CURI: One-on-One with the Chief Product Officer and EVP of Content Strategy – CML

CuriosityStream (CURI) is a Top Pick. We spoke with the Chief Product Officer and EVP of Content Strategy, Devon Emery.

As an undesignated Top Pick (not a Spotlight or a numbered Spotlight) that places the company in the outer most circle of this logic diagram.

We spoke with the CEO and CFO one-on-one after adding the company to Top Picks, on 1-9-2021, and you can access that original conversation here:
CuriosityStream: One-on-One with the CEO

Position
CURI is one of three Top Picks added in January of 2021 which we think of as “rent to own,” where benchmarks must be met for our full embrace.

Of the three “rent to own” stocks, AcuityAds is running the best business, and we discussed the company recently in the dossier:
AcuityAds Delivers the Goods and Has Promise for More.

CURI was our “middle rental,” where we were far more bullish on thematic than the company itself, but still the company’s version of the world is one we like and a pure play exposure to content for CTV is worthy of a Top Pick analysis and position.

(The pure speculation “rent to own” is Ondas (ONDS).)

Nothing we saw in the Q1 report from CURI was worthy of a drop, in fact, while the market very much disliked the report (stock price dropped), we liked it.

We had a chance to chat with Devon.

First, we share some quick analysis and then the full transcription.

Analysis
We had a nice chat with Devon, and really learned more about CuriosityStream than we thought we would.

Here a few snippets of back-and-forth that we would like to highlight.

With 16 million subscribers from its direct to consumer (D-to-C) and bundled offerings, I asked about the potential for increased revenue with pricing power, much like Netflix has exerted.

We got this:

We think that we have a ton of pricing power.We are very reasonably priced and there’s a variety of different paths we have to increase our [average revenue per user].

I asked about advertising and the opportunity for CURI. (All of the CML Pro Community knows how we feel about the prolific revenue generator that industry has become.)

… there is ad[vertising] inventory, and we’ve recently started monetizing that.So that is also up and running, but again, very nascent.

So yeah, generally speaking, we’re still thinking about that as a good contributor to our fall revenue.

We spoke about the acquisition of the content maker One Day University and Devon noted:

It’s a brand that we’re going to develop within the Curiosity family.We think there’s a ton of upside with that.

Finally, Devon touched on a subject we were not aware of, but he purposefully emphasized and that is CuriosityStream’s technology.

… another thing that’s really important is that they’re willing to invest a lot in our technology.… on the technology side, we’re very, very focused on all of our experiences across [devices].

… we’re investing even more into our data structure.

… we … have a lot of depth, and opportunity, in the data side of things to be able to make the right programming decision, … but also to create more value across all lines by being probably the one company that has kind of the depth of information on what this audience likes and wants to do compared to a lot of others.

That led me back to advertising and I asked if this tech stack and data was also an asset to leverage for advertising, to which Devon replied:

Yeah, definitely.

In all it was a fruitful conversation.

We’re less bullish on CuriosityStream than we on are the actual thematic of streaming, but we’re here with CURI for at least a year, unless something dramatic changes, and we like the first quarter and this conversation.

Please enjoy the full transcription below.

One-on-One with the Chief Product Officer and EVP of Content Strategy

Ophir Gottlieb:
First kind of an overarching question, and then we’ll get into some details. Let’s start with the quarter that was just reported.

Revenue came in short of analyst expectations, but CuriosityStream was pretty clear that quarter to quarter Vacillations aren’t meaningful due to the way the company secures deals and books revenue.

And in fact, while wall street may have seen it as miss, CuriosityStream actually reiterated full year guidance and actually with greater confidence, I think the phrasing was increased to 2021 revenue visibility from 80% to 90%.

So first, is that an accurate description of the quarter? And second, and probably more importantly, can you expand upon the way contracts are finalized and booked as revenue?

Devon Emery (Chief Product Officer and EVP of Content Strategy):
Yeah, that is accurate.

We have a bunch of different lines of revenue and the way that they come in are very different. So there’s subscription revenue on our D-to-C side, and that’s fairly smooth and we have pretty good visibility to when someone coming in, what that is going to do for revenue in years out.

And then we also have other wheels that are primarily based on third party relationship. Now, program sales, one of these third-party distribution deals. And so, with third-party distribution deals, for example, a deal like that could be very valuable.

And then when exactly that can sign it up and running is when that revenue starts being recognized, so that can be lumpy.

And then the other side is program sales.

So, one of our lines of revenue is working with companies where we are producing content and then selling off the rights.

So, to an extent, less important to us around [timing].

So, that is a way to get revenue, but it’s also a way to be able to create really high-quality content, and use that in some of our most important territories.

But we’re not necessarily going to be projecting quarter to quarter when a program is going to deliver, and then get home through our service as we also see some bumpiness, lumpiness there.

We’re not going to rush through a project on the content side to be hitting a quarter there.

So, that’s why we’re very confident and comfortable in our full year guidance. And we’re not necessarily giving specific guidance quarter to quarter, if that all makes sense.

OG:
Yeah, for sure.

So, my question to you is, let’s say there’s a bit of a delay in when it’s delivered. And I agree that quarterly dates are, I mean, they’re arbitrary, March 31st is just a day. It’s no different than March 29 or April 3rd.

But if the contract is not finalized by a certain date, does it reduce the revenue received in the calendar year?

DE:
No, not in the calendar year. Unless it moved calendar years.

OG:
Okay. So, if you had a contract for $10 that signed on March 28th or April 23rd, it’s still the same contract value, and will be recognized in 2021?

DE:
We recognize the revenue upon delivering acceptance to the partners who have bought rights.

OG:
Makes perfect sense. I appreciate that. Okay.

Also, I don’t want to talk about One Day yet, but I just want to touch on it. I’ll have a special question for that, but… 71 million revenue target was reiterated.

On the conference call, I think that it was stated that revenue from One Day is now included in that at least $71 million revenue.

Is that true that there is now sort of this inorganic piece to that $71 million revenue? Or did I simply misunderstand?

DE:
We did not increase guidance as a direct result of One Day at this point.

OG:
And does One Day bring revenue?

DE:
It is expected to.

OG:
Okay, interesting. All right.

DE:
I can give some more color around that if you’d like.

OG:
I’d love it, yeah.

Devin Emery:
Yeah. So, I mean, it’s a relatively small acquisition for us. It’s a small company, they are doing revenue.

It’s going well, it’s growing quickly, but we’re also very much in a transitional period.

They were aligned with a company until a year ago where obviously that wasn’t something that they were able to, and their entire business transitioned around that.

So now they are, or have been primarily, a D-to-C subscription service that is growing nicely. And we view that as now a hybrid for us. So, both direct to consumer subscription video on demand, as well as live events.

Where it’s tricky is that because they very much transitioned to the business and the relative small size of the acquisition for us, we don’t have a great way to say, “This is exactly what growth’s going to look like for the rest of the year.”

We’re very comfortable with it being a very valuable acquisition to us.

And we can put the combination of [inaudible] going to bring Curiosity into a market that we want to be in with a company and brand that is going to be able to grow very quickly.

But it’s not something, because of all of those dynamics, that we’re necessarily able to look at the rest of the year and raise guidance points.

OG:
Understood. The company announced that subscribers grew 28% to approximately 16 million at the end of Q1, compared to approximately 12 million for the year ago period.

How should I think of those subscriptions? Are these actual direct to consumer subs or is this driven more by the bundle business that CuriosityStream has?

DE:
It is both. We count all of those subscribers at that top level subscriber bucket. We don’t break out exactly how they all work out.

I think there were some comments in the conference call that alluded to that, but I don’t remember exactly what we spent on anything. Beyond that, we did touch on that in the [inaudible] call.

OG:
With regard to subscriptions, both in the realm of the longer-term bundle deals and in particular, the direct-to-consumer subs, does CuriosityStream feel like there’s pricing power there for future increases in average revenue per user? Or is that just not on the table?

DE:
We think that we have a ton of pricing power.

We are very reasonably priced and there’s a variety of different paths we have to increase our [inaudible].

Some of them are involuntary price increases and some of them are voluntary price increases. And what I mean by that is that we do feel very comfortable that we have the ability to increase the baseline subscription costs on our tiers.

And that’s the thing that we’re working on right now, showing some very early promise is that, traditionally we’ve had two different SKUs.

We’ve had HD and 4K. And the difference between them is that HD maximum streaming and 4K maximum stream.

What we’ve been working on over the past few months and right now is building more value into the 4K tier and then start transitioning that away from just being different based on HD 4K.

Instead, being more standard versus premium tiers.

So, adding more benefits onto premium, like unlimited concurrent streams within reason, some access to other streaming services for no additional costs, and a variety of other things.

And our hypothesis is that you have a fair amount of people who are subscribed who are not really price sensitive, but you’re still going to be selecting oftentimes the lower SKUs.

They don’t think that difference between HD and 4K on their own are valuable enough to make the difference of $20 a year or $60 a year.

Hypothesis that we are testing is that those price sensitive drivers, when given a lot more value on that high ARPU tier, we’ll get that at significantly higher rates.

So, we are working on that right now and [inaudible] to you as a voluntary price increase. It’s more people selecting a higher costs ARPU because they’re getting more value out of it.

On the other side, yes, we are certainly thinking through when it makes sense to increase pricing on our lower SKUs, obviously in a way that doesn’t take away what we believe to be our best in market value equation of the price for what you get.

But we do think that we have a lot of flexibility there.

OG:
Okay. Excellent, thank you. Before I get off subscriptions, are there any metrics or guardrails you can share surrounding churn in the direct to consumer subscription world?

DE:
Yeah. Did you see… I posted something on our blog and on Twitter a few weeks ago, if you happened to come across that, it was using antenna data?

OG:
Okay, I didn’t see it.

DE:
Okay. Let me shoot that over to you. So, that gives a pretty good view of where we are in terms of yearlong cohort, survival rate, as well as churn rates, which I think would probably answer that question pretty well for you.

— Interlude—
This is Ophir.

The blog post Devon was referring to is here: Running Our Own Race, published on 4-26-2021.

We leave the read for you, but two charts were quite illuminating.

Below are a few stats from ANTENNA Data that show how we compare to other streamers on several key business metrics.While our business and content serve a global audience, ANTENNA currently only measures US direct and channel store subscribers (so does not include bundled and bulk subscribers).

These trends – on our service at least – are consistent with what we see globally.

Our monthly churn clocks in right around Netflix’s, and well below most other services.

And then the post went further.

Taking into account annual plan renewal periods, we edge out Netflix to take the top spot in terms of cohort survival. We are, as far as we can tell using Antenna Data and other sources, the streaming service best at keeping subscribers with our service continuously over the course of a year and beyond.

End Interlude

Now, back to the conversation.

OG:
Okay. I appreciate that, thank you.

We cover a lot of technologies at Capital Market Laboratories. They’re all cutting edge, but really in truth, the most prolific technology, with respect to monetization is still straight down the middle of digital advertising, for better or worse.

As a part of the example that CuriosityStream published in its S1, sponsorships and advertising were shown as about 20% of total revenue by 2025.

And I know that wasn’t official guidance, that was illustrative.

How is that business doing? And does a long-term goal of 20% of revenue still feel appropriate for, let’s roughly call, advertising?

DE:
Yes, there’s a number of different items that fit into the advertising sphere. So there’s the higher touch brand partnerships where a brand will be integrated into some of our [inaudible] content.

There is what we have launched, and is up and running, built in the nascent phases of we operate on your cable networks around the world, there is ad[vertising] inventory, and we’ve recently started monetizing that.

So that is also up and running, but again, very nascent.

And so, we’re also looking at how does CuriosityStream have a [inaudible] that is free ad supporting streaming TV and an [inaudible] strategy that is highly complementary and not cannibalistic within what we’re doing.

And we have a fair amount of experience doing that, the people at the company.

So, we do view the brand partnership side, which can integrate into our SVoD (streaming video on demand) platform without disrupting the viewing experience, plus more standard and programmatic, plus cable inventory that we’re going to be able to sell through those businesses as being good contributors.

So yeah, generally speaking, we’re still thinking about that as a good contributor to our fall revenue.

OG:
Pretty recently we learned that AT&T spun off its Warner Media division, and combined it with Discovery, to form this new OTT offering.

The Warner piece is not really related to CuriosityStream, but the combination with Discovery could be seen as sort of a meaningful, competitive presence.

How do you view that deal in the scope of its impact on CuriosityStream? Do you think it’s additive to have someone out there doing that or competitive?

DE:
I don’t think it changes much.

I mean, the view was that Discovery plus was not that much more of a direct competitor than Google or HBO Max or [inaudible] is that every media company is investing significant dollars into the actual content.

And we do that as total validation of the focus that will happen.

We are not worried that they are investing in that, we would be worried if no one was investing into it.

It was actually one of the fastest growing [inaudible] out there. But they are focused on very specific parts. So, Discovery is primarily a reality producer.

Most of their costs for production are not going into documentary or true non-fiction, it’s primarily reality TV. And more power to them, it’s doing well for them.

But they also have some great documentary content, but no one is as deep or provides the best discovery experience like we do.

What we think is that people are watching a lot of factual content on all of these streamers and from all these companies and they love it, but it doesn’t go on any of them.

And so, if you’re looking for the portal into this content, the streamer with that focus, we are that. And so, we’re a great compliment to that.

I think that Discovery and Warner will compete with all this stuff really just goes to show that, is that they’re not focused on the category like we are.

And so, we’ve learned to be able to be a very strong business with that focus. And a lot of other people see the value in the focus that we have, which we view as validation.

OG:
Yeah, I agree. The fact that Warner Media combined with Discovery, not that it needed any validation from CuriosityStream’s point of view, but the fact that they combined is just yet more evidence that they’re not CuriosityStream.

Clearly you don’t combine two totally different entities, and they clearly don’t think these are two totally different entities.

So, I agree with you completely. All right. Now I want to talk about One Day. I think it was less than a $5 million purchase price. The content, I know you talked about this, I just want to get it kind of formally on the record.
This content doesn’t feel like it would be a part of the direct-to-consumer offering, but more in the corporate educational partnership portion of revenue, although you just said, actually they’ve been pivoting.

So, can you give me some color in the demand you’re seeing, or the opportunity if you like, that you’re seeing, in this space?

I think this is one of those revenue streams that solidifies the premise that CuriosityStream is a content business, not just a consumer streaming OTT business.

But I’d love to know sort of the official word on the One Day acquisition, One Day University.

DE:
Generally speaking, the One Day University fits in really well with Curiosity, because this is the best, most entertaining professors giving their best, most entertaining classes.

So, it’s still the style of a class that you would take at college or with a professor, but it’s not meant that at the end, you have to take the test and you have to get a certification.

It is really entertaining topics that are these deep dives into it in a really fun, entertaining, educational way.

And we view that as being extremely complimentary to CuriosityStream. So, you’re right, it’s not content that we’re just going to load into CuriosityStream and call it a day.

It’s a brand that we’re going to develop within the Curiosity family.

This fits really well with that because we’re similar in that the content can be very educational, but we don’t have just pure education content. No one’s going to take a test after this stuff.

It’s for people who want to use their leisure time to know more. So, they want to know more about a topic, they want to put on a great documentary, maybe they want to take a really entertaining class.

That’s kind of the area within which all of this stuff plays together nicely. So, we think that within the entertaining education space, One Day University is the brand to be able to build there.

And there’s also elements within Coursera and Masterclass and all of these other companies where we know that that category is growing very quickly and holding in a brand like One Day University is in that space, but also has its very own feel.

We think there’s a ton of upside with that.

OG:
I think that right when it was announced, that seemed like it was clearly additive. But thank you for the color.

All right, so is there anything else you would like me to tell investors?

Or said differently, is there anything that I didn’t ask that I should have asked, or maybe you wish I would have asked?

DE:
I would say that I think another thing that’s really important is that they’re willing to invest a lot in our technology.

Our acquisitions, our direct-to-consumer platforms, they’re good now and we have a lot of plans.

It’s been really great to kind of add more features and ability for people to use it as the best Discovery for all of this. So, our content is great, getting better. Our platforms are great and getting better.

But I’d also say that on the technology side, we’re very, very focused on all of our experiences across the computer TB form, really, really great experiences.

So, that’s another thing that obviously, yeah, there’s rollouts.

It’s not necessarily as easy to tell as a new title coming out, but also something that we’re very focused on.

And we built and own our own tech stack, so I think that’s a lot better.

OG:
Okay, so essentially not to just think of CuriosityStream behind the scenes coming up with great content, but also coming up with a tech stack that delivers that content, but also organizes it and allows access to it in a way that promotes more engagement.

DE:
Exactly. And you know that we’re investing even more into our data structure.

We have a LG and data infrastructure built from the ground up to make our product work. But also, I think gives us something that no one else has.

We’re not just plugging and playing into third party video player; we’re building all this stuff. And that gives us a lot of flexibility, but it also gives us a lot of information about what people want within the actual space.

Again, because we have so much depth in our library, we also have a lot of depth, and opportunity, in the data side of things to be able to make the right programming decision, obviously, but also to create more value across all lines by being probably the one company that has kind of the depth of information on what this audience likes and wants to do compared to a lot of others.

OG:
Okay. So, it also then would help as a Discovery engine. And also, I imagine if you’re building this data, it would also help eventually in the ad business, right?

DE:
Yeah, definitely.

OG:
Okay. Devin, thank you so much. Those are all of my questions for the quarter. I really appreciate your time.

DE:
Great, sounds good. Thanks a lot, bye.

OG:
Bye.

Risk
There is ample risk for a pure play content company and as such an enterprise, some of that risk is existential.

Unfortunately, we added a risk to the top two quarters ago.

* Questionable governance.

And then the standard risks for a company this size in this industry:

* The OTT market is rife with competition and surveys suggest that even as early as 2018, consumers were beginning to feel content overload from the OTT world.

* The projections for 2025 are just that — projections.

* The company currently operates at a loss and may require more capital to sustain the business in the future.

* Competition will mount not just from other pure play content companies in adjacent areas, but also from Netflix and other giants which already have substantial documentary libraries.

* The edutainment category already has many competitors, and “pay per course” may become the defacto mode of operation, rather than an ongoing subscription.

* The content may not hold up. It’s quite possible that while CuriosityStream has a fantastic opportunity and plan, that the content itself lets the business plan down and poor content disrupts all of the above-mentioned projections in what could be a dire way.

* Free content for documentaries is rather robust and there could be a question as to whether this type of service have demand for any price other than ‘free.’

* We foresee a volatile stock in the near-term.

* Other risks exist which we must put in the category of “unforeseen.”

Conclusion
CuriosityStream is a pure play content company both in the streaming video world but also for license and education outside of streaming TV. It has a unique content offering, a unique value proposition to consumers, a substantial international strategy, and a multi-pronged revenue strategy unlike any other in the segment.

Each leg of revenue is forecast to be material to the company by 2025 and each is recurring in nature, and in some cases long-term fixed fee.

The company has guided revenue growth from $39 million in 2020 to 10-fold that number by 2025.

There is great risk to a pure play content company which for now cannot claim to be an aspirational platform, but rather sits more closely to a software as a service business with a multi-channel distribution plan.

If the company disappoints us on governance again, it may very well be dropped from Top Picks for that reason, exclusively.

We are more bullish on the thematic than CURI itself, but there is a uniqueness to the company’s approach and we’re not bashful in stating that we are bullish enough on it to name it a Top Pick.

A miss on annual revenue or a miss on 2022 or 2023 guidance would change our minds rather abruptly.

Thanks for reading, friends.

The author has no position in CuriosityStream (CURI) at the time of this writing.

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