[Music] in 2020 a video streaming company called curiosity stream went public by merging with a spack they created thousands of non-fiction documentaries about nature Science and Technology it appealed to science Geeks Who for the low price of just $20 per year could gain access to a nearly unlimited number of documentaries in their Spa presentation curiosity stream pointed to the massive success of BBC's planet Earth too to show that there is strong demand for Nature Documentaries among the younger Generations from a financial perspective non-fiction content is also much cheaper to produce than scripted dramas it costs
curiosity stream about $100,000 to produce one hour of content for comparison Game of Thrones cost more than $10 million per hour to produce almost 4 years later things aren't looking great for the non-fiction streaming service their revenue has been steadily declining since 2021 and they have never reported a positive operating profit given the disastrous financial performance you probably won't be surprised to see that their stock price has declined by almost 90% since going public putting the company within Striking Distance of penny stock status what perhaps is surprising is that their share price has more than
doubled over the past few months in March they unexpectedly announced a quarterly dividend of 2.5 cents per share while 2.5 cents might not sound like a lot their stock price was only 58 cents at the time so the 2.5 C quarterly dividend represented an annual yield of almost 20% many in investors love dividends the initiation of the dividend at such a high yield attracted new investors and likely explains a doubling of the stock price but it's important to remember that Curiosity stream is still losing money how can they even afford to pay a dividend in
this video we'll look at the story of curiosity stream why they've struggled with profitability and finally we'll analyze the possible motives behind their dividend strategy curiosity stream was founded in 2015 by John hris Hendrick is best known for founding Discovery Communications in 1982 discovery's namesake Discovery channel is the host for non-fiction documentary content such as Shark Week deadly is catched Man versus wild Etc to understand curiosity stream we first need to understand the Discovery Channel while curiosity stream and Discovery are not affiliated with each other in any way curiosity stream represents a continuation of Hendrick's
involvement in the realm of documentary programming Hendrick first had the idea for the Discovery Channel when he was attending the University of Alabama in the 1970s some of his professors would rent 16 mm film cartridges from production companies like BBC the professor would project the short film to the class these films were educational for example in a history class the professor might rent a historical documentary to play for the class some classes also showed documentaries about wild animals in nature Hendrick realized that in addition to being Educational Tools these documentaries could serve as entertainment for
the general public even if you're not studying for a biology degree you might still want to watch a documentary about about Wildlife just for fun at the time not a single broadcast network had a dedicated channel for educational documentaries instead they all focus on live news and sports as well as scripted dramas which are far more expensive to produce in 1982 Hendrick was finally able to raise a few million dollars from investors to launch what would become Discovery Communications at first they licensed documentaries created by thirdparty production companies they aggregated this content and sold it
as a television channel to Cable Distributors eventually they already creating their own original Productions the production costs for non-fiction documentaries are generally far less than scripted television dramas for a television drama you need to write a script hire a director hire bigname actors and spend huge amounts of money on film sets and visual effects this can easily cost millions of dollars per episode for comparison think of discovery's hit show Deadliest Catch all they have to do is put some camera Crews on fishing boats they pay the fishermen to appear on the show but this is
a tiny fraction of what Hollywood actors get paid as it turns out a significant proportion of Television viewers are indeed interested in this type of content during the 1990s and 2000s Discovery Communications was a huge success he took the company public and it grew into a multi-billion dollar business discovery's Revenue relied almost exclusively on selling its content to cable television Distributors with the rise of streaming services like Netflix more and more households were ditching cable television while cable television was highly profitable it eventually became clear that this business model was a melting Ice Cube every
year more and more households cut the cord and switched to streaming in 2014 John Hendrick stepped down as chairman of Discovery one year later he founded curiosity stream at its core curiosity stream is supposed to be an online streaming version of the Discovery Channel they create original documentaries about nature science technology and Society between 2015 and 2019 John Hendricks put in $140 million of his own money to create a library of documentary content because the cost of the content is much cheaper to produce than scripted dramas curiosity stream also charged a far lower price to
Consumers initially the service only costs $3 per month or $20 per year some of their most popular shows include documentaries about the wild west Inside the Mind of a con artist which looks at the psychological vulnerabilities con artists exploit documentaries about the rise of artificial intelligence historical documentaries about World War II and of course they have numerous Nature Documentaries about everything from endangered tiger to animals living in urban areas by the time of the spa transaction in 2020 they had grown to about 800,000 paying subscribers they also had 12 million so-called bundled subscribers curiosity stream
provides access to its content to thirdparty Media Distributors to be used as a part of a larger bundle these distribution Partners included fubo TV the Indian media company tatas sky and many others in some cases ainet service providers would even provide complimentary access to curiosity stream to their broadband and customers these bundled deals are typically negotiated at a massively discounted rate so curiosity stream's average revenue per user is minis school at various times curiosity stream has advertised the fact that they had over 20 million subscribers but the vast majority of these have access to curiosity
stream via bundled service and may have never even watched it in the first year after curiosity stream went public things seemed to be going pretty well in the fourth quarter of 2021 Revenue peaked at $27 million due to their low content production costs their gross profit margins were quite high they spent heavily on Advertising mostly on social media platforms like YouTube the high advertising expense caused a company to report operating losses but so long as this translated to revenue growth investors were satisfied in September of 2021 curiosity stream paid $6 million to buy a 12%
stake in the video Subscription Service nebula nebula was founded by the YouTuber behind the Wendover Productions Channel dozens of large YouTubers have signed up to nebula they post their videos on nebula ad free and occasionally create videos exclusively for nebula viewers pay a subscription fee to access content on nebula as part of the investment they also signed a marketing partnership they offered a bundled package including both curiosity stream and nebula for $20 a year the same price to subscribe to curiosity stream as a standalone service you effectively got nebula for free sometimes they would even
run promotions with a price being dropped to $15 per year YouTubers on the nebula platform started advertising the Curiosity stream bundle in their videos in aggregate the bundle was advertised to tens of millions of viewers per month the subscription revenue from the bundle was split between curiosity stream and nebula the exact terms of the revenue share were not publicly disclosed additionally every time one of the nebula YouTubers advertised the bundle in a video curiosity stream paid them in cash this cost curiosity stream millions of dollars per quarter while the business appeared to be going well
for curiosity's dream in 2012 this success would prove shortlived over the following 2 years their revenue declined by more than 50% so what went wrong if we look at the revenue by segment in 2021 most of the growth came from content Licensing in addition to running its own streaming service curiosity stream also licenses some of its shows to other media companies for example back in 2020 HBO Max paid curiosity stream millions of dollars for access to a number of their shows this licensing deal has since ended if if you think back to 2021 that was
at the peak of the streaming investment boom Legacy Media companies like Warner media NBC Universal Disney Etc were all trying to catch up to Netflix a lot of these traditional media companies lacked non-fiction documentary content so instead of creating it themselves which would have been expensive and time consuming they paid to license curiosity streams documentaries content licensing Revenue all but collapse in 2023 while it's hard to tell the exact reason for this there are likely a few contributing factors facing Rising interest rates and declining stock market valuations the large streaming services became more selective about
content acquisition with curiosity stream being a niche content provider they were probably one of the first items on The Chopping Block consolidation is also bad for Content licensing for example in 2022 Warner media merged with Discovery Warner media used to pay curiosity stream to license content for its HBO Max streaming service Discovery had more than enough non-fiction documentaries so there's no long longer any reason to pay for curiosity stream's content in an attempt to increase Revenue curiosity stream doubled its subscription price in March of 2023 the annual subscription now costs $40 per year despite doubling
the price their direct subscription Revenue stayed roughly flat throughout 2023 not very many people were willing to sign up at the higher price the next problem came with her nebula bundle while this bundle was a successful marketing PL it was also very expensive remember that whenever one of the ne YouTubers advertised the bundle in a video curiosity stream had to pay them thousands and in some cases tens of thousands of dollars immediately following the spa transaction curiosity stream had over $100 million of cash on hand as they incurred operating losses their cash balance steadily declined
falling to about $40 million by the end of 2023 with cash running low curiosity stream informed nebula that he couldn't afford to pay for as many YouTube sponsorships sponsorships was the main way nebula's YouTubers made money with with curiosity stream tightening its purse strings nebula decided that the partnership was no longer worth their while from a marketing perspective the nebula portion of the bundle was far more valuable than curiosity stream for example if you see the bundle being advertised in a Wendover Productions video You Are by definition of wover Productions viewer and you likely enjoy
his content thus you're likely to be interested in nebula which has exclusive videos created by Wendover Productions and similar content creators many of the people who signed up for the bundle probably never even watched curiosity stream curiosity stream was taking a significant portion of the revenue but not really adding that much value in November of 2023 nebula announced they were terminating the bundle at the end of the year this was a disaster for curiosity stream as they would now be losing one of their main ways of acquiring customers in a desperate attempt to lock in
more subscribers curiosity stream started sending out marketing emails implying that if you subscribe to the bundle for a 2-year subscription before the year end you would retain access to nebula for the entire duration of the subscription this was not true nebula put out a statement calling out curiosity stream for misleading its customers people who subscribed to the bundle had their subscriptions automatically renewed by default starting in 2024 renewals did not include access to nebula this upset many subscribers who primarily watched nebula instead of curiosity stream they were charged for a year of curiosity stream which
they didn't want this has caused a lot of resentment among subscribers currently almost half of curiosity stream reviews on trust pilot are one star in curiosity streams SEC filings they disclosed that following the termination of the nebula bundle they have experienced a decline in their number of subscribers they are also at risk of further turn from subscribers who only wish to access nebula directly despite losing subscribers curiosity streams direct subscription Revenue actually increased slightly in the first quarter of 2024 the vast majority of subscribers choose to pay annually as this is cheaper than paying monthly
because people are locked into annual subscriptions it can take a long time for changes in subscriber Clow to impact reported Revenue also remember that they doubled their prices in the first quarter of 2023 for existing subscribers the price increases only realize when their annual plan renews so between the first quarter of 2023 and the first quarter of 2024 a steady stream of existing subscribers were renewed at the higher price curiosity stream does not disclose their number of subscribers which makes analysis difficult starting in the second quarter of 2024 revenue is likely to decline as the
benefit from the price increase has already been realized curiosity stream's business appears to be imploding in the first quarter of 2024 they generated $9.5 million of direct subscription Revenue this excludes bundled subscriptions and content licensing based on the current subscription price this translates to about 1 million subscribers with that number likely to decrease going forward so why is curiosity stream failed to Garner more subscribers even after the 2023 price increase it's still cheaper than any of the other major streaming services so why are so few people people willing to pay even such a small amount
while curiosity streams price is low the quality of its content is also quite low if you compare curiosity stream documentaries so those produced by National Geographic or Netflix for example the difference in production budget is obvious most people who would consider buying any streaming service already subscribed to one of the big ones like Netflix Disney Plus or Max Disney has National Geographic Max has discoveries non-fiction content and Netflix has tons of non-fiction documentaries as well all of which have much higher production budgets than curiosity stream the only benefit of curiosity stream is its quantity while
Netflix has a few hundred High budget documentaries curiosity stream has thousands of lowbudget documentaries but if your goal is to watch an endless quantity of science content there are tens of thousands of science videos on YouTube you can watch for free many of which are of similar if not better quality than curiosity stream curiosity stream finds itself in an awkward position where its content is too expensive to be monetized through an ad supported platform like YouTube but the quality is too low to compete with the streaming giants like Netflix Disney plus and Max if you
watched our previous video about Vice media they fell into a similar trap their production costs were way too high to be covered by the ad Revenue alone but the quality was too low to be effectively monetized on pay TV with the rise of AD supported media platforms like YouTube and Tik Tok most people aren't willing to pay for Content unless it's very high quality curiosity stream thought it was competing against Netflix and Disney Plus in reality they were competing competing with YouTube and it's very difficult to compete when your competitor's product is free as curiosity
streams revenu is declined over the past couple years they've also cut down their advertising and general administrative expenses this has allowed them to reduce their operating losses although they're still losing money surprisingly in March of this year they announced the initiation of a quarterly cash dividend to be paid to all shareholders it's unusual for a money losing Company to pay a dividend paying dividends cost money if the company is not making profits how can a dividend possibly be sustainable since the fourth quarter of 2022 curiosity streams cash flow from operations has been consistently greater than
operating income in the first quarter of 2024 their cash flow from operations finally turned positive despite the company still reporting an operating laws so what explains the difference between cash flow from operations and operating laws to conserve cash curiosity stream has drastically reduced it spending on new content in the first quarter of 2024 the only spent $426,000 on creating new content under Gap accounting rules content production costs are not recognized as expenses immediately hypothetically let's say it cost $100,000 to film a documentary you expect your subscribers to watch this documentary for the next 10 years
this documentary will be indirectly generating revenue for the next 10 years you recognize zero expense upfront instead you recognize $10,000 of content amortization expense per year over the next 10 years back in 2020 and 2021 when curiosity stream had a lot of cash and was trying to grow their spending on new content exceeded the amortization of old content now it's the opposite their spending on new content is less than the amortization of old content in their first quarter earnings release curiosity stream proudly bragged about the fact that they achieved positive cash flow from operations for
the first time ever they claim that this positive cash flow gives them the funds to pay dividends this is ultimately unsustainable their low content spending means their library of shows will quickly grow stale as their existing subscribers run out of interesting shows to watch they're likely to cancel their subscriptions in droves when a company initiates a dividend it's usually viewed as a sign of confidence in my opinion curiosity stream is the opposite the Senior Management can likely see that the business has failed investing in more content would just be throwing good money after bad so
instead they'll let the business die and distribute what little cash they have left as dividends all right guys that wraps it up for this video what do you think about curiosity stream let us know in the comments section below as always thank you so much for watching and we'll see you in the next one Wall Street Millennial signing out
