Q1 2023 Lions Gate Entertainment Corp Earnings Call
After their remarks, we'll open the call for questions also joining us on the call today are Vice Chairman Michael Burns.
COO, Brian Goldsmith Chairman of the television group, Kevin Beggs and chairman of the motion Picture Group, Joe Drake and from Starz, We have president and CEO Jeffrey Hirsch CFO , Scott Macdonald President of domestic networks, Allison Hoffman and president of International networks for Nikolay.
The matters discussed on this call include forward looking statements, including those regarding the performance of future fiscal years, such statements are subject to a number of risks and uncertainties actual results could differ materially and adversely from those described in the forward looking statements as a result of various factors. This includes the risk factors set forth in Lionsgate most.
Recent annual report on Form 10-K as amended in our most recent quarterly report on Form 10-Q filed with the SEC. The company undertakes no obligation to publicly release the results of any revisions to these forward looking statements that may be made to reflect any future events or circumstances.
Now I'll turn the call over to John Thank you Leila and good afternoon, everyone. Thank you for joining us.
We're pleased to report a quarter of strong global subscriber growth at Starz continued growth of our film and television pipelines and key financial metrics in line with expectations.
As I go through my remarks, you'll hear us focus on the operating environment dealing with issues of economic uncertainty recession fears cord cutting in the pandemic like everyone else.
But as I lay out how each of our businesses is addressing this environment Youll also hear how our business model Insulates us fairly well from some of the existing and potential headwinds.
Starting with our motion picture business with the box office, making a strong comeback our motion picture group is in great shape to capitalize on its return with a strong lineup of exciting movies.
Let me lead with our tent Poles.
We began shooting the eagerly anticipated hunger games prequel, the ballad of songbirds and snakes in Poland, two weeks ago and the early footage looks great.
The film Rolls out globally, and a prime holiday slot on November 17th next year.
The other anchor of next year's slate is John Wick, which has grown into a cultural phenomenon.
We will release, John Wick Chapter four on March 24, 2023, two are huge and engaged fan base around the world.
As we expand the John Wick universe across multiple businesses production has just wrapped on the John with prequel event series for TV the continental.
And in that same regard we're in advanced pre production on the John Wick action spinoff ballerina with knives out in no time to Die Star Anna Dr. Miss in the title role.
Behind these tent Poles expendables for will bring back a world class cast of action stars next year.
Dirty dancing, starring Jennifer Grey and are re imagining of the romantic classics arrives in theaters in time for Valentine's Day 2024.
We expect to have a major announcement in the coming weeks are now you see me three and with titles, including Nora toe Highlander and the Michael Jackson event film lineup as well, we're growing a pipeline that can compete at any level theatrically.
Our tempo businesses complemented financially and strategically by a consistently profitable low risk multi platform business for the 30 to 40 smaller and midsized films, we release each year.
Especially in this current environment, our proficiency of delivering targeted films for a wide range of platforms is a profitable and repeatable strategy.
This includes a direct to streaming component that continues to gain traction as it transitions from a largely opportunistic response to the pandemic.
A planned strategically focused business with production deals in place with a growing number of platforms.
Turning to television our status as one of the few independent suppliers of premium series at scale is our best defense against economic uncertainty and other headwinds.
We have strong relationships across more than two dozen platforms with multiple hit series at the broadcast networks streamers and a growing roster of Avon platforms, along with our strong slate to drive the growth of sister Company stars.
This diverse group of buyers helps mitigate a pullback in content spending by any one platform and has been our consistent strategy in both up and down markets.
We're also coming off one of the most active periods of content creation and our television group's history with more than 30, new shows picked up to series in the past three years, 90% of them renewed for additional seasons and valuable New properties goes home economics, Minx, Julia P Valley and a host of others.
We will begin to generate increasing returns as they move into later seasons and create value in our library.
For the past two years, our growth in television revenues hasn't been matched by growth and contribution and margin due to the investment in new series.
This year the television group's segment profit is on track to increase by over 50% on improving margins with even stronger gains next year as our series continue to mature at.
At Starz, we had a strong subscriber growth quarter, adding 1.8 million global streaming subscribers, including 700000 domestic subscribers.
We're able to continue delivering these gains despite the industry headwinds given our differentiated offering a focused original programming coupled with a robust slate of pay one output and library titles or a complementary price. It provides great value to the consumer.
The fiscal 'twenty three slate has a consistent cadence of juggernaut performers, including Outlander P Valley BMS and the power universe combined with Tentpole movies like Spider Man No way home.
With the majority of this slate underpinned by series returning for second and third seasons, we're confident in our ability to continue our subscriber momentum acquiring new customers and extending the lifetime value of our existing subscriber base in.
In the quarter, we continued to execute our commitment to engage both of our major cohorts with a new show every week with the successful debut of power book for force all three of our power spinoffs have become hits the drama P Valley achieved record ratings in its breakout second season, becoming one of stores.
Most widely viewed series ever.
Fan favorite Outlander returned for six hit season and earlier today, we announced the highly anticipated outlander prequel blood of my blood to be written and executive produced by Outlander showrunner Matthew B Roberts.
The Watergate series Gaslit, starring Julia Roberts, and Sean Penn debuted strongly in the quarter strengthening the starz brand and showcasing our ability to offer high end programming comparable to anything on premium pay TV.
We continue to expand Starz distribution successfully around the world, We announced the bundling deal with Disney in Latam in the quarter. Following on the heels of recent partnerships with cannot clues in France and via play in the Nordic territories.
This afternoon I'm pleased to report that we've launched the deal with Vizio and the U S. Making stars available to millions of Vizio Smart TV users.
As we've been saying this is just the tip of the iceberg in terms of where the industry is heading and starz will be a critical and desirable part of bundles and packages with a growing number of platforms and devices.
Again, we're cognizant of the headwinds in today's business environment. The economic uncertainty does make it harder to forecast our business. The pandemic has gone on longer than expected and continues to add cost.
There are growing pains in the streaming world and aging pains in the linear legacy businesses.
In response.
We're taking steps to conserve capital keep our balance sheet strong streamline operations and mitigate risk while we continue to do what we do best create great content and franchises that build our most important long term assets are world class Library.
In closing in terms of our strategic initiatives, we are proceeding nicely in spite of the turbulent economy and the complexity of ensuring that we retain and expand all of our strategic and operational benefits. We continued to advance conversations with potential sponsors and strategic partners and we remain on <unk>.
To conclude a transaction as early as the end of the fiscal year.
Now I'll turn things over to Jimmy.
Thanks, John and good afternoon, everyone I'll briefly discuss our first quarter financial results and update you on the balance sheet.
Q1, adjusted OIBDA was $5 million in total revenue was $894 million the year over year adjusted OIBDA variance reflects the expected timing of Starz programming as media networks had an elevated level of content amortization associated with the build of its fiscal year.
22, slate as well as more expensive programming that launched in the quarter.
Reported fully diluted earnings per share was a loss of 53, a share and fully diluted adjusted earnings per share came in at a loss of 23 a share.
Adjusted free cash flow for the quarter was $62 million use of cash now let me briefly discuss the fiscal first quarter performance of the underlying segments compared to the previous year quarter.
Media Networks' quarterly revenue was $381 million and segment profit was a loss of $37 million.
Revenue was down slightly year over year as we continue to see favorable shifts in subscriber mix with OTT revenue growth accompanied by linear declines.
Year over year domestic revenue declined two 4% while year over year International revenue was up 31%.
The year over year decline in media networks segment profit, primarily reflects the timing of content amortization in marketing costs with some foreign currency headwinds as Starz play international.
We ended the quarter with $37 3 million total global subscribers, including Starz play Arabia.
Total global media networks OTT subscribers grew one 8 million sequentially to $26 3 million.
This represents a year over year global OTT subscriber growth of 57% comprised of domestic OTT growth of 26% and international OTT growth exceeding 100%.
Now I'd like to talk about the studio business in aggregate.
Revenue of $711 million was up 5% year over year, driven by the TV group.
Segment profit of $70 million was up 48% year over year, driven by growth at both television and motion picture.
Our total library revenue at the studio was $749 million on a trailing 12 month basis up one 4% over the $739 million of revenue reported in the first quarter last year.
Breaking down the studio business between motion picture and TV, let's start with the motion picture group.
<unk> picture revenue was down four 3% to $279 million, while segment profit of $51 million was up 14% on increased margins.
Revenue and segment profit trends reflect continued strength in our library and an increased mix of direct platform titles in the quarter.
And finally, TV revenue was up 12% to $432 million driven by continued growth in output, which included both new and returning series.
Segment profit came in at $20 million.
Up 500% year over year reflect the new and returning series deliveries continued strength at three arts and favorable comparisons relative to last year's first quarter.
On the balance sheet, we ended the quarter with leverage at six six times or 4.1 times, excluding our investment in Starz play International.
Continued to retain significant liquidity with $379 million of cash on hand, and 1.25 billion of an undrawn revolver.
At the beginning of the quarter, we used some of our excess cash to prepay the $194 million of term loan a notes that would've otherwise been due in the fourth quarter of this fiscal year.
Currently we have no maturities until the fourth quarter of our fiscal 2025.
We remain committed to strengthening our balance sheet and continuing to pay down debt, while funding our investment in content and marketing from adjusted free cash flow.
We continue to see.
Adjusted EBITDA for fiscal 'twenty three at similar levels as fiscal 'twenty, two and as previously noted we see the year being back half weighted.
Given the magnitude of adjusted OIBDA for the next three quarters is implied from our outlook I wanted to give you some more color how does this increasing cadence falls out over the next three quarters in the second half in particular.
As expected the biggest driver is the timing of media networks content amortization and marketing costs, which naturally peaked in the first quarter and is expected to decline in each successive quarter of fiscal 'twenty three.
The level of first quarter content marketing cost reflects both the carryover amortization following the step up in the number of Starz originals in fiscal 'twenty, two particularly the late fourth quarter premieres of Outlander and Shining Vale.
And the full complement of marketing and content expenses related to higher cost programming launched in Q1, including Gaslit and P Valley.
This amortization curve will cycle through and declining amount as the year progresses.
Finally at Starz play International following strong subscriber trends in the first quarter and bundling opportunities with Disney in Lat am.
We expect revenue performance will improve sequentially for the remainder of the year.
At the television studio, we expect steady revenue growth and an improvement in margins in fiscal year, 'twenty, three, particularly as episodic deliveries scale in second half.
Additionally, we expect TV and motion picture will benefit from high margin licensing revenue of key library titles in the second half and Shits Creek and earlier film franchise releases become available.
Finally, while we will have elevated P&A in the fourth quarter tied to the release of John Wick four we expect our alternative distribution strategy with the March quarter platform available shotgun wedding will facilitate a strong close to the year for motion picture.
Now I'd like to turn the call over to <unk> for Q&A.
Thanks, Jami operator can we open the call up for Q&A.
Absolutely.
To ask a question. Please press Star then one on Touchtone phone.
Using a speaker phone please.
Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Today's first question comes from Phil Cusick with Jpmorgan. Please go ahead.
Hi, guys. Thank you.
I guess number one can you give us an update on strategic changes anything you can share there would be helpful. And then second I Wonder if you could talk about about churn it stars the rough level of <unk>.
And what's the you've expanded the content offering in the last year.
I'll I'll have Jeff go first with the stars issue.
Yeah, Hi, Joe how are you so as we talked about over the last probably two to three years. Our content strategy has been reeling about driving churn down to low single digits by lining up content to our core demos.
Every week 52 weeks a year. So we're just in the ending of P Valley, we premier indicating on the 14th and so we'll move that base from P Valley into came in and what we've seen.
On.
In post seasons churn before we were in the strategy post power churn was somewhere north of 40%. It's now below 15% I rely on the content. So we continue to see churn come down.
And we've seen single digits. We continue we're continuing to see it come down to all time lows and we think as we continue to work through this content slate lining up the content every week for the two core demo will continue to see it get down to that low single digits.
And Phil in terms of.
R R.
Strategic planning I would say the <unk>.
Ultimate plan to two Evaluable stars and studio sides of our business separately remains the same.
I'd add that.
As you can imagine there's a number of ways to do this and actually numerous complexities to address in order to make sure that the sum of the two parts. When they are valued separately is significantly more than they're currently valued together in terms of timing I would say my comments today reflect what we've said before on the subject.
Thank you.
Thank you. Our next question today comes from Matt Thornton tourists Securities. Please go ahead.
Hey, good afternoon, guys, maybe one for John one for Jimmy John just a follow up to the prior question it sounds like.
Getting an analysis by the end of the summer is still the way we should think about that I guess my incremental question. There is I know a couple of years ago. You guys had done an independent third party valuation of the library I think the valuation at the time was correct me, if I'm wrong, but $3 billion to $4 billion and my question. There what do you think thats still put it one or two years later in the current environment.
And then just secondly for Jimmy two housekeeping I know you talked about currency, which is not something we talk about but obviously the international business is getting a little bit bigger. So if you can quantify what that what that currency headwind was and do you still expect to be about free cash flow breakeven to positive for the for the full year. Thanks guys.
If I got you right.
You're asking I'm not sure you started with a timing issue and then ran into library value I'm not sure.
We're connecting those two in terms of library value frankly.
If anything the library as well more valuable than it was in that time period and continues to grow at a growth for <unk>.
Two reasons, one obviously, we are filling the pipeline with a lot of content.
And the more renewals, we get particularly in the television business the more valuable that content is and the second thing is in.
We will see in a recessionary environment, if it's quite the same but we are finding huge increases in demand.
With so many new buyers for our content and frankly again, such a significant portion of our content scripted and premium.
And frankly, that's what has the longest lifetime value and the most demand right now and Thats, what moves People's needles, and when you see a lot of the big streamers, obviously moving into new territories.
They need a lot of content and frankly, it's expensive to make new content. So yes.
Our library continues to grow significantly in value, it's an amazing library and.
We keep growing it did you have a question about timing.
Yes, sorry for the confusion John .
Just to follow up on the prior question it sounded like the way, we were thinking about timing and getting resolution by the end of the summer and a deal close by the end of the fiscal year. We're still it's still the way we should think about it I want to make sure I heard that right.
Yes, Michael wants to jump in.
As John said we're.
We're on track.
The key is to do the transaction or the initiative right not fast it's fairly complex.
It's important to note that we have an attractively finance balance sheet and very valuable tax attributes.
We're working very hard to preserve the value of both of those.
The structure that we're considering as it become broader and even in our separation and some of our potential partners have expressed interest in both the studio and stars.
And as always our priority is to create significant shareholder value.
And Matt for your question on FX and free cash flow, Yes, we did say some foreign currency headwinds in the quarter.
Think of it more as timing, but we'll have to wait and see it was about $12 million for the quarter about half of that would be starz play international as you might expect.
And we saw effectively what I think of as a full year.
Effect in foreign currency occur in the first quarter. So, we'll see where rates go from here, but generally speaking we don't have a significant exposure to foreign currency as you know.
But relative to this quarter rest of the just the size of the first quarter profitability. It was kind of an outsized percentage relative to all things being considered from a free cash flow standpoint, absolutely, yes, we still feel.
Good that we can continue to finance our increased investment in content marketing cycle, including Spi Starz play International.
From our positive free cash flow.
Hey.
Not a quarter to quarter thing, it's the trailing 12 months for a full year cycle, because as you know content spend and cash flows move quarter to quarter.
So we had a use of $62 million this quarter I expect another use of cash in the second quarter as well.
That is some tough comps as well on the trailing 12 months, so probably peak leverage in Q2, and then reduce that into the levels of five times by the end of the year and again on positive free cash flow.
Thanks, Matt operator can we get the next question. Please.
Absolutely. Our next question comes from Stephen kind of all of Wells Fargo. Please go ahead.
Thanks, maybe first for Michael or for Don on the strategic alternatives at.
It sounds like you are having some discussions around both assets maybe with multiple partners.
The timing has maybe taken longer than some of us might have thought I guess unless you have surety on a transaction coming together would you consider going ahead and separating the companies in order to generate some of the value that you are looking to get maybe provide.
Some some valuation discovery as to what the market thinks those worth or or maybe you can talk to us about why it's better to not do that while youre pursuing the process that you currently are.
And then John at the beginning you talked about the television segment profit increasing.
It sounds like Youre getting to some shows that are in later seasons could you maybe just talk us through what kind of profit growth, we might expect over the last sorry over the next few years. Thanks.
I'll, let Michael take the first and I'll take this yes, Steven we're not going to give too many more details, but obviously this initiative is all about creating shareholder value, but it is important to note that we are still on track to announce our intention in September .
And.
In terms of television.
I actually think I had it in my remarks.
Again, we had virtually all of our shows renewed obviously were a little disappointed with our first lady not going into the second season, but we actually are exploring another potential buyer for that other than that everything we had was picked up and we're moving into the second third fourth season of a number of shows as I said.
I believed our contribution.
Could go up something like 50% I believe is in my remarks, and frankly more.
The following year, which would be fiscal 2825, so I'm sorry fiscal 'twenty four so yes.
Yes.
I think it's all working according to plan and again when you think in a recessionary period frankly.
Frankly, it's a lot less expensive for networks and platforms to renew shows then actually to spend the 15% or $20 million or more to launch new ones and so we think again in that sense, we're a little bit insulated from recessionary pressure.
Great. Thank you.
Well thanks.
Thanks, Stephen operator.
Absolutely. Our next question comes from Peter Zaffino with Wolfe Research. Please go ahead.
Hi, Thank you.
<unk> relates to the eventual harvest of the investments that we're seeing your financials over the last five quarters. Your programming investment has gone up by about $1 billion.
The TV margins have fallen from 10% to almost zero in growing revenues and we've heard a lot of talk about deficit financing and I Wonder if you can talk about the importance of that and any other factors that would get you from your current run rate too much.
Much higher margins on higher revenues.
Yes, I'll answer, yes, I mean, we've got a lot of visibility in terms of what we're doing on the content side as John has noted we've had some great content generation and continue to do that but yes. It ultimately needs to pay back right than it does in TV I often say.
Lower margin at the time is a good thing because it means that what Kevin and the team is doing are killing it on building the future and all right. So.
In the first quarter for example, we had a higher mix of deficit financing, which will be long term benefits.
Then we expect in the second half of the year. So as we move through the year that mix will change and then that margin will start to increase and as John mentioned earlier, we feel really strong about that going into not only the rest of $23 24, and beyond and I'll. Just remind you that Kevin has a mix of business there and the team.
With about.
At least half if not more than half to third parties as well and obviously, a great supply relationship and programming with stores. So.
Strong business and a return to follow.
It's Peter Operator next question please.
Absolutely. Our next question comes from Thomas Yes, It was.
Morgan Stanley . Please go ahead.
Thanks, So much yeah, as we think about that potential standalone value of our studio business approaching the other end of this upcoming transaction I was wondering if you can just talk a bit more about the content monetization engine.
There's a variety of ways for example, some of the library deals are structured some of that maybe even include advertising revenue share an anecdote here, maybe just give us an update on the structure of these deals have evolved, especially given kind of the diversity of players that you mentioned that you work with in the space and then as part of that.
The recent announcement about our partnership with IMG on consumer products, given you're the portfolio of IP on the studio side I was wondering if you can put some dimensions around that opportunity for you where do you sit now on that front in your questions, where you have to go.
Yeah, I'm going to have Kevin Beggs answer that first part of the question. Thanks John .
I mean generally our television.
Andy was alluding to it just now we take a portfolio approach a mix of deficit license fee controlling our own destiny with global distribution and downstream domestic distribution and the emerging model of a cost plus that you would see at Netflix and Apple and Amazon as you see with the other players which is.
Upfront, but but a longer return to your library.
Something like goes on CBS as a clear winner for US 22 episodes, a year had comedy the number one new comedy of the year and we have the downstream domestic distribution, which we have already set up the Paramount plus which is exciting and just kind of continue to throw off but even deep library something like Nashville continues to perform over perform.
<unk>.
And continues to be re license 132 episodes.
Those are the big wins that we look for and we kind of 11 those.
Near term profitability shows with cost plus buyers in between but ultimately holding onto rights.
Is what we're all about and why we've always been in the deficit game and Theyre going to continue to be in that in every way that we can yes.
I think I should point out I think most most of you know this that.
The multiples paid for businesses that are in the studio business, where they control rights.
<unk> seen before.
Multiple 15% to 17 times and above.
As opposed to some of the multiples multiples you see for the diversified businesses and that the legacy businesses. So we believe strongly in deficit financing, we believe strongly investing in content, where we will own the copyrights, we will own it for life, where we will be able to explore multiple distribution <unk>.
Revenue streams forever and ever and in terms of both that's what your question and the last one.
There is no question in my mind that this value creation is going to be significant and monetization will be a multiple of what we're putting into the business.
Thanks, Thomas operator, because we get the next question. Please.
Absolutely. Our next question comes from <unk> Moreau with RBC capital markets. Please go ahead.
Great. Thank you for taking the question.
That's great to hear the profit outlook of the TV segment, I know that dynamics at motion picture.
Is it different than television and that for motion Pictures, 2023 will presumably be maybe down a little bit year over year, but given the slate that you have ahead and you talk about your distribution strategy you've talked a lot about your very successful approach to monetizing the library.
Or are we getting closer to a point where motion can also really ramp.
Segment profit profile. Thank you.
Yes. This is Joe it's a great question and we very much are John talked about.
Robust slate that we're driving into 'twenty three with <unk>.
We've been very intentional as we tested a few films. This last year and we've got a couple at the end of the year to really position ourselves for coming back into the market with a really robust slate and yet he mentioned about how that streaming business and our multi platform business has really been a deliberate business from what was opportunistic and so what.
We've been able to do leading into 'twenty three is stand up another leg of the business faster return on cash high margins our margins have been very strong for the last three years.
Now go back now we go into 'twenty three with <unk>.
Really probably the best slate, we've had in years and <unk> got some giant brands in there like wix.
And the hunger games, we've got some super targeted stock one of the things that we always we obviously want to be able to compete at the box office, but we are equally focused on profit.
When you look at the when you look at the box office everybody's focused on these big tent Poles, we have our share of those but if you also look youll see things like screen, which we haven't been a participant Tim Jack <expletive> Dog Blackstone. These middle movies are really some of the most profitable movies that are out there in the marketplace and when you look at our slate in addition to.
Those big drivers, we've got a number of action movies expandable little franchise for US Shadow Force for John mentioned were launching a spin off.
The whip franchise and ballerina.
Really compelling economics, smart price point with an opportunity to kind of extend that brand. So.
The answer to your question is a resounding yes.
That's very helpful. Thank you so much.
I could actually just maybe follow up related to the transaction in the studio and your team.
Thus with a common structure has become broader and that there is an surprisingly interest in the studio as well.
We just talked about how motion pictures at least.
The results in profitability over there is probably very subdued given all the investments and the.
The multiyear period, if you have the patients we should probably see that inflect quite nicely. When you talk with interested parties about valuation.
Whats kind of the framework that you look at.
Make sure that.
Youre you'd be getting potentially a fair fair value for this asset that at least from the Street's perspective has been.
Arguably undervalued.
I wouldn't I would answer that a little differently I think the whole reason that we've entered into.
These discussions to separate the values of these businesses. We found that there is interestingly enough two very different sets of investors and some investors really like the fact that we've got this targeted platform very specific I would say again, even in this recessionary period, we're sort of in the fourth or fifth inning, it's sometimes it's better to be smaller than we are.
Expectations are a little bit of different we're already making money in our domestic streaming business.
And honestly, we are like in the fourth inning internationally.
In that business and so instead of adding new territories, which everybody is doing we're actually going the other way where kind of scrubbing each territory to make sure. It's a territory, we need to be in and as we've said before we're sort of within two years.
Our run rate.
Cash positive in our international business. So we have.
A different way of looking at those those businesses, but certainly there seem to be a group of investors that really like that.
The.
Streaming side and the platform side and there is another that understand the immense value that we have is really after that.
MGM sale to Amazon.
Really the only real actionable investable studio and again mgs.
MGM, if that's a comp well there you go use use that our library honestly is better than the MGM library. Its newer its pressure we've been investing in it for five or six or seven years. So if you want if you want to use that as a comp but again at the end of the day.
It is not surprising that people might show interest in both sides, but we still have to create a vehicle. So that we can value both sides separately right now that's what we're that's what we're doing as Michael said there. There are good complexity, the complexities of having a really smart.
<unk> financing structure Nols.
And things that we want to preserve and this and this structure and so we're taking our time and we think we're on track in terms of our our timing as I said to potentially be able to close the transaction as early as the end of our fiscal year, but we're going to do this right.
To create the value for our shareholders and.
And again, we're advancing just really pretty much at the speed, we expect it to.
That's great. Thank you both for all the color.
Thanks, operator.
Operator can we get the next question please.
Our next question comes from Bryan Kraft Deutsche Bank. Please go ahead.
Hi, good afternoon.
To ask you I guess two questions first on international sub growth that stars can you just talk about sustainability of that and <unk>.
Your confidence in the next few quarters being able to continue to grow the way it did this quarter or even better the way it did last quarter.
Then separately I guess for Kevin.
What are you seeing generally as far as third party demand for newly produced content I know the studio is doing well growing but with some of the streamers like Netflix and Warner trying to become more disciplined around content spending are you seeing any changes in demand for new projects or any renewed discipline around <unk>.
So those projects.
Maybe on the leading edge of the conversations at this point. Thank you.
Start with GE.
Hey, it's Jeff <unk>.
Thanks for the question.
I think theres really two things that are giving us great confidence in continued subscriber growth in the international business, we're seeing a lot of great momentum in distribution deals you've got a lot of distribution deals that are about to be signed and about to be launched definitely bringing as John said instead of launching new markets, we're going deeper in existing markets, where theres more consumers and so.
We're seeing a lot of consumer uptake, we're seeing a lot of momentum in the distribution side of the business you talked about in John's prepared remarks, we launched a bundle with Disney got some bundles and Benelux that we launched and I think on top of that if you take a step back the content from the U S is really driving into the international business much like <unk>.
We talked about the domestic side now that we have lined up the content of international in that that content is really starting to come online and drive the subscriber business.
And then in.
Territories like Latam in Mexico, We've got these great originals that we knew we had a programming gap from the U S and we built these great original senior REIT 89 has performed really really well, we're excited about nacho coming out of Spain to come onto the platform and so.
So we feel really good about that we are on track to hit that 50 to 60 million subscriber target for the world in 2025 and.
And that will come out of that on a run rate breakeven coming out of the end of calendar 'twenty four.
And on the on the TV side, and the and the demand.
It's always been the way that.
Some platforms are.
A little more aggressive than others, the challenger brands, which is where we really always built our business with new players that are emerging that have bigger needs that are not only.
Programming marketing with their programming when you go back to that and then bill.
Built the AMC brand, along with being a great show and open the door for a lot of other great. John that's where we always wanted to be.
So while there is some discipline being displayed.
Within some of the legacy streamers that you can call them that now.
The challenger brands are eager to take market share I mean, it's a high bar.
Because the gray area between feature film and television talent has been blending over the last many years in big stars and Big auspices drive TV events and TV series as a challenger independent we have to be better than everybody else certainly the internal studios.
But thats what drives us we're super competitive we want to win.
And most of this show is we're bringing to the market. These days have multiple bidders.
Really good about that but development is just development, it's converting to production and making those shows for a disciplined price, which continued to renew our business.
Okay. Thanks very much.
Thanks, Brian operator can we get the next question. Please.
Our next question comes from Jim Goss with Barrington Research. Please go ahead.
Okay.
Good afternoon.
Some of these things have been addressed but what I, what I'm sort of interested in knowing is post separation I was wondering if you could frame out.
Studio strategy as a renewed standalone business long ago, you had smaller television productions and sort of mostly singles in the film side, then you move more aggressively with hunger games Twilight.
And recently, you've been focusing on working with stars with this new lease on life.
How do you think you would characterize your approach on the TV side and on the film side I think you just touched on a little bit out of the TV, but.
Is there a way investors perceive the overall approach to the business in terms of getting that 15 to 17 multiple you've referred to earlier.
Yeah.
Honestly.
Doing continuing to do exactly what we do right now continue to build.
Great, particularly scripted television shows and big feature films take our franchise it theres more announcements coming on John Wick look what we're doing in television with the continental.
I'm not going to give all of Joe's fund, Norway, but you'll see some interesting announcements coming down the pike.
We're not going to separate these businesses without maintaining a lot of the synergies between Starz and Lionsgate television business I can promise you that so I would I would say actually.
Both sides would be three ultimately to consolidate potentially some other businesses, but at the end of the day. Both are strong in and have the right. They will maintain a tremendous amount of synergy as I just said.
And I like our mix of products in TV as Kevin said, we make.
Mixes in the portfolio, some things with less deficit, but of course less right.
Joe I like.
Like the fact that he is now.
<unk> got a diversified portfolio as well with big brands bigger movies are core sort of mid range action pictures.
As well as a as he and I, both have said a deliberate strategy around streamers and multi platform private properly areas where.
All of the other studios really won't spend much time, but where we make $50 million to $60 million a year. So.
I like our businesses on both sides.
Like that stars on the international side.
Is going to be in a much shorter timeframe than most of the other big streamers.
Cash flow operating cash flow positive.
So, yes, I don't I don't foresee huge changes other than as I say it is possible that they will scale up each of their businesses, but much more specific to their business.
Do you think you would have one or two.
Bigger franchise films every year or two or something like that to keep that interest going alone.
And on the distribution strategy said I know internationally.
You don't have your own distribution network I wonder how that will work as well.
Okay well.
Again, when you say that.
What all you're really talking about and that is the international exhibition business, which I don't consider a distribution business.
And frankly.
The discipline that we have of being able to go to a market internationally and cover so much of our.
Our.
Budget in terms of our movies from taking both third party.
International distributors as well as going to streamers and putting those pieces together I think it gives us tremendous flexibility, particularly in a period, where you don't know or inflationary and recessionary.
Do self distribute in the UK.
We like that market, but we retain don't forget.
As much as we can in Latam for example, we retained all of our other Reits other than the exhibition right. So.
I like the fact that we are scrappy and entrepreneurial and we don't have any legacy.
<unk> that we have to follow we build these business models as the business changes, that's what we're going to keep doing.
But again.
I like the business that we do and again the multiples I referred to if you look at some of the.
The.
Purchases of some businesses recently that actually don't even retain rights and you look at the prices that are paid you would say that that this library and that this studio is immensely valuable.
Thanks, Jim operator, thank you much.
Thanks, Tim operator.
Yes, Sir our next question comes from Alan Gould at Loop capital. Please go ahead.
Hi, Thanks for taking the question I've got two for Jeff and one for Joe or Jeff.
We're starting to see a lot of advertising coming into the streaming business. Just wondering how that's going to affect stars you'll be differentiator is one of the few that doesn't offer an AD business, but it may keep prices lower also if you could just address what's happening with the <unk>, both domestically and internationally.
And for Joe Joe pre pandemic Lionsgate was averaging about 14 wide releases per year, given the changes in the box office environment does it make sense for you to just be doing you have that amount or fewer number of films such as bigger launches such as the hunger games John Wick.
Hey, Alan it's Jeff how are you look I think as the the other streamers doctor replicate what we used to see in the linear business with advertising it actually really I like to say the more things change the more they look the same it really then recreate what we used to be in terms of being that cherry on top of an advertising.
Broad based.
Service and so we think it lowers price point that makes starz more accessible it makes us a better bundling partner, where we have non AD supported very adult very premium content is a great complement to all of the broader services that can have advertiser and so we're actually excited for that to happen we look forward to.
Those services getting launched and seeing where we can create some kind of commercial synergies through bundles of each of those services.
In terms of the <unk> on the domestic side.
Relatively flat sequentially, we had a lot of big growth.
Back third of the quarter, and so youll see that but I expect that to set us up pretty well for the rest of the year. So P Valley came in in the back third and that's what you saw there on the international side.
We had a big bundling deal come in the quarter that drove our food down a bit I do think long term there'll still somewhere between non bundled somewhere between two and three euro or two or $3 and so I would expect that number to start to accelerate as well in the coming quarters.
Yes, thanks Alan.
So the way we've geared the business is around eight to 12 films in terms of really driving the flywheel.
Because of these other areas of growth our international business is stronger than ever in terms of the value of our rights.
Our multi platform business, our streaming business have added growth overall, so we don't require as many films were geared so that if we have 12, great offerings in fact, the F. 'twenty three slate right now has 12 films.
We're certainly capable of still driving that output, but we don't need.
As many.
To hit our numbers.
Okay. Thanks, a lot.
Thanks, Don operator can we get the next question. Please.
Absolutely. Our next question comes from Matthew Harrigan with benchmark. Please go ahead.
Thank you actually huni and again on John's very favorable comments on television.
Firstly.
If you do the math and you're up 50% this year in Europe , but a good half again next year. It feels like you probably have about a 75 million increment or so where the street is on the TV profit 24 should we probably just regard as a buffer to the.
Economic macro uncertainty and creative execution and all the other are you feeling more optimistic about your overall outlook for Mexico for years.
And then I guess as a corollary of that listen to the Warner Brothers Discovery call I mean, it feels like they're trying to rectify as you'd be upward.
Carrying a part of their business at one point I'm, taking a more balanced approach I know you've got a good relationship with HBO I think it's like five pilots and Casey up Lloyd's just renewed.
His contract some of the your.
Admission that things are looking better for the TV business, just kind of have a sense that things are rebalancing at some of the larger.
Legacy streamers.
You alluded to is helping you I mean is the T V.
Kind of a surprise and where you are a couple of months ago or are you just being a little bit more open kimono about it. Thanks.
Go ahead, Kevin you start.
Yes.
I think.
Theres a lot of positive momentum in TV, because theres just so many buyers.
How many new buyers and as Jeff alluded to kind of the realignment of <unk>.
Linear bundle moving into the digital bundle.
Players are pressuring legacy <unk> streamers and legacy TV in the same way that basic cable was pressuring the networks.
<unk> to 18 years ago, that's just great from a selling perspective, a lot of Optionality in places, where we can sell and make a different price points based on customer and client needs.
We have a great relationship with them.
All parts of the HBO Warner Discovery family. We have several shows we don't have any pilots that right. Now we have shows that are being made or renewed.
And limited series, we expect and hope that those will continue to go.
On and be successful if anyone falls out as others to replace them.
Swear and we just look at the business Holistically and it's a very different business than even five years ago with all the entrants, they're competing with each other and thats great business for US. We've also had the amazing.
Partnership and good fortune and partnering with Jeff and his entire team at Starz. That's built our business, we're going to continue that relationship.
And Eddie iteration of the structure, that's being alluded to before because we have someone shared and common and know each other so well and speak so frequently and have had a great partnership and relationship. So those have all been reasons that that revenue is driven as we've gotten older in age.
We're kind of like pre teen in the TV business most of our competitors have been doing this for 60 or 70 years, we've been doing it for 20. Some of those libraries are now really turning into ongoing revenue. Many of our competitors has massive libraries have been going for since the $19 50, the other big component that we should just not.
Failed to mention is the three arts is an amazing engine.
That transaction was accretive on day one.
All the partners have a huge business.
And the management and production side and now we have four shared series together, we expect to have more surfing Queen is coming up on stars. We're excited about that Julia has been a big success for HBO, Max and Warner and.
Have a great model together and we expect more down the line mythic Quest just got renewed.
For two more seasons.
And we see that the reason they can so those kind of things just didn't exist before and it really goes back to Jonathan Michael as overall strategy of getting closer to content and content creators and its a smart strategy in a world that continues to shift every day as we're seeing today on the other earnings calls.
Yes.
Ill try to drill down even a little bit more for you, but again the good news about a television at this point in time and it includes with three arts and the shows they know are being picked up in a visibility Kevin has including having the show that's ours.
Again, we have great visibility and I don't know what how you extrapolated your number but I would say the TV margin and contribution for fiscal 'twenty. Three is significantly higher I don't know that your numbers that far off and I could see a similar kind of a jump into fiscal 'twenty four so I hope that helped.
<unk>.
Great. Thanks, Jon Thanks, Kevin.
Thanks, operator.
So that concludes the question and answer session I would like to turn it back to the management team for any final remarks.
Thanks, everyone. Please refer to the press releases and events tab under the Investor Relations section of the company's website for a discussion of certain non-GAAP forward looking measures discussed on this call. Thank you everyone and have a good evening.
Thank you. This concludes today's conference call. Thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful evening.