Earnings Call Transcript
CuriosityStream Inc. (CURI)
Earnings Call Transcript - CURI Q4 2022
Operator, Operator
Good day, everyone. And welcome to the CuriosityStream Q4 and Full Year 2022 Earnings Call. I would now like to hand things over to Ms. Denise Garcia. Please go ahead.
Denise Garcia, Moderator
Thank you. Welcome to CuriosityStream’s discussion of its third quarter 2022 financial results. Leading the discussion today are Clint Stinchcomb, CuriosityStream’s Chief Executive Officer; and Peter Westley, CuriosityStream’s Chief Financial Officer. Following management’s prepared remarks, we will be happy to take your questions. But first, I will review the Safe Harbor statement. During this call, we may make statements related to our business that are forward-looking statements under the federal securities laws. These statements are not guarantees of future performance, but rather are subject to a variety of risks, uncertainties, and assumptions. Our actual results could differ materially from expectations reflected in any forward-looking statements. Please be aware that any forward-looking statements reflect management’s current views only and the company undertakes no obligation to revise or update these statements nor to make additional forward-looking statements in the future. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC website and on our Investor Relations website, as well as the risks and other important factors discussed in today’s press release. Additional information will also be set forth in our annual report on Form 10-K for the fiscal year ended December 31, 2022, when filed. In addition, reference will be made to non-GAAP financial measures. A reconciliation of these non-GAAP measures to comparable GAAP measures can be found on our website at investors.curiositystream.com. Now I will turn the call over to Clint.
Clint Stinchcomb, CEO
Hello everyone. I appreciate you all joining us today. Also on the call are our COO and General Counsel, Tia Cudahy; our CFO, Peter Westley; and our Head of Content, Rob Burk. We have been hard at work since our last call, and I am delighted to update you on our progress. We made some strategic commercial decisions in our content licensing business in Q4 and more recently that, while sacrificing immediate revenue and ostensibly better quarterly performance, we believe have put us firmly on the path to achieving positive adjusted free cash flow in the near-term and even firmer sustainability in the long-term. We are focused on driving operational efficiencies and leveraging opportunities made possible by our strong cash position. We also continue to focus on improving the economics of all of our partnerships and vendor agreements. We believe these decisions and actions, and some others that Peter will address, expand our overall opportunity and maximize profitability and sustainability despite short-term revenue impacts. As part of our continued focus on building long-term success, I am happy to share that we exceeded our year-end target cash balance of $50 million by over $5 million, ending the year with over $55 million in cash and short-term investments and zero debt. We believe our strong balance sheet and path to positive cash flow are major competitive advantages in the current environment. While some industry players must raise capital, which is increasingly expensive and difficult to secure, we believe we have the cash resources to turn cash flow positive without the need for outside capital. Consistent with our focus on long-term value creation over short-term revenue opportunities, we also remain highly disciplined in third-party licensing and distribution negotiations. We know the value of our content, and we won’t enter into agreements that do not meet our valuation thresholds. We are in control of our own destiny, and our future is bright. Specifically, our direct-to-consumer SVOD revenues grew 12% in the fourth quarter and 25% for the full year on a year-over-year basis. Looking ahead, we are optimistic about our ability to drive accelerated subscription revenue growth and profitability as we implement our new pricing structure, as we migrate to more efficient performance-based marketing and as we execute on product innovation that will produce measurable return. On the pricing front, we recently completed an extensive three-month pricing test with over 3 million interactions. We expect the changes we made to our standard tier subscription pricing on March 27th will create a tailwind to revenue growth later this year and beyond. Specifically, we increased the cost of our standard service to $39.99 from $19.99 per year for new annual subscribers and to $4.99 per month from $2.99 per month for new monthly subscribers. We had long maintained our $20 annual standard service price point despite the significant investments we have made to expand our content library and improve the user experience. We established our new price points following a rigorous process of testing and analysis that helped us to estimate the subscriber acquisition and retention impact of various pricing combinations. Specifically, we analyzed over 3 million sessions during the course of many weeks, using nine different combinations of pricing and messaging. After thoroughly reviewing the data, we confirmed a range of pricing flexibility, and we believe we are striking the right balance between delivering value to our subscribers, optimizing lifetime value, and enhancing profitability. Even at a higher price point, we continue to believe our service represents an extraordinary value compared to other offerings in the market. We expect the financial benefit of the price increase to build sustainably and gradually as new subscribers join and as annual subscribers renew over time. Our direct-to-consumer subscriber retention remained industry-leading during the fourth quarter as our incredibly talented content and marketing teams continued to leverage our critical-mass content library of over 15,000 programs to deliver new and engaging experiences. A great example of this was our highly successful 100 Days of Curiosity campaign. The campaign kicked-off September 23rd, with our landmark original feature doc Pompeii: Disaster Street and continued through the end of the year, with a different existing series or special re-featured on our service each day and highlighted across all social channels with gratifying success. Many of the titles re-featured in the 100 Days campaign received more than 10 times the number of views they would normally receive on a typical day. Top performers included everything from Secrets of the Solar System, Ancient Engineering, and Eternal Egypt to Planet Insect, Amazing Dinoworld, and Radioactive Forest, each of which saw their daily viewership increase from 5x to 25x in a single day. And nearly a week after we re-featured each title, they continued to deliver viewership levels much higher than previously. During the 100 Days of Curiosity campaign, social engagement jumped more than 200% from the previous three months. This was powered in large part by our strong video content, which drove a nearly 275% jump in video views during the 100 Days campaign compared to the previous quarter. And the social growth we saw during that campaign continued into the first quarter, with engagements up 1400% from January 1st to today. Throughout the quarter, we also continued to premiere more brand-defining original series like Oddly Satisfying Science, a second season of NYC Revealed, new episodes of our award-winning science and technology strand Breakthrough featuring Flying Cars, Reefs of Hope, and Voyage into the Sun, as well as our one-hour special, The Lucy Mission: Origins of the Solar System and our ever-popular year-end wrap, Top Science Stories of 2022. Building on the success of 100 Days, Curiosity has already created several more special campaigns to enhance program discoverability throughout 2023 and beyond, including Ancient Egypt Week, Space Week, and Dino Week. Turning to product innovation, we have been encouraged by the continued embrace of our Smart Bundle subscription plan. In fact, December was an all-time record month for Smart Bundle subscriber additions, resulting in 32% year-over-year Smart Bundle subscriber growth. And while the Smart Bundle continues to increase as a percentage of our base, we believe there is excellent runway for growth considering that less than 10% of our DTC subscribers are on this plan. We believe our Smart Bundle subscribers, many of whom have upgraded from our standard subscription, appreciate the plan’s curated content and value. At $70 per year, our Smart Bundle represents an 83% savings compared to subscribing to each service individually. And we have broad, global rights with the majority of our six content partners including Da Vinci Kids, which we added to the bundle during the fourth quarter. Da Vinci Kids significantly enhances our proposition for kids ages five to 12 and is available in over 16 languages. Controlling a broad scope of rights with the majority of our content providers enables us to provide the Smart Bundle globally and expand our market opportunity. Additionally, based on our recent testing, we found, not surprisingly, that our increased standard tier pricing generated a higher rate of Smart Bundle conversions. As I mentioned earlier, we believe the macro environment, with rising interest rates and diminished access to capital, creates many challenges for most, it has significantly increased our volume of inquiries from potential strategic and commercial partners. Besides strategic combination considerations, we are engaged with more scale partners around the world who are seeking high-quality, cost-effective alternatives from services like ours as compared to increasingly pricey content from legacy media companies. In addition, we believe our strong cash position increases our flexibility with regard to how we can structure our partnership agreements, both commercially and strategically. We believe our strong cash position also enables us to lock up important tools and services at meaningful discounts as we can buy in bulk and over a longer term. Nearly everything is on sale today. By that, I mean certain acquisition advertising inventory, certain influencer marketing services, technical products and services, and even non-core assets of other companies. We are aggressively taking advantage of these discounts, which may result in more cash out over a short period of time, but which we would trade for improvement in our longer-term performance. Looking ahead, we are confident that we have the right assets and capabilities in place to execute on our innovation and growth strategies. Despite all of the macro noise we are currently in the midst of, more global opportunities are opening up as Curiosity and One Day University are rolling out with several new partners who will deliver millions of paying subscribers in Southeast Asia, Eastern Europe, Australia, and even North America. While we have barely dipped our toe in the water regarding third-party FAST and AVOD opportunities, we have considerable upside here through aligning with the right partners around the world. We have thousands of titles that haven’t run on any AVOD or FAST platforms. And we recently hired a great leader and executor in industry vet Tom Pope to head up our Brand Partnership efforts. While the turbulent macro environment has been a challenge in many respects, it has also presented new and compelling opportunities that didn’t exist even a year ago. With the decisive actions we have taken to rationalize our annualized cost base, the heavy lifting of critical mass content creation and languaging behind us, an increased DTC pricing structure, and optimized scale partnerships, we see many ways to win in this environment and come out stronger on the other side. Before turning the call over to Peter for a more detailed discussion of our financials, I would like to thank our colleagues across the Curiosity ecosystem, full-time employees, freelancers, sales agents, producers, editors, and our deeply appreciated third-party business partners. Thank you for focusing on the signal through the noise and for your tireless commitments and your quality work. Together, we will continue to help people around the world satisfy their curiosity through premium factual content and deliver durable, profitable growth for our shareholders. Over to you, Peter.
Peter Westley, CFO
Thanks, Clint. As Clint mentioned, we made further progress towards our positive adjusted free cash flow objective during the quarter, and we remain intensely focused on expense discipline and operating efficiency. We believe our Q4 results demonstrate the excellent progress we have made over the past year to improve profitability and cash flow. Fourth-quarter adjusted EBITDA improved by $2.6 million compared with the prior year quarter, while adjusted free cash flow improved by $22.7 million year-over-year. Before I get into more details about the quarter, I’d like to make a couple of comments. First, I’d like to note that the metrics that we will refer to most frequently in this and future calls are revenue, adjusted EBITDA, and adjusted free cash flow. We think that those figures will give you the best sense for the overall economics of our business. We are particularly focused on adjusted free cash flow, which, for the record, is simply calculated by taking cash flow from operations less capital expenditures and any adjustments that we think are appropriate, as disclosed in further detail in our earnings release. We have not taken any adjustments to free cash flow for any of the historical periods discussed in this call or presented in this quarter’s earnings release. The other thing that I would like to point out is that we made some important revisions to our Spiegel TV joint venture during the first quarter of 2023. Those changes, which included allowing the JV to directly offer subscription video-on-demand and FAST services, are intended to help drive the success of the business. These changes also resulted in a reduction to revenue of $2.2 million during the fourth quarter and the full year. Fourth-quarter revenue was $14.5 million, compared to $27.3 million in the prior year quarter. The year-over-year change was primarily driven by a $9.5 million reduction in content licensing revenues, a $2.2 million reduction in bundled distribution revenues, and a $2.1 million reduction in Other revenues, partially offset by continued revenue growth in our direct and enterprise categories. Our largest revenue category this quarter was our direct business, which includes our direct-to-consumer and partner direct revenue streams. Direct revenue came in at a combined $8.6 million, an increase of 10% compared with the fourth quarter of 2021. As Clint mentioned, we are implementing a price increase for our new standard plan subscribers and have transitioned to a performance-based customer-acquisition marketing model, as we entered 2023 with less than $1 million of marketing commitment for the year. We continue to be excited about our high-value Smart Bundle offering, where we achieved 32% subscriber growth this year. With the increase in our standard pricing, we expect an even higher percentage of new subscribers to opt for the Smart Bundle in 2023. Turning to content licensing, which was our second-largest category this quarter, we generated $3 million of revenue, compared to $12.5 million in the prior year quarter. Our fourth quarter revenue in this category was negatively impacted by the Spiegel TV-related charges discussed previously. Content licensing is an inherently lumpy business. While we expect this characteristic to continue, we are encouraged by the level of interest in our library. Our next largest category this quarter was bundled distribution, which saw $1.5 million of revenue in the quarter. Q4 was the first quarter which included the full impact of the contract discussed last quarter that we did not renew. Excluding the $2.6 million of revenue we generated from this contract in the fourth quarter of 2021, bundled distribution revenue grew 29% year-over-year on an adjusted basis. We remain actively engaged in discussions with distributors around the world and are focused on signing new contracts to drive both top and bottom-line growth. Our next largest category was enterprise, which grew 18% year-over-year to $1.4 million in the fourth quarter. Fourth quarter gross margin of 9.4% was negatively impacted by lower revenues and our elevated content amortization expense relative to our run rate investment in new content additions. Content amortization in the fourth quarter was $9.8 million, nearly double our $5.2 million of cash content spend in the quarter. We expect content amortization expense, the largest component of our cost of revenues, to decrease going forward and ultimately converge with the lower level of new content investment that we require now that we have achieved critical mass in our content library. As we discussed on our last earnings call, our Q4 advertising and marketing expense of $9.1 million continued to reflect sizable legacy advertising commitments. Moving forward, we expect significant improvement on the advertising and marketing line, as we entered 2023 with less than $1 million of marketing commitments for the year. Turning to G&A, we continued to make progress in reducing our overhead costs, including a 29% workforce reduction between the end of 2021 and the end of 2022. G&A expenses were $7.6 million during the fourth quarter, down 15% year-over-year and 13% sequentially. Moving to profitability, despite lower revenues and ongoing legacy content amortization and advertising expenses, adjusted EBITDA loss of $13.6 million improved year-over-year from a loss of $16.3 million in the prior year. Moving forward, we expect adjusted EBITDA to benefit from lower levels of content amortization and advertising and marketing spend. We also reduced our fourth quarter cash spend on content by more than $2 million on a sequential basis and by greater than 75% compared to the prior year quarter. Adjusted free cash flow improved year-over-year during the quarter by $22.7 million, from negative $31.5 million to negative $8.8 million. At the end of the fourth quarter, cash, restricted cash, and available-for-sale investments totaled $55.5 million, ahead of our $50 million year-end target. Our overall balance sheet was in great shape at the end of the year with $154 million of assets and $36 million of liabilities translating into book value of $118 million or approximately $2.23 per share. Moving to our first quarter guidance, we expect revenue in the range of $11 million to $13 million and adjusted free cash flow in the range of negative $8 million to negative $6 million. Included in this amount is approximately $4 million of payments related to marketing activity in the fourth quarter. Our adjusted free cash flow guidance reflects our continuing focus on bringing down our cash burn, which is a top priority for us. I’d also like to provide some further guideposts for 2023 that I hope will be helpful as you think about our business. First, we expect our content amortization, the largest component of our cost of revenue to decline from approximately $39 million in 2022 to $25 million to $30 million in 2023. Second, we expect our advertising and marketing expense to decline from approximately $41 million in 2022 to $20 million to $25 million in 2023, as we move to a performance-based marketing model. Finally, turning to our cash flow statement, we expect our cash spend on content to decline from approximately $42 million in 2022 to $10 million to $15 million in 2023. Along with our planned reduction in cash content spend, we expect our zero margin pre-sales content licensing revenue, which amounted to approximately $19 million in 2022 to be in the low-to-mid single-digit million dollar range in 2023. And with that, Operator, let’s open the call to questions.
Operator, Operator
Thank you. We will take our first question from Dan Kurnos, Benchmark.
Dan Kurnos, Analyst
Great. Thanks. Good afternoon. Clint, just maybe a couple of things, and obviously, thanks for all the help on kind of walking through the pieces. Just help us think through, first, just on the parts of the business that you strategically decided to exit. I know you have kind of the core DTC, but if there’s any way that you can kind of parse out the impact on advertising or on the corporates or any kind of the segments that you used to disclose, podcast, ODU, just anything that helps us understand sort of what we are left with here given the guide? And then secondarily, you talked about tailwinds as we go into the back half of the year from pricing, can you just talk to how the pricing increases are going to play out, when do consumers see them as on their renewal date, do you phase it in, just help us kind of understand the timing of how that unfolds?
Clint Stinchcomb, CEO
Happy to address that. First, I want to emphasize that we have a highly competitive team that is committed to winning. While we aim to succeed each quarter, it’s essential to focus on the long-term race rather than just immediate victories. We have passed on some significant licensing opportunities because we are prioritizing the retention of certain rights and exploring broader licensing strategies. As we plan for growth this year and beyond, we are focusing on international launches with major platforms like Amazon and YouTube. The number of subscription video on demand services in these international markets is much lower than in the U.S., making it a prime opportunity for us. In the U.S., we will continue to roll out One Day U. We're seeing promising growth with bundled rollouts in regions like Eastern Europe and Australasia, and we have millions of paying subscribers contributing to solid recurring revenue without incurring marketing costs in areas where direct consumer engagement is less favorable. Our advertising partnership business has been somewhat variable, but we expect it to stabilize with the introduction of traditional advertising across our linear subscriber base and by utilizing our extensive library of content that has not yet been featured on major FAST and AVOD platforms. While we have started to explore FAST channels, we recognize the importance of strategic partnerships to ensure that our content is effectively positioned to generate revenue. We have a wealth of valuable content that can be leveraged in the AVOD and FAST space. Our focus has primarily been on building our subscription service, but we see considerable potential in licensing as well, having licensed over $45 million in content outside the U.S. Without compromising our long-term strategy, we will not engage in deals that do not align with our best interests, even if they may exceed short-term analyst expectations. Regarding pricing, we conducted extensive testing and identified a blended price increase of approximately 83% for new customers, effective since Monday. We will gradually transition current monthly subscribers to this new pricing over the next few months, and annual customers will transition to the updated annual pricing within 11 to 12 months. Our technology team has worked diligently on this initiative, and we believe it adds extraordinary value compared to market offerings. If I haven't addressed everything, please let me know.
Dan Kurnos, Analyst
No. That was very comprehensive, Clint. Thanks very much. I appreciate it.
Operator, Operator
We will take the next question from Laura Martin, Needham.
Laura Martin, Analyst
Okay. Clint, so the first one for you. So my revenue fell by $13 million year-over-year to $14.5 million, and I thought what I heard you say is that about $9 million of that was from lower content licensing and then $2.6 million was for the client that didn’t renew. Did I get that right?
Clint Stinchcomb, CEO
Yeah. I am going to…
Laura Martin, Analyst
Is that the right of the $13 million decline?
Clint Stinchcomb, CEO
I am going to have Peter correct me here. But it’s a combination of accounting correction that we took.
Laura Martin, Analyst
Okay.
Clint Stinchcomb, CEO
It was over $2 million and then…
Laura Martin, Analyst
Okay.
Clint Stinchcomb, CEO
… yes, the deal that we did not renew, that we didn’t like the overall economics on as it related to our bundled distribution. And then the other difference was in presales content licensing, which we have pulled back on as we are trying to build a different approach there. The accounting treatment around our presales content licensing, as it’s existed for the last 18 months to 24 months has been zero margin. And so there are some changes that we need to make to how that works in order to generate higher content licensing revenue. So it’s really those three things. Peter, do you want to clarify?
Peter Westley, CFO
Yeah. I will clarify slightly.
Clint Stinchcomb, CEO
Yeah.
Peter Westley, CFO
Overall, content licensing decreased year-over-year by $9.5 million, which includes a $2.2 million charge taken in Q4. Bundled distribution revenues fell by $2.2 million, but the comparable quarter from the previous year included $2.6 million in revenue from a distribution agreement that we chose not to renew in mid-2022. Additionally, there was a $2.1 million reduction in other revenues. However, these declines were partially offset by revenue growth in our direct and enterprise categories.
Laura Martin, Analyst
Okay. Super helpful. So now when I look at the next quarter, I still see this company at about half the size, right? The top end of your guidance is $13 million next quarter after achieving $14.5 million this quarter. So my question is, is this company now at half the size it was 90 days ago or are we holding back that $9 million of licensing rights? What I understood from your response to the previous question is that you are retaining some of that licensing income in the near term because you believe you can secure global distribution rights on these major platforms. Is that correct, Clint?
Clint Stinchcomb, CEO
In part. I think that, as Peter guided to in the first quarter, we pulled back a little bit, more than a little bit in some areas. And so we will have certainly greater growth as we go through the year, but we did a bit of a reset here in the last, I would say, four months, five months as we looked at opportunities that we could take advantage of and opportunities that we might want to consider later on in the year.
Peter Westley, CFO
I would like to add that our primary focus is on enhancing our overall economics and cash flow. Even if it means giving up some revenue, our main concern is the bottom line. We are currently reducing content spending, which is leading to a decline in content licensing revenue. As we head into 2023, we expect this to significantly decrease. In 2022, we generated approximately $19 million in content licensing revenue, which brought in no margin for us, as it was essentially presales revenue. That figure is going down. Additionally, we had some agreements with large enterprises that were not financially advantageous, and we will not pursue those types of deals again. A clear example is the bundled distribution deal we chose not to renew in mid-2022. Although it had associated revenue and gross margin, when considering the larger picture, including substantial marketing commitments, the overall arrangement was not viable. Therefore, while our Q1 guidance shows lower numbers, it ultimately reflects a strategy focusing on enhancing the bottom line and cash flow, positioning us for future growth as Clint indicated.
Laura Martin, Analyst
That makes a lot of sense. I want to emphasize this marketing aspect because I find it very intriguing. You reported $9.1 million in advertising and marketing for the quarter. It seems like you made a significant commitment, possibly around $40 million, reducing to $20 million. As we venture into the FAST and AVOD business, these platforms can be saturated, requiring considerable spending on marketing and advertising to enhance visibility, which wasn’t necessary before. Can you explain how you anticipate saving so much money in this area as we embark on a completely new revenue stream that CuriosityStream hasn’t pursued before?
Clint Stinchcomb, CEO
I appreciate your question, Laura. You’re absolutely right. We have nearly eliminated all our required marketing expenses, and as Peter mentioned, we incurred some of those costs in January that were attributable to the fourth quarter. Moving forward, we are aiming to rely almost entirely on performance-based marketing, though we aren't there just yet. This approach pertains particularly to our direct business and key partners in that space. However, regarding how we plan to enhance our AVOD and FAST initiatives, it has become clear to me over the past few months that the right partnerships are essential. If you aren't well-positioned with the leading six providers and aren't willing to allocate some promotional resources, you'll likely struggle to make a significant impact. Establishing these types of alliances takes time, but that’s our priority. We've experimented with smaller FAST platforms and gained valuable insights, and we have also engaged with our own platforms in front of the paywall. In terms of spending to expand those services, that is a critical factor in how we build our partnerships and market strategy with the larger platforms. Does that clarify things for you, Laura?
Laura Martin, Analyst
Yeah. Super helpful. Thanks, guys. Thank you very much.
Operator, Operator
Next we will hear from Darren Aftahi, ROTH.
Dillon Heslin, Analyst
Hey. This is Dillon on for Darren. Thanks for taking the questions. So I wanted to follow up on the FAST side. Could you sort of share what percentage of revenue is coming from the FAST channels themselves?
Clint Stinchcomb, CEO
It was minimal in 2022. We started exploring the FAST space to understand its differences and how we position ourselves, while also ensuring our operations were effective. Last year, we generated minimal revenue from FAST. Moving forward, it will be part of our broader advertising and brand partnership business, which is significant. AVOD is also important, and our comprehensive approach to brand partnerships, which includes our owned and operated platforms and social media, broadens our reach across various assets. In 2023, FAST will be a component, but likely a smaller part than it will be in 2024 and beyond, when we will have a full year of experience and be fully operational. Another advantage of FAST is that it provides not just monetization for our brand partners, but also a platform to promote our direct services. This becomes even more valuable as we shift to nearly 100% performance-based marketing and focus on promoting higher-margin, more profitable subscription tiers. We want to make sure we leverage this opportunity as effectively as possible. Does that make sense?
Dillon Heslin, Analyst
Yeah. That’s helpful. And then in terms of the Spiegel changes and then some of the deals that have gone away, like, when do you expect to see the impact, one, of the Spiegel changes, and then are there any sort of other partnership or bundled agreements that are potentially less favorable in economics that you can either try to restructure or possibly do similar things to what you have done in the last six months?
Peter Westley, CFO
Well, do you want to?
Clint Stinchcomb, CEO
We appreciate our relationship with Spiegel. Having two linear channels in German-speaking Europe that reach nearly 5 million customers and the success of the Curiosity brand is promising. What Peter referred to concerns an accounting treatment that we believe will enhance the joint venture's potential for even greater achievements. Regarding our other bundled agreements, we expect to announce several of them in the upcoming month, and the financial arrangements with our other partners are favorable. They provide good margins, recurring revenue over multiple years. For those arrangements requiring language content, we have largely established a substantial library. The deals we pursue will align with these criteria, and we are enthusiastic about the recent agreements as well as those to come in the next month.
Peter Westley, CFO
I want to mention that we decided not to proceed with one distribution deal because it was an outlier in terms of the overall economics. We have established a strong discipline regarding our larger enterprise deals and will not pursue the types of deals we approved in the past. All those deals are behind us as of the end of 2022.
Dillon Heslin, Analyst
Got it. I appreciate that. That's helpful. If I could ask one more thing, did you share the subscription subscriber number for the end of the year?
Clint Stinchcomb, CEO
We didn’t. However, our direct customers increased by 25% year-over-year, and the bundled side saw some growth as well. This was partly because we receive a fixed fee based on certain numbers rather than a fee per subscriber. The number of subscribers for our distributor customers can fluctuate, which is why we experienced only marginal growth over the quarter.
Dillon Heslin, Analyst
Got it. Appreciate it. Thank you.
Operator, Operator
The next question comes from Jim Goss, Barrington.
Jim Goss, Analyst
Hi. Thank you. As you’ve conducted these consumer tests, could you share your pricing philosophy that led to the $4.99 and $39.99 price points? Did you consider whether customers might perceive the pricing as undervalued, and might that have influenced your decisions? The $39.99 seems like a balanced and attractive option, while the $4.99 monthly price might put you in more direct competition with other services. I would appreciate your thoughts on this pricing strategy and its implications, including the mix of monthly and annual subscriptions.
Clint Stinchcomb, CEO
I will begin and then pass it to my colleague, Peter. Jim, thank you for that question. Regarding the $4.99 price, when you consider the current subscription service landscape, $4.99 remains very attractive, especially since it does not include ads. Additionally, we believe that the $4.99 and $39.99 pricing reflects a less significant discount compared to what we offered in the past for the annual plan. Consequently, we expect a change in our mix of subscriptions, likely by 10 to 20 percentage points. Peter, is that correct regarding the distribution between monthly and annual subscriptions?
Peter Westley, CFO
It’s definitely going to skew more monthly. We tested various price points, keeping a monthly price constant while experimenting with different annual prices, always comparing to our historical pricing control group. I found it particularly interesting that our historical pricing of $2.99 and $19.99 was a significant outlier, as the annual price was essentially less than seven months of monthly payments. In contrast, many services typically have an annual price equating to about 10 months. We aimed to determine the right mix and ultimately settled on what is effectively around eight months for the annual pricing. This was a key area of interest for us as we sought to identify the optimal strategy for increasing revenue, value per session, lifetime value, and other critical metrics we wanted to optimize.
Jim Goss, Analyst
Okay. And is it fair to think that you would need to get to a significantly higher critical mass to consider an ad-light option that’s been successful in a lot of streamers?
Clint Stinchcomb, CEO
I believe that's an excellent question, Jim. To address it, I think Disney’s recent price increase was beneficial. They implemented a $3 price increase, allowing viewers to choose to pay $3 more for an ad-free experience or save $3 with ads. About 6% of people opted for the ad-supported option. In response to your broader question about using this service and establishing a strong advertising business, we have a strategy to enhance our presence before the paywall. This will improve our overall advertising revenue and help us promote our direct service, but it does not currently involve adding a Curiosity light. We have evaluated how to approach this, and we found that marketing efficiency is significantly better when promoting a specific subscription offering rather than spreading efforts across multiple options. We appreciate our current options because, although it’s not a Curiosity light, we offer a Smart Bundle on top of our standard service for $9.99 a month or $69.99 a year. If you were to total the cost of the seven services included in that Smart Bundle, it's $410 a year, meaning we provide it at an 83% discount. With the recent adjustments to our monthly pricing coming closer to the Smart Bundle cost, we are witnessing an increase in Smart Bundle conversions. There’s a lot that factors into this, it’s a great question, and we are quite confident in our strategy moving forward.
Jim Goss, Analyst
Okay. And one final thought to bring up. You mentioned incorporating performance-based marketing in your approach to creating visibility for the service. I wonder if you could talk about the cost-value relationship and how many of those sort of services you are trying to use and exactly how you are trying to create that visibility through those services?
Clint Stinchcomb, CEO
Sure. So we talk about performance-based marketing. What we are saying is that our marketing messages are going to include a coupon or a call to action, not dissimilar to traditional direct response in the legacy TV business, as an example. And so how we do that is through traditional digital acquisition marketing means Facebook, Google, YouTube, but also through working with certain YouTube influencers who operate in the factual space who have passionate following and whose subscribers and followers will be more likely to subscribe to CuriosityStream. So those are the areas.
Peter Westley, CFO
We are very focused on our customer acquisition costs and the associated model. It's advantageous to price our marketing based on that, and we would like to pursue that approach. We have significantly increased the lifetime value of our subscribers, which opens up new opportunities for us in marketing due to this enhancement for new subscribers.
Operator, Operator
We will now take a follow-up from Peter Henderson.
Peter Henderson, Analyst
Hi. How are you doing? Thanks for taking the question. Clint, I just wanted to circle back to something that you stated earlier, which was, I believe you said everything is for sale. I am just wondering, have you broached anyone regarding a potential sale of the company at this point? Just wanted to sort of clarify that comment.
Clint Stinchcomb, CEO
I think it’s a fair question. So when I am saying everything is for sale, I am talking largely about products and services.
Peter Henderson, Analyst
Okay.
Clint Stinchcomb, CEO
I believe there are non-core assets that the company owns which are available for sale. We have received significant inquiries regarding CuriosityStream in relation to potential partnerships with other companies. What I appreciate about the current situation is that it presents opportunities for us to make purchases, such as acquiring inventory at a discount. With our cash reserves, we can buy in bulk and invest over a long period, which enhances profitability and sustainability. As Peter mentioned, we are very disciplined in our business operations and have streamlined our cost structure, providing us with considerable flexibility for the future. We are prepared to seize opportunities wherever they arise. Despite the challenging circumstances, we are experiencing a record level of strategic and commercial opportunities. This is largely due to our commitment to achieving positive cash flow, which means we don’t need to seek additional funding, and we have cash available. This is a refreshing position for me, as I have typically been the smaller player in less leveraged situations.
Peter Henderson, Analyst
Okay.
Clint Stinchcomb, CEO
I believe running a business that generates cash provides a lot more flexibility and opportunity.
Peter Henderson, Analyst
Thank you.
Operator, Operator
Next up is Sharon Ditimas, D.A. Davidson.
Unidentified Analyst, Analyst
Hello and thank you for taking my question. I have one question. I am wondering, can you compare and contrast your distribution efforts with Amazon, Apple, Roku, and other cable providers and discuss how that has changed over time?
Clint Stinchcomb, CEO
Compare and contrast our relationship with them? Is that you asked?
Unidentified Analyst, Analyst
Right. Distribution efforts.
Clint Stinchcomb, CEO
Sure. Regarding our partnerships with Amazon, Apple, and Roku, we have launched our subscription service through their channel stores, which allows them to offer our service and pay us a fee based on the subscriptions they generate. We have a similar arrangement with Comcast and several other traditional cable providers in the U.S. Additionally, with other cable providers, many of which are based outside the U.S., we use a fixed fee model. In this case, they pay us a set fee that may include a linear channel, some video on demand content, and specific rights, ensuring multiyear, recurring revenue without significantly increasing our costs. We're planning to expand our partnerships further with major channel stores like Amazon and YouTube TV, especially in international markets where the number of services offered is significantly lower than in the U.S. While Amazon effectively markets its subscription video-on-demand services, the competition is robust here, similar to Roku and Apple. We aim to strengthen these relationships not only for our subscription video-on-demand products, of which we currently have three, but also because they usually rank among the top FAST and AVOD platforms. Therefore, you can expect us to enhance these partnerships and develop broader global product collaborations with the companies mentioned. Thank you for the thoughtful question.
Unidentified Analyst, Analyst
Great. Thank you.
Operator, Operator
At this time, I would like to hand the conference back to Mr. Clint Stinchcomb for any additional or closing remarks.
Clint Stinchcomb, CEO
Well, I just want to thank everyone for the questions. I thought they were really good and helpful. I want to thank you for the interest in CuriosityStream. We have a lot of day-to-day work to do with our shoulders to the wheel, and I am really excited about the actions that we have already taken and the direction that we are headed in. As Peter shared, we have taken the necessary and ongoing steps to significantly reduce our annualized expenses, to focus on the essentials and to move toward positive cash flow. This reset in combination with our strong cash position provides us with maximum control and maximum optionality. Again, we generated double-digit direct sales growth in Q4 and recently implemented a price increase, which we expect to drive significantly higher lifetime value while accelerating our path to positive adjusted free cash flow. Our critical mass content library of over 15,000 programs, combined with additional content that’s flowing in on a daily and weekly basis, enables us to continually refresh our service while remaining highly efficient in our content spend. We are off to a great start this year in regard to global partner rollouts of our services, and these alliances build our more predictable long-term recurring subscription revenues at zero to minimal marketing costs and complement our lumpier areas of content monetization. We have a strong balance sheet, zero debt, which we believe cements our excellent strategic position in the current market environment, and Peter and I look forward to updating you on our progress this year as we execute on our plan. Thanks again.
Operator, Operator
Ladies and gentlemen, that does conclude today’s conference. We would like to thank you all for your participation today. You may now disconnect.