RLJ Entertainment, Inc. operates as an entertainment company in North America, the United Kingdom (U.K.), and Australia. The company has strategic sublicense and distribution relationships in Europe, Asia, and Latin America. Segments The company’s segments include Intellectual Property Licensing (IP Licensing); Wholesale; and Direct-to-Consumer. IP Licensing The IP Licensing segment includes intellectual property rights that the company owns, produces and then exploits worldwide in various formats, including DVD, Blu-ray, digital, broadcast (including cable and satellite), video on demand, streaming video, downloading, and sublicensing. Wholesale Wholesale and Direct-to-Consumer segments consist of the acquisition, content enhancement and worldwide exploitation of exclusive content in the same markets as the company’s owned content. The Wholesale segment exploits the content to third parties, such as Walmart, Best Buy, Target, Amazon and Costco while the Direct-to-Consumer segment distributes directly to the consumer through different exploitation channels. The company markets and exploits its exclusive content through agreements that generally range from 5 to 25 years in duration. The company engages in the exclusive licensing of the digital rights to its library of audio and video content. The company enters into non-exclusive arrangements with retail and consumer-direct entities whose business models include the digital delivery of content. The company’s digital retailers include Amazon, Cinedigm, Google Play, Hoopla, Hulu, iTunes, Microsoft Xbox, Netflix, Overdrive, Shudder (AMC), Sony PlayStation, Vimeo, Vudu and YouTube. The company’s partners in the video on demand space include AT&T, Cablevision, Comcast, DirecTV, Dish, iNDemand, Verizon and Vubiquity. It also exploits its product to cable networks in the United States (U.S.). Outside North America and the U.K., the company sublicenses distribution in the areas of home entertainment, television and digital through distribution partners, such as BET International, Universal Music Group International, Universal Pictures Australia and Warner Music Australia, each of which pays it a royalty for their distribution of its products. The company’s key distribution partners are All3Media, Alliance Entertainment, Ingram Entertainment and ITV Global Enterprises. Key rental customers are Netflix and Redbox. Direct-to-Consumer The Direct-to-Consumer segment distributes film and television content through the company’s proprietary, subscription-based, digitally streaming channels (Acorn TV and UMC), its e-commerce Websites and mail-order catalogs. This segment also sells complementary merchandise through the company’s mail-order catalogs: Acorn and Acacia. The Direct-to-Consumer segment exploits the same film and television content as the Wholesale segment but exploits the content directly in the U.S. and the U.K. to consumers through various proprietary subscription video on demand (SVOD) channels and in the company’s catalogs (Acorn and Acacia) and its e-commerce Websites. During 2015, the company delivered 18.9 million catalogs and flyers of which 17.9 million were delivered in the U.S. and 950,000 were delivered in the U.K. The company had approximately 3.5 million visitors in 2015 to its e-commerce Websites with 4.4% of the visitors purchasing the company’s products. Through its brands, Acorn and Acacia, the company’s product offering includes DVDs, lifestyle products for the discerning British mystery consumer, apparel, jewelry, and decorative household items. The Direct-to-Consumer segment includes the continued roll-out of its proprietary subscription-based digital channels, such as its British mystery and drama network, Acorn TV and UMC, a channel focused on urban content showcasing feature films, documentaries, original series, stand-up comedy and other exclusive content for African-American and urban audiences. As of December 31, 2015, Acorn TV had approximately 195,000 paying subscribers. Outsourced Services Under a Distribution Services and License Agreement with Sony Pictures Home Entertainment (SPHE), SPHE acts as the company’s exclusive manufacturer in North America to meet its hard good manufacturing requirements (DVD and Blue-ray) and to provide related fulfillment and other logistics services in exchange for certain fees. The company’s agreement with SPHE expires in August 2019. In addition to conventional manufacturing, the company utilizes SPHE’s capability to manufacture-on-demand. The company also outsources certain post-production and creative services necessary to prepare a disc master for manufacturing and packaging/advertising materials for marketing of its products. Such services include packaging design; DVD/Blu-ray authoring and compression; menu design; video master quality control; music clearance; and for some titles, the addition of enhancements, such as multiple audio tracks, commentaries, foreign language tracks, behind-the-scenes footage, and interviews. In the U.S., Brightcove is the company’s outsourced video delivery partner powering its proprietary SVOD channels and streaming services. Also in the U.S., Amazon Web Services is its cloud hosting partner powering its entire Web portfolio and proprietary SVOD channels. In the U.K., the company has a fulfillment and logistics services arrangement with Sony DADC UK Limited, which is similar to the arrangement it has with SPHE in North America. In the U.S., Trade Global is the company’s outsourced fulfillment partner that assists with managing the company’s Direct-to-Consumer segment’s catalog business. They provide the following services: customer service, order management and fulfillment, cash collection, credit card processing, merchandise return processing and inventory management. Customer Concentration For the year ended December 31, 2015, sales to Amazon accounted for 21.7% of the company’s net revenues and sales to Walmart accounted 12.6% of its net revenues.
rlj entertainment inc
(RLJE:Consolidated Issue listed on NASDAQ Capital Market)
8515 Georgia Avenue
Silver Spring, MD 20910
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