they're spending on production through these production entities we're creating. We will be sellers to those folks. They will become customers. And the fact that they're raising their investment in programming from $35 billion a year to almost $100 billion, is something we plan to take advantage of and we have been taking advantage of. And so that's really good from my point of view. The other thing that I think is happening from the SVOD wars is the completion of cord cutting is -- I believe cord cutting now is going to accelerate dramatically with the introduction of Disney+ with the HBO Max coming. Now these are going to be real services that people are going to start leaving their cable networks for, finally, once and for all, another group of them. There's always a place for those people for the free online video consumption that we provide in AVOD. So I see these -- this is a twofold benefit to us. Accelerating the cord cutting and also allowing us to make programming with these folks in a cost advantageous way. Both of those things, I think, are going to be helpful to us at least for the near term. What happens in that war in the long term I leave to smarter people than me to figure out exactly what it will be.

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Daniel Louis Kurnos, The Benchmark Company, LLC, Research Division - MD & Internet, Publishing & Broadcasting Analyst [8]

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Great. And just one last one. Just on the TV and short form kind of consolidation of the segments. Near term, does that mean that, that business segment just goes -- like goes away? You're not going to produce anything near term? Is there any revenue there? Because you had some shows in library and you were thinking about how to use them. So just help us understand what happens with that segment before you consolidated.

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William J. Rouhana, Chicken Soup for the Soul Entertainment, Inc. - Chairman & CEO [9]

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So we're going to take the existing shows that we have plus the development that we have and put them in the next production vehicle we announced, Dan, so you'll see where all of that goes. This is really -- so that production will come back to us, and it will be beneficial to us. It's really a better way for us to operate through a series of off -- [I don't even know quite] how to call them, coproduction kind of partnerships where we focus our management energy and effort on the Distribution business and on the network growth, and we have a series of people working on the Production business for us. We want to have scale, and we want to have predictability in that business. And the best way I can see to achieve that is to have multiple players all working on it in conjunction with us. So if one gets 2 done and another one gets 1 done and another gets 3 done, we end up with the combined effect of that scale. But we don't have to rely on doing it all ourselves, which has historically put too much strain on our management's ability to focus on the things that really matter. I feel this is the right balance in terms of the way to continue to get a production business going, but also to get the most important parts of our business properly working. So that's why we're doing it.

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Operator [10]

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Our next question comes from the line of Allen Klee with National Securities.

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Allen Robert Klee, National Securities Corporation, Research Division - Research Analyst [11]

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Can -- I'm trying to understand a little better, the cash flow characteristics of your business. You said you don't have near term need to raise capital, and I know you have a lot of growth capital for opportunities. But is there a way to -- that you could maybe explain to us on a kind of a more of a steady state how you think about what the cash -- the overall cash flow generation is?

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William J. Rouhana, Chicken Soup for the Soul Entertainment, Inc. - Chairman & CEO [12]

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Yes. The current -- if you recall the way we've been looking at this in the past, we would have our EBITDA and then we would look at how much of that EBITDA was being reinvested in Production and the film library. With the advent of the network, we don't have that reinvestment need anymore. There's nothing -- there's not really that kind of material production capital that's required that there was before. By pushing the productions off of our balance sheet, so to speak, and having them independently financed through the production vehicles, we eliminated the need for that investment. So the investment that's left, Allen, now is just investment in library, and we tend to be able to structure that in a way that doesn't absorb cash but rather creates cash for us. So in 3 different ways, we've changed the cash flow dynamic of the business, which is why we are now accumulating cash. And I expect that to continue for the foreseeable future. And it's really a matter of where we need to reinvest now as compared to before and the way we're able to acquire film library as the way we -- as compared to what we were doing before. So there's 3 parts to it. I hope that's clear. I'm not sure I was very clear about it, but those are the 3 elements that change the way the cash flows.

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Allen Robert Klee, National Securities Corporation, Research Division - Research Analyst [13]

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Okay. And then with Landmark, and you mentioned another potential upcoming type of company like that, do you -- what I'm trying to figure out is, is you guys gave a baseline pro forma historical amount of combined revenue in 2018 roughly or ending March of '19. And I'm trying to understand, is that a fair base line amount that you can grow off of in terms of like using Landmark and how much you'll be able to produce of content compared to where you were back in '18 and your economic -- and the economics on that?

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William J. Rouhana, Chicken Soup for the Soul Entertainment, Inc. - Chairman & CEO [14]

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Yes. It is a fair start -- place to start from. Partially an answer to Dan's question a minute ago about the combination. Part of the production revenue now will start to come through as distribution revenue because the way it will be characterized is we will be the distributor for each of these -- off our -- these coproduction partnerships, let's call them. And so instead of it coming as production revenue, actually, it will come to us as distribution revenue, which we will get from third parties and then pass through to the production vehicles. So when you look at Q4, what you'll see is a dramatic uptick in the revenue and EBITDA in the Distribution and Production business, partly the result of the delay from Q3 to Q4 of the Foresight transaction, partly from the fact that some of the existing productions are finally going to come in and they will be distributed through Screen Media. So that's why I collapsed the 2 lines. Because they're -- everything is going to look like Distribution revenue going forward, even though it's being driven by the coproduction partnerships in part. It is a fair base line, is the answer to your question.

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Operator [15]

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Our next question comes from the line of Lisa Thompson with Zacks Investment.

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Lisa R. Thompson, Zacks Investment Research, Inc. - Senior Technology Analyst [16]

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So could you go through a little bit -- I mean I'm looking at the gross margin and without the film library, it's down to 28% from 66%. Is that kind of where it's going to be now based on the new model? Where does that go?

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William J. Rouhana, Chicken Soup for the Soul Entertainment, Inc. - Chairman & CEO [17]

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No, no. This quarter is affected by the fact that there's no balance between the Production and Distribution line on the one hand and the Online Networks line on the other hand. And also by the mix in the Online Networks. Both those things drove lower gross margin. The Production and Distribution business remain a very high margin business for us. And as the percentage of revenue that comes from that business increases, the margin will move back towards what you've seen in the past. The other thing that's important is, we want to grow, and we'll continue to focus on growing our owned and operated Online Networks more than we will focus on our Ad Rep business. And this is where the potential acquisitions that we're looking at in the Online Network business are focused. They're focused on owned and operated companies, which will give us a much higher margin than the blend we have with the Ad Rep business.

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Lisa R. Thompson, Zacks Investment Research, Inc. - Senior Technology Analyst [18]

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Okay. And then going forward, your advertising, is that done in SG&A? Or does that go up in cost of revenues to get more eyeballs?

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William J. Rouhana, Chicken Soup for the Soul Entertainment, Inc. - Chairman & CEO [19]

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That's in SG&A.

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Lisa R. Thompson, Zacks Investment Research, Inc. - Senior Technology Analyst [20]

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Okay. All right. And I read in an article today that you talked about launching like a major movie every month on Crackle. Is that the plan? And if so, what's the next ones coming up?

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William J. Rouhana, Chicken Soup for the Soul Entertainment, Inc. - Chairman & CEO [21]

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We do plan to have original content pretty much every month. The next movie coming up is called Cold Blood, which comes up in December. It's obviously a good Christmas movie.

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Lisa R. Thompson, Zacks Investment Research, Inc. - Senior Technology Analyst [22]

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Yes. I can see that.

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William J. Rouhana, Chicken Soup for the Soul Entertainment, Inc. - Chairman & CEO [23]

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Yes. The Man Who Killed Don Quixote, which is up now, is doing pretty well actually. I've been watching the results of that. We will also -- but we also have additional originals in our Hidden Heroes series. By the way, this goes back to Allen's question about the production generating revenue. Hidden Heroes will go live -- has gone live, I think, November 1. Went live on Crackle. We'll also have a series -- we'll have our animal tale series going up. We have other movies coming that are pretty much -- it's really several pieces of original and/or exclusive content every month already in place through, it looks like, May of next year. Adult Life Skills in January. So as we're buying up and creating and distributing film and TV products, we're always looking for ways we can advantageously retain rights for AVOD, so that Crackle alone will be able to promote and show these films and TV series. There's something great about that, I think, because what's happened is looking at the Going from Broke example, we not only have -- we're going to get a great return on that, but we're also driving network growth. So this feels to me like it's going to continue to work and these -- this original and exclusive programming without having to pay a heavy price for it is an unusual approach, which I believe, is the right one.

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Lisa R. Thompson, Zacks Investment Research, Inc. - Senior Technology Analyst [24]

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But for Going from Broke, are you going to then like sell that to Netflix or something at some point or...

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William J. Rouhana, Chicken Soup for the Soul Entertainment, Inc. - Chairman & CEO [25]

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It's very possible that, that will have a second airing on another network. But that's...

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Lisa R. Thompson, Zacks Investment Research, Inc. - Senior Technology Analyst [26]

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Or on TV even. Can you put that on TV?

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William J. Rouhana, Chicken Soup for the Soul Entertainment, Inc. - Chairman & CEO [27]

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That's a matter of price. And then there's also the question of a second season, which we are wrestling with now and -- which we would, of course, be inclined to do if these results continue. I mean just to get this in perspective, when Sony developed The Oath, there was tens of millions of dollars spent on that program and on marketing it. And this -- our Going from Broke series is tracking pretty much in the same way as The Oath did in terms of views. So yes, Chris is our CFO. He said it was $40 million. He's -- I appreciate the specificity.

So we have a very different view of the right way to do this. But we're honestly delivering something of great value to the customers because they're coming back. Almost 60% of the streams are being completed when people start. Almost 60% of them are completing. That's a really high number. And the series has really been -- the number of daily views has actually been growing again on the series, and we've reduced the amount of marketing. So there's got to be something going on here, not the least of which is it's a good show. But it's also a good idea to have original content that you can get for less, let's call it.

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Lisa R. Thompson, Zacks Investment Research, Inc. - Senior Technology Analyst [28]

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I'm going to be very sad if there's no more episodes.

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William J. Rouhana, Chicken Soup for the Soul Entertainment, Inc. - Chairman & CEO [29]

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It's a good show. I really like it.

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Lisa R. Thompson, Zacks Investment Research, Inc. - Senior Technology Analyst [30]

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No. I like it. I call it -- to me, it's like for finance people, it's like watching Hoarders.

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William J. Rouhana, Chicken Soup for the Soul Entertainment, Inc. - Chairman & CEO [31]

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Oh, yes.

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Lisa R. Thompson, Zacks Investment Research, Inc. - Senior Technology Analyst [32]

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It's like how did these people get like this? I don't understand.

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William J. Rouhana, Chicken Soup for the Soul Entertainment, Inc. - Chairman & CEO [33]

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This is a -- you're doing a good thing here, Lisa. You probably got us another 50 viewers by that comment, of all the people who are listening to the call.

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Lisa R. Thompson, Zacks Investment Research, Inc. - Senior Technology Analyst [34]

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Yes. Exactly. Definitely. Financial people would love it. All right. So that's good. I'm looking forward then to see next quarter and have everything all sorted out and kind of get back to normal.

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William J. Rouhana, Chicken Soup for the Soul Entertainment, Inc. - Chairman & CEO [35]

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It should be there and then some.

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Operator [36]

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(Operator Instructions) Our next question comes from the line of Mike Grondahl with Northland Securities.

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Unidentified Analyst, [37]

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This is [Owen Rickard] in for Mike, and you kind of answered my question with the last one. But I was wondering if by getting the good progress so far with this Crackle Plus joint venture, if you can go like a little more in depth regarding your growth outlook and progress expectations for 2020.

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Christopher Mitchell, Chicken Soup for the Soul Entertainment, Inc. - CFO [38]

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Well, we do expect to grow. That is very much the case. And we've been staying away from, what you would call, guidance, as you guys know, because we really think this business is early in its growth phase. So I don't really want to get into that question in detail other than to say, I think Q4 will be indicative of what we should expect going forward. And let's -- we'll revisit the question in early 2020 with you. And with that, we're going to wrap up, operator. Thank you all for joining us today and...

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Operator [39]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.