Cineverse Corp. Q3 FY2024 Earnings Call

Good day, everyone. Welcome to Cineverse's Third Quarter Fiscal 2024 Financial Results Conference Call. My name is Elliott, and I will be your operator today. Currently, all participants are in a listen-only mode. We will have a question-and-answer session following management's prepared remarks. Please note that this call is also being recorded. I would now like to turn the call over to our host, Gary Loffredo, Chief Legal Officer, Secretary and Senior Advisor for Cineverse. Please go ahead.

Good afternoon, everyone. Thank you for joining us for the Cineverse fiscal 2024 third quarter financial results conference call. The press release announcing Cineverse's results for the fiscal third quarter ended December 31, 2023, is available at the Investors section of the company's website. A replay of this broadcast will also be made available at Cineverse's website after the conclusion of this call. I would like to point out that certain statements made on today's call contain forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties, and assumptions. The company's periodic reports that are filed with the SEC describe potential risks and uncertainties that could cause the company's business and financial results to differ materially from these forward-looking statements. All the information discussed on this call is as of today, February 14, 2024. And Cineverse does not assume any obligation to update any of these forward-looking statements except as required by law. In addition, certain financial information presented in this call represents non-GAAP financial measures. We encourage you to read our disclosures and the reconciliation tables applicable to GAAP measures in our earnings release carefully as you consider these metrics. I'm Gary Loffredo, Chief Legal Officer, Secretary and Senior Advisor at Cineverse. With me today are Chris McGurk, Chairman and CEO; Erick Opeka, President and Chief Strategy Officer; Tony Huidor, Chief Operating Officer and Chief Technology Officer; Mark Lindsey, Chief Financial Officer; and Yolanda Macias, Chief Content Officer, all of whom will be available for questions following the prepared remarks. On today's call, Chris will discuss our third quarter fiscal year 2024 highlights, the latest operational developments, outlook, and long-term growth strategy. Mark will follow with a review of our results for the fiscal third quarter ended December 31,2023, and Erick will provide some detail on our streaming business results and operating initiatives before we open the floor for questions. I will now turn the call over to Chris McGurk to begin.

Thanks, Gary, and thanks to everyone for joining us today. This morning, we announced a partnership with global technology and search giant, Google, with whom we developed and will soon launch a groundbreaking new AI-based unified streaming search technology called cineSearch. Both Erick and I will speak more about this later in our remarks. However, I want to emphasize that we believe this AI technology partnership with Google and the launch of cineSearch is an important milestone for the company that not only further validates our industry-leading proprietary technology, but should also provide an important new revenue stream for Cineverse because it directly helps solve the biggest consumer issues with streaming search and discovery today, the current time-consuming, archaic search technology that provides limited and unfiltered content choices for viewers. cineSearch and our chatbot video guide, Ava, will soon help solve that important issue for consumers. Now, let me speak to this quarter's results. Just as we reported last quarter, we again made strong progress this quarter toward our goal of dramatically reducing costs, improving margins, and achieving sustained profitability. We did this by continuing to aggressively cut costs as we finalize the consolidation of the 80 streaming content and technology acquisitions we made over the past three years, while we also continue to offshore a significant number of domestic employment positions to our Cineverse Services India operation. The unique competitive cost and work efficiency advantage that Cineverse enjoys versus everyone else in our space. We also continue to further optimize our stream channel portfolio, sacrificing some revenues for improved margins and profitability by culling lower-margin channels while focusing our resources on higher-margin and higher-return performers. Driven by these initiatives to dramatically cut costs, offshore domestic positions to our Indian operation, and further optimize our channel portfolio, I believe our results this quarter again demonstrate that we are well on our way towards sustained profitability. We increased our direct operating margin to 59% from 48%. And continuing last quarter's trend, we decreased our SG&A costs by $2.7 million or 30%. That's down another $500,000 from our last reported quarter, and down $7.9 million or 27% versus last year on a fiscal year-to-date basis. And we expect to achieve even greater savings going forward as we offshore more domestic positions to India and see the full impact of the series of headcount cuts that we have made, totaling 34 positions so far. So, we remain very confident we will achieve our stated goal of $8 million in annual cost savings. Let me reiterate what I said on our last call. Cineverse Services India is a significant competitive advantage for us, providing huge cost savings and workflow upsides within a trusted battle-tested operating division of our company. Not only do we intend to leverage that advantage to the fullest extent possible, but we are also considering initiatives to turn it into a profit center by offering our back office services in India to other domestic companies. Although the adjustment for the recognition of the non-cash loss on our investment in A Metaverse Company certainly had a big negative impact on our bottom line this quarter, we are nonetheless very pleased with our results excluding that impact. Excluding the Metaverse adjustment, net income was positive at $200,000. Clearly, we continue to be on a path to our target of sustained profitability. Before I end my remarks, let me quickly speak to three very important developments for the company. First, we expanded our line of credit with East West Bank, from $5 million to $7.5 million, giving us more flexibility and firepower on our balance sheet, particularly since we are not laden with the tens of millions of dollars in debt like most of our competitors have been. Second, Terrifier 3 just started filming, and is scheduled for release in the fall of this year. This sequel to last year's film phenomenon, Terrifier 2, was just named as one of the 10 most highly anticipated horror films of 2024 by USA Today, and should continue to be a huge catalyst for our horror business, all of our Bloody Disgusting enterprises and our Screambox horror channel. And third, as I mentioned at the onset of my remarks, today, we announced an exciting new partnership with Google, with whom we will soon unveil an innovative AI-based search platform that we're calling cineSearch. As part of this new service, Cineverse is introducing a new AI-based video advisor that will be known simply as Ava. This is groundbreaking technology that directly addresses the number one issue with streaming, the limitation of current methods of search and discovery where users are forced to seek films using antiquated discovery technology, and limited to only a subset of film choices spread across specific platforms. We believe this generative AI search technology partnership with Google not only further validates the industry-leading nature of our proprietary technology, which puts us years ahead of our competitors, but also will give significant new revenue opportunities for the company. Erick will speak much more in a minute about cineSearch and our partnership with Google, as well as the other key initiatives and partnerships in our channel and technology businesses that we believe will have a significant positive impact on our top line revenue growth and margins. But first, Mark will add more color to our financial results and other financial matters.

Thank you, Chris. For the fiscal third quarter ended December 31, 2023, Cineverse reported total revenues of $13.3 million, which compares to $13.0 million last quarter and $27.9 million in the prior-year period. As a reminder, the prior-year quarter included material non-recurring revenue of approximately $4 million for Terrifier 2 theatrical revenue and $7 million of revenue related to our legacy digital cinema business. When excluding the impact of Terrifier 2 and digital cinema, the decrease in revenue was primarily due to the impact on our advertising revenue from the intentional elimination of certain lower-margin channels via portfolio optimization and reallocating those resources to higher-performing and higher-margin streaming properties, which is important to our goal of achieving sustainable profitability in the near-term. We are cautiously optimistic for double-digit revenue growth in fiscal year 2025 as the economy improves, interest rates decline, and the expected improvement in the advertising market in a political year. Subscription-based revenues increased 13% to $3.4 million driven by the continued success of our enthusiast streaming services. Advertising-based revenues declined 31% to $4.1 million primarily due to our channel optimization efforts and the continued impact of the current economic environment on advertising spend. Erick will provide some additional detail on the operational drivers behind our financial results. As Chris mentioned, our direct operating margin for the period was 59%, an increase from 48% in the prior-year quarter, which is in excess of our previously provided guidance of 45% to 50% for the full fiscal year 2024. Our improved direct operating margin is a direct result of our cost optimization initiatives referred to earlier. SG&A expenses decreased $2.7 million or 30% from the prior-year quarter, and $500,000 from last quarter. Again, this improvement is a direct result of the cost optimization initiatives discussed previously. We expect to gain even greater efficiencies as our offshoring efforts to Cineverse Services India gain momentum in the remainder of fiscal year 2024 and into fiscal year 2025. Adjusted EBITDA for the quarter was $1.8 million compared to $5 million last year, with the decrease being driven by the impact from Terrifier 2 and our legacy digital cinema business in the prior-year quarter. We had $5.5 million in cash and cash equivalents on our balance sheet as of December 31, 2023, and $5 million outstanding on our working capital facility. As Chris mentioned, we recently announced an increase in our working capital facility with East West Bank from $5.0 million to $7.5 million. We appreciate our relationship with East West Bank and the confidence they're showing by expanding the size of the credit facility, which increases our financial flexibility and liquidity, and is a testament to our improving financial position and creditworthiness. This capacity increase will be used primarily to fund ongoing investments in our content portfolio. During the quarter, our cash flow used in operations was negative $3.1 million, of which $1.9 million was related to investments in our content portfolio via advanced and/or minimum guaranteed payments, the largest being for Terrifier 3. For the last six months, our cash flow used in operations was negative $105,000 when excluding our content portfolio spend, showing just how close we are to being sustainably cash flow positive. We expect this positive trend to continue for the fourth quarter and into fiscal year 2025. I also want to point out that we have a stock repurchase program in place through the end of this month. We have not utilized the stock repurchase program to date due to cash flow constraints. As such, we are working with our board to extend the program, which we expect to be able to utilize once we have turned the corner on sustained profitability. We are keeping all of our options open with regard to what we believe is a significantly undervalued stock price where we are trading substantially below book value. In addition, as good governance requires, we will be refreshing our ATM facility shortly, though we don't have any current plans or needs to raise equity at this time. We believe the increase in our working capital facility, along with the significant progress that we've made in our cost savings initiatives have put the company in a well-positioned financial state.

Hey, good afternoon everyone and thanks for joining us today. So, considering our announcement today, I'd like to start off discussing the market opportunity for our technology platform, Matchpoint, and then we'll review our financial operational performance and future outlook. As you've heard and seen from our announcements and materials, we've also been rapidly focused on scaling our Matchpoint technology and services business. We believe this is the most important part of our growth strategy for numerous reasons. First, the entertainment landscape is rapidly evolving into a universe of scale, bundled subscriptions, a wide array of enthusiast services, plus thousands of fast channels, and large-scale ad-supported platforms found on every major hardware manufacturer. This is a great opportunity for content owners, as there is a landscape with tens of thousands of buyers globally, all of them requiring large volumes of content licenses from the tens of thousands of media companies around the globe. Today, there is no unified platform that allows companies to deliver all of these to all these partners automatically and at scale. At the same time, we're hearing from the buyers, the platforms themselves, the content owners, the hardware manufacturers, that they simply don't have the infrastructure and ability to manage these massive content needs. For example, the major FAST platforms have been heavily focused on scaling AVOD and bundled channel solutions for this year, but they lack the infrastructure to compete with Amazon, Apple, and Google. Some are trying to build these solutions internally and are struggling. On the content side, like many of the studios, they throw huge sums of cash at the delivery problem, outsourcing it to legacy companies who continue doing it manually and very expensively. And small to mid-sized companies are simply not equipped to keep up with the cost. In addition, all of these companies are struggling to measure the revenue and performance results in these efforts so they can better improve their efforts. We believe Matchpoint is the solution to both sides of the equation for both content owners and platforms. Our vision is to make Matchpoint become a media cloud, enabling both the content and platform side to manage and process their content for both today's and tomorrow's business needs. Our next-gen product suite will enable the processing and management of professional-grade content at scale as simply as if they were ordering from Amazon at 100% accuracy. Beyond that, our data tools will allow them to measure the performance of all of their content so they can make better business decisions and easily integrate into their financial accounting systems. And like the AWS storefront or the Google Cloud store, our customers will have access to dozens of best-in-breed applications to further extend their capabilities. We today are already offering 14 different applications, including several in-house developed AI tools. So, Matchpoint is really the only cloud-based media solution to do all of this, and it truly is an end-to-end platform. And the platform will grow with partners as they use it. Long-term, if they want to build apps, they want to launch fast channels, or even build their own version of Tubi or Pluto, we have turnkey solutions and technology that's perfectly and seamlessly integrated into the platform and their workflows. Most importantly, we can do all of this at a fraction of the cost to build internally or use third-party ad-hoc solutions as they try to stitch it together. All-in-all, we truly believe Matchpoint can become, for professional video, what AWS is to the web and app economy. So, during the quarter, we announced our partnership with Amagi, and after the quarter end, we launched our new product, LightningFAST, at a fancy event at the CES show in Las Vegas. We have a robust pipeline now, ranging from small and medium-sized businesses up to studios interested in various elements of Matchpoint, along with some major new scale opportunities to launch new platforms, we expect to close in the coming weeks and months. As I noted, there are many, many companies in need of our solutions and expect to move quickly in the new year to take advantage of this burgeoning opportunity. We plan to continue building out the team and plan on expanding our sales force rapidly over the next several quarters to take advantage of this. Now, let's discuss a topic that Chris touched on earlier and has really become the center of attention within the media space, AI. There's a tremendous race by big tech companies to compete with the early success of OpenAI. And along with that, there are many discussions on whether AI will have a positive or negative impact on the entertainment business. But our vision for AI is twofold. First, we're going to enable our customers to utilize it to become far more efficient, which will help companies increase revenue and reduce operating costs. AI will also provide our customers the ability to take advantage of major media company needs for LLM data, and we believe our systems can allow companies to mine their libraries at scale to do so. And finally, we see tremendous value in leveraging AI for addressing one of the biggest shortcomings in the video streaming industry, unified search, and discovery. As you may have read, we announced the forthcoming launch of our next-gen video search and recommendation service called cineSearch. As advanced tech revolutionized search over two decades ago, we believe that AI offers tremendous potential to help improve the quality of video search and to enhance recommendations with the services you use and love in ways that current search engines are lacking. And who better to partner with than the world's leaders in search, Google? With Google, we've developed an advanced and enhanced search engine that leverages extensive rich data from dozens of sources, including leading metadata providers, as well as by extracting enhanced information through computer vision that analyzes every frame in a movie or show. We want to go far beyond searching for things by the limited old way of searching by title, actor, director, or synopsis. At the end of the day, cinema and DirecTV is about evoking moods. And we'll support that by allowing users to find content through much more subjective search dimensions such as setting, theme, mood, tone, intensity, and much, much more. These same capabilities will be incredibly valuable to enable highly relevant advertising, as you can imagine. Ultimately, it's about helping consumers find exactly what they want, regardless of what platform or business model. And we want it to be fun too. And what could be more fun than interacting with the world's greatest movie expert? That's what we're attempting to build with Ava, our AI-based video advisor. We envision Ava as not only being a significant expert in the whole universe of cinema but also on the films and content with any specific streaming service. Today, Ava is an expert across hundreds of thousands of films, and we expect to rapidly expand those capabilities. Now, when seeking something to watch, you can do it in a fun, engaging conversation with a friendly AI persona that you can search through and interact with in ways never previously imagined. Now, let's talk a little bit about our performance. Our digital and streaming revenues reached $13.3 million during the quarter, which fell down 36% over the prior quarter that was driven by the expansion and optimization of our enthusiast subscription revenues, but was offset by the lack of a comparable title to Terrifier 2 in the quarter, and then on top of that, our planned portfolio optimization efforts to reduce low-margin channels. We also saw a decline in Q3 ad revenues driven by slower December sales and challenging comps with last year without political advocacy spending in the current fiscal year. Subscription revenues saw an increase of $3.4 million, which is up 13% over the last year. Our overall subscriber count has reached approximately 1.4 million subscribers, a growth of 30% year-over-year, and up 11% over the prior quarter. This was predominantly due to the growth of subscribers during the quarter on Dove and our cult film service, Midnight Pulp. This progress in a diverse array of channels underscores the strength and appeal of our enthusiast streaming services and the overall diversity of our revenue model. Ad-based revenues dipped to $4.1 million, a decrease of 31%. This decline is in line with comments made by Christian Mark coming from channel portfolio optimization and, of course, the tough comp with last year which had significant political and advocacy spending. We also saw lighter-than-anticipated December after robust October and November. And we believe this is due to a strategic shift by brands and agencies in the open marketplace for programmatic advertising, with campaigns now ending far earlier in the month than in prior years. In conversation with our marketplace peers and partners, this seems to be widespread across the industry and not just isolated to us. We believe our long-term focus on shifting our ad revenue mix away from open market programmatic to programmatic guaranteed, private marketplace, and direct ad deals will alleviate our exposure to the volatility of the open marketplace. During the quarter, we continued to focus on sustained profitability with operating margin and net income. We saw further progress in that area lifting our overall gross margins to 59%. We've been able to achieve those levels by leveraging our library to release short-term content spend, renegotiating most of our operating deals to be more favorable, and by focusing on the highest margin parts of our business, namely third-party distributed FAST and SVOD channels. At these margins levels, we have unlocked something that is very uncommon in the streaming business, scale operating margins. Most of the major media companies are barely eking out profits in streaming in the low-to-single digits, with a long way to go before they have realistic businesses in streaming. We think our philosophy of operating streaming services that provide a wide array of choices in targeted high-quality library programming from around the world is a model that works in the face of larger companies slashing content while raising prices. We believe this low-cost Moneyball approach to streaming can deliver outsized margins and profits and is a highly scalable model. Subsequent to the quarter-end, we also launched several new FAST and AVOD services that we had previously announced, including the Cesar Millan Dog Whisperer Channel, Meateater, Sid & Marty Krofft Channel, and EntrepreneurTV. Barney & Friends and several other channels will be coming online in the next few weeks. We expect all of these channels to quickly ramp in revenue contribution as we grow the distribution footprint over the coming two quarters. Over the next few quarters, we're going to continue our focus on optimization. And as we've achieved a high degree of optimization on the operating side, we're now focusing on the SG&A side. Our strategy is to continue to simplify our organizational structure, and continue to rationalize it through this new model. We'll continue to leverage our growing capabilities for our Cineverse Services hub in India, which allows us to operate much of the back office services with greater cost efficiency. We think leveraging this core capability along with other cost optimizations will enable us to achieve the 15% to 20% net income margins we're targeting in the near-term for this business. All in all, we've made great strides in the last several quarters, and we now have a streaming business that can scale best-in-class margins, an innovative in-demand technology platform with even better margins, and a strong pipeline of exciting new businesses and customers we expect to bring forward during our upcoming fiscal year. Our future looks incredibly bright, and we can't wait to show you more as things evolve. With that, operator, let's open it up for Q&A.

Thank you. Our first question comes from Brian Kinstlinger with Alliance Global Partners. Your line is open. And please go ahead.

Great. Congratulations on making the difficult but necessary decision to cull the channels and give up some revenue where the economics were poor. Great to see EBITDA profit without the legacy business for one of the first times I can remember, so, great job. Can you talk about the expected early commitments from the platforms related to your new channels, whether it be Dog Whisperer, Meateater, the Sid & Marty Krofft Channel, as well as Entrepreneur? How long does it take to know whether these will be needle-movers? And how long does it take to know whether they will hit the success you hope they'll hit?

Hey, Brian, this is Chris. I just want to thank you for those comments; I think they were spot on, and we appreciate it very much. I guess Erick will answer your question.

Certainly, great questions. Over the past few years, as we've been launching these channels, we've been involved in FAST for nearly six years now. Competition for slots has significantly increased, with every major studio now introducing channels. The time needed to launch new channels has extended compared to when we began; it used to take a quarter or two. Now, getting full distribution is still quicker than the three to four years it could take in cable if managed well. Currently, six to nine months seems to be a realistic timeframe for distribution, though it might take longer with many legacy media providers like DirecTV and Charter considering entry into the market. This evolving landscape appears to be making the launch duration longer, resembling the new cable environment. On a positive note, we have rolled out many of our services on large platforms such as Tubi and Amazon, giving us immediate insights into their performance. A particularly encouraging statistic is that our Dog Whisperer Channel is already outperforming Bob Ross, historically our top performer, by about 40% on the initial platforms like Amazon. This is promising, as we believed Cesar Millan could become a second Bob Ross, but it’s already outshining Bob Ross at this stage. Similarly, Meateater has been dramatically outperforming other content on the platforms where it’s available. We always anticipated it would fill an underserved niche in the current FAST channel market, and its performance thus far has been extremely impressive. While it’s early to assess some recently launched channels, we are very pleased with the performance of those we believe could do well, as they are exceeding our expectations, with Meateater showing even better results than anticipated. Overall, we remain optimistic that our upcoming quarters will be fruitful.

Great, that's super helpful. Is there a way to think about, because it's unclear to us how many platforms you're on early on and adoption and scale, is there something you can share with us in terms of maybe exiting Calendar 2024 with these channels in total a run rate might look like in terms of revenue, is that too difficult to provide, is it totally unclear? Just maybe any helpful discussion on that would be great.

Yes, I think it's too early to say. We're just rolling out the distribution on these. But the expectation out of these larger brands and channels was to stand up another Bob Ross, was to stand up another sort of large-scale brand. And early indications are that between Meateater and others, we're really good, I think we really do have that here. I think also one of the things that's changed in the last few months, last year and the prior year, there was really a more conservative approach to channel launches. I do think that what we're seeing is most of the major players are really ramping up the total footprint that we're seeing here. So, in aggregate, if we look at where we are at a steady state with the current business, my sense is we've added at least another Bob Ross and a half, maybe two Bob Rosses long-term at full steady state distribution. I don't have the specific numbers to share with you on that but I hope that gives you a sense of scale.

Yes, great. And then, maybe you can provide some updates regarding the managed services business. You made some high-level comments. But last call you talked about I think getting to a $10 million revenue run rate as you exited Calendar 2024, if I'm saying that right, and correct me if I'm wrong, which I believe would assume probably two large VSPs, and maybe some smaller ones onboarded. Can you talk about if your assumptions have changed, is it still reasonable, and any discussions on early adopters would be great.

I'll begin, and then Tony Huidor, who is on the call, can also share insights. As we evaluate our product offerings, the area receiving the most focus and growth is in dispatch services, which is logical. In my earlier comments, I mentioned that major FAST platforms, including Samsung and VIZIO, have had a relatively easy time launching their service by utilizing feeds from us and various others. Managing an ad-supported service is much more complicated. There's no need for content delivery, programming is handled by others, and there's less involvement in analytics compared to AVOD, along with no back-office issues related to paying royalties. Now these platforms aim to emulate Tubi and Pluto by creating extensive AVOD catalogs, which requires significant technology investment. They also need to process a large volume of content. This growth in AVOD alongside FAST has been notable, and I expect this trend will continue this year, as discussed with various platforms and content owners at CES and elsewhere. The demand for capabilities to manage and deliver thousands of hours of content is rising, and many organizations currently lack the proper systems. They are often using manual methods, like Google Sheets, and hiring third parties at high costs that aren't sustainable. We've seen similar challenges in the past during Digital 1.0 with services like iTunes and Amazon Prime; scaling is essential. Consequently, these companies on both sides require substantial technology. Furthermore, there's a need for technology that utilizes AI for tasks like content localization, captions, and enhanced metadata detection, along with capabilities like automated ad insertion. We are currently providing these services. Overall, dispatch has proven to be more crucial to the market than we initially expected, as we believed the app side would be more significant. The positive aspect is that this opens opportunities for considerably larger potential customers.

Great. I'm going to sneak one last question, and I'm going to hop off. On cineSearch, is this functionality that you're going to try and sell directly into streaming platforms as a standalone solution, so like a subscription, or is it going to be bundled or somehow priced into one of your products?

Yes, I'll take that. Again, thank you for the question. The short answer is probably all of the above. I think from my perspective, having done some initial outreach, TV OEMs are probably the first likely partnerships. The TV manufacturers have a variety of different services and apps and content libraries that they can't really properly provide search for. So, we think that would be the first opportunity. It's likely going to be a licensing model. In that case, it likely would be white-labeled. We won't require that they keep the cineSearch branding or the Ava branding, but we're not opposed to it. I think the second tier would be smaller platforms, definitely not the Netflixes of the world, but others who are trying to compete, who have difficulty with discovery. So, cineSearch, once again, would be made available there. And then ultimately, we always see everything that we do as a showpiece or a Matchpoint. So, we will make it available within cineSearch and potentially other services that we launch. So, in that case, on a consumer model, it'll be likely a hybrid, a free tier with unlimited usage, premium tier, paid sponsorship, search ads, a combination of different ways to monetize. Ultimately, the cost that we're trying to cover is the accessing the LLM can be expensive. OpenAI obviously had that problem. That's why they came out with the subscription, a $20 fee that they later raised. So, we'll see the same issues, but a lot of our focus has been on trying to optimize the usage and better understand behavior. Hence why we're coming out with the beta first so that we can get a better understanding of the cost structure.

Great, thanks so much, guys.

Thanks, Brian.

Our next question comes from Dan Kurnos with The Benchmark Company. Your line is open. Please go ahead.

Great. Thanks. Good evening. Tony, can I just follow up on that for a second? Obviously, major platforms like Roku have what to watch and everyone's trying to figure out how to work on discovery in this space. And I think what you guys are proposing is really intriguing for sort of the next evolution. Obviously, there are some puts and takes around when you guys meta tag everything appropriately, and AI still has some accuracy issues. So, I'm sure you're trying to work all of that out and some of that's going to be incumbent on the owners of the actual content to fix some of that I guess in order to make this thing work. But on the flip side, given how many, at least for now until there's more consolidation, given how many platforms are out there, if you're offering this tool, is there not a way for you guys to ultimately participate in the bounty race that like Roku, if somebody said, if Roku points somebody to Netflix and says, "Hey, this is on you might want to sign up for Netflix." It's probably a bad example because they monetize Netflix that way, but they would theoretically capture a bounty for that. I know you guys are trying to put this as part of a broader package, but there's a huge element or secondary element of subscription service sign-up that is addressable here, and I know the OEMs want to tap into that. I'm just curious how you're thinking about kind of everything that I just sort of laid out in that sort of secondary revenue stream?

First of all, Brian, sorry for calling you Dan, I got your voice confused. So, Dan, yes, it's something that we thought about. Essentially, what you're describing is an affiliate model, a bounty, a paper bounty. I see that probably as a secondary approach. I think for us to get to the point where that makes sense, we need scale. And for us to get to scale, we need some fairly large partnerships in place. At that point, when we have the eyeballs and the viewership in place, we potentially can. And these affiliate models exist. It's not something that we need to go out and invent. So, we have the ability to strike deals where if we drive traffic and can show conversion, we should be able to benefit and get some type of subscription bounty for doing so. What's interesting about this product is there's a lot of different ways of kind of trying to extract value and monetize the service in terms of what you're outlining. We're not relying only on traditional metadata that comes from the licensors. First of all, we've licensed, we have official license to official metadata from key metadata suppliers. But as Erick pointed out, we are investing heavily, and we've already started the process of indexing our library as well through computer vision. Ultimately that data has tremendous value that has probably a third possible revenue stream, which is we could start passing that through the ad tags on our ad-supported business. So, as we're doing FAST channels and providing these to platforms, the more detail you can provide about what's inside the movie, there's value there on the advertiser side. So, we think that's an area where the work that we're doing on AI and contextual tagging has significant value in the long-term. The future is all going to be about metadata. And AI only works well when it has a very rich library and trove of metadata to search from. And so, for us over the last year, you've probably seen some of these announcements we've done with buying labs and others. Many of you probably don't really understand the significance, but we've been laying the groundwork for this product for the last year, and part of that groundwork has been building the metadata capabilities and building our library of metadata so we can better search it. And so, really what we've announced today is a culmination of all that work and finally present it in a package that consumers and investors can understand.

Got it. That's really helpful.

I'll add one point. I was going to add one point to that too is if you kind of look at the broader, the bigger opportunity for platforms as these become very skilled businesses with very large captive audiences in many cases of 10 to 50 million-plus users in some cases of the scale, global platforms, hundreds of millions. All of them are really thinking about how to squeeze more ARPU per user out. Today, they're all focused on building ad-based experiences. But there could be a real opportunity here, much the way Google deployed AdSense with the acquisition of DoubleClick and later scaling that across their whole search products, building self-service ad tools and other things into this that allows for a very intuitive and natural advertising opportunities native to interaction with a persona. So, if you can imagine interacting with a persona and the platform. If somebody wants to promote something specific and we find somebody searching for something very appropriate, you're talking about targeted advertising, contextual advertising. Doing it in a natural and very seamless way in a user interaction where a user is talking with a persona, having that system be white-labeled to offer to every streaming service could be a very significant revenue opportunity. So, we're exploring things like that on top of a license and kind of meter usage model.

And Erick, can I add one more thing on that?

Well, thanks for taking my turn, go ahead, Tony.

So, Dan, another question that might come up is why Google is partnering with Cineverse instead of doing it themselves. The brief answer is Matchpoint. We have a significant advantage over other platforms competing in this area. Matchpoint provides the essential technology, including user authentication and a recommendation engine, necessary to support a service like cineSearch. There are very few competitors with the comprehensive solutions we offer, which gives us a competitive edge. We have a head start and are eager to bring this to market. While we want to ensure everything is done correctly, this wouldn't be possible without the foundational technology we've developed through Matchpoint over the past several years.

All right. I'm going to try to ask another one because you guys just answered the two questions I was going to ask on self-serve and why Google. Erick, can you just maybe talk, because you brought this up in terms of expanding. I mean, look, this is obviously the future of the platform, right, is Matchpoint based. And you've talked about new capabilities, and Tony just talked about all the groundwork that's been laid out. And the fact that you just landed Google as a partner suggests that doors are open to you that may not have been open previously. And so to the extent that you're thinking about expanding through partnerships, obviously guys that are making noise like ThinkBack that are linked in on the back end, are there any other particular areas of opportunity that you see through partnership that you can drive more platform creation similar to what you announced today? And is it possible that there are other major partners, not necessarily there are only so many Googles, but other major partners that could be coming, let's say, in the next couple of months?

Sure. You raise a valid point regarding Google Cloud. As we develop our technology platform, it's essential to access more customers quickly and scale effectively. Alongside our direct sales efforts, the partnership with Amagi and collaboration with current cloud stores will be crucial. We are indeed working with Google Cloud, and it makes sense to offer Matchpoint and additional products in the Google Cloud store. Gaining access to those markets is vital. We will need to adjust our software stack to function in that environment, but I see this as an immediate opportunity. So, that’s a significant focus for us. Tony, do you have anything to add? I think it’s crucial to bring in more partners.

Microservices, obviously, right?

Yes, microservices. Today, if you want to work with us, you can license dispatch, our Blueprint product, or our analytics product. However, most major media companies may only want to use certain features. For example, while a company like Netflix might find our cineSearch impressive, they are unlikely to discard their existing systems. This is where the concept of microservices comes into play. We can take all the features and capabilities of Matchpoint and transform them into a variety of microservices that can be licensed and integrated as APIs in third-party customer software, allowing for rapid incorporation by developers. The advantage here is that instead of taking six to 12 months to deploy a customer, a well-documented SDK and APIs would allow an engineer to test and see if it fits their stack. We are in the process of re-architecting our business model for Matchpoint 1.5 to 2.0. We will continue to offer a full turnkey solution for small and mid-sized businesses, but to engage with larger companies like Netflix, Google, Warner Media, and other studios with their own engineering teams, we need to offer them microservices. We believe this follows the AWS model and aligns with many cloud-based models, allowing us to succeed in this space. With low barriers to entry and the ability to quickly scale, having large companies utilize our services on a pay-per-use basis could become quite profitable very quickly.

There are no further questions remaining. So, I'll pass the conference back over to the management team for closing remarks.

Great. This is Chris. So, thank you all for joining us today, and please feel free to reach out to Julie Milstead with any additional questions that you might have. And we very much look forward to speaking to you all again on our next quarterly call. Thank you very much.

That concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.