Q4 2023 Lions Gate Entertainment Corp Earnings Call
Speaker 1: IKEA
Speaker 2: Good day and welcome to the Lionsgate fiscal 2023 fourth quarter conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker 2: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to run the conference over to Neelay Shah and Vesta Relations. Please go ahead.
Speaker 3: Good afternoon. Thank you for joining us for the Lionsgate fiscal 2020 three fourth quarter conference call. We'll begin with opening remarks from our CEO John felt timer followed by remarks from our CFO Jimmy barge. After their remarks will open the call for questions. Also joining us on the call today our vice chairman Michael Burns CEO Brian Goldsmith chairman of the TV group Kevin bags.
Speaker 3: Chairman of the Motion Picture Group, Joe Drake, and President of the Worldwide Television Distribution Group, Jim Packer. And from STARS, we have President and CEO , Jeffrey Hirsch, CFO , Scott McDonald, and President of Domestic Networks, Alison Hoffman. The matters discussed on this call include forward-looking statements, including those regarding the performance of future fiscal years.
Speaker 3: 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's most recent annual report on Form 10-K . The company undertakes no obligation to publicly release any additional information on any
Speaker 3: the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. I'll now turn the call over to John .
Speaker 4: Thanks, Nile. Good afternoon, everyone, and thank you for joining us. I'm pleased to report that we ended the fiscal year with another strong quarter. We enter fiscal 24 with strong earnings momentum and projected strong growth.
Speaker 4: To recap the quarter's highlights,
Speaker 4: In our motion picture group, success came from many places. A franchise best performance from John Wick Chapter 4. The faith-based hit, Jesus Revolution. The action film, Plane. And a record performance from our growing multi-platform release business, showcasing our ability to build unique financial models for every kind of movie.
Speaker 4: In television, we relied on a similar portfolio strategy, continuing to launch new shows, renew current series and develop exciting new properties in our scripted business, while generating strong contributions from 3Arts, Pilgrim Media and Denmark Mercury.
Speaker 4: Stars came back strongly in the quarter, growing subscribers, improving ARPU, completing bundle deals domestically and internationally.
Speaker 4: streamlining its international operations to focus on key territories, and maintaining its profitability.
Speaker 4: Our library continued its record performance with trailing 12-month revenue of $884 million as it finished the fiscal year with its best two revenue quarters ever.
Speaker 4: Its performance also benefited from continued diversification as the long tail of our content grew longer, generating nearly $150 million in library revenue in the fiscal year from titles outside the top 500.
Speaker 4: And financially, we continue to prepare for the separation of Lionsgate and STARS by strengthening our balance sheet, opportunistically buying back bonds, improving our leverage ratio, and ending the fiscal year with an untapped revolving credit facility of $1.25 billion.
Speaker 4: and $272 million in unrestricted available cash.
Speaker 4: $172 million in unrestricted available cash. Jimmy will provide more details in a few minutes.
Speaker 4: In an operating environment that is tougher than ever, our business models and our employees continue to be resilient, navigating the headwinds, pivoting in order to seize even the smallest opportunities, unafraid of change in a changing world. Drilling down on each of our businesses, beginning with the motion picture group.
Speaker 4: The success of John Wick Chapter 4 demonstrated our ability to deliver big IP comparable to any studio.
Speaker 4: Not only did John Wick 4 achieve a franchise best performance at the Domestic Box Office,
Speaker 4: It improved its international box office performance by more than 50% over its predecessor.
Speaker 4: establishing John Wick as our fourth billion dollar franchise and a truly global phenomenon.
Speaker 4: Its success continues to drive the expansion of the John Wick universe as we complete production on the Ana de Armas spinoff, Ballerina, for a June 2024 release. Ready the launch of the prequel television event series, The Continental, on Peacock and Amazon and continue our planning for multiple additional spinoffs.
Speaker 4: As we said before, our motion picture strategy is a little different.
Speaker 4: We surround our tent poles with targeted original movies built around smart releasing strategies.
Speaker 4: multi-platform releases that drive historically outsized returns on investment, and direct to streaming films that capitalize on the enormous demand for studio movies across every kind of platform.
Speaker 4: Our upcoming slate reflects the same balance that led to our success last quarter. Driven by tentpoles like the Hunger Games, Ballad of Songbird and Snakes, franchise extensions with built-in fanbases such as Saw X and Expendables IV, and the
Speaker 4: Bold, edgy and original fare like Tim Story's horror comedy The Blackening.
Speaker 4: Adele Lim's effervescent and raunchy Joyride, and great new intellectual properties like the Michael Jackson event film to be produced by Graham King and directed by Anton Fuqua.
Speaker 4: Turning to television, we had a busy quarter taking advantage of our ability to create and deliver bespoke content with unique business models to every platform.
Speaker 4: Ghosts led the CBS lineup as one of the top half-hour comedies in television.
Speaker 4: Mythic Quest continued its standout performance in its third season on Apple TV+, with a spin-off series in the works. And the true crime limited series, Love and Death, starring Elizabeth Olsen, and written by David E. Kelly, was the most watched premiere this year on HBO Max.
Speaker 4: Looking ahead, we delivered all three event installments of the Continental to Peacock and Amazon for its September premiere. And Peacock launched a promotional trailer to record numbers on the heels of John Wick Chapter 4's opening at the box office. We started production on the new NBC multi-camera comedy, Extended Family.
Speaker 4: starring Jon Cryer and Donald Faison from creator and showrunner Mike O'Malley and executive producer Tom Werner. And we're preparing to begin fall production on Seth Rogen's new show for Apple TV Plus to launch in 2024 from our television and motion picture group collaboration with Point Grey.
Speaker 4: Behind them we have another strong development slate that includes extensions of Weeds, Nurse Jackie, and some of our other major film and television brands.
Speaker 4: Our global expansion strategy in scripted television also continues to bear fruit. ABC recently picked up Lionsgate Television's Motherland to pilot, adapted from the hit BBC series. Disney's Onyx Collection picked up Queenie from our partnership with Channel 4 in the UK. And the Lionsgate CBC comedy Son of a Critch.
Speaker 4: was renewed for a third season in Canada and picked up for multiple seasons by the CW in the US.
Speaker 4: We are also partnering with Stan in Australia on the family drama Prosper and the comic crime thriller Population Eleven.
Speaker 4: And in the current quarter, we acquire the worldwide distribution rights to two very high-profile intellectual properties.
Speaker 4: Earlier this week, we announced that we would be the global distributor for all seasons of the acclaimed event series, The Chosen, from creator, director, and producer, Dallas Jenkins.
Speaker 4: The first multi-season series of its kind, a groundbreaking historical drama about the life of Jesus, as seen through the eyes of its followers, The Chosen has grown from a crowd sourcing project into a massive global phenomenon with over 110 million viewers in 175 countries.
Speaker 4: It continues to deepen our faith-based vertical that is already responsible for the hip-films Jesus Revolution and I can only imagine.
Speaker 4: And this afternoon, I'm pleased to announce that Lionsgate has partnered with master filmmaker Quentin Tarantino for distribution rights to three of his most iconic films, Kill Bill Volumes 1 and 2 and Jackie Brown. Beginning with Reservoir Dogs, a Lionsgate Library favorite for nearly 20 years, we've grown what is now Hollywood's largest portfolio of Tarantino films.
Speaker 4: to include Inglourious Basterds, Django and Chain, The Hateful Eight and Death Proof, in addition to the movies we just picked up.
Speaker 4: We look forward to collaborating with the Tarantino team on a celebration of Kill Bill's 20th anniversary later this year with a new and remastered 4K edition.
Speaker 4: At STARS, we finish the year strong with two returning tent poles.
Speaker 4: The second season of the crime drama BMF was a standout performer in the quarter and the third season of PowerBook 2 Ghost shattered multi-platform viewership records with the platform's biggest premiere weekend ever. The success of fan favorite Party Down rounded out a strong content quarter as stars achieved robust subscriber growth.
Speaker 4: with the addition of 1.3 million global streaming subscribers including 700,000 domestically.
Speaker 4: and overall net growth of 1 million global subscribers.
Speaker 4: And in the current quarter, we're excited to bring back one of our most popular and eagerly anticipated series, The Seventh Season of Outlander. Streaming services have discovered that properly marketed feature films that arrive on their platforms with built-in awareness are powerful tools for driving subscriber acquisition and retention.
Speaker 4: In this regard, Starz enters the new fiscal year with a strong flow of movies from its pay one and pay two theatrical output deals that is nearly double the number of films from last year, including the Starz premiere of John Wick Chapter 4.
Speaker 4: Perhaps the most important development for Storrs is the emergence of bundling in the streaming space.
Speaker 4: With STAR's transition to digital more than 60% complete, we're well positioned to execute on our core strategy, becoming a complementary premium add-on service to every platform, and our efforts are gaining significant traction.
Speaker 4: In the quarter, Starz teamed with Amazon to enter a domestic bundling agreement with MGM+, followed by a domestic bundling deal with AMC+, and a bundling agreement with Hayu in the UK, while completing our integration into the Disney Plus bundle in Latin America. We expect this momentum to continue as the industry evolves.
Speaker 4: great partnerships, and a compelling value proposition to drive subscriber growth and further improvement in our economics.
Speaker 4: In closing, we continue to execute on our strategy of separating Lions Gate and STARS by the end of the September quarter.
Speaker 4: We submitted our Form 10 with the SEC in March and we're working through the organizational and governance issues accompanying the separation, finalizing the intercompany agreement, and taking the appropriate steps to strengthen both companies and their respective balance sheets so they will be prepared to unlock the incremental value that the separation makes possible. Now I'll turn things over to Jimmy.
Speaker 5: Thanks John and good afternoon everyone. I'll briefly discuss our fourth quarter financial results and update you on the balance sheet.
Speaker 5: Q4 adjusted OEBITDA was $138 million and total revenue was $1.1 billion.
Speaker 5: Revenue grew 17% year-over-year while adjusted OEBITDA was up 67%.
Speaker 5: The year-over-year increases reflect revenue and adjusted webinar growth in both motion picture and media networks.
Speaker 5: Reported fully diluted earnings per share was a loss of 42 cents a share, and fully diluted adjusted earnings per share was 21 cents a share.
Speaker 5: Adjusted free cash flow for the quarter reflects a $37 million dollar use of cash.
Speaker 5: Fiscal 23 adjusted OEBITDA was $358 million, which exceeds the top end of our previously provided outlook of $275 million to $325 million.
Speaker 5: The strength we saw as we closed the year reflects operational momentum heading into Fiscal 24 and gives us confidence in reiterating all components of our Fiscal 24 outlook, including our outlook for adjusted OEBITDA of $400 to $450 million.
Speaker 5: which at the midpoint reflects nearly 19% year-over-year growth. Now let me briefly discuss the fourth quarter performance of our studio and media networks businesses, as well as the underlying segments compared to the previous year quarter.
Speaker 5: MediaNetworks quarterly revenue was $389 million and segment profit was $73 million.
Speaker 5: Revenue was up 2% year-over-year as the launch of Disney Plus Bundle in Latin America, combined with the continued growth of OTT revenue, was partially offset by domestic linear revenue pressure.
Speaker 5: Domestic revenue was down slightly, while international revenue was up 37%. Media Network segment profit was up over 100% and was driven by growth in revenue, lower distribution and marketing expenses, and lower landscape plus operating costs associated with market closures.
Speaker 5: We ended the quarter with 29.7 million total pro forma global subscribers, including StarsPlayArabia.
Speaker 5: Pro-former global subscribers increased by 1 million, both sequentially and year-over-year.
Speaker 5: Focusing specifically on our OTT subscribers, we ended the quarter with 19.8 million pro-former global OTT subscribers.
Speaker 5: This represents year-over-year global OTT subscriber growth of 14%, comprised of domestic OTT growth of 7%, and international OTT growth of 27%.
Speaker 5: Now I'd like to talk about our studio business. Revenue of $824 million was up 25% year-over-year, while segment profit of $123 million was up 48%.
Speaker 5: On a trailing 12-month basis, library revenue at the studio was a record $884 million, up 5% compared with the prior quarter's record trailing 12-month library revenue. In addition, the Motion Picture Group recorded its highest ever quarterly library revenue in the March quarter..
Speaker 5: Breaking down the motion picture and television studio businesses, let's start with motion picture.
Speaker 5: Motion picture revenue was up 85% year-over-year to $532 million, while segment profit of $94 million was up 89% year-over-year on the strength of plane, Jesus Revolution, and John Wick 4.
Speaker 5: The success of John Wick will drive strong carryover profit into Fiscal 24 and beyond, and we are excited to return to the pre-pandemic level of theatrical output in Fiscal 24.
Speaker 5: And finally, television revenue of $292 million and segment profit of $29 million expectedly declined on the timing and mix of content deliveries relative to a strong prior year quarter.
Speaker 5: On a full year basis, TV achieved record profit in fiscal 23, and we continue to project strong segment profit growth in fiscal 24 on returning series and the release of the Continental this fall.
Speaker 5: Now let's talk about our balance sheet. Excluding the restructured landscape plus territories from trailing 12 months adjusted webinar, leverage for the quarter improved to 4.5 times. We continue to retain significant liquidity with $272 million of unrestricted cash on hand at quarter end.
Speaker 5: and 1.25 billion of an undrawn revolver.
Speaker 5: This level of liquidity is particularly strong after another quarter of reducing the face amount of the unsecured bonds outstanding. In particular, we purchased $58 million of our bonds in the quarter for $39 million, representing a $19 million reduction in net debt. Subsequent to the end of the quarter, we purchased another $85 million dollar bond.
Speaker 5: In summary, we finished the year with a strong operational quarter and a further strengthening of the balance sheet while looking forward to a year of solid double-digit consolidated adjusted EBITDA growth in 2024. Now I'd like to turn the call over to Nielle for Q&A.
Speaker 3: Thanks, Jimmy. Operator, can we open the call up for Q&A?
Speaker 2: Sure, we will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using the speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster.
Speaker 2: Our first question comes from Steven with Wells Fargo. Please go ahead.
Speaker 6: Hey, good evening. Sorry, I've got three. So, maybe first just, Jimmy, on the guidance for AOIBIDAI, I think the midpoint is $425 million for the year. Any change at the segment level? It sounds like motion picture is really strong. You talked about strong performance at TV.
Speaker 6: So just curious how we think about that and also on the timing, is it kind of front half weighted?
Speaker 6: Second question just around the spin, how are you thinking about allocating the debt between the two sides, stars and studio? It seems like stars probably can't handle a lot of debt, so I just want to make sure we're thinking about that right. And maybe just lastly for Jim Packard, can you talk at all about what some of the drivers were of the big motion picture library sales that you saw?
Speaker 5: seen in the quarter, in the fiscal year, we closed strong and exceeded expectations across all of our business units. So we feel well poised going into fiscal 24 with that guidance. I would say on the cadence, interestingly, it's back in loaded a lot like last year. So similar to fiscal 23istant and
Speaker 5: with perhaps a stronger second quarter. And this is because in the Q1 is going to be impacted by the P&A spend in the Motion Picture Group. We have three wide theatrical releases in the quarter compared to one in the prior year quarter. Also we're going to have likely some pre-spend on Joyride which releases on July 7th.
Speaker 5: And then in STARS, there's going to be carryover amortization from Ghost, which premiered mid-March. So that's the impact in Q1, and then in Q2, TV will benefit from the release of the Continental. I would just add too that the free cash flow would similarly be back in loaded.
Speaker 5: But overall, positive for four years. We continue to fund our investment content in marketing from positive free cash flow.
Speaker 5: Regarding the financing in terms of separation, you can see that we significantly reduced the amount of unsecured bonds. I'll reiterate that they do remain at stars as we've spoken to in the past. We've taken this opportunity to strengthen our balance sheet as you've seen.
Speaker 5: and to manage our capital structure as we move towards separation. On the studio side, we will refi the Term Loan A and Term Loan B upon separation. We have a significant amount of assets within the studio, as you know, including unsold library rights. We have a significant amount of assets within the studio, as you know, including unsold
Speaker 5: And we'd return more likely to an asset-backed facility, which is similar to what we had prior to the acquisition of STARS. And then on the STARS side, rounding out beyond the bonds, it's very possible that we would layer in some secured financing, more traditional term loan and term loan B.
Speaker 5: Separation will allow us to put in the best suited capital structure for each of these businesses. Hi, Stephen. First of all, I think it's really great that the Motion Picture Group's back into releasing movies again. That's obviously a help for us. We had a 24-month bit of a drought. Now we're back into an 8 to 10 slate, which is great. Also, we all get a great halo off of the John Wick and the Hunger Games dynamics, having new movies come out.
Speaker 5: John Wick was a particular driver for us, given the release, and we have Hunger Games coming up, obviously, in the fall. And then lastly, it really was a great coup for us to get the three Quentin Tarantino movies. We now have eight, which really gives our library a unique situation in Hollywood. And we're going to take advantage of that.
Speaker 7: Thank you very much.
Speaker 2: Thanks, Stephen. Operator, could we get the next question, please? Sure. Our next question comes from Thomas Yeh with Morgan Stanley . Please go ahead. There was a discussion about, you know, how the Market tohey deal with the Wyss is in demand for fictional
Speaker 6: Thanks so much. One on the studio side, I was wondering if you could opine on how we should think about the potential impact of a prolonged writer's strike, if that would impact our fiscal 24 outlook at all on that side of the business. And then STARS, I think I've seen some notification about a price increase on STARS in the US.
Speaker 6: Jeff, can you talk about the potential impact that you might see on ARPU? Are you sacrificing any ARPU for better retention? It looked like it was pretty healthy in the quarter, particularly on the international side, so any help there would be helpful. Thank you so much.
Speaker 4: Why don't you start? Sure. So, yeah, we have notified customers this week that we are adjusting their rate. This is existing and to new customers that our standard retail rate will go up a dollar. It will start going to effect June 26th.
Speaker 4: Now we really looked at the business and did a lot of analysis around the business. We haven't changed the rate since we launched into the digital side of the world in seven years and in that time some of our peers have done one and some have done two rate increases and so we feel pretty good that with increasing our slate from six to eleven originals, we are in the right spot right?
Speaker 5: plus all the great movies from Lionsgate Universal that at sub $10, though it's a great value for the consumer. While there will be some short-term sub-pressure, we think net-net is a positive for the business. And Thomas, in terms of your question relative to the strike, we've not factored a prolonged strike into our guidance, but I think in terms of motion picture group, I don't think you're going to see a significant impact.
Speaker 5: I think if, you know, looking at 2008 precedent of, you know, three months, up to that point, I think the financial impact for us would be, if any, would be modest. We've of course been preparing for the strike for several months and we've got a significant content pipeline. We've been preparing for the strike for several months and we've got a significant content pipeline.
Speaker 5: completed projects and with our film and television library, our businesses are very resilient. So we're nicely poised for growth as we go into 24 and manage through the challenges.
Speaker 4: And Thomas on the ARPU question, you know as we talked about and John talked about in his prepared remarks we're starting to see the the bundling of the or the rebundling of the business really start to come into in a bigger way and To remind you, you know, we've got great You know really? connectivity into our two core demos
Speaker 4: Really, you know hard to replicate and so it's better for people to bundle with us to get access to those demos Ultimately what that means is that you're going to see some lower ARPU But ultimately that should result in lower churn longer lifetime value and less marketing spend so ARPU will move around a little bit based on the Number of bundles that we have in the business, but we still think long term it will help us You know overall in terms of segment profit
Speaker 4: In terms of international, you see a jump quarter to quarter. A lot of that is we had a lot of large bundle deals in some of the shutdown territories and so that's normalizing to that long term $2 range that we've talked about in the past.
Speaker 4: a jump quarter to quarter. A lot of that is we had a lot of large bundle deals and some of the shutdown territories and so that's normalizing to that long-term a $2 range that we've talked about in the past. Got it, thank you so much.
Speaker 3: Thanks Thomas. Operator, could we get the next question please?
Speaker 2: Our next question comes from Barton Crockett with Earls and Blads Securities. Please go ahead. Thanks for watching.
Speaker 8: Okay great, thanks for taking the question. I was wondering if you could talk about the health of the market for selling your content to other services. You know we've obviously seen a lot of pruning by streamers.
Speaker 8: from Macs to Disney Plus to Netflix. And are you feeling that in the market generally or specifically for your titles?
Speaker 5: Thank you, Kevin, that's a great question. Look, there's no question that there's some more fiscal discipline being deployed across the entire business. And you're seeing that with some of the pruning that you mentioned and some of the platforms. You know, the hit driven business and there was a four year push toward huge volume.
Speaker 5: and hoping to find some hits. And what's happening now is hits are just as important, but the middling shows that may not be performing as well are being winnowed out.
Speaker 5: The interesting dynamic about a show that is not a giant hit or an immediate loss or loser is that it's not great kind of for the platform or the studio. So it's not a terrible thing as much as we love all of our children. If some don't get promoted to the fifth grade, it's all right. And we take our lumps and we focus on the hits. So when you think about things like ghosts...
Speaker 5: and PowerBook 2, Ghost, and BMF, and Serpent Queen, and Mythic Quest. These are the shows that we're spending a lot of our time on and focusing and getting them into later seasons where the profitability really rises. So we look at that. Of course, you want as many buyers as possible, buying as much as possible.
Speaker 5: But a targeted buyer is helpful for a studio. So we we're very positive about how it's all looking right now.
Speaker 5: Barton, this is Joe. And in film business, we're seeing as voracious demand as we have seen for the last couple of years. And I think there's still going to continue to be a demand, as Kevin alluded to, to true premier content. We're currently the largest provider of
Speaker 5: wide theatrical releases that's available for sale. Other studios are obviously distributing their own in every territory. And so in addition to traditional theatrical buyers, you have all of the platforms, you have other studios trying to fill their pipelines internationally. And we just came back from market and it was as robust as it has ever been.
Speaker 5: I think we'll see it continue to be competitive and I think Jim probably has a few thoughts about the library. Yeah, Barton, I think you can see from our trailing 12 months, we really have had a great run here and it's continuing. I think part of it has to do with the Motion Picture Group News Slate. Part of it has to do with a lot more clients. I mean, we have about 10 to 15 different AVODs that we do business with.
Speaker 5: The fast market has really exploded. We actually have 10 fast channels in market right now. So we're able to take advantage of this amazing library in a lot of different ways, which has not stopped and I still feel very bullish.
Speaker 8: Okay, and then if I could ask kind of a related question. So, don't if you could give us a little bit more kind of background on free arts. Obviously, there's some discussion.
Speaker 8: And obviously that's not resolved, but I think that there's some question in the market Contribution to your business from three yards and you know and what this kind of discussion about what they do with their remaining minority stake You know what the materiality is of that alliance gate if you could clarify that would be nice
Speaker 4: Yeah, thanks Martin. I'm not of course going to give you any specifics about the discussions, but I would say that I'm sure the three ARTS partners would agree. This has been a great partnership. And so right now what we're doing is pursuing a number of paths to extend that partnership and most importantly,
Speaker 4: to grow our joint business together. So it's all good. You know, we're going to move forward with them. As I say, there's a number of different ways we're going to do that, but it's all positive.
Speaker 8: But can you give us any sense of how meaningful that is and where it hits the P&L or not really at this point? I think you know I won't because if I was going to, we would have done that already. Thank you. Okay. All right. Alright.
Speaker 8: But can you give us any sense of how meaningful that is and where it hits the P&L or not really at this point? You know, I think you know I won't because if I was going to we'd have done that already. Thank you. Okay. All right. Thank you Thanks, Spartan. Operator, could we get the next question, please?
Speaker 2: The next question comes from Matthew Thornton with Truist. Please go ahead. You're welcome.
Speaker 2: The next question comes from Matthew Thornton with Truist. Please go ahead.
Speaker 9: Hey, good afternoon everybody. Most of my have been asked but I have two quick ones here I guess. First, shotgun wedding I think most of the proceeds came in three cubic but I just want to see if there was anything that that's valid for Q. Any color there. And then just with the success of
Speaker 9: of John Wick at the box office. I'm just kind of curious if that's changed the prospects for partnering on a AAA video game, which I think you guys have alluded to a couple of times in the past. And the update there would be great as well. Thanks, everyone. Yeah, the shotgun wedding is in Q3, so that's the primary impact, so not really contributing significantly.
Speaker 5: It creates a lot of energy and excitement in the company. It does the same with the filmmakers. And we're now moving across that franchise, not just in the AAA video game space, but looking at what the regular cadence of spin-offs, television, really growing that universe.
Speaker 9: so that there is a steady cadence of a franchise that there is clear appetite by the audience. And maybe, Keith, just to remind us, is John Wick 5 official? I think it was scheduled initially to be about a year later, and then there was some back and forth as to whether that was still the case. Is that still official? What is official is that, as you know, Ballerina is the first spinoff that comes out next year. We are GoldenEye, our week where Back to the Future_{ Back to the Future rule, and many, many more are As One
Speaker 9: Terrific. Thanks, everyone.
Speaker 3: Thanks, Matt. Can we get the next question, please?
Speaker 8: As a reminder, if you have a question, please press star, then one to be joined into the queue. The next question comes from Jim Goss with Barrington Research. Please go ahead. Hi. I had a couple of questions. First one I'd ask is, if there are certain elements that will remain with STARS as a surviving company, if you will.
Speaker 5: that is pretty straightforward in the context of this particular separation. So I would remind you, though, that the intercompany eliminations, they're self-eliminating upon separation. And it's just math. So currently, they're masking the strength of our standalone businesses.
Speaker 5: So anywhere from 36 million of intercompany eliminations in fiscal 23 to the low point of the guidance range at 24, 750 million, or 75 million. So just at a 10 times multiple that's masking close to a half a billion dollars of enterprise value.
Speaker 5: about half of our interest last quarter for $45 million. And we still retain about a 14% stake. And that is expected to travel with stars.
Speaker 8: Okay, thank you. Two others. The faith-based audience is sort of an interesting development. I wonder if you can talk about how if it's affecting basically continued development on the studio and I assume that part's not really affecting.
Speaker 9: stars so much given the nature of the programming on stars? Well, thanks for the question. Yeah, on the faith-based side, we made a commitment to this business, interestingly, right before COVID happened, and it's finally come into fruition that audiences are coming back into theaters. You saw the performance of Jesus Revolution, which wasn't the real...
Speaker 9: they did, I can only imagine. And Dallas Jenkins, we're doing the best Christmas pageant ever, which is a big brand in the space. Dallas is the creator of The Chosen, which we spoke about earlier. And so our plan is to have two movies a year with the best teams in the business.
Speaker 9: Super efficient to target from a marketing perspective.
Speaker 5: And so we love that space and we're going to stay in it. And Jim, I would just add that with regards to SPA, we may retain that investment stake as part of the studio.
Speaker 5: We love that space, and we're going to stay in it. And Jim, I would just add that with regards to SPA, we may retain that investment stake as part of the studio. You'll be determined. There are two ways to do it and to go over it in your own framework.
Speaker 8: All right, thank you. Last one. I don't see any more.
Speaker 8: This description said Lionsgate brand stands for bold original relatable A lot of companies will make statements like that and that actually fits pretty well but usually movie company brands aside from maybe Marvel or Pixar or Disney they tend to own most of them
Speaker 8: Don't really resonate. Nobody really goes to see the movie because of the brand.
Speaker 8: Maybe landscape's different. I'm wondering if you can talk about how you're using that and to what advantage can you put it?
Speaker 9: I think at a consumer level, I think there's aspects of our business. So as an example, I just got done speaking about the faith space. I think kingdom stands for something in that space.
Speaker 9: I think that within the industry Lionsgate stands for bold. We make original movies. There aren't many companies still doing that. So I think that it certainly has brand value within the industry. Because we have such a diverse slate, we are making action movies. We are making faith-based movies. We are making horror movies. I'm doing all kinds of things. I don't think that
Speaker 9: Like a Disney perhaps, Lionsgate is a specific brand to the consumer.
Speaker 4: Yeah, I would add, you know, when Michael and I started in January 2000, we made culture important. We made being entrepreneurial important. And when we started doing movies and television shows that everybody else passed on, like Saw and Monsters Ball and Fahrenheit 9-11.
Speaker 4: Sort of extends to to Hunger Games and now, you know sort of really edgy movies like Joyride I think about the culture inside the company our ability to pivot quickly particularly in a difficult environment like we're in right now And frankly to take chances with movies Look at Sisu where Sisu is a super profitable
Speaker 10: movie for us and nobody else would have would have done that movie and so the way we market the way that we Look at acquiring content the way we look at green lighting content. I think Whether that's something for the consumer or sort of that's a message. We're sending to the business
Speaker 10: and to the the creatives that we do business with and and who say you know this is something we should take to Lionsgate because they will take a chance on it. I think it's meaningful and significantly meaningful for our business and frankly I would say it's the reason we're the only studio that has started what in the last 70-80 years that really is still standing at this point in time because I think we did build a different...
Speaker 10: mousetrap. It's not necessarily a better mousetrap, but it's our mousetrap and we're really consistent about how we operate this business. We're really efficient about how we operate this business. And so I think brand in that respect, even if it's not a consumer brand like Disney, Disney certainly is, we think that brand is really effective and it's a...
Speaker 11: Thank you. Could you comment further now that you have even more prominent brands? You know, John Wick is really taken off and they have a number of other things in the hopper on the interactive entertainment and particularly the video game potential there. And also Joyride is getting a tremendous amount of buzz but it feels like the Asian market is still
Speaker 11: very remarkably underserved at this point. Do you have anything else in development there? And I assume you would probably agree with that observation. Thank you.
Speaker 9: So on the video game side, I don't think there's much more to say. The conversations continue and hopefully we'll have something more specific to announce soon on John Wick. Titlewhoits.com
Speaker 9: As it relates to Joyride, sure, part of what we always talk about is we have our tent pole pillar brands. We have really extraordinary economics given the way our international operation works and what's happening here domestically in the efficiency of P&A that we also have the ability to do a handful of...
Speaker 9: super interesting, exciting original movies that have the chance to explode. We took Joyride to South by Southwest and it got the kind of energy underneath it that one would hope and we think it's going to do great business for us. We acquired a movie at Toronto called The Blackening that we're incredibly excited about. Same kind of situation where you've got an...
Speaker 9: original story, medium budget film. The Hunger Games, same thing. I was here when we bought that book. There were 40,000 copies sold at the time. And so most of these things at Lions Gate start out as those, as original movies. We happen to have economics that allow us to do that and continue to mine that space.
Speaker 2: with loop capital please go ahead.
Speaker 11: Thanks for taking the question. First for Joe, are a dozen films a year your sweet spot? Is that where you want to be? Can you unpack a little more on what your expectations might be for the Hunger Games creep wall? What kind of response has gotten so far? And then a question for Jimmy. As you increase production...
Speaker 9: How should we think of the investment in content? It looks like for the past year the studio was about a billion five and Media Networks a billion two. Should the studio grow from that level? So I'd say on the dozen films a year, that's what our slates look like at a planning stage and in terms of what we have currently calendared. What John's, you know, we look, we continue to look for opportunities though. John mentioned a very interesting movie.
Speaker 9: incremental to that slate and wildly improve those segment two economics. And so, CSO is an example. We nearly quadrupled the return on that movie by just leveraging our infrastructure with very limited media dollars and we think that's a real differentiator.
Speaker 5: in production and programming spin. This year was lower relative to the prior year, mostly timing. We're still seeing. We're not pulling back. We're still seeing strong demand. So I would expect things to move up just a little bit in 24. But I'd expect, likewise, we continue to fund..
Speaker 5: all of our investment in content as well as marketing behind that from Positive Free Cash Flow.
Speaker 9: On the Hunger Games, I forgot to answer that question for you. We're seeing some really interesting things. The team did something really smart. They planned it about a year ago. We lined up all the four original movies to play on Netflix so that they would get very wide viewership and we can start to ignite a conversation digitally. And what we had hoped to be a conversation turned into a bit of a rush.
Speaker 9: Hunger Games have really energized and are super excited and picked this movie up and kind of put it on their back and created a lot of chatter. What we've also seen is a new generation, the kids of those fans who are now taking mom and dad's books, book sales are going up because that next generation is finding the franchise, devouring the first four movies and wanting to see the next.
Speaker 5: I'll give you a little more color, Martin, on the... Allen. Allen, sorry, in terms of the increased production spin. You see that mostly on the studio side, right, as you ramp up on your theatrical slate and filling the demand on television production and a little more modest settling of production spin on Star's side as they manage your portfolio programming.
Speaker 12: up really on the last content spend question.
Speaker 12: I'm curious as you get closer to a potential spin, how you think about managing STARS and specifically the domestic business. How do you think about managing profit and free cash flow growth versus further investment in scaling the sub-base?
Speaker 4: Hi, it's Jeff. I'll start and then you can jump in. Like we said, we've got two really, really valuable core demos that I said are hard to replicate. Really makes us a great complimentary service to almost anybody out there. We do think there's a lot of opportunity domestically. Tam is somewhere between 70 and 80 million.
Speaker 4: So we've got a long way to go to drive in that business. And we do think that long-term margins should hover approximately around 20%. And so we're on a path to get there. And so we'll start to manage toward that long-term goal.
Speaker 10: Yeah, and I would note that this was a year where we expanded our programming from 6 to 11 originals. So obviously, to get to that sort of run rate position, we actually spent a fair amount of more free cash and made a bigger investment in that business. We expect that to turn around and get the...
Speaker 10: motion pictures like which actually all the streamers are starting to realize that these well marketed movies that go into the marketplace with a lot of recognition don't require nearly as much marketing spend from the streamers. So we think we're in really good shape from the perspective of free cash flow and sort of where that business is and sort of getting to a position of financing itself.
Speaker 3: Thanks, Devon. And thanks, everyone. Please refer to the Press Releases and Events tab under the Investor Relations section of the company's website for discussion of certain non-GAAP board-looking measures discussed on this call. Thanks, all.
Speaker 3: Thanks, Devon. And thanks, everyone. Please refer to the Press Releases and Events tab under the Investor Relations section of the company's website for discussion of certain non-GAAP forward-looking measures discussed on this call. Thanks, all.
Speaker 13: The conference is now concluded. Thank you for attending today's presentation. You may all now disconnect. Thank you for attending today's presentation.