Q2 2025 Lions Gate Entertainment Corp Earnings Call
Good afternoon, everyone, and welcome to the Lionsgate second quarter 2025 earnings conference call.
All participants will be in a listen-only mode. Should you need assistance, please email a conference specialist by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then 1 on your touch-tone telephones.
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Please also note, today's event is being recorded.
Speaker Change: At this time, I'd like to turn the floor over to Nelay Shah from Investor Relations. Please go ahead.
Nelay Shah: Good afternoon. Thank you for joining us for the Lionsgate Studios Corporation and Lionsgate Entertainment Corporation fiscal 2025 second quarter conference call. We'll begin with opening remarks from our CEO, Jon Feltheimer, followed by remarks from our CFO, Jimmy Barge.
Nelay Shah: 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, Chairman of the Motion Picture Group Adam Fogelson, and President of Worldwide TV and Digital Distribution Jim Packer.
And from STARS, we have President and CEO Jeffrey Hirsch.
Nelay Shah: CFO Scott McDonald, and President of Domestic Networks, Allison Hoffman. The matters discussed on the call also include four looking statements, including those regarding the performance of future fiscal years.
Nelay Shah: 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 our public filings for Lionsgate Studios Corporation and Lionsgate Entertainment Corporation.
Nelay Shah: The companies undertake no obligation to publicly release 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 Jon
Jon Feltheimer: Thank you, Nelay, and good afternoon, everyone. Thank you for joining us.
Jon Feltheimer: The continued industry disruption, the lingering effects of last year's strikes, and a disappointing theatrical box office performance impacted our financial results in the quarter.
Jon Feltheimer: Within our television group, our unscripted business is feeling the effects of a continuing market correction.
Jon Feltheimer: In our film group, the poor box office performance of Borderlands, coupled with softer than anticipated results from other releases in the quarter, reflected an environment with less margin for error than ever before.
Jon Feltheimer: On borderlands, nearly everything that could go wrong did go wrong. It sat on the shelf for too long during the pandemic, and reshoots and rising interest rates took it outside the safety zone of our usual strict financial models.
Jon Feltheimer: Several of our other releases in the quarter, though cushioned by financial models that worked as intended, didn't live up to either our standards or our projections.
In spite of the above, our business model still works.
Jon Feltheimer: Risk-mitigated film and television slates, efficient production and marketing spends, a diversified portfolio of assets, and a strong library that serves as the ballast of our business, generating nearly $900 million and trailing 12-month revenue in the quarter.
Jon Feltheimer: But emphasizing the success of our financial models doesn't take the place of also getting the creative right.
Jon Feltheimer: Under new leadership in our motion picture group, we're making good progress in preparing our return to a much stronger and more diversified film slate in fiscal 2026, driven by the tentpoles Michael, Ballerina, and Now You See Me 3.
Jon Feltheimer: Beyond that, Francis Lawrence will be directing our 6th Hunger Games movie after he finishes The Long Walk, the film adaptation of Stephen King's classic novel, as we focus on and take full advantage of one of the most valuable portfolios of brands and franchises in the business.
Jon Feltheimer: Our film slates include two to three temples a year in order to create significant incremental value for our library, drive our film and television packages for buyers, and in success, capitalize on our biggest opportunities for outsized growth.
Jon Feltheimer: But we will also ensure that when we take bigger swings, we're taking measured swings.
Jon Feltheimer: In addition to the tentpoles, we will continue to focus on the films that have done so well for us before. Star-driven commercial properties based, in many cases, on existing IP.
Jon Feltheimer: In recent weeks, we've announced that Paul Feig will direct Sidney Sweeney and Amanda Seyfried in the thriller Housemaid.
Jon Feltheimer: Challengers director Luca Guadagnino will shepherd our reimagining of the Lionsgate classic American Psycho.
Jon Feltheimer: Amazing Spider-Man filmmaker Mark Webb will direct Johnny Depp and Penelope Cruz in Daydrinker. An Academy Award winner Kei-Hwai Kwan will star in the action thriller Fairytale in New York from Sisu director Jalmari Hellander.
Jon Feltheimer: As you saw we recently announced that Dirty Dancing the musical is scheduled to head to Broadway in spring 2026. A new chapter of an amazing evergreen Lionsgate franchise.
Jon Feltheimer: combined with our La La Land stage play shepherded by Wicked producer Mark Platt and also slated for a Broadway opening in 2026.
Jon Feltheimer: Our upcoming John Wick AAA game in partnership with a major video game developer. The John Wick Experience opening in Las Vegas next month. And more than a dozen additional stage plays adapted from Lionsgate films and television series in the works.
Jon Feltheimer: We have an opportunity to invest in the upside from a deep portfolio of projects that will create an important incremental revenue stream for our IP outside the four walls of our core businesses.
Jon Feltheimer: Turning to television, the market correction has impacted both the scripted and unscripted landscape with buyers continuing to order fewer shows and disrupting long-standing business models.
Jon Feltheimer: But we're not letting this slow us down. Lionsgate Television brings to this environment a core group of returning hit series like Ghosts...
Jon Feltheimer: The Rookie, Acapulco, Mythic Quest, Raising Canaan, and BMF, and major new properties such as Spartacus, the reimagining of one of Star's biggest original hits.
Jon Feltheimer: The Hunting Wives, based on May Cobb's acclaimed bestseller about obsession, seduction, and murder in East Texas.
The Twilight TV adaptation Midnight Sun
Jon Feltheimer: The John Wick TV adaptation, John Wick Under the High Table and the show business comedy, The Studio. Starring, co-written, directed, and executive produced by Seth Rogen.
Jon Feltheimer: It's a deep slate of high-profile properties that create significant growth opportunities for the future while adding tremendous value to our library.
Jon Feltheimer: In addition, we're refilling our pipeline with more than 40 scripted projects sold to platforms since the start of the year, drawing upon our ability to create new business models, pivot to new buyers, and lean into new areas of growth.
Jon Feltheimer: We expect the pendulum to begin to swing back to a new normal as our platform partners grow their profitability and fine-tune their content strategies.
Jon Feltheimer: consolidating smaller labels to create greater efficiency in our unscripted business and continuing to evaluate the mix of business models on our scripted slate to mitigate risk and maximize our upside.
Jon Feltheimer: Turning to stars, we like where the platform is positioned, heading into the separation.
Jon Feltheimer: Starz remains on track for a $200 million dollar segment profit for the fiscal year after executing a successful rate increase to drive revenue growth in the back half of the year.
Jon Feltheimer: Starz programming is working. Power Book 2 Ghost broke network viewership records in the quarter, reaching 11.7 million multi-platform viewers and gaining 13% in OTT streams in the second half of its fourth season.
Jon Feltheimer: with five shows reaching between 9 and 12 million multi-platform viewers apiece.
Jon Feltheimer: Our core group of original hit series compares very favorably with the most successful shows on other platforms.
Jon Feltheimer: With upcoming hit series Outlander and Raising Canaan engaging both of our core demos, we expect a return to OTT subscriber growth in the back half of the year.
Jon Feltheimer: On the distribution front, Starz and YouTube TV, one of the fastest growing live TV services in the world, renewed their distribution partnership with a new multi-year agreement that also creates new bundling opportunities. In addition, Starz announced a deal to bundle BritBox on its own platform as well as on Amazon.
Jon Feltheimer: As they begin to gain real traction, stars will be able to capitalize on the promise of a bundled world whose benefits include lower churn, reduced marketing costs, increased engagement, and significant greater subscriber lifetime value.
Jon Feltheimer: In the quarter, we announced a new partnership with Applied AI Research Company Runway, under which they will have access to a group of our library titles in order to create and train a model for the use of Lionsgate and the filmmakers we designate.
Jon Feltheimer: The entertainment business is a creative enterprise, but its future growth will require a combination of art and science.
Jon Feltheimer: We believe that AI, harnessed within the appropriate guardrails, can be a valuable tool to serve our talent. And we believe that over the long term, it will have a positive transformational impact on our business.
Jon Feltheimer: I'm pleased to report strong progress in the quarter towards full separation of the studio and stars with the filing of our preliminary proxy.
Jon Feltheimer: The board's recommendation that we collapse our two classes of stock into one and continued steps to put the necessary financing in place for both companies, which Jimmy will discuss in a moment.
Jon Feltheimer: We continue to anticipate achieving full separation by the end of the calendar year subject to the timing of regulatory approvals.
Jon Feltheimer: This is a transitional, disrupted, and difficult year for our industry.
Jon Feltheimer: We like what lies ahead in an industry that has always moved fast to adopt great new technologies to save money and increase efficiency
Jon Feltheimer: where streamers and other platforms will return to being robust buyers of films, television shows, and libraries, as they continue to strengthen their balance sheets and regain their footing, and where consumers are slowly, but surely returning to the habit of going to the movies.
Jon Feltheimer: But in the meantime, we have to control the things we can, establish the financial and creative models that make sense for a company our size, be sure-handed in our execution, and streamline our business by adjusting to the economic realities of the marketplace.
Jon Feltheimer: Last month, we offered voluntary severance and early retirement packages to Lionsgate's U.S. employees, and approximately 8% of eligible employees have elected to take advantage of these offers.
Jon Feltheimer: I can assure you that we are aligning ourselves with our shareholders in every way and will continue to do whatever it takes to drive shareholder value.
Jon Feltheimer: In closing, we're continuing to make adjustments to our business based on changes in our environment.
Jon Feltheimer: But our greatest takeaway is that we have to adhere even more rigorously to our diversified and risk-mitigated business model, lean even more fully into the growth opportunities offered by our incredible and non-replicable portfolio of IP,
Jon Feltheimer: and remain even more faithful to the entrepreneurial spirit, agile posture, and strict financial discipline that have always set us apart.
Jon Feltheimer: Now I'll turn things over to Jimmy. Thanks, Jon, and good afternoon, everyone. I'll briefly discuss our second quarter financial results and provide an update on the balance sheet.
Speaker Change: For the quarter, Lionsgate's consolidated revenue was $949 million, adjusted oebida was a loss of $18 million, and operating income was a loss of $89 million.
Speaker Change: Net cash flows used in operating activities was $82 million, while use of adjusted free cash flow for the corridor was $132 million.
Speaker Change: As Jon noted in his prepared remarks, the recent underperformance of our wide theatrical releases, and Borderlands in particular, has necessitated a revision to Lionsgate Studios' Fiscal 25 financial outlook.
Speaker Change: We now forecast that Lionsgate Studios will generate between $300 million to $320 million of adjusted OEBDI this fiscal year.
Speaker Change: This update outlook primarily reflects the impact of lower segment profit within our motion picture group, along with some reassessment of the post-strike recovery in our television business.
Speaker Change: The studio should see strengthening Adjusted Oebida over the next two quarters, driven by an increase in both high-margin post-theatrical revenue and scripted television series deliveries.
Speaker Change: With respect to STARS, we continue to anticipate that its North American business will generate $200 million or more of adjusted OEBDA in fiscal year 25. Now let me briefly discuss the fiscal second quarter performance of our studio and media networks businesses compared to the previous year quarter.
Speaker Change: Starting with the studio business, quarterly revenue grew 4.3% year-over-year to $824 million, while studio-adjusted oebida was a loss of $6 million.
Speaker Change: Trailing 12 months library revenue of $892 million was up 2.5% relative to last year's Q2 trailing 12 months revenue.
Speaker Change: Breaking down the studio businesses, let's start with Motion Picture. Motion Picture revenue for the quarter increased 2.8% year-over-year to $407 million, while segment profit was $2.6 million.
Speaker Change: While Borderlands' contractually guaranteed international pre-sales, tax credits, and post-theatrical film output deals mitigated some of the financial losses on this film, the size of its underperformance was outside the range of outcomes we would expect given the underlying IP, cast, and size of the film's budget.
Speaker Change: As always, we learn valuable lessons from every release, and Borderlands is no exception.
Speaker Change: We are confident that our go-forward processes will help reduce the likelihood of a similar outcome in the future.
Speaker Change: We will continue to refine our wide theatrical release strategy and make adjustments as the industry evolves, and we believe that our overarching motion picture release model can continue to achieve strong financial returns without outsized risk.
Speaker Change: Moving to TV, quarterly television revenue of $417 million is up 5.8% year over year.
Speaker Change: driven by higher deliveries to STARS, while segment profit of $24 million expectedly declined year-over-year due to the pace of the post-strike recovery.
Speaker Change: Media Network's quarterly revenue was $347 million and segment profit was $27 million. Revenue was expectedly down year-over-year due to the exit from substantially all of our international markets.
Speaker Change: Quarterly North American revenue of $343 million was essentially flat year over year as OTT revenue growth was offset by linear pressure.
Speaker Change: Stars implemented a $1 price increase across its existing U.S. subscribers in the month of September. We expect this price increase will continue to drive an increase in ARPU and sequential revenue growth in the December quarter.
Speaker Change: North American segment profit of $27 million was down year-over-year on higher content amortization, reflecting increased pay-one and pay-two film output, partially offset by lower originals content spend.
Speaker Change: Additionally, we continue to forecast that Stars North America will exit Fiscal 25 with OTT accounting for 70% of its revenues.
Speaker Change: STARS ended the quarter with 12.4 million North American OTT subs, down 2.6% year-over-year.
Speaker Change: We ended the quarter with 20.2 million total North American subscribers, representing a sequential decline of 1.15 million. This pressure was expected alongside our September price increase, as we focus on driving ARPU and long-term revenue growth.
Speaker Change: Additionally, we continue to expect a return to sequential North American OTT subscriber growth in the December quarter.
Speaker Change: Now let's take a look at the balance sheet. We ended the quarter with $2.27 billion of net debt at the Consolidated Company, which reflects $1.64 billion at the studio and $622 million at Starz.
Speaker Change: The increase in studio net debt reflects the expected use of cash associated with both the timing of post-strike content spend and the release of five wide theatrical films.
Speaker Change: Star's net debt is meaningfully down from its initial $700 million net debt allocation in May as we delever the Star's business.
Speaker Change: On a trailing 12-month basis, Consolidated Lionsgate leverage at the end of the quarter was six times, while Standalone Stars' leverage for its North American business was three times.
Speaker Change: As we prepare for full separation by the end of the calendar year 24, we have made substantial progress in establishing the stand-alone capital structures for both Lionsgate Studios and STARS.
Speaker Change: The first was the previously announced $340 million dollar IP facility supported primarily by the E-1 library, while the second is a $455 million dollar IP facility backed by a portion of the Lionsgate library.
Speaker Change: Both facilities were favorably priced at SOFR plus 225 basis points and will travel with Lionsgate Studios upon separation.
Speaker Change: The proceeds from these capital raises were used to pay down portions of the studios revolving Credit Facility and Term Loan B as reflected in our balance sheet at quarter end.
Speaker Change: And just this week, we closed another $265 million on the Lionsgate IP facility and completely paid off the Term Loan B.
Speaker Change: This marks over $1 billion of favorably priced, asset-backed borrowings with an extended tenor of five years and significantly rounds out our post-separation capital structure.
Speaker Change: We are also on track to complete the remaining financings that will fund upon separation and complete the capital structures of both Starz and Lionsgate Studios.
Speaker Change: Looking forward to the remainder of fiscal 2025, as we noted before, we continue to forecast that the Consolidated Companies Adjusted OEBDA and Adjusted Free Cash Flow will be second half-weighted.
driven by a significant increase in television deliveries.
Speaker Change: post-theatrical slate cash flows, stars price increase and a return to OTT subscriber growth. As such, we expect trailing 12 months leverage should end the year at approximately four and a half times and three times for Lionsgate Studios and stars respectively.
Speaker Change: And now I'd like to turn the call over to Nilay for Q&A.
Operator, can we open the call up for Q&A?
Speaker Change: Ladies and gentlemen, at this time we'll begin the question and answer session. To ask a question, you may press star and then 1 using a touchscreen telephone. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys.
Withdraw your questions, you may press star and two.
Speaker Change: Once again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster.
and many more. Thank you. Thank you.
Speaker Change: Our first question today comes from Thomas Yeh from Morgan Stanley. Please go ahead with your question.
Speaker Change: revolve around a process-oriented approach to production? As you kind of look to build new IP, how should we think about, you know, the budget consciousness on the types of films you're willing to greenlight if that's changed at all?
Speaker Change: I'm going to let Adam, Chairman of Emotion Picture Group, answer that. Thanks, Thomas.
Adam Fogelson: So, look, I think it's a combination of all the things that you talked about. I think that the company has done an extraordinary job of being financially disciplined and looking at risk-mitigated models.
Adam Fogelson: But I think that making sure that on the creative side, both on physical production, on creative production, on marketing, on research, I think there are ways to incorporate other elements of the company, of the Motion Picture Group, into the decision-making process.
Adam Fogelson: So that both creatively and financially, we're taking advantage of best-in-class.
Speaker Change: Okay understood and then the decision to streamline the U S. Workforce can you help us think through how much of that in the dressing what sounds like maybe a little bit about greater rationalization at T E versus what anything going on at film or stars.
Speaker Change: Any help with how that flow through and which areas are even business functions, particularly when youre seeing as an opportunity to run more efficiently. It would be helpful. Thank you.
Speaker Change: Yeah.
Speaker Change: Again, 8% just in RV surf I think thats part of overall right sizing our business when you have a trough in the business and the overall environment. When you have disruption I think we want to be as aligned with our shareholders. As we can be and I think this is an opportunity we have to.
Speaker Change: A little smarter about our business feel a little bit more efficient.
Speaker Change: I would say that the nonfiction business is a little structured differently than most of our business in the sense you carry a fair amount of of overhead, which typically gets applied again lots of episode and in this quarter, we actually didn't get two big orders that we.
Speaker Change: We expected, but overall I think that this is an opportunity we have to as I say rightsize our business we.
We think about some of the ways we are structured.
Speaker Change: And.
Speaker Change: And wait for the cycle to swing back to where we think it's going to swing back to.
Speaker Change: And any update on any one I mean, I think the trailing 12 months library of revenue and Jimmy you cited is that down year over year. If you strip that out and maybe just give us an update on the path towards 60 million and whether or not we're continuing to see that or after that.
Speaker Change: <unk> TV pressure, you're seeing is also affecting you want as well.
Speaker Change: Thank you.
Speaker Change: Yeah, Let me take the trailing 12 months first remember.
Speaker Change: Well <unk> certainly has been fully integrated and is definitely helping our trailing 12 months library as we would have expect spect it keep in mind. The prior comp. The prior year included Shits Creek, which was a fairly outsized very nice amount in the prior prior trailing 12 months comp so actually.
Speaker Change: Despite that and certainly one helps but we're seeing very strong.
Speaker Change: Library sales impact and his team's killing that they've integrated completely.
Speaker Change: One we like this asset it's a great asset it's a great team over there we're tracking well we successfully integrated this completely and our business both on TV side.
Speaker Change: The rookie to recruit yellow jackets, and then obviously I spoke to the library sales.
Speaker Change: Very happy with that asset.
Speaker Change: Yeah. This is Jim I would say one thing the rookie is really proving to be a long term asset for us that is requiring a little bit of work to renegotiate I think at our top 10 countries.
Speaker Change: Redoing all the deals, but I think youll start to see some real returns were already trending above my budget and I'm feeling very optimistic.
Speaker Change: Thanks, so much.
Thomas Yeh: Thanks Thomas.
Thomas Yeh: Okay.
Speaker Change: Our next question comes from Steven <unk> from Wells Fargo. Please go ahead with your question.
Speaker Change: Thank you maybe first just Jeff can you talk about how you saw churn performed in the quarter. When you took the price increase.
Speaker Change: Was it in line with your expectation and then as you look out next year you.
What are you planning through the way you do anything different as you enter this period of the separation.
Speaker Change: Are you feeling about the $200 million in EBITDA and can you grow off that and and also.
Speaker Change: What is cash conversion of that EBITDA look like as I think you'll like.
Speaker Change: Now that's a lot in there and then on the TV side.
Speaker Change: Maybe this is a question for Kevin.
Speaker Change: Warner Brothers talked today about a lot of momentum that they're seeing in their kidney production studio.
Speaker Change: I do wonder if maybe some of the challenges aren't necessarily industry wide do you worry that you're losing market share.
Speaker Change: And water cooler originals in particular, what do you think he can do to increase the success rate at taking production, especially a studio or separate thank you.
Speaker Change: Hi, Steven its Jeff. Thanks for the question look I think we as we talked about we put a dollar rate increase through to the business this quarter.
Speaker Change: The team did a phenomenal job of executing that with a lot of learning from last year's rate increase. So we came in right on actually our expectation in terms of the downward pressure on the business in terms of subscribers you can see our food does spike year over year, and so we're actually seeing that start to flow through the business that we feel very good about that coming into the second half of the year.
Speaker Change: When we bring outlander back in about 20 days and into raising kanan in with this film slate I think we feel very good about healthy OTT growth in both the third and the fourth quarter. So we feel very good about the 200 million finished this year heading into post separation I think theres a lot of opportunity for us to build back our lie.
Speaker Change: <unk> and start to actually put some owner economics on the business.
Speaker Change: I do feel good about that 200 billion is kind of a baseline for the business in the next couple of years.
Speaker Change: But I do also think that youll start to see as we normalized out of the strike and the Covid period, and our cash payments start to really align again with our amortization schedule and youll start to see higher conversion of Unlevered free cash flow against the $200 million side I would expect that to be somewhere in the 70% range as we move forward there is a little tail at the.
Speaker Change: The end of this year for some of the international shutdowns.
Speaker Change: Theres still pushing that free cash flow conversion, a little down, but we'll work through that.
Speaker Change: Two of them really could state of.
Speaker Change: Free cash Unlevered free cash flow conversion against the $200 million and to your other question I think as the business continues to have been a very disruptive period and what we're seeing in D. C. I think it gives a lot of opportunity for us to do things that really help focus our business and help grow our business. So.
Speaker Change: Just it's Kevin speaking just to follow on the questions about the overall scripted and TV market.
I was really encouraged by the comments that debt.
Speaker Change: We read today from Warner Discovery, and we're we're certainly seeing lots of green shoots in the development side, Jon touched on it in his opening remarks, but wherever 45 projects sold.
Speaker Change: And new developments since the end of the strike and that cadence seems to be increasing.
Speaker Change: And we're moving some of those toward conversion, which is really important to get from development into production.
Speaker Change: With two big players.
Speaker Change: These stabilized.
Our mountain until this guidance Youll conclude Warner who has been struggling but it looks like they are turning a corner. These are key buyers for us.
Speaker Change: And as they resolve and move into more stability, that's great for us, but we're not waiting around for that we're finding new buyers.
Speaker Change: Touched on USA is back into scripted where their MGM plus we have a big series of Robinhood.
Speaker Change: There we've got original through our.
Speaker Change: Canadian.
Speaker Change: Subsidiary at Hallmark, plus where we're out there, beating the bushes every day to find new buyers. Our long term partnership with Starz is stronger than ever we have three distinct franchises.
Speaker Change: The most powerful of which pardon the pun is power and the power versus but right behind it or is the BMS franchise and we're into a fantastic first season of production on Spartacus, which is moving into post production right now really high hopes around it and what that's going to do for the partnership for years to come.
Speaker Change: And Jim touched on the rookie which is one of the key drivers behind the <unk> acquisition, they're rookie from an original perspective than our strong current department getting renewals is really important we've got a short strike shortened first season.
Speaker Change: We have a full season of season seven that we're in the middle of making.
Speaker Change: We're in discussions about spinning it off.
Speaker Change: And we renewed.
Speaker Change: An overall deal with talented and show runner creator behind the rookie Alexi, Holly, which has led to other development all around town and in addition to his.
Speaker Change: Strong work on the recruit which will premiere sometime in early 'twenty five on Netflix. So all of those things we're leaning into in addition to our own IP Twilight John touched on John Wick moving into TV. These are all things. We're excited about and feel that we are quite competitive in the premium space.
Speaker Change: Thank you.
Speaker Change: Thanks, Stephen operator, because we get the next question. Please.
Speaker Change: Our next question comes from Barton Crockett from Lewis and Clark. Please go ahead with your question.
Speaker Change: Okay, great. Yeah. Thank you a couple of questions. If I can one is just on this.
Speaker Change: Market correction in TV production, so it's kind of understand a little bit better what happened and how you see this resolving.
Speaker Change: As I understood it going you know.
One of the issues like a year plus ago coming out of the pandemic was really supply driven right you weren't able to make shows and that kind of depressed results for a little bit.
Speaker Change: And then but now we're talking about a demand driven kind of dynamic.
That theres not enough demand for shows although maybe that's resolved now.
Speaker Change: But these networks are still operating there still need content.
Speaker Change: How is it that theyre not buying shows, but they're still putting content on air is that.
Speaker Change: Making stuff in house, just rerunning stuff lager buying from other suppliers and then what was really behind that if you can elaborate I'd be curious just one question then on a separate note just I know that you guys were under.
Speaker Change: As part of the separation you need to.
Speaker Change: Race, some new financing at Starz to replace some of the tactics smoke governance studio from Sars and I'm. Just wondering if you could elaborate on what's happening with that process just given some of the volatility in markets generally and some of the concerns around stars just how you're progressing with that.
Speaker Change: Okay.
Speaker Change: Again, it's Kevin I'll I'll jump into part one.
Speaker Change: Yes.
Speaker Change: The demand is there, but the financial constraints go along with it so from an original perspective, what you're finding is orders that maybe gets shortened instead of 22 at 16 or eight instead of 10, making those dollars go further or can you do that same show for a lot less and take it to a less expensive production location or one.
With generous tax subsidies every potential angle is on the table. We're shooting here in Los Angeles, we're shooting all over the world we're looking for advantages.
Speaker Change: This shows that we have the franchise as I touched on together with stars. We're always looking to see if we can bring the ultimate net budget pricing downward to give Jeff and his team more flexibility.
Speaker Change: The good news is that when they move into the library world.
We have a vast library, which again, Jim can speak to because that often becomes an alternative to original was buying library, which is a little more predictable and less expensive than the original so.
Speaker Change: Either way, we want to be a programming solution to our.
Our network and platform partners.
Speaker Change: To the extent that we can make that as many originals as possible drive revenue earnings and build library is our first choice.
Speaker Change: But we have to be flexible and kind of go with the market.
Speaker Change: And Barton with regards to part two of your question.
Speaker Change: With respect to our financings.
Speaker Change: We're in the process, we're very confident we're layering into very good capital structures here, you've seen us execute on the bonds, which are in place at both stars as well as the studio.
Speaker Change: Layered in $1 billion of IP facilities that we just completed we were oversubscribed travels with the studio great pricing.
Speaker Change: We're in the process right now with Starz on the term loan a having very good conversations with our banks and I'm very confident about closing that out as well and on the studio side will lay in their traditional borrowing base facility.
Speaker Change: And all of this will happen in the next several weeks and we'll have teed up for funding at separation.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thanks, Bart and operator could we get the next question. Please.
Speaker Change: Our next question comes from David Joyce from Seaport Research Partners. Please go ahead with your question.
David Joyce: Thank you.
Speaker Change: Had a bigger picture strategic question, if I could get your thoughts John and Michael on this.
Speaker Change: With Comcast looking at strategic alternatives or separating out its cable networks.
Speaker Change: Now we've had a oh, there's a pending change administration in D. C. I was just wondering what your views are on consolidation.
Speaker Change: Consolidation in the industry, what could make sense going forward, especially in light of.
U as soon having the studios in SAR starz as separate entities.
David Joyce: Yeah. Thank you David well to start with obviously.
Speaker Change: The key rationale for separating the businesses is to allow each of them to prosper in its own.
Speaker Change: In their own space and focus on their core business and give them optionality.
Speaker Change: Its obvious theres huge dislocation about to happen in the business I think certainly some people are going to start questioning whether this idea of vertical integration really works, where they're taking away the natural tension between buyer and seller is really the best way to allocate resources.
Speaker Change: But for sure there is going to be a lot of movement of pieces I believe out of these conglomerates and I think after the dislocation there is going to be a lot of relocations.
Speaker Change: And so what I would say in general after our separation is theres going to be a lot of optionality flexibility.
Speaker Change: And I would say within the conversations that I think will be going on M&A and strategic.
Speaker Change: Change I would say if you ask me will both of the size of our business be involved in those conversations and I would say I think thats extremely likely.
Speaker Change: Alright, Thank you very much.
David Joyce: Thanks, David Operator can we get the next question. Please.
Speaker Change: And once again, if you would like to ask a question. Please press star and one.
Speaker Change: Our next question comes from Brian <unk> from Raymond James. Please go ahead with your question.
Speaker Change: Hey, everyone. Thanks for taking.
Speaker Change: Thanks for taking the question I saw reports on a delay with the microfilm suggests.
Speaker Change: Curious where you are in the process on that film and it would be good to get update on the other big tent Poles for next year ballerina and now you see me.
Speaker Change: And then any thoughts on how that delay maybe affects the rest of the theatrical slate for next year.
Adam Fogelson: Yeah, Hey, it's Adam Thanks for the question.
Adam Fogelson: We have obviously talked through all of the dailies on Michael and they are extraordinary, but we have yet to see a first cut of the film.
Adam Fogelson: It was always the most hyper aggressive possible targets for April, but we wanted to claim the space. If in fact, we were going to be ready for it because theres been a lot of interest on the large formats of having that movie, but we were never going to erase that movie to have it come out before it's ready the truth is that our film making team.
Adam Fogelson: <unk> has had extraordinary success with Bohemian Rhapsody in that late fall corridor.
Adam Fogelson: And given the quality of the movie and what everyone sees as the financial opportunity of that movie. It just made perfect sense to slot it into that corridor have the opportunity to use all of the summer for trailer play.
Adam Fogelson: We just could not be more excited and what that opportunity is going to be and we expect in the next few weeks, we will start to actually see early cuts of the film ballerina had an extraordinary trailer launch.
Adam Fogelson: I think the audience was incredibly excited to see what felt like a real John Wick.
Adam Fogelson: Companion movie and.
Adam Fogelson: And getting to see keanu join.
Adam Fogelson: Joining honor in that movie sparked a lot of enthusiasm and the early response in terms of the number of used and in terms of early tracking on that movie are encouraging in that movie. We fully expect we will stick to the June corridor and the screening of the movie. After we did some enhancements have been very very encouraging as well and we just wrapped <unk>.
Adam Fogelson: <unk> on time and slightly under budget on now you see me Rubin Fleischer another eight plus extraordinary director did a tremendous job I was just at the American film market. That's in Las Vegas, This year and had a chance to show our foreign partners. The footage that we have crafted from that film and there was immense excitement and enthusiasm.
Adam Fogelson: That is already data for November so the slate is this latest coming together, we also David good fortune and.
Adam Fogelson: In the October corridor, and I will tell you that that movie has screened absolutely extraordinarily well.
Adam Fogelson: Also a very easy recruit for that movie people are really excited to see what what keanu and Aziz and sat together have done.
Adam Fogelson: So we are very much looking forward to what next year has to offer.
Speaker Change: Great and then on <unk>.
Speaker Change: AI partnership with runway can you just talk a little bit about how that came about and who initiated it and what tangible benefits you expect.
Speaker Change: And then what's been the feedback so far from the creative community.
Speaker Change: It started with us doing a lot of due diligence in the world.
Speaker Change: And we very much Bart to runway as they did to us and I guess, if I were going to pare paraphrase Wayne Gretzky Gretzky, we think our partnership is with them is going to propel us to where the puck.
Speaker Change: Is headed as opposed to where it is.
Speaker Change: So we're excited about what we're doing together not talking a lot about it but we've made some public comments about it but.
Speaker Change: We think this is very much kind of enhanced filmmaking and become an incredible.
Adam Fogelson: Tool for the community and this is Adam I would just add on to say that I think there were some questions. When it was first reported.
Speaker Change: But I think once we clarified for our filmmaking partners for our talent partners exactly what this was how it would be used what it is what it is that we've.
Speaker Change: We've had great support in our filmmakers are using it already.
Speaker Change: Great. Thanks, everyone.
Thanks, Brent operator could we get the next question. Please.
Speaker Change: And we do have an additional question. This comes from Patrick <unk> from Barrington Research. Please go ahead with your question.
Speaker Change: Alright, thank you.
Speaker Change: Theatrical releases I was.
Speaker Change: Wondering if the how the performance in the quarter as kind of the.
Causing maybe a reevaluation like how you pursue your marketing efforts I understand like efficiencies and that is very important I was wondering if it's more difficult to break through in the.
Speaker Change: Current environment, and just what sort of a reevaluation you guys are undertaking.
Speaker Change: Yeah. Thanks for the question I think look I think the reevaluation has more to do with what movies, we decided to make and at what prices rather than rethinking marketing. The truth is when you look at the non tent poles that have succeeded over the course of the last quarter. There is no real correlation that you could identify.
Speaker Change: How much money was being spent and what the results were terrified and a ton of business with $7 million P&A spend long legs did tremendous business on a very modest spend and a bunch of movies that spend significantly more than we tend to spend in similar genres performed at a disappointing level. So.
Speaker Change: I think making movies that can be creatively, great, but that also carry with them a marketing proposition with filmmakers and talent that will force the audience to pay attention that will never force in the audience to see something they don't want to see but making sure that youre green lighting movies that the audience will have to focus on and pay attention to and make a conscious choice about.
Speaker Change: I think what has happened here is to narrow the funnel that is going to ultimately determine what gets through but not radically change how we're doing our business.
Speaker Change: Okay. Thank you.
Speaker Change: Thanks to everyone. Please refer to the press releases and events tab under the Investor Relations section of our company's website for a discussion of certain non-GAAP forward looking measures discussed on this call. Thank you.
Speaker Change: Ladies and gentlemen, the conference has now concluded we do thank you for attending today's presentation.
You may now disconnect your lines.
Speaker Change: Yeah.
Speaker Change: [music].