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| HOLL > SEC Filings for HOLL > Form 10-Q on 10-Aug-2009 | All Recent SEC Filings |
10-Aug-2009
Quarterly Report
Cautionary Note Regarding Forward-Looking Statements
Certain statements in this Item 2 or elsewhere in this Form 10-Q, or that are otherwise made by us or on our behalf about our financial condition, results of operations and business constitute "forward-looking statements" within the meaning of federal securities laws. Hollywood Media Corp. ("Hollywood Media" or "Company") cautions readers that certain important factors may affect Hollywood Media's actual results, levels of activity, performance or achievements and could cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements anticipated, expressed or implied by any forward-looking statements that may be deemed to have been made in this Form 10-Q or that are otherwise made by or on behalf of Hollywood Media. Without limiting the generality of the foregoing, "forward-looking statements" are typically phrased using words such as "may," "will," "should," "expect," "plans," "believe," "anticipate," "intend," "could," "estimate," "pro forma" or "continue" or the negative variations thereof or similar expressions or comparable terminology. Factors that may affect Hollywood Media's results and the market price of our common stock include, but are not limited to:
· our continuing operating losses,
· negative cash flows and accumulated deficit,
· the need to manage our growth,
· our ability to develop and maintain strategic relationships, including but not limited to relationships with live theater venues,
· our ability to compete with other online ticketing services 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, 2008 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, except as required by law. 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 comprised of various businesses focusing primarily on online ticket sales, deriving revenue primarily from Broadway, Off-Broadway and London's West End ticket sales to individuals and groups, as well as 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, the U.K. based CinemasOnline companies and a minority interest in MovieTickets.com, Inc. ("MovieTickets.com").
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 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 is comprised of the U.K. based CinemasOnline Limited, UK Theatres Online Limited, WWW.CO.UK Limited and Spring Leisure Limited (collectively known as "CinemasOnline") and holds Hollywood Media's investment in MovieTickets.com. CinemasOnline maintains websites for cinemas and 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 TV screens placed in various venues throughout the U.K. and Ireland, such as cinemas, hotels and car dealerships. MovieTickets.com 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.
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.
Results of Operations
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.
The following table summarizes Hollywood Media's revenues, operating expenses and operating income (loss) from continuing operations by reportable segment for the six months ended June 30, 2009 ("Y2-09") and 2008 ("Y2-08") and the three months ended June 30, 2009 ("Q2-09") and 2008 ("Q2-08"), respectively:
Intellectual
Broadway Properties
Ticketing Ad Sales (a) Other Total
(in millions) (in millions) (in millions) (in millions) (in millions)
Y2-09
(unaudited)
Net Revenues $ 49.4 $ 1.7 $ 0.5 $ - $ 51.6
Operating Expenses 47.2 1.8 0.5 3.8 53.3
Operating Income (Loss) $ 2.2 $ (0.1 ) $ - $ (3.8 ) $ (1.7 )
% of Total Net Revenue 96 % 3 % 1 % 0 % 100 %
Y2-08
(unaudited)
Net Revenues $ 59.1 $ 2.7 $ 0.7 $ - $ 62.5
Operating Expenses 57.6 2.9 0.6 5.3 66.4
Operating Income (Loss) $ 1.5 $ (0.2 ) $ 0.1 $ (5.3 ) $ (3.9 )
% of Total Net Revenue 94 % 4 % 2 % 0 % 100 %
Q2-09
(unaudited)
Net Revenues $ 29.2 $ 0.9 $ 0.2 $ - $ 30.3
Operating Expenses 27.1 0.9 0.2 1.8 30.0
Operating Income (Loss) $ 2.1 $ - $ - $ (1.8 ) $ 0.3
% of Total Net Revenue 96 % 3 % 1 % 0 % 100 %
Q2-08
(unaudited)
Net Revenues $ 33.8 $ 1.4 $ 0.3 $ - $ 35.5
Operating Expenses 32.7 1.4 0.3 2.5 36.9
Operating Income (Loss) $ 1.1 $ - $ - $ (2.5 ) $ (1.4 )
% of Total Net Revenue 95 % 4 % 1 % 0 % 100 %
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a. Does not include Hollywood Media's 50% non-controlling 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. Sales for events in London's West End are fulfilled through a partnership arrangement between Theatre.com and an unrelated London-based ticket agency. This segment also generates revenue from the sale of sponsorships and advertisements on Broadway.com.
· Ad Sales - includes CinemasOnline, which sells advertising on cinema and theater websites in the U.K. and plasma TV displays throughout the U.K. and Ireland, and holds Hollywood Media's investment in 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 books 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% non-controlling interest in NetCo Partners.
· Other - is comprised of payroll and benefits for corporate and administrative personnel as well as other corporate-wide expenses, such as legal fees, 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.
Results of Discontinued Operations
Sale of Hollywood.com Business Unit to R&S Investments, LLC
On August 21, 2008, Hollywood Media entered into and simultaneously closed on a definitive purchase agreement with R&S Investments, LLC, pursuant to which R&S Investments acquired the Hollywood.com Business for a potential purchase price of $10.0 million, which includes $1.0 million in cash that was paid to Hollywood Media at closing and potential earn-out payments of up to $9.0 million. The Hollywood.com Business included the Hollywood.com website and related URLs and celebrity fan websites and Hollywood.com Television, a free video on demand service that was distributed pursuant to annual affiliation agreements with certain cable operators. R&S Investments is owned by Mitchell Rubenstein, Hollywood Media's Chief Executive Officer and Chairperson of the Board, and Laurie S. Silvers, Hollywood Media's President and Vice-Chairperson of the Board. The purchase price was determined by an arms-length negotiation between a Special Committee of independent and disinterested directors of Hollywood Media on the one hand and R&S Investments on the other hand.
Beginning in September 2009, R&S Investments will be contractually obligated to make periodic earn-out payments equal to the greater of (i) 10 percent of gross revenue and (ii) 90 percent of EBITDA (as defined in the purchase agreement) for the Hollywood.com Business until the full earn-out is paid. If a change of control of Hollywood.com occurs before the earn-out is fully paid, the remaining portion of the earn-out would be payable immediately upon such a change of control, up to the amount of consideration received by R&S Investments less related expenses. If the consideration in such a change of control is less than the remaining balance of the earn-out, then the surviving entity which owns the Hollywood.com Business will be obligated to pay the difference in accordance with the same earn-out terms. In addition, if the Hollywood.com Business is resold prior to August 21, 2011, Hollywood Media will also receive 5 percent of any proceeds above $10.0 million. Pursuant to the purchase agreement, Hollywood Media was required to place $2.6 million into an escrow account to fund any negative EBITDA of the Hollywood.com Business through August 21, 2010. There was $2.5 million disbursed to the Hollywood.com Business through June 30, 2009, leaving a balance of $0.1 million in the escrow. In addition, as of June 30, 2009, Hollywood Media recorded a $0.04 million related party receivable for expense reimbursement by R&S Investments under the TSA.
The net loss from discontinued operations includes the operating loss from the Hollywood.com Business which has been classified in the accompanying condensed consolidated statements of operations as "Loss from discontinued operations." Summarized results of discontinued operations for the six and three months ended June 30, 2008 are as follows:
Six Months Three Months
Ended Ended
June 30, 2008 June 30, 2008
(unaudited) (unaudited)
Operating revenue $ 2,893,255 $ 1,520,936
Loss from discontinued operations $ (1,520,775 ) $ (674,802 )
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NET REVENUES
Total net revenues were $51.6 million for Y2-09 as compared to $62.5 million for Y2-08, a decrease of $10.9 million or 17%, and $30.3 million for Q2-09 as compared to $35.5 million for Q2-08, a decrease of $5.2 million, or 15%. The decrease in net revenue from Y2-08 to Y2-09 and the decrease in net revenue from Q2-08 to Q2-09 was primarily due to a decrease in revenues from each of our divisions as discussed below.
Broadway Ticketing net revenues were $49.4 million and $59.1 million for Y2-09 and Y2-08, respectively, a decrease of $9.7 million or 16%, and $29.2 million and $33.8 million for Q2-09 and Q2-08, respectively, a decrease of $4.6 million or 14%. The decrease in Broadway Ticketing net revenues in Y2-09 from Y2-08 was primarily attributable to the following: (a) a decrease in revenue of $11.8 million attributable to (i) a decrease in quantity of tickets sold of $10.8 million, the majority of which is related to our groups business, (ii) a decrease in sales of hotel and dinner packages of $0.4 million, (iii) a decrease in orders sold with cancellation insurance of $0.2 million, (iv) a decrease in sponsorship sales of $0.2 million, (v) a decrease in sales related to Theatre.com of $0.1 million and (vi) a decrease in revenues related to a change in gift certificate policy of $0.1 million, offset in part by (b) an increase in revenue of $2.1 million, including $1.3 million attributable to ticket price increases by theaters and $0.8 million attributable to increased services fees. The decrease in Broadway Ticketing net revenues in Q2-09 from Q2-08 was primarily attributable to the following: a decrease in revenue of $5.9 million attributable to (i) a decrease in quantity of tickets sold of $5.5 million, (ii) a decrease in sales of hotel packages and dinner vouchers of $0.2 million, (iii) a decrease in orders sold with cancellation insurance of $0.1 million, and (iv) a decrease in sponsorship revenues paid by non-theater advertisers of $0.1 million, offset in part by (b) an increase in revenue of $1.3 million, including $0.7 million attributable to ticket price increases by theaters and $0.6 million attributable to increased services fees.
Ad Sales division net revenues by our CinemasOnline business were $1.7 million for Y2-09 as compared to $2.7 million for Y2-08, a decrease of $1.0 million or 37%, and such net revenues were $0.9 million for Q2-09 as compared to $1.4 million for Q2-08, a decrease of $0.5 million or 36%. The decrease in Ad Sales revenues in Y2-09 from Y2-08 is attributable primarily to a decrease of $0.5 million revenue in the plasma business, and $0.5 million in brochure and web advertising revenues. The decrease in revenues in Q2-09 from Q2-08 is primarily due to decreases of $0.3 million revenue in the plasma business and $0.2 million in brochure and web advertising revenues.
Net revenues from our Intellectual Properties division were $0.5 million for Y2-09 as compared to $0.7 million for Y2-08, a decrease of $0.2 million or 29%, and such net revenues were $0.2 million for Q2-09 as compared to $0.3 million for Q2-08, a decrease of $0.1 million or 33%. 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% non-controlling interest in NetCo Partners, which is accounted for under the equity method of accounting and under which Hollywood Media's share of the income is reported as "Equity in earnings (losses) of unconsolidated investees" (discussed below).
EQUITY IN EARNINGS OF UNCONSOLIDATED INVESTEES
Total equity in earnings (losses) of unconsolidated investees consisted of the
following:
Six Months Ended Three Months Ended
June 30, June 30,
(unaudited) (unaudited)
2009 2008 2009 2008
(in millions) (in millions) (in millions) (in millions)
NetCo Partners (a) $ - $ - $ - $ -
MovieTickets.com (b) (3.1 ) 1.3 (5.0 ) 1.3
$ (3.1 ) $ 1.3 $ (5.0 ) $ 1.3
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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 de minimus earnings by NetCo Partners was a net de minimus loss for Y2-09 and Q2-09 as compared to a net de minimus gain for Y2-08 and Q2-08. NetCo Partners did not recognize any income during Y2-09.
(b) MovieTickets.com
Hollywood Media owns 26.2% of the total equity in the MovieTickets.com joint venture. Hollywood Media records its investment in MovieTickets.com under the equity method of accounting, recognizing its percentage interest in MovieTickets.com's income or loss as equity in earnings of unconsolidated investees. Under applicable accounting principles, Hollywood Media has not recorded income from its investment in MovieTickets.com for Y2-09 and Y2-08 because accumulated losses from prior years exceed MovieTickets.com's accumulated net income. 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. The results above consist of a $1.9 million dividend received by Hollywood Media in Y2-09 as compared to a $1.3 million dividend accrued by Hollywood Media in Y2-08. During the second quarter of 2009, the Company determined that $5.0 million of the goodwill associated with MovieTickets.com should be written down and accordingly recorded an impairment loss of $5.0 million. For additional information see Note 9 - MovieTickets.com in the Notes to Condensed Consolidated Financial Statements included in this Form 10-Q.
OPERATING EXPENSES
Cost of revenues - ticketing. Cost of revenues - ticketing was $41.1 million for Y2-09 compared to $49.8 million Y2-08 for a decrease of $8.7 million or 17%. Cost of revenues - ticketing for Q2-09 was $24.1 million compared to $28.8 million in Q2-08 for a decrease of $4.7 million or 16%. Cost of revenues - ticketing 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 revenues - ticketing was 83% and 84% for Y2-09 and Y2-08, respectively, and 83% and 85% for Q2-09 and Q2-08, respectively.
The decrease in cost of revenues - ticketing in Y2-09 from Y2-08 was primarily attributable to the following: a decrease in costs of revenue of $10.1 million attributable to (i) a decrease of $9.4 million attributable to a lower quantity of tickets sold, (ii) a decrease of $0.5 million due to an increase in advertising sales sold to theaters, which for accounting purposes are recorded as a reduction to cost of sales and (iii) a decrease in credit card fees of $0.2 million, offset in part by an increase in cost of revenues of $1.4 million attributable to (i) ticket price increases by theaters of $1.1 million and (ii) an increase in unsold inventory of $0.3 million. The decrease in cost of revenues - ticketing in Q2-09 from Q2-08 was primarily attributable to the following: a decrease in costs of revenue of $5.4 million attributable to (i) a decrease of $4.9 million attributable to a lower quantity of tickets sold, (ii) a decrease of $0.3 million due to an increase in advertising sales sold to theaters, which for accounting purposes are recorded as a reduction to cost of sales and (iii) a decrease in credit card fees of $0.2 million, offset in part by an increase in cost of revenues of $0.7 million attributable to (i) ticket price increases by theaters of $0.6 million and (ii) an increase in unsold inventory of $0.1 million.
Editorial, production, development and technology. Editorial, production, development and technology costs include commissions, royalties, media buying, production services and internet access for the UK based CinemasOnline companies and fees and royalties paid to authors and co-editors for the Intellectual Properties segment. Editorial, production, development and technology costs were $1.2 million for Y2-09 as compared to $1.9 million for Y2-08, a decrease of $0.7 million or 37%, and $0.6 million for Q2-09 as compared to $0.9 million for Q2-08, a decrease of $0.3 million or 33%. As a percentage of revenues from our Ad Sales and Intellectual Properties segments, these costs were 57% and 55% for Y2-09 and Y2-08 respectively, and 53% and 52% for Q2-09 and Q2-08 respectively. The Y2-09 decrease compared to Y2-08 was due in part to decreases in (i) commissions paid of $0.3 million, (ii) payments to writers/co-editors of $0.1 million, (iii) production services and royalties of $0.2 million and (iv) a decrease in media buying of $0.1 million. The Q2-09 decrease from Q2-08 was due to decreases in commission expense of $0.1 million, payments to writers/co-editors of $0.1 million and $0.1 million in production services and royalties.
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 and 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 Y2-09 were $5.1 million compared to $7.0 million for Y2-08, a decrease of $1.9 million or 27%. SG&A expenses for Q2-09 were $2.4 million compared to $3.3 million for Q2-08, a decrease of $0.9 million or 27%. As a percentage of net revenue, SG&A expenses were 10% for Y2-09 as compared to 11% for Y2-08, and was 8% in Q2-09 compared to 9% in Q2-08. The decrease in SG&A expenses in Y2-09 as compared to Y2-08 was due primarily to decreases in the following expenses: $0.4 million in marketing expenses, $0.3 million in occupancy expenses, $0.3 million in legal expenses, $0.2 million in bad debt expenses, $0.2 million in travel expenses, $0.1 million in temporary service expenses, $0.1 million in office supplies, $0.1 million in recruitment expenses, $0.1 million in telephone expenses, $0.1 million in accounting fees, and $0.1 million in moving expenses, offset by a $0.1 million increase in Board of Directors' fees.
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