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| HOLL > SEC Filings for HOLL > Form 10-Q on 9-Nov-2007 | All Recent SEC Filings |
9-Nov-2007
Quarterly Report
• negative cash flows and accumulated deficit,
• the need to manage our growth and integrate new businesses into Hollywood Media,
• our ability to develop and maintain strategic relationships,
• our ability to compete with other media and Internet companies and other competitors,
• our ability to maintain and obtain sufficient capital to finance our growth and operations,
• our ability to realize anticipated revenues and cost efficiencies,
• technology risks and risks of doing business over the Internet,
• government regulation,
• adverse economic factors such as recession, war, terrorism, international incidents or labor strikes and disputes,
• our ability to achieve and maintain effective internal controls,
• dependence on our founders, and our ability to recruit and retain key personnel, and
• the volatility of our stock price.
Hollywood Media is also subject to other risks detailed herein or detailed in
our Annual Report on Form 10-K for the year ended December 31, 2006 and in other
filings made by Hollywood Media with the Securities and Exchange Commission.
Because these forward-looking statements are subject to risks and
uncertainties, we caution you not to place undue reliance on these statements,
which speak only as of the date of this Form 10-Q. We do not undertake any
responsibility to review or confirm analysts' expectations or estimates or to
release publicly any revisions to these forward-looking statements to take into
account events or circumstances that occur after the date of this Form 10-Q. As
a result of the foregoing and other factors, no assurance can be given as to the
future results, levels of activity or achievements and neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements.
Overview
Hollywood Media is a provider of information, news and other content, and
ticketing to consumers and businesses covering the entertainment, Internet and
media industries. We own and operate a number of business units focused on the
entertainment and media industries. Hollywood Media derives a diverse stream of
revenues from this array of business units, including revenue from Broadway,
Off-Broadway and London's West End ticket sales to both individuals and groups,
advertising, and book development license fees and royalties. Our Broadway
Ticketing business includes Broadway.com, 1-800-Broadway, Theatre Direct and
Theatre.com. Hollywood Media's businesses also include an intellectual property
business, Hollywood.com, the U.K. based CinemasOnline companies and a minority
interest in MovieTickets.com. In addition, Hollywood Media owns and operates the
Free-VOD cable television network, Hollywood.com Television.
Broadway Ticketing Division.
Hollywood Media's Broadway Ticketing Division is comprised of Broadway.com,
1-800-BROADWAY, Theatre Direct International ("TDI") and Theatre.com
(collectively called "Broadway Ticketing"). Broadway tickets are sold online
through our Broadway.com website
and by telephone through our 1-800-BROADWAY number. Broadway Ticketing is also a
live theater ticketing seller that provides groups and individuals with access
to theater tickets and knowledgeable service, covering shows on Broadway,
Off-Broadway and, through a partnership arrangement between Theatre.com and a
London-based ticket agency, in London's West End theatre district. Broadway.com
features include shows' opening night video and photo coverage, show reviews,
celebrity interviews and theater columns, as well as show information pages,
including casting, synopses and venue information.
Ad Sales Division.
Hollywood Media's Ad Sales Division includes Hollywood.com and CinemasOnline.
Hollywood.com, a premier online entertainment destination, generates revenue by
selling advertising on its website, and commissions received for advertising
sold by the Hollywood.com ad sales team on MovieTickets.com. Hollywood.com
features in-depth movie information, including movie previews, descriptions and
reviews, movie showtimes listings, entertainment news, celebrity fan sites,
celebrity photo galleries and an extensive multimedia library. Hollywood.com's
features also include audio podcasts and blogging. CinemasOnline, a group of
companies based in the U.K., maintains websites for cinemas and live theaters in
the U.K. in exchange for the right to sell advertising on such websites.
CinemasOnline also provides other marketing services, including advertising
sales on plasma screens placed in various venues throughout the U.K. and
Ireland, such as hotels, car dealerships, cinemas and live theaters.
Cable TV.
Hollywood Media's Cable TV Division includes Hollywood.com Television ("HTV")
and Broadway.com Television ("BTV") which are Free-VOD ("FVOD") channels that
offer interactive entertainment and information with on-demand video content,
previews, reviews, behind the scenes footage, interviews and coverage of
entertainment industry events to cable company subscribers. HTV is carried on
certain cable TV systems including Cablevision Systems, Cox Communications,
Comcast, Insight Communications, Mediacom, Charter and Bresnan. BTV is
distributed by Cablevision on its New York area systems.
Intellectual Properties Division.
Our Intellectual Properties Division includes a book development and book
licensing business owned and operated by our 51% owned subsidiary, Tekno Books,
which develops and executes book projects, frequently with best-selling authors.
Tekno Books has worked with over 60 New York Times best-selling authors,
including Isaac Asimov, Tom Clancy, Tony Hillerman, John Jakes, Jonathan
Kellerman, Dean Koontz, Robert Ludlum, Nora Roberts and Scott Turow. Hollywood
Media is also a 50% partner in NetCo Partners, a partnership that owns Tom
Clancy's NetForce. Hollywood Media also owns directly additional intellectual
property created for it by various best-selling authors such as Mickey Spillane,
Anne McCaffrey and others.
MovieTickets.com, Inc.
MovieTickets.com, Inc. is one of the two leading destinations for the
purchase of movie tickets through the Internet. MovieTickets.com is an online
ticketing service owned by a joint venture formed by Hollywood Media and several
major movie exhibitor chains. Hollywood Media currently owns 26.2% of the equity
of MovieTickets.com.
The following discussion and analysis should be read in conjunction with
Hollywood Media's Unaudited Condensed Consolidated Financial Statements and the
notes thereto included in Item 1 of Part I of this report.
Results of Operations
The following table summarizes Hollywood Media's revenues, operating expenses
and operating income (loss) from continuing operations by reportable segment for
the nine months ended September 30, 2007 ("Y3-07") and 2006 ("Y3-06") and the
three months ended September 30, 2007 ("Q3-07") and 2006 ("Q3-06"),
respectively:
Intellectual
Broadway Properties Cable
Y3-07 Ticketing Ad Sales (a) TV Other Total
(unaudited)
Net Revenues $ 83,870,628 $ 8,006,543 $ 797,043 $ 171,940 $ - $ 92,846,154
Operating Expenses 81,531,288 9,563,448 755,692 586,249 8,068,118 100,504,795
Operating Income (loss) $ 2,339,340 $ (1,556,905 ) $ 41,351 $ (414,309 ) $ (8,068,118 ) $ (7,658,641 )
% of Total Net Revenue 90% 9% 1% 0% - 100%
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Y3-06
(unaudited)
Net Revenues $ 66,980,245 $ 7,607,721 $ 683,405 $ 116,600 $ - $ 75,387,971
Operating Expenses 64,577,697 8,203,164 702,247 547,059 8,066,392 82,096,559
Operating Income (loss) $ 2,402,548 $ (595,443 ) $ (18,842 ) $ (430,459 ) $ (8,066,392 ) $ (6,708,588 )
% of Total Net Revenue 89% 10% 1% 0% - 100%
Intellectual
Broadway Properties Cable
Q3-07 Ticketing Ad Sales (a) TV Other Total
(unaudited)
Net Revenues $ 25,086,116 $ 2,747,602 $ 318,350 $ 55,810 $ - $ 28,207,878
Operating Expenses 24,048,837 3,425,843 276,878 198,889 2,644,874 30,595,321
Operating Income (loss) $ 1,037,279 $ (678,241 ) $ 41,472 $ (143,079 ) $ (2,644,874 ) $ (2,387,443 )
% of Total Net Revenue 89% 10% 1% 0% - 100%
|
Q3-06 (unaudited) Net Revenues $ 21,543,990 $ 2,570,826 $ 194,237 $ 82,600 $ - $ 24,391,653 Operating Expenses 20,873,277 2,751,566 209,330 197,100 2,663,925 26,695,198 Operating Income (loss) $ 670,713 $ (180,740 ) $ (15,093 ) $ (114,500 ) $ (2,663,925 ) $ (2,303,545 ) % of Total Net Revenue 88% 11% 1% 0% - 100% |
a. Does not
include
Hollywood
Media's 50%
interest in
NetCo Partners
which is
accounted for
under the
equity method
of accounting
and Hollywood
Media's share
of the income
(loss) is
reported as
Equity in
Earnings of
Unconsolidated
Investees
(discussed
below).
Composition of our segments is as follows:
• Broadway Ticketing - sells tickets and related hotel and restaurant packages
via Broadway.com, 1-800-BROADWAY and TDI to live theater events on Broadway,
Off-Broadway and London's West End, to individual consumers, groups and
domestic and international travel professionals, including travel agencies,
tour operators, and educational institutions. Beginning in late
September 2007, sales for events in London's West End are fulfilled through
a partnership arrangement between Theatre.com and a London-based ticket
agency. This segment also generates revenue from the sale of sponsorships on
Broadway.com.
• Ad Sales - sells advertising on Hollywood.com and MovieTickets.com, and includes CinemasOnline which sells advertising on cinema and live theater websites in the U.K. Hollywood.com receives commissions on the ads it sells on MovieTickets.com.
• Intellectual Properties - owns or controls the exclusive rights to certain intellectual properties created by best-selling authors and media celebrities, which it licenses for book and other media. This segment includes a 51% interest in Tekno Books, and a book development business, and this segment does not include our 50% interest in NetCo Partners.
• Cable TV - comprised of Hollywood.com Television and Broadway.com Television, Free-VOD channels that offer interactive entertainment information with on-demand video content to subscribers in certain cable TV systems.
• Other - is comprised of payroll and benefits for corporate and administrative personnel as well as other corporate-wide expenses, such as audit fees, proxy costs, insurance, centralized information technology, and includes consulting and other fees and costs relating to compliance with the provisions of the Sarbanes-Oxley Act of 2002 that require Hollywood Media to assess and report on internal control over financial reporting, and related development of controls.
NET REVENUES
Total net revenues were $92,846,154 for Y3-07 as compared to $75,387,971 for
Y3-06, an increase of $17,458,183 or 23%, and $28,207,878 for Q3-07 as compared
to $24,391,653 for Q3-06, an increase of $3,816,225 or 16%. The increase in net
revenue from Y3-06 to Y3-07 and Q3-07 over Q3-06 was primarily due to growth in
our Broadway Ticketing Division. In Q3-07 net revenues were derived 89% from
Broadway Ticketing, 10% from Ad Sales and 1% from Intellectual Properties. In
Q3-06 net revenues were derived 88% from Broadway Ticketing, 11% from Ad Sales
and 1% from Intellectual Properties.
Broadway Ticketing net revenues were $83,870,628 and $66,980,245 for Y3-07
and Y3-06, respectively, an increase of $16,890,383 or 25%, and such net
revenues were $25,086,116 and $21,543,990 for Q3-07 and Q3-06, respectively, an
increase of $3,542,126 or 16%. The increase in Broadway Ticketing net revenues
in Y3-07 from Y3-06, and in Q3-07 from Q3-06, was primarily due to the
following: (i) the purchase of Showtix on February 1, 2007; and (ii) ticket
price increases by theaters, increased number of tickets sold, increases in
services fees on individual ticket sales and changes in our marketing and
advertising strategies. Ticketing net revenue is generated from the sales of
live theater tickets for Broadway, off-Broadway and
London's West End both online via Broadway.com and offline via 1-800-BROADWAY to
domestic and international travel professionals, tourists and New York area
theater patrons. Beginning in late September 2007, all sales for events in
London's West End are fulfilled through a partnership arrangement between
Theatre.com and a London-based ticket agency. Ticketing net revenue is
recognized on the date of performance of the show. Ticketing net revenue
received for performances yet to take place is recorded as deferred revenue in
our condensed consolidated balance sheet.
Ad Sales division net revenue was $8,006,543 for Y3-07 as compared to
$7,607,721 for Y3-06, an increase of $398,822 or 5%, and such net revenues were
$2,747,602 and $2,570,826 for Q3-07 and Q3-06, respectively, an increase of
$176,776 or 7%. The increase in Ad Sales revenue in Y3-07 over Y3-06, and Q3-07
over Q3-06, is attributable primarily to increased commissions earned by
Hollywood.com for ad sales on MovieTickets.com and increases in ad sales in our
CinemasOnline division offset by a decrease in ad revenues from the
Hollywood.com website. Ad sales revenues are generated from the sale of
sponsorships and advertisements on Hollywood.com, as well as by advertisements
generated by CinemasOnline.
Net revenues from our Intellectual Properties division were $797,043 for
Y3-07 as compared to $683,405 for Y3-06, an increase of $113,638 or 17%, and
such net revenues were $318,350 for Q3-07 as compared to $194,237 for Q3-06, an
increase of $124,113, or 64%. The Intellectual Properties division generates
revenues from several different activities including book development and
licensing and intellectual property licensing. Revenues vary quarter to quarter
depending on the timing of the delivery of the manuscripts to the publishers.
Revenues are recognized when the earnings process is complete and ultimate
collection of such revenues is no longer subject to contingencies. The
Intellectual Properties division revenues do not include our 50% interest in
NetCo Partners, which is accounted for under the equity method of accounting and
under which Hollywood Media's share of the income (loss) is reported as Equity
in Earnings (Losses) of Unconsolidated Investees (discussed below).
EQUITY IN EARNINGS (LOSSES) OF UNCONSOLIDATED INVESTEES
Equity in earnings (losses) of unconsolidated investees consisted of the
following:
Nine Months Ended Three Months Ended
September 30, September 30,
(unaudited) (unaudited)
2007 2006 2007 2006
NetCo Partners (a) $ 2,061 $ (1,550 ) $ 1,186 $ 218
MovieTickets.com (b) - - - -
$ 2,061 $ (1,550 ) $ 1,186 $ 218
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(a) NetCo Partners NetCo Partners owns Tom Clancy's NetForce and is primarily engaged in the development and licensing of Tom Clancy's NetForce. NetCo Partners recognizes revenues when the earnings process has been completed based on the terms of the various agreements, generally upon the delivery of the manuscript to the publisher and at the point where ultimate collection is substantially assured. When advances are received prior to completion of the earnings process, NetCo Partners defers recognition of revenue until the earnings process has been completed. Hollywood Media owns 50% of NetCo Partners and accounts for its investment under the equity
method of accounting. Hollywood Media's 50% share of earnings by NetCo Partners
was a net gain of $2,061 for Y3-07 compared to a net loss of $1,550 for Y3-06,
an increase of $3,611. Hollywood Media's 50% share of earnings was a net gain of
$1,186 for Q3-07 as compared to a net gain of $218 for Q3-06, an increase of
$968. NetCo Partners recognized $2,372 in income during Q3-07.
(b) MovieTickets.com
Hollywood Media owns 26.2% of the total equity in the MovieTickets.com, Inc.
joint venture. Hollywood Media records its investment in MovieTickets.com under
the equity method of accounting, recognizing its percentage interest in
MovieTickets.com income or loss as equity in earnings of investees. We have not
recorded any of our 26.2% share of the joint venture's results of operations in
Y3-07, Y3-06, Q3-07 and Q3-06 related to our investment in MovieTickets.com
because the investment has been reduced to zero. Hollywood Media is currently
not providing for additional losses, if any, generated by MovieTickets.com as
Hollywood Media has not guaranteed to fund future losses, if any, generated by
MovieTickets.com. The MovieTickets.com web site generates revenues from service
fees charged to users for the purchase of movie tickets online and the sale of
advertising.
OPERATING EXPENSES
Cost of revenues - ticketing. Cost of revenues - ticketing was $70,599,583
for Y3-07 compared to $56,026,353 for Y3-06 for an increase of $14,573,230 or
26%. Cost of revenues - ticketing for Q3-07 was $20,423,355 compared to
$18,101,600 for Q3-06 for an increase of $2,321,755 or 13%. Cost of revenue
consists primarily of the cost of tickets and credit card fees for the Broadway
Ticketing segment, partially offset by rebates received from certain producers
based on exceeding certain ticketing sales goals. As a percentage of ticketing
revenue, cost of revenue - ticketing was 84% for Y3-07 and Y3-06, and 81% for
Q3-07 and 84% for Q3-06, respectively. The decrease in cost of revenue as a
percentage of ticketing revenue in Q3-07 compared to Q3-06 was due in large part
to an increase in service fees charged on individual ticket sales.
Editorial, production, development and technology. Editorial, production,
development and technology costs include payroll and related expenses for the
editorial and production staff responsible for (i) creating content and
supporting Ad Sales on Hollywood Media's websites, including Hollywood.com and
Broadway.com, and (ii) supporting Ad Sales on the MovieTickets.com website.
These expenses also include Internet access and computer related expenses for
the support and delivery of these information services, and fees and royalties
paid to authors and co-editors for the intellectual properties segment.
Editorial, production, development and technology costs were $4,594,731 for
Y3-07 as compared to $3,811,974 for Y3-06, an increase of $782,757 or 21%, and
$1,587,767 for Q3-07 as compared to $1,350,998 for Q3-06, an increase of
$236,769 or 18%. As a percentage of revenues from our Ad Sales and Intellectual
Properties segments, these costs were 51% and 45% for Y3-07 and Y3-06,
respectively, and 51% and 47% for Q3-07 and Q3-06, respectively. These cost
increases were due in large part to increased investment in the Ad Sales segment
in terms of further development of our web sites and new hires in our production
and editorial staff.
Selling, General and Administrative. Selling, general and administrative
(SG&A) expenses consist of occupancy costs, professional and consulting service
fees, telecommunications costs, provision for doubtful accounts receivable,
general insurance costs, selling and marketing costs (such as advertising,
marketing, promotional, business development, public relations, and commissions
due to advertising agencies, advertising representative firms and other
parties). SG&A expenses for Y3-07 were $11,699,046 compared to $10,449,058 for
Y3-06, an increase of $1,249,988 or 12%. SG&A expenses for Q3-07 were $3,904,735
compared to $3,521,202 in Q3-06, an increase of $383,533 or 11%. As a percentage
of net revenue, SG&A expenses were 13% and 14% for Y3-07 and Y3-06,
respectively, and 14% for Q3-07 and Q3-06. The increase in SG&A expenses in
Y3-07 as compared to Y3-06 was due in large part to the following: (i) increased
occupancy expense of approximately $484,000 for our Broadway Ticketing division,
of which approximately $442,000 is temporary redundant lease expense while we
move our New York offices to new consolidated space nearby, and (ii) an increase
of approximately $663,000 in advertising expenses in our Broadway Ticketing
division. The increase in SG&A expenses in Q3-07 as compared to Q3-06, was due
in large part to the following: (i) increased occupancy expense of approximately
$202,000 for our Broadway Ticketing division, of which approximately $183,000 is
temporary redundant lease expense while we move our New York offices,
(ii) increased travel expenses of approximately $44,000, (iii) an increase of
approximately $279,000 in advertising expenses in our Broadway Ticketing
division and approximately $56,000 in our Ad Sales division, and (iv) a decrease
in consulting fees of approximately $141,000.
Payroll and Benefits.
Payroll and benefits expenses include payroll and benefits and other types of
compensation expense as well as human resources and administrative functions.
Payroll and benefits expenses for Y3-07 were $12,292,806 compared to
$10,435,334 for Y3-06, for an increase of $1,857,472 or 18%. Payroll and
benefits expenses for Q3-07 were $4,218,281 compared to $3,271,800 for Q3-06, an
increase of $946,481, or 29%. As a percentage of net revenues, payroll and
benefits expenses were approximately 13% and 14% for Y3-07 and Y3-06,
respectively, and 15% and 13% for Q3-07 and Q3-06, respectively.
The increase in payroll and benefits costs in Y3-07 as compared to Y3-06 was
due in large part to the following factors: (i) approximately $386,000 in
additional payroll and benefits expenses resulting from the acquisition of
Showtix in February 2007, (ii) an increase of approximately $228,000 related to
Theatre.com, (iii) an increase of approximately $588,000 in expenses related to
the hiring of additional ad salespersons, support staff and the addition of a
new President and COO of Hollywood.com, (iv) an increase of approximately
$202,000 related to CinemasOnline and (v) an increase in health insurance and
accrued expense for matching contributions to the 401(k) plan of approximately
$158,000 and $123,000, respectively.
The increase in payroll and benefits costs in Q3-07 as compared to Q3-06 was
due in large part to the following factors: (i) approximately $84,000 in
additional payroll and benefits expenses resulting from the acquisition of
Showtix in February 2007, (ii) an increase of approximately $68,000 related to
Theatre.com, (iii) an increase of approximately $161,000 related to
CinemasOnline, (iv) $383,000 in increased expenses related to the hiring of
additional ad salespersons, support staff and the addition of a new President
and COO of Hollywood.com and (v) an increase in Broadway ticketing payroll and
benefits of approximately $220,000 to support growth.
Depreciation and amortization.
Depreciation and amortization expense consists of depreciation of property
and equipment, furniture and fixtures, web site development, leasehold
improvements, equipment under capital leases and amortization of intangible
assets. Depreciation and amortization expense was $1,318,629 for Y3-07 as
compared to $1,373,840 for Y3-06 for a decrease of $55,211 or 4%. Q3-07
depreciation and amortization expense was $461,183 compared to $449,598 for
Q3-06, an increase of $11,585 or 3%. The decrease in depreciation and
amortization expense in Y3-07 over Y3-06 is primarily due to assets becoming
fully depreciated during or prior to 2007 and an adjustment of estimated lives
of certain intangible assets from the CinemasOnline acquisition. The increase in
Q3-07 as compared to Q3-06 is due to investments in computer equipment offset by
assets becoming fully amortized.
Interest, net.
. . .
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