Cinedigm Corp.
Q2 2015 Earnings Call Transcript

Published: 14 Nov 2014

[Operator:]

Good day, ladies and gentlemen, and welcome to the Cinedigm Corp.'s Fiscal 2015 Second Quarter Earnings Call. [Operator Instructions] As a reminder, this call is being recorded. I'd now like to turn the conference over to your host for today, Ms. Jill Calcaterra, Executive Vice President of Corporate Communications and Investor Relations. Ma'am, you may begin.

[Jill Newhouse Calcaterra:]

Good afternoon, and thank you for joining today's Second Quarter Fiscal 2015 Earnings Conference Call. Participating in today's call are Cinedigm's Chairman and Chief Executive Officer, Chris McGurk; Chief Operating Officer, Adam Mizel; and our Chief Financial Officer, Jeffrey Edell. 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, November 13, 2014, and Cinedigm does not intend and undertakes no duty to update future events or circumstances. In addition, certain of the financial information presented in this call represents non-GAAP financial measures. And now I'd like to turn the call over to Chris McGurk.

[Christopher J. McGurk:]

Thanks, Jill, and thanks, everyone, for joining us today. I'll begin by reviewing our base home entertainment distribution business as well as the high-potential OTT digital networks we're launching. After that, Jeff will review our financial results followed by Adam, who will discuss our key business drivers. So let's get started. As you are all aware, we've been engaged in a multi-year process to completely transform our company to take full advantage of the sweeping changes digital technology has created in the entertainment industry; and in doing so, drive long-term shareholder value creation. We fully structured Cinedigm from our pioneering roots as a digital theatrical deployment company to become a fully integrated premium content studio, now poised to be a leader in the high-potential digital over-the-top network business. As a result of these strategic moves, Cinedigm has become one of the leading domestic distributors of premium entertainment content in the United States, holding direct relationships with all key physical and digital retailers and national cable and satellite TV providers. And now we're leveraging our strong position as a premium content distributor to stake our claim in the emerging over-the-top digital networks business. Cinedigm has the library depth; digital assets; strategic platform alliances; nontraditional releasing and marketing expertise; and the right plan, management team and technological capabilities in place now to become a leader in this new business. We believe OTT will be the industry's key growth driver in the future. And our view of the upside potential of this business has been reinforced by recent market activity, which I'll review in a minute. But before we delve deeper into the OTT opportunity, I'd like to review the significant progress we've made in our base business. First, we believe the transition issues with our back-office fulfillment partner, which impacted our last quarter, are now behind us; and our strategic pivot to partner with high-quality content producers is beginning to address the GVE performance issues we inherited. We have implemented operational and tracking improvements. Our DVD returns have returned to more normalized levels and retail sell-through has rebounded. All of that is reflected in our results this quarter, which although still a seasonally slow period, like the first quarter, showed a return to positive EBITDA in our non-deployment base business from last quarter, and we are cautiously optimistic that this rebound has continued in our fiscal third quarter as well. Additionally, we're pleased that our pivot from distributed catalog deals we inherited from GVE to higher potential film output deals that we discussed in our last call with you is rapidly filling our sales pipeline. These partnerships with content producers who create high-quality genre and cast-driven titles that perform well in ancillary markets and also supply premium content to our OTT channels will grandly [ph] enhance our base business and improve our margins. Our very successful DVD release in August of God's Not Dead, where we shipped over 1 million units at an extremely high-consumer sell-through rate, is a perfect example of this; a premium, faith-based film that generated solid revenues in our base business while also demonstrating our strength at distributing the core content that will drive the success of our Dove faith and family OTT Movie Channel that launches next year. Now let's review our OTT opportunity and our plans in more detail. The enormous potential of this new digital delivery ecosystem is clearly evidenced by the plethora of significant strategic business investments and acquisitions that have recently occurred in the space, including announcements by Disney, AT&T, Legendary, SoftBank, HBO, CBS, Lionsgate, DreamWorks, Hearst, the Chernin Group and many others. All these entertainment heavyweights clearly see that the future is all about making programming available to consumers when and where they want to see it on a device of their choice. And that's exactly what makes OTT distribution such a game changer for the entire business; and specifically, with Cinedigm, with our 50,000-plus film and TV episode library. And the statistics supporting the OTT business are extremely compelling as well. Strategy Analytics reports that 72% of U.S. users now view video on mobile devices at least twice a week and 34% of millennials watch more online video than TV. And 82% of connected device owners belong to subscription video services with 46% subscribing to 3 or more services according to McKinsey & Company, and there's still room for even more explosive growth. Just 14% of homes had an OTT living room device at the end of 2013. That number is projected to double in 2014 and land at 330 million devices by 2017 based on research from Parks Associates. Cinedigm will take advantage of this huge opportunity based on our unique approach to the OTT market, which leverages both our core and differentiated assets. We are not competing with the broadly focused general entertainment OTT channels but rather are intent on building a narrowcast version of a Hulu or a Netflix or an Amazon by delivering specific content to avid well-defined audiences, whenever they want to see it on the device or platform of their choice, all while circumventing the traditional entertainment distribution infrastructure. With our huge library of premium content rights and digital expertise as key assets, Cinedigm's recipe for OTT success in this new digital ecosystem is clear. Content will remain king, and strong authentic brands will dominate generating 3 completely new recurring revenue streams for the company

[Jeffrey S. Edell:]

Thank you, Chris. We are pleased with our results this quarter. Consolidated revenues increased 23% to $23.7 million from $19.2 million in the prior year quarter. Consolidated adjusted EBITDA increased 11% to $12.4 million from $11.2 million in the prior year quarter. Non-deployment revenues, the entertainment and services area, increased 77% to $11.9 million from $6.7 million in the prior year quarter. And finally, non-deployment adjusted EBITDA increased 273% to $1.2 million from a negative $700,000 in the prior year quarter. Additionally, during the quarter, we paid down $14.2 million of nonrecourse and corporate debt as we continue to use our stable deployment cash flows to deleverage. As Chris mentioned, based on the operational initiatives that we have been implementing in our content distribution business that Adam will describe in more detail shortly, our base non-deployment business performance performed nicely during the quarter compared to the first quarter, and that rebound has continued so far into the third quarter. While we are cautiously optimistic about our results going forward, we are still working hard to rebuild the GVE sales pipeline and drive additional revenue growth, which we hope should more than compensate for the general decline in the physical DVD business. However, I want to reiterate that our performance thus far in the current quarter shows good progress in successfully implementing our operating initiatives to address these issues. As an example, given the quality of our content and our strong retail relationships, we increased our retail facings this holiday season even though, on average, our retailers reduced overall DVD shelf space for all suppliers in an aggregate by 10%. So we are clearly outperforming the industry on this metric and hope to see that continue as it translates to our bottom line. Additionally, we have made significant progress during this quarter with our required SOX 404 compliance work, which needs to be in place by the end of the fiscal year. And our initiatives surrounding the migration towards a single and more robust accounting and reporting system are ongoing with the end goal of having a more efficient closing process and a more detailed-management reporting system that will aid us greatly as we continue to better manage our business operations and growth strategies. We are also focused on putting proper controls in place and reporting to support our emerging and high-growth OTT business, which will require timely and accurate reporting both during and after its launch. I am pleased to report that each of the above-mentioned initiatives are on time and on budget. Now I will turn the call over to Adam. Adam?

[Adam M. Mizel:]

Thank you, Jeff. On our last call, I outlined our 6 key areas of focus to drive the business forward. Let me update you on the progress we have made in each of these areas. Number one, continue to add new home entertainment customers with content that supports the digital, physical and OTT demand drivers today and in the future. As we discussed during our last call, we have been focused on rebuilding the sales pipeline that was neglected during the almost 12-month GVE sales process. We are seeing results already, 35 new customers signed since January, representing over $50 million of projected annual gross billings. The feature delivery timelines for these deals have firmed up, and we're excited by the slate we see coming together for the next year. We have a number of additional potential customers in our near-term pipeline that we expect to further add to our growth in the next fiscal year as we capitalize on our unique position as the largest distributor of independent content. We believe our focus on more commercial genre and talent-driven content is the appropriate strategy to drive strong digital and physical results. Number two, eliminate customers inherited from GVE that do not meet our return thresholds due to the changing physical sales landscape. As I mentioned on our last call, WWE will leave us at the end of this year, and we have since ended another label partnership that was no longer profitable for us. Number three, continue to attack our cost base to ensure a right-sized infrastructure while aggressively managing our fulfillment services supply chain and partnerships for physical DVD. Now that we have gotten through the supply chain conversion, we took steps during the quarter to achieve synergies and reduce overhead costs while also redeploying resources towards our OTT business. We expect to see the financial benefits of these steps modestly in Q3 and fully in our fiscal fourth quarter. Number four, focus resources to successfully launch ConTV in the early 2015 and our other new digital channels in the first 2 calendar quarters of 2015. As Chris mentioned earlier, this is a key focus area. We continue to grow our core team as we've added 5 key hires. We are commencing beta testing of our ConTV app currently. We have complemented our library with major licensing and original program additions that will allow us to launch ConTV with over 1,500 hours of content, and we have begun premarketing to Wizard World customers. We also continue to grow Docurama to over 227,000 app downloads with a very limited marketing budget and expect to ramp up these efforts this quarter with feature promotions on Roku and other platforms. Finally, we're accelerating our content and brand development for the Dove Movie Channel to line up that launch for late spring to follow ConTV. Number five, support our OTT channel launch with low-cost original programming that can both premiere on our channels and be distributed in our home entertainment infrastructure. This IP can also then be utilized for sequels, remakes and new formats for years to come. We are launching ConTV with 4 to 5 original programs, including the Fight Of The Living Dead reality drama that takes top YouTube stars and drops them into the middle of a zombie apocalypse in an abandoned women's prison, 2 major game show concepts to produce live at the Cons with preferred audience access for our subscribers, and both live and recorded panels at the Cons, CausePlay and other user-generated content from the Wizard World Comic-Cons. The fan reception to these concepts in our surveying has been tremendous. We will then, after appropriate windowing, take much of this content to other distribution channels for further monetization. Number six, continue to explore accretive M&A, strategic partnerships and investments in our OTT channel that can accelerate growth. This remains an ongoing focus as our expanding footprint and imminent channel launches are attracting significant interest. Cinedigm has a unique position in this hot market space, and we intend to capitalize upon it. We are already seeing the positive results from this 6-step plan. We are pleased with our performance in the second quarter and are seeing encouraging signs in the first 40 days of fiscal Q3, as our improved product lineup and strong retail placement is a testament to our operating focus. We are achieving strategic synergies between our home entertainment distribution and OTT businesses. Our capabilities in each area have made us a more attractive partner. We are securing broad home entertainment distribution rights as we are on the industry cutting edge with OTT, and we are leveraging our growing library in our channels and to attract additional branded partners. As we compete in the market, we estimate our library and existing infrastructure enables our OTT channels to save at least $4 million to $8 million of hard launch costs as compared to a start-up without these assets. We will maintain our laser focus on these operating steps, as well as on attracting and retaining the key talent necessary to support our growth in fiscal year '16. Our team is focused on the opportunity to drive significant shareholder value growth over the next 12 to 18 months. And now I'll turn the call back to Chris.

[Christopher J. McGurk:]

Thanks Adam, and thanks, Jeff. In summary, we're very pleased with our performance this quarter and are excited about the high-potential launch of the ConTV digital network and the Dove Movie OTT channel next year. Together with our digital cinema business, which continues to generate strong recurring revenues and rapidly pay down its nonrecourse debt, Cinedigm is now positioned strategically as the only small-cap public entertainment company poised to take full advantage of the valuation upside potential from the industry shift to digital. Additionally, we continue to evaluate strategic opportunities with entities that value our premium content distribution capabilities, our over 50,000 film and TV episode library of rights, our digital OTT networks business and our public currency; reinforcing our direction, vision and current position. As a reminder, management and the board own over 25% of Cinedigm's outstanding equity, including options and warrants on a fully diluted basis so you can be assured our interests are aligned with our shareholders. All in all, we have a clear road map for where we are headed, and the entire management team is focused on producing results. And with that, we're now happy to answer any questions you might have.

[Operator:]

[Operator Instructions] Our first question comes from the line of James Marsh of Piper Jaffray.

[James M. Marsh:]

Just a few questions here. First, Chris, you mentioned some of these strategic discussions that are underway, and I guess I understand why others might be interested in getting involved with you guys. But what are you guys most interested in, in acquiring? Or what are looking to get out of these types of relationships? I mean, what are you guys looking for there?

[Christopher J. McGurk:]

Yes, James, obviously I'm not going to answer this question in too much detail. But we're looking at opportunities -- strategic opportunities and partnership and JV opportunities that can help accelerate our growth plans primarily in the over-the-top space. We think that, again as I said, we've got a great set of assets that we can apply against this business and really stake our claim and build out beachfront real estate very quickly. And if there are opportunities out there to partner with people and forge alliances that will help us do that quicker in a bigger and better way, and give us leverage and scale, and bring additional capital to the table, we're going to look at that very closely.

[James M. Marsh:]

And then you guys have been pretty busy on the output deal side over the last, I guess, 6 to 9 months with Moguldom and VMI and Rapid Eye. I mean, are there any genres that you guys think about that you might be more aggressive in trying to secure? Is there anything kind of missing as you guys look at your portfolio that might be interesting, in particular?

[Christopher J. McGurk:]

I wouldn't say there's anything missing. I think we've got a very good broad-based portfolio of content with specific strength as we've said before. In certain genres, whether that's anime or family programming or a lot of retro TV episodes, but now what we're really doing is we're focusing our acquisition efforts to make sure that the product that we're bringing in can help support the accelerated growth of our over-the-top networks. So obviously, we're out there looking at a lot of family content right now and faith-based content like God's Not Dead to help support our Dove faith and family Movie Channel, and a lot of genre content whether it's more anime, more horror films, more science fiction, more old TV episodes, more martial arts-type product that the fan boy and fan girl audience are going to want to see on ConTV.

[James M. Marsh:]

That's helpful. And then just the last question. I think originally, you guys talked about ConTV being a fall 2014 launch and obviously now it's first quarter 2015. Are there any particular reasons why it's taken a little bit longer to get that launched?

[Adam M. Mizel:]

Sure. James, it's Adam. A couple of things. Number one, we wanted to get the technology platform right and then you have to get it through Q&A at all of the major digital platforms, and we don't control the timeline at Apple or xBox or any of those places, and that can take some time that we can't predict. We also put in some features into that platform that we think -- in the app -- that are pretty unique that will, I think, enhance viewing and enhance usability and excitement as compared to other services out there, and we thought that was worth developing, that's one. Number two, we wanted to make sure that we had the appropriate lineup in terms of breadth and depth of content, and that was on both the original side, in particular, in certain licensing but mainly on the originals. And if we put that together, with Wizard World and looked at the lineup of when they were going to have Comic-Cons around the time of when we wanted to launch, we made that -- we really wanted to line that up well. And once we concluded, we couldn't launch it in kind of October, early November, you would expect they're not doing a lot of Comic-Cons in the holiday season, and we didn't want to watch outside of the cons, which is huge for momentum consumer awareness getting the fan base excited.

[Operator:]

Our next question comes from the line of Eric Wold of B. Riley and Company.

[Eric C. Wold:]

A few questions. One on ConTV, kind of following on the last answer. You mentioned, obviously, launching around the cons, the conventions. Maybe give us a sense of how the marketing will work with Wizard World? Or how exactly it will be marketed to the attendees there. And then of the 1,500 hours upon launch, how much of that is exclusive content to ConTV? Cannot be found anywhere else. And kind of going forward, I know you talked about kind of layer in the cycle, taking this other content out to other channels, what's your sense of how much of the content on ConTV going forward would be considered exclusive?

[Adam M. Mizel:]

Sure. So couple of things. In terms of how we will market to fans, and I think that's one of the things we're most excited about, with Wizard World, we have a partner with 1.5 million fan email database, 600,000 to 700,000 attendees per year, and there are 25 to 30 cons. And basically, all of those people will be getting some form of membership into the app. If you buy a ticket, you'll become an AVOD subscriber. If you buy a premium ticket, which is around 10% to 20% of their customer base, you'll have bundled in with that and SVOD subscription to the app. So we're working aggressively to roll out to that fan base, and that's -- we've done a lot of surveying, and they're kind of -- we're building that excitement there. So we're going to be able to very quickly add them to our customer base, and then we've got to give them the offering that they're excited about. We're also going to be able to leverage affiliates who are already advertisers and marketers at the cons and create an affiliated -- affiliate marketing campaign with those people so as they drive members to us, they get paid, and the same with a lot of the talent that Wizard World already brings to all the Comic Cons who we're creating talent partnerships with, to incent them to drive their fans through social media to subscribe to the channel. So we have a lot of avenues, and we'll roll those out and ramp those up pretty quickly in the few months following launch as we try to build a lot of momentum. We've also used our relationships with the digital platforms to get front-and-center placement like we've done at Roku and other places to make it work and to give us that momentum there. To your second question on the exclusive amount of content, I don't, off the top of my head, know the answer. There's a decent amount, but what I say is that's not the driver. More important is curation and sort of the depth of it. A lot -- part of the challenge for many in this audience and in other of the channels we're launching is not that the content -- they can't find pieces of it in different places. It's they can't find enough of it that fits their interest level in one place, because if you look at this, call it, the department stores, Netflix, Hulu, whatever, they're a mile wide and an inch deep, that's their strategy other than in certain limited verticals, and they're not then serving the needs of an avid fan base whether it's a ConTV, whether it's a Dove, whether it's a Docurama. And part of -- a big chunk of the value we provide is bringing all that content with curation into one place, enhancing that with original programming and certain exclusives. But it's that entire package and the social experience that goes with being connected to like-minded people of interest that makes it work for you. I mean, if you take a channel like Crunchyroll and its 400,000-plus subscribers, we provide them through license probably half of the anime, and we provide -- that will on ConTV, it will be in other places. The point is they can get it all in one place. And so I think that's the value proposition versus I have to have massive exclusive original programming.

[Christopher J. McGurk:]

Although our research did show that one of the things that the potential con viewers really want to see is footage from the cons panels and guest interviews, and that kind of thing. And obviously, they're going to get a shot at seeing that before anybody else if they subscribe to the channel. And we think that's huge along with the original programming offering that Adam talked about, all of which will follow shows which will debut on ConTV.

[Eric C. Wold:]

Perfect. And then once ConTV and the platform is up and running, how quickly can you get -- kind of use that? Or how useful will that be to use that to launch other channels? And how many additional channels beyond Dove channel and ConTV are likely in the next fiscal year?

[Adam M. Mizel:]

The buildup is pretty quick. I mean, it -- what you then have to do is reskin it and recustomize it for the niche, but the basic underlying technology platform is the same. And then the question in terms of title launch is a combination of doing that, acquiring the breadth of content to supplement our own library in the right period of time, and the branding and marketing customer acquisition strategy. And we've said in the past, our goal is to launch several channels a year. So we think we've got the first 2 of 2015 scheduled, obviously, and there's a number of those in the pipeline behind that in conversations we're having. But we're really laser focused right on getting the channel launched and launch successfully.

[Eric C. Wold:]

And then last question kind of going to the 35 content partners you signed or distribution deals and the $50 million in gross billings annually. When -- kind of looking at when those guys have signed and kind of what their pipeline is, when do you think that $50 million in gross billings kind of annualized would be reached and what would be the estimated Cinedigm revenue from that?

[Adam M. Mizel:]

Basically, we expect to start getting deliveries of the initial titles from a number of these producers somewhere in our fiscal fourth quarter, so it will have minimal impact financially because that would be a either modest theatrical release, probably not even the home entertainment release, but we do expect that, that revenue run rate to kick in, in fiscal year '16, that's number one. Number two, I think we said in the past, generally speaking, our fees, assuming they're distributed versus license, but our fees basically, typically, are in the mid-teens as a percentage of gross revenues that go to our fees, that's sort of our gross margin.

[Operator:]

Our next question comes from the line of Andrew D'Silva of Merriman Capital.

[Andrew D'Silva:]

Just kind of continuing with the OTT chat. Can you maybe elaborate on how the Wizard World relationship works? And is there an opportunity for you to get into some of the largest cons, the San Diego Comic-Con and then the New York Comic Con as well?

[Adam M. Mizel:]

Sure. To the last point, we have a lot of conversations with -- there are over a thousand different cons that are staged in the United States annually, not just Comic-Cons, but whether they're horror cons, or Hello Kitty con, you go down the list. So we talked to a lot of the operators of those events about how we can work together, maybe filming panels, creating content together or an affiliate-based relationship where they have a financial incentive to drive their own customers to subscribe. So we're certainly doing that. We know the people at San Diego very well, and we talk to them about it a lot, and we know the people in New York very well and we talk to them a lot. So that's part of the ongoing dialogue we have. And in terms of Wizard World, they're a great partner. I mean, as we said, we chose them as our partner because they are the largest operator of cons in North America. They share a similar entrepreneurial spirit and approach. And we think the combination of their customers, as Chris said, the ability to film things at the cons and provide that sort of behind the velvet rope experience to viewers is a unique advantage.

[Andrew D'Silva:]

Okay. But there's no exclusivity or limitations in the agreement where you couldn't do some filming of discussion panels at other Comic-Cons that are not within the Wizard World's universe?

[Christopher J. McGurk:]

No.

[Adam M. Mizel:]

No. In fact, they're out there with us with all the relationships. It's a very open community there. And the goal for both Wizard World and us is to make this channel as successful as possible.

[Andrew D'Silva:]

Okay, okay good. And then maybe you can just touch on this a little bit. I know there's a big macro shift from physical to digital right now. Are you seeing that translate in your own business at all as far as a greater percentage of your overall sales are coming from digital versus physical from maybe a year ago today?

[Adam M. Mizel:]

Adam again. That transition is absolutely occurring. Though we are still getting significant physical sales, it's still -- physical is still more than half of all entertainment revenues. And really for us, the big components of revenue are physical, subscription video-on-demand, in particular. And then we certainly have a transactional, but those first 2 physical and SVOD are what's the most common in the indie space. And we see both of them doing pretty well. And that's part of why we said we're encouraged by what we're seeing so far in this quarter because both physical and digital are performing well. Yes, over time, there will be more digital revenue as a percentage of the business but both of those businesses are growing for us right now.

[Andrew D'Silva:]

Okay, great. And then just a last question since your Q won't be out until tomorrow, I take it. Can you just break out revenue and your adjusted EBITDA for your services segment, please?

[Christopher J. McGurk:]

Sure. Isn't that what we mentioned earlier? So the revenue services side is 12 point -- $11.9 million is the revenue for the entertainment and services side, with the $1.2 million of the EBITDA for the quarter.

[Andrew D'Silva:]

I meant servicer co [ph] just that division, if you can break it out so we could have the separate segments as it would be reported in the Q?

[Christopher J. McGurk:]

Sure. $2.9 million is servicer co [ph] Q2 revenues and $2.1 million -- $2.15 million will be the servicer co EBITDA, Andrew.

[Operator:]

Our next question comes from the line of Zvi Rhine of Sabra Capital.

[Unknown Analyst:]

A couple of questions. As it relates to the nonrecourse debt on the deployment side of the business, I believe though, that prospect note becomes callable in February of '15. Have you guys -- are you looking into that? Do you think there's a possibility to refinance that given it was issued 2 years ago and some of the initial term loan has been paid down aggressively?

[Adam M. Mizel:]

Zvi, I think that one of the -- we're not planning on that. You never know. I think that when we look at the overall capital structure we put together in that refinancing, it was very efficient. There are certainly call premiums when it comes available for call. I don't think you should be expecting that to happen. I think we've got a pretty efficient cost of capital in that part of the business.

[Unknown Analyst:]

Okay. And then just switch to Docurama. On the weekly downloads of 7,500 that you talked about, which services are driving that? Is it coming mostly from iOS? Is it still Roku?

[Adam M. Mizel:]

Roku is certainly still the biggest, but we're seeing the other services increasing, in particular, I think, the second largest actually is xBox, which is interesting and then iOS as well. But we're not on Apple TV with that service. We're on the App Store, and so that's why it -- it's not as big as Roku or xBox, which are living room devices. And I think Docurama has been more of a living-room viewing channel not -- but people are watching it on their iPads for sure.

[Unknown Analyst:]

And in the last call you had mentioned that you're going to develop an Android app as well. I don't believe that's been released yet. And is there a timing on that, that you expect that to happen?

[Adam M. Mizel:]

Yes, our development partner is late fundamentally. You can imagine, we're all over them and very frustrated. But I mean, I would hope in the not-too-distant future because that's what they keep telling us.

[Unknown Analyst:]

Then the last, it seems from the reviews I've read dating as early as May so when this was launched, through my recent experience, I'm actually a big Docurama fan to be quite honest. The ads on the app are seemingly inconsistent in their timing. They're repetitive and seems to be unregulated. And that obviously can potentially create a negative experience and turnoff users. Why hasn't this been addressed? Are you guys not monitoring some of the reviews that are out there? And I imagine this isn't isolated to a few [indiscernible].

[Adam M. Mizel:]

No. In fact, we're in the process of bringing in our own ad network partners to place ads on the app. We have been -- as we described in the beginning, we partnered with a company that got us that app up quickly and who provided both app development and advertising network support. And we've been disappointed as you can get a sense on both of those. We are bringing in our own ad networks, which I think will change exactly what you're describing. And ultimately, Docurama will port over to our new -- the ConTV built tech platform once that's up and running and probably in combination when we bring in another partner, sort of a brand of partner to support that app. So in the meantime, we are getting good feedback on the content and people's enjoyment of that. And you're obviously right, we're going to improve the ads stuff because I'm also not getting the revenues I want from it.

[Unknown Analyst:]

Well, I'll echo, I'm a fan of the content, that's me. Not a fan of how the advertising is being played, but hopefully, that gets rectified in the near future because I think it has some powerful upside.

[Christopher J. McGurk:]

No, no. Your input is well taken. And again, as I've said in my remarks, we launched Docurama with an idea that, that would be a beta test for us for the entire OTT concept, and we've learned a lot since May that we're focused on now and we're going to apply against Docurama and the other channels that we're launching.

[Operator:]

Our next question comes from the line of Michael Fox of Park City Capital.

[Michael J. Fox:]

With regard to the potential strategic initiative on the deployment business of potentially monetizing that by selling it to a financial buyer that might have a lower cost of capital and improve your balance sheet and provide you guys cash to invest in more exciting growth opportunities, particularly, the OTT and content opportunities that you guys have talked about, primarily as the growth opportunity so far in the call. Can you just kind of give your thoughts on that?

[Adam M. Mizel:]

Well, I mean, we're always -- we always look at the best ways to maximize value and maximize value out of assets. I'd say that a sale of the deployment business is certainly unlikely. First of all, I think your presumption that financial investors have a lower cost of capital is probably -- I mean, I wish it were true, but I don't think it typically is, number one. Number two, to do financial transactions around that part of our business, there's a number of change of controls both with the movie studios and with the lenders that would make it certainly challenging. So that's not something that I would expect us to do.

[Operator:]

Our next question comes from the line of Gentry Quann [ph] of Sidas [ph] Capital.

[Unknown Analyst:]

I have a few questions. Firstly, can you tell us what the revenues were for Gaiam for the quarter? I know last quarter you broke it out. I think last quarter in Q1, Gaiam was about $2.2 million of revenues. What was that in this quarter?

[Jeffrey S. Edell:]

Gentry, I don't know where you're getting that. We don't typically break out or even track Gaiam revenues anymore. It's consolidated into our overall content and entertainment group.

[Unknown Analyst:]

Well, I got it from the 10-Q. So...

[Adam M. Mizel:]

Gentry, wait. Gentry, it's Adam. What you're referring to is when we acquired Gaiam last October 22 for that quarter, the fiscal third quarter, where we owned it for a couple months, we broke out those revenues as the new revenues and we broke out the revenues that previously we didn't capture in the quarter that were retained by Gaiam that was in the December quarter. We didn't own it in the September quarter. And as Jeff said, we've consolidated everything into one business. There are no 2 businesses. It would be an impossibility to even know what the answer to your question is.

[Unknown Analyst:]

I calculated $2.2 million, but notwithstanding that. I'm struggling a bit with the value proposition at Gaiam. You spent $50 million on it and it seems like it's been extremely underwhelming. And it's not clear to me what we got out of that. It was running at $15 million of EBITDA at the time of purchase. It's difficult for me to hear you say that you can't tell us what the contribution of that business is. We -- as shareholders, I think we're owed the right to know what that underlying business is. Did we spend $50 million properly? Are we getting a return on that money? And you're hearing that it's now consolidated and seeing, frankly, pretty anemic growth in the CEG business, it makes -- it really questions whether or not that was a good transaction.

[Christopher J. McGurk:]

Gentry, this is Chris. I will say at a macro level, what the Gaiam transaction did for us is it basically turned us into a premium content distributor that had the muscle to compete with anybody else in the business in every platform of distribution, both physical and digital. And it really gave us the library and the wherewithal now to become what we believe is going to be a leading player in the over-the-top business, where we believe the bulk of the value creation is going to be in this industry going forward. So from a macro level, and I won't get into the numbers, that's what the Gaiam transaction did for us. It gave us the distribution machine and muscle really to do all the things that we've been talking about on this call.

[Unknown Analyst:]

Okay. Switching gears to OTT. With the Docurama launch, it's been 5, 6 months now, there's no Android app. The reviews, I believe, Kindle -- the Kindle reviews are, frankly, terrible. There hasn't been an iOS review in a couple weeks at least. How can we get comfort that you're going to successfully launch Comic-Con, ConTV and Dove when Docurama just -- Docurama seems like it hasn't really worked that well. Can you, at least, give us the revenues of Docurama? How do we bridge Docurama's status right now in terms of what they're executing on in Docurama? And how do you think ConTV and Dove are going to be these huge channels?

[Adam M. Mizel:]

I think, as Chris said multiple times and what we said in multiple calls, we launched Docurama as a beta app to get us into the space and to learn a huge amount. That's what we did. We launched it as an advertising-only service, which is not our model. Our model for ConTV and for Dove is a freemium model, which is a combination of ad supported and premium subscription video-on-demand. We have a different platform and different approach to that. We've learned a huge amount from Docurama, and we've built into it a lot of knowledge. And that's informing our marketing and our programming and every other decision we're making. We're also able to bundle that in discussions with some of the major platforms as we roll out our next couple of apps for better placement, better promotion and better support, which is what we intend to do. And finally, as we said all along, our general -- we spent nothing almost on marketing purposefully because our general approach, which is why we partnered with Wizard World on ConTV, why we partner with Dove on the Dove channel, is to partner with brands that bring a combination of their brand, a customer base and content that accelerates the launch and rollout at a much lower cost on the customer acquisition side when combined with our content. So I think overall, we're pretty content with where we are, and it's following the plan we expected. And when we launch -- I think, between what we've accomplished and what we're doing with our partners when we launch the next couple of channels, I think the answer is that's what we're excited about, that's what we're seeing in presales of ads, that's what we're seeing in conversations and surveying of customers and premarketing the concept, and we'll launch it. You'll see when we do. We're excited and we'll prove that.

[Christopher J. McGurk:]

Yes. And I also think, Gentry, it's -- you should hesitate a little bit to draw conclusions based on Internet reviews, that you see of 3 or 4 people responding to the app on different platforms, the conversations we've had with our platform partners have been uniformly positive. They like the app. They like its presentation. And we feel -- and that -- obviously, there's room for improvement, and this was a beta test, as Adam said. But net-net, we feel pretty good about Docurama where it is right now and its impact in the marketplace.

[Jeffrey S. Edell:]

Gentry, one other thing, this is Jeff. Most of the reviews that come through Kindle and Amazon and so forth, these are people that have to get used to some of these things. And if you see a lot of the negativity is around they don't want to see ads. Well, guess what, it's an ad-supported network and this is the future. If people are not on an SVOD sort of platform. So they have to take the ads.

[Unknown Analyst:]

Jeff, to be fair, if they don't want to see ads, they're probably also not going to be pay for this channel. And my concern is I'm hopeful that you're going to bring in a partner, but my concern is that documentaries have always been a bread and butter of the company, and we pride ourselves on the documentary offering and library that we have. And now we have our first OTT channel, and it sounds like if anything, it's characterized as a beta test. And it's -- we haven't seen any success of this first OTT channel, and it seems like we're now pivoting to these other 2 channels. And I think we should be reemphasizing our focus on this first OTT channel that we launched.

[Christopher J. McGurk:]

No, no. As I said in my remarks, we're in active discussions right now with a couple of potential branded partners for the channel that would bring to our documentary channel what Wizard World brings to ConTV and what The Dove Foundation brings to our Dove Movie Channel. And our plan is to launch the channel as a freemium service, exactly relaunch the channel as a freemium service, as I mentioned in my remarks, once we find that branded partner and follow the model that we think is appropriate for this business, which is the ConTV premium model.

[Unknown Analyst:]

Got it. Okay. And last statement I'll make is on the -- is what people talk about on this projector business to the extent that the services business doesn't back the nonrecourse debt. I would advocate for spinning out and perhaps giving it to shareholders in a separate vehicle, the projector business in the associated nonrecourse debt because I don't think the stock is appreciating the fact that the debt is totally nonrecourse, and I believe that services business is separable from that business. So I would be an advocate for spinning that out.

[Adam M. Mizel:]

Okay. Duly noted. It's an interesting thought.

[Operator:]

Our next question comes from the line of Howard Steinberg [ph].

[Unknown Analyst:]

Most of my questions were answered. A quick question on the prepaid and other current assets. We were at $8.4 million at the end of June. We're at $18.6 million now. What is the major increase there?

[Jeffrey S. Edell:]

Well, remember, as Adam sort of mentioned, we're now getting going with a model of picking up additional content and content partnerships, and they involve advances. So there's a significant amount of investment being made in future revenue streams by making those advances, and they started very much so during this first -- this last quarter in discussion.

[Unknown Analyst:]

And can you just give a little example of like, I mean, is it like shelf space or so to speak? What are we prepaying?

[Jeffrey S. Edell:]

No, it could be having a 4-picture deal or a 5-picture deal or a 1-picture deal with a content partner that's going to give us much higher returns than we currently get in our base business. And so we would give them some form of an advanced from -- do you have a number -- we give some form of advance, and then we recoup that advance against all revenues and it's fully crossed.

[Unknown Analyst:]

Understood. Okay. Just on the -- back on the legacy business. Where do you see it over the next 5 years? Where do you -- do you see us just as a collector of the old fees that were established? Are there any international aspirations as far as more conversions that are still out there around the world? Where do you see us going with the legacy business?

[Adam M. Mizel:]

I think as we've said on a number of calls, we basically do view that business as a stable management of the existing asset base and eventually run off of that business. Almost all of the conversions around the world are done. We did a bunch in Australia, New Zealand and in the Caribbean. There are a couple of small territories left that we have some conversations about. But as you can imagine, if a part of the world was not yet converted, there's some set of issues that make it a little more complicated. So we've never -- and we haven't viewed that as a growth business but as a financial asset that sits on our balance sheet, and then we continue to service those. It's useful. We have a lot of credibility and relationships with those studios and exhibitors because of what we've done there, and we use that as part of opportunity sets for things that we're doing in the content space, but, that's really the only tie-in.

[Unknown Analyst:]

And can you speak a little bit about international aspirations of the digital over the top?

[Christopher J. McGurk:]

Yes. This is Chris. I'll talk to that, Howard. Right now, we're already engaging in a number of conversations with potential international partners, particularly, on ConTV because they get the concept. So the idea would be to try to partner with a strong local or a pan-territorial distribution partners who have the same high level of relationships with the different digital platforms in their territories and can go out and acquire and bring a local content to the table. And so we're engaged in a bunch of those conversations. Obviously, it's likely that we won't close any of those discussions, although you never know until we've actually launched ConTV early next year. But the idea is to, particularly if the launch is successful here, to begin to expand our footprint internationally with that channel, then hopefully, that will serve as a template and get us strong local partners, who could also partner up with us on the other channels that we'll launch later in 2015 and beyond.

[Operator:]

And our final question comes from the line of Ron Chez.

[Ronald Chez:]

OTT generates no revenue right now, and so it's a little bit like what you had described previously with theatrical distribution. So in this quarter, can you identify the cost associated with developing OTT businesses?

[Adam M. Mizel:]

Ron, some of the things I mentioned earlier is we have the systems in place, we have the tracking in place to set things up and track things. But at this point in time, OTT is amalgamated with the entertainment business. We have some costs that are capitalized and some that are running through the P&L, but it's all absorbed in the numbers that you see.

[Jeffrey S. Edell:]

And Ron, for a lot of competitive reasons, right now, we don't want to be telling people what we're spending. But you're correct that we're certainly making meaningful investments in that business, and we think it's obviously the right thing to do.

[Ronald Chez:]

Okay, I'll leave that. And you've spoken before on what you expect the subscription price to be. What is the expectation now?

[Adam M. Mizel:]

I think we've -- we'll announce the pricing when we announce that to the channels for the consumers. But generally, in any of the channels we've look at and you look at the World competitively, they're priced between $5 and $10 per month per channel so -- per subscriber, so we'll announce the specific ones for ConTV when we roll that out to the public.

[Ronald Chez:]

Do you see pressure that you had not anticipated in pricing and the ability to price successfully?

[Christopher J. McGurk:]

No, Ron. Actually...

[Ronald Chez:]

Pretty much the same.

[Christopher J. McGurk:]

I spoke a little bit about the research that we were doing both inside the Comic-Cons and outside the Comic-Cons, I talked about how 93% of the respondents they would watch, they wanted a ConTV. We also, obviously, did a lot of research on potential pricing as well as our programming presentation and the feedback we got completely supported what Adam just said in the $5 to $10 range.

[Ronald Chez:]

Okay. And last question. I think you spoke to this, but I'm not sure. The intent is to improve the quality of Docurama, correct?

[Christopher J. McGurk:]

Well, yes, of course. We always want to improve the quality of our different services based on feedback that we get from our audience, but I will say again, that we're pretty pleased with the response to Docurama so far by our platform partners and by our viewers, and I think it's underscored by the growth, in the pickup of the apps. A lot of the customer reviews you see are 3 or 4 comments on a platform. So we feel very good about the quality of Docurama. Of course, we're going to try to make it better. And again as I mentioned, we're trying to find and we're in discussions with potential branded partners that could hopefully even take it to an even higher level when we flip to a freemium model and hope that we can find a partner at the level of Wizard World Comic-Con that we have on ConTV.

[Adam M. Mizel:]

And just to put the record straight, on Roku, we are in the top 25 best reviewed apps on Roku, right up there next to Netflix. On iTunes, we have generally 5 stars top reviews, and let's check [ph] with the dates on the right level. In Amazon, I mean, how many people -- as we talked earlier, are complaining about advertising, that doesn't lead to a conclusion they wouldn't want to pay for a subscription app, that -- we haven't rolled out a subscription app. So I think, as Chris said, we're pretty pleased about it. And as we've said, we've done this with very minimal investment in advertising, and we expect that to keep growing and to keep improving. And ultimately, we've already attracted a lot of interesting partnership conversations because of that app that's out there and the success it's had. So I think the tone of kind of where we see it and where the market's seeing is a little different than some of our earlier conversations.

[Ronald Chez:]

Yes, they are different. And just one more question about that. Do you want to comment at all about advertising revenue that has been generated? Or is that not something you want to talk about?

[Adam M. Mizel:]

No, I mean, look, we're generating nice, let's say, we're generating what we think is reasonable but not acceptable yet because we're not selling enough of the inventory because of the ad network problems we described earlier. We're going to fix that because we're bringing in ad networks, that's one of the benefits of everything else we're doing with our other channels is we have many more resources to enhance what Docurama has got on the ad side. But the key is we've got a lot of users. They're downloading the app, and they're watching it, which ultimately, is how we will monetize it with better placement and better sales ads.

[Operator:]

Thank you. And I'd now like to turn the conference back over to Mr. Chris McGurk for any final remarks.

[Christopher J. McGurk:]

Thank you. Well, on behalf of Jill, Jeff, Adam and myself and everybody at Cinedigm, we want to thank you all for being on the call today. And we thank you for your attention and your continued support, and we look forward to talking to you on the next call. So thank you and goodbye.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect. Have a great rest of your day.