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Edited Transcript of CSSE.OQ earnings conference call or presentation 29-Mar-19 12:30pm GMT

Q4 2018 Chicken Soup for The Soul Entertainment Inc Earnings Call

COS COB Apr 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Chicken Soup for The Soul Entertainment Inc earnings conference call or presentation Friday, March 29, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Scott W. Seaton

Chicken Soup for the Soul Publishing, LLC - COO and EVP

* William J. Rouhana

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

* James Carbonara

Hayden IR, LLC - Partner of IR Strategy & Operations

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Conference Call Participants

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* Daniel Louis Kurnos

The Benchmark Company, LLC, Research Division - MD

* Gregory Thomas Gibas

Northland Capital Markets, Research Division - Analyst

* Lisa R. Thompson

Zacks Investment Research, Inc. - Senior Technology Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Chicken Soup for the Soul Entertainment and Crackle Plus Full Year 2018 Financial Results Conference Call. (Operator Instructions) And as a reminder, today's conference call is being recorded. I'd now like to turn the conference over to James Carbonara of Hayden IR. Please go ahead.

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James Carbonara, Hayden IR, LLC - Partner of IR Strategy & Operations [2]

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Thank you, and welcome. With me on the call today are William J. Rouhana, Chairman and Chief Executive Officer; and Scott W. Seaton, Vice Chairman. Following this discussion, there will be a moderated Q&A session open to participants on the call. We appreciate having the opportunity to provide you with an update on our recent Crackle Plus joint venture as well as a brief review of our financial results.

During this call, management will make forward-looking statements. These statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the cautionary text regarding forward-looking statements contained in the earnings release issued on March 28, which also applies to the content of this call.

I would now like to turn the call over to William 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, James. Good morning, everybody, and thank you for joining us today. The focus of the call will be about our announcement yesterday of the Crackle Plus joint venture with Sony. There have been many questions about it, and we'd like to give you as much information as we possibly can.

Before that, we're going to give you a brief overview of last year's results, which we will be filing today. As we discussed, since the time of our IPO in 2017, our online network strategy has been to create a network of networks, grow our audience, lower our customer acquisition costs, and through a number of transactions, including Popcornflix, Pivotshare, Truli and Crackle, we have delivered on this strategy. We will continue to build our online networks, and we will look to acquire more of them as we take advantage of the highly fragmented online network business and try to create critical mass and scale.

Our current AVOD business performed well in 2018. Our ad request increased 94% year-over-year, up from $12.7 million per month to $24.8 million per month. Our online network revenue increased to $4.4 million from $800,000. And our television and film distribution business, where we own and license TV series and movies across all media, we currently own copyrights and hold long-term distributional rights to approximately 1,500 television series and films. In this area of our business, revenue grew to $13.2 million from $2.9 million in 2017. And this was primarily because Screen Media, which we acquired at the end of 2017, was rebounded under our management.

Turning to our television and short-form video business. We've been able to successfully generate significant revenue and adjusted EBITDA in that business since we founded our company in 2015. And our approach to producing content after we've obtained sponsor commitments continues as it has, and we have been able to produce reliable content for our online network business as well. To date, we've aired on 8 major networks, including CBS, The CW, Discovery Life, Discovery Family, TLC, FYI, A&E and Netflix. Revenue in this segment grew to $10.2 million in 2018 compared to $7.2 million in 2017.

So now let me turn to Crackle. Everything we say about Crackle, of course, is conditioned on the assumption that we complete the acquisition that we announced yesterday, and that all of the assets of the various AVOD and SVOD businesses we own and Crackle are contributed to the joint venture. I'm sure that many of you have seen the extensive press coverage of what is clearly a major event in our industry. The combination of Crackle and our VOD assets will create a leading VOD business in the United States.

Now we are -- we were able to attract a major media partner in Sony, who shares our vision of a consolidated AVOD space, where scale and addressability is given to advertisers and content diversity is available for consumers. And these, we think, are the key factors to long-term success.

So let's turn first to scale and addressability. The Crackle Plus scale is obvious. We will have over 10 million active users on our owned and operated networks, plus millions more on our ad rep network, each of which we intend to grow aggressively. We will have over 26 million registered users on our service, over 38,000 combined hours of programming, over 1.3 billion minutes streaming per month, 90 content partnerships and over 100 networks. This makes us a leading, if not the leading, AVOD service in the U.S. The scale and addressable ad technology that we have will enable us to reach -- to allow advertisers to reach a broad audience in one place.

Let's turn to content. Some of these same impressive statistics are the best evidence for the extremely robust content offerings that we can provide to consumers. The 38,000 hours of programming with 90 content partners and 100 networks are second to none. With access to library assets from Sony Pictures Television, Chicken Soup for the Soul Entertainment and Screen Media, we have a vast array of content that would be overwhelming, except it is well curated and will be constantly refreshed. Consumers will have the richest choice in the industry.

So the single most -- the most often received question I've had since we announced this yesterday is, why did Sony decide to do this? I can't speak for Sony. I can tell you what they said in our joint press release; that they believe in the idea of our partnership and they like our aggressive entrepreneurial approach. They like our enthusiasm, and they think we have the ability to grow Crackle Plus.

But I think there's more to it than that. I think we understood correctly that Sony wanted to stay in this business and was looking for the right way to grow it. They had opportunities to sell it to others and chose instead to stay in and help us build it. As Mike Hopkins said in his statement -- in his last statement to Variety in our joint interview yesterday, he said, "We think this is a big opportunity." And we agree. Scott, over to you.

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Scott W. Seaton, Chicken Soup for the Soul Publishing, LLC - COO and EVP [4]

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Thanks, Bill. I also think it is a terrific opportunity. While I would ordinarily walk you through fourth quarter results, they've been filed with our 10-K. And in order to have enough time to go over the impact of the Crackle transaction, I'll simply give you an update on the full year results.

Total revenue for 2018 was $27.8 million compared to $11 million in 2017. The 152% increase was primarily driven by growth across all of our businesses. So by line of business, our online networks, which again, includes VOD networks and Popcornflix, generated $4.4 million in revenue in 2018 compared to $800,000 in 2017. The increase is primarily due to growth in Popcornflix and on YouTube, plus the acquisition of Pivotshare. Television and film distribution generated revenue of $13.2 million in 2018 compared to $2.9 million in 2017, reflecting the acquisition of Screen Media. TV and short-form video production generated revenue of $10.2 million in 2018 compared to $7.2 million in 2017.

Gross profit for 2018 was $14.5 million or 52% of total revenue compared to $6.4 million or 56% of total revenue for 2017. The change in percentage of gross profit resulted from a $6.5 million noncash amortization of our film library at our traditional distribution business, which is required by GAAP to be included in the cost of goods sold. Without this noncash film library amortization expense, our gross profit would have been $21 million or 76% of total revenue, which is well above last year.

Operating income for 2018 was $800,000 compared to an operating loss of $600,000. Without the noncash film library amortization charge in 2018, we would have had an operating profit of $6.5 million or 23% of total revenue, which is substantially greater than last year. So our adjusted EBITDA for 2018 was $11.2 million compared to $4 million for 2017, excluding the effects of acquiring A Plus and the bargain purchase gain from the Screen Media acquisition.

So turning to our balance sheet. At December 31, the company had $7.2 million of cash and cash equivalents compared to $2.2 million as of December 31, 2017. Outstanding debt was $7.6 million as of December 31, 2018 compared to $1.5 million outstanding as of December 31, 2017.

Now let's turn to the Crackle transaction and let us give you some insights into what we've been learning there. Our review of Crackle for the last 6 months has revealed a growing, vibrant video-on-demand network. For example, in the fourth quarter of 2018, Crackle had double-digit growth in both monetized impressions and revenue. In January, that year-over-year growth continued. Daily active users have also grown consistently and meaningfully through those periods, and Crackle's position in the industry continues to be solidified. Just 4 days ago, Crackle was one of the select media partners chosen by Omnicom to participate in their video upfront deals with leading programmers including A&E, AMC, FreeWheel and Tubi.

All of this gives us confidence that the Crackle Plus joint venture will more than double our company's revenue and meaningfully increase its adjusted EBITDA, which is expected to be around 25% of total revenue.

Now I'd like to turn the call back to Bill.

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

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Thanks, Scott. We've been working nonstop on this acquisition for months. And some -- a number of you saw that a few days ago or maybe a week ago, we announced that we had appointed some new people to our company to help us grow our business. Philippe Guelton, David Fannon and George Lansbury add a layer of management to our business, which really does position us for further growth. Each of them are industry veterans with very strong backgrounds, and they've all contributed to the work that's been done here, all in support of Elana Sofko, our Chief Operating Officer. I am very, very excited about this team and their ability to help us grow our business.

And that's one of the reasons why I think the future of what -- of Crackle Plus and what we're doing is so bright. As I said earlier, we see a big opportunity to build even greater scale through an aggressive acquisition strategy. The AVOD business has hundreds of small networks that need to be consolidated, and we plan to aggressively do that.

I think at this point, having acquired Screen Media, Pivotshare, Truli, and now having arranged the pending acquisition or pending joint venture of Crackle, we've demonstrated we know how to acquire media businesses and we know how to optimize them. And I think that skill will serve us well in this environment.

Let me now open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Dan Kurnos of Benchmark.

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Daniel Louis Kurnos, The Benchmark Company, LLC, Research Division - MD [2]

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Bill, I guess we can throw the 5-year plan out the window and start from year 2 on the streaming side. Congratulations. This is a massive deal for you, guys.

Look, I know that you gave some good color around metrics and around what kind of the thought process behind Sony. I just want to kind of start because it sounds like all of the media reports are just dead wrong about how Crackle has been trending. We know that Pluto TV just got acquired for $340 million, and I wouldn't be surprised if their $150 million in revenue is inflated. So clearly there's value in the space. So just help us think maybe a little bit more about what you can do differently operating this asset that will help it continue to, what sounds like, grow.

And understand that you have a lot of absorbing and some thought process to go through here, but trajectory-wise, on a growth rate basis, do you think that you can accelerate the growth of Crackle? At least directionally, understanding that you probably can't say too much granularly, just help us understand how you're thinking about how the asset trends over the next 12 to 24 months as you absorb it, make some changes and then try to accelerate sort of the underlying asset.

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

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So, yes. Thank you, Dan. I agree. This is transformative for us, for sure. I think the most fundamental thing that's driving growth in AVOD has really nothing to do with who you are. It's the massive trend that is taking place in the way people are consuming video to video on -- over online and on demand. And Crackle positions us with the kind of scale and critical mass along with our other networks to be a recipient of that trend, to be a beneficiary of that trend.

And there's nothing really more important than being in front of a massive trend like this. The acceleration of movement online is -- cannot be denied. It will continue. It will continue massively. And we are now positioned as at least a leading, if not the leading, free AVOD service in the U.S. And if like us, you believe that subscription video on demand will have plenty of great competitors, who will be carving up what will probably be 1/2 of the marketplace over time, but that there will be another half of the marketplace which will ultimately be video delivered online and ad supported, we now are in a position to create one of the few meaningful companies that will be in that space.

And we're in that position, not just because of Crackle's mass and not just because of our combination giving us such scale, but also because we have access to a very large amount of content. We've developed capabilities in our company over the last couple of years of producing original content without taking risk, which we now will be in a position to put on our own network.

And by the way, with 500,000 daily active viewers of our combined networks, if you look at us compared to some of the existing cable and broadcast networks, if you believe the numbers you see, 500,000 daily viewers would make us one of the top networks in the United States of America including them all.

So video-on-demand is growing. The trend is endless and really very strong. We are in a unique position. We have the content to provide our customers. And on top of that, we become one of the few places that advertisers can go to reach scale. And so it's a very, very good combination, Dan. I think the growth will be extremely high just because of the trend.

But add to that our strategy of rolling up these smaller networks, which really cannot compete because there is no way that advertisers can go to hundreds of networks to place their advertising, we will be in a position to acquire. And I think most of you who know us know that we are responsible in the way we acquire things. We think about it carefully. We do it judiciously. We spend the time and effort to review and analyze the things we do. And we have proven that we can actually take assets in and make them robust, build them, grow them. So I think we are in the right place.

And all of this, everything I just said here, was exactly the conversation we've had with Sony management over the last 6 months. It's exactly what they see and what we agree with -- and they agree with. They see that this space is entrepreneurial, that it needs aggressive management, that there's a big opportunity. And we -- they have believed and come to believe that we are the right people to do that. And I agree with them. We are the right the people able to do it. This is one of the things we excel at. So yes, lots of growth, Dan, and very fast.

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Daniel Louis Kurnos, The Benchmark Company, LLC, Research Division - MD [4]

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So let's talk about the kind of the tuck-in strategy for a second. And I don't think anyone can really argue with sort of your deal acumen at this point, Bill. I don't think you've done a deal for more than 4x EBITDA, and you literally just became the largest AVOD player by donating to the JV a handful of tiny assets and 3 million MAUs with no cash outlay. So I don't know how anyone could argue with that.

I think on a go-forward basis, you're now sort of the largest stand-alone public. Can you talk about maybe deal size as to what you're looking for? Do you push more into -- we know Sony had some originals, but they were expensive. Do you push more into original programming, live? Just how do you think about adding to your library and the messaging that you want to convey with the brand going forward?

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

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Okay. So there's a couple of questions lurking there. I'll try to take them apart. First of all, in terms of aggregating and deal size, I think we're looking at what will probably be sort of a barbell kind of strategy. There are lots of very small players out there who we can aggregate really for very little. And they add increasing audience, access to additional content and more real estate, which allows people, who are migrating, to find us.

Over time, we will have to rationalize those various networks, put them together and turn them into a kind of identifiable group of networks where people know what they're getting when they go there. But that's a process that will take place over a period of time.

The other end of the barbell is the larger players who really have to try to figure out where they're going to go next. I think we represent a great potential partner for many of those people. And we will, of course, look at all of those opportunities. And I would expect that the next thing we do, when we have this kind of an event, will be something even bigger than this. But it's hard to tell. It's -- I'm looking into the future, but I know this is a space which has to -- there will be much -- there will be many transactions in this space. There has to be because this is such an important change in the way people consume video that over time, we have to have a few very large companies that will be servicing this area.

And we all know there are other people entering. And we now have an opportunity as either a or the leader to work with them as is appropriate to create more value for our shareholders. So no doubt we're in a place that is really exceptional.

But now we'll talk a little bit about content. As you know, we have thousands of television shows and movies that are in our collective libraries. We have the Chicken Soup for the Soul originals. We have the 3,500-or-so films that Screen Media has, that it has rights to. We now have access to the Sony library to the extent that -- since they're our partner.

We also have -- we say here 90 content partnerships. We have a very -- one of our important content partners is FilmRise, where we have a 500-film library that we have AVOD rights to for 5 years. We have been building these rights up over the last couple of years in anticipation of being in this space. So we have the ability to curate a whole series of networks around themes for people that will make it easier for them to find the content they're looking for. And over time, you should expect to see us do that.

And that'll be both on the AVOD and the SVOD side because we shouldn't overlook the fact that we have this Pivotshare technology, which allows us to create niche SVOD networks, which will be complementary to what will be our major focus, which is our AVOD growth. And by the way, just so we're all remembering, our original programming is getting pretty good. We did get nominated for an Emmy just last week for outstanding family viewing program with Hidden Heroes. So I think we're getting pretty good at that, too.

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Daniel Louis Kurnos, The Benchmark Company, LLC, Research Division - MD [6]

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So yes, just before I ask my last question and step aside to let some other people ask, just on that, Bill, how do you think about your sort of TV and short form production segment now? Does that become more of a content farm for the AVOD networks? Or is that -- do you still try to grow that segment stand-alone?

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

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Well, I always said from the beginning, both the film and television distribution expertise and the content creation expertise were being designed to give us an advantage as we moved into the video-on-demand business to obtain content at a lower cost than our competitors.

And what's happened is we've accelerated the growth of our VOD business much more than anybody could have hoped, and it's an amazing opportunity for us. But we've also developed exactly those expertise, those 2 groups of expertise, that we needed to give us that continuing advantage. And now both these businesses look like -- to others, like what they've always looked like to us: Places where we can obtain content, monetize it and make money, not take risk and have access to content on an advantageous basis.

We did hold back in the fourth quarter 2 of our series, Going From Broke and Hidden Heroes 4, because we knew this Crackle deal was coming and we want to start to take some of our stuff and put it on our own networks. That doesn't mean, Dan, though, that the sponsors want us to go elsewhere first. We will still do that for them because ultimately, all of this programming comes back to us in a way that is to our advantage and lowers our cost. So this strategy is still the same as it's always been. But now, at least, people can understand what we mean by these 2 activities are meant to support our VOD business.

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Daniel Louis Kurnos, The Benchmark Company, LLC, Research Division - MD [8]

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Got it. And then just last one for me. On the cost side, can you maybe, to the extent you feel comfortable, talk about potential synergies there, whether it's tech, whether it's personnel, whether it's your ability to utilize A Plus to lower customer acquisition costs, what have you, and at least directionally give us a sense of how much that will sort of contribute to profitability?

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

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Well, one of the key items in our relationship with our partner, Sony, is that we worked together to find ways to reduce tech costs, so that we would be able to move quickly into an environment where there was profitability in our joint venture. And we are pooling our tech requirements with other parts of Sony and using one of their very good companies to provide us with our platform going forward. And that shared technology cost will significantly reduce the joint venture's overall costs. And that was one of our key items to look at.

When we went into to look at Crackle, we were amazed at how vibrant it was and how it was growing and what we were seeing in the way of revenue and customers. And -- but there was also a lot of expense there. And we run our business differently than that. And we looked at each line item and found ways that we believe to reduce those costs. And going in, we have achieved most of those before we actually even close. So I feel we'll hit the ground running and be EBITDA-positive immediately from this acquisition, among other things.

The other question you raised, which was the A Plus question, and this is a very important thing, A Plus had billions of content use last year, as have quite a few of our other social media platforms or they've been growing very quickly. But we look at them as ways to reach customers in a less costly way because that's the second big cost of the business ultimately.

Right now, acquisition of customers by acquiring other networks is much cheaper, frankly, than going and marketing. It's the actual lowest cost. This is a buy market right now versus a build market the way we're doing it. But after a period of time, as the consolidation starts to be finished, you will have to be able to market to people. And we're building in that part of our business, through our brand ownership of Chicken Soup for the Soul and A Plus and Popcornflix and Crackle and others, we're building a series of relationships with customers.

We know what they're interested in. We see what they like, and we'll be able to market to them at a much lower cost than if we had to go out and find them to begin with. So that part of our business will continue to evolve. I would expect to -- you will see us, I'm sure, find other brands that have wide reach and which we believe will reduce our costs of finding customers in the future as the second part of our strategy, which, as you recall, was lower our content costs the way we've discussed through film distribution and content creation and lower our marketing costs through brand acquisition, where we are making money on the brands that we acquire, but also using the relationships with those customers to ultimately bring more customers to our VOD business. That's why we do that. So I feel like this picture is starting to come together in a way that we imagined it would.

The only thing that I could say is it's happening a lot faster than I thought it would, and I'm pleased about that. I think we've done a good job positioning ourselves in the right place and understanding the industry and seeking the opportunities that are out there and moving at the pace that's required.

These are very fast-paced times. Things are happening quickly. We are well positioned now to take maximum advantage of that. And to implement the business strategy that we've been talking about since we went public less than 2 years ago, just to remind everybody, less than 2 years ago, August of 2017. So it's been quite a transformation. It is not over. It's just beginning. Thanks for your questions, Dan.

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Operator [10]

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And our next question comes from Mike Grondahl of Northland Securities.

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Gregory Thomas Gibas, Northland Capital Markets, Research Division - Analyst [11]

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This is Greg on for Mike, and congrats on the deal. Just wondering if you could provide a little more commentary on the expectations for ROI from Crackle Plus?

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

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I think Scott was -- Scott's prediction is a good one. The way we look at these numbers, we should be able to get approximately 25% adjusted EBITDA from -- as compared to revenue from this part of our business. And I think that's a number that we'll get to from the very beginning.

Over time, I'm not sure whether -- I don't think it will change very much with scale because there are both costs and efficiencies that will come as the market evolves. But I think we feel good about that approach, looking at the business and looking at the models that we've been looking at here. I think that's a pretty fair number.

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Gregory Thomas Gibas, Northland Capital Markets, Research Division - Analyst [13]

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Yes. Got it. That's helpful. And then just roughly, I guess, what portion or percentage of the revenue mix is expected to be video-on-demand this year and then maybe next year?

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

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Well, now our business shifts overwhelmingly to a VOD business. As we said in the press release, this joint venture will more than double our revenue. So just by that alone, when you add it to our existing VOD revenue, it will be more than half of our business, for sure.

And if you take a look at the way the business is likely to break down, the smallest revenue contributor going forward will be our originals business, our TV and -- long-form TV and short-form production business. Our film and television distribution business, which I think as you saw, since we took it over, has bounced back now to historically high levels for a 23-year-old company. So we were able to get it right back to where it was and then some. That business will now be the second biggest.

And our VOD business will be the biggest by far, which will be a very important transition from a business that where revenue was driven by projects, and where every year, we opened a door with nothing and had to start over, to a business where more than 80% of our revenue is recurring. And a very small percentage of it comes from the project-driven work we had done in the past. It's a major transformation of the financial aspects of the business, and the risk of the business has been dramatically lowered.

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Gregory Thomas Gibas, Northland Capital Markets, Research Division - Analyst [15]

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Okay, great. Good to hear. And then I guess lastly, just a follow-up on content. Are there any specific movies or TV shows to call out in your production or distribution businesses?

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William J. Rouhana, Chicken Soup for the Soul Entertainment, Inc. - Chairman & CEO [16]

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Well, in our production business, I'll repeat what I said earlier. And we're very excited about the fact that we've received an Emmy nomination for Hidden Heroes, which is in its fourth season.

In terms of other productions that we are really excited about, Going From Broke, which is the Ashton Kutcher executive-produced series about young people who are overcoming the traumatic impact of student debt, is very, very exciting. It's a wonderful series. And maybe we will premiere that on the combined Crackle Plus networks. It is a terrific series. It's like the Biggest Loser for debt. I don't know how else to describe it. It's come out really well. Ashton's vision for it really has been -- it has been realized.

Dan Rosensweig, who is the CEO of Chegg and also the host or the star, I guess, of the series, did a wonderful job. And the individual students and young people who are now trying to overcome the burden of debt, their stories are compelling. And it's a really big problem. It's a very topical and timely problem in the country with 44 million plus people with $1.5 trillion worth of debt. It's a great series. It's really great. So I call out those 2 on the original content side.

On the acquisition side, probably many of you will not have noticed that we are the ones who managed to acquire The Man Who Killed Don Quixote, Terry Gilliam's 25-year odyssey, to create a movie that really has a huge want-to-see associated with it. And Screen Media was able to acquire that. There will be a Fathom national release of that Fathom Events release on April 10. By the way, feel free to go to Fathom Events and get your tickets. There are many Terry Gilliam fans who have waited a decade or more to try and see this movie. And I think we'll probably give that movie special status in terms of our -- in terms of AVOD rights on our own networks. I think that will be something that will attract quite a few people to our networks.

And then if you just look at the historical stuff that we have been able to show over the years on the Popcornflix side, we've had movies like Clue and 48 Hrs., Beverly Hills Cops movies and the like. On the Crackle side, we have the Sony library, which is an extensive library. And Sony, by the way, is committed to continue to provide content, and in fact, will provide more content going forward than they have in the past. So a lot of really good stuff for consumers that I think will be helpful in attracting more and more people to our online networks.

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Operator [17]

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And our next question comes from Lisa Thompson of Zacks.

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

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Big news. Very exciting. So here I'm going to ask you some questions, so that you people have some pity on those of us that have to do a model. When do you think this is going to close?

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

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Well, we're expecting to close it in the month of April, but it might move -- it could drag until May. There are no regulatory issues. It's mostly just assignments and consents. There's a lot of paperwork to do to get it closed. But yes, it should close -- I think it will close in April.

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

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Okay. And you said you're going to file an 8-K on that. What sort of financial information is going to be in there for us?

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

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Yes. So the normal requirement, Lisa, as you know, is that the first 8-K is due about -- I think it's 4 days after you announce. So we will do that, but that 8-K will not contain full-blown financials. 71 days later, you're required to file a full-blown 8-K with financials, and we'll meet -- we'll do our best to beat that timing. But at the very least, we'll meet that timing.

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

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Okay. So in the interim, can you give us some sort of number? I mean is there -- should we add like, I don't know, $10 million a month to revenues? Or like where do I start here?

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

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Well, I think that, that, we aren't ready to do yet. As you know, we haven't even closed. So I think we've been pretty clear that this will more than double our revenues. So I think I have a 2 on my calculator. So I know how to multiply that. You could figure that out. But this is a process that will reveal itself more fully over time.

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

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Has it looked to be a seasonal business? Or are they just growing sequentially?

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

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There's a little bit of seasonality in all of the advertising-driven businesses for the end -- for the Christmas holiday-type stuff, but not in a material way. This looks like any other advertising business in terms of seasonality. There are certain peaks and valleys, but they operate within much narrower ranges than you've been used to with our business in the past, where half of our revenue was in the fourth quarter. That's a thing of the past.

So that's now history. We now have business that generates regular recurring revenue within a pretty understandable band that generates constant EBITDA and cash flow. And it's the business we aspired to build when we started.

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

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All right. So let me just clarify your comment about being EBITDA-positive. Do you mean for the joint venture or for the company as a whole?

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

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The company is already adjusted EBITDA-positive, and the joint venture will simply add to that considerably.

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

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Okay. So right off the bat, we'll be...

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

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Right off the bat. Because look, we've been working on this for quite a long time. And as you know, we operate things in a very efficient way. We pay a lot of attention to cost. We believe you can grow a business profitably, that investing in businesses makes sense, but it should be -- that you should invest as you grow rather than ahead of your growth.

I know others disagree with this. That's the way they'll run their business, and that's fine. I think we've been able to achieve very substantial growth in a responsible way, being good custodians of our shareholders' money. And after all, we are the largest shareholders of this company by far, as we all know. It is our money, and that's how we view it. And so we handle things this way.

We're able to look at Crackle, understand the puts and takes of that business and understand how to right-size certain things because we operate differently. We are a more nimble company than a major studio. You can't do the kinds of things in a major studio that you can do in a smaller, more agile company that's able to move quickly. And I think that's also part of what attracted Sony to this. We -- they think we understand how to run a business. I know we do. And this business will be run the same way the rest of our businesses have been run.

So -- and I think if you go back -- I said something a little earlier, which I hope everybody noted. There are times in an industry where you are better off building things, and there are times in an industry where it's cheaper to buy things. If you look at where this particular industry is right now, this highly fragmented group of companies that control all of the AVOD services across the country, this is the time to be a buyer, not to be a builder, spending big marketing money.

I can give you comparisons of companies who have spent multiples of the amount of marketing money we spent last year and they added the same number of monthly active users as we did. Because right now, what's driving growth is the trend. The trend is overwhelming everything else. What's also available is an opportunity to consolidate. And if you are a small guy, you really must sell.

By the way, if anybody on this call is a small AVOD operator, please call us when the call's up, so we can talk about buying your network because you need us to do that. You need us to buy your network before advertisers stop giving you any money. We need -- you need to be part of a bigger, more consolidated group, because that's what's going to attract the advertisers. They cannot pick and choose among hundreds of networks.

So that's what's going to drive the business going forward. And it's responsible spending that you do in light of that moment in time that really makes the difference in building a business like this. I'm 2 minutes over what we promised people we would do today. So Lisa, if I give you one more or did I answer your question?

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

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Okay. I'm just going to give you one more and to address the shortfall in revenues for the fourth quarter. You said you held back 2 series from shipping. Does that account for everything in revenue?

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

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Actually, let's go in the -- if you look at the 3 segments, online networks did better than we projected. Film and television distribution did better than we projected. The only part, the only business that didn't quite live up to expectations is the one that has always been the most unpredictable, which was the production business. We did hold back 2 series. That was largely responsible for the difference. And happily, that part of our business, which is the least predictable part of our business, is now the smallest part of our business as well.

So going forward, this will be a rounding error or an asterisk rather than a focus. And that's really better for all of us because it's a more valuable business, given the fact that it now has a regular recurring revenue stream, and is no longer as project-driven. And therefore, the risk is gone.

And that was something, as I said on our last conference call, we really were striving to do to, to make sure that we had -- that we've taken this business to a place where the risk of projects happening or not happening, timing, all the different things are associated with the individual projects that you work on over time, which could be taken out of the business. And we succeeded in doing that, so.

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

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And just will we see those 2 in Q1 or Q2?

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

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Of course. They'll probably be on Crackle, but I'll let you know when they premiere.

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

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No, no. I meant -- okay. So you're not even going to put them on TV?

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

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Probably -- well, Crackle is TV.

Okay. Thanks, everybody. With that, I think we have to wrap up, operator. We've gone over our planned time.

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Operator [36]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.