Current’s Claims of ‘Profitability’ Ring False

Parsing through Current Media‘s filing for a $100 million public offering, I kept stumbling over the financials section. The youth-oriented news company had a net loss of $9.8 million in 2007, based on revenue of $63.8 million. It lost $7.6 million in 2006 and $14.3 million in 2005. Altogether, Current had $36.5 million in debts as of the end of last year.

Yet until now, while the company — which is perhaps best known for being co-founded by Al Gore — wasn’t obligated by the government to tell the world, Current kept telling me it was profitable. Just last week an external PR person pitched me in an email: “Unlike so many Web 2.0 companies, they’re profitable.” And back in October, when Current was making its big online push, Joanna Drake Earl, the company’s president of new media, said in an in-person interview, “We continue to be profitable. It comes back to discipline. We didn’t want to spend marketing dollars.” I reported the situation as such in my write-up on Oct. 15.

I wasn’t the only one who took Current’s claims of profitability at face value. “Joel Hyatt is comfortably ensconced in his loft-style San Francisco office at Current TV, Al Gore’s now-profitable cable network,” wrote Fast Company last summer. “Hyatt says that Current TV is profitable and has been for nearly a year,” reported BusinessWeek in September. “Mr. Hyatt said Current TV, which is backed by two private equity firms and a group of business partners, including Ronald W. Burkle, the supermarket magnate, turned profitable in the fourth quarter of 2006, but would not give specifics,” said the New York Times in October.

Current declined to comment for this story, citing federal securities law that requires a company to undergo a “quiet period” after filing with the intent to go public. Update, Tuesday 2:50 PST: Current spokesperson Whit Clay, who previously declined to comment, just offered the following statement:

Like most media companies that are publicly traded, Current has used EBITDA as a measure of cash earnings. Our previous comments about ‘being profitable’ were on an EBITDA basis which excludes non-cash expenses such as interest, taxes, depreciation, amortization, stock compensation, and extraordinary items…Financial statements in an S-1 are on a GAAP basis in keeping with SEC regulatory requirements which means they include all costs — cash or otherwise.

In its S-1 filing, the five-and-a-half-year-old company states quite clearly, “We have a history of losses since launching Current TV….We expect to continue to incur net losses in the future…we cannot assure you that we will be able to achieve or maintain profitability in the future.”

One section that seems like it might explain the discrepancy concerns Current’s purchase of cable channel Newsworld International from Vivendi Universal for $70.9 million in May 2004. Initially, says Current, the company planned to relaunch NWI from in-house, but a year later it decided to go another direction. It is amortizing the cost of useful parts of the acquisition over seven years; here’s the detail from that section:

“We accounted for the acquisition of NWI as a purchase of a business. We valued the acquired intangible assets, consisting of affiliate distribution arrangements, at $13.7 million and are amortizing them over their estimated useful lives of seven years. We recorded the excess of the purchase price over the value of the acquired intangible assets, or $57.2 million, as goodwill. On August 1, 2005, we terminated the NWI programming and a majority of the acquired outsourcing agreements and launched Current TV in the United States. Because the nature and content of our television programming changed so significantly with the launch of Current TV and we effectively began to operate a new business, we believe that our results of operations before August 1, 2005 are not comparable to our results of operations after August 1, 2005.”

But still, Current, according to its own math, lost $7.6 million in 2006 and $9.8 million in 2007. That’s more than $13.7 million, however long you amortize it. And I just don’t see how you could call the company “profitable.”


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