Chicken Soup for the Soul Entertainment, Inc.
Q1 2020 Earnings Call Transcript

Published: 15 May 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Chicken Soup for the Soul Entertainment First Quarter 2020 Earnings Call. [Operator Instructions].I would now like to hand the conference over to your speaker, Mr. Jeff Majtyka. Mr. Majtyka, you may begin.

[Jeff Majtyka:]

Thank you, and welcome. With me on the call today are William Rouhana, Chairman and Chief Executive Officer; and Chris Mitchell, Chief Financial Officer, to review the results of the 2020 first quarter as well as provide a business update. Following this discussion, there will be a moderated Q&A session open to the participants on the call.During this call, management will make forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding expectations, intentions and strategies regarding the future. Included in these risks are forward-looking statements based on management's current expectations and assumptions and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from projected results. Given these uncertainties, listeners are cautioned not to place undue reliance on any forward-looking statements contained in this conference call. Please refer to the cautionary text regarding forward-looking statements contained in the earnings release, which also applies to the content of this call. Additional risk disclosures can be found in the company's filings with the Securities and Exchange Commission.As a reminder, on May 14, 2019, Chicken Soup for the Soul Entertainment created a subsidiary with Sony Pictures Television launching Crackle Plus. On today's call, management will make comments on certain GAAP-based and non-GAAP pro forma financial information of the combined company that includes Crackle's financial results for the relevant periods prior to the closing date as if the acquisition occurred on January 1, 2018. The non-GAAP financial measure the company uses is adjusted EBITDA. Management believes that adjusted EBITDA provides useful information in that it excludes amounts that are not indicative of the company's core operating results and ongoing operations and provides a more consistent basis for comparison between periods. The earnings release contains a reconciliation of adjusted EBITDA to net income or loss, which is the most directly comparable GAAP measure. For further information regarding the company's historical financial performance, we refer you to our filings with the SEC, including our quarterly report on Form 10-Q for the quarter ended March 31, 2020, which was filed today.I would now like to turn the call over to William Rouhana, Chairman and CEO. Bill, please go ahead.

[William Rouhana:]

Thank you, Jeff, and good afternoon, everybody. Thank you all for joining us today. We're pleased to share that during Q1 2020, we were able to maintain the momentum we talked about when we reported our Q4 '19 results. Of course, the early part of the second quarter has posed challenges as expected. But notwithstanding near term uncertainty, our performance over the last 2 quarters reinforces our confidence in our business model and our belief that we have a long runway for growth when industry and economic conditions normalize.Before I get to the highlights of the first quarter and more about the current environment, I'd like to note that today is the 1-year anniversary of our acquisition of Crackle, and it's been an eventful year. Our Q1 highlights are another bit of evidence of just how transformational the Crackle acquisition has been for our company. In the first quarter, we delivered $14.1 million of revenue, which was more than 4x the first quarter of 2019. These results were driven by strength in both our online networks business, which came from stable advertising revenue, increasing viewership and significant year-over-year growth and from distribution and production. Our online networks generated $9 million in the quarter, with distribution and production contributing $5.1 million that was up 185% from last year.Adjusted EBITDA for the first quarter exceeded analyst expectations, analyst consensus, by over 20%, totaling $2 million, the second straight quarter in which we exceeded EBITDA expectations. We're currently in a solid financial position because we moved immediately to take protective measures that enhanced our balance sheet and our -- and improved our liquidity when the pandemic struck. These actions should stand us in good stead, assuming that the current environment doesn't materially weaken from here. On a related note, we were pleased to see that the rating group, Egan-Jones, reaffirmed our company's BBB rating. Chris will discuss the implications of this in a few minutes.Overall viewing trends on Crackle have been healthy with video streams averaging approximately 50 million per month on Crackle and Popcornflix. As we talked about on our last call, visits and viewership trends were already solid during the quarter, but began to spike in March as shelter-in-place mandates went into effect. Also, our internal metrics show record visits for Crackle and Popcornflix in that period. Increased traffic in viewership enabled us to deliver month-on-month growth in ad impressions throughout the quarter at stable eCPMs. In fact, we had more advertising demand during Q1 than we did ad inventory, despite local advertising beginning to experience some pressure near the end of the quarter.One thing is becoming increasingly clear about our programming strategy. Our original and exclusive programming is finding an audience. New and original exclusive content made up nearly 15% of streaming hours in the quarter, the best overall quarterly performance we've seen so far. For some perspective, when we started tracking this metric in September, only 3% of streaming hours were from original and exclusive content. Coincident with the growth in viewership of our own original and exclusive content, we are having to rely less on Sony for content. Today, more than 60% of our programming on Crackle comes from us compared to only 10% just a few quarters ago. We believe this demonstrates the depth, quality and growing value of content we were able to bring to air via our low-cost, low-risk distribution and production business.Turning to distribution and production, our strategy is gaining momentum. The increased number of titles and their overall quality contributed to a strong growth in the first quarter. You may remember that in our last call, I discussed the fact that we had already obtained all the content that we need for 2020 in last year's fourth quarter, which puts us in a good position to continue this momentum throughout the year. It's worth noting that more than $800,000 of the distribution and production revenue this quarter comes from our online networks business as we deliver more of our own content, including our original exclusive programming to Crackle Plus. This is kind of an amazing number when you consider that the total revenue share from the time of the Crackle Plus transaction through the end of 2019 was only $900,000. This is a good indication of the value of our content and another sign that our differentiated AVOD business model is working.Moving to the current environment. We, along with others in our industry, have begun to see impacts from the pandemic. Advertising activity weakened substantially in April, led by brand and local -- brand and local advertising. This is disappointing but not unexpected. Keep in mind, we work with resale partners for local ad sales, largely comprised of broadcast and cable station owners. Our partners began seeing local lower demand from small businesses as the stay-at-home mandates went into effect. Many national advertisers have also cut marketing costs dramatically. However, some ad categories have seen increases. For example, consumer packaged goods, gaming, delivery, insurance and pharma have been among the stronger contributors. As parts of the country partially reopen, we are seeing this lead to some revival in local and a rekindling of demand in brand advertising. However, marketers who are used to airing brand ads nationally are struggling with how to better target those ads to markets where economic activity is stronger versus markets in which stay-at-home orders are still in effect.Now targeting geographically is something we are actually very good at since we've been generally doing that for approximately 40% of all our advertising. Overall, the environment remains highly uncertain. We are in a relatively better position than some given our attractive, younger and male-skewing demographic. And we are focused on reinforcing that message with existing ad partners while also being creative and exploring new opportunities such as branded channels. We also think our audience looks attractive to political advertisers. And we anticipate to begin picking up some of that business as the election season swings into gear. Viewing trends are starting to revert to normalized levels in April, trending down from a late March peak and have remained fairly stable in May. May advertising booking is showing -- is currently showing improvement over April, whether these trends hold as a function of how the pandemic and economy evolve in the coming weeks.On the distribution and production side, TVOD has been a bright spot for us across our industry. Last quarter, I asked you to check out our release of Last Full Measure, and I guess you did. So thank you. We believe that TVOD will continue to be an important part of our distribution and production business while theaters remain closed. We have a strong lineup of content for TVOD, which is distributed broadly over digital and cable platforms. We also have a healthy pipeline of new original content, including Cooped Up and Crown Vic, which we recently released. Because we have our -- we have set our full slate of new content through the end of the year, the current film and television production delays should not impact us in 2020. We are seeing more interest in our screen media library as other programmers and networks seek to fill holes in their own schedules.Summarizing our recent results, we had a solid first quarter pretty much across the board with strong audience growth and viewership trends, growth in ad revenue and a revitalized distribution and production business, all showing continued momentum. This demonstrates the long-term potential we have ahead of us. Early in Q2, we've begun to see the effects of the challenging and uncertain economic environment we all find ourselves in today. While we hope April will be a filar in terms of ad revenue, that remains to be seen. Regardless, we expect to see a partially offsetting benefit as our distribution and production revenue continues to grow.At the operating level, our focus is on continuing to execute, manage our costs carefully and maintain a flexible balance sheet. We are taking an opportunistic approach to building our business for the future, reviewing potential acquisitions of both companies and film and TV libraries. We believe if we execute well in the near term that we will be in a good position to come out of the current environment in a stronger position.As I mentioned on the last call, we continue to see significant strategic opportunities and that has only increased since we last spoke. We are doing our best to balance these efforts, the efforts that it takes to execute our plan and ensure that we are in a position to make it through these challenging times while also exploring opportunities as large media players develop their AVOD strategies. We believe the value of our unique business model, which would take years to build or replicate, stands out in the industry. We all know that these times require everyone to pull together, and we'd like to thank our employees, our community and our investors for their support and fortitude. I'd also like to thank our vendors who have uniformly been supportive of our business. And in a broader sense, we appreciate the commitment of the people and organizations that have come together to address this global health emergency. And our thoughts are with all those who have been impacted.Now I'll turn this over to Chris.

[Christopher Mitchell:]

Thank you, Bill. On today's call, I will focus on a review of our financial results and balance sheet. We reported gross revenue of $14.1 million in the first quarter compared to $2.5 million in the year ago period, an increase of 464%. Online networks or Crackle Plus generated $9 million in gross revenue in Q1 2020 compared to $735,000 in the year ago period. As a reminder, we did not have Crackle Plus in the year ago quarter as the transaction closed in mid-May 2019. As mentioned on previous calls, we consolidated distribution and production into one revenue line. Distribution and production generated gross revenue of $5.1 million in Q1 compared to $1.8 million in the year ago period, an increase of 184%.As Bill noted, $802,000 of our distribution and production revenue is attributable to our online networks as we supply an increasing amount of new and original content to our networks. As we scale the business, our ability to be a key supplier to our online networks will support the incremental growth of businesses -- of both businesses while further differentiating our AVOD networks from many of our peers. Gross profit for the quarter ended March 31, 2020, was $3.3 million or 25.2% of net revenue compared to $0.6 million or 25.6% of net revenue for the year ago period. An increase of 494%. Without the noncash film library amortization expense deducted, gross profit would have been $5.7 million or 43% of total net revenue.Operating loss for the quarter ended March 31, 2020, was $10 million compared to an operating loss of $2.7 million for the year ago period. Without the film library amortization expense included in cost of revenue and the amortization expense of acquired intangible assets resulting from the Crackle transaction, the operating loss for the quarter ended March 31, 2020, would have been $2.3 million compared to $1.9 million in the year ago period. We had positive operating cash flow in the first quarter of $1.9 million compared to negative operating cash flow of $3.8 million in the same period last year. Adjusted EBITDA for the first quarter was $2.1 million compared to an adjusted EBITDA loss of $0.8 million in the same period last year.I'd now like to turn to an update on our balance sheet and liquidity position. As of March 31, 2020, the company had cash and cash equivalents of $7.1 million compared to $6.4 million at the end of the fourth quarter 2019, and $3.8 million at March 31, 2020 -- sorry, 2019, prior year. As of today, we have approximately $6.5 million in cash on hand. As of March 31, 2020, we had outstanding debt of $19.2 million with no significant maturities for several years.Further to the balance sheet discussion, our BBB corporate rating and BBB- preferred stock rating were confirmed by Egan-Jones in April, with an ability to increase the preferred stock issuance from $40 million up to $60 million at that rating. While we would not choose to issue preferred stock at this time under normal circumstances, and we have no immediate plans to do so, we plan to file an F-3 shelf registration statement in the near term to provide us with further financial flexibility.Looking ahead to our second quarter results, our distribution and production business is continuing to make strides, and we are positioned to drive continued growth in Q2. Keep in mind that as we execute on our revamped strategy in this segment, we will see an improving consolidated margin profile as well. In our online networks business, Bill indicated that ad revenue had been pressured in the early part of the second quarter, but not out of line with what we believe others in the industry are experiencing. We're seeing some early signs of improvement in recent weeks, but there is very limited visibility currently.Wrapping up, we feel good about the Q1 performance and believe the underlying fundamentals in our business validate our strategy. Near-term pressure and uncertainty is a factor, however. And we will see that in our results for the current quarter with softer ad revenue somewhat offset by strength in distribution and production. We're managing through this period with caution and a strong focus on managing costs and our liquidity. We believe our long-term prospects remain bright.Thank you for joining. I'll now turn it over to the operator to begin the Q&A period.

[Operator:]

[Operator Instructions]. Our first question comes from Dan Kurnos with Benchmark Capital.

[Daniel Kurnos:]

Bill, just -- understand the environments really messy right now, I just want to get a sense -- and thanks for the color on categories. But just want to get a sense, some of the viewership trends that you saw kind of a spike, obviously, sort of shelter in place benefiting the platform and really AVOD, in general. Do you have a view on how long that persists? And maybe if you're doing any -- what you're doing to sort of incentivize people to remain on the platform longer term? What do you think the stickiness of kind of this uptick is?

[William Rouhana:]

Okay. So there's a bunch of different things in that question. So we did see a spike, I think it kind of peaked at the week of March 23, in viewership. And then it came down a bit in April, but still remained above what we had been seeing before this all started. The ability to hold people for the long term, I believe, will be dependent on the quality of the original and exclusive content that we continue to introduce. And I think we're starting to show that, that stuff is sticking and working. We gave you a little bit of the number on the first quarter. But if I looked at March and April, the percentage of people who are watching our original and exclusive stuff continues to rise. And I think that's really the differentiator between us and other AVODs, where other AVODs have deep libraries, as do we, they lack the original and exclusive content that we have. And when you look at our numbers, it is absolutely consistent that new stuff, that is new to AVOD, and which we have alone, is always the top performer in terms of viewership. We have a very robust lineup coming.We didn't give a lot of the details about that because we like to kind of surprise as we get to the next month with the various announcements we make about this programming. But it is well organized, and it is very good through the rest of this year, at least. And there are a couple of big things that are coming too. So I really think, Dan, that's going to be the key, continuing to deliver stuff to people that they enjoy watching but can't find anywhere else. And doing it with our model, which is keeping our costs down and not taking big risks. I think that's the -- that's been the strategy from the beginning. It feels to me and it looks to me based on the numbers like it's truly working.

[Daniel Kurnos:]

Do you have a view on how that -- we are positioned in the landscape, given that most of your competitors have now been acquired are now part of sort of content providers?

[William Rouhana:]

Yes. It's very interesting. The -- I think what will happen in AVOD is what has happened in SVOD or what is going to happen in SVOD. And I think you're going to see a number of walled gardens created where the AVODs that have been acquired will only have -- will primarily and maybe only exhibit the content of their owners. The problem for them is that it takes a couple of years generally to get back the rights to enough of your programming to matter. So they'll go through a couple of year period where they'll have -- where the rights will be coming back slowly but surely. A couple of years from now, they will have their own content and they will look a lot like us. I don't know how big we'll be by then, but I suspect substantially bigger. So -- but I do think that in a couple of years, Dan, our model will be imitated by others, without a doubt.

[Daniel Kurnos:]

Do you have a view on sort of CPM trends? We've heard sort of varying impact on programmatic. Obviously, premium video has taken a bit of a step back, impressions being as strong as they are, and it sounds like sort of what we've heard from -- general online, has been stabilization of rates and not down as much in April and improving into May. I think you kind of echoed that in some of your prepared remarks, but understanding that it's really an advertiser demand/supply equation and consumer -- this consumer impact. Just curious sort of how you think this kind of plays out? And can you continue to outperform, I guess, broadcast linear?

[William Rouhana:]

I think there's no question we could outperform broadcast linear. That, I think there's no doubt about. It's just a completely different audience. I mean, 60-plus year olds, I happen to be one of those, we're boring, we're not that interesting to advertise to. But the 18- to 34-year olds who watch our networks are really interesting to advertisers and can only be reached through networks like ours. So there, I don't think that question is really a worry.As far as CPMs go, look, we've made a conscious decision. I think we might be the only ones in the business right now who can make this conscious decision not to break CPMs through this period. Because we rely so little on programmatic revenue. And I think we're going to be okay with that. April was a little better. Actually, it was considerably better than I feared, but it wasn't as good as I wanted it to be. May, I think, will be considerably better. So I'm not -- nobody is immune from this. If this continues -- depending on what happens now, Dan, in terms of reopening, we might be seeing an up and down kind of world for a while where we get a bunch of Aprils. And then we get a rebound for a bunch of Mays. I don't know if there's a trend yet. I just know that so far it hasn't been as bad as I thought it could be, so.

[Daniel Kurnos:]

And just -- if I could sneak just one more in, Bill, obviously, you kind of mentioned it, you said you think you might be substantially bigger. Just in this environment, it feels like the iron is rather hot, at least being sort of from your position and relative to people wanting AVOD or partnerships. There are obviously also a lot of distressed assets out there, but you have to be mindful of the balance sheet. So I don't know how you get there or how you work the magic that you do, Bill, but just your general thoughts on landscape and how quickly something may or may not happen?

[William Rouhana:]

I think I tried to make it pretty clear that when I said we continue to see significant strategic opportunities, and that has only increased since we last spoke. And actually, it is true on both -- looking both ways, both in terms of opportunities to acquire and opportunities to partner. We're engaged in a lot of different conversations that I have -- that I'm finding very, very interesting. And, I think, confirm for me at least the value of our company. So without overdoing it or underdoing it, the -- this -- the economic environment, the pandemic has not stopped any of these conversations for moving forward. So -- and I agree, Dan, we do have a unique asset right now.

[Operator:]

Our next question will come from Thomas Forte with D.A. Davidson.

[Thomas Forte:]

So I have one question and one follow-up and then I'll get back in the queue for additional questions. So my first question is Roku suggested that the current environment is going to accelerate the disruption, including to the upfront, and accelerate the movement of linear TV ad revenue to AVOD. And I wanted to get your thoughts on that, Bill?

[William Rouhana:]

I think it's inevitable, Tom. The trend was already there, right? We knew that before they started. What did people do when they actually were forced to stay at home? More than anything else, they went online to stream and spotted AVOD services. There were increases in broadcast, there were increases in traditional cable, but there was an acceleration of viewership in the online streaming world, which makes perfect sense. That's where people were going anyway before they started. So advertisers aren't the fastest people in the world in terms of changing the things they do, but they can count. And they know where audiences are and they will follow audiences.So I think there's no question that, that is right, that this disruption is going to ultimately be a major step-up for all of us who stream and all of us who work with advertisers in this space. It will be a step function growth. But that growth was inevitable anyway. It's not like it wasn't happening. It was clearly happening. Every single trend is in our favor in this regard. We put ourselves squarely in front of those trends. When we decided we were going to be in AVOD, and we've capitalized on those every step of the way. So I don't see any way that this reverses, Tom, I think it just helped speed things up.And there is one other clear thing. Cable is expensive. And if you're one of the 40% of these households that I understand have lost a job in the last month, you're looking to cut costs. So where are you going? You're certainly looking at cable as one of the things you could afford to get rid of. If you were already thinking about it because you'd heard about this cord cutting idea from your friends, you now have a need to do it. You guys have seen this in the cable numbers. You see the sub losses, and they're going to get worse. So I think that all of this is driving existing trends to accelerate.

[Thomas Forte:]

And then for my follow-up question, I want to know if you can explain in a way to help me understand how I can think about pricing. Do you have price floors in the event that consumption remains elevated? And in the event that you didn't get pricing you liked, would you scale back the ad loads, the number of ads that are shown against the content?

[William Rouhana:]

That's a funny question coming from you because you are one of the people who has watched and compared our service to others and know that we have a considerable number of ads compared to some of the other AVOD on our service. I get a kick out of your reports, Tom. It's like we have a consultant. So thanks for the help. I don't know. I don't know. The answer to your question is I'm not really sure. So far, we haven't had to truly face that question. We have faced it a little bit and made the decision that we're going to try to hold our CPMs at a premium level. We have a valuable audience. And if you're going to get to that audience, you should pay us appropriately. April did not really represent the kind of downturn that forced the issue. It was modest.But I guess, I don't want to say we would never do it because we haven't really been confronted with the premise of your question. And we might choose to change ad rates. But I actually don't see how that's really all that smart. It doesn't seem to me it'd really do you a whole lot of good because there's always some other guy who will charge less. So if you're going to be selling on price as compared to quality, that's a race to 0. And we have a quality audience. We have a great audience. We have quality programming. And we have quality brands associated with us. And that distinguishes us from many others. And I think that's what advertisers want. They want to be associated with premium quality and our original exclusive content strategy reinforces that. And I think we're entitled to that kind of CPM because of what we deliver. So we're going to hold out. I would expect indefinitely, but you never say never, right? You never know for sure.

[Operator:]

[Operator Instructions]. Our next question will come from Allen Klee with National Securities.

[Allen Klee:]

For your production and distribution partnerships, I know we're not producing anything new today, but can you just give us some thoughts on how you feel about how they're going and your ability to expand and diversify among them and new ones?

[William Rouhana:]

Okay. Allen, I hope you're well. The landmark, which is the key so far, is very well positioned to start production on at least 4 big projects. The minute -- at the minute, lawmakers allow them to as well as the second half talent agrees to. We've spent the last couple of months really finishing off the development of these projects and getting ourselves in a position with financial partners in those -- in each of those projects so that we could hit the ground running the minute lockdowns -- and assuming talent wants to move forward. So I feel like we're in an okay place there.Now I've been told that Canada is preparing to open up production in July, that a couple of European countries are preparing to open up production even sooner than that. I think the second question that I raised, which is, is talent willing to do it. And are you going to be able to create a safe environment for people. I mean, these are critical questions that I think can still slow down the reopening of the production activity. But the minute it's possible, we will be on the spot doing it in those coproduction ventures. Other coproduction ventures, we've really slowed down that process through this pandemic, with one notable exception that I won't go into, so -- but I do think this co-production process will -- these partnerships will accelerate once we get through to a more normal time. We've got 3 or 4 of them that are simmering, but we've not focused on them the same way we focused on some of the other things we've had to do during this period. So that's kind of an overview of where we are.

[Allen Klee:]

My other question is, is there any update on what Sony might do related to -- any actions related to your joint venture?

[William Rouhana:]

Well, actually, tomorrow, is the first day Sony's option to decide whether or not they would like to retain 49% of Crackle Plus or convert into our preferred stock or become a common shareholder begins. So the period begins tomorrow, it lasts through November. There have been some discussions about this with them, but they really are not -- I really can't talk about the specifics. It's not appropriate. Suffice it to say, Sony is heavily motivated and has publicly stated many times that they are not interested in staying in businesses that are not generating them a net income contribution, and it will be a while before Crackle Plus, because of the way it's organized, could do that. So it seems to me the odds are that they will not stay at the 49%, but I'm only speculating based on their public comments.

[Operator:]

Our next question will come from Mike Grondahl with Northland Capital.

[Unidentified Analyst:]

This is Michael [ph] on for Mike. Maybe just -- I think you called out a couple of films or series. In the quarter, was there anything else to call out that was -- any surprise of your interest they generated?

[William Rouhana:]

Yes. I mean, there is one thing that I think is worth talking about, and that's the success of On Point, which was another original series that we got and which has done extraordinarily well. And I -- for a while, gave you guys sort of the Going From Broke scorecard, and that has returned multiples of what we spent on it. And the On Point numbers are showing a similar kind of result, and they're now approaching over 7x what we spent on -- between the cost of that and marketing in terms of network revenue. So I'm fascinated by how successful these original programming -- originals can be. They don't all do that, of course, they all make us money because we don't have -- because of our strategy of having little or no net investment in them when they go on our AVOD business. But a couple of them, Going From Broke and now On Point have performed extraordinarily well. And I think Crown Vic may be another one that's going to come through in a big way. That seems to be doing extremely well. So that's something I think that's just worth noting. I didn't have -- I didn't really mention it in the script or except under the generic heading of originals and exclusives do well and are a great part of our business. But that one, in particular, has done extremely well. It's a basketball series. If any of you haven't watched it, you should go watch it. It's pretty good.

[Unidentified Analyst:]

That's helpful. Maybe just longer term, once we get to some more normal environment, how should we think about just the allocation and spend towards producing content versus marketing the series of the content and the platform?

[William Rouhana:]

Well, the content production and distribution side of the business, for the time being, it operates on the model that we've always operated under, which is lay off risk, end up with little or no net investment by the time we go to -- put it on our own AVOD network. And I think that is the model for the foreseeable future.The marketing side, we've been -- we have not been aggressively marketing since we took over Crackle, and there's been a variety of different reasons for that. But it's getting closer and closer to the time where I feel like we should really focus in on making noise and being seen. We recently launched a new public relations campaign, which seems to be bearing fruit. We're having -- we're seeing very -- a lot of coverage for both Crackle, our new releases. And that I'm seeing as -- that's a net positive, really helping. We're going to be doing some interesting testing of direct marketing to certain audiences. So I think marketing money is likely to be made available here in the near future. The companies that grab the most market share during downturns are the companies that increase their visibility. So I would expect us to be looking at the business that way going forward.

[Operator:]

And we do have a follow-up question from Thomas Forte with D.A. Davidson.

[Thomas Forte:]

So Bill, maybe I'll ask two more follow-ups and get back in the queue again. So I wanted to ask you a question, so you sort of answered but I'll ask it a little differently. So to the extent that Canada isn't open now and you're not filming in Korea or I think it's Iceland. If there is an extended period of time where content creation is disrupted, how well can you lean into your library?

[William Rouhana:]

We are good, Tom, I'd say, until the first -- the end of the first quarter of next year, at which point, we have to start leaning into the library if we don't have new stuff. But I think that we will -- if we don't see things open soon, we will start creating content in ways that are -- that we can create it now. And I don't know how to illustrate that better than to say, if you happen to be like me and still watch Saturday Night Live, Saturday Night Live At Home was on the last several weeks, and they created a show in a brand-new way that was actually possible in the pandemic. I'm not saying that was good, bad or indifferent, but just a good example of an alternative way that content can be created in the current situation. So if we all don't see this situation alleviating itself, we will be among the first people to quickly start to create content in ways that are possible now.And why do I say that? Because we're quicker, and we're going to make decisions faster and we're going to adjust to [Technical Difficulty] without going out and necessarily shooting the way it's been done traditionally. We won't be alone, obviously, necessarily shooting the way it's been done traditionally. We won't be alone, obviously, if this continues and people can't start making stuff, there will have to be alternative ways to do it. And you're all going to be watching things that you never thought you'd be watching, more stuff shot with iPhones and more stuff shot from people's homes and more clever ways of integrating people who are in 2 different locations into what appears to be 1 spot. But I think that's the likely result, Tom, if we don't see it starting to open up soon. Does that help?

[Thomas Forte:]

All right, so -- yes. So one more follow-up and then I'll get back in line one more time. All right. So I want to know what we've learned so far from life without live sports, how has that benefited you.

[William Rouhana:]

Well, it forces advertisers to go searching for 18- to 34-year-old males, so -- and we have a lot of those. So that's very helpful. It also probably is like something like On Point, which is the basketball series, just shoots to the top of the charts and stays there indefinitely because at least it's a sports fix of sorts. So I'd say those are direct benefits. And it's got -- there's another actually funny result. The lack of -- I shouldn't say funny, an unexpected result, which is the lack of the Olympics has really been a setback for Peacock. And that would have been a formidable competitor, if it was fully developed and bringing the Olympics to it in some way this summer. It's -- for them, it's a serious blow on many levels, as I'm sure you know. But for us, it just extended our runway to keep building and growing and doing smart things with one less serious competitor for eyeballs.And Tom, I'm going to give you a bonus question because you're going to be the last person. So what else would you like to ask?

[Thomas Forte:]

Well, it's got to be a double then, all right, because I had 2 more left. All right. So my last -- fine, my bonus question is, do you think day and date release has permanently changed when theaters reopen? And then it seems like you've changed your content strategy on children's content. Can you explain your current thoughts on your view of children's content on the platform?

[William Rouhana:]

So are those your two questions? Or did you sneak two into one question? And you're going to have try and ask another one after this?

[Thomas Forte:]

No, that's it. You gave me a bonus. So I merged my two questions into one.

[William Rouhana:]

Okay. So let me give you the answers. I do think there will be a permanent change in the way theatrical releasing occurs. I do not think it will be quite all the way to day and date across the board, but I do think you're going to see an increasing number of day and date releasing, increasing number of those. It's -- the economics of digital distribution of major films are very favorable to the owners of those films. There's no 50% to the theater. There's a much lower -- much lower fee net to the distributor. You can see where your marketing money is generating results because you're in the digital world all the way. You can reduce marketing dollars and generate higher returns. Because it's very easy to see if someone is clicking on something and going to a TVOD delivery service and buying your movie. So there's major, major incentives for the major studios to do this with films.On the other hand, the tent poles have to go out to theaters. They need that $1 billion of additional revenue to be able to justify the risk associated with those kind of movies. Now, happily, we're not in that business. Guys like us are likely to be able to get more of our stuff out day and date. And I think consumers will be trained to think that things that come out that way are just as good as the things they used to go to the theaters for. And that's the most important differentiator I see, the different attitude that consumers are likely to come away from this period with, as they learn that, hey, the fact that something premiers at a digital service as compared to in a theater, it doesn't necessarily mean it's not as good. So that's the answer to question one, as far as I can tell.Question two, kids. Well, I like kids. I'm a grandfather. So I like my grandchildren. I like kids in general. Thank God we don't have any at home while I'm trying to work. I see a lot of my colleagues who are trying to keep the kids off of their laps or their dogs off of their laps while they talk. I've seen the weather guys have a lot of fun with -- trying to keep their kids out of the green screen room that they've got. So like kids, despite all of that. But what we really were doing when we adjusted our programming was thinking about parents. Our Homeschool Channel, Tom, is not really designed around the kids. It was really designed around the parents and trying to give them tools to use truly educational programming that they could use with young, young children up to 8 years old to help create -- to help them teach those kids. There's a I look at home schooling and look at the problems that parents have had with this. And I am gigantically sympathetic with those parents. We felt we could pull together a lot of really high-quality educational content and make it available on a free service and promote it a bit, but it was really about the parents, not about the kid stuff. And so our philosophy about kids programming has remained the same. We're not in that business, and we're not likely to be in the near term. But we did want to offer a service.Now we -- the service we probably should have offered was sending Ashton Kutcher out to teach everybody. For those of you who haven't seen him on a nighttime show in recent weeks, he and his wife, Mila, have been teaching their very, very young children about things as arcane as measurements. And I spoke to Ashton yesterday and he gave me the lesson that he gave his 2 young children about how to differentiate between a foot and an inch, oh and also a tanker truck, which was another measurement that they use in order to show the kids the difference in measurement. So this week, in Ashton's household is a week about measurements. A couple of weeks ago it was about the environment. The fact that parents have to figure out how to educate their kids at home was something we were trying to help out with, and that's why we did the Homeschool Channel. And that's why it's called the Homeschool Channel because it really is about that.Well, with that, operator, we're going to call it a day, and I want to thank everybody for coming today. I hope everyone stays safe. I hope our country is able to get through this in a smart way, and we look forward to updating you in the future. Thank you.

[Operator:]

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