Cinedigm Corp.
Q3 2018 Earnings Call Transcript

Published: 15 Feb 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to the Cinedigm Corporation Fiscal 2018 Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] And as a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference, Jill Calcaterra, Executive Vice President. Ma’am, you may begin.

[Jill Calcaterra:]

Thank you. Good afternoon and thank you for joining today's third quarter fiscal 2018 earnings conference call. Participating in today's call are Cinedigm's Chairman and Chief Executive Officer, Chris McGurk; Chief Financial Officer, Jeffrey Edell; and our General Counsel and Head of Digital Cinema, Gary Loffredo. Before I hand the call over to management, please note that on this call certain information presented contains forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties and assumptions. Potential risks and uncertainties that could cause the Company's business and financial results to differ materially from these forward-looking statements are described in the Company's periodic reports filed with the SEC from time-to-time. All of the information discussed on this call is as of today, February 14, 2018 and Cinedigm does not intend, and undertakes no duty to update future events or circumstances. In addition, certain financial information presented in this call represents non-GAAP financial measures. And now, I'd like to turn the call over to Chris McGurk.

[Chris McGurk:]

Thank you, Jill. And thanks everyone for joining us on the call today. Here is the agenda for the call. First, I will review where we stand regarding our game changing transaction with Bison Capital and the initial steps we have taken to implement our new strategies. Then I’ll summarize the four key elements of our strategy to drive positive free cash and EBITDA in our overall content distribution in OTT business. I’ll then review operating developments in our businesses and finish by discussing our new initiatives in the Investor Relations area. A key arena of focus for us now that we have completed the Bison transaction. And after that, Jeff will then review our financial results and discuss the dramatic progress we've made in strengthening our balance sheet as well as next steps for future refinancing. He will then go into more detail about the new high margin, lower risk revenue and property streams we will be generating through our portfolio of new deals in our digital OTT streaming and services business and we believe we’ll have a positive and significant impact on our financial results. In addition, Jeff will provide more detail on our enhanced green lighting process and cost efficiency efforts, which both also support our drive to positive free cash flow and EBITDA. After that we'll take your questions. First, we closed and funded our game changing transaction with Bison Capital on November 1st. We then received CFIUS approval, completing the last regulatory step in closing this transaction. On December 29th, Bison funded $10 million low interest loan to Cinedigm for additional working capital, completing their $40 million total investment and finalizing the deal. In connection with that closing, we retired the remaining approximately $50 million in convertible notes that we have been carrying on our balance sheet, completing the full elimination of the $64 million in notes issued in 2015. In a few minutes, Jeff will describe how that refinancing combined with the new Bison loan and further reductions in our digital cinema debt that significantly enhanced our balance sheet and provided important new working capital. We will also describe the prospect of a significantly enhanced new revolving credit facility. The size of the catalyst for our vastly strengthened balance sheet Bison has enabled a new strategic vision for the company. Cinedigm is now poised to be the first true U.S. China independent studio, uniquely well positioned to deliver content and OTT channels and services, the fastest growing segment in the entertainment business to consumers in both characters, the two largest markets in the world. This is a massive opportunity for us to become an important two-way pipeline for independent content and OTT services in out of China, particularly in the streaming sticks. A projected $65 billion business with China and the U.S. by far the two largest and fastest growing territories in that segment. In China alone, the online video market will soon be more than $33 billion business, twice as large as the U.S. theatrical market ever was. The surging spending on screening content is unprecedented as a tailwind for rapid growth and we intend to take full advantage of it given our new and unique position. Now many observers have been very surprised that we are able to close the pricing transaction win over the last 18 months virtually every other deal in media, entertainment and technology involving Chinese investment in U.S. companies as faltered through due Chinese or U.S. regulatory issues or other high-level concerns. Unlike those other deals, the Bison transaction with Cinedigm closed because it delivers clear benefits to consumers of entertainment content in both countries and supports the regulatory agenda by providing additional premium independent content choices and streaming options in both China and the U.S. This is a win-win situation provided by Cinedigm with our longstanding expertise and success in both of those key businesses. For that important reason, the regulatory authorities encouraged and supported our transaction advising and therefore our deal closed where others failed. Now working closely with Bison, their related media companies and directly with the appropriate regulatory bodies in China, we are moving forward on this high potential strategic plan for content distribution and channels in China and for Chinese content and channels in the United States. Immediately following the closure of Bison investment, key members of the Chinese cyber authority came to Los Angeles to meet with our management team. This important government agency regulates content in China and is in fact share by Chinese President Shu. The cyber authority is looking for cooperative ways to reciprocally bring more independent non-Chinese content and channels into China and to distribute Chinese content and streaming channels in the U.S. while together in Los Angeles, we shared Cinedigm's history and expertise in OTT, Hindi film distribution, content aggregation and much more. Following those meetings in December, we were invited by the cyber authority to attend the World Internet Conference in Wujing, China which they co-sponsor. During that conference, Bison and the cyber authority introduced Cinedigm to several top entertainment partners in China forging away for future business. I also did several widely print and broadcast press interviews in China to announce that we were working with Chinese partners and regulatory authorities to bring significant new independent entertainment content into the country. This was very well received and we are optimistic that our close working relationship with Bison and the regulatory agencies will help solidify a competitive advantage for us in China. As an immediate result of those activities in January, we announced the strategic alliance with Chinese entertainment company Starrise Media to release a significant number of independent films in to China theatrically and to digital platforms there. Reciprocally, the alliance also paves the way for Cinedigm to distribute hundreds of Chinese films in to the North American marketplace. In both territories, there will be a strong focus in digital distribution. That deal will resolve a meaningful new revenues streams for Cinedigm in the near-term. This alliance is the first step and our new strategy for China, it should be the first of many other announcements, new initiatives and partnerships in that regard. To creates the opportunity for those Cinedigm Starrise to have unique access into the two biggest entertainment marketplaces in the world with experience underground in both two territories. Well, the initial focus in the alliance will be on premium feature phones for each territory. Future plans they also include television and short form content, as well as providing content to and servicing new OTT channel deployments with other key partners in China and in North America where we are also in the process of developing plans to launch new Chinese content channels. From our financial perspective that Starrise, as well as other potential similar partnerships will provide Cinedigm with three new income streams. By releasing the independent films theatrically delivering home entertainment content to Chinese platforms including mobile, TV and the Internet and bringing Chinese content to platforms in the U.S. Cinedigm generate significant new distribution fees in all three areas. We expect revenue from the higher margin low risk opportunities that have been flowing in the next fiscal year. Potentially, we believe the Starrise alliance with Cinedigm to generate up to $15 million in annual revenues. So just through this deal alone China distribution and content will provide immediate and significant boost to our revenues and profitability in the near-term. I want to reiterate that surging spending on digital content and screening in China and the U.S. has created an unprecedented tailwind for growth. With the Bison deal completed, Cinedigm is now light in the middle of that business in both territories with the unique opportunity to be important two-way independent content pipeline into and around China. We are now moving rapidly to take advantage of that huge opportunity as evidenced by our close working relationship with Bison, our direct relationship with the Chinese regulatory authorities and the Starrise alliance. While we implement these key new China, U.S. strategies for content distribution OTT streaming, we recognize the importance of creating sustained overall positive free cash flow and EBITDA in those businesses and we have a four-part plan to do so. First, we remain committed to cutting costs and promoting efficiencies in all aspects of our business. While, we have already cut $11 million in operating costs over the last two years and are running the leanest most cost-efficient OTT operation in the business, we are pursuing additional measures that Jeff will describe in more detail to further streamline operations. Second, the working capital provided by the Bison investment will better enable us to take advantage of the improved competitive environment in independent content distribution where several of our competitors have disappeared through consolidation to invest in more high return and premium content and drive incremental revenues. In addition, we believe according to our green lighting process, which has led the high performing recent film titles such as Hickok and Gangster Land which will generate a combined of 166% IRR to enable us to employ our additional capital to achieve higher margin results. Another example of this is our recent success with Hallmark Christmas titles, where net sales were up 43% largely driven by an online demand at various accounts including Amazon. While we focus on growing our digital business, we also recognize that we can selectively and opportunistically generate increased profits as a last consolidator in the declining physical DVD and Blu-ray business. An immediate example is our next Super Bowl DVD where we expect to outpace last year's performance in physical by 20% to 30%. Third, in our OTT business, the success of our current channels plus our demonstrated expertise in providing array of services and content for the entire OTT streaming ecosystem as led to a series of new deals that will generate significant new revenues and higher margins and with much lower risk. Our three own and operated channels, Docurama, Dove and CONTV have been important calling cards to demonstrate our capabilities and now they are helping us to attract new business and higher margin financial opportunities with strong branded, deep pocketed partners that will represent the vast majority of our deals going forward. Jeff will describe these deals and profit models in more detail in a few minutes. Finally, the new revenue and property streams from our China initiatives will also provide significant new high margin results as I just described. Based on these small initiatives we will drive toward positive free cash flow and EBITDA in our overall content distribution and OTT streaming business. Now let me spend a couple of minutes on our business operations. From on OTT perspective as I just noted, we are very encouraged by the high volume of quality deal flow. We have closed three significant new platform deals. One with XUMO announced earlier this week, one with VIZIO announced this morning and one with a top three telecom and media company, which we will announce and launch in April. In addition, we have several more distribution and channel deal ready to close in the near-term. Recently, we announced a 24/7 CONTV channel on the widely popular social video service Twitch, using an ad revenue sharing model and are extremely pleased with our early performance, which already numbers in the millions of views per month. Twitch, a subsidiary of Amazon which began as a game-oriented platform for millennials, has more 100 million visitors per month. Twitch is the leading live streaming video service in the world. Based on CONTV success, we're now working on two other potential channels with Twitch. Our first distributed channel WHAM, a lifestyle channel focused on the incredibly large and fast-growing e-sports and gaming businesses, will launch by March 31st with almost 300 hours of original programming. The WHAM deal is a third-party distribution deal, where Cinedigm delivers channel management services, which raised 20% of gross revenues off the top, while bearing no incremental cost and no financial risk. As you will see this model is a key template for our future OTT deals. This morning, we announced a significant new distribution deal to embed our Dove channel in VIZIO SmartCast and VIZIO Internet Apps Plus devices. VIZIO users will now be able to access free linear and premium subscription offerings from Dove channel which includes hundreds of hours of program. VIZIO is a top three consumer electronic device manufacture and since launching in 2002, VIZIO has sold over 75 million products including television sound bars and other devices. VIZIO is just critical placement usually only available to companies like Netflix, Amazon and Hulu and reflects the rising consumer value that manufacturers, telcos and NHL [ph] are placing on our portfolio channels. We are also in significant conversations with other prominent Fortune 500 media and broadcasting companies about providing content, OTT services, digital aggregation, channel joint ventures and cross promotions for future initiatives. Further demonstrating our OTT channel management capabilities, we are close to closing another third party distributed, branded OTT channel focused on number of females under our management services and financial arrangement similar to the WHAM agreement where we have no investment risk while sharing significantly in gross revenues. In earlier this week, we announced the launch of our digital first linear networks and video-on-demand services on Zoomo. Zoomo provides over the top BOD and live premium digital channels direct to consumers via smart TVs, mobile and streaming device integrations. Zoomo has strategic partnerships with companies such as LG Electronics, I-sense, Nivea [ph] and Panasonic to provide one-click actors for consumers. Through the partnership with Zoomo, Cinedigm channels will now be made available and readily accessible in over 45% of all smart TVs sold in the U.S. which equates to more than 20 million households nationwide. In our entertainment distribution business, we are focused on leveraging our enhanced streamlining process which has been so effective recently with titles like Hitchcock, Gangster Land and stage shows as well as distributed deals including Hallmark and NFL. This will take advantage of both additional capital for content investment for the Bison transaction and a much more open playing field competitively due to industry consolidation. Additionally, our advantageous position in China and new joint venture was Starrise Media should help us bring in more premium high return content given our ability to secure Chinese distribution rights with a quality partner in China. I’d now like to provide an update on our investor relation efforts. No one is happy with where our stock prices are, particularly given the dramatic strengthening of our balance sheet and the new strategic business vision that resulted from the Bison transaction. Admittedly for the past year, we have been less than aggressive on the IR front given the pending Bison transaction and we thank all of you for your patience with us during that period. Now with Bison closed, our China strategy out of the gate and aggressive plan to achieve overall positive free cash flow and EBITDA in a number of exciting new low risk high return deals with major partners on the OTT front, we are about to undertake a new wave of aggressive investor relations efforts to relay our new narrative and growth plans to the investor community. To that end, we’ve hired 18 IRR to work with us regarding investor road shows, new investor outreach, potential new analyst's coverage, investor conferences, China investor outreach and other marketing plans. Stay tuned for some immediate. And with that, I’ll turn things over to Jeff. Jeff?

[Jeffrey Edell:]

Thanks Chris. First, let me highlight some quarterly financial metrics for [indiscernible]. For the quarter, consolidated revenues were 18.5 million, digital cinema revenues were 8.4 million, content entertainment revenues were 10 million and consolidated adjusted EBITDA was 5.5 million. Over the past year, our focus has been obtained new capital to fund investments in the content OTT businesses and obtaining in the strategic partner. This let us to the Bison deal and the opening of a key content and channel pipeline into an out of China. At the same time, we continue to focus intense efforts on operating cost efficiency and on deploying new technology processes and systems. Having cut more than $11 million in annual expenses through mid-2017 were now much leader organization employees for more rapid top-line growth. During this upcoming fiscal year, we expect to deploy three new key systems to enhance operation. Operation these three systems will address right management, digital content reporting and human resources management. Importantly, we’re now going to be able to extend operations into China and generate significant revenues and profit from the content pipeline into an out of China, while we leverage Starrises infrastructure there with our own existing operations in the U.S. This will lead to better profit margins on all of the incremental revenue sources Chris describe. We’ve already establish a green lighting process with Starrise. Our coordinating or activities with the Chinese regulatory authority and expect to launch our initial Film Fare within the next few months. Starrise believe that each individual film release could generate approximately $500,000 of profit to Cinedigm. Additionally, in the OTT screening area, we’re structuring our new deals to film funding in terms of incremental overhead including minimum monthly overhead payments, minimum guarantees and minimum revenue shares to cover costs. This will also generate improve profit margins. I’ll speak to this in detail this momentarily. As Chris also mentioned, we have made tremendous progress and reducing our corporate debt and strengthening our balance sheet. The Bison transaction allowed us to retire a 100% of remaining approximately $50 million in convertible debt back in November. Importantly, we eliminated substantially all of this debt at more than 50% discount to book value thereby increasing the book equity of the company by over $25 million. The payoff of the convertible debt also served to reduce annual interest cost by approximately $2.5. Additionally, and as part of our new strategic partnership with Bison we are working on a global refinancing of our entire balance sheet to further reduce interest cost and improve cash flow. We hope to be able to report shortly that we have obtained a new replacement revolving credit facility potentially adding up to $10 million in liquidity. This new credit facility could reduce interest costs by up to 2.5%. During the third quarter, we paid down approximately $42 million in net overall corporate debt and since 2013 we have been able to significantly pay down overall company debt by over $200 million with an approximate 66 million debt reduction for the fiscal year-to-date alone. In our content distribution business, our revised relining process is now baring solid results. Given our scale and relationships with thousands of suppliers and distribution outlets, we have access to a vast amount of significant precise and timely market intelligence to analyze an ascertaining pricing, market trends and comparable sales data. The results of this analysis from the data generated by our green lighting team, gives us unique competitive advantage in acquiring content. We now target a minimum 25% IRR on our own new investments in content. As Chris mentioned, we’re already generating very positive results from recent films such as Hickok and Gangster Land, which projects an overall 166% combined IRR. Additionally, our base CEG distribution business is benefiting from a buyer's market, even at several independent studios that recently closed down due to consolidation and other factors, with competition declining, combined with our new Bison China distribution relationship, we have been able to ratchet up both the physical and digital distribution fee percentages in some cases. In our OTT business, we are now evolving away from the owned and operated OTT channel model to a higher margin, hybrid channel model due to the continued dramatic shift in the pay television industry. According to industry sources, up to 20% of all pay-TV subscribers will subscribe the OTT base skinny bundles from providers like AT&T, DISH Network, Verizon, YouTube, Hulu and others in the near future. The lower average selling price is between $20 to $40 per month for these new services and providers dropping expenses, little watch networks to maintain margins. This presents an opportunity for Cinedigm to provide high value, low cost channel and programming that more adequately addresses the rapidly shifting pace in demographics of the skinny bundle customer. That benefit the Cinedigm under this model is a far faster time to the market for channels, immediate advertising revenues with linear streaming and access to large addressable audiences to gain viewers and subscribers with minimal marketing and technology spend. In light of this and given our new four-year track record of best in class OTT app technology, expensive channel distribution deal and experienced team, we are attracting considerable high-quality partners to launch channels under a services and distribution model versus the prior owned and operated approach. Under this distribution model, we’ll be generating four revenue streams at higher margins and lower risk than in previous owned and operated model. First, we generate application or app development revenue from the design and development of OTT direct-to-consumer applications from our partners. This is typically going to garner us in the 30% to 35% net margin range. Second, we’ll receive ongoing SaaS revenues from the continued operations of these applications, also in that 30% to 35% margin. And third, we’ll receive distribution fees from all revenues generated from different channels that range between 20% to 25% of gross revenues often against the monthly minimum revenue guarantee. Our Fourth area is the continuation of the current existing owned subscription base channel business where we derive monthly revenues. We expect this business to continuing its growth, however, leveraging third-party distribution platforms with higher margin, lower risk metrics, is our strategy and focus going forward. The operation of the distributed channel business mentioned above is highly cost effective, as it leverages our existing SG&A and utilizes low cost, high quality offshore resources for technology and development. Under this new model, we believe we can launch up to 46 channels annually with greatly reduced risk. Our focus is on launching well capitalized channels with strong and established national brands where concepts serve a desirable audience for our distribution partners. We believe that our model is superior to others in the industry. We’re unable to provide the basket of services that we offer to full service content and stream services studio. Our initial example of the third-party channel strategy is the one channel focused on each sport. This channel was set to launch by March 31. The WHAM deal is a revenue sharing deal with no investment on Cinedigm’s part. However, Cinedigm retained a minimum monthly overhead charge and receives 20% of gross revenue of the top in all channels sources. In addition, we receive a small equity component in the WHAM entity itself. By leveraging our OTT track record and expertise, we believe this type of deal will allow us to financially participate in a significant number of potentially profitable OTT channels with almost no financial risk. Our current three owned and operated OTT channels are now generating approximately $3.5 million in annualized revenues and currently they were approximately 5.5 million app downloads, 900,000 registered users and 90,000 active subscribers across these three channels. In closing, I just want to reiterate that in addition to all of the financial upside and much needed capital that we obtained from our new Bison partner, the new Bison relationship is already opened up on multitude of new revenues transfer both domestically and internationally. It will also enhance all aspects of our existing revenue base better leveraging our streamline overhead structure. Combined with our expansion into the higher risk, a higher return, lower risk OTT deals and business models I just described, we are looking forward to the positive impact that this should have on shareholder value. Now, I'll turn the call back to Chris.

[Chris McGurk:]

Thank you, Jeff. As we discussed the Bison transaction ultimate door for a dramatic strengthening of our balance sheet and a new strategic vision for Cinedigm that reinforces our core assets and competencies. The first true U.S. China studio uniquely well positioned to deliver OTT channels and services and entertainment content in a two-way pipeline to the two largest and most important entertainment markets in the world. Our Bison deal closed when many other Chinese investments in U.S. media, entertainment and technology businesses all over the last 18 months and closed because it supports the regulatory agenda by delivering clear benefits for entertainment consumers in both countries. This is a win-win situation provided by Cinedigm with our deep expertise and longstanding successes and independent content distribution and OTT streaming and a key reason how we are closed where almost all others failed. And already the viability of this strategy has been reinforced to our ongoing direct coordination with the highest level of Chinese regulatory authorities, our meetings with significant content distribution platform partners in China, the positive reaction to our interviews in China and our new reciprocal independent content and distribution strategic clients with Starrise media. We closed the deal in November and two months later we announced the joint venture with Boots On The Ground in China and we’re ready to go to serve generating revenues and profits in both China and U.S. from that deal, which we think is pretty remarkable that we move with such speed. And that again shows you our relationship that we’ve been able to establish through Bison with China and with the Chinese regulatory authorities. At the same time, we’re committed to drive into our positive EBITDA in our content distribution and OTT businesses prepare by the key initiatives that Jeff and I describe. Now the least of which are all the significant new third-party joint venture and servicing deals in the OTT area with new financial models, greatly enhanced margins and lower risks. We are leveraging our expertise in channel success to expand our business and only operating channels to include these new financial models and lines of business. Mainly in partnership with significant branded and deep pocketed Fortune 500 players. Importantly, we are now ready to this narrative to the investment community here and in China whether renewed and aggressive approach to investor relations and with the new IR advisor. With that as a backdrop, I would now like to open the call up for your questions.

[Operator:]

Thank you. [Operator Instructions] And the first question comes from the line of Terry Hackett of Hackett Management. Your line is open.

[Terry Hackett:]

You didn’t mention the inherent value in the digital projectors. Can you summarize what the value might be and what your game plan is in utilizing them in the future?

[Chris McGurk:]

Terry, this is Chris. And I’ll turn it over to Jeff and Gary to specifically answer the question. But this is an long call and I apologize for that, but we had a lot of ground cover in the what area that we didn’t folks and obviously the Digital Cinema and the only reason because relate for the call. So, I’ll turn it over to Jeff, Terry.

[Jeffrey Edell:]

Gary, you want to hit this question? Because it falls in your alley.

[Gary Loffredo:]

Sure. So, we are continuing to pursue option to sale the Digital Cinema projection systems when the VPF turn ends which is as early as 2020. We started discussions with certain exhibitors on this and there is a possibility that we may sell some early. We haven’t given a range on what we expect as we enter into definitive agreements and we do actually sell some, we’ll report that. But until that happens we will not report it.

[Chris McGurk:]

And Terry just to add to that there is over 4,700 projectors somewhere in that range 4,000 projectors that could be available at different points in time.

[Terry Hackett:]

Okay. Well, definitely will be an additional source of cash won’t it?

[Gary Loffredo:]

We believe so and again I think, I mentioned on one of these prior calls that another benefit of Bison transaction is there maybe opportunities to redeploy these projection systems over in China where I think as we all know that the theatrical market is the complete opposite what’s going on in the U.S. and still growing at more than 30% a year and are opening up in theatres right and left in China, particularly in the smaller cities and the rural areas. So, there could be an opportunity for that in China.

[Operator:]

And the next question comes from the line of Joshua Horwitz of [Home Global]. Your line is open.

[Unidentified Analyst:]

Hi, thanks everybody. What specific milestones should we be looking for, call over the course of this year to track your progress against the opportunities set, am I looking first specific distribution deal, content deal, am I keeping an account for anything China related, what is really the main opportunity here that we should be paying attention to?

[Jeffrey Edell:]

Well, as Chris mentioned and he outlined multiple sources of revenue in future and some plans. So how I would sort of look at this, like the one, we have the new Starrise arrangement which is the beginning of our China involvement and in that situation, we’re looking to do two to three films this year, 50 or so old television shows that will go direct to say the internet over there and there will be several hundred coming here. So, one measurement would be the number of films and the relationship with Starrise and how that goes. And next would be, we talk about four to six OTT channel launches, we don't necessarily mean, they’re going to be brand new channels for instance, but there could be derivations of existing channels, or are leveraging other opportunities. So, I would also look at the number of channels we launched because again we pick up a good percentage of the gross revenues from there. So those are the two things I look at. Third is that we're just striving as best we can to maintain, if we can be the whole physical business and DVD et cetera that business of the entertainment group, we're trying to maintain the GAAP revenue in that group as we’re expanding these other areas. So those would be three things and then obviously we mentioned some initiatives and systems initiatives we're doing that you can check off, to make sure we’re doing those things as well and we did give you 90,000 subscriber base on the base OTT channel. So those are just certain things.

[Chris McGurk:]

Yeah, I think Joshua, this is Chris. Look for – again Jeff spent a lot of time talking about the new models of deals in our OTT business there, we’re expanding leg from the owned and operated model that was really our calling card for the business into these higher margin, and higher return deals, with some of the big players that are jumping into the OTT space, and spending millions of dollars to build out their platform. So, we just announced a deal with XUMO, we just announced a deal with VIZIO, and that’s a big deal. VIZIO is a top three consumer electronics provider here in the U.S. And now the Dove channel is going to be embedded in all of their TVs. I mentioned that we signed a deal this quarter with the top three telecom provider that’s launching an OTT service, look for that to be announced and then look at the type of deal when its announced to confirm that it syncs up with Jeff told you and then over the short-term, we hope to announce a deal for another third-party distributed channel with the same kind of very favorable financial terms that we had under WHAM deal where we have virtually no risk, I would say, we have absolutely no risk, but Jeff makes me to say virtually no risk and we take a big percentage of revenues off the top. We’re leveraging our experiences space now to provide these kind of services, high return risk this way and look for more announcements of deals on that model as well.

[Operator:]

Thank you [Operator Instructions] Our next question is from the line of [indiscernible] Private Investor. Your line is open.

[Unidentified Analyst:]

Good afternoon, gentleman Jeff, Chris now. I have owned the stock and followed every quarterly conference call for the past four or five years. Each one has been highlighted by new initiatives, retirement of debt and announcement of deals and Cinedigm has managed to be the worst performing stock in my portfolio over that period of time. Turning to a specific question though, we have revenues of topline of 18.5 million with a reduction of 20% over a similar three months ending in 2016, the nine months figure also fairly reduction in revenues, can you explain those reductions?

[Chris McGurk:]

I'll let Jeff get to that, but to hit your first point again as I mentioned in my remarks, we’re very frustrated by the stock price, we’re very focused now. Having gone through a period literally of 2.5 years where we transformed the company and transformed the company story moving in a way from sunset business in digital distribution to now hopefully have the opportunity to be a key player in the stream business such as $65 billion business and the biggest part of the entertainment business. We do that at the same time completely transforming our balance sheet as well as strengthening our balance sheet obviously all that changed, a kind of thing that doesn’t necessarily translate into a robust growth in stock price. We’re hopeful now that we have come through the strategic transformation of the company, we’ve completely strengthened our balance sheet, we’ve got a strong partner in Bison and we’ve got a strategy that we’re now implementing on very quickly needed by our relationship by the government authorities over in China and as IRF we feel we are now going to focus a lot of attention on. We’re hopeful that we will finally begin to see some growth in the stock price. With that, I'll turn it over to Jeff.

[Jeffrey Edell:]

So, what I just want to add to that is again I feel we all are hurting and we fully understand those of you who invested in the stock and around the call that it has not performed as other stocks certainly in the NASDAQ or the rest of the market. So, we feel that and we’re sorry about that. A lot of times we don’t have much control over performance and we have very little control over performance of the stock. It’s not really looking our purview, but in terms of what we can control and answer those questions, the digital cinema business remember, these were 10-year contracts set up between 2005 and 2010 or 2012 rather. And so, we knew this is not a surprise that the revenue is dropping in this area and so the main reduction in revenue is coming from the contractual reduction in digital cinema revenues and this relates to studios and the number of releases and the utilization projectors and Gary can get into that a little bit more. On the physical side of the business, remember we’re also dealing with the world where DVDs and Blu Rays are all transitioning to digital and the combination of these things are actually the first thing precipitated Chris coming on board and now transforming this business into more of an OTT strategy play that will leverage the company’s assets and content and distribution abilities to create more value. There we believe and if you look at companies in the future like today, Roku type companies and so forth, you’ll see the tremendous value created by companies that actually use a lot of money, but have a great footprint. And so, we want to take advantage of that kind of trend and hopefully in the future you’ll be see more of that from us in our OTT strategy and potential acquisitions and so forth to create more value. We’ve had a lack of capital everyone’s aware, and the lifeblood of content business is the ability to invest capital to generate distribution fees. We’ve got very minimal now overhead in the company. So, we’re poised to generate 20% to 25% margin on all incremental revenue that we can throw on top of that. And that’s the plan for now. And then also remember, the company several years ago did not do a good deal with Gaiam and we need paid for that. And so now where to place where we corrected all those past situations and moved on with a very positive plan. So, we’re looking forward to creating value in the future.

[Operator:]

Thank you. And there are no further questions at this time. I’d like to turn the call back over to Chris McGurk for the closing remarks.

[Chris McGurk:]

I want to thank you all again for your support and patience in putting up with our very long presentation today. But I think you can see, we had a number of very important areas that we wanted to cover with you. And I think hopefully, you can see how excited we are now that we have the Bison deal close. We’re moving forward really aggressively over in China both with Bison the regulatory authorities and now with this exciting new deal we have to Starrise, which is going to generate incremental revenues and profits for over the near-term. So, stay tuned. Look for more activity on that strategy and more announcements and in our OTT business where we laid out a number of exciting deals for you today. And as I said there are more in our immediate future. So, look for more announcements in that regard. So, thank you all and we’ll talk you again in couple of months. Operator Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Everyone have a great day.