National CineMedia, Inc. (NCMI) Earnings Call Transcript & Summary

[Audio Gap] Scherping, I'm the CFO of NCM. I'd like to remind our audience today, in a second because my computer just died, there we go, that this presentation contains forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. All statements other than statements of historical facts may constitute forward-looking statements. These forward-looking statements involve risks and uncertainties. Important factors that can cause actual results to differ materially from the company's expectations are disclosed in the risk factors contained in the company's filings with the SEC. All forward-looking statements are expressly qualified in their entirety by such factors. Further, our discussion today includes some non-GAAP measures. In accordance with Reg G, we have reconciled those amounts back to the closest GAAP basis measurement, and these reconciliations can be found in our earnings press release from February 20, on the investor page of our website at ncm.com. Now I'd like to turn over the floor to Tom Lesinski, our CEO.

[Audio Gap] And I am surprisingly conscious of just opening doors, and it's funny how your life changes in even shaking people's hands. So don't feel the need to shake my hand, but I instinctively do it. So we have lots of Purell for that. But I do sincerely want to welcome you, and this is going to be fun, we'll make it interesting. So I'm the CEO, and I'm going to tell you how -- what's going to happen. So I'm going to talk about the company. We have a really interesting panel that Cliff, our President, is going to run, talking to 2 really senior people in the agency business. We'll take a break after that, then we're going to specifically have our Head of Sales and Chief Revenue Officer, Scott Felenstein. He's going to talk about really how our businesses runs from an advertising point of view. We're going to talk about the major upgrades we have in store for our company. We're going to talk about our digital initiative, and then we're going to go through a deep dive in the financials then. And we'll spend as long as you guys want on Q&A, and then there's a reception. Try to keep your questions really to the end. If you don't mind, just write down. So there's a lot we're going to go through. We didn't want to do the Q&A during the middle of all of it. So let's just get started. I want to introduce the management team. So everyone in this picture is in this room. So Cliff Marks, you're going to see, he's our President. He's been with the company since it started. Sarah Hilty is our General Counsel. Katie, who many of you know, is our CFO. Scott, who you'll hear from later, runs all of our sales businesses. Rick is the Head of Digital. Ted Watson is the Senior VP of Finance, also responsible for Investor Relations. John is the newest member of our ELT. He's been in the company a long time, but he's our Chief Strategy Execution Officer. Adam runs all of business and network operations. Chuck, who's here, is also -- is the Chief Information Officer. Christine Fenner runs HR, and Jerry is our VP of Digital Sales. So I'm going to talk a little bit about our company. We -- if you don't know us, I'll start just with a little bit. We're the largest -- probably the largest advertising network in cinemas in the world. We have a 70% market share in the top 10 DMAs, 21,000 screens, 600 million to 700 million attendees every year. There's really no peer kind of to us in this business. What makes this a really interesting business, I think, is we're also in long-term relationships with all the theaters. 20 years is the average time we have with our 3 major circuits, AMC, Regal and Cinemark. So the barrier to entry is substantial. No one else can really get into this business because of relationships that we have. We also have 50 other theater networks in our group, and many of those deals are also long term. In the first 6 months, which is how long I've been the CEO, within 3 months, we decided to really enhance our inventory. We'll talk about this in depth. Our former business model was -- really, everything was before the movie started. We now have inventory after the movie starts or after the showtime starts. And we'll talk about that in a fair amount of detail, but we have 6 minutes of inventory now that actually starts after the advertised showtime. So from a financial point of view, one of the reasons I was particularly interested in taking this job was 45% margins. When you think about that 70% market share, 45% margins, 95% unlevered free cash flow. We recently raised our dividend by 12% to $0.76. We have one of the highest yields, and I think it's at 10.5% today, partially because our stock has gone down a little bit, but it's normally around 9. The other thing is the industry that we're in is the media industry, even though we're in the theater business in terms of where our inventory is. The media business in general has grown around 7% on a CAGR basis for the last 4 years. We're expecting it to grow 8% this year in terms of an industry level. And the other part of our business which is sort of competitive is the out-of-home business, and many of you who follow those stocks have seen real growth in that kind of business, which is related to ours. Finally, I'll talk a little bit about the recession-proof nature of the business, but also the corona part of it. In 2021 -- 2001, 2002 and 2009, all sort of recession type years, there was no meaningful decline in the U.S. attendance space. During the SARS and N1H1 (sic) [ H1N1 ] viruses, there was no effect on the exhibition business. Now I'm not going to predict what's going to happen now, but there is something about the cinema business that has been relatively recession-proof, and to some degree, the impact from viruses hasn't impacted it as well. Okay. So what did we do in the last 3 months? We did 5 new things, which I've talked about in the last 2 investor calls. The first one is we improved the quality and the value of our inventory. We had the same business model for almost 15 years in this company where everything was before the advertised showtime. So now we have 5 minutes in what's called the lights-down period when you're a movie theater, and they tell you to turn your phone off and they tell you to -- when the lights go down. We owned 5 minutes after the advertised showtime. So if the showtime is 7:05, from 7:05 to 7:10, we have 5 minutes of advertising. We have an additional 1 minute that airs right before the last trailer or 2, which is called our Platinum Spot. We'll talk about that in detail, but that's one of the most expensive and valuable units in advertising today. The most important part of our business model which people forget is we are the #1 place to find millennial and Gen Z moviegoers in a venue like ours. Most people who go to the movies, the median age is 28 years old. If you compare that to network television or to cable television, it's almost half that age. So when streaming companies are looking for new consumers, some of our biggest advertisers are streaming companies. So people talk about competitive streaming. One of our biggest customers is Amazon Prime Video. Hulu is a big advertiser of ours, Google. So they're coming to us to reach young people, ironically, even though they're the digital leaders in it. And lastly, we have a big data initiative, which is going to improve our ability to actually create attribution back to consumers. We've always been just a screen company. We're now able to take the data from people who come into our theaters, using their phones, using geofencing, using one-to-one marketing to market to them before, during and after the movies. So we're going to get into this in detail with our CIO and with our Head of Business Operations, but we spent 2 years modernizing our company. We were running our company pretty simplistically before. So we've invested heavily in our planning, proposal and our tracking system to be much more competitive in the marketplace. This is going to lower cost, improve efficiency with a new technology platform. We're upgrading all of our systems. It's like a 2-, 3-year project that will hopefully start in 2021, maybe at the beginning of 2021. But this was kind of long in the planning, and it's an important part of becoming a modern media company. The third big thing we're doing is investing in digital. We started this 2 years ago. We're creating a consumer business model that we never really had before. We were always a B2B company. So we created a brand called Noovie and we've got various apps and noovie.com, which is destination site, to actually be able to talk to consumers 24/7, not just for the 2 or 3 hours in a movie theater. So when you come in a movie theater, we'll show this as examples later, we're going to harvest data. We're going to talk back to you afterwards, before and during the actual whole process of going to a movie. We're also creating products that create digital ad inventory. The only inventory we've ever sold in the past is on the screen. We now have products and a dotcom to sell the ads to. And finally, we're taking this whole notion of there is no 360-cinema media company that's talking to consumers. So we're going to reach you whether you're at Comic-Con. We're going to reach you before the movie, after the movie. We're going to reach you on social media sites. If you want to find a movie customer, we're going to find them for you. So we put a big data initiative together. You can't really be a modern media company without data today. Everyone is trying to build a database. We're going to try to own as much of the cinema media going on as we can. In 2019, we got to 10% of the movie-going audience. We're going to be at 20% by the end of this year. So you think about the combination of the big screen and within -- and 20% of those people, we will have some way of reaching them before, during and after the movie. Modern marketers want to talk to people once they've seen the ad and what they do afterwards. So we're going to show you 4 quick case studies about how that's been working for us. And then in 2021, we're looking to be at 35%. The last thing, and this is really the beginning and the history of our company, it's all about getting more and more exhibitors into our platform. We already have reach in every DMA, but there are handful of really big exhibitors whose contracts are coming up soon. And I can't get into the specifics of who they are, but one way to grow our impression base is to acquire those contracts as they come up and available. So we're looking at 2 or 3 really big ones that are going to expand our geographic reach, increase our impressions and hopefully expand our premium inventory through all those customers. So those are the 5 things that we've laid out in a relatively short time since I've been doing this. And sort of to sum it up, this is what I've been talking to you about, about growing our whole business, not just in the theater and in the lobby, where we've been for 15 years, but after the movie and at places like Comic-Con and in the trailer release and reviews, but all the time, if you're interested in movie. We rebranded our mission statement to unite our brands with the power of movies and engage movie fans anytime and anywhere. The second half of that is our B2C strategy, which we didn't have 6 months ago. So it's an important change in what we're doing. What I'm going to do now is bring Cliff up, and we have 2 great panelists that he's going to introduce, Amy Armstrong and Mike Law. So if you guys could come up. Well, Amy is here. Thanks. Do you want these up on here? Or...

Okay. Is that working? Can you guys hear me? Hi, everybody. I'm Cliff Marks, and I'm the President of NCM. Been doing this about 18 years, and prior to that, I've spent a bunch of my career at other media companies and ad agencies. So today, I have 2 great friends and 2 great guests. Let me read you their bios. Bios are always fun, but I want you to know we have a great group up here. So let's start with -- ladies first, so let's start with Amy. Amy believes that without a doubt talent is what enables a culture and ultimately a company to thrive. This is no newfound belief, instead, it's one that has shaped her career since she started with IPG 20 years ago. By continuously actioning on this belief, she's built teams and nurtured an environment that has resulted in turnarounds that some would have deemed near impossible. Amy oversees 875 employees in the U.S., where she focuses on building strong relationships with both clients and teams. She strives to create a company that matters and make a difference in the lives of employees, in her clients' business and in the industry as a whole. The impact of her leadership has seen a double-digit revenue growth for the last 2 years, along with Initiative being named 2019 Media Agency of the Year as well as Ad Age's Comeback Agency of the Year. The standard that she represents made here a natural selection for 2018's Awarding Jury at Cannes for media. A client roster that spans multiple industry sectors including entertainment, technology, telco, health care, CPG/FMCC is a testament to her acumen for growth and transformation. She -- leading by example and taking nothing for granted, Amy champions the importance of wellness, making time to be with her community, family and passions. And surprisingly, this would be with her twin sons. So welcome, Amy. Nice to have you.

Wow. That's so great.

So let me tell you about Mike Law. Hello, Mike Law. As President of Amplifi US, Mike Law oversees all the media investment and buying across activity for Dentsu Aegis Network in the U.S. markets and works with leading media owners and tech partners on the development of products and standards that drive incremental value for its clients. Mike and his team manage more than $17 billion -- that's it, Mike? $17 billion in annual spend across national, local, audio, digital and print channels on behalf of clients, including General Motors, Microsoft, P&G, Pfizer, Home Depot, MasterCard, Chili's, Subway and AB InBev. For the past 20 years, mike's been engaged in media buying roles focused on delivering competitive media buying strategies and performances for advertisers. Prior to being elevated to President of Amplifi US, Mike served as EVP, Managing Director for all U.S. media investments for Dentsu Aegis. For 6 years, Mike oversaw Dentsu Aegis' network in the U.S., approached a video strategy product and investment across all screens and devices. He's also served as Director of Media for Pfizer; as Vice President, Group Director at Carat and Media Specialty Agency, Dentsu. He started his career as a national TV buyer at Arnold Worldwide in Boston. So you can see we have 2 great, well-accomplished people. And Mike is a 1998 graduate of Providence College, basketball powerhouse -- okay, once a basketball powerhouse.

No, no. We're fighting our way this year. We're at top 10 -- top 25...

All right. We'll go with basketball powerhouse.

One more and we're in.

Okay. So thanks both of you for joining us. So it's no secret, right, that the media landscape has changed a lot. And it's actually been turned upside down. If you look at the last 5 years, it's changed. So can you share kind of the macro implications of the media landscape, and how it's changed your agencies and how it's changed strategic thinking related to how you spend your media? Mike, why don't you kick us off?

Okay. I like the ladies first thing, but okay.

Yes, I'm not going to let you get away with that the whole day.

Yes. I mean I think the biggest thing is just the power of the consumer. And I think that we have to put them first and think about how even our own day-to-day lives have changed so much in the past 2 years, 5 years, 10 years and how we think about media and then ultimately bring that to our clients because we can't deliver the same kind of media plan or strategy that we did 5 years ago, even 6 months ago, to be honest. So I think that's #1. I think it's a completely different world than it was. The one example that I love that we've been looking at and I think really talks to the change, and as you think about television as kind of what was the media of choice and it still is, there's still a lot of power in television. I'm not going to knock it. But if even just 2 years ago, you ran 500 GRPs and then said, this year, in 2020, I want to buy those same 500 GRPs, you delivered 10% less reach. And then if you said, I want to spend the same amount of money as I did 2 years ago, I delivered 12% less reach. And then if you said, I want to deliver the same reach using just TV, 2 years later, it would cost you 85% more. So I mean those stats on their own make you say consumers are clearly doing something different than what they used to do. So they're streaming. They're going to the movies. They're doing -- they're watching video on all screens. So that's why we've had to completely change the way that we think about it going forward.

Great. So Amy, from your standpoint?

Yes. Completely agree with everything. For us, as an agency, it meant recalibrating your entire talent base, right? So historically, where television was king, and it's still important, but it was dominant, you had a lot more investment buyers, right? And so just in the 3 years that I've been overseeing just Initiative, it would equate to 65% of the entire employee count. And today, it's 39%. So that just gives some perspective of how we've had to change the talent to keep up with the changes in the consumer. And it's still -- and it also means there's a lot more media partners for us to talk to, right, now more than ever to make sure that we can connect those important touch points of where these consumers are going.

And you guys now have people that specifically source the kind of talent you're looking for, where, in the old days, there were just HR groups. Are you actually proactively looking for certain kinds of people?

Yes. So you've had -- we've had to hire, obviously, more digital folks, but strategic thinkers, right? I mean every client is -- it's our job to bring the diverse thinking around the table to solve today's challenges, right? So strategy is at the forefront, planning but learning to plan with owned, earned, shared assets, not just the paid media buy. We get really excited when we can go to a client with an idea that's not just paid, right? Paid is still incredibly important, but it's looking at the entire ecosystem. So I think it's really exciting to be in media because data unlocks a lot of better ways to do things and reach the consumer.

So if you look at your business 10 years ago -- as you think about your business 10 years ago and you set out to make a media buy, what's the biggest difference today where you begin the process of thinking about how do we spend our clients' money today versus how you thought about that 10 years ago, 5 years ago?

The biggest shift for us and then for the industry is it's an audience-first approach. We use lots of different acronyms on here. But now we can be more specific than just reaching a mass demo. We can get more specific and not just reaching millennials, but certain subsegments of that millennials, what are the behaviors that they have. It's not just demographics, et cetera. And so once you build what we call high-value audiences, that's the starting point, right, because then you can understand I'm not creating one media plan. I have to create many media plans to make sure that I'm finding the right channel to deliver the relevant message in the right place.

Yes. So Mike, as you guys sit down and you have diverse -- a collected group of clients, how do you start your media planning? And how do you look at how you buy and plan media today versus 5 years ago?

Yes. I mean I would say very similar to Amy's audience first, consumer experience first. And just to give maybe a slightly biased investment point of view, for far too long, I think that investment was just simply an output, right? Like a bunch of amazing work was done about people and consumers, and then you turned it into an age and gender GRP and flipped it over a wall and somebody went and bought it. And when I went to Pfizer, like that really hit me hard as I spent time with marketers and the amount of time they spent learning who their consumer was, and we just kind of brushed it to the side and said, we'll buy adults 18 to 49, and that would be great. But I know a lot of 52-year-olds who buy 17-year-old's cars. So that doesn't mean -- that means that 18 to 49 isn't the great demographic. Like let's go find people who buy cars. So from our perspective, we just have tried to move investments to be an input and not an output and really guide that strategic thinking.

And are you able to buy media these days not against 18 to 49 but against heavy car buyers who are interested in traveling overseas? I mean can you actually think about planning to buy media like that, Amy?

Absolutely. Yes. I mean it comes into all -- how much money you can spend against that. So you still need to balance it out. You still need awareness, right? So you still need to balance the different channels that you'll use in media. But you can get very specific, but this also opens up a whole discussion about the clients' data and the first-party data that they have because most clients will be like, "Oh, I'm going to have the best data that I can go and personalize everything." And they don't know -- they didn't invest in it correctly. So the first part is -- before you go after an audience is to really understand what's the scalability of it. But it's possible for the clients that have invested correctly.

And are most clients open to sharing data with you as partners and maybe under NDA or whatever the terms are, to allow you to do a better job for them?

I mean I'd like to say the majority of clients, yes, at different varying levels, and I think it's one of the things that's critical to partnerships moving forward. And I'm -- again, I'm sure Amy would agree with me, when we're out looking for new client's data, it's a huge part of the conversation, what data can we bring to them from our perspective, what data are they bringing and then how do you use those in combinations to go transact in the marketplace.

Yes. Yes. So since we're on this data subject, I kind of want to push a little deeper on that. There are some mediums -- and our medium, cinema medium traditionally hadn't been a great data medium. Everyone goes to see Star Wars. So how do you deal with mediums that aren't as data centric? And how do you plan and buy them knowing either intuitively or with some information, it works, it's effective? How do you deal with all the media companies that come to you that don't have as good a data as some do?

Yes. I mean I think that, to Amy's point, like there's the top of the funnel and there's the bottom. And I think that what we're trying to do is to make sure that we're balancing those 2 things. There is a need to build the brands at the top, but then there's a reality of who's actually buying your products. And brand managers sometimes, I think, struggle with that, like, I don't want to be on this channel or that channel because that doesn't feel like my brand. I think what we're trying to say to them is, yes, go build your brand in the Oscars, but remember that people who watch go on Snapchat, go to the movies, do all these things, and we have data to help us help with that bottom end of the funnel. So I think that there is a big need still for the top, and it's just how do we reduce frequency and kind of control that consumer experience and then convert that in the bottom to actually driving sales.

Great point. Amy, as your clients think about top of the funnel, bottom of the funnel buying, do they come to you with guidelines and say branding is more important or "We don't care about branding. We need the low end of the funnel. We need conversion?" Or do you guys take the position, often go to them and say, here's how we think you should be planning on buying your media?

So to live up to the Initiative name, we really believe that clients actually are very confused today, that they think they can grow their entire business just at the lower funnel or they think they can do just at the top. And so we interrogate the brief first, right, to make sure are you even asking the right question. And by the way, the goal that you're looking for to uptick sales, is that even obtainable? So you would be surprised how many brand managers today are not getting that question right, and that's okay because it's complicated.

You can meet them down that way.

So you have a productive discussion about what you can achieve in what period of time.

So in this time of strategy at the upper end of the funnel, lower end of the funnel, are media types even talked about, TV, radio, magazine, cinema, digital, social? Is that even being thought about at that time? Or are all the strategies really solidly created? And then you talk about, here's why we think we should use TV, here's why we think we should use social and here's where cinema can play into it. How does that happen?

I mean in my career, you still always have in your media plan like the benefits of television and radio, sight, sound, motion. That's not there anymore, right?

That was the last media plan I did.

That's not there anymore. To me, it's more about you're putting together plans with the partners that makes sense for the strategy that you have outlined. So in media, we all like to get really like ahead of ourselves and say we live in a channel-less world, which is kind of b******t, to be honest with you. Like people are -- we still have to buy channel, but we don't start and go how much can I spend in television, how much can I spend -- we have sophisticated planning tools that help us understand the different touch points in the reach curve that it's really more of holistic side. We don't look at it by channel, but of course, if you look at what your -- a typical media mix by client, you tend to have a good sense of what that client should be spending by channel.

Right. Now back in the day, and I'm talking 3 or 4 or 5 years ago, television was still the core from a reach standpoint for most brands, at least big national brands. Is that true today?

I still think it is probably the best place to drive mass reach in a short amount of time. But it's my stat from the beginning, it's not quite as impactful. It wasn't -- I think the 2 biggest things that are happening is that reach is against an older consumer and that reach is -- you have to balance it out with frequency control because you're just getting a lot of impressions against the same people. What we're trying to solve for is what's the right money to take out like that, how much should we take out of TV but what should we take it from and how do we make sure that we're managing that conversation with, yes, TV. And I think just to kind of bounce over to an example, like you see the research from the VAB about DTC brands. When they've come into the market and started spending money in TV, they're seeing a media impact. You see it in your search results. You see it in your sales results. So you know it works. But I think you can very quickly get overinvested in straight, traditional linear TV.

Yes. And Amy, when you guys think about TV at Initiative and your agencies, do you think about TV or do you think about video?

Video, yes, definitely.

Right. So the notion of TV used to be TV buyers -- the notion of TV really isn't in TV anymore, right? It actually sits in a video world. And as you think about video, is TV on a 2-inch screen as impactful as TV on a 40-inch screen? And how do you guys think about that and plan that?

Well, it depends again and back to the audience. If you're reaching a younger consumer, you're only going to get them here. You're not going to get them on the wider screen unless they're going to go experience a movie, right?

Right.

So what -- in all candor, what's great about the movies is that you can have a rich content experience. And that's what I think is important about video right now is whether it's OTT or where you're seeing it, what's the content that's being used. And that, I think, is more -- when people just don't look at the creative aspect or the content environment, it's not going to be as successful.

No, that's a great point. And as you talk to your clients, brand safety has become a much bigger issue for all of us as we think about it. Is that something that is built into a strategy? Or is it up to the negotiator and the buyer to think about brand safety? Mike, you buy for Microsoft and you buy for General Motors. Clearly, they don't want to be in the wrong places. One of the things about the cinema medium, of course, is we feel pretty good about brand safety unless you're afraid of a specific title because of content. But how does that kind of get manifested day to day?

Yes. I think brand safety is always on, right? It's everybody's responsibility, the publisher and the buyer and the client, to manage brand safety. I think it's -- maybe the twist on the question would be brand suitability. And that's something that as we think about data and brand suitability, I always use Rolex as an example, and maybe it's a terrible example, I don't know. But like I would love to have a Rolex. But if I started seeing Rolex as a brand in front of stupid YouTube videos that I watch, I'd start to think, oh, that's not quite the brand that I want it to be. But when I see it in the Masters and Wimbledon, I'm like, ah, that's the aspirational. So a lot of our clients -- we have LVMH as a client, right? Like we can find those people who buy their products in a lot of places, but there is a brand image that comes along with that. So I think brand suitability and -- is equally important and probably more of what we're thinking about because brand safety is just on, right? Like that's got to be, every single day, you got to be managing for that and it's everybody's responsibility. Brand suitability is how do you manage or balance data because we can get to lots of people, but are we getting them in the right place, at the right time with the right message.

And do you find that most of that data is being discovered by your agencies? Or are your media partners supplying you a lot of that data that you're then able to feed back to your customers?

I'd say it's a little bit of both. I mean I think we have a pretty strong data proposition inside of our agency. So I'd like to believe that we're bringing a lot of those data insights that's very closely connected to our media owners and then balancing it with theirs. So I think for some clients and for some places, like you may need that third-party data or the kind of the consumption data that's coming from the media owner. But ultimately, I think our ability as agency is to help clients understand their data and their consumers kind of far for the course at this point and what we need to be doing to be that strategic partner with our clients.

And Amy, when you guys are pitching new business now or Mike, when you're pitching new business, is that a core fundamental expectation that a client expects you to be able to talk to them about data and to be able to lead them down to the lower funnel to purchase?

You win business on your data strategy.

You're right.

Yes. I mean I'm not going to say it's the only reason why you win, but if you -- it's table stakes to be able -- and we're all -- I mean we are competing agencies. We'll say that our data product is the best in the industry, right? We all go out and do it.

We all know it is, right? Oh no, but yours is the best.

Right. We're #1.

But -- so yes, it's at the forefront because it's the foundation of everything you're doing, but what we talk a lot about is governance, right? So just like Mike was talking about, like it's almost table stakes. I mean there's not -- brand safety is just -- it has to be there, but it's more how are you keeping up with the changes. And you'd be amazed how many times I've had meetings about taxonomy and the importance of having a strong governance practice to make sure your data is coming in clean and it's important.

So getting back to this brand safety thing. We all have read about the challenges with some of the digital video players. And you buy ads on YouTube or Google and they land up where they land up. How do you monitor that? I mean how do you know that your brands are running in the right place when they're running on some of these mass digital video players?

I mean I think that we have an entire practice dedicated to brand safety, an entire team that's helping create standards across the agency about the tools that can be used inside of those organizations. It's constant conversations with those organizations. I'm sure Initiative is having them as well and saying like, this is what we're hearing from our clients, these are the things we need to have access to. I think there needs to be more transparency in all of that. So whether it's Facebook or Google or Snap -- or I mean, TikTok, right, they're the kind of new kid on the block. And I think everyone's a little on edge about the brand safety thing. But I do -- I'm sorry to repeat it, but I do think it's very important to define brand safety and brand suitability. Like -- and maybe as an example, like I don't think Fox News channel is a brand safety issue, right? Like that's just commentary data clocked at night that half the country agrees with and half the country disagrees with. So that's brand suitability. How do you feel about being there? So I think, yes, we have a great -- not great -- they are great. We have a stand-alone unit that constantly builds that practice.

It's good example. So both your agencies are great supporters of our medium and have been since the get-go. And we're appreciative of that. You've both been big believers. Can you talk a little bit about kind of how your agency strategically sees cinema and how you use cinema kind of in a bigger kind of video ecosystem? Amy, why don't I start with you on that one?

Yes. Well, we definitely -- we put you in with video. So I know we've talked about the fact some agencies will do out-of-home, right? And I don't think there's a right or wrong answer. That's just how we do it, right?

You're the majority, by the way, yes.

Great. I think what's exciting about cinema is, again, back to the creative experience you can bring to the user in a very captive environment. Some of our largest clients -- we've taken advantage of Amazon Prime, right? You were just talking about like why they could be viewed as a competitor. They're embracing it because they know you have audiences that want their eyeballs and their experiences. Where I get really excited on something creative is happening is with a client called -- with FDA. We're doing an anti-vaping campaign, and you guys are fantastic about coming in on how to reach that young audience in the right place. I mean that's a powerful experience. And I would want that on a big screen, right? So that gets us excited as an agency when we come up with a strategic comms strategy framework, how we can bring it to life, and especially with my FDA example being hard-hitting in an environment like cinema, it's perfect.

Yes. Mike, how about you guys? How do you view us kind of in the big landscape where we work and where we don't work and...

Yes. I mean same thing. It's in our -- video team is fully responsible for cinema. We look at it as another screen where people are viewing. I think that we've taken a bit of a myth versus reality approach, trying to help our clients and our teams understand it's not -- you don't have to make separate creative. It does not need to be a beautiful cinematic experience. It's not super expensive -- yes, it's a little more expensive than some other things. That's the negotiator in me, Scott.

Scott lower his rates. Where are you?

Yes. No, it is expensive. But I think that in fairness to the expensive comment, if you continue to just benchmark yourself against legacy metrics, it's expensive. But if you say I'm just building frequency against the same person and this CPM is actually getting me more reach, different audiences, then it's not expensive, right? Our industry is just like being crushed by legacy metrics. It's horrible, and we'll all fight against it on stages and then not do anything about it because that's what...

I remember when I was in ESPN, I used to tell people that [ EE ] stuff were expensive. But we don't like to think of us as expensive.

Sorry, I didn't answer your question. I'm Mike the politician. No, I -- so we look at this video, we're killing the myth thing. We're trying to build up the reality of this is -- can be incremental reach. This can be a new audience. This can be really impactful. I mean we have a very strong position on the attention economy like this is where people are engaged and then the ability to -- they got a phone in their hand. They're walking out through a mall afterwards, like their ability to get people to -- that are going to do stuff is really great in your medium.

So as we think about -- and I know you're not going to stay here for the whole day, but we're going to do a presentation later showing how we're starting to build our digital business. And our digital business is going to be a lot more than just apps and games and fun, it's really going to be data centric. So in the next few years, as we think about coming to you with better data that says we can help you with attribution, we can tell you more about our customers, does that excite you? Is that something that is going to be a good thing?

Well, attribution scares me, but consumer experiences excite me. Like, I think that, that is a natural progression to talk about like what is the consumer journey. How do we think about them -- once we've hit them with that first message, what is the next message that you send them? Where do you say that -- they're obviously moving through the ecosystem as well. So if you put it through that lens, so yes, I think, anywhere that we can naturally go to a single partner that can help us along that journey and then help us footprint where they're going, that would be really, really helpful.

Amy, as you think about us, not -- everyone's always just thought of us as a big screen cinema company, and it is the core of who we are. And we're not going to change that. I don't think Google or Facebook needs to worry about us. But as we become a little more digital, a little more smarter, will that be impactful to how you think about us and maybe even some of the different brands that use us?

Look, more data and the journey when I walked in and saw how you do the experience like not just in the theater but getting the moviegoer before and after, like that's exciting, right, because then you have a full story to tell. My watchout, if I could put it out, is on attribution, which is a loaded question or term in the industry. We already have built our systems to measure the campaigns, right? So the hardest thing is when you have a partner that went off and did their own attribution and then tries to force it into ours. Make sure you're talking to agencies to understand how they're measuring their campaign success today so you can feed into it because the last thing you want to do is be the outlier, right?

Right. You don't want our report card, you want your report card.

Well, but -- yes. Or if a client has done a third party and we work with them, it's not necessarily us. Like make sure you feed into that system because it's -- it is -- in this case, it's not channel, right? It's the whole ecosystem. So it's just something to keep in mind, but I love the fact that you can say more about data. And you guys have the -- Mike just said about the phone being there in the movie theater. I think we could do a lot more there.

Yes, so do we. And we're thinking a lot about it. And you talked about this ecosystem. And we are -- we're a part of an ecosystem, we're another video player. Now I'll put my screen against most of the other screens in the ecosystem. But as you look at us, and you say, all right, we can buy cinema or not, who do you see as our biggest competitors, whether it be in the cinema landscape or the general landscape?

YouTube. I think that's your biggest competitor in my opinion, OTT and YouTube.

Yes. Mike, what about you?

Yes, I would agree. I mean I think the natural answer would be the other person who sells exactly what you sell. I think that's the easy answer, right? Like that -- if we got to that point, I think that every screen, I think, right now, it's where those eyeballs are. And I go home at night and think about how my kids watch TV. I mean lying in bed, on a phone, like even though there is a screen on their wall. But like they go to the movies on Saturday too. So like you get a little bit of both. So yes, I think, YouTube's everybody's competitor. I think the streaming services, Disney+, like all of these things are going to start to take time and attention away from where traditional TV once was.

Yes. So we only have about 5 minutes left. So what I'd like to do in the last 5 minutes is actually kind of open it up to each of you to talk about what you see your vision of the future of our industry is and talk a little bit about here we sit in a very awkward time in our country and with what's going on in the world. But where do you see the media industry, the media landscape if I had to say -- and I'm not talking 20 years from now. In the next 5 years, what will brands be looking for? What will they be challenging you to figure out for them?

Well, I get excited when I think about my career in media that we're more creative than we ever have been, back to the access to data, understanding where your consumers are, the relevant messages. And so for us, in advertising, there's always been -- you have your creative agencies and your media agencies. And media, even 10 years ago, you were put in the last page of the presentation. We are now at the front because we know more about the audience insights that should be driving the creative development. And so as other holding companies have been trying to figure out do I merge agencies together, what's the model, I -- my prediction is that media professionals will be more in the driver's seat than ever because we are used to working in a world of rich data, being nimble, agile, trying to navigate brands to come up with relevant messages. So I just think we're set up for more success to keep up with the pace of where the industry is going.

Yes. To your point -- by the way, that's my phone. I was the one supposed to turn it off. But to your point, what are the -- yes, living proof we could teach chimps to do this. To your point, Amy, one of the most interesting things that I've noticed, and you've kind of touched on it, is there are more titles at media agencies that are creative than ever before and people who are data and delivery-centric who are also thinking about how to create ideas. And the creative might be on a big screen, it might be on a 2-inch screen, but there are people at media companies now trying to figure that out. So Mike, you -- as you look at the next 5 years and you say -- your clients are going to ask you where do you guys -- where do you guys see it going? And what do you expect your clients are going to want most from you?

Yes. I mean I think a lot of what Amy said is really accurate. I think as an agency, we need to work closer with our clients. I think that there's -- we need to help them understand where consumers are. I always kind of felt like, and I spent a little time on the client side, like they know who their clients are, but they don't really know what they're doing. And we can help them with knowing better what they're doing and where they are and how we get them. I really holistically believe in that creative aspects of it. And I think that plays out in some of the new media channels. Like you can't just take a TV ad anymore and pop it on Snapchat and pop it on TikTok, on any other channel really. So we host these great kind of 4-way conversations where you get a client, a creative agency, a media owner and the buyers on the same room. There were years where the TV buyer probably never even saw the commercial, didn't even know what the ad look like. So building contextual relevance becomes important, I think. So I think fragmentation and attention become really important, like how do we make sure that we're getting people when they're paying attention and actually eyes on screen and kind of receptive to those messages and knowing that that's becoming a very fragmented user experience. And then there's -- we spend some time earlier this year, just having these media companies come in and show their -- don't talk about data or technology, just let us feel what that product looks like because, yes, we as agencies need to be experts in all those spaces. But I think we're quickly losing sight of how cool or how engaged some of these people are. These content creators from YouTube or from some of these other channels, it's amazing the way that they think. And I think the audiences are gravitating to that and wanting, I think, what Condé Nast is doing. They're not going to be NBC at 8:00 on Thursday, but they've got some really compelling content that fans are engaging with. So I think those are the things that we're probably most focused on, is creating great consumer experience and taking advantage of where media can play a role in that.

It's so impressive to me, having done this for 30-plus years of my career. And I remember when I worked in agencies, we weren't even allowed onto the creative floor sometimes as media guys. It's really interesting and great to see the empowerment of media companies and how important what you do to your customers are, and you're 2 great leaders. So thank you so much for taking the time to do this and sharing some knowledge, some insight and to both of you for being great partners because you both and your agencies have both been big believers in what we do for years, and we don't take that for granted. So thank you very much.

Thank you.

So we're going to take a break -- 15-minute break. So for all of you who are on the conference call, we'll start to begin at 3:00, maybe a few minutes before that. So thank you. [Break]

Good afternoon. Thank you, guys, for coming, and thank you for staying awake. I'll try to make this a little engaging so we can keep you guys moving here. I'm going to give an overview of our sales group and how we sell who we sell to, what our selling proposition is and why we think it's such a great proposition. You heard it actually earlier before. I'm going to start with the simplest, which is what we sell. Now it all starts with the big screen. You heard that reference by Cliff and actually from Amy and Mike before, the big screen. We got the biggest screen of all the screens that they're looking at on the national investment side, that's the core of our business. We're building out our digital business so we can reengage those moviegoers before they go to the theater, after they go to the theater, and so we have a unified multi-platform experience. We do promotions in the lobby. We do some of those -- our national activations for national clients, and some of them are for local clients as well, but that's another piece of our multi-platform sales. And then we have what we call our Lobby Entertainment Network, which we affectionately refer to as the LEN, because I guess we couldn't come up with a better name so we use the acronym. And that's a way to capture consumers' attention as they're kind of walking in the lobbies or they're spending time at the concession stands. It's just another touch point for our brands to get to our moviegoers. Okay. I'm going to spend a little time on this because this is probably the most important slide and the biggest takeaway. This is our show. If you start all the way on the left, that is segment 4. We don't sell any advertising in there, that is what we refer to as Noovie content. Let me back up a little bit. Does anybody remember FirstLook? Some of you are nodding. FirstLook used to be the name of our pre-show, and about 3 years ago, we renamed FirstLook to Noovie. And the idea was what's new with the movies, Noovie. The reason we did that was we want something we could own and we could build on. And when Rick comes up to do the digital presentation, you'll see that we're using Noovie all over the place. We couldn't trademark FirstLook. NBC had FirstLook, HBO had FirstLook. So now we have Noovie. Noovie is our pre-show. In segment 4, we run Noovie content with our host, Maria Menounos. She does interviews with Hollywood celebrities, Hollywood directors, think really cool movie content. You see all these places in segment 1, segment 2, segment 3, where we have advertising and content. That content comes from what we could refer to as our content partners. People like Amazon, Turner, Disney Destinations, we do big advertising deals with them. And part of those deals, they provide 90 seconds of content, in some cases, 2 minutes, that runs in those slots and it breaks up the ad breaks. So we have content. It's really kind of promotainment or prommercial, but it's promotion for their brands, but it feels like content. It doesn't feel like a regular commercial. So in segment 3, you'll see a few local ads, but mostly content. In segment 2, that's where most of our regional and local ads will air along with content. And then segment 1 is where our -- most of our national ads air, along with content. That all leads up to posted showtime. So if you're in an 8:00 movie, this is 8:00. What we did recently in about 60% of our network in Regal and Cinemark and some of the affiliates, we moved 5 minutes of time out of segment 1 into what we're calling the lights-down part. We call it the lights-down part because the light are down. You've turned the lights off, everybody is engaged, they put their phones away. They think the trailers are coming, but first, they see actually 4.5 minutes of ads and then what we refer to as the courtesy spot, which is the "silence your cellphone" message. For years, it was Geico and Mars, it's actually now Amazon in PG-13 and R and Target and Kraft and Southwest in G and PG. They kind of alternate. So that's where the courtesy spot runs. So this is 5 minutes of ads after posted show time. This is incredibly valuable inventory. We just took it out to the marketplace in the fall, very exciting for us. Then the beverage spot, used to be called the Coke spot, but actually, it's going to be Pepsi in Regal. And then the trailers, you will run -- they'll run 4 or 5 trailers. And then there's a 60-second spot, which we also moved out of segment 1 that we're referring to as the Platinum Spot. It's a 60-second spot in the trailer pack. That's sort of unprecedented in the cinema space in the United States. Interestingly enough, if you go to a movie pretty much anywhere else in the world, the trailers and the commercials are mixed in. So this is not groundbreaking in the world, but it's definitely different in the U.S. This, we look at as maybe the most valuable video unit you can buy anywhere. I mean pick a medium, the lights are down, you've been sitting in your seat, you are ready for the movie to go on, there's maybe 1 or 2 trailers left, and now you've got a 60-second ad. That's the most engaged audience you could find anywhere. I would challenge anyone to disagree with me. But that launched in December, a little more on that in a minute, then the trailers, then the beverage spot and then the movie starts. Okay. So the Platinum Spot, which I mentioned before, launched in Q4, in December. We had partners, Google, Cadillac and Walmart. We have some results that we're not ready to share yet, but I can tell you that the results were great. More on that in a few weeks. Let me talk a little bit about who we sell to. So we have different constituencies. There were really 4. The first one and the most important are the brands themselves. When I worked at Discovery Channels for about 17 years, I never went into a meeting and said, "Hey, let me tell you about cable television." They all knew about television. So a lot of times, we didn't always get to the clients. We have to get to the clients. We have to sell them on the valuable medium that we have. So we go to the brands first. Then we talk to the strategy teams and the planning teams and the agencies. Mike referenced them before. They're the ones that are figuring out in this whole video landscape and even the whole media landscape, where money gets spent, where are we finding those audiences. And we'll get into a little bit -- in a little bit how that's changed. And then the video investment groups and the out-of-home buying groups. Now cinema years ago was bought almost exclusively out of the out-of-home buying groups. Why? Because when you're in the movies, you're out of your home. But at the end of the day, it's just another video medium. It's just another screen, and that's what Mike and Amy were talking about before. So most of the buying, except for maybe one -- really one big agency, is moved into the video investment. So we're just another video platform. And then lastly, we talk to small businesses. We have a national business, a regional business and a local business. And our local sellers, they're just outtalking to local business owners. So what do marketers want? I think Mike and Amy did a good job of capturing this, but the biggest thing they're challenged with right now, and Mike mentioned this and really illustrated it well, is a very challenged, a decaying television model. The audience age is going up. When I got to Discovery, the median age was 39. When I left, it was 55. It basically was the same guys, they were just 16 years older. The ratings are going down -- so the audience is older, the ratings are going down and the cost is going up. That's why you had that 85% number from Mike. That is like a negative perfect storm. So what are they looking for? They are looking for the younger demographic. They're looking for millennials, looking for Gen Z. They haven't been totally brand loyal yet. They're still making choices on which brands they're going to be loyal with. A lot of marketers are looking for the younger audience. And that's the audience that's really run away from television and some other traditional channels. They're looking for engagement. Everybody has got their phone with them 24 hours a day. And I heard a stat the other day, you pick up your phone 200x a day. I think it's probably even more than that. But everybody -- and there's all these different messages coming out at all times. They want to find an engaged audience. I went back to that slide. If you're right 2 minutes before, 4 minutes before showtime in the dark theater, you're super engaged. They're looking for attribution. As Amy mentioned, it's a little bit of a loaded question. They do want to prove the medium works, but they want to make sure that if they're buying 7 different media partners, that they don't have 7 different third parties proving the attribution. But they definitely want to be able to go back to their clients and say, "Your money was well spent. We're able to drive results. We can attribute that to where you spent the money," and they're definitely looking for multi-platform opportunities. It's great that we have an engaged audience in the cinema and when they're in the theater. It's even better if we can then reengage them on other platforms. Okay. What do we provide? We have a young captive audience. We have a median age of 28. You look at your broadcast prime at 58, cable prime at 55. If you're trying to reach 18- to 24-year olds, 18- to 34-year olds, even 18- to 49-year olds, broadcast prime is not even in any of those demographics. So we've got a young audience in a captive environment. It's a highly engaged environment. It's a 50-foot screen with surround sound with great content on it. One of the things that we always talk about is incremental unique reach. Mike mentioned it in his talk. It's the frequency issue. So if you're just buying, make it up, This Is Us and you're buying This Is Us for 8 straight weeks, it's the same people that are watching This Is Us every week. So you're getting your GRPs, you're getting your rating points, but you're not reaching new people. The reason that we can add the reach is we've got a lot of cord cutters, cord nevers and light TV viewers. A lot of people that are big moviegoers, they don't watch a lot of television. We reach a multicultural alliance. It's a pretty generic audience, a pretty homogenous audience that watches TV outside of a few specific channels, but we reach the Hispanic audience in a big way. You basically can't open a movie if you don't reach the Hispanic audience. We reach African-Americans. We have a really good multicultural audience, and we have great content. I mean there's great content year round. The studios have been smarter about spreading it out a lot more. If you look back a bunch of years, the big releases would come around Memorial Day, 4th of July and holiday. Now if you look at our GRPs, there, we run anywhere between 22% of our audience and 26% of our audience, depending on which quarter you're looking at, because what the studios have recognized is they can open a big movie in February. I mean Bad Boys II just did a big number a few weeks ago. You can open a big movie in March. When Beauty and the Beast came out, it came out in March. Years ago, those movies would have come out only in May, June and December. And if you're trying to sell a platform all year long, you got to be able to have interest all year long. Okay. So when we talk about looking at us for TV, this will show you the top shows on every -- on any night of the week. We're the top show on the weekend. So you can look NBC, Sunday Night Football does a 6 rating on 18 to 49. The Bachelor does a 2.4, Cliff's favorite show. This Is Us does a 3.3. You can see we've got an audience that can compete with anything in television. When I started in this business, these numbers were 3x the size in television. They've just continued to go down. So we can certainly compete. And what's happened now with the disaggregation and the fragmentation of the media marketplace, it's hard to go to one place and get one big audience. You can get that audience, but you've got to buy them now in like 20 or 30 places. So we're one of the few places you can get it all in one spot. Okay. So what does the sales organization look like? We have a good mix of national, regional and local advertising that 84% of our revenue comes from national and regional, and then about another 16% comes from the local. The sales team from the sellers on up, it's about -- just under 170 people with an average tenure at NCM of about 8 years. The national ad sales team is based in 3 offices. We have a New York office, we have a Midwest office in Chicago and then we have a West Coast office in L.A., each headed up by an SVP. Okay. There's different ways to buy national advertising. A lot of people always talk about it. And mainly, they talk about the upfront. A lot of people don't know what the upfront is. What the upfront is, is clients coming to a media property and buying in advance. And they make a commitment for -- usually, it's 12 months. They make a 12-month commitment, they buy in advance. And in exchange for putting their money down well in advance, they get a better price, and then they get cancellation options. So if you're doing a fourth quarter -- a 4-quarter deal, the first quarter is probably 100% firm, and maybe you can cancel 25% of the second quarter and then maybe 50% of the last 2 quarters. So you get some flexibility because you're committing the money in advance, you get a pricing concession. And for us, the more money we can bring upfront, the more we have -- we know we have that money in hand, outside of the options. And that allows us to be a little more -- give a little more visibility and have a little more predictability with our business. So doing some of the business upfront is great. There's 2 different upfront cycles. There's the broadcast sales cycle, and that was sort of borne out of all the networks used to launch their new shows in October. So the buying cycle for the broadcast upfront synced up with when the new shows came out. It's very different now, but that cycle still exists. And that will get negotiated in June and July. All the broadcast networks and a lot of the cable networks would do upfront presentations in May, then the buying will happen roughly in June and July. And those deals will start running in October of, call it, '20 through September of '21. Then there's a calendar cycle. More of our business actually runs through the calendar cycle. That's negotiated, usually in August. It can -- we were doing deals as late as December. And those deals will run for the following calendar year, January through December. Our courtesy and content partners, the content partners I mentioned before, that was like Turner and Disney Destinations and Amazon. Amazon is also a courtesy partner, the silence your cellphone. Those deals we negotiate usually over the summer. And then the rest of our business is done through what we call scatter, and that's more opportunistic. Client may come to us in January and say they've got money for the month of February. Scatter could be a week long. It could be a couple of months long, but it's more opportunistic. You pay a higher price, you don't have as much flexibility or you could pay a lower price. It depends on what's going on in the market. It's the best deal that you can negotiate at that time. Typically, scatter is more expensive than upfront, but it's variable. Okay. If we look at our national profile, we've about 136 national clients. I look at that as a good thing. There's still a lot of people that haven't yet used our medium. We've built a really great business off of about 136 clients, but there's a lot of upside because there's a lot of clients that haven't used cinema yet. Average deal size is a little over $2 million. And then if you look at the mix, we're anywhere between 60% to 70% upfront and then anywhere between 30% and 40% of the revenue comes in, in scatter. The upfront deals are bigger deals. There are people making big commitments year long. They range at an average size of roughly $3 million to $4 million. And then the scatter deals are smaller, $1 million to $1.5 million. They could be even smaller than that, but that's about average. One note, you -- typically, there had been a good amount of churn in cinema. In 2019, our churn was down significantly. I always like to say the clients that like us love us, and they've been coming back, and we just need to bring in more clients. 60% of our revenue on the national side came from our top 5 categories. You can see them behind me. Media and entertainment, insurance and telecom were the biggest 3 and then followed out by electronics and auto. On the right, we have the top 5 growing categories. Insurance is the second biggest category. A couple of years ago, it wasn't even on the radar. It's the one of the fastest-growing categories we have. Electronics, CPG and restaurants are growing as well. I think there's big upside in restaurants. It's a category that's got the right demo. People that go to the movies, oftentimes, they're going to eat dinner afterwards. Mike talked about them walking around the mall with their wallets out. So we think that there's big upside there down the road. Okay, the regional group. So our regional ad sales team, think of it like spot television. Somebody might come in and want to buy the top 20 markets, the top 30 markets, the top 5 markets, just one big market. Their focus is the top 11 markets in the country plus Detroit, which I think is market #13 or 14. And then they're also focused on the big agency holding companies. And then on a client basis, they're looking at the top 500 clients that spend in spot TV. That's where we feel like there's a big opportunity there. We do business on regional with a little under 200 clients at an average deal size of about $130,000. Again, about 60% of the $25 million that we brought in regionally came from the top 5 categories. Auto is the biggest, along with retail and telecom. We see big growth with retail, transportation and financial services. Travel and tourism have also been a growing category as well. And then lastly, the local sales team. Now think of this as they're just looking to buy maybe a specific theater. If you own Cliff's bar or a Cliff's restaurant, they may just be buying the local theater or maybe an auto dealership that's just buying a couple of theaters or specific demographic area. It's led by 1 SVP and it's broken up into 3 regions. We have the north and the south and then the west. So think of the country divided in half. The west is one region. And then in the middle of the country, east, you have the north and the south. Most of these local salespeople work remotely. They're going to see clients in their local area and trying to get them interested in cinema. We do about 10,000 contracts a year through this group, which ends up being a lot of money by the end of the year. So 55% of the $67 million we brought in, again, came from the top 5 categories, medical and health care, government. You see a lot of different categories because it's a very different type of business because it's so localized. And we've seen a lot of growth with travel, tourism and government. And then lastly, I love this because our top 5 categories by line of business represent about 50% of our revenue. That used to be a much higher number, but we've got a really diverse group of categories. If you look only 2 categories cross over between national, regional, local, just auto and communications. So we're in a lot of different businesses, depending on the area where we're selling and a really diverse group of clients. So like I said before, there's still a lot of upside because there's still a lot of clients that haven't yet tapped into the cinema medium. And I believe that is it for me. And I'm going to turn it over to Adam and Chuck, who are going to take you through CustomerOne.

Thank you, Scott. Good afternoon. I'm Adam Johnson. I'm in charge of our operations at NCM. My partner up here is Chuck Fredrick. He's our Chief Information Officer. We're going to tell you guys a little bit about CustomerOne. It's our internal name for a pretty big upgrade to some of the back office stuff here at NCM. So we find it pretty exciting. I hope you do too. So let's jump right in. So first of all, CustomerOne is a comprehensive transformation of our systems and operations, everything from business process to upgrading current software to new software. It really will enable us to do a couple of key things. One, it allows us to meet the evolving needs of the marketplace; two, it allows us to optimize our inventory and create a much better client experience; and three, it creates a ton of operational efficiencies. And this is perhaps what I'm most excited about because it does make things easier. It makes easier to run our business. It makes us more nimble. And if you had to kind of sum it up into 1 sentence, the last bullet here kind of articulates that. It's really reengineering our business process as well as significantly upgrading our technology. So what that does is it gives us a lot of scalability. It gives us the ability to adapt to the market much better. And we sort of put it into 4 key things here, the icons at the bottom that you see on the screen right now. But it allows us to adapt our sales strategy. It allows us to run much more efficiently. It creates a much better client experience for the advertiser and for the agencies. And finally, it gives us a dynamic end-to-end cloud-based solution, which is different than what we've got today. So it's a really big improvement on our side. So what does this mean to a client? And why is the client experience getting better? Well, there's a couple of things that we hear over and over again from clients. So as we thought about how we're going to improve the systems and the operations at NCM, we figured we better take into account what clients are telling us. So first of all, the new system will give us the ability to deliver campaigns better and more in the time frame that clients bought. So it means less make-good liability on our side. It means the ability to manage to the clients' expectations a lot easier. Our proposals and our pricing will be a lot simpler. One of the biggest complaints we heard from agencies is please don't make it hard to do business. Please don't make it complicated, just send over a simple proposal that I can understand. So we've simplified all of our pricing and proposals. Clients will have flexibility to buy cinema like they buy any other kind of premium video. Right now, if you buy cinema, you typically would start on a Friday, which is the beginning of the cinema week. Going forward, you can start on a Tuesday or a Monday or a Wednesday. So if you've got a retail period or you want to start on the broadcast week, you have the exact same flexibility you've got anywhere else you're buying video. It just helps to remove one more barrier to entry. And finally, one of the bigger advantages that we see our clients getting out of this is that we're going to have an improved ability to separate competitive advertisers. In other words, it won't limit us in a specific category because we'll be able to systematically separate them. So when we look at it, this is sort of the kind of the key highlights for what our clients will see. There's probably 10x that many benefits behind the scene. I'm going to turn it over to Chuck, and he's going to tell you a little bit about why CustomerOne is important to NCM and the benefits we expect to get internally.

And by definition, how we're passing that on to investors as well. We're really excited about the changes that we're making, and we're expecting a lot of benefits to come from these -- from the implementation that we're doing. It really kind of falls into 2 categories. The first category is operational efficiency. So the way that we manage our inventory, the way that we conduct the process, the way that we are able to get a proposal out the door, the process that we go through to put in order from the time we win until the time it goes on the speed -- or time it goes on to the screen, we're expecting the times for those activities to be much faster and much better for our clients, which positions us closer. As the digital marketplace moves towards video, the expectation is that we respond faster. This allows us to do that. The second big category that I would talk about is the tech platform itself. We're moving from in-house developed systems, for which there are multiple systems for multiple departments to one system that's built in a cloud that is already integrated together. That gives us a lot of efficiency. So we don't have to spend the same amount of CapEx that we would in previous years to get the same amount of functionality. And more than that, it lays the foundation for programmatic advertising. And programmatic advertising, you can think about it as the automation between the buyer systems to us and then back again. This system is going to allow us to participate in programmatic selling in the future, which we expect to be a new revenue stream. I think that is it for us.

It is. Flip it over. Are we taking a break or we're going to keep going? Keep going.

Good afternoon everybody. I'm Rick Butler. Can you hear me all right? Is it coming across? Very great. So I believe Tom, Cliff, Scott all mentioned Noovie. I want to give you a little bit of context around Noovie. Scott mentioned that, 3 years ago, we reinvented and rebranded Noovie, the preshow. Part of the reason behind that was to give us some latitude to recreate a digital product portfolio. Now that product portfolio exists across a number of digital products. noovie.com, I'll dig into that in a little bit here, it's our branded web destination, so that all-in-one movie destination for movie fans, trivia, arcade and fantasy. So trivia is just what it sounds like. And I'll dig in a little bit about the 2 games that we have currently. Arcade is our augmented reality experience. So Cliff and Scott both talked about that auditorium experience. We've created an app that allows you to interact with that screen quite deeply, far richer content than ever before. One example I can give you is IT 2, the Halloween movie from last year. Pennywise, the clown, if you use the trigger image on the big screen, you could see Pennywise coming at you and quite frankly, scaring the crap out of you. And so we've had a number of brand sponsors that -- and some of them coming this year that have built exclusive content, some studios, some large -- some brands. But bottom line is it creates this very vivid, very interactive experience on the screen that we then extend beyond that. So noovie.com, this is our all-in-one branded destination. Think IMDB meets Google meets Fandango meets a number of other sites. What we want to do here is create a tool set for people that help them make that movie choice. So I expect all of you spend hours every month -- we've done a lot of research on this. Friends and families, they sit down, whether it's at home, whether it's trying to plan for the movie experience, the theater experience and they can't decide what to watch. So this particular site is going to provide you all that content, all of that utility that allows you to make that decision easy, fast and sort of painless. So what I'd like to do is walk you through -- this is our homepage. I want to walk you through a tour of some of the key features that exist on that homepage. A very sort of vivid carousel of movie features, both theatrical and those available on streaming. Integrated advertising, we can't forget we're in the advertising business. A number of the advertising units are customized. They're programmatic. These are -- happen to be static. We can certainly integrate and have integrated video units. We've got an entire section on trailer play and video play. So you watch a trailer, you see a video ad. It could be 15 seconds, it could be 30 seconds, et cetera. But we're always very conscious about monetizing the real estate. Every day -- we've got a small content team based in New York and Los Angeles. But every day, we're updating hundreds of pieces of curated and original content that they have either written or have brought in from other sources. And then streaming. This is not just a ticketing site. This is not just a content site around theatrical releases. We're certainly focused on the streaming video. What we've learned is -- literally over the last couple of years is that those people that go to movies are the same people that watch movies at home. People that stream go to the theater. Hot trailers. Everybody loves a trailer. Trailers are starting to release a year in advance now of the theatrical movie date. And then top movie list. Everybody loves lists. We've got the usual box office rankings, but we create original editorial lists that could be top Bond movies, it could be top hitman movies, whatever it is, and then we're going to do a tremendous amount of cross-promotion with all of our other digital products that we've created. So our most popular app in the last several months has been trivia. People love to play trivia. It's been part of the preshow for literally 3 decades. What we want to do is create an app that allows you to play long before you get to the theater. While you're in your seat interacting with a big screen, we want to be able to have you play against other folks in the auditorium or your friends and family network. So the good news is that we launched what I'll call a minimally viable product last year, sort of a thin layer. We want to see how it would respond in the marketplace. 5 million game plays in just the last few months of last year. So we've decided with both Name that Movie, which is the image that you're seeing up here and Shuffle, which is our other original trivia. It's based on card decks and unveiling images and quotes and actors. We decided to already start to build a second-generation version. So we're going to launch both of those versions later this summer. We're going to have daily content updates, daily movie quizzes, multiplayer challenges, multi-level game play. So instead of Name That Movie, for instance -- and I'll walk you through some steps on Name That Movie. Instead of trying to guess 1 movie name through, let's say, 3 or 4 clues, we're going to have multiple levels where it gets increasingly more difficult and increasingly more rewarding. So not to forget advertising. And this may seem like table stakes and it might seem overly basic, but I want to walk you through a typical Name That Movie game play. This is the launch screen. You've downloaded the app. You've clicked on it, the tile on your smartphone. This comes up. Cadillac ad in this example will load for about 2 or 3 seconds. It will fade to the background. Then we'll take you to the homepage. You can play the daily quiz. You could play a quest, which is what I talked about earlier with a multiplayer challenge or you can challenge a friend to play. So down here at the bottom, and I don't want to get too far in front here, but you'll see sort of that pervasive Cadillac ad. Placement, frequency, it could all change. The type of ad can change. We can have interstitial video in between the game plays. But the bottom line is, whether it's a brand sponsorship or just programmatic advertising, we're going to be able to create a number of different varied ad units and monetize that game play. To give you a little more context around the engagement. Of those 5 million game plays, the average person played 17 times. So -- and this, again, was sort of a minimally viable product that we put out last year. This -- these images that you see today are real images of what we're building at this stage in time. So this is a bit of a busy slide, but it's important slide. Any time you're launching and publishing a product portfolio, you've got to make sure that all of those experiences were consistent throughout. Whether you're on noovie.com or a trivia game or the fancy box office game, everything has to be consistent. You don't want to have to sign on multiple times. You don't want to have to update an account profile based on the game you're playing or the website you're on. So this is sort of that sausage making, but it is very, very important that all of those things are consistent. How we -- the brand voice, the brand tone we communicate to consumers, whether that's e-mail or push notification, very, very important that it's all consistent, you feel like you're in the same branded family of products. One thing that we're introducing later this year is noovie rewards. So think loyalty program. We want to reward high-value actions on our products. So anything from, let's say, you watch 10 videos in a row on noovie.com, you play 5 days of the daily quiz on trivia, all of these things, we want people to accumulate points. We're going to create a currency. It's going to be called Noovie obviously. It could be Noovie points, it could be Noovie coins. And then over time, as you accumulate this currency, we want you to be able to redeem this for real-world items, the most obvious, movie tickets, concessions, real-world experiences that can't be bought like going to a premiere of a movie. But all of this activity and all of the rewarding of these high-value actions across our entire portfolio will be condensed into 1 single currency and 1 single marketplace. So last but not least is around consumer data. Jerry, our Head of Ad Sales is going to spend a lot of time talking about the application of data, how it impacts his ability to sell not only inventory, but to sell to audiences, as Amy talked about earlier today. But rest assured that every action, every behavior, every interaction, every engagement that our customers have with our products, we're collecting data. We've got to know that customer. It helps us serve that customer better, not just from a web or a game play experience but from an advertising experience. And we're building a significant data management platform to allow us to do that. So I went through that really quickly. I want to remind everybody we've got a Q&A later. I know you probably got lots of questions around digital and the products. Jerry Canning?

Super. Thank you, Rick. Data, data, data, we've heard a lot about it today. And capturing data -- capturing audience data is now table stakes in the media space, right? Amy said it up on panel before. As she said -- so that's my opening line. But it was -- we reinforced what we've seen. And really, we've seen the digital category has been built on audience data. And now we see linear TV and traditional out-of-home all on the hunt for their piece of the proverbial data pie. Our mission, as such, is to identify every person in our movie theaters and to engage them in digital experiences, what Rick just talked about. Our products allow us to create addressable audiences, one-to-one relationships where we can target and deliver ads and then also measure effectiveness on the back end. When I started in this role 18 months ago at NCM, I went -- and particularly in the insurance category as well as movie studios, these folks said to me, "You have -- we get your proposition, but until you have enough data to deliver that one-to-one audience, we don't really see value in your digital offering." So we've worked hard on building that up. And now we're at a point where we're in a position to deliver that data and engage with the partners in those categories. So Tom had a similar slide to this earlier. This is actually our data records that we have collected. And you can see, since the end of 2018, we've actually grown our data records by over 300%, nearly 4x year-over-year. We're up to 125 million data records, and we're going to be over 200 million data records at the end of this year. So a lot of investment in that area and a lot of growth for us, which allows us to get in the game. I was at Facebook and Google for a total of 13 years, so that gave me a real appreciation and an inside view of what scale looks like. At Google, when we introduce new products, the tipping point for when we believe the product was -- had reached its full potential was 1 billion users. So that was on a global basis and big numbers. But when we look at movie audience data in the U.S., we actually believe and we're confident that we're going to be able to go toe to toe with the biggest players in this space with the data that we have collected to date -- or with the data that we have collected to date along with the path that we're on, I should say. The scale is there and will continue to be there for us. It's about investing in the quality of data as we move forward, and that's going to be a difference-maker to allow us to go head to head with the biggest players. So what does it mean? How do we monetize? And how do we leverage this data? Well, when I started 18 months ago, we were not in a position to deliver one-to-one audiences. We've now not only started to integrate that into what we do, but 50% of our digital campaigns in 2019 leveraged one to -- some form of one-to-one targeting. So we talked about Amazon Prime video earlier. I'll use them as an example. They will use one-to-one capabilities to identify our audiences by specific film and then target accordingly. Cadillac, similarly, will identify our one-to-one -- our audiences and target them -- or look to target the individuals who were exposed to their ad in the preshow and then reengage them as a follow-up. So making use of this one-to-one capability is one that's become almost a standard part of our offering and something that we're going to continue to build on moving forward. At the same time, we also consider the importance of reaching the consumer wherever they are. With -- Mike talked about video buyers being screen agnostic. So we have to think about our audience in the same way. And we look at our -- how we package up and we deliver value to our marketers in very much the same way. Last year, 40% of our revenue was tied to integrated campaigns, campaigns that sold and delivered both digital as well as in theater, on screen. And we have momentum in that area as our integrated campaigns grew by 19% in the second half of 2019 on a year-over-year basis. So how does it all work? I wanted to take an example because it is -- and walk you through how we deliver ads and how we work data in to sort of deliver the full cycle around data capture and audience delivery. And it can be complicated. So I wanted to show you this example. This is a typical movie attendee. We'll call her Katie. And she is a millennial so that's appropriate for our audience and the type of audience we bring in. And here she is watching our Noovie preshow. She's very intent. Isn't she? She is really laughing at the Noovie preshow. That's what we like. Moments earlier, she participated in our augmented reality experience, one that Rick just talked about, which we call a Noovie ARcade, and she used her Noovie ARcade app on her phone to interact with the big screen. Because she used her Noovie app, we recognize her as an attendee that day, and her app sent a signal to our DMP, our data management platform, where our customer data is stored. So we now know that Katie attended a 3:00 P.M. showing of the Invisible Man on Sunday at the Regal E-Walk around the corner on 42nd Street. So each piece of data provides an important piece -- provides an important detail and context as we build up this data -- this trove of data on our audience members. While the data transmission is going on in the background, Katie continues to watch our preshow and seeing our content on the big screen, including an ad from Hyundai, let's say. Hyundai has asked us to reengage with attendees exposed to their ads. Since we know that Katie was in the audience that day, she becomes part of an exposed pool of audience members who can be targeted with digital ads from Hyundai over the next 14 days. And we'll target here by using our programmatic buying platform that allows us to connect to this pool of consumers in an automated fashion. A few days later, Katie is at home. She is surfing the web on her laptop, and our buying platform identifies her. Our system's triggered, and she surfed an ad from Hyundai. So in this hypothetical example, Katie clicks on the ad, maybe checks out a few of the latest models and then ends up going to -- or I should say, ends up going to the dealership that weekend where she takes a test drive of a Hyundai. So that's a win for our advertiser. We're happy. Well, as happy as we can be in a hypothetical example. And -- but that's the way that sort of the circuit is completed. Now you might ask, how did we know she participated in a test drive? Two ways that we capture that. Number one, we work with a location measurement partner, and we create a geofence around the dealerships, and that gets tripped by her device or personal device when she shows up at the dealer. So that would be one way of knowing that she was on site. And then the second way is we would execute a data match with Hyundai directly, where we take the exposed viewers to their ads, they give us the test drive folks in that market and then we match and then identify the ones that we have the impact on. So this example is theoretical. But we execute multiple campaigns such as this one every day. And it's something that we are doing with more and more proficiency and getting better and better at every day. Understanding consumer response to ad messages and measuring the business outcome is a best-in-class deliverable that we will continue to get better and better at as we build out the breadth and depth of the data that we're collecting. So speaking of best-in-class, we know we aim for best-in-class and we're confident in our product because cinema advertising works. We've seen it work over and over again when we use various studies and third-party partners to test and verify, on the back end, the performance of our campaigns. So I wanted to walk you through a couple up here, starting with the one on the right, in the auto category. We ran 43 brand studies for auto advertisers in the last 2 years. And one of the questions we asked was, those exposed to ads, how likely are you to then potentially consider or what is your future intent to buy a car? And we generated 61% lift with the audience members that were exposed to our ads or the auto ads, I should say, on our screens. So that kind of impact is one that the auto buyers and people on like Mike's team who represent Cadillac is one -- is numbers that they value and can get behind. Shifting over to the next set of studies. On the retail side, we ran 11 studies last year in the retail category, in which we -- retail is all about feet on the street, getting bodies into the store, and we were measuring a lift in foot traffic. And again, those exposed to ads from our retail partners generated a 35% lift in foot traffic versus our control group. And the important thing I want to point out about this study was this, in many of the retail cases, was built across both on-screen as well as digital. So we're able to provide that integrated POV and drive results that spoke to that. And then the last study I wanted to highlight was in the restaurant category, casual dining. In that category, we worked with a national retailer or national restaurant partner, who was on screen with us for 3 weeks, and then we measured foot traffic as a follow-up and then projected a revenue per head on the incremental foot traffic we drove. And as a result, we accounted for $3 million in incremental sales that we drove in their restaurants, so $3 million of restaurant spend that we can connect back to the individuals who are exposed to their ads on our screen in cinema. So anytime, obviously, we can make the cash registers ring, that is ultimately what most of the ad campaigns are looking to do. And when we can build that kind of association and use numbers to support it, it's a conversation that we love to have with our partners and one that we'll take to the bank every time. So I would say we're excited about all of this ongoing investment in data because what it does is it gives us insight into performance on behalf of our partners, and it gives our partners more analytical rigor to go back and justify increased spend in the cinema space, and that's a virtuous cycle that we want to continue to make happen over and over. So thank you. Look forward to questions at the end. But now we're going to bring up Katie.

So let me just spend a few minutes on our capital structure. Our capital structure is a little bit complicated, and it's worth spending a few minutes so to make sure we level set with everybody in the room. And I know some of you are experienced NCM investors, and there are some people who may be on the phone that are not so experienced, so I want to just spend a few minutes talking about how our company is structured. The company actually has 2 companies within it, and I'll distinguish those in just a second, 2 entities: National CineMedia, LLC, which is the partnership you see up here in green. LLC is the operating entity of the company, so where all the magic happens, 159 million membership units. So that makes a distinction between membership units versus what I'll talk about in a second with NCMI. NCMI or NCM, Inc. as we affectionately call it as well, is a 48.8% owner of National CineMedia, LLC. So this is a public company. This is where the public company shares are held and traded, and the ownership there is 48.8%. Now the other 3 owners of National CineMedia, LLC were the 3 founding members: you'll see Regal, which is now owned by Cineworld, they own 26.2%; Cinemark, which owns 25% of the LLC; and AMC, the other original founding member. All 3 is subject to the ESA or exhibitor services agreement that were put in place in 2007 when the LLC entity was formed along with the public company. So National CineMedia, Inc. is a publicly traded company, and the other 3 founding members are all owners of the LLC. Now you see AMC is up here at 0 ownership. You might recall, back in 2017, AMC acquired the Carmike Theatres. As part of the agreement that they had to strike with the DOJ, there was a decree that required AMC to divest all of their ownership of NCM. So as a result of that, AMC is still subject to the ESA for another 30 -- until 2037, but they're no longer an owner or have any governance rights in LLC. AMC, when they did their Carmike acquisition, they received units from LLC. However, those screens from Carmike were encumbered with Screenvision advertising until beyond the end of our ESA in 2037. So as part of the ESA requirements, those screens then have to receive -- we have to receive an integration payment on a quarterly basis from AMC to compensate us for the inability to advertise on those Carmike Theater screens because they received value in those units at LLC when they did the acquisition. So any time one of our founding members add screens to their network, they're entitled to LLC units. So it increases our ownership percentage in LLC when they add to our network. That happened with the Carmike screens and AMC. And so as a result, because we can't advertise, we receive integration payments. Those integration payments are around $20 million annually and will continue on through the life of the ESA. So that's really important. The other thing that's important to know about the integration payments is because we have no obligation to perform anything, they're not part of our P&L and you won't see those in our -- on our income statement, they're treated as a reduction of the intangible assets when we get them. So debit cash, credit the intangible asset every time we receive a payment. But it also increases LLC's cash flow. So cash flow does end up at LLC from those integration payments, and it represents roughly 10% of our adjusted OIBDA that's generated by LLC. LLC also makes quarterly distribution payments from their available cash. So available cash is a defined term, available cash is calculated at NCM, LLC. We have a significant cash flow margin coming out of LLC and is distributed to the 4 owners in proportion to their ownership on a quarterly basis. So what's important about that is NCM, LLC sends cash up to Inc. every quarter. Inc. uses that cash flow to pay dividends. So distributions come from LLC to Inc. Inc. pays dividends to shareholders. Inc. really has, by charter, no other purpose for that cash except to send it to the public company shareholders in the form of a dividend, okay? So that's really important to remember. I'll talk about dividends again here in a second. But in the meantime, I want to also emphasize that NCM, LLC is where all the debt sits. All the debt is at the LLC level, not at Inc. Inc. has no liability debt on its balance sheet. It's all at the LLC level and owned essentially in proportion to the ownership structure. The outstanding debt. Currently, we have no near-term maturities. 2023 is our next maturity on the revolver. That's coming due in several years, 2028. We just refinanced the $400 million of bonds in October at a 5.875% interest rate. So those have set us up well for no near-term maturity. Our Q4 year-end leverage was 4x, well beneath the maintenance covenant of 6.25x. And you can see the other covenant calculation that, by the way, include those integration payments as part of that calculation for leverage are well below any maintenance covenants in our debt structure. So we're in a really good position there. And I think we're very comfortable with that 4x levered. And as we continue to grow that cash flow and adjusted OIBDA, that leverage will naturally reduce. Okay. This is the dividend per share. We just announced a 12% increase in the dividend per share paid by Inc., okay, to the public shareholders. So we were at $0.68 over the last couple of years. We're going to a $0.76 annualized dividend, which is $0.19 per quarter, which relates to, as of yesterday's stock price, 10.6%. I don't know where we're ending up today, but I'm not going to do the math in my head. So roughly 10-plus percent current dividend yield. Now one thing that's really important to understand about this dividend yield, it is tax-deferred. So let's talk about that for a second. Okay. We have a very attractive tax-deferred dividend yield. The reason it's deferred is that NCMI gets a benefit from a large tax amortization expense that's 15 to 30 years, okay? There's 2 different types of amortization, but the shortest one is 15 years and the other one is 30 years. So you got large tax amortization deduction at NCMI. That annual tax amortization creates a large deduction which puts NCMI in a tax loss position, okay? When you're not a taxpayer, like NCMI is not a taxpayer because in a tax loss situation, any dividends paid to shareholders, are return of capital, okay? A return of capital is deducted from your tax basis in the shares that you own. So every time we send you a dividend, you'll deduct that dividend from your basis that you purchased the shares for. So it is a tax-deferred dividend because upon the sale of those shares is when your net basis would be applied to the value you're selling those shares for, and any profit or loss is then a taxable event. So it's a deferred tax dividend. You don't get current tax on those dividends. It's deferred until you actually have a transaction and the sale of those shares. Now we expect that deferred tax dividend to last for the next several years, and then it will eventually flip over into a profit in that -- after that 15-year amortization is over, we'll begin to see some profit beyond 2020 and after. But even -- and only a portion of those dividends will be taxed then. So you'll still be tax deferred on a good chunk of that over time, okay? I'm going to let Ted walk through some of the financial performance.

Before I get into the financial performance of the business, I just want to remind folks that are listening through the webcast, we are taking questions after we're done here, and you can e-mail questions into [email protected]. So for folks listening on the webcast, don't hesitate to e-mail in your questions, and we'll be taking questions live for folks -- from folks in the audience. So looking at the last 3 years financial performance of NCM, it's been one of consistency, a slight growth but we've certainly been able to deliver. Starting with revenue. Looking at 2017, $426 million in revenue growing to $445 million in revenue in 2019. So not a lot of growth, but it's certainly been consistent as far as what we've delivered. As you think of 2020, as we just -- the first year of the new strategic plan NCM 2.0 that Tom and team has outlined, at the midpoint, we would expect 3% revenue growth or $458 million. And as far as how that translates into the operating cash flow of the business -- and again, as you think of operating cash flow, it's not just adjusted OIBDA, as Katie said, you got to factor in the integration payments. That's true cash flow in the business that we'll get at least through 2037. So when you put those 2 together, it's a business with a 50% margin profile. So strong margins, robust cash flow, growing from, call it, $218 million in 2017 towards $230 million in 2019 and then in 2020, $226 million. You might ask why our integration payment's declining from $21.7 million to $19 million in 2020. A couple of things going on there. Our Rave cinemas that AMC and Cinemark had purchased a number of years ago have actually moved on to our network so they're absorbed in the network and no longer receiving integration payments for them, call that $2 million a year. And then obviously, with the forecasts of attendance being down mid-single digits, that also has a modest impact. Looking at CapEx. Again, we're an asset-light model, typically spending about 3% of revenues on CapEx. You can see there at the bottom of the left that in 2018, we really began to ramp up our digital investments and building out the digital ecosystem that Rick and Jerry have walked you through, and that's continued. We'll continue to spend about $7 million a year through 2020. And then as you think about 2021, 2022, that will actually begin to decline as we get into more of a maintenance mode. And again, Katie will walk you through the longer-term financial view here in a couple of minutes. So free cash flow, at the end of the day, with the revenue, the adjusted OIBDA, CapEx, what is happening? It's a high-conversion free cash flow model, converting about 95% of the cash in the business into the pockets of our owners, call it, $205 million to $215 million over the last 3 years. And again, we expect that to be able to begin to grow when you think about 2020, but certainly, 2021, 2022 and beyond. All right. So here we are. We're looking at the attendance on NCM's network. So contrary to the narrative out there that cinema's in secular decline, it's just not the case. In fact, it's been quite stable. When you look at our attendance on our network, it's fluctuated, call it, 650 million to 700 million a year in attendees. Certainly, some years are up, some years are down. But at the end of the day, it's again been a model of consistency. I would highlight, as Cliff and the panel had talked about, when you compare this to TV and broadcast, the mid-single-digit rating declines, the aging demographics compared to our captive audience, 28 years old, millennial, Gen Z, you can see at the end of the day how compelling the network would be to advertisers. All right. So the seasonality in the business. You look at the revenue here. What I would point you to is Q1 to Q4, there's absolutely seasonality. Q1, call it, 17% to 18% of revenue. That will ramp up to 25% in Q2 and Q3, and then you'll push the 33% in Q4. So it's definitely high flow-through there. So for adjusted OIBDA, when you look at that seasonality in the business, it certainly flows through to the bottom line. So as you think about it, with upwards of 33% of your revenue in Q3 and how that flows through, you'll have typically 10% of your flow-through in annual adjusted OIBDA in Q1. That will continue, call it, 25% or so in Q2 and Q3. But by the time you get to Q4, you're pushing 40% of your annual adjusted OIBDA flowing through the business. So when you think about that, another way to think about it, take the incremental revenue in Q2 over Q1 or Q3 over Q1 or Q4 over Q1, over 90% of that incremental revenue flows through to the bottom line for adjusted OIBDA. And with that, I'll turn it back over to Katie.

Let me go through and review our 2020 guidance that we provided on our earnings call on February 20. We say setting the stage for multi-year growth. So this is a bit of a transitional year. What you'll see is revenue in the range of plus 1.2% to plus 4.5% growth or $450 million to $465 million in 2020. That translates to adjusted OIBDA guidance of anywhere between a minus 2.7% to an up 2.2% or in the range of $202 million to $212 million. Now some of the assumptions that are driving those guidance numbers. We expect that new inventory, the Platinum Spot and the Lights Down inventory are forecasted to increase but getting traction as we move throughout the year. As Scott spoke to, we've only launched this in the late 2019, and we expect to see continued traction on that, and particularly as we get into the upfront marketplace in 2020 for our future. Overall, CPMs are expected to increase low single digits. We're estimating network attendance to decline mid-single digits, consistent with the industry estimates for decline in network attendance. Our network attendance impacts both sellable impressions and our beverage revenue. It also affects, on a positive note, the attendance-based theater access fee. And the attendance-based theater access fee from the exhibitor services agreement amendment with Cinemark and Regal, we expect to increase $9 million to $10 million, and that excludes the rev share estimates for the Platinum Spot. We expect about $19 million of integration payments. I think everybody knows what an integration payment is now, and that's the expectation given the decrease in attendance that we're expecting. Our 2020 CapEx expected to be between $14 million and $16 million. As Ted spoke to you, about $7 million of that will still be continued investment in digital. In 2020, interest on borrowings is expected to be, cash interest, $52 million to $53 million. Okay. Now longer term, 2021, 2022, our target assumptions really are a result of everything you've heard today. We're expecting the traction from the plan we're putting in place to deliver a high free cash flow growth. So revenue in the 4% to 6% range, driven from CPM growth from the new inventory, again, through upfront opportunities that we have as well as the digital and data attribution and getting traction on that throughout 2020 and into the future; our impression growth through affiliate additions that Tom spoke to; utilization driven by new premium inventory and increased advertising demand, so our utilization, our opportunities to bundle that new inventory with the preshow inventory as well as increasing the advertising demand that Scott touched on earlier; and inventory optimization through the CustomerOne initiative. Inventory optimization allows us to avoid waste or over-delivery, essentially, and really just deliver real time to our customers with the contracted impressions, the benefit that Chuck and Adam spoke to earlier. Adjusted OIBDA in the range of 3% to 5% growth. That high margin flow-through from the growth in revenue from platinum, Lights Down and premium inventory, we'll see the results of that on the bottom line, offset by just natural inflation costs and some of the expenses related to software in the cloud now that we'll be avoiding capital expenditures on. So you'll see our capital expenditures on a historical annual run rate was about $15 million. We expect that to go to $8 million to $10 million going forward from both the reduction in CapEx that we talked about earlier and then the move from the internally developed systems to cloud-based technologies. Available cash then flows through -- 4% to 6% growth. With 4% to 6% growth of available cash at LLC, the distributions will increase, therefore giving us potential growth in dividend at Inc. to shareholders. Okay. And that wraps us up. I think, Tom, do you want to open up for questions?

We're going to do a Q&A now. It will be Katie, myself and Cliff. But we're also open to having any of the management team answer -- ask questions -- or answer questions. So just give us a second to put these chairs up here, and then we'll get started.

Anyone want to kick off with the first question in the room or online?

We're going to start with the online, Tom, then a few folks in the room. We -- e-mail your questions in, and we'll certainly get you in the queue. So question number one -- thank you. Question number one would be -- Cliff, this probably is directed towards you. What leads you to believe, as you've said on the earnings call, that your local and regional initiatives are beginning to work?

Well, what leads us to believe that our local and regional initiatives are beginning to work is we have found the right format and the right balance between what our local team does and what our regional team does. There's always been a little bit of crossover there. And it's taken some fine-tuning to figure out what's local, what's regional and kind of what's in the middle. And I think we compensated in the past for some challenges that we had, and I think we overcompensated, and we learned that by looking at our local business. And I think we've got it down right. We have 2 great leaders. Stacie Tursi leads our local business. Mike Fenne leads our regional business. They work very well together. And they sat down with Scott and really figured it out. I think when you start seeing some of our results later in the year, you'll see that, especially on the regional side, I think we've kind of figured out what was wrong. And I feel really good. It doesn't mean we have it down perfectly yet, but I do believe that we've nailed now what is local, what is regional and what is in between and how we should cover it.

All right. Next question. With the newly created Lights Down and platinum inventory, describe impacts you find that this is having on the preshow inventory and pricing.

Just say that one more time. I want to make sure we get the question.

Yes. With the newly created Lights Down and platinum inventory, describe the impacts that you're finding this is having on the preshow inventory and pricing.

I assume that must be the inventory before Lights Down.

Yes, yes. That's correct.

Is that an online question?

Yes.

Yes. I'm going to assume that what you're asking, is, how does that affect the inventory before Lights Down. I think any time that you have improved inventory, it also creates a value. If something is worth $1 and you have something better that's worth $1.10 and something better that worth $1.25, it's going to be -- there'll be a structure as to what everything is worth in the marketplace. Unequivocally, the preshow inventory is not worth as much as the Lights Down inventory. The Lights Down inventory is not worth as much as the platinum inventory. And the marketplace will determine what it's worth. I think we probably will end up discounting some of the preshow inventory a little more before Lights Down. And it will be valued fairly according to what it's worth. But I also think we'll get a premium for the Lights Down because it's worth more. There's more butts in seats. And it's a better environment, as Mike talked about. Engagement is better. So I think naturally, it's kind of like walking into a Lexus/Toyota dealership. You know what you're going to pay for a Lexus and you know what you're going to pay for a Toyota. You know what you're going to pay for a Scion. And I think that's what's going to happen to our 3 tiers of inventory.

Let me just add to that, that any network has different priced inventory. We were a little bit unique for a while that we have the same inventory and we had 20 minutes preshow. That was basically the same -- some was a little bit closer to showtime, some wasn't. Any good network sales company has to be able to sell premium price programming, medium programming and less expensive inventory. It's that way at any network became a -- like Cliff used to work at ESPN, where they sold everything from the Super Bowl to a local basketball game. So that's part of our sales strategy, is optimizing that. The other thing I would say is we bundle often the Lights Down inventory with the preshow and even with platinum. So we're not trying just to sell one individual price point. We're selling often above all that.

Yes. Also, I really hope that our preshow inventory is going to be attractive to advertisers that are looking for a little cheaper, more efficient inventory. Over the years, we've clearly scared some brands away because we're not cheap. We're an expensive medium by virtue -- in comparison to some others. Actually having some inventory that could be discounted a little more, actually may be attractive to certain categories, like CPG and others that aren't willing to pay the premium that we might demand, a need for Lights Down and platinum. So I think it's a good thing to have some inventory that is priced a little cheaper. And remember, I mean, you're still paying on a cost per thousand. So it's going to be a fair value for what's it worth in -- with 10 minutes before the movie versus 5 minutes after the movie. And marketplaces decide that. Sales organizations don't decide that, make no mistake. We ask for but the marketplace will tell you what it's worth.

All right. So next question. To what extent are affiliates offering Lights Down, platinum inventory? And why or why not?

So right now, our goal and our plan is to have 10 to 15 affiliates selling Lights Down and platinum this year, which is a pretty big number. We won't have all 50 of our affiliates this year. Each individual exhibitor, and Cliff and I have met with almost all of them in the past 6 months, they run it in their own way. Some are public companies, some are private companies. Often, some of them are multigenerational companies. And they have their own sort of way of doing business. And some will run 2 or 3 trailers. Some of them don't run any trailers. So it's a very nuanced discussion. I can tell you that everybody wants to do platinum advertising. Most of them want to do Lights Down inventory. We've had really good success so far in convincing people. So I would say 10 to 15 will be how many people we have been added to the current affiliate group this year.

And some of them, there is some technical issues. I don't know -- I forget the number, but there's 5 or 6 technically could maybe join us if we wanted. But in reality, if we can nail the 10 to 15 Tom is talking about, that's really good win.

This one, I think, is for Katie. I think they're trying to understand the difference between the affiliate model and the founding member model. The question is what drives the payment to affiliate members each year? Does it step up 8% in 2021 as a onetime and then reset lower on the new base? I think it's more just getting after the difference between the 2 models.

An affiliate gets a rev share. So they are typically around a 50-50 rev share. So every dollar of revenue we bring in, $0.50 goes to an affiliate. The 3 founding members, however, are different. The 3 founding members who are under the ESA -- so remember, AMC, Regal and Cinemark are under the ESA and get theater access fees, so they get a fee from that, they get in the cash distributions coming from LLC. Now the theater access fees have an automatic increase of 8% every 5 years. The next 8% increase is due in 2022, not 2021, but 2022, at which time it will step up 8%. On an annual basis, there's a digital screen fees so the number of screens that are subject to the -- have digital projectors on them increases every 5 -- or 5% every year, equates to about $2 million annually.

Yes. This one is for Tom. Please address contingency plans in place should the coronavirus spread in the U.S. How are you thinking about that?

Well, obviously, this is the hot topic in every industry today. And what I first want to say is we haven't had any negative activity from any advertiser so far. We're into the, what, ninth week of the quarter. We haven't had any cancellations. Obviously, it's still relatively new. And there's no indication that -- at the exhibition side of things, that the attendance has changed at all. In fact, in the last 2 weekends, 2 of the biggest movies have opened and outperformed what they thought. The way our industry is structured with our partners is we basically have obligations based on attendance. So if attendance goes down, our costs actually go down as well. So to some degree, the way the original ESA was created, our attendance basically drives our costs. That's why we have some of our own fixed cost. But in terms of the cost that go out to our party -- third party, it's all based on attendance. If attendance goes down, our costs go down. We haven't seen any impact from advertisers just yet. So obviously, we're optimistic and hopeful that this will be a relatively short-term situation, but we only know what you guys know from the news. And we're hopeful that it's a short-term thing, but we don't have any more information about this particular situation than any other industry would have today. So obviously, we're cautious, and we're certainly keeping an eye and we talk to exhibitors every day about it. So we're just going to take it delivering 1 day, 1 week at a time to see how it goes.

And we're very adept to change. Change happens all the time. We go sell a movie in June, move to August. We saw something in February that moves to July. We do that all the time and we just talk with our customers. So I expect to do some of that around this, too.

All right. That was the extent that we have coming from online so far. So we can open it up here in the room. Does anyone have any questions? Let us get a mic to you.

So Q4 utilization growth was very strong, tied into the Lights Down inventory and kind of interest there. In terms of thinking about 2021, '22, revenue growth of 4% to 6%, how conservative is that with growth of ideally CPM, higher utilization, talking about the benefits of the inventory management? And what are you assuming around attendance over that period?

Yes. Well, since attendance assumption is going to be negative or down in 2020. We believe there will be some rebound in '21 and '22 as well that we'll capture some of that loss back. I think as far as conservative or aggressive, it's hard to tell. It's 2 years out. We did our best to take the assumptions that we have visibility to the things that we have visibility to. Once we implement the CustomerOne program, that's scheduled to launch at the beginning of 2021, so we'll know more once that's in place. We have some estimates and some hopefulness on how that's going to work, and we've done some estimates around that, that are reflected in that estimate for 4% to 6% growth on the revenue side. We'll see. But I think it's very realistic given what you've heard here today. We're very enthusiastic of it and optimistic about the future and what these initiatives can do for us.

The other thing I would add to that is the 2021 box office looks particularly good. 2020 is probably going to be an average year. It looks like 2021 is going to be a lot more like 2018. So I think, hardest thing in our business is forecasting box office performance. I worked in this business for 30 years now, and it's hard to predict an individual movie, let alone a slate of movies. But I can tell you, looking at 2021, there's a lot of really big movies coming out, including the first Avatar. So a big part of the way we're looking at it is 2021 is going to be a really good year, probably 2022 as well. So that goes into it. On the CPM side, we're looking at low single-digit growth rates over that period of time. And I think that's the base case scenario that we have. And I wouldn't say it's aggressive or conservative.

On the low single-digit CPM growth, normally you target somewhere around that level. And I know it's not always there, but you have a big bump coming from the Lights Down addition. So I mean is it possible you could see that more in the mid-single-digit growth?

I think it's possible, but that's not the guidance we're giving.

Sure. So the kickers would be that, and then if utilization ends up continuing strong, that 3...

Yes. And I think the cost savings initiatives coming out of CustomerOne, certainly relevant over time.

Sure. Okay. Any more questions in the audience?

Cliff, you've been out there now for a while with this platinum inventory. I'm sure you're out probably talking to some of the guys who advertised for the Super Bowl, et cetera. Can you give us some flavor for what the response has been to platinum, in particular, from the agency community, from a client's perspective, et cetera?

Yes. The response is overwhelmingly been very, very strong. Who wouldn't like a spot after the fourth or fifth trailer with the Lights Down and the engagement? So the response has been good. What we are trying to really figure out is the amount of brands that make 60s. We're trying to sell 60s. So there's more of a creative conversation around this than just talking to the media community. So we are trying to engage with creatives and people who control unit length decisions. So what -- everyone in the row, we love it. Not sure if we have a 60. So we're trying to talk to the creative community and brands about 60s. Certainly, we've looked at a lot of the Super Bowl advertisers. And there's a lot of interest, although people that make spots for the Super Bowl tend to spend most of the budget in the Super Bowl. It's a lot of money at $5 million to $6 million a unit. But overwhelmingly, optimistic, what a great idea. This is what I think our clients would love. But it does take a lot more selling cycle and planning because it's not as simple as just walking in and negotiating a deal. There are creative implications. Sometimes there are talent implications and other things that make it a longer-term sell. But in terms of do they like the spot, Scott, they love it.

And one thing I would say, Scott, is we're a little off-cycle right now. We're still in the scatter market. And the true test of platinum is going to be in the upfront, when budgets really open for a 12-month cycle. And we can go out and have a really engaged discussion with people with a lot of money in their pockets that are planning full year out. When you're talking about a spot that's just expensive, it's not a typical necessarily scatter opportunity. When you can talk to clients who are planning a year ahead of time, remember people bought Super Bowl spots, the vast majority of that was bought way upfront.

Yes. I'm also excited to release, and we will release shortly, the data on the first performance of the spots that aired in December. They were very, very strong numbers like we haven't seen before. And I think when brands start seeing that, because everybody wants data and everybody wants to know, tell me it worked, how did it work, and I think once we release that, I think we -- that will be long for now. We want to tell the clients first before we told everyone else. I think that will also get a lot of people intrigued.

So when you think of recall and engagement, we're going to publish the research about that, but we're really happy with the results so far, fourth quarter response.

If I could just follow up with one for you, Tom, while I still got the mic. Yes, I know it's fluid, maybe it's premature to ask this question, given what's going on out there in the world right now. But is it unreasonable to think that there's the potential for consolidation, some of the smaller circuits or ESA partners would be potential consolidators? And then would you potentially be more affiliate interest if there were a period of dislocation in the exhibition business?

I think it's a fair question because it's certainly on the mind of a lot of people. I can't really speak to what the founding members may or may not do. I can tell you that we're going to be very active looking at other affiliates to become part of our platform. And if there is a consolidation with an existing exhibition partner who's a founding member, that would likely be very positive for us. But I can't speak to any of that activity because, obviously, things are outside of our own control. But there's certainly an inevitability to. There's been plenty of consolidation going on lately, and it's not a secret. We're optimistic as the #1 and best cinema company that people are going to naturally be interested being part of our platform versus someone else's.

Four quick unrelated questions. One, to the point around utilization, was fourth quarter of '19 basically max utilization? Or do you think you can even get a higher utilization rate in future years in fourth quarter, given, I think it was 150-ish percent? Question two, the impact of the 53rd week this year. I mean what -- how much extra OIBDA, revenue, whatever metric does that contribute so we get a more like-for-like comparison in terms of growth? Third question, the impact of reserved seating. I think there was a pretty significant step-up in the number of your screens with reserved seating from the beginning of '19 to the end. Do you anticipate that having any type of impact on the business, positive or negative, this year? And then lastly, the preshow comments you made earlier about the pricing of preshow ads, just want to clarify. Did you mean that they would fall like-for-like in 2020 versus 2019 because of the existence of the Lights Down and platinum ads? Or did you not mean to say that? I couldn't quite interpret what you were saying.

Let's do it in order. So why don't you start with utilization first?

Utilization in fourth quarter, I don't think it was -- it wasn't record utilization, but it was close.

No. But it's close, yes

Yes. I mean if you think about we have a certain finite amount of time between when the feature film ends in that auditorium, the feature film begins, right, so we own that space. So when you think about that, it can flex, right? So you can only flex so far because you're on top of the [ prior ]. But I think there's opportunity to get more efficient in our utilization throughout the year. And then just in fourth quarter, that's probably as high as you're going to see or there's not a lot more room to extend that. But other parts of the year have opportunities to increase utilization. So that's when we're talking about utilization and the opportunities with the CustomerOne initiative that utilization can grow. Really, it's -- we're talking about other parts of the year and some of the lower periods. As far as 53rd week, we didn't quantify it publicly of how much exactly dollar-wise adjusted OIBDA. It's about 3% of...

2.5% of attendance comes in that last week.

Yes. Because it's a week between Christmas and New Year's. And this year ended on the 26th of December. And so we'll have that full week between Christmas and New Year's, which is a very high attendance week for us.

I'll take a stab at the reserved seating. Reserved seating does continue to increase. We clearly created the Lights Down product and the platinum product as an offset and a way for us to make our customers feel better about butts in seats. And that kind of also would dovetail with your fourth question. So what's going to happen is the preshow, where there are less butts in seats, the CPMs will unequivocally adjust to reflect the fact that there are less people in seats. And you'll probably see a bit of a decline there because that's probably what it's worth. And conversely, the Lights Down, you'll see us get a premium because there are more butts in seats and the Lights Down -- and Mike talked about it. Someone was asking questions in the hall, I think you were talking to Mike about that. And Mike specifically talked about how important the Lights Down is to them because not only could it satisfy current customers that may be concerned about butts in seats in the preshow, but hopefully even bring in some new brands that may have stayed away from cinema due to that concern, but we never know. But I hope that answers both of your questions.

I was just wondering to what extent is the additional data that you get from like location-based help to identify when those consumers get to the seats to offset maybe or validate some of the reserved seating concerns?

So there's a lot of ways to figure out when people get to the theater. One way is to do it through a digital mechanic. Other way is to do it through survey data. Just to clarify, in general, reserved seating, while it's growing in its availability in the United States, the actual number of people using it is pretty much flat year-on-year. So just because systems are being created to enable more of it, doesn't mean more people are using it. And most people who use reserved seating, from the research that we have, do it to get a good seat and to sit with their family or where the -- or seat they want to pick, not so much to get there late. So reserved seating is just for courtesy, not synonymous with late arrival.

By the way, which is probably true of sports events and concerts and anything else you can buy reserved seat to, you know that the game starts at 8 o'clock and people still get there earlier. People still get to a Broadway show early. It's remarkable to see the numbers that even with reserved seating, many, many people still like to get there early and get their seat and get a concession and do what they want to do.

So to answer your question, though, as we get more scale in our digital apps, you will be able to get more precise idea of exactly when people arrive. It basically will tell you when they arrive in the actual theater, not necessarily when they actually sit down. So that gets to be very, very specific and hard to do. But it'll certainly give us a better view of when they actually arrive in the lobby or right outside the theater.

And that data is still garnered now from Nielsen. And it's like every Nielsen survey, it's good and it's not good. Some of it's flawed, but probably as equally flawed as every other medium because it's an imperfect science.

How much of the attendance or revenue growth in your long-term guide is from affiliate growth? Like growth in new theaters or affiliate agreements? And when you enter into a new agreement, is there an initial cash outflow or stock payment that you make when you enter that agreement?

I mean, occasionally, we will pay an upfront fee to an affiliate to get them onboard. They -- and we install their equipment. So there is a CapEx outlay that we have as well. So it just depends on what the negotiation terms are that we use with our affiliates. Historically, that's typically been the model we've used. And I think that was the second part of your question, so the original question...

Of the 4% to 6% revenue guidance or the attendance that's within there, how much of that is from inorganic?

It assumes looking at the current base of affiliates, so it doesn't assume new affiliates in that model.

So even though we're targeting...

So if we lose -- if we have an expiration of an affiliate coming up, for example, we've excluded that. But we didn't include anybody who we don't have agreement with today.

So the addition of a major affiliate, if that comes to be, would be incremental to our guidance.

Incremental to our guidance, correct.

So there's one online. This is probably directed towards Cliff. With the addition of the new inventory, the new premium inventory, how do you think about that diversifying the pie of customers for NCM? So again, we have 130-some today. Do you envision that being able to grow the overall customer base?

Well, we clearly think that having 3 different price ranges of inventory opens up the ability to talk to different customers, especially customers that I think have found us too expensive over the past. I really hope that they'll consider the preshow inventory as a way to be in the cinema medium. Just like -- I recall when I was at ESPN, there are plenty of customers that could never afford to buy the NFL or primetime college football. But when we brought in some of the lower-tier sports that maybe didn't rate as high, there were still plenty of brands that loved our audience and now had to weigh in because there was a lower out-of-pocket cost and lower CPM. I hope we'll be able to do that. And with the platinum, I do think that will be a very unique high tier of client. You're not going to see brands in there that don't have the stomach for the cost and don't have the ability to make great creative. So I do think that each of our 3 tiers of inventory opens up potential with different customers. And our Lights Down inventory, I'm really hoping that brands that may have been scared away over the years, saying "I wonder if anyone's in the seats, I wonder what the engagement is," I hope that, that inventory is going to reengage some brands to say, wow, that's pretty good stuff. It's after showtime and the lights are down. So if I had to guess total prognostication, I think we will have more than 136 clients when you look at all 3 tiers of inventory.

When we did the fourth quarter original platinum execution, Walmart was one of the 3 advertisers that we showed earlier. Walmart had not been on our platform in nearly a decade.

Great example.

And one of the key things we were trying to do with this new product was to bring new advertisers in. And you wouldn't intuit, we think, Walmart as a big premium advertiser. They created a beautiful image spot for the holidays, wasn't one of their price ads. And to get Walmart back on our platform after a decade is significant.

Yes. It's a great example. Walmart was not -- would not have been in our screens if we didn't have that platinum opportunity for them. So I do think that's a great example, and they made a beautiful spot.

Just in regards to the digital products. So once you get to 2000 -- I'm sorry, can I rephrase, 2021 target of 350 million records, I think that was the number, 350 million, what does that enable, talking about critical mass? And can you talk about -- there's that 39% of revenue had a digital attachment, I think. But what does that look like in terms of revenue uplift, once you hit what you call critical mass? What types of services are you going to be able to provide?

I think let's just convert the data records to an actionable market share. So the data records ultimately become what percent of cinemagoers we think we can attract. So we're looking at 20% by the end of this year. So you go from this large data record set and as you duplicate it down, that's how you get to market share. In terms of converting that 20% into a specific incremental dollar amount, we haven't given any specifics on that. What we do know, and I can give you an anecdotal comment, if we don't have the data sets getting built out, there are advertisers that will not advertise with us. And I'm not going to give you specific examples, but we've had ongoing discussions with certain brands specifically. If you're not going to be able to give us data attribution, you're in another land and you're not going to be part of our plan. So I can't quantify for you what each of those data points are going to be worth, but what I can tell you is that if we don't do that, we're going to lose customers. And at some point, as we get further into our data business, we can talk about trying to give you a more specific model on how each data translates into it. But typically, it's an integrated ad buy to begin with. And I think around 40% of our advertising is currently integrated digital and cinema, and that's probably double what it was 2 years ago. So I think the combination of those 2 things, it's hard to quantify what someone would have done if we didn't have it. But I can tell you, you can't be a modern media company, and I think you heard that from the agency people today, without a real marriage of data and content at the same time.

Got you. Then on the 20% market share -- sorry, just to be clear, that's 20% of?

Of moviegoers.

Of all moviegoers in your network or across the U.S.?

That's just across the U.S.

Across the U.S.? Okay.

So we're using that because, remember, we're trying to reach people who aren't necessarily in our theaters, because you can actually get that kind of information outside of our network. Remember, we want to be 360, 24/7, and that's even people that don't come into our theaters.

I just wanted to expand more on digital CapEx. How do you track return on that investment?

Can you say it again? I'm sorry.

On digital CapEx, that $7 million per year, when you look at that number, how do you look at it? Are we going to get that money back? Or, I don't know, what metrics do you use? What's the successful execution...

I think there's a bunch of ways to look at it. First of all, you have to look at being a media company without digital. So if you look at any cable network, any traditional television network, you can't walk in to an advertising agency and say, "No, we're just an old analog dialogue business." So that's a qualitative thing. But if you don't do that, you're going to -- someone is going to -- you're going to walk into Amazon, and they'll say, "You don't have any data?" So you have to think about a little bit on a more macro level first. And then you got to decide what you need to invest in, in terms of digital products and data to get to at least some scalable level. And then eventually, you have to look at what the returns are going to be over a period of time. So we're looking at it over a 3-year period. The investment we've made, we've made investment around $20 million, and we're comfortable that both qualitatively and quantitatively, there's going to be good return on that. I can't tell you precisely dollar-for-dollar that each digital investment we make is going to generate X. I can tell you that if we do nothing in digital, our business will go down. Just like if we hadn't created platinum inventory, if we hadn't created Lights Down, we wouldn't be in a growing business anymore. So it's very difficult to quantify every digital dollar. I think it's a fair question though. I can tell you that, again, we're winding down our digital investment. Most of it happened in the last 2 years, and we're starting to deliberately decrease it. But actually, we're very conscious of that spend. It's a really fair question. There's not a perfect science to every dollar that's getting spent. But I can assure you that the products that Rick's creating and the data that we're building are something we're highly focused on that if we don't do, and we're trying to do it in as fast as scale as possible, then we've been losing advertising.

And we know for a fact, on several occasions, that, that data that we garnered -- not only the media buys -- media buys are important. The data we garnered helped us generate a sizable on-screen deal that was a result of being able to provide data that our partners can cross-tab with their data to determine our success for them.

And also, could you speak more about your affiliates, expand that? What holds those guys? Is there any one major issue, bottleneck, why they can't jump on lights out and platinum?

Well, there's no -- a lot of it really is philosophical. People are very emotional about running ads in the trailers, and it's historically been just trailers. So you have a lot of, I think, exhibitors that have a very long-term philosophy that this is how it's always been. Well, news flash, if you run your business and this is how it's always been, you're going to have issues over the long term. We need our exhibitors to progressively understand that the industry is changing. And all you got to do is look at what Disney company or look at Time Warner or look at CBS, Viacom or Comcast to see how the media industry is changing. We need to evolve as well. This is a big part of our evolution. And when we talk to exhibitors who are fundamentally -- the core exhibitors, not media companies, some of it is just being able to communicate with them and explain to them why this is important for their media partner. Because now it's also important to them, because I think we're going to provide more revenue for them, and they're going to earn more. So that's a good thing. But also, it's important for us because we need to remain a competitive media company because, as you heard -- I had no idea what Mike and Amy were going to say when I asked them who our biggest competitors were. Well, you hear who they think our biggest competitors were. We need to have products and the ability to compete with those digital companies or TV companies. And having that product, the Lights Down and the platinum gives us a whole new platform. And we need our affiliates -- and both our owned and operated and our affiliates to understand that if they want us to remain competitive, we got to have the same weapons or competitive weapons that are -- the people we compete with have. And if we don't have Lights Down, we don't have platinum, then we're going to be at a disadvantage.

Let me just answer it slightly differently. There's no economic issue with any affiliate in terms of getting them onboard.

No.

This is not a business issue. It's more of a philosophical issue in some cases. I can tell you that of the 50 affiliates we've talked to, only 1 so far has expressed a concern about commercial advertising. Most of them wanted to see how the test really went, this initial foray with Regal and Cinemark, and the consumer response to that has been fine and -- as we've been going out evangelizing it over the last 2 months because remember we only started this in December.

And most are open-minded to it. I think we only have 1 definitive no from our 50 -- is it, Adam? We have 1 definitive no, and it's not relevant big circuit. Most are taking a wait and see, let's see how the customers react.

But we're going to have 15 this year, which is a lot to add on.

Okay. And the last question for me. So when you say NCMI is expensive, when we have segment 1, Lights Out and platinum, what kind of numbers are we talking about? I guess you can't say specific numbers, but these are -- I don't know, Lights Out 50% more or 2x than segment 1 and platinum 2x, 10x? What's your ballpark?

Let me give you context. When we say expensive, we're expensive compared to some other video mediums. If you want to buy cable or if you want to buy some digital video on phone, you can buy $10 CPMs. Well, we don't -- that's not -- that's not our business. When I say expensive, we've priced our medium to be somewhat competitive to what I call premium prime and sports. Those are probably 2 of the most expensive day parts in the TV environment. So what will we compete with? We'd be competitive to Sunday Night Football. We'd be competitive to Monday night football, to the NBA. We'd be competitive to top-tier primetime. So in the brand world, it's on the expensive side. We are not a Rolls-Royce, but we're a Lexus or a Mercedes. If you want to go and buy cheaper, a Ford Fiesta, you can do that, too. It will still get you to where you're going. It's just cheaper. So that's how we've priced our medium. And to your question about Lights Down, Lights Down, I guess, Scott, you can tell me if you agree with this, will probably be somewhere between 7% to 15% more expensive than the preshow. So when you say expensive, in that ballpark, it will be 7 to -- depending on time of year and the sell-throughs and all that, 7% to 15% probably more expensive than the preshow. So it's more expensive than that. But that's a good thing because it's worth a lot more. And if you want to be cheaper and have lower CPMs, then buy the preshow.

Let me add on platinum. I'm not going to tell you what our platinum pricing is because it's just a huge competitive issue. And what I don't want to do is tell the entire world how we're pricing inventory because we do have competitors. I can tell you that platinum is significantly more expensive than anything we've ever sold before. But I don't want to go on the record and give you the specific increases that we're doing in platinum.

And we've said in our guidance, when we originally came out with this, that we expected about 50% increase on the -- versus the preshow CPMs.

On platinum.

For the Platinum Spot.

That's our priority.

So we've had a couple more questions coming in online. This would be for Katie. What percentage of the cost structure is fixed versus variable? And is there a floor on attendance-based theater access fees?

Yes. So there's about a 60-40 split. It's about 40% of our total cost base is contractual and is based on the ESA requirements or as part of the rev share and affiliate payments. 60% is what I would call discretionary. But 75% of that spend is people related. So over time, that cost increases with inflation, as wage inflation increases, benefits, things like that. So I think it's a 60-40 split. Now the 40% contractual, some of that is attendance based. You heard us talk about theater access fees that are attendance based. So depending on where attendance goes, that can fluctuate. So it's a variable cost, even though contractual is somewhat variable with attendance. And what was the second part of the question?

Is there a floor on attendance-based theater access fees?

No. We have a few affiliate agreements that have minimums, but they have to meet certain attendance requirements in order to earn the minimum rev share. So there's kind of a give and take there, but the theater access fees don't have a minimum.

Okay. One more probably for Katie. Can you walk through the make-good? How are they accounted for at the end of the quarter? And how does that impact the upcoming quarter?

Okay. So we sell based on impressions. We guarantee a certain number of impressions, and we'll run a campaign for an advertiser against those impressions. And so for example, say, in the middle of December, we have an advertiser come in, advertise on screen with us at a certain level of impressions that we've guaranteed based on our estimates of what we think that attendance is going to be during that period of time. To the extent that attendance disappoints, like it happened to do this year with Star Wars and some of the movies that came out later in the year, we end up continuing to guarantee that impression beyond that delivery time frame. So past the end of the quarter, for example, we have an $8.7 million year-end make-good because we weren't able to give the impressions that we had guaranteed during that period of time. So those will be left and run subsequently. So they'll come in, in 2020, and about half of what we have from the end of the year was burned off in January. We had some successes that outperformed our attendance estimates like Bad Boys and coming into Sonic and things like that, that are actually looking really good for us. So that's how it burns off. How we account for it is essentially a deferred revenue liability. So it sits on the balance sheet as a deferred revenue liability. As we earn it, as we run that -- those impressions over time, that goes into the P&L and is accounted for as revenue at that point of time.

Okay. Any other live questions?

In terms of your inventory management, I think at the end of the third quarter, you had an issue in terms of the delay between selling scatter ad and when people wanted to buy in terms of the time gap. How important is it for you to sort of close the number of days or weeks between signing above the line and showing an ad? And how quickly do you think you get that time period down?

So in the new CustomerOne initiative that both Chuck and Adam talked about, we think we can get it down to within 24 hours from the time the ad gets ordered to the time it actually runs. Right now, it's a complicated answer. If we do it by hand, we might be able to do it in a day or 2, but it will more likely could take how many days?

That's not scalable. They're just not scalable currently.

3 days. So that's -- in a world where people can order digital inventory and get it run within an hour on Facebook and Google, it's a major advantage for them. And one of the major things we're accomplishing with CustomerOne is basically real-time delivery of advertising from the time it gets ordered. So that -- this new initiative is going to really alleviate a lot of that.

Can you get it down to 12?

I think we won't get down in the first hours right away. But I think if we can get it within 24 hours, which is our goal, that will be a major achievement.

And that's [ 2020 ], this year?

2021.

Yes. Beginning next year.

Any more? Okay.

Well, thank you, everyone, for coming. I really appreciate it. We're going to have a cocktail hour, and...

Sorry, those on the phone, you're going to miss it. You have to provide your own cocktail.

There's no virtual cocktails. Obviously, it's an exciting time to be at this company, what we're accomplishing in a relatively short time in last 6 months. And I'm really proud of the great team and you got to meet everybody today. And we really appreciate you coming here, especially given rather difficult travel times for all of you. So thanks again, and we'll see you at the movies.

Thanks, everyone.