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WildBrain Ltd
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Good morning and welcome to the DHX Media, doing business as WildBrain, fiscal 2020 first quarter earnings call. [Operator Instructions] I'd now like to turn the call over to Nancy Chan-Palmateer, Director, Investor Relations at WildBrain. You may begin your conference.
Thank you, operator, and thank you, everyone, for joining us today. Speaking on the call today are Eric Ellenbogen, our CEO; and Aaron Ames, our CFO. Also with us and available during the question-and-answer session is Josh Scherba, our President; and Danielle Neath, our EVP of Finance and Chief Accounting Officer.First, we have some standard cautionary statements. The matters discussed on this call include forward-looking statements under applicable securities laws with respect to DHX Media, doing business as WildBrain, including but not limited to statements regarding the management and business reorganization, expected cost and savings associated with such reorganization and use of such savings, the rights offerings, the term loan and management, the business strategies and operational activities of the company and the finance, and the future financial and operating performance of the company and its assets.Such statements are based on information currently available and are subject to a number of risks and uncertainties. Actual information currently available, actual results or events in the future could differ materially and adversely from those described in the forward-looking statements as a result of various important factors, including the risk factors set out in the company's most recent MD&A and Annual Information Form. Please note that all currency numbers are in Canadian dollars. [Operator Instructions]I will now hand the call over to our CEO, Eric Ellenbogen.
Thank you, Nancy. Good early morning to everybody on the call. Thanks for joining. Aaron will dive into the earnings in just a minute, but before I hand the call over to him, I wanted to share with you some business highlights from the quarter. So as I mentioned during my first call last time, we continue to make good progress across our core initiatives creating premium content, growing our ad-based video-on-demand business AVOD, both in viewership and improving cash flow.On the premium side, we've delivered to Apple all 12 episodes of the first new original Peanuts series, Snoopy in Space. It premiered on November 1 exclusively on Apple's new streaming service, Apple TV Plus. This service, if you haven't already heard, will be free for 1 year on all new Apple devices. And analysts have estimated they will ship over 250 million devices in 2020 alone. So we continue to generate steady consumer products revenue from Peanuts and we believe that the global exposure on Apple TV Plus will be a positive for our consumer products business. It should serve to extend the Peanuts brand into a new generation of kids and families around the world.This first new series is just the beginning. More new Peanuts content is in the works for Apple and at our studios. I should add that the Peanuts production has considerably upped our created game and I think it's absolutely the best work our company has ever created and it is the standard to which we all aspire.We're also getting our own IP partner brands in front of a huge online audience through WildBrain Spark, which is our AVOD network. Remarkably, we grew viewership by 66% in the first quarter to over 12 billion views and past a new milestone of 4 billion views per month. And this is up from 3 billion monthly views last year. More than 65 billion minutes of video were watched on our network in the first quarter, which is up 43% from a year ago.We see significant potential for monetizing our large and growing viewership on WildBrain Spark, and we're pursuing multiple initiatives to do so. YouTube is making the necessary changes to involve into a safer environment for kids, which we fully support. And this is a leading flight to quality in kids content on YouTube and we're ideally positioned to benefit from that.Also during this quarter, our management and business reorganization progressed as planned. And we're putting some of the savings generated back into targeted growth areas. We also recently announced a rights offering backed by our largest shareholder. And this for me is as important a vote of confidence as we could have in our strategy and the opportunities ahead. The proceeds from that rights offering are going to strengthen our balance sheet by reducing debt and enable reinvestment to grow our business.And the first benefit of this financing will be an amendment to our credit agreement, which eliminates the covenant step-downs on our term loan. And as I've highlighted in our last call, we're getting back to creativity. We're changing how we manage brands. We're taking a disciplined 360 approach when creating content to drive brand awareness and to build audience engagement. It's about becoming life cycle managers from monetizing our IP and we have the capabilities to do so by fully integrating our business units for greater collaboration.I should say, and I may have mentioned this before, you just never know where the next hit is going to come from. And with our WildBrain Spark platform, we can test mark an IP in the real time in responsive way that was never possible previously in linear television. And we can identify global content that's gaining views. We analyze that data and then we can see the trends. And then we will partner with those content creators and IP owners, wherever they are, to bring content to a broader audience.So we're going to look at doing more of these partnerships, investing in digital content creation for IP that's working. And then managing that IP across all media and channels of distribution and consumer products. So it's about making sure brands and content are available on all of the platforms where kids and families are watching, and that includes AVOD platforms like YouTube, the [ BS ] spots like Netflix, and of course Apple Plus, linear channels like Nickelodeon and Cartoon Network, and even feature films. We can get there in a number of ways. But our biggest priority is proprietary content and brands in which we have ownership.And to be clear, it's a long-term play. It's going to require investment and aligning all the business units in the same direction which we're doing. And that's part of our rebrand, reorganizing the business and improving cash flows and, of course, our financial flexibility. Our rebrand from DHX Media to WildBrain has been extremely well received. We recently participated in brand license in Europe and MIPCOM to the largest trade shows for our business. The reception to the rebrand from both customers and industry partners was unanimously great.I feel they're embracing what we're doing, recognizing the greater integration across our businesses, and that's going to drive creativity. Our team is energized and I look forward to sharing some of the outcomes of their hard work down the road.So with that, Aaron, over to you for the financial results.
Thank you, Eric. In Q1 2020, revenues increased by 8% to $112.3 million, which was primarily driven by higher revenues earned from both distribution and WildBrain Spark. Adjusted EBITDA rose to $19.6 million this quarter as compared to $17.3 million in Q1 2019. Normalizing for the $1.8 million increase from adopting IFRS 16 in Q1 2020 and also for the $1.3 million benefit from owning a larger share of Peanuts during the first part of Q1 2019, adjusted EBITDA increased by $1.8 million in Q1 2020.Also in Q1 2020, we reported a net loss of $16 million versus a net loss of $2.4 million in the same quarter last year. The higher loss in the quarter was affected by onetime reorganization charges and a higher noncash foreign exchange loss. Cash generation continues to improve. In the quarter, we generated $18.7 million in positive operating cash flow versus a cash outflow of $10 million in Q1 2019.As Eric mentioned previously, we've taken a number of steps to improve our financial flexibility. We paid down $7.6 million on our term loan in Q1 from excess cash loan. We're raising $60 million by way of a rights offering and we're using $50 million of the proceeds to reduce our term loan and the remaining $10 million less offering expenses for general working capital purposes including potential tuck-in acquisitions that could support growth in WildBrain Spark.We're also eliminating the covenant step-downs on the term loan to maintain a 6.75x covenant for the remainder of the term through December 2023. On a pro forma basis, the paydown from the rights offering will bring our leverage to approximately 5.14x from the 5.66x at the end of Q1. The rights offering is expected to close during Q2 2020.And with that, I'll hand the call back to Eric.
Thank you, Aaron. So we're taking deliberate steps to position WildBrain to realize the considerable value of our IP and brands. And as I mentioned on the last call, we are not managing the business in service of quarter-to-quarter results, which you may have been used to, but to maximize the value of these assets. So building for long-term sustainable growth is going to take patience and investment. There are no quick fixes. We are, however, at an important crossroads with a lot of exciting opportunities ahead and we remain fully focused on execution to deliver for the long run.And with that, over to questions.
[Operator Instructions] And your first question here comes from the line of Aravinda Galappatthige from Canaccord Genuity.
I see good numbers on WildBrain Spark, both in terms of revenue growth and views and acceleration there. I know you talked a little bit about this in the prior call, but 3 -- a couple of months on, I was wondering if you had a little more visibility as to how sort of the YouTube policies would affect you from a revenue, the growth trend perspective? Obviously not looking for numbers, but in terms of the shape that we should look for, I was wondering if you had any color on that.And just following up on the some of the comments in the MD&A about the Family Channel, the TV numbers, you'd alluded to some contract renewals that led to subscriber revenues declining. Just wanted to confirm if it's just 1 contract renewal with 1 BDU or is it all 3 of the major distributors now under new sale date agreements?
Great. Thank you for the questions. I'll turn this over to Josh, and we're clearly focused on the YouTube changes that have been announced and has some thoughts about that. So Josh can talk to you on that subject.
So first of all, we were really pleased with the growth in the quarter. That 66% increase in views was an excellent result. We think this is due to a few factors. We continue to mind our library. We think we -- we know we have best-in-class optimization capabilities. We also continue to grow our paid media business as well as our production business. We also -- as Eric alluded to in his opening comments, we know that there continues to be a flight to quality that YouTube is rewarding quality content and we stand to benefit from that. and that had -- that is reflected in the increase in views.Now as it comes to the change in policy regarding advertising, we still at this point don't have enough visibility to make a comment on any impact. We will -- we're obviously monitoring the situation closely and we'll let you know more as we know more. With that, I'll hand it over to Aaron to speak on the television question.
Yes. Thanks, Josh. So Aravinda, well, everything is our broadcast channels are in Canada performing well. We are continuing to experience healthy margins and consistent EBITDA, and that is our expectation going forward. What we're accounting for in the quarter is our expectation on the renewal rates and what's expected to occur there, but we're pretty far down the path on those. So that's what we're reflecting in the quarterly numbers.
I would just add and amplify what Josh said about the changes in YouTube policy. The positive around this is a stabilization in the AVOD market. It's been a bit of a moving target until YouTube sort it out the way in which kids content would be created -- curated, excuse me, and managed. And I think we now definitively know where it's going. The good news to us is that how certain changes around the metrics have been implemented.What hasn't changed is the advertising load and the fact that it is an ad-based medium. And I think that for some time, there was speculation about could this become the PBS or the AVOD? That's definitively did not happen. And given the size of the kids audience and who is watching YouTube, and just talked to linear networks about that, it's clear to us that this is a priority at YouTube. And we believe we are going to be the beneficiaries of these policy changes.
Your next question comes from the line of Rob Goff with Echelon.
I guess more specifically, could you talk to the large library deal with CBS All Access in terms of exclusivity? So was it the term that went with it? And then perhaps more broadly as the follow-up, could you talk to what you see in the second round of battle between the new over-the-top competitors?
I'll give that over to Josh.
Sure. So I can't comment on any specifics related to terms around the deal. That's obviously confidential. But what I would say is, as was reflected in the announcement, it was driven by Cloudy with a Chance of Meatballs, which is a series we're very proud of. And again, we know in this environment, quality wins. And that really drove -- it drove what turned into a larger deal that included library content. So I think it also reflects some of these new services do continue to need library, which is a great thing for us. And -- but it's situational and since -- and it is lumpy as we know this distribution business has always historically been. So we were the beneficiaries of this deal closing in the quarter.What I would say in terms of the overall -- the second wave of streaming wars, as you alluded to, is again going to be driven by premium content. Original high-quality content and often branded content is what's going to rule the day. And that's why we have shifted strategy over the last year to focus on this. And Eric has accelerated that by ensuring that we've got the resources to invest where we need to creatively. So that's where we -- that's where we're focused on and that's what we -- that's what we're going to do moving forward.
Your next question comes from the line of Deepak Kaushal with GMP Securities.
Eric, a couple of questions that kind of go back to when you first joined the company. Coming out of the strategic review, there was a signal, I believe, of a desire to separate the Canadian regulated business, for instance the non-Canadian regulated side of the business. Is it still in the cards? Is it still something that you're thinking about?
Yes. And that continues the pace. It is really about delivering to us financial flexibility and optionality around the assets' potential financings, partners, et cetera, that the regulated assets limit. And so I think that there are no changes affiliated about surge, separating the financials necessarily will continue to report as we previously have. It's really about a legal structuring. It's obviously complicated, given the legacy libraries and copyright recordations and CanCon and so forth, and we're acutely aware of those issues and want to be very, very careful about how we go about it. But the answer of the question is yes, we are proceeding to do what we previously announced.
And then being a veteran CEO of -- in the animation industry, I'm just curious what your thoughts are on what long-term realistic cash flow margins can be achieved? And perhaps your view on ultimates from your past versus how they were dealt with at DHX? Just trying to get a sense of how you bridge the gap more consistently between EBITDA margin and cash flow margin and want to get heard your views on that. And then I have one minor follow-up after that.
So let me give that to Aaron. And I would just say a more general statement about like how things have potentially changed. I can really sort of speak to the issue of the emergence of the SVOD services and these sort of one-stop shopping aspects and more of a like a fixed margin that is included in the -- in license fees paid by those services. And as opposed to the old way in which the content was syndicated. But it's really more about free cash flow than it is on EBITDA, but I'm going to give that to Aaron.
Yes. Thanks, Eric. So Deepak, what I would say about our business going forward is, and this Eric made this clear, we need to invest more in our own IP. And of course, when you invest more in your own IP, your margins go up. And so that's really where we're very focused on. And so that's what I would say going forward in the future, we would expect the margins to go up as we invest, and of course, that will take time.
And I noted that that necessarily points to changes in the industry. My past experience has been almost exclusively with proprietary IP. And so that's -- old habits die hard, and that's where I'm taking the company. The library is deep and interesting. And I'm having lot of fun dumpster diving in the pod, so…
So just have minor follow-up. So Eric, I was at MIPCOM earlier in the months -- last month as well. Obviously, there is lot of excitement around the new stream of platforms that are getting launched and even internationally, not just North America.
Sure.
What was new that you learned coming out of there that you didn't know or didn't expect going into the MIPCOM events this year?
I mean that's an interesting question. I'll take a piece of that and then let Josh take that, since he oversees the distribution arm of our company. I saw a couple of things that had changed since I had taken thankfully a hiatus for 2 years since Universal -- when I was at Universal, all of that went to their distribution division and wasn't a part of my [ remet ] -- is consolidation. That definitely changed. There were quite a few dead soldiers and companies that weren't reappearing.So I think that that's -- there is no great insight around that. I think there continues to be consolidation. I would say that the competition for quality content has actually gone up. I think that what we alluded to earlier, the kind of arms race among the SVODs has been overall quite helpful for the company, benefiting both the production side of our company, the studio side of our company. As far as the amount of content that is being produced, it's increased dramatically. So I think that that is probably kind of an interesting fact.And I'd say those are sort of the 2 main events, consolidation on the content supplier side. Maybe one more thing that I think is happening and creating some opportunity -- we'll see how this unfolds, but the number of new entrants, both as you pointed out in the North America and globally, but also some of the regional SVODs -- has created a deficit for the linear telecasters who still are incredibly well financed. A lot of them like the BBC and great companies like Super RTL, whom we have a close relationship, and I think they are among the smartest and best telecasters in Europe.They need content and a lot of it is being siphoned off by the high-paying SVOD services. So that sort of creates an interesting opportunity as well. And then lastly, the sort of recognition, and it's going to take a while, of how important AVOD is and our services like WildBrain Spark in really being a complementary platform to linear telecast in driving viewership. So I think they are complementary and I think that that recognition is taking a little while. It's transitional. But I think we're kind of getting there with it, and also that AVOD in and of itself is a extremely valuable launch platform. So probably a lot more of an answer than you asked in your question, I know.
No, that's perfect. More than welcome.
We've now monopolized the entire conference call, but I can keep going if you like.
No, I really appreciate the thoughtful response and the thoughts coming out of that comment because it's big and noisy and a lot going on. And it's important to get those insights and your thoughts on those. Appreciate it.
Your next question comes from David McFadgen with Cormark Securities.
So maybe a clarification on the question. Just on the TV business, the new distribution agreement. So if I understand things correctly, it hasn't been totally set, but the quarter reflects your expectation of what the new rate would be for the full quarter. Is that correct?
David, yes, that's correct.
And then can you give us any idea of what the take up is on the rights offering outside deferring capital?
Yes, so we don't have -- we don't receive the details on who is exercising their rights. But everything we've heard has been positive and we believe that many of our shareholders intend to participate.
And would you know when the deals close? You should know when the deal is closed, right?
Yes, yes, it will close November 25 -- end of November, it will close.
And then just lastly, just on fiscal 2020, and I'm not trying to put words in your mouth, but I think in the past you indicated that you thought that would be kind of a flat sort of modest growth year, and I was wondering if you could give us any update on that in light of the CBS All Access deal?
Yes, I'm not going to provide guidance as we -- as been our custom. But that's kind of in line with what we expect for this year.
Your next question comes from the line of Bentley Cross with TD Securities.
Just 2 follow-ups if I may, one for Aaron. On the TV business, I'm still not entirely sure what's going on there. Is the current quarter reflective of expectations with all new BDUs or just one in particular or is there another shoe to drop? I was just wondering if you might clarify that. And then for Josh or Eric, just on the distribution side, I know it's lumpy, but wondering with all these guys coming on market, if you guys have any mid-air insight than we do as to when or if you might be a beneficiary of another large library deal.
Well, thanks. Maybe I'll answer my question first and I will pass it over to Josh. So yes, I mean all of the -- there's no issue to drop as far as our understanding. The negotiations are proceeding well. Just from an accounting prospective, we record based on what we expect the renewal rates will be. We are far down the path on those discussions and so there is really not -- they reflect what we expect.
And Bentley, just to, yes, comment on the question around the new SVOD services. As I mentioned, really these new services that are popping up are focused on original exclusive content that -- that's going to be driven by premium. And so that's where we stand to benefit. It's really on the original side. Having said that, there may be library needs for these services as they popup as we've seen with CBS, but I can't speculate on whether that's going to happen or not.
Your next question comes from the line of Jeffrey Fan of Scotiabank.
Couple of questions. First, probably for the team is when you sit back -- and it's been a few months, Eric, since you've been on the role. When you sit back and kind of summarize, what -- so can you help us think about what the few things that you're doing differently perhaps prior -- versus the prior regime, just so that we can kind of identify what was being done before and what you're doing that's different, that's going to drive the changes? And as you look at your business today, are there noncore assets that you think are still in house that perhaps can help you divest and help you with the flexibility on the balance sheet?And then the second question is related to just your comment about AVOD complementing SVOD. I'm wondering if you have a view as to how that mix may look in a nonlinear world compared to the linear world, specifically like the business mix between subscription and advertising in the industry, where we are today on the linear versus nonlinear and where that linear world would go in terms of the between subscription and advertising services?
That's a lot of questions. So let me just start with what I perceive to be different. And having served on the Board for a little bit before I took my current role, which I called Teletubbian Chief. So first, I'd say we're not going quarter-to-quarter. And I think that that is from a financial management as well as strategic perspective, is a considerable change from where the company has been. I think that -- and also taking a longer view, it has given us with the rights offering, with the restructuring charges that we've taken, and overhead reductions. All that's going back in to invest in creative, which I think has been frankly underfunded in the past.What I'm excited about is we're delivering the best content ever in Snoopy and that has drawn to the company some of the best creators in the business. It's my intention to keep them with us and working on other content from WildBrain. The other thing is investment in Spark. That was not possible in the past. I'm taking a very close look at that business. We're giving them the resources that they need. There are quite a few initiatives that I can't talk about just now, but that are in the works for that business unit.And then finally, I would say the third thing is really just trying to get a bit of a symphony going among the various business units. And that the integration of those units really had never effectively taken place. I alluded in the last call and I think any observer knows that there were a series of rapid-fire acquisitions, disparate business units varying geographical locations. It's just -- it's about working together and meeting, and I think the team has been terrific, by the way, incredibly supportive of working together. I find them collaborative and not competitive in the best sense of that word. So I think that those are the changes that I point to principally.So your next question was, is anything to sell or as you put it noncore assets for divestment. So look, right now I think the business units are integral. Each serves a different purpose in the kind of constellation of assets that we own and it's not something I'm actively looking at right now. It's really about managing them and making them sort of best in breed. And then we'll sort of consider later what we may or may not do with any of them. But at the moment, there are no present plans in the works. You know what -- and I'll give Josh an opportunity to jump in here on the linear and nonlinear environment, those changes and what the implications are for our business and more generally for the industry.
So I think what Eric was referring to earlier in terms of how Spark can benefit telecasters or SVOD services is that there are -- in this increasingly fragmented world, there are -- for linear broadcasters, there is ratings challenges and for SVOD services, there is discoverability challenges. And the same kid who is watching Netflix then goes and watches content on YouTube. And we think that there is tremendous opportunity in terms of windowing to allow AVOD to help amplify the content on these streaming services as well as on linear broadcasters. Now there is an education process with these services who are accustomed to looking for as much exclusivity as they possibly can. But we believe in kids content actually having different types of content in different places is a benefit for brands overall and we're uniquely positioned to be able to capitalize on that.
I would add one thing to what Josh has said and I think this came up in a earlier question and this is relevant about the changes at YouTube, which reminds me frankly what happened in broadcast television as DVRs came on the scene and audiences were not watching day and date, a real time, yet the measurement services were sort of stuck in that metric. And the advertisers and the broadcasters recognized what was happening. And then it went to this sort of Nielsen plus 7 rating in which the measurement took place over a week's time of viewing as opposed to day and date. I see the same thing, frankly, as both a need and a service that's emerging in the AVOD space. As audiences migrate to the platforms, measurement is necessary. And will we drive that? Not really. It's going to be the advertisers. It's going to be the major media companies. They're not going to want to leave any money on the table. And I think that we will be a considerable beneficiary as those measurement services come on stream.
Your next question comes from the line of Drew McReynolds with RBC.
Two additional questions for me. First, a follow-up on earlier topic on the linear side maybe for you, Josh. More interested in the outlook here for linear, an unprecedented amount of elephant SVOD platforms coming on stream at a time when you're seeing a lot of cord -- cutting cord shaving across the industry. What are your expectations for that linear response from arguably some deeper pocketed broadcasters that are now embedded in bigger companies? Are they going to go into full cost cutting mode and rationalization or do they double down?And second question, probably for you, Aaron, on the balance sheet. Are there any leverage targets you want to throw out there? If not, maybe give us a sense of whether delevering mainly is through increases in EBITDA as you reinvest in the business? And/or are you certainly targeting a right debt repayment with free cash flow combination of the both perhaps?
So Drew, I guess I'll start first. So thanks for that question. What I would just -- we're very comfortable with our balance sheet and the leverage. We've proven of looking at the numbers over the last quarter and we've paid down almost $300 million of debt over the last 2 years. And so we've made pretty significant strides there and we will continue to do so especially from free cash flow. And then this quarter, as we noted in our release, we paid down another $7.6 million from excess cash flow. So that's where we're going to continue to do that and focus on continuing to lower our leverage.But on the other side, there's a balance that we have to make between growth and the balance sheet. And the actions that we've taken has given us some financial flexibility so that we can have the opportunity to execute on our plan and grow our business. And so definitely we want to grow our business and grow our EBITDA and delever that way as well. But that's in addition to continuing to use excess cash flow to pay down debt. So to Josh.
Sure. So yes, it's really the questions, you're right. The -- as you know, that the deepest pocketed linear broadcasters are aggressively going after direct to consumer strategy. But what's interesting is it's a dual strategy. They don't want to give up on their linear business because they still think that that's a meaningful way that content is consumed. And again it still generates a lot of cash. So in the short to medium term, they're all trying to figure out content solutions that can serve their new direct to consumer offering as well as their linear offering.And that's going to mean more original commissions and more content that they're going to be ordering which we stand to benefit from with if we have -- when we have great creative and great IP. But yes, over time, that's going to be a really interesting trend to watch in terms of how they balance their direct to consumer with what they're doing in their linear world.
Your next question comes from the line of Adam Shine with National Bank.
I want to go back, Eric, to your comment on the dumpster diving in the library. And I know the reference there isn't necessarily that it's garbage per se, but there's been a number of comments to the course of this call in regards to upping the creative game, the new standard that Josh has referenced, original commissions. And so the question becomes notwithstanding the revenue, the annual revenue, that's fairly material that this library continues to generate on the distribution side.Can you speak a little bit in terms of what you are seeing in the library, opportunities to incrementally monetize it compared to what the company was doing prior to arrival? And then additionally, notwithstanding what you answered earlier in regards to status quo and not necessarily any noncore divestitures at this time, but is there an opportunity to just kind of clear the slate so to speak, maybe sell off larger components of that library and frankly move on with the greater focus on some of the areas that I think inherently you're more excited about?
Okay, interesting. Thank you, Adam. First, I would say, and I mean it humorously, it is a process in which I have kind of done in my past jobs of taking a look, whether it's Marvel or Universal or Classic Media, DreamWorks of like what's in the library. What can we bring to the fore, reinvent, recreate? And so I think that that exploration has not really taken place here. And brands matter. So I'm doing that. I would say that's a bit of a change from the past.The other thing is that it isn't just about like making new shows. It's about managing those brands. And that's something that I think has not been a primary skill of the company in the past, but I think a highly necessary one in an area in which I'm making an investment. So it isn't just take a show, put it on the air, and then move on. These are -- there's a lot of care and feeding to do with these brands. I think they are highly resilient. I've sort of -- I had started to see work that's come out of the studio that I find incredibly exciting and encouraging.And when I talk about that flight to quality, I do look at that Peanuts content as the -- as kind of the NorthStar, it is just so so good. If you haven't seen it, please do take a look at it. It's -- critics love it. We're getting great reactions back. But more than that, it's been a creative magnet. And creators love great content and love working with other great creators. And I think that that is -- we're on a bit of a roll there which I think is something good.In the divesting, I -- honestly, I cannot fathom a scenario where I would sell any IP. You just don't know where the next hit is coming from, which I've said earlier and it's absolutely true, from the most unsuspecting unlikely places. And by having control of that IP, it's -- every bet that I've ever made is on IP ownership. And I have never been dissuaded of the wisdom of that. So I think I don't see that happening at all. That is not in the cards. Anything I want to do to the contrary, if there can be bolt-on acquisitions, an additional IP that we can judiciously acquire, I'm all about doing that.And that comes either from preexisting library content or the thing that I cited before is our radar scope at Spark where we see rising content all over the world and then partner with those creators in managing their content across the entire product life cycle. And that is something I can say honestly and studio distributors and the larger companies are just not very good at. You have to be pretty nimble. You have to embrace partnership. And I think that's not necessarily part of the DNA of those companies, and offers us a meaningful competitive advantage. Did I get answer everything you asked?
Yes, the space for that, Eric, and I guess obviously the release in regards to the covenant deal certainly precludes any immediate necessity to do anything in terms of divestitures. Maybe one last question, just as a follow-up. In the context of I think back on the last call, there was some I think discussion around you guys pursuing a reimagining of Strawberry Shortcake. Just curious if anything is worth updating there.
Josh can speak to that.
Sure. So yes, we're excited about what we have creatively on Strawberry. There's nothing to announce yet. But lots of exciting conversations. And again, creatively we think we're in a good place with it. One of the things Eric did when he came in is that he said let's take a step back and do some focus testing on it and make sure that we -- what we think is good is in fact going to work for our target audience. And so we've done more research with that brand than we historically have, which I think puts us in a good place moving forward, but nothing to announce at this point.
And that being announced, I just want to amplify something that Josh said. There will not be a rush to market. This will be a deliberative, managed, thoughtful process of bringing out the next big title. And with less hoopla, lots of substance, great creativity allow an equity like this to build and find its audience. And that's where we're going to get durability in a brand like Strawberry which it's all out there in the public domain, but a really, really big brand and popular worldwide. And I think that we -- it's incumbent upon us to recapture that audience and introduce it to new audiences coming out of that focus group test. It was fascinating, very positive associations, moms and girls. So I'm encouraged by what I've seen.
Your next question comes from Bentley Cross, TD Securities.
Eric, just wanted to follow on your thought on the building brands. Increasingly, I've heard more brands coming to you guys in the WildBrain Spark business to help build their brands. Just wondering how sizable that component is now as the WildBrain business and also what that means for merchants?
Yes, I'm going to let Josh take the first part and then I'll hop in with any comments around that.
Yes, Bentley, this kind of goes back to what I was referring to earlier in terms of innovative windowing strategies and trying to amplify existing brands that may have a presence on other platforms. Brand owners are recognizing the importance of a strong YouTube offering and we're best-in-class at it. So I think that's really what's driving it. And I mean over time, we think that that can unlock more value for us. But in terms of contribution margin, I can't speculate on that.
Yes. And what I would add to it is, it's sort of an interesting mix as far as on the one hand with a number of our partners, it's about monetization of library assets. For others, it's about, as Josh points out, amplification of the brand. And they're not particularly interested in the money that we make for them. They want that all reinvested and turning up the volume on reaching audience because their -- it's toy sales or merchandising of a particular property. And that's been fascinating to me about like what motivates them.The other thing that I can just sort of comment generally on, and I have seen this evolving in a good way, which is how retail and traditional channels of licensed property distribution, whether it's online sales or brick and mortar, are adapting to an understanding of the AVOD market. It's like you can't ignore it. I mean it is huge. So as measurement tools begin to advance, but more than that, as that platform is where the audience lives, being there becomes a sort of the new qualifier for a lot of brands and for retailers. It takes a while. Same thing happened in cable. Same thing has happened with the SVOD services. As the audience had shifted, they're watching more and more content. And I think that there's an alignment that's taking place between retail consumer products and these emerging platforms.
And just to add to what Eric said, from a CPLG perspective, while it brings CPLG, where we are the agents for a number of brands, they working together as integration is proving very valuable.
Yes, that's a very good point. I mean we -- one of the things that came out of the brand licensing direct show that we just came from was what a valuable asset Spark has become to our WildBrain CPLG clients. So we're now able to furnish data on -- if there is related content and we can tell them where in the world it's working and where it's not. It's really about insights and not just being an agent, but really being an analyst, understanding their businesses in ways that nobody has been able to do before and then as we referenced previously, being able to amplify those brands on a global basis. So that that's really a nice synergy, if you want to call it that, that's taking place between those divisions and frankly an offering that I haven't otherwise seen in the market. Maybe there is one, but that would be news to me.
And if you ever feel like divulging what the mix is of your IP versus somebody else, I'm sure investors will be happy to hear it.
And there are no further questions at this time. I will turn the call back over to Nancy Chan-Palmateer for closing remarks.
We want to thank, everyone, for joining us today and we look forward to catching up with you next quarter. Thank you. Have a great day. Bye now.
And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.