Welcome to the Gaiam Fourth Quarter 2011 Financial Results Conference Call. [Operator Instructions] Today’s call is being recorded. If anyone has objections you may disconnect at this time. I would now like to turn the call over to John Mills of ICR. You may begin.

Great. Thank you. Good afternoon, everyone, and thank you for joining our call today. The following constitutes the Safe Harbor statement of the Private Securities Litigation Reform Act of 1995. Except for historic information contained herein, the matters discussed on this call are forward-looking statements that involve risks and uncertainties including but not limited to, general business conditions, integration of acquisitions, timely development of new businesses, the impact of competition, and other risks detailed from time to time in the SEC reports. The Company does not undertake any obligation to update forward-looking statements. On the call today representing Gaiam are Mr. Jirka Rysavy, Chairman; Lynn Powers, CEO; and Mr. Steve Thomas, CFO. Now I would like to turn the call over to the Company’s Chairman, Mr. Jirka Rysavy. Go ahead, Jirka.

Thank you, John, and good afternoon, everyone, and thank you for joining our call. About 30 minutes ago, we announced that we have entered into an agreement to acquire Vivendi Entertainment from Universal Music Group in an accretive transaction. In 2011, Vivendi Entertainment sold approximately 21 million media units, generating gross sales over $200 million. Gaiam will recognize only the net fee revenue, so acquisition is expected to add approximately $25 million in revenue and equal amount of gross profit on annualized basis. The combination of Vivendi Entertainment, which is the seventh largest theatrical media distributor in the U.S., with Gaiam it will create the largest independent and third largest overall non-theatrical media distributor in the United States, behind Warner, about even with Lionsgate, and ahead of all of the major studios, like Disney, Paramount, Universal, Fox, and Sony. Gaiam will acquire Vivendi for about $3.4 million plus adjustment for working capital, which at the time of our Board approval and signing of the document was expected to be about $8 million. The transaction is expected to close by the end of the month, and is subject to satisfaction of certain closing conditions. In addition two expected financial benefits, the transaction will elevate Gaiam brand across the media landscape, while immediately positioning the Company as a powerhouse independent distributor, with a combined library of about 7,000 titles. Reflecting the combined scale of Gaiam and Vivendi existing distribution operation, we expect to realize very significant synergies. The Vivendi acquisition and the deconsolidation of Real Goods Solar will allow us to focus on our growing three core businesses. Gaiam brand distribution licensing and subscription services. During 2011 Gaiam repositioned in its direct response television business to create a branded products that can be marketed through company extensive retailer and digital partnerships. We…

Thank you, Jirka and good afternoon, everyone. As Jirka noted and as we’ve reviewed previously with you, 2011 was a year in which Gaiam took necessary steps to reposition and transition several of our businesses, in order to be more prepared and positioned to address changes that are taking place in several of our markets. These efforts impacted our financial results, but as I think you will glean from our collective comments this afternoon, we believe as a result of our work in 2011 is that we have a strong foundation for growth in 2012. With that said, let me spend a few moments reviewing our financial results, as well as our balance sheet as of the end of 2011, and some prospective on today's announced acquisition. Fourth quarter net revenue was $95.5 million, compared to $83.3 million for the fourth quarter of 2010. Net revenue from our business segment of $34.7 million declined $1.1 million compared to the year ago period, due primarily to the continued contraction in the DVD market, as well as lower sales as a result of the bankruptcy of Border's earlier in the year. These challenges were partially offset by the target aggregator business initiative, which began early in the fourth quarter. As indicated by our announcement of the Vivendi Entertainment accounting acquisition, we are taking a proactive role with actions that allow Gaiam to benefit from the consolidation of the home video market as it transitions to digital platforms. Net revenue generated by our direct to consumer segment declined $6.5 million to $20.9 million from $27.4 million in December, 2010 quarter. The decrease was mainly due to lower revenues associated with the planned repositioning throughout 2011 of our direct response television business. Lynn will provide more color on our business and direct to consumer…

Thanks, Steve. 2011 was a year of repositioning and redefinition of our Company as we planned for the future. Our Vivendi acquisition announcement this afternoon, along with our deconsolidation of the solar business reflects the focus across the organization on growing our three core businesses; the Gaiam brand, distribution and licensing, and subscription services. Despite the challenges we faced this year, we made progress in repositioning our Company around two broad strategic goals. First, strengthening and expanding our brands, and second, growing our media business. From Gaiam TV, our new branded streaming video service, to Gaiam Sol, our newly launched premium yoga brand, to our Gaiam Living retail store, we achieved measurable success on these initiatives in 2011 and expect to build on this momentum throughout 2012. Regarding our second goal of growing our media business, our Q3 launch of the media aggregator role at Target has led to a number of additional new opportunities for Gaiam, including our acquisition of Vivendi Entertainment, which I will discuss shortly. We also invested in and completed our digital asset management and delivery platform, signed agreements with all major digital players, and positioned our media business for the digital future. I will now highlight our operating results and repositioning by business unit, beginning with our business segment. Revenue in the business segment for the fourth quarter was $34.7 million compared to $35.8 million in the fourth quarter of 2010. Full year revenue was $88.3 million compared to $97.2 million in 2010. As a reminder, we experienced several one-time events earlier in the year that impacted performance, including persistently low in-stock rates with our largest customer, a costly third-party fulfillment program with Wal-Mart, which resulted in high returns and associated costs, and the bankruptcy of Border's. The fourth quarter revenue was impacted primarily by…

[Operator Instructions] Our first question comes from Mark Argento with Craig-Hallum.

Could you help me better understand the acquisition in terms of what you are actually buying, distribution, is it -- I assume DVDs predominantly. Are you getting a warehouse with it, or you kind of -- what comes with it, and maybe you could walk me through some of the economics.

The Vivendi Entertainment is a distributor pretty much on a -- like us, DVD and digital plays. And digital I guess distribution same way. It’s like how are obvious focus right now is home markets transitioning from the DVD to digital, it’s going kind of slower than we expected because we kind of invested early on this digital platforms and over the last two years, which allow us to really play the lead roles because so much more expensive to go through the different digital retailers which all required different formats and different metadata when DVD was just kind of unwrapping to everybody. So that’s kind of putting us in a very unique position right now. And so if we make acquisition like this, it will allow us to obviously benefit from that. As I mentioned we kind of would report that all the -- only the net revenue on our side, so our gross profit would be 100% of revenues. And Lynn maybe goes to obviously -- what we are actually what else we are acquiring, if you want to go to it, but that obviously…

I think Mark the reason for the transaction, first of all is scaling the media business and second is because Vivendi is unique in this positioning because the studios that it represents are brands just like Gaiam is a brand. So we are in a unique position to be able to use our store within store expertise, our non-traditional retailer channels, and our digital capabilities to help really grow these studio brands, and so with very little incremental overhead, we are going to be able to take on this kind of revenue and then the additional the 21 million units that they sold last year brings all of our costs down. So we are able to get synergies also through the cost efficiencies that we will get by being this largest independent player.

So is this similar in terms of like the discovery deal that you guys did.

No, I would compare this more to good time acquisition what we did years ago.

2005.

So because the synergies and scale the discovery deal would be much smaller than this and there we had a different, it’s different if you make an acquisition rather than we sign -- sign it.

So the incrementals that you are going to take, you will be moving these titles into your warehouse replicating these titles and distributing them into the channel, just like you would any of your other products?

Basically yes.

All right and then the -- in terms of the working capital adjustment are we talking 2X, $13 million, are talking single-digit millions any kind of way to help us think about that?

I said in my script that it is the times when we did approve it and sign it which was a few days ago, it was we expected above $8 million.

And you are just getting the physical DVD distribution rights here, there is no digital component to this at all.

No, there is digital. Most of the contracts have a digital component. That was one of the primary reasons for doing this. Like I said, there are a couple of reasons. One is scale on the DVD, becoming the consolidator in the industry and the second is the positioning also on the digital side. I believe almost everything single contract comes with some digital capability. So that also positions us at this independent aggregator digital content.

Which is kind of main things, these are the main things for us Mark right now. Actually because in this transition what’s happening is definitely consolidation here in industry and even it is going slower than expected, you have the digital parts to be a really big player there it’s important because it is the scale that really plays bigger per se play because each distributor requires different formats and different metadata. And as you kind of build these up you able to automate more and more, so it is kind of like self-fulfilling prophecy going forward, so you aren't in and out. So that’s really why, one the main reasons for this acquisition.

And the digital rights, will that give you the right to be able to stream it say on a – you probably wouldn’t want to do it on Gaiam TV, but say another platform that you could great after this side. Do you get the rights to put this thing up on Netflix or Hulu? How substantial digital rights do you have?

It depends on this studio and the contract but we certainly already started talking with some of the studios about creating their own brand of channels. They are certainly that opportunity take the Gaiam TV and reskin it for one of the children's channels as an example.

But we expect to add some to Gaiam TV as well.

Correct.

And then in regards to the Real Goods Solar, so you took the non-cash charge this quarter for deconsolidation? Did I hear that right?

It is actually a gain. It’s $2.6 million…

You took that this quarter?

In the fourth quarter.

Okay. And so but when you, in the $0.06 number you guys are talking to for the quarter, that excludes that number?

Excluded. That $2.6 million gain is on top of that.

And then so going forward, how does this -- is this going to show up on -- the 10 million shares will show up as an asset on your balance sheet going forward?

Yes. We would have a one line, Steve, right?

Yes. One line as investment and then at the very bottom of the P&L, we will pick up our share of their earnings or losses.

And then last question, how many, Steve, do you have handy how many employees you have right now, and maybe that number a year ago just to see total [indiscernible].

Last year would have included…

And it’s probably 600, 650 last year.

With Real Goods, it is probably about 240 this year.

Without Real Goods.

Without Real Goods.

Real Goods is probably at 500, 600.

Core Gaiam has been kind of flat in terms of…

Yes.

Okay. And then, one last question back on kind of the distribution because you have your own distribution center. Do you have -- I assume you guys have enough excess capacity to be able to bring on this business.

Most of the media business goes through a third party and they have plenty of excess capacity.

And we will look at when the deal closes, we will make whatever determination how we are going to proceed. So remember this deal didn't close yet.

So when you say it goes through a third party, that basically -- that is an opportunity to bring it in-house over time?

We have the duplicators of media. We don’t duplicate in-house, right. So it will be duplicated at somewhere, and you can ship directly from there or we can bring it to our warehouse. So any kind of third-party will be duplicated outside anyway for DVDs and all of the digital obviously goes through our servers.

And Mark, just to be exact, we have pretty close to 300 employees.

The next question is from Robert Routh with Phoenix Partners.

First quick question is obviously Universal has got a lot of great studio partners, WWE, et cetera, as you mentioned in the release. The question I have is, are any of the contracts with Universal or the studios up for renewal any time soon, or are they all locked in long-term, just in terms of are you going to have to go negotiate any of these contracts in a year or two, or how should we kind of look at that on that 7,000 titles that currently you are buying the distribution rights for?

Rob, we’ve already started those negotiations. So we’ve been talking to the studio partners and we’re working right now to make sure that we have good long-term contracts with everyone.

And most of them, obviously they kind of typically they are typically three-year deals. That’s kind of what we have same like Discovery, and they have different state of, because there is a lot of them. So some of them have still three-years left, some of them have may less. So you have to approach it that way, but only a few that’s really to be discussed. Otherwise, it’s done through acquisition of they create a new sub, so it’s kind of obviously that was a big deal to make sure that this is just working.

So you shouldn’t worry about any of those titles, it’s pretty safe to say you got these guys pretty much, they’re happy with it, you’re happy with it on all sides?

Most of them didn’t know about the transaction until now. So it’s kind of what you say.

I think the reason that the studio partners are don’t like this transaction is because Gaiam’s unique ability as I said earlier of having this non-traditional DVD distribution in the places like grocery and sporting goods, and Toys R Us. So we have a broader distribution, and we’re direct with all of that. As well as a unique stores and store approach and most of these studios are real brands. We know how to market those brands, so we think they’re all going to be pretty pleased with the transaction.

And also there is obviously a big pickup, because whatever they had right now in the royalties or whatever, distribution agreements we have about twice as many doors than anybody else in the market including the Vivendi, so it’s definitely a big upside for some of those brands.

And as far as taxes and NOLs go, I know you guys had some NOL and then tax benefits going forward. This transaction wouldn't jeopardize any of those, and then you would still be able to use those to shield those cash taxes going forward? Is that correct? Or is there any funky stuff going on there?

Yes, the transaction have zero impact on NOLs, because effectively we are not picking up any NOLs, not creating any. So it doesn’t impact. We have probably currently I would say close to $50 million of NOLs in or somewhere between $45 million and $50 million of NOLs, what we can use, which of them I think everything is about $10 million is unrestricted. So you can shelter obviously next like say $40 million of earnings.

And also as far as Gaiam TV, as you mentioned you are kind of looking at taking at of beta, and looking at you mentioned partners. I was wondering if you could expand a little on that in terms of what type of partners you would be looking for in what areas, and then in terms of timing. How soon you might see something there, given the type of content you have which is clearly differentiated nobody else has quite what you have, I think that would be a high class problem?

So it kind of a pretty wide questions, but as even before we take it from beta, I think the first wide partner, which it is all done signed and should launch shortly, it’s Verizon Fios. And so we expect that launch to be over next 30-days but you know it is up to them, they have everything from us and everything as done. So it’s up to them to kind of pull the trigger. And we did a bunch of other platforms and we talking some very large partners, but I wouldn't want to talk about names yet, but we did sign Samsung Smart TV. And so they are a lot of activities, but we really kind of want to go through and make sure that we -- that there is, we right now and already more than 50 countries. And that creates various challenges, but it is all of that stuff, it’s kind of cleaned up as a beta, but as you two to different countries, different browsers, and there are different rights to every country. So the question, how do we make sure that we don’t we kind of manage all this rights for country. It’s very convoluted development by its kind of all done, but so assuming everything goes as planned right now to take the beta off in May, you will start to hear some of those announcement and also we will start to go with full marketing.

Okay, and would it be safe to assume that your expectations for Gaiam TV let’s say in a year or two, not once your first deal or partner is announced and it goes out of beta. We will notice some meaningful, or you expect to meaningful impact on the reported financials, in terms of subscribers and revenue and all of that? I am trying internally what you are looking for from that financially?

Well, I would probably obviously now we kind of know kind of what the subscriptions are, how they grow that we have very good conversion from the free trial to signed subscription over 50%, which is much larger than most of people out there. But we still cannot really tell the retention it looks pretty good, but it’s so early to tell. So utility we can really, it’s obviously a big part of projections, so I would rather wait until the next call in May, when we are going to start to see some kind of at least project some retention to really answer these questions, but obviously we believe, or I believe that this can be very meaningful, very meaningful to Gaiam future.

And just one last question. When it comes to your other new initiatives that you mentioned -- obviously you mentioned skin care products are coming out and obviously the apparel line, and what you have done. What is the planned investment in those kind of new products, other than on the media side in 2012?

Rob, most of those are just part of our ongoing business plan. The skin care will be launched through DRTV. We are having – we’re working on formulations right now, so there is no large upfront cost, other than the production of the infomercial. And apparel we are working right now, we have got it out there on our on our direct to consumer, and we are just working towards making a line available to be sold out to retailers by holiday of 2012.

So we shouldn't model in any incremental spending, just kind of the normal operating expenses for all of these new initiatives? It is built in already?

That’s correct.

Molly Iarocci with Stifel, Nicolaus.

I have just a couple of questions. The first has to do with your line expansion within Barnes and Noble. You had talked about that last quarter, and I was just wondering if that was something that you are still intending to do, if there was anything new that we should know about from the fourth quarter?

No. It’s still, we are still working on that and they have picked up several of our Restore branded products, which are doing very well there. And they are looking at the Sol line, so we expect some growth on both of our new lines in Barnes and Noble.

And then I am kind of going to switch a little bit back to Gaiam TV. You talked about the subscription count. I think you said that so far you have had 50% of your free trials move over to subscriptions. Is there -- can you give any other color in terms of a number, and also are you still anticipating that you were needing I think it was about 34,000 subscriptions in order to breakeven on the investment?

So there are several questions so, yes, I can provide some more colors. On what is the break even, it is really a question of retention so that would really, we kind of give you the estimates last, but we really kind of want to need to see what’s really happening, we don't have a yet good color, because it is so new, because we only started marketing in December, and we took it very slow obviously first internally. So we can get just very few subscribers over in a year and because we want to make sure that all the technology works good. We are right now about 4,000 subscribers who pay $10 a month. And the conversion rate was from -- we provide 10 days free trial, so it is a conversion rate from free trial to subscription. What I mentioned and I guess what was the last question? Wasn't some other part what I didn’t…

Breakeven.

It was the breakeven.

I mean that right away went away until we kind of see retention obviously the conversion from free which is kind of happening better than we expected and but the retention is like, so far as the people kind of there, so because they just -- months or two really on the site. So we cannot really see it how they replace. So I think we need at least a couple of months maybe more to really project the solid retention, which is obviously the huge impact on the profitability.

Right, and just so that I’m clear so you said you have about 4,000 subscribers right now who…

Paid subscribers. They are more people in a site as the subscribers in a free trial but we don’t count those when we give you -- going to give you reports will be just people who pay subscription which is $120 a year.

And when you said the 50% went from free trial to subscribers, so essentially you had about 8,000 going through your free trial program.

Well, I mean when we started we had different programs because we tested different ones and retention rate also, the conversion rate is changing, so I am just kind of providing a current snapshot, and it is kind of too early to -- these numbers might not be meaningful a few months from now because this is so early, so I have other way to provide more details because if you have 500 subscribers, you can't really draw any averages from it.

And then last question with regard to kind of your retail I’m sorry you said things are going well. Do you have any other rollout plans moving forward?

We are working on our retail strategy right now. Store is -- it took about five months and now it’s at breakeven but we have been a little busy with this transaction. So the retail strategy kind of took a back seat for the last quarter but we are going to put it back on the front burner as soon as we finalize the integration of Vivendi Entertainment.

I would now like to turn the call back over to Mr. Rysavy for closing comment.

Thank you very much. Thank you everybody for being with us and we will hopefully meet in May on our next call. Thank you very much.

Thank you for participating in today’s call, you may disconnect at this time.