Lionsgate Studios Corp.

Good day, and welcome to the Lionsgate third quarter 2025 earnings 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. 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 and then two. Please note that this event is being recorded. I would now like to turn the conference over to Neelay Shah, EVP of Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us for the Lionsgate Studios Corporation and Lionsgate Entertainment Corporation fiscal 2025 third quarter conference call. We'll begin with opening remarks from our CEO, John Feldheimer, followed by remarks from our CFO, Jimmy Barge. 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 tv 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 cfo scott mcdonald and president of domestic networks allison hoffman The matters discussed on the call also 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 our public filings for Lionsgate Studios Corporation and Lionsgate Entertainment Corporation. 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 John.

Thank you, Nealey, and good afternoon, everyone. Thank you for joining us. I'm pleased to report a solid quarter in which our businesses performed well in a challenging environment. Our motion picture business is back on track, converting our last three mid-budget films to significant profitability with solid box office performance, strong business models, and steady execution. Our television business continues to fight its way through the market correction, leaning into an extensive portfolio of content, shifting its business models, diversifying its buyer mix, and cutting costs. Together, they contributed to a very busy quarter with a total of 16 scripted television series, 36 unscripted series, and nine films in production. Star has returned to domestic OTT subscriber growth on a sequential basis and continued to expand its distribution footprint with key partner renewals and new bundling deals. And our library turned in another stellar performance with a record $954 million in trailing 12-month revenue as we continue to pivot to new buyers, utilize innovative windowing strategies, and incorporate advanced technologies. Now let me update you on each of our businesses. Within our Motion Picture Group, Best Christmas Pageant Ever, Den of Thieves 2 Pantera, and Flight Risk all demonstrated our strength in the mid-budget space. Last week, we announced plans to develop Den of Thieves 3. And we're already looking forward to our terrific Fiscal 26 slate. The response to our early materials on Ballerina, the first film spin-off of our John Wick franchise, indicates that it delivers the level of action and excitement John Wick fans have come to expect. Ballerina opens on June 6th. Ruben Fleischer just showed us an exciting new director's cut of the third installment of Now You See Me, extending a franchise whose first two films grossed nearly $700 million at the worldwide box office. and we're well on our way to completing production on our highly anticipated event movie, Michael. Rounding at a return to a strong, balanced, and diversified fiscal 26 slate, Frances Lawrence has completed The Long Walk, adapted from the classic Stephen King thriller, Aziz Ansari's rag-to-riches comedy, Good Fortune, starring Keanu Reeves, Seth Rogen, and Ansari, is set for an October 17th release. And Paul Feig is shooting the thriller, The Housemaid, adapted from the Runaway bestseller, and starring Sidney Sweeney and Amanda Seyfried, for a Christmas Day release. In addition, we continue to welcome incredible new talent to the Lionsgate family, including Margot Robbie, whose Lucky Chap banner is developing Monopoly, acclaimed filmmaker Luca Guadagnino, directing the remake of American Psycho, and Grammy-winning recording superstar The Weeknd, whose trailer for Hurry Up Tomorrow opened to a huge response this week. And as the demand for movies increases, the post-theatrical window becomes more valuable and our slate is poised to benefit. Last week, we announced the extension through calendar year 2028 of our exclusive pay one deal with Starz and a new exclusive pay deal with Amazon Prime Video immediately following the Starz window. The new agreements are a win-win for everyone, with Starz getting our films closer to their initial theatrical release and Amazon Prime Video securing an early window for several films from our 2025 slate and the full lineup of our 2026 through 2028 slates. The combination of these two deals will significantly increase the contribution from our pay television window. we continue to capitalize on ancillary opportunities for our franchises with a number of exciting developments in the quarter. We're opening the John Wick Experience in Las Vegas later this month, which we expect to be very successful and serve as the model for similar John Wick Experience around the country. The Hunger Games stage play debuts in London this fall. Dirty Dancing and La La Land lead a lineup of stage plays targeted for Broadway beginning in 2026, and we're making great progress on the John Wick AAA video game. Together, I expect these ancillary opportunities to deliver significant incremental contribution to our business as they come online. Turning to television, our current series, Ghosts and the Rookie, continue to be network leaders in their fourth and seventh season on CBS and ABC, respectively, with a rookie spinoff in development at ABC from series creator Alexei Hawley. Hawley has another new series, The Envoy, in fast-track development at Hulu. We wrap production in the quarter on three highly anticipated series, Spartacus and the Hunting Wives for Stars, and Seth Rogen's comedy The Studio, debuting on Apple TV Plus on March 26th. Pivoting to fresh business models for new buyers, we're currently shooting The Rainmaker in partnership with Blumhouse for USA Network and preparing to start production on a new version of Robin Hood for MGM+. In our Lionsgate alternative, unscripted business, led by Craig Pellegian, we're coming off a very successful first season of Martin Scorsese's acclaimed docuseries, The Saints, for Fox Nation, and Scamanda, a four-part docuseries based on Lionsgate Sound's number one true crime podcast, recently launched on ABC and Hulu. And we've been refilling our TV pipeline with a strong development slate led by Stephanie Meyer's Twilight animated TV series, Midnight Sun for Netflix, the Power Universe prequel, Power Origins for Starz, Nurse Jackie at Amazon, the John Wick Under the High Table TV series, the TV remake of our hit draft day movie with LeBron James and Maverick Carter, Spring Hill, a TV series adaptation of Oldboy led by creator Park Chan-wook, and a limited series chronicling the Shohei Ohtani interpreter gambling story. Bolstering our television group performance, we expect a strong growth year in fiscal 26 from Three Arts, a leader in the talent management and production space. The hit television series Mythic Quest from our Three Arts Lionsgate Production Partnership is performing well in its fourth season on Apple TV+. The Hunting Wives is being prepared for its star's debut, and behind them we have a strong pipeline of scripted series development. We intend to diversify the business into new areas of representation through a combination of organic growth and M&A to further cement 3Art's leading position in one of the hottest sectors in the business. Turning to stars, a return to domestic OTT subscriber growth in the quarter was driven by the strong performances of the seventh season of Outlander, the drama series Three Women, based on the New York Times bestseller, and a strong slate of first-run movies from the Lionsgate theatrical output deal. On the distribution front, Starz has closed several new deals in the past few weeks, including two with Prime Video for Max and BET Plus bundles, with Vizio for an AMC Plus bundle, and with YouTube TV for a strategic offer timed to Super Bowl weekend. Starz also secured three key linear partner renewals in the quarter. As Starz prepares for the separation, it's instructive to recap how the platform has evolved over the past five years, successfully converting its revenue from 70% linear to 70% digital, more than doubling its domestic OTT subscriber base, achieving leadership in its two key demos with a strong core group of original hit series, ramping up a slate of world-class studio movies worldwide. and establishing itself as a bundling partner of choice, all while remaining consistently profitable. Now the industry has reached an inflection point, and the next phase of streaming plays to star its strengths. More bundles, the ability to provide digital services to linear platforms, and the opportunity to capitalize on a shifting and disruptive environment to scale its business. Turning to the separation, we're still in regulatory review of our joint proxy registration statement with the SEC. Given this timing, we will need to update the proxy with financials as of December 31st, 2024, which will take a few additional weeks. Pending further SEC review, we expect this would lead to a shareholder meeting in mid to late April with separation shortly thereafter. In closing, Our hearts go out to the thousands of people and businesses impacted by the recent LA wildfires. A number of our employees, talent, and business partners lost their homes, and many more were affected. but I'm very proud of how our employees came together in this time of crisis, not only to help their colleagues, but with an employee-driven grassroots initiative serving the community with clothes and other basic goods, benefiting more than 500 people impacted by the fires. It's this aspect of our culture, resilience, innovation, compassion and teamwork, that gives me confidence that we will continue to rise to the occasion and thrive in the year ahead. Now I'd like to turn things over to Jimmy.

Thanks, John, and good afternoon, everyone. I'll briefly discuss our third quarter financial results and provide an update on the balance sheet. For the quarter, Landsgate's consolidated revenue was $971 million. Adjusted EBITDA was $144 million. And operating income was $36 million. Reported fully diluted earnings per share was a loss of $0.09 per share. And fully diluted adjusted earnings per share was a profit of $0.28 per share. Net cash flow used in operating activities was $119 million, while adjusted free cash flow for the quarter was a positive $13 million. We are reiterating our fiscal 2025 outlook for both Lionsgate Studios and STARS. Specifically, we continue to forecast that Lionsgate Studios will generate between $300 to $320 million of adjusted OEBDA this fiscal year, while Star's North American business is expected to generate approximately $200 million of adjusted OEBDA. Now, let me briefly discuss in detail the fiscal third quarter performance of our studio and media networks businesses compared to the previous year quarter. Starting with the studio business, quarterly revenue grew 3.2% year-over-year to $714 million, while studio-adjusted OEBIDI grew 45% to $112 million. As John mentioned, trailing 12-month library revenue for the quarter was $954 million, and this represents an increase of 22% relative to last year's Q3 trailing 12-months revenue. Breaking down the studio businesses, let's start with Motion Picture. Motion Picture revenue and segment profit for the quarter came in at $309 million and $84 million, respectively. Revenue and segment profit expectedly declined as the previous year's third quarter benefited from the release of Hunger Games' Ballad of Songbirds and Snakes and Saw X. On a sequential basis, the motion picture group has rebounded nicely with strength in both wide theatrical and library distribution. We are particularly encouraged by the recent successes of our mid-size budget releases. In particular, the performance of the Best Christmas Pageant Ever, which nicely outperformed our internal estimates, as well as the more recent releases of Den of Thieves 2 and Flight Risk, reaffirm the strength of our risk-mitigated film release model. Moving to TV, quarterly television revenue of $405 million was up 63% year-over-year, while segment profit of $61 million was up significantly as we rebounded from last year's strike with strong growth in episodic deliveries, including The Studio, which airs on Apple TV in March, Season 7 of The Rookie, and Season 4 of Ghosts, among others. Media networks, quarterly revenue was $345 million and segment profit was $25 million. Revenue was expectedly down year over year due to the exit from substantially all of our international markets. Quarterly North American revenue of $342 million was essentially flat year over year as OTT revenue growth was all set by linear pressure. North American segment profit of $26 million was down year over year, reflecting higher content amortization and increased film output, partially offset by lower marketing spend. Looking briefly at subscriber trends, STARS ended the quarter with 12.6 million North American OTT subs, which represented sequential growth of 170,000 subscribers. We ended the quarter with 20 million total North American subscribers, a modest sequential decrease reflecting continued linear pressure. Now let's take a look at the balance sheet. We ended the quarter with $2.4 billion of net debt at the consolidated company, which reflects $1.8 billion at the studio and $568 million at Starz. The increase in studio net debt reflects the expected use of cash associated with both the timing of post-strike content spend and theatrical releases. Star's net debt continued to meaningfully decline, representing a $132 million reduction since the initial debt allocation last May. On a trailing 12-month basis, consolidated Lionsgate leverage at the end of the quarter was 6.5 times, while standalone STARS leverage in its North American business was 3.3 times. As we prepare for full separation, we are pleased to announce that the standalone capital structures for both Lionsgate Studios and STARS have been set. In this regard, we have obtained bank commitments for an $800 million asset-backed revolver at the studio, as well as a $300 million term loan A and $150 million revolver at STARS. These facilities are poised to fund upon separation, with proceeds used to extinguish all of our remaining Lionsgate bank debt. The finance structures for both Lionsgate Studios and STARS have an average tenor of five years and provide both companies with efficient capital and significant flexibility for the foreseeable future. Now I'd like to turn the call over to Nealey for Q&A.

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 are using a 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. And your first question today will come from Stephen Cahal with Wells Fargo. Please go ahead.

Thank you. Jimmy, maybe two for you. So first, I think the studio EBITDA guide for 25 implies a pretty big quarter in the fiscal fourth quarter, maybe around $180 million in segment profit, a big step up year-on-year, quarter-on-quarter kind of historically. I think there was also a recent library deal with Amazon Prime that was subsequent to the end of the last quarter. So just wondering if you could help us put the big step up in segment profit at studio in Q4 into context. Is it driven by film performance carryover? Is it driven by TV? Is it driven by library of all of the above? That would be really helpful. And then if you could just address the leverage as well. So studio leverage was pretty elevated at the quarter. I know the fiscal second quarter was a tough one at studio, and that's part of it, plus the production loans. But as you prepare to separate, I guess, in April, where do you think you can get leverage to at Studio in the relative near term? Thank you.

Thanks, Stephen. A lot of good questions there, so I'll just take it from the top. First, in terms of the fourth quarter, you're right. I mean, as we said at the beginning of the year, it was going to be back in a weighted year and probably even more so than we envisioned at the very beginning of the year, and it's a very strong fourth quarter. We feel good about that. We have – It's really coming from strength in the film side of the business as well, really all sectors, TV as well as stars. On the studio side, right, we've got great, we have some really good carryover from some of the midsize films, right, in the slate that's finishing out in the third quarter, performance in the fourth quarter as well that will provide benefit there. We have, likewise in TV, continuing post-strike lift, that's coming with those scripted series. We have Ghost season four and Rookie season seven, which delivering remaining episodes. We're delivering season four of Al Capulco, Hunting Wives, and Spartacus to Stars, and season three of Yellow Jacket. So really a strong lineup there. And then in Stars, we have continuing positive growth in OTT subscriber growth, as well as a full quarter context of the price increases, as well as cost controls as well. So overall, you know, looking strong on a fourth quarter cadence. In terms of the Amazon Prime transaction, this is for calendar year releases 2025. So it's not a fourth quarter matter for fiscal 25. And in fact, it starts in the back end of 26, but then mostly into fiscal 27. We're excited about that. I think it's a win-win for both stars as well as for the studio segment. In terms of leverage, we think, as I noted on the call, when we get to separation, and you're right, this particular quarter, the studio leverage was higher than it might have otherwise been. It's really a factor of trailing 12 months. leverage which will nicely increase as we go into the fourth quarter that we just spoke to right so you can have trailing 12 months increasing that will naturally obviously deliver as well and likewise we got a very strong fourth quarter free cash flow context because we're kind of lapping some of the heavy content spend that we've had in a post strike world that that has hit the first nine months as you've seen year-to-date in our free cash flow. So I expect to come in a billion 650 of net debt plus or minus on the studio at the time of separation is probably around five and a half times leverage and then it'll continue to deliver quickly over that as we move into fiscal 26, which we feel good about our fiscal 26 slate as well. And on the star side, that $600 million of net debt will be about a three times leverage. And again, the team expects and they're poised to continue to deliver as we go into fiscal 26.

Thank you.

Thanks, Steven.

Operator, can we get the next question, please?

Your next question today will come from Thomas Yeh with Morgan Stanley. Please go ahead.

Thanks so much. I just wanted to follow up on the update on the separation. John, I think you said April. which is a little bit of a delay from the initial December, January timeframe. What still needs to happen between now and then for the transaction to close? I noticed a few amendments being filed on the S4. So what are we still waiting for? And what's the path from here to get to close? And then as just a follow-up on the Amazon film output deal announcement in the context of home video windowing, In aggregate, how should we think about the uplift that we would be expecting on the studio profits from the deal when it more meaningfully kicks in in the kind of 2026 timeframe? Thank you.

Okay, I'll take on the SEC timetable. Look, this is the last really remaining item of substance here. We're ready to go. As we said, the financing is all primed and ready to fund upon separation. We You know, we have a few comments back from the SEC. We were actually hoping to be, as you would imagine, effective well before today. We just heard from the SEC really this morning. There are a few more comments. But having, you know, quickly reviewed those, I'm confident that we can provide appropriate responses to this in a timely manner. And as we've noted, and as you know, unfortunately the financial statements go stale today. It's just a timetable, so we need to update those. It'll take us a few weeks to update those through the December financials, and we'll refile that, and that should line us up, as John noted, for a mid- to late-April shareholder meeting and separation almost immediately thereafter.

Yeah, I'm not going to give you a number on the increased margin from the new paid television combination. I can tell you significantly more. It was just to clarify Jimmy's statement. Amazon will have four films from our calendar 25 slate. We do have the ability to potentially replace them for the other pictures in the 25 slate with another platform. And then they will have our full slate of films for our calendars 26, 27, and 28.

Thank you so much. Helpful. And your next question today will come from Barton Crockett with Rosenblatt. Please go ahead. Okay, great.

Thanks for taking the question. I wanted to ask a little bit more detail about the Amazon relationship in terms of, just to be clear, the windows that they're taking, were those windows that were formerly part of the STARS library? And, you know, is there a benefit to STARS perhaps from cost reduction that's, you know, interesting or notable into their spend?

Hi, Bart, it's Jeff. So I think this is a really good deal overall for the corporation. You know, we were able to get titles in the slate earlier, and so we're getting them closer to the premiere and then really leveraging off the P&A. And, you know, as a foundation of, you know, a premium streamer, pay one has always been, you know, a very valuable component. The landscape movies really actually super performed for us and for the first title streams. And so getting them earlier and creating space to bring in another partner in that window I think really helped everybody overall. Obviously, getting it earlier and extending out another year into 28 was a big benefit for us as we separate, and so that was really impactful for us.

Yeah, and while I won't go into too many details, I would say it's a very clear win-win-win. It's a win for Starz, it's a win for the studio after separation, and it's a win for Amazon.

Okay, that's helpful. And then just one other question. As you move into these experiences, the John Wick experience, the productions, the Hunger Games production, the La La Land production, just remind us, are these deals where you'll be getting licensees upon release, or is this sort of an ongoing revenue relationship? And any thoughts about how meaningful this could be for you guys over time?

Yeah, great question. The exciting thing about this is we've been working on these projects now for really quite some time, and we're looking now at them coming to fruition. Each of the deals is primarily a deal that starts with a license, which is sort of the typical way that content owners work in these kind of areas. But almost in every one of the circumstances, including the 13 Broadway shows that we're doing. We announced Dirty Dancing. We've got La La Land. In almost every single case, we have the right to invest up to around 50% in the equity. The good news about that is the right that we're getting to invest is typically down the road far enough that we can really look at the development. We can look at the development of the AAA John Wick game. We can look at the development and what we're putting together in terms of cast and music for Dirty Dancing and La La Land, we can make that decision late in the game, which is really a huge benefit. So with a combination of the licensing fees and the potential equity, you know, we're looking at really, really, really strong contribution potentially. And I would say particularly when you look at some of the video game returns that you can get, I mean, the returns when it's success were significantly more than a motion picture. So we're really excited about what we've seen so far with the John Wick AAA game, and we're doing a whole lot of other stuff across all of that location-based entertainment, the John Wick experience that I just noted. It looks amazing. It'll start opening in Vegas later this month. So we see this as real incremental growth for EBITDA that should start hitting reasonably soon.

Okay, thank you very much for that. And your next question today will come from David Joyce with Seaport Research Partners. Please go ahead.

Thank you. I was wondering if you could provide some color on where you are on the industry getting back to normalcy in terms of content production and deliveries, and how should we think about the volume of film and episode deliveries and their pacing over the next year? And, Gus, related to that, if you could speak to what the E1 contribution was to the trailing 12-month library revenue and what you're producing based on that IP in the next year. Thanks.

I'm going to let Kevin Beggs and Jim Packer talk about what the outlook is and the demand in the television and library space.

Thanks, John. The TV market remains, the original content market, scripted and unscripted, under some pressure. Things we've spoken about in the past, pandemic strikes, the fires, have been a setback because it's such a deep impact on the creative community. So things are slowly coming back, but not as fast as we would like. We're seeing that in just the amount of commissions and the amount of production orders. So it's really about how we address that and pivot to that new normal. Some of that is cost controls, finding great locations to shoot around the world for less money. Part of it is leading into our terrific IP. When we think about Twilight and John Wick and other titles that we're moving into development and eventually into production, that's a strength. Cross-divisional collaboration between ourselves, 3Arts, our shared book of business with stars, our unscripted and feature film collaborations. Scamanda stands out. It's on ABC as a doc, began as a podcast, set up as a streamer. And then really leading into hits because hits always work and doubling down. So you touched on the E1, and Jim will talk about the distribution side of that, but we inherited a fine series called The Rookie on ABC that was hoping for a six-season order. We secured the sixth season. We secured the seventh season. We're in early talks about an eighth season. And Alexi Hawley, the showrunner, is working with us on a spinoff. He has Netflix's number two global drama hit after eight days of release in The Recruit, and it's something we're doubling down on to do more with him, and he continues to deliver. Similarly, Ghost is in season four. It remains CBS's number one or number two comedy every week, one of the top comedies in all of television. We're hopeful to do many more seasons and think about other iterations of ghost. Those are the kind of things we focus on and laser focus our thoughts around as opposed to more of a shotgun approach during the streaming wars to catch as much as you could bring in.

Yeah, I would say on the E1 library, you're starting to see the benefit in our trailing 12 months. I think you'll continue to see that. My fiscal year, this is my first fiscal year with E1, we're trending 10% to 15% above our budget. The rookie and all the procedurals that we got in that library really filled a void for us and really have helped our international group tremendously. It's taken a little bit longer to kind of maximize as we've had to renegotiate some deals, but overall you're starting to see the benefit, and that library is going to be quite helpful as we go forward.

And I would say in terms of just the overall environment, as you suggested, post-strikes, even including the fires, the slate of movies, that Adam and his team have put together finally in terms of incredible directors, repeat directors, stars attached. I think by far this is the best pipeline of films that we've ever had at this company, coupled with releasing three tent poles in fiscal 26. I think the future as you move into 27 is going to be amazing. And I think people are starting to come back to to the movies, including my four kids who certainly have played a whole lot of video games and social media in this period of time. But I really believe the experience of people going back to the theaters as we put more and more movies into the marketplace, I think that's going to continue to snowball in the right direction.

Great.

Thank you very much. Again, if you have a question, please press star and then one. And your next question today will come from Matthew Harrigan with Benchmark. Please go ahead.

Thank you. You've always been famously lean on the cost side. I know you touched on it peripherally with David and Barton and also, you know, unfortunately, the effects of the tragic fires. But is there anything you see, and obviously the SEC has gifted you more time to look at things even more closely on the cost side, but are you seeing more, you across all levels of talent for the industry on compensation. I guess a little cringe here. Is there anything happening with AI that's also helpful on the cost side? And then secondly, on Borderlands, I know you tweaked your green lighting process somewhat. Could you give us a few specifics as to what the learnings were? and how the unfortunate experience can maybe even help you moving forward. And obviously some of the cost savings might be the innovative marketing that you've always been good at, particularly on the social side. Thank you, and congratulations with the quarter.

You know, from a cost side, speaking not of infrastructure but of sort of talent costs, I think, You know, talent is getting paid very well right now. I don't know that necessarily that's going down a whole lot. But I would say in general, as Kevin said, we are looking at all kinds of ways to be smarter about the overall production cost. And I think something we've always done pretty well with talent is actually try to cut them in significantly from Tyler Perry and, you know, real co-productions, real back-end participation. And I think they appreciate when we keep our other costs down that they're going to get more on the back end. So being a little innovative about the kinds of deals that we're doing, being smarter about the overall production costs, making deals like we did with the Governor Murphy in New Jersey. That's why we're shooting a movie there right now is we got a fantastic premium tax credit deal. And even before we have any stages there, we're shooting practical and taking a huge advantage of a movie that we probably would have had to take out of the country. And so the talent, two important female stars doing this housemaid, then we're doing something that's really positive for them. So again, I think we can be smart overall about production costs. But as I say, talent expects to be paid. In terms of Borderlands, I'm going to let Adam answer that question.

Hey, thanks for the question. Look, I think that execution has never been more important. The audience knows almost immediately whether or not a motion picture is something they're willing to pay to leave the house to see. I'm thrilled that Borderlands has found a really significant audience on Starz, but they weren't willing to go out and see it in a movie theater. Matching the right screenplay with the right talent at the right budget so that the risk-reward profile of the movie makes sense has never been more important. And how we choose to analyze each of those criteria has definitely evolved from where we were on Borderlands. I don't want to get more specific. And let me be clear, the talent we work with on that movie are top-notch across the board. But we're talking about a game that was in a different place in 2019 when the movie was greenlit than it was by the time the movie finally came out in the marketplace. and a lot of other things had changed. I do not think we benefited from the amount of time it took from the original Greenlight to the time the movie came out, but I can assure you that how we're assessing each of those individual criteria I laid out has absolutely evolved, and I think when you look at the films we're making and you look at the budgets of those films that we're making, we are still going to be in the movie business, and the movie business still comes with some degree of risk, but we're excited about the kinds of projects we're putting together.

Thanks, John. Thanks, Adam.

Your next question today will come from Brent Penter with Raymond James. Please go ahead.

Hey, everyone. And first, our thoughts are with you and your employees and everyone impacted by the fires. A couple for me on STARS. I want to hit on the comment about providing digital services to linear platforms. Can you expand on that comment? You've obviously invested a lot in digitizing STARS. What benefits Could the STARS digital platform provide other linear networks in terms of digitizing them? And how does that play into how you think about M&A?

Hi, Jeff. Thanks for the question. Look, we've built a very robust digital product with a really robust data stack that sits around it that allows us to really – has allowed us to convert STARS from linear to digital, as John said in his prepared remarks over the last five years from 70% linear to 70% digital. It's that back-end platform and data that has allowed us to really make that transition profitably. A lot of our peer groups that are our size don't have the technical infrastructure capabilities that we have. And so whether it's on a commercial relationship like you're seeing with the BritBox and Stars Bundle where we are helping BritBox bundled into the Stars app and helping that product grow with our product or us taking our infrastructure and building it the other way, it gives us an opportunity to do a lot of commercial deals with partners that don't have the infrastructure or bigger deals and broader deals, broader relationships, and I think I'll leave it at that.

Okay, and then on the STARS subscriber outlook, should we expect OTP subscriber growth to continue at a similar pace as 3Q? Any puts and takes there in terms of the content lineup from here? And then any change in the trajectory of linear subs? There's a slight sequentialistic and losses, albeit not dramatic, but any moving pieces to think about there?

So I'll start with the linear side. I think we continue to see a consistent decline in the linear business and that we have that forecasted out for the foreseeable future. And so that's how the business continues to transition to the linear side, so I expect that. to be kind of a slow, consistent decline that you've seen over the last four to six quarters. There's a little noise here and there, but for the most part, I think it's been a pretty consistent decline. On the OTT side, we have, as you've seen over the last couple weeks, the velocity around bundling announcements and launches has picked up. I think we've been talking about being a bundling partner of choice a lot over the last four or five years. I think it's finally really starting to come into fruition, and you'll start to see more and more of the revenue base be tied into bundles, which ultimately means less marketing costs on the front end because it's shared, longer lifetime value, which ultimately leaves less churn. So you'll see a much more stable revenue base as it starts to become a bigger percentage of our revenue over the next, call it, two to five years. And so I expect that to continue. We've got a great late quarter slate coming back this next quarter with Canaan. It's one of our bigger shows. We're really excited about bringing it back onto the platform, and so I think we're going to see really strong subscriber growth in the back half of the quarter. Thanks, Jeff. Thank you.

That concludes our question and answer session. I would like to turn the conference back over to Neelay Shah for any closing remarks.

Hi, everyone. Please refer to the Press Releases and Events tab under the Investor Relations section of each company's Website for discussion of certain non-GAAP forward-looking measures discussed on this call. Thank you all.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.