Twistbox & AMV Parent Mandalay Media Reports Quarterly Earnings

• Cash continues to be a scarce resource, the company had $2.3mil in the bank as of Dec 31, 2009
• Mandalay Media (MNDL) claims key contributors to falling revenue are "a very challenging European sales environment", the loss of a "significant on-deck advertising management agreement", "tighter regulatory restrictions" of off-deck adult content in the UK and "lower (games) revenues from U.S. carriers"
• The company reduced the costs attributed to licensing IP by 50% in the last 9mos of 2009, compared with to the same period in 2008
• The company has substantially cut development headcount/costs
• The company continues to renegotiate payments and covenants associated with a ~$20k debt obligation it has with a small cap fund called ValueAct, with the latest twist being that payments are postponed until July 31st and the minimum cash covenant has been temporarily reduced to $1.6mil until March 10, 2010... and $4mil thereafter (until the next renegotiation)
• Adult content continues to dominate revenues (see below), accounting for 88% in the last 9mos of the year and 89% in the last 3mos

Check out all my posts about Mandalay Media by clicking this link.

Mandalay's Gotta Shake It's Money Maker

Mandalay Media (MNDL), the parent of mobile adult content and games companies AMV & Twistbox, reported earnings and guidance yesterday for their fiscal Q2 2010. Revenue increased more than 100% from the year ago period... but that growth is almost entirely attributable to the AMV acquisition. A look at recent consecutive quarters and company guidance to full year revenue "in excess of $40 million"... indicates the company is running super-flat. I've posted a lot about Mandalay and my lingering concerns continue to intensify. They've gotta deal with their content identity crisis. I contend that they should focus on the adult content market, which provides 87.5% of their revenue, and in which they're a major player (remember Twistbox used to be Waat Media). However, I'm not at all convinced that's the direction they're headed following the appointment of Ray Schaaf as President and their recent Hail Mary attempt to buy World Poker Tour. More immediately, they've got to deal with their deepening cash crisis... as of September 30th they've dwindled their reserves down to $2.8mil, which won't last them 6 months at current burn rates.

Naughty Is Looking Nicer At Mandalay Media

It's been just over a month since mobile porn & games holding company Mandalay Media (parent of Twistbox & AMV) reported it's fiscal Q4 and full year 2009 earnings and we're already seeing fiscal Q1 2010 (quarter ended June 30, 2009). Perhaps this indicates that the company is moving towards a more traditional reporting cycle...which would be nice. Anyway, the company actually had a decent quarter, considering the state of the World and the typical seasonality trends in the mobile content industry. They saw a little quarter-over-quarter revenue growth (2%), showed solid (89%) growth over the same period last year (thanks mostly to their Oct 2008 acquisition of UK-based AMV) and came within $1mil of (real) net profitability. Twistbox CEO (the guy running the whole show) Ian Aron is now guiding revenues to $40mil for FY 2010 (period ending March 31, 2010), which would represent 28% growth over FY 2009 ($31mil) and put them into my top 25 mobile entertainment companies.

What's becoming clear, if you look beyond their press release and into their 10-Q, is that Mandalay's adult business is working and that their games business is not. Adult now accounts for a whopping 87% of revenue (up from 82% in FY 2009). This is an area where the company has been (from back in the WAAT days), and still is, a legitimate market leader. If they can maintain their licensing/distribution relationships for high quality content, they should be able to realize meaningful, sustained growth as more distribution platforms open up to spicier fare. The games business, which is basically the Play for Prizes platform it acquired from Infospace in 2007, has never made money for the company. Mobile games is a saturated, over-crowded space with a few established power players and myriad nimble startups...Mandalay (Twistbox) is neither of these. I think the company should begin to seriously consider, if it isn't already, selling this business (and their unique platform) to a more established player like EA Mobile.

Selling the games business may help Mandalay with its biggest issue of the moment...which is a serious lack of cash. I expressed concern about this in my last post about their earnings, and things have gone from bad to worse. During the quarter they used another $1.7mil and currently only have about $4.2mil in the bank. That's not enough for a company that relies on expensive licenses, has a global operation with almost 200 employees and has monthly operating costs of about $2.5mil. The other lingering concern (which I also mentioned in July) is ongoing litigation with licensor Penthouse, which is seeking $4mil from the company for breach of contract. Mandalay is vigorously defending and has accrued for its estimated liability...but even if they win, a public squabble with a powerful player in a small licensing community can give a company a reputation (whether warranted or not) that's difficult to overcome.

Earnings: Mandalay Media May Need More Cash For Tr... er, Quality Adult Content

LA-based mobile adult content and games holding company Mandalay Media (MNDL) announced fiscal Q4 (ended 31 Mar 2009) and 2009 fiscal year end earnings in a release today. The company, which is better known by its operating brands Twistbox & AMV, is spinning the release to emphasize that FY Q4 was its first with a positive adjusted EBITDA. Frankly, I'm not sure whether that's going to be the main takeaway. I was pretty distracted by their massive GAAP net losses (see below) stemming from a Q4 goodwill write off of $34.8mil, and after digging into their 10-K, concerns about their cash situation ($5.9mil at the end of March).

• 2009 Revs = $31.3mil ^878% from 2008 (partial operating year)
• 2009 Net Loss = $41.6mil compared to a $2.2mil loss in 2008
• Q4 2009 Revs = $9.9mil
• Q4 2009 Net Loss =$32.7mil
• Estimated 2010 Revs =~$40mil

Perusal of Mandalay's 10-K also revealed that their business is clearly dominated by adult content, which accounted for 82% ( $25.52mil) of their revenues versus 18% ($5.74mil) for games. I think mobile adult content has the potential to be a pretty good business WW for the top players in the space and in a previous post I suggested that these guys were pretty well positioned in the sector. However, in their report they admit that the competitive landscape in the adult content business is pretty intense and that some of their competitors are better funded. The company spent a pretty substantial $7.4mil on content licenses in 2009 (for adult content & games) and management cited the ability to continue to have access to that content (pay for it) as a key success factor going forward. Since the company isn't yet generating enough cash from operations for it's needs they'll have to find a solution in the financial markets to quickly bolster their cash situation, before this becomes a serious point of concern for them.

Turning Japanese...Adult Content Chokes The Pipe

A double entendre peppered article from Bloomberg this morning highlights network capacity issues that Japanese mobile operators are facing with "unlimited" data plans, on their notoriously virile 3G networks, due to downloads of adult video content. NTT DoCoMo and KDDI have already imposed limits on some of their heaviest users and Softbank is now considering a similar move. One of the biggest issues is that adult content usage is really spikey...with capacity being taxed most greatly in the wee hours of the night (so many troubling images). The article claims that Japanese adult sites are seeing about 1,000 new subscribers a day, paying as much as $100 each to sign up. It's not entirely surprising that this situation is developing first in Japan, where they've had good data-ready 3G networks since 2001, where they have great handsets and where most people use their mobile phones (as a opposed to computers) as their primary access to the internet. So...it's not that the Japanese are any randier than the rest of us, they're simply early adopters (thought leaders, if you will) of a category of mobile content that Juniper estimates is currently worth $2.5bil WW and that will double in value to 5bil by 2013.

The most troubling aspect of this story (and there a few) is that it demonstrates the weaknesses of so-called advanced mobile networks WW. Frankly, it's become glaringly obvious that 3G networks are not yet ready for primetime (or latenight) when it comes to streaming video. The proliferation of data caps, lack of support for video calling and examples like the iPhone's delayed support of tethering, slow-boating of video-streaming Apps and resistance to Flash speak volumes about the continued frailty of these networks. As consumers rapidly get more comfortable with web-browsing on their phones (like in Japan) and come to expect that they're favorite video sites from the fixed-line internet (e.g. YouTube, Hulu, etc.) will work, this issue will become a bigger customer service concern for the carriers...and a more painful lost revenue opportunity for site owners, publishers & content owners. Let's hope that while the mobile operators trumpet the virtues of & spend billions on their WiMax and LTE 4G networks that they don't totally neglect the capacity issues of their 3G networks and sour a generation on the potential of mobile video. Oh yeah, and note to the more prudish mobile networks and hardware manufacturers out there...the history of other media (i.e. cable, VHS, internet, etc.) suggests that you should get comfortable with adult video content leading adoption of video services on 3G, 4G or whateverG...to the extent that's what you want.

First iPorn App Bares Itself Briefly

Apple giveth nudity and Apple (in short order) taketh it away...at least in the App Store. According to both Gizmodo & TechCrunch the first iPhone App to feature topless models has been removed from the service. The $1.99 "Hottest Girls" App was developed by Allen Leung and launched on the App Store on Wednesday (despite a May 29 "release date"). According to reviews the App is nothing more than very rudimentary photo gallery. Hottest Girls was given Apple's new 17+ rating (part of OS 3.0 parental controls), and many thought that its approval was an indication that Apple was getting comfortable with adult content...perhaps explaining the real meaning of the S in 3G S. All joking aside, the revenue potential from adult Apps for developer/publishers with access to premium content (e.g. Twistbox) could be substantial if Apple supports it.

No surprise...the story has twist. According to Wired the developer is claiming that the App is only temporarily "sold out" and that he voluntarily removed it to upgrade his server capacity....and that it will soon make an encore for your salacious viewing pleasure. We'll see about that...Apple has shown itself to be pretty prudish in the past and my guess is that they got spooked by outrage from family media watchdogs like the UK group covered in today's Daily Mail article.

I'm very interested to see how this plays out and to understand Apple's official stance on adult content...purely from a civil liberties & business standpoint, dontchaknow.

btw -- for those of you concerned about a dearth of nudity on your iPhone it's time to get more comfortable with an application called Safari.

Twistbox To Help Private Reach "New Penetration Levels" in $2.2bil Mobile Adult Content Market

...no, I didn't make that up, I didn't have to. Tim Clausen, VP of Sales at Private Media Group (PRVT) did in a press release today describing the Spanish adult content company's expanded worldwide mobile distribution relationship with LA-based Twistbox Entertainment. Specifically he said, "We look forward to increasing our mobile revenue through the new penetration levels we will achieve on Twistbox's vast distribution network." Funny. Moving on...this is actually a pretty big deal for Twistbox and their parent company Mandalay Media (MNDL)...a film production company founded by entertainment industry legend Peter Guber, that's morphed into a new media holding company. It reinforces their position as a leader in the on & off deck distribution of adult images, video and mobile TV channels worldwide (the company also has a mobile games division, which they acquired from InfoSpace)....and their stock price is up 77% on the news, in early trading today. Adult content is a pretty substantial business in Europe & Latin America where the carriers are much more liberal about (and not afraid of making money from) such content. Juniper Research estimated the WW mobile adult content market at $2.2bil in 2008 and a former content director at Vodafone famously said a couple of years ago that 70% of downloads on the carrier were of adult content. Shocking (not).