CuriosityStream Inc. (CURI) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our results of operations and financial condition. The following discussion should be read in conjunction with the Company’s consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we,” “us,” “our,” and “the Company” are intended to mean the business and operations of CuriosityStream Inc.

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Overview

Created by John Hendricks, founder of the Discovery Channel and former Chairman of Discovery Communications, CuriosityStream is a media and entertainment company that offers premium video and audio programming across the principal categories of factual entertainment, including science, history, society, nature, lifestyle and technology. Our mission is to provide premium factual entertainment that informs, enchants and inspires. We are seeking to meet demand for high-quality factual entertainment via SVOD platforms, as well as via bundled content licenses for SVOD and linear offerings, content licensing, brand sponsorship and advertising, talks and courses and partner bulk sales.

We operate our business as a single operating segment that provides premium streaming content through multiple channels, including the use of various applications, partnerships and affiliate relationships. We generate our revenue through six products and services: Direct to Consumer Business, Partner Direct Business, Bundled Distribution, Content Licensing, Enterprise Subscriptions and Other. The table below shows our revenue generated through each of the foregoing products and services for the years ended December 31, 2022, and 2021:

CuriosityStream’s award-winning content library features more than 15,000 programs that explore topics ranging from space engineering to ancient history to the rise of Wall Street. Our extensive catalog of originally produced and owned content includes more than 9,500 short-, mid- and long-form video and audio titles, including One Day University and Learn25 recorded lectures that are led by some of the most acclaimed college and university professors in the world. Our library also features a rotating catalog of more than 5,500 internationally licensed videos and audio programs. Every month, we launch dozens of new video titles, which are available on-demand in high- or ultra-high definition. Through new and long-standing international partnerships, we have localized a large portion of our video library in ten different languages.

Our video content is available directly through our O&O Service and App Services. Our App Services enable access to CuriosityStream on almost every major consumer device, including streaming media players like Roku, Apple TV and Amazon Fire TV, major smart TV brands (e.g., LG, Vizio, Samsung, Sony) and gaming consoles like Xbox. Our Direct Service is available in more than 175 countries to any household with a broadband connection. Our existing subscribers currently pay $2.99 per month or $19.99 per year for our standard Direct Service. All new subscribers to our standard Direct Service on and after March 27, 2023, will start to be charged $4.99 per month or $39.99 per year. We also provide a Smart Bundle service for $9.99 per month or $69.99 per year. Our Smart Bundle membership includes everything in our standard service, plus subscriptions to third-party platforms Tastemade, Topic, SommTV, DaVinci Kids, our equity investee Nebula, and our One Day University stand-alone service.

The MVPD, vMVPD and digital distributor partners making up our Partner Direct Business pay us a license fee for sales to individuals who subscribe to CuriosityStream via the partners’ respective platforms. We have affiliate agreement relationships with, and our service is available directly from, major MVPDs that include Comcast, Cox, Dish and vMVPDs and digital distributors that include Amazon Prime Video Channels, Apple Channel, Roku Channel, Sling TV and YouTube TV.

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In addition to our Direct to Consumer and Partner Direct businesses, we have affiliate relationships with our Bundled MVPD Partners and vMVPDs, which are broadband and wireless companies in the U.S. and international territories to whom we can offer a broad scope of rights, including 24/7 “linear” channels, our on-demand content library, mobile rights and pricing and packaging flexibility, in exchange for an annual fixed fee or fee per subscriber.

In our Content Licensing business, we license to certain media companies a collection of our existing titles in a traditional content licensing deal. We also sell selected rights (such as in territories or on platforms that are lower priority for us) to content we create before we even begin production. This latter model reduces risk in our content development decisions and creates content licensing revenue.

Our Enterprise business is comprised primarily of selling subscriptions in bulk to companies and organizations that in turn offer these subscriptions to their employees and members as an employment benefit or “gift of curiosity.” As of the date of the filing of this Annual Report on Form 10-K, 25 companies have purchased annual subscriptions at volume discounts.

Our Other business is primarily comprised of advertising and sponsorship revenue. We offer companies the opportunity to be associated with CuriosityStream content in a variety of forms, including short- and long-form program integration, branded social media promotional videos, advertising spots in our video and audio programs that are made available on our linear programming channels or in front of the paywall, and digital display ads.

In the future, we hope to continue developing integrated digital brand partnerships with advertisers. These sponsorship campaigns offer companies the chance to be associated with CuriosityStream content in the forms described above. We believe the impressions accumulated in these multi-faceted campaigns would roll up to verifiable metrics for the clients. We executed one such advertising agreement in 2021 with Nebula and two such sponsorships in 2020.

Key Factors Affecting Results of Operations

Our future operating results and cash flows are dependent upon a number of opportunities, challenges, and other factors, including our ability to efficiently grow our subscriber base, increase our prices and expand our service offerings to maximize subscriber lifetime value. In particular, we believe that the following factors significantly affected our results of operations over the last two fiscal years and are expected to continue to have significant effects:

Revenues

Currently, the main sources of our revenue are (i) subscriber fees from the Direct to Consumer Business and Direct Subscribers, (ii) license fees from affiliates who receive subscriber fees for access to CuriosityStream content from such affiliates’ subscribers (“Partner Direct Business” and “Partner Direct Subscribers”), (iii) bundled license fees from distribution affiliates (“Bundled MVPD Business” and “Bundled MVPD Subscribers”), (iv) license fees from content licensing arrangements (“Content Licensing”), (v) subscriber fees from our Enterprise business, and (vi) Other revenue, including advertising and sponsorships. As of December 31, 2022, we had approximately 23 million paying subscribers, including Direct Subscribers, Partner Direct Subscribers, Bundled MVPD Subscribers, and Enterprise subscribers.

Since the Company was founded in 2015, we have generated the majority of our revenues from Direct Subscribers in the form of monthly or annual subscription plans. Our existing subscribers currently pay $2.99 per month or $19.99 per year for our standard Direct Service, or $9.99 per month or $69.99 per year for our premium Direct Service. All new subscribers to our standard Direct Service on and after March 27, 2023 will start to be charged $4.99 per month or $39.99 per year. Currently, our premium Direct Service pricing and pricing for existing subscribers will remain unchanged. However, we may in the future increase the price of these existing

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subscription plans, which may have a positive effect on our revenue from this line of our business. The MVPD, vMVPD and digital distributor partners making up our Partner Direct Business pay us a license fee. We recognize subscription revenues ratably during each subscriber’s monthly or yearly subscription period. We pay a fixed percentage distribution fee to our partners for subscribers accessing our platform via App Services to compensate these partners for access to their customer and subscriber bases. Our MVPD, vMVPD and digital distributor partners host and stream our content to their customers via their own platforms, such as set top boxes in the case of most MVPDs. We do not incur billing, streaming or backend costs associated with content distribution through our MVPD, vMVPD and digital distributor partners.

Operating Costs

Our primary operating costs relate to the cost of producing and acquiring our content, the costs of advertising and marketing our service, personnel costs, and distribution fees. Producing and co-producing content and commissioned content is generally more costly than content acquired through licenses.

The Company’s business model is subscription based as opposed to a model generating revenues at a specific title level. Content assets (licensed and produced) are predominantly monetized as a group and therefore are reviewed in aggregate at a group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost. If such changes are identified, the aggregated content library will be stated at the lower of unamortized cost or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off. For a discussion of the accounting policies for content impairment write-down and management estimates involved therein, see “- Critical Accounting Policies and Estimates” below.

Further, our advertising and marketing expenditures and personnel costs constitute primary operating costs for our business. These costs may fluctuate based on advertising and marketing objectives and personnel needs. In general, we intend to focus marketing dollars on efficient customer acquisition. With respect to personnel costs, we focus on revenue-generating personnel, such as sales staff and roles that support the improvement, maintenance and marketing of our Direct Service.

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Results of Operations

The financial data in the following table sets forth selected financial information derived from our audited consolidated financial statements for the years ended December 31, 2022 and 2021 and shows our results of operations as a percentage of revenue or as a percentage of costs, as applicable, for the periods indicated. We conduct business through one operating segment, CuriosityStream.

n/m – percentage not meaningful

Revenue

Revenue for the years ended December 31, 2022 and 2021 was $78.0 million and $71.2 million, respectively. The increase of $6.8 million, or 10% is primarily due to a $10.2 million increase in subscription revenue, partially offset by a $2.3 million decrease in license fee revenue, and a $1.1 million decrease in license fee revenue.

The increase in subscription revenue of $10.2 million resulted primarily from a $6.0 million increase in subscriber fees received from Direct Subscribers for annual and monthly plans and a $4.2 million increase in corporate subscriptions related to subscription bulk agreements.

The decrease in license fee revenue of $2.3 million is due to an adjustment recorded as a result of an amendment to one of the Company’s content licensing agreements.

The decrease in other revenue of $1.1 million is primarily due to a one-time services agreement entered into with an affiliate during the year ended December 31, 2021.

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Operating Expenses

Operating expenses for the years ended December 31, 2022, and 2021 were $133.3 million and $123.7 million, respectively. This increase of $9.6 million, or 8%, primarily resulted from the following:

Cost of Revenues: Cost of revenues for the year ended December 31, 2022 increased to $51.5 million from $36.7 million for the year ended December 31, 2021. Cost of revenues primarily includes content amortization, hosting and streaming delivery costs, payment processing costs and distribution fees, commission costs and subtitling and broadcast costs. This increase of $14.8 million, or 41%, is primarily due to the increase in content amortization of $11.4 million, primarily driven by the increase in content licensing arrangements and an increase in the number and cost of titles published during 2022 compared to 2021. The balance of the increase in cost of revenues is due to an increase in revenue share expense related to bundled arrangements with other streaming services of $3.4 million compared to the prior period.

Advertising & Marketing: Advertising and marketing expenses for the year ended December 31, 2022, decreased to $40.7 million from $52.2 million for the year ended December 31, 2021. This decrease of $11.5 million, or 22% is primarily due to a net decrease in digital and tv advertising of $11.7 million, and a decrease of $10.0 million in agency fees, partner platforms, and brand awareness advertising compared to the prior year, partially offset by an increase in radio and print advertising of $10.2 million compared to the prior period.

General and Administrative: General and administrative expenses for the year ended December 31, 2022, increased to $37.5 million from $34.9 million for the year ended December 31, 2021. This increase of $2.6 million, or 8%, is primarily attributed to an increase in legal, accounting, and other professional fees of $1.3 million, an increase in salaries and other compensation expense of $0.2 million, as well as immaterial changes across various cost categories totaling a $1.1 million increase.

We expect to incur additional expenses in future periods as we continue to invest in our corporate governance to support the Company’s activities as a public company, including adding personnel and systems to our administrative and revenue-generating functions.

Impairment of Goodwill and Intangible Assets: We also recorded a goodwill and intangibles asset impairment charge of $3.6 million during the year ended December 31, 2022 as a result of the impairment analyses performed. The impairment charge was applied against the entire balance of goodwill and substantially all of the intangible assets balance. There were no such impairment charges recorded during the year ended December 31, 2021.

Operating Loss

Operating loss for the years ended December 31, 2022, and 2021 was $55.3 million and $52.5 million, respectively. The increase of $2.8 million, or 5%, in operating loss primarily resulted from the increases to our operating expenses of $9.6 million, or 8%, partially offset by the increase in revenue of $6.8 million, or 10%, in each case during the year ended December 31, 2022, compared to the year ended December 31, 2021, as described above.

Change in Fair Value of Warrant Liability

During the year ended December 31, 2022, the Company recognized a $5.4 million gain compared to a $15.2 million gain recognized during the year ended December 31, 2021, each resulting from a decrease in the fair value of the liabilities related to the Private Placement Warrants for the respective periods.

Interest and other income (expense)

Interest and other income for the year ended December 31, 2022 was comparable to the year ended December 31, 2021.

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Equity Interests Loss

During the year ended December 31, 2022, the Company recorded $0.8 million equity interests loss related to the equity investments in the Spiegel Venture and Nebula, compared to $0.5 million equity interests loss during the year ended December 31, 2021.

Provision for Income Taxes

Due to generating losses before income taxes in each of the years ended December 31, 2022, and 2021, we had a provision for income taxes of $0.4 million in each respective period. The provision for income taxes is primarily related to foreign withholding income taxes. Our provision for income taxes differs from the federal statutory rate primarily due to the Company being in a full valuation allowance position and not recognizing a tax benefit attributable to generated losses for either federal or state income tax purposes.

Net Loss

Net loss for the years ended December 31, 2022, and 2021 was $50.9 million and $37.6 million, respectively. The increase in net loss of $13.3 million, or 35%, is primarily due to the decrease in the change in the fair value of warrant liability of $9.8 million and the increase in total operating expenses of $9.6 million, partially offset by the increase in total revenues of $6.8 million, in each case during the year ended December 31, 2022 compared to the year ended December 31, 2021, as described above.

Liquidity and Capital Resources

As of December 31, 2022, we had cash and cash equivalents, including restricted cash, of $40.5 million. In addition, the Company had debt securities classified as available for sale investments totaling $15.0 million, which were classified as short-term investments. All of the Company’s investments in debt securities can be readily converted to cash to meet the Company’s ongoing operating cash flow needs. For the year ended December 31, 2022, we incurred a net loss of $50.9 million and used $39.5 million of net cash in operating activities, used $0.2 million of net cash in financing activities, while investing activities provided $62.7 million of net cash.

On February 8, 2021, we consummated a registered public offering (the “Offering”) of 6,500,000 shares of Common Stock plus an over- allotment option, exercised in full by the underwriters, to purchase up to 975,000 additional shares of Common Stock. The net proceeds to us from the Offering were $94.1 million, after deducting $6.8 million in underwriting discounts and commissions and transaction expenses. We also incurred offering expenses in connection with the Offering of $0.7 million. During the year ended December 31, 2021, we received funds of approximately $54.9 million for the exercise of 4.8 million Public Warrants.

We believe that our cash flows from financing, combined with our current cash levels and investments in debt securities that are readily convertible to cash will be adequate to support our ongoing operations, capital expenditures and working capital for at least the next twelve months. We believe that we have access to additional funds, if needed, through the capital markets to obtain further financing under the current market conditions.

Our principal uses of cash are to acquire content, promote our service through advertising and marketing, and provide for working capital to operate our business. We have experienced significant net losses since our inception, and, given the significant operating and capital expenditures associated with our business plan, we anticipate that we will continue to incur net losses.

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Cash Flows

The following table presents our cash flows from operating, investing and financing activities for the years ended December 31, 2022 and 2021:

Cash Flow from Operating Activities

Cash flow from operating activities primarily consists of net losses, changes to our content assets (including additions and amortization), and other working capital items.

During the years ended December 31, 2022 and 2021, we recorded a net cash outflow from operating activities of $39.5 million and $73.2 million, respectively, or a decreased outflow of $33.7 million, or 46%.

The net cash outflow used by operating activities for the year ended December 31, 2022, was primarily due to our $50.9 million net loss, $6.4 million addback of net non-cash expenses net of content additions, and $5.0 million of net cash provided by changes in operating assets and liabilities. The most significant components of net non-cash expenses include amortization of content assets of $39.3 million and stock-based compensation expense of $6.6 million, substantially offset by additions to content assets of $34.8 million and the change in the fair value of warrant liability of $5.4 million. The components of changes in operating assets and liabilities were primarily attributed to an increase in accounts receivable of $11.9 million, and increase in other assets of $3.4 million, partially offset by a decrease in deferred revenue of $8.3 million, increase in accounts payable of $2.7 million, and decrease in accrued expenses and other liabilities of $4.6 million.

The net cash outflow used by operating activities for the year ended December 31, 2021, was primarily due to our $37.6 million net loss, $34.0 million of net non-cash expenses and net of content additions, and $1.6 million of net cash used by changes in operating assets and liabilities. The most significant component of net non-cash expenses include amortization of content assets of $27.9 million and stock-based compensation expense of $7.0 million, partially offset by additions to content assets of $65.6 million and the change in the fair value of warrant liability of $15.2 million. The most significant components of changes in operating assets and liabilities were primarily attributed to an increase in deferred revenue of $10.0 million and increase in accrued expenses and other liabilities of $7.4 million, partially offset by a decrease in accounts receivable of $16.2 million, and decrease in other assets of $2.7 million.

Cash Flow Provided by (Used in) Investing Activities

Cash flow from investing activities consists of purchases, sales and maturities of investments, business acquisitions and equity investments and purchases of property and equipment.

During the year ended December 31, 2022 and 2021, we recorded a net cash inflow from investing activities of $62.7 million and a net cash outflow from investing activities of $74.9 million, respectively. The net cash inflow provided by investing activities for the year ended December 31, 2022, was primarily due to the sale and maturities of investments in debt securities of $66.8 million, partially offset by purchases of investments in debt securities of $1.5 million and investments in Nebula of $2.4 million. The net cash outflow used in investing activities for the year ended December 31, 2021, was primarily due to purchases of investments in debt securities

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of $151.9 million, investment in Nebula and Spiegel Venture of $9.6 million and acquisitions of One Day University (“ODU”) and Now You Know Media Inc. (“Learn25”) of $5.4 million, which were partially offset by sales and maturities of investments in debt securities of $92.3 million.

Cash Flow from Financing Activities

During the year ended December 31, 2022, and 2021, we recorded net cash outflow from financing activities of $0.2 million and a net cash inflow from financing activities of $148.3 million, respectively. The net cash inflow during the year ended December 31, 2021 of $148.3 million was primarily attributable to the receipt of proceeds from the issuance of Common Stock of $94.1 million (net of $6.8 million of underwriting discounts and commissions), the exercise of 4.8 million Public Warrants resulting in cash proceeds of $54.9 million, and the exercise of stock options of $0.5 million, partially offset by the payments of transaction costs related to the issuance of Common Stock of $0.7 million, with no comparable activity during the year ended December 31, 2022. Further, the net cash outflow during the year ended December 31, 2022 was primarily attributed to withholding tax payments of $0.2 million related to the vesting of restricted stock units, compared to $0.5 million of such outflows during the year ended December 31, 2021.

Capital Expenditures

Going forward, we expect to continue making expenditures for additions to our content assets and purchases of property and equipment, although at a slower rate than in previous periods. The amount, timing and allocation of capital expenditures are largely discretionary and within management’s control. Depending on market conditions, we may choose to defer a portion of our budgeted expenditures until later periods to achieve the desired balance between sources and uses of liquidity and prioritize capital projects that we believe have the highest expected returns and potential to generate cash flow. Subject to financing alternatives, we may also increase our capital expenditures significantly to take advantage of opportunities we consider to be attractive.

Off Balance Sheet Arrangements

As of December 31, 2022, we had no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operation is based upon our financial statements, which have been prepared in accordance with U.S. GAAP. Certain amounts included in or affecting the financial statements presented in this Annual Report and related disclosure must be estimated, requiring management to make assumptions with respect to values or conditions which cannot be known with certainty at the time the financial statements are prepared. Management believes that the accounting policies set forth below comprise the most important “critical accounting policies” for the Company. A critical accounting policy is one which is both important to the portrayal of a company’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management evaluates such policies on an ongoing basis, based upon historical results and experience, consultation with experts and other methods that management considers reasonable in the particular circumstances under which the judgments and estimates are made, as well as management’s forecasts as to the manner in which such circumstances may change in the future.

Content Assets

The Company acquires, licenses and produces content, including original programming, in order to offer customers unlimited viewing of factual entertainment content. The content licenses are for a fixed fee and specific windows of availability. Payments for content, including additions to content assets and the changes in related liabilities, are classified within “Net cash used in operating activities” on the consolidated statements of cash flows.

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The Company recognizes its content assets (licensed and produced) as “Content assets, net” on the consolidated balance sheets. For licenses, the Company capitalizes the fee per title and records a corresponding liability at the gross amount of the liability when the license period begins, the cost of the title is known, and the title is accepted and available for streaming. For productions, the Company capitalizes costs associated with the production, including development costs, direct costs, and production overhead.

Based on factors including historical and estimated viewing patterns, the Company previously amortized the content assets (licensed and produced) in “Cost of revenues” on the consolidated statements of operations on a straight-line basis over the shorter of each title’s contractual window of availability or estimated period of use, beginning with the month of first availability. Starting July 1, 2021, the Company amortizes content assets on an accelerated basis in the initial two months after a title is published on the Company’s platform, as the Company has observed and expects more upfront viewing of content, generally as a result of additional marketing efforts. Furthermore, the amortization of original content is more accelerated than that of licensed content. We review factors that impact the amortization of the content assets on a regular basis and the estimates related to these factors require considerable management judgment. The Company continues to review factors impacting the amortization of content assets on an ongoing basis and will also record amortization on an accelerated basis when there is more upfront use of a title, for instance due to significant content licensing.

The Company’s business model is generally subscription based as opposed to a model generating revenues at a specific title level. Content assets (licensed and produced) are predominantly monetized as a group and therefore are reviewed in aggregate at a group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost. If such changes are identified, the aggregated content assets will be stated at the lower of unamortized cost or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off.

Goodwill and Intangible Assets

Goodwill represents the excess of the cost of acquisitions over the amount assigned to tangible and identifiable intangible assets acquired less liabilities assumed. At least annually, in the fourth quarter of each fiscal year or more frequently if indicators of impairment exist, management performs a review to determine if the carrying value of goodwill is impaired. The identification and measurement of goodwill impairment involves the estimation of fair value at the Company’s reporting unit level, which is the same or one level below the operating segment level. The Company determined that it has one reporting unit.

The Company performs an initial assessment of qualitative factors to determine whether the existence of events and circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of relevant events and circumstances, the Company determines that it is more likely than not that the fair value of the reporting unit exceeds its carrying value and there is no indication of impairment, no further testing is performed; however, if the Company concludes otherwise, an impairment test must be performed by estimating the fair value of the reporting unit and comparing it with its carrying value, including goodwill.

Intangible assets other than goodwill are carried at cost and amortized over their estimated useful lives. Amortization is recorded within General and administrative expenses on the consolidated statements of operations. The Company reviews identifiable finite-lived intangible assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows resulting from use of the asset and its ultimate disposition. Measurement of any impairment loss is based on the amount by which the carrying value of the asset exceeds its fair value.

During the second quarter of 2022, the Company experienced a sustained decrease in its share price, and this triggering event was an indication that it was more likely than not that the fair value of the Company’s single

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reporting unit was below its carrying value. The Company performed an interim goodwill impairment test of its goodwill as of June 30, 2022 and recognized a goodwill impairment charge of $2.8 million during the three months ended June 30, 2022 as the fair value of the reporting unit was less than the related carrying value. This charge is included in impairment of goodwill and intangible assets on the Company’s consolidated statement of operations for the year ended December 31, 2022.

The determination of the fair value of the Company’s reporting unit was based on a combination of the income and the market approach. The Company applied equal weighting to each of the approaches in determining the fair value of the reporting unit. Under the income approach, the Company utilized discounted cash flows of forecasted future cash flows based on future operational expectations and discounted these cash flows to reflect their relative risk. The cash flows used are consistent with those the Company uses in its internal planning, which reflect actual business trends experienced and the Company’s long-term business strategy. Under the market approach, the Company utilized the guideline public company method and guideline transaction method to develop valuation multiples and compare the Company to similar publicly traded companies. The significant assumptions under each of the approaches include, among others: revenue projections (which are dependent on future customer subscriptions and content licensing agreements), operating expenses, discount rate, control premium and a terminal growth rate. The cash flows used to determine the fair values are dependent on a number of significant management assumptions, such as the Company’s expectations of future performance and the expected future economic environment, which are partly based upon the Company’s historical experience. The Company also considered its market capitalization in assessing the reasonableness of the reporting unit fair value.

During the second quarter of 2022, the Company also determined there were impairment indicators with respect to certain of the Company’s definite-lived intangible assets. As a result, the Company performed an impairment test by comparing the carrying values of the intangible assets to their respective fair values, which were determined based on forecasted future cash flows. As a result of this impairment test, the Company recorded an impairment charge of $0.8 million during the three months ended June 30, 2022, which is reflected as a component of impairment of goodwill and intangible assets on the Company’s consolidated statement of operations for the year ended December 31, 2022.

In order to further validate the reasonableness of fair value as determined by the income and market approaches described above, a reconciliation to market capitalization is then performed by estimating a reasonable control premium and other market factors. Future changes in the judgments, assumptions and estimates that are used in the impairment testing for our asset group could result in significantly different estimates of fair value.

Revenue recognition

Subscriptions—O&O Service

The Company generates revenue from monthly subscription fees from its O&O Service. CuriosityStream subscribers enter into month-to-month or annual subscriptions with the Company. The Company bills the monthly subscriber on each subscriber’s monthly anniversary date and recognizes the revenue ratably over each monthly membership period. The annual subscription fees are collected by the Company at the start of the annual subscription period and are recognized ratably over the subsequent twelve-month period. Revenues are presented net of the taxes that are collected from subscribers and remitted to governmental authorities.

Subscriptions—App Services

The Company also earns subscription revenues through its App Services. These subscriptions are similar to the O&O Service subscriptions, but are generated based on agreements with certain streaming media players as well as with Smart TV brands and gaming consoles. Under these agreements, the streaming media player

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typically bills the subscriber directly and then remits the collected subscriptions to the Company, net of a distribution fee. The Company recognizes the gross subscription revenues when earned and simultaneously recognizes the corresponding distribution fees as an expense. The Company is the principal in these relationships as the Company retains control over service delivery to its subscribers.

License Fees—Affiliates

The Company generates license fee revenues from MVPDs such as Comcast and Cox as well as from vMVPDs such as Amazon and Sling TV (MVPDs and vMVPDs are also referred to as affiliates). Under the terms of the agreements with these affiliates, the Company receives license fees based upon contracted programming rates and subscriber levels reported by the affiliates. In exchange, the Company licenses its content to the affiliates for distribution to their subscribers. The Company earns revenue under these agreements either based on the total number of subscribers multiplied by rates specified in the agreements or based on fixed fee arrangements. These revenues are recognized over the term of each agreement when earned.

License Fees—Content Licensing

The Company has distribution agreements which grant a licensee limited distribution rights to the Company’s programs for varying terms, generally in exchange for a fixed license fee. Revenue is recognized once the content is made available for the licensee to use.

The Company’s performance obligations include (1) access to its SVOD platform via the Company’s O&O Service and App Services, (2) access to the Company’s content assets, and (3) licenses of specific program titles. In contracts containing the right to access the Company SVOD platform, the performance obligation is satisfied as access to the SVOD platform is provided post any free trial period. In contracts which contain access to the Company’s content assets, the performance obligation is satisfied as access to the content is provided. For contracts with licenses of specific program titles, the performance obligation is satisfied as that content is made available for the customer to use.

Recently Issued and Adopted Financial Accounting Standards

Leases

As an EGC, the JOBS Act allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act until such time as the Company is no longer considered to be an EGC.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”), which requires lessees to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under current U.S. GAAP. ASU 2016-02 requires a lessee to recognize a lease liability and a right-of-use asset for each lease with a term longer than twelve months. The new guidance also requires additional qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. The Company adopted the new standard effective January 1, 2022, using a modified retrospective approach and electing to use the package of practical expedients permitted under the transition guidance, which allows for the carry forward of historical lease classification for existing leases on the adoption date and does not require the assessment of existing lease contracts to determine whether the contracts contain a lease or initial direct costs. Prior periods were not retrospectively adjusted.

The adoption of this standard resulted in the recognition of operating lease liabilities of $5.3 million, with corresponding right-of-use (ROU) assets in the amount of $4.0 million, net of existing deferred rent and lease

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incentives of $1.3 million. The Company did not have any finance lease liabilities as of the adoption date. There was no cumulative effect adjustment to the opening balance of accumulated deficit as of January 1, 2022. Adoption of this new guidance did not have a material impact on the consolidated statements of operations or cash flows. Refer to Note 13 for further information regarding the impact of adoption of Topic 842 on the Company’s consolidated financial statements.

Accounting Standards Effective in Future Periods

Financial Instruments—Credit Losses

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-03”).” The amendments in this update introduce a new standard to replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Subsequent to the initial standards, the FASB has also issued several ASUs to clarify specific topics. ASU 2016-13 is effective for the Company’s fiscal year beginning January 1, 2023. The Company does not expect the implementation of ASU 2016-13 to have a material impact on its consolidated financial statements.