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spk11: Good day, and welcome to the Lionsgate first quarter 2023 earnings conference call. All participants will be in 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 then two. Please note, today's event is being recorded. I would now like to turn the conference over to Neal A. Shaw with Investor Relations. Please go ahead.
spk00: Good afternoon. Thank you for joining us for the Lionsgate Fiscal 2023 First 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, and Chairman of the Motion Picture Group Joe Drake. And from STARS, we have President and CEO Jeffrey Hirsch, CFO Scott McDonald, President of Domestic Networks Allison Hoffman, and President of International Networks Suparna Kale. The matters discussed on this call include forward looking statements, including those regarding the performance of future fiscal years. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward looking statements as a result of various factors. This includes the risk factors set forth in Lionsgate's most recent annual report on Form 10-K, as amended in our most recent quarterly report on Form 10-Q filed with the SEC. The company undertakes no obligation to publicly release the 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.
spk17: Thank you, Neelay, and good afternoon, everyone. Thank you for joining us. We're pleased to report a quarter of strong global subscriber growth at Starz, continued growth of our film and television pipelines, and key financial metrics in line with expectations. As I go through my remarks, you'll hear us focus on the operating environment, dealing with issues of economic uncertainty, recession fears, court cutting, and the pandemic like everyone else. But as I lay out how each of our businesses is addressing this environment, you'll also hear how our business model insulates us fairly well from some of the existing and potential headwinds. Starting with our motion picture business, with the box office making a strong comeback, our motion picture group is in great shape to capitalize on its return with a strong lineup of exciting movies. Let me lead with our tentpoles. We began shooting the eagerly anticipated Hunger Games prequel, The Ballad of Songbirds and Snakes, in Poland two weeks ago, and the early footage looks great. The film rolls out globally in a prime holiday slot on November 17th next year. The other anchor of next year's slate is John Wick, which has grown into a cultural phenomenon. We will release John Wick Chapter 4 on March 24, 2023, to our huge and engaged fan base around the world. As we expand the John Wick universe across multiple businesses, production is just wrapped on the John Wick prequel event series for television, The Continental. And in that same regard, we're in advance pre-production on the John Wick action spinoff, Ballerina, with Knives Out and No Time to Die star Anna de Armas in the title role. Behind these tent poles, Expendables 4 will bring back a world-class cast of action stars next year. Dirty Dancing, starring Jennifer Grey in our reimagining of the romantic classic, arrives in theaters in time for Valentine's Day 2024. We expect to have a major announcement in the coming weeks on Now You See Me 3, and with titles including Naruto, Highlander, and the Michael Jackson event film lined up as well, we're growing a pipeline that can compete at any level theatrically. Our tentpole business is complemented financially and strategically by a consistently profitable, low-risk, multi-platform business for the 30 to 40 smaller and mid-sized films we release each year. Especially in this current environment, our proficiency at delivering targeted films for a wide range of platforms is a profitable and repeatable strategy. This includes a direct-to-streaming component that continues to gain traction as it transitions from a largely opportunistic response to the pandemic to a planned, strategically focused business with production deals in place with a growing number of platforms. Turning to television, our status as one of the few independent suppliers of premium series at scale is our best defense against economic uncertainty and other headwinds. We have strong relationships across more than two dozen platforms with multiple hit series at the broadcast networks, streamers, and a growing roster of AVOD platforms, along with a strong slate to drive the growth of sister company, Starz. This diverse group of buyers helps mitigate a pullback in content spending by any one platform and has been our consistent strategy in both up and down markets. We're also coming off one of the most active periods of content creation in our television group's history. With more than 30 new shows picked up to series in the past three years, 90% of them renewed for additional seasons, and valuable new properties, Ghosts, Home Economics, Minx, Julia, P-Valley, and a host of others, we will begin to generate increasing returns as they move into later seasons and create value in our library. For the past two years, our growth in television revenues hasn't been matched by growth in contribution and margin due to the investment in new series. This year, the television group Segment Profit is on track to increase by over 50% on improving margins with even stronger gains next year as our series continue to mature. At Starz, we had a strong subscriber growth quarter, adding 1.8 million global streaming subscribers, including 700,000 domestic subscribers. We're able to continue delivering these gains despite industry headwinds, given our differentiated offering of focused original programming, coupled with a robust slate of pay-one output and library titles, all at a complimentary price that provides great value to the consumer. The fiscal 23 slate has a consistent cadence of juggernaut performers, including Outlander, P-Valley, BMF, and the Power Universe, combined with tentpole movies like Spider-Man No Way Home. With the majority of the slate underpinned by series returning for second and third seasons, we're confident in our ability to continue our subscriber momentum acquiring new customers and extending the lifetime value of our existing subscriber base. In the quarter, we continue to execute our commitment to engage both of our major cohorts with a new show every week. With the successful debut of Power Book 4, Force, all three of our Power spinoffs have become hits. The drama, P-Valley, achieved record ratings in its breakout second season, becoming one of Star's most widely viewed series ever. Fan favorite Outlander returned for its sixth hit season, and earlier today, we announced the highly anticipated Outlander prequel, Blood of My Blood, to be written and executive produced by Outlander showrunner Matthew B. Roberts. The Watergate series Gaslit, starring Julia Roberts and Sean Penn, debuted strongly in the quarter, strengthening the star's brand and showcasing our ability to offer high-end programming comparable to anything on premium paid television. We continue to expand Star's distribution successfully around the world. We announced a bundling deal with Disney and LATAM in the quarter, following on the heels of recent partnerships with Canal Plus in France and Viaplay in the Nordic territories. This afternoon, I'm pleased to report that we've launched a deal with Vizio in the U.S., making Starz available to millions of Vizio smart TV users. As we've been saying, this is just the tip of the iceberg in terms of where the industry is heading, and Starz will be a critical and desirable part of bundles and packages with a growing number of platforms and devices. Again, we're cognizant of the headwinds in today's business environment. The economic uncertainty does make it harder to forecast our business. The pandemic has gone on longer than expected and continues to add cost. There are growing pains in the streaming world and aging pains in the linear legacy businesses. In response, we're taking steps to conserve capital, keep our balance sheet strong, streamline operations, and mitigate risk while we continue to do what we do best, create great content and franchises that build our most important long-term asset, our world-class library. In closing, in terms of our strategic initiatives, we are proceeding nicely. In spite of the turbulent economy and the complexity of ensuring that we retain and expand all of our strategic and operational benefits, we continue to advance conversations with potential sponsors and strategic partners, and we remain on track to conclude a transaction as early as the end of the fiscal year. Now I'll turn things over to Jimmy.
spk01: Thanks, John. Good afternoon, everyone. I'll briefly discuss our first quarter financial results and update you on the balance sheet. Q1 adjusted to EBITDA was $5 million and total revenue was $894 million. The year-over-year adjusted OEBIDI variance reflects the expected timing of STARS programming as media networks had an elevated level of content amortization associated with the build of its fiscal year 22 slate, as well as more expensive programming that launched in the quarter. Reported fully diluted earnings per share was a loss of 53 cents a share, and fully diluted adjusted earnings per share came in at a loss of 23 cents a share. Adjusted free cash flow for the quarter was a $62 million use of cash. Now let me briefly discuss the fiscal first quarter performance of the underlying segments compared to the previous year quarter. Media networks quarterly revenue was $381 million, and segment profit was a loss of $37 million. Revenue was down slightly year-over-year, as we continued to see favorable shifts in subscriber mix, with OTT revenue growth accompanied by linear declines. Year-over-year domestic revenue declined 2.4%, while year-over-year international revenue was up 31%. The year-over-year decline in media network segment profit primarily reflects the timing of content amortization and marketing costs with some foreign currency headwinds at Stars Play International. We ended the quarter with 37.3 million total global subscribers, including Stars Play Arabia. Total Global Media Network's OTT subscribers grew 1.8 million sequentially to 26.3 million. This represents a year-over-year global OTT subscriber growth of 57%, comprised of domestic OTT growth of 26%, and international OTT growth exceeding 100%. Now I'd like to talk about the studio business in aggregate. Revenue of $711 million was up 5% year-over-year, driven by the television group. Segment profit of $70 million was up 48% year-over-year, driven by growth at both television and motion picture. Our total library revenue at the studio was $749 million on a trailing 12-month basis, up 1.4% over the $739 million of revenue reported in the first quarter last year. Breaking down the studio business between motion picture and television, let's start with the motion picture group. Motion picture revenue was down 4.3% to $279 million, while segment profit of $51 million was up 14% on increased margins. Revenue and segment profit trends reflect continued strength in our library and an increased mix of direct-to-platform titles in the quarter. And finally, television revenue was up 12% to $432 million, driven by continued growth in output, which included both new and returning series. Segment profit came in at $20 million, up 500% year-over-year, reflecting new and returning series deliveries, continued strength at three arts, and favorable comparisons relative to last year's first quarter. On the balance sheet, we ended the quarter with leverage at 6.6 times or 4.1 times excluding our investment in Stars Play International. We continue to retain significant liquidity with $379 million of cash on hand and $1.25 billion of an undrawn revolver. At the beginning of the quarter, we used some of our excess cash to prepay the $194 million of Term Loan A notes that would have otherwise been due in the fourth quarter of this fiscal year. Currently, we have no maturities until the fourth quarter of our fiscal 2025. we remain committed to strengthening our balance sheet and continuing to pay down debt while funding our investment in content and marketing from adjusted free cash flow. We continue to see adjusted OIBDA for fiscal 23 at similar levels as fiscal 22. And as previously noted, we see the year being back half-weighted. Given the magnitude of adjusted Webidi for the next three quarters as implied from our outlook, I want to give you some more color how this increasing cadence falls out over the next three quarters and the second half in particular. As expected, the biggest driver is the timing of media networks' content amortization and marketing costs, which naturally peaked in the first quarter and is expected to decline in each successive quarter of fiscal 23. The level of first quarter content marketing costs reflects both the carryover amortization following the step up in the number of Starz originals in fiscal 22, particularly the late fourth quarter premieres of Outlander and Shining Veil, and the full complement of marketing and content expenses related to higher cost programming launched in Q1, including Gaslit and P-Valley. This amortization curve will cycle through in declining amounts as the year progresses. Finally, at Stars Play International, following strong subscriber trends in the first quarter and bundling opportunities with Disney and LAT-M, we expect revenue performance will improve sequentially for the remainder of the year. At the TV studio, we expect steady revenue growth and an improvement in margins in fiscal year 23, particularly as episodic deliveries scale in the second half. Additionally, we expect TV and motion picture will benefit from high-margin licensing revenue of key library titles in the second half as Schitt's Creek and earlier film franchise releases become available. Finally, while we'll have elevated P&A in the fourth quarter tied to the release of John Wick 4, we expect our alternative distribution strategy with the March quarter platform avail of Shotgun Wedding will facilitate a strong close to the year for motion picture. Now I'd like to turn the call over to Nealey for Q&A.
spk03: Thanks, Jimmy. Operator, can we open the call up for Q&A? Absolutely.
spk11: If you would like to ask a question, please press star then one on your touchdown phone. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Today's first question comes from Phil Cusick with J.P. Morgan. Please go ahead.
spk06: Hi, guys. Thank you. You know, I guess number one, can you give us an update on strategic changes? Anything you can share there would be helpful. And then second, I wonder if you can talk about churn at STARS, the rough level of that, and what's that you've expanded the content offering in the last year?
spk17: I'll have Jeff go first with the STARS issue.
spk18: Yeah. Hi. So how are you? So, you know, as we've talked about over the last probably two to three years, our content strategy has been really about driving churn down to low single digits by lining up content to our core demos, you know, every week, 52 weeks a year. So we're just in the ending of P-Valley. We premiere into Canaan on the 14th. And so we'll move that base from P-Valley into Canaan. And what we've seen in post-seasons churn. Before we were in the strategy, post-power churn was somewhere north of 40%. It's now below 15% as we line the content up. So we continue to see churn come down. We've seen single digits. We continue to see it come down to all-time lows. And we think as we continue to roll through this content slate, lining up the content every week for the two core demos, we'll continue to see it get down to that low single digits.
spk17: And Phil, in terms of our strategic planning, I would say the ultimate plan to value both stars and studio sides of our business separately remains the same. I think I'd add that, as you can imagine, there's a number of ways to do this and actually numerous complexities to address in order to make sure that the sum of the two parts, when they are valued separately, is significantly more than they're currently valued together. In terms of timing, I'd say my comments today reflect what we've said before on the subject.
spk11: Thank you. Thank you. Our next question today comes from Matt Thornton at Truist Securities. Please go ahead.
spk02: Hey, good afternoon, guys. Maybe one for John, one for Jimmy. John, just to follow up to the prior question, it sounds like getting an announcement by the end of the summer is still the way we should think about that. I guess my incremental question there is I know a couple years ago you guys had done an independent third-party valuation of the library. I think the valuation at the time was, correct me if I'm wrong, but $3 billion to $4 billion. My question there is do you think that's still pertinent one or two years later in the current environment? And then just secondly, for Jimmy, to housekeeping, I know you talked about currency, which is not something we talk about, but obviously the international business is getting a little bit bigger. So if you can quantify what that currency headwind was, and do you still expect to be about free cash flow, break-even deposit for the full year? Thanks, guys.
spk17: If I got you right, you're asking – I'm not sure you started with a timing issue and then went into library value. I'm not sure – You're connecting those two in terms of library value. Frankly, if anything, the library is more valuable than it was in that time period and continues to grow. It grows for two reasons. One, obviously, we're filling the pipeline with a lot of content. And the more renewals we get, particularly in the television business, the more valuable that content is. And the second thing is... You know, we'll see in a recessionary environment if it's quite the same, but we are finding huge increases in demand with so many new buyers for our content. And frankly, again, such a significant portion of our content is scripted and premium. And frankly, that's what has the longest lifetime value and the most demand right now. That's what moves people's needles. And when you see a lot of the big streamers obviously moving into new territories and they need a lot of content. And frankly, it's expensive to make new content. So yeah, our library continues to grow significantly in value. It's an amazing library. And again, we keep growing it. Did you have a question about timing?
spk02: Yeah, sorry for the confusion, John. Just to follow up on the prior question, it sounded like the way we were thinking about timing, getting resolution by the end of the summer and a deal closed by the end of the fiscal year is still still the way we should think about it. I want to make sure I heard that right.
spk17: Michael, why don't you jump in?
spk15: Great. As John said, we're on track. The key is to do the transaction or the initiative right and not fast. It's fairly complex. It's important to note that we have an attractively financed balance sheet and very valuable tax attributes, and we're working very hard to preserve the value of both of those. The structure that we're considering has become broader and And even in a separation, some of our potential partners have expressed interest in both the studio and STARS. And as always, our priority is to create significant shareholder value.
spk01: And Matt, for your question on FX and free cash flow, yeah, we did see some foreign currency headwinds in the quarter. I think of it more as timing, but we'll have to wait and see. It was about $12 million for the quarter. About half of that would be Stars Play International, as you might expect. And, you know, we saw effectively what I think of as a full year effect in foreign currency occur in the first quarter. So we'll see where rates go from here. But generally speaking, we don't have a significant exposure to foreign currency, as you know. But relative to this quarter, relative to just the size of the first quarter profitability, it was kind of an outsized percentage relative to all things being considered. From a free cash flow standpoint, absolutely. We still feel good that we can continue to finance our increased investment and content marketing cycle, including SPI or Starters Play International, from our positive free cash flow. It's not a quarter-to-quarter thing. It's a trailing 12 months or a full-year cycle because, as you know, content spend and cash flows move quarter-to-quarter. So we had a use of $62 million this quarter. I expect another use of cash in the second quarter as well. That is some tough comps as well on the trailing 12 months, so probably peak leverage in Q2 and then Reduce that into the levels of five times by the end of the year, and again, on positive free cash flow.
spk03: Thanks, Matt. Operator, can we get the next question, please?
spk11: Absolutely. Our next question comes from Stephen Cahill with Wells Fargo. Please go ahead.
spk16: Thanks. Maybe first for Michael or for John on the strategic alternatives, it sounds like you're having some discussions around both assets, maybe with multiple partners. I think the timing has maybe taken longer than some of us might have thought. I guess, unless you have surety on a transaction coming together, would you consider going ahead and separating the companies in order to generate some of the value that you're looking to get, maybe provide you know, some, some valuation discovery as to what the market thinks those worth, or, or maybe you can talk to us about why it's better to not do that while you're pursuing the process that you currently are. And then John, at the beginning, you talked about the TV segment profit increasing. It sounds like you're getting to some shows that are in later seasons. Could you maybe just talk us through what kind of profit growth we might expect over the last, sorry, over the next few years? Thanks.
spk15: I'll let Michael take the first, and I'll take the second. Yeah, Steven, we're not going to give too many more details, but obviously this initiative is all about creating shareholder value. But it's important to note that we are still on track to announce our intention in September.
spk17: And in terms of television, I actually think I had it in my remarks. Again, we had virtually all of our shows renewed. Obviously, we're a little disappointed with First Lady not going into second season, but we actually are exploring another potential buy for that. Other than that, everything we had was picked up, and we're moving into the second, third, fourth season of a number of shows. As I said, I believed our contribution could go up something like 50%, I believe, is in my remarks, and frankly, more. the following year, which would be fiscal 20, 25. So I'm sorry, fiscal 24. So yeah, I think it's all working according to plan. And again, when you think in a recessionary period, frankly, it's a lot less expensive for networks and platforms to renew shows than actually to spend the 15 or 20 million or more to launch new ones. And so we think again, in that sense, we're a little bit insulated from recessionary pressure.
spk16: Great. Thank you.
spk17: You're welcome.
spk11: Thanks, Stephen. Operator, could we go ahead?
spk10: Absolutely.
spk11: Our next question comes from Peter Cepino with Wolf Research. Please go ahead.
spk10: Hi. Thank you. This question relates to the eventual harvest of the investments that we see in your financials. Over the last five quarters, your programming investment has gone up by about a billion dollars. Your TV margins have fallen from 10% to almost zero on growing revenues. And we've heard a lot of talk about deficit financing. And I wonder if you can talk about the importance of that and any other factors that would get you from your current run rate to much higher margins on higher revenues.
spk01: Yeah, I mean, we've got a lot of visibility in terms of what we're doing on the content side. As John's noted, we've had some great content generation and continue to do that. But yeah, it ultimately needs to pay back, right? And it does. And television... I often say, you know, a lower margin at the time is a good thing because that means that what Kevin and the team's doing are killing it on building the future and all rights. So in the first quarter, for example, we had a higher mix of deficit financing, which will be long-term benefits, than we expect in the second half of the year. So as we move through the year, that mix will change. And then that margin will start to increase. And as John, you know, mentioned earlier, we feel really strong about that going into not only the rest of 23, but 24 and beyond. And I'll just remind you that Kevin has a mix of business there and the team, you know, with about, you know, at least half, if not more than half to third parties as well. And obviously a great supply relationship and programming with Starge. So a strong business and a return to follow.
spk03: Thanks, Peter. Operator, can you ask the next question, please?
spk11: Absolutely. Our next question comes from Thomas Yeh with Morgan Stanley. Please go ahead. Thanks so much.
spk14: As we think about the potential standalone value of a studio business approaching the other end of this upcoming transaction, I was wondering if you can just talk a bit more about the content monetization engine. I know there's a variety of ways. For example, some of the library TV deals are structured. Some of them even include advertising revenue share and ad exposure. Maybe just give us an update on the structure of these deals, how they've evolved, especially given kind of the diversity of players that you mentioned that you work with in this space. And then as part of that, I also saw the recent announcement about a partnership with IMG on consumer products. Given your deep portfolio of IP on the studio side, I was wondering if you can put some dimensions around that opportunity for you, where you sit now on that front versus where you have to go.
spk17: Yeah, I'm going to have Kevin Beggs. answer that first part of the question. Sure.
spk13: Thanks, John. I mean, generally, our television, and Jimmy was alluding to it just now, we take a portfolio approach, a mix of deficit, license fee, controlling our own destiny with global distribution and downstream domestic distribution, and the emerging model of a cost plus that you would see at Netflix and Apple and Amazon, a few of the other players, which is up front, but a longer return to your library. Something like Ghosts on CBS is a clear winner for us. 22 episodes a year, a hit comedy, the number one new comedy of the year. And we have the downstream domestic distribution, which we've already set up at Paramount+, which is exciting, and just going to continue to throw off. But even Deep Library, something like Nashville, continues to perform well. overperform and continues to be re-licensed. It's 132 episodes. You know, those are the big wins that we look for, and we kind of leaven those near-term profitability shows with cost-plus buyers in between, but ultimately holding on to rights is what we're all about and why we've always been in the deficit game and are going to continue to be in that in every way that we can. Yeah, I think I should point out, I think,
spk17: most of you know this, that the multiples paid for businesses that are in the studio business where they control rights, you've seen before, you know, multiples 15 to 17 times and above, as opposed to some of the multiples you see for the diversified businesses and the legacy businesses. So we believe that strongly in deficit financing. We believe strongly investing in content where we will own the copyright, we will own it for life, where we will be able to explore multiple distribution revenue streams forever and ever. And in terms of both that, your question and the last one, there's no question in my mind that this value creation is going to be significant and monetization will be a multiple of what we're putting into the business.
spk03: Thanks, Thomas. Operator, could we get the next question, please?
spk11: Absolutely. Our next question comes from Coogan Morrell with RBC Capital Markets. Please go ahead.
spk05: Great. Thank you for taking the question. You know, it's great to hear the profit outlook of the TV segment. I know that dynamics at Motion Pictures are a bit different than TV and that for Motion Pictures, you know, 2023 will presumably be maybe down a little bit year over year, but Given the slate that you have ahead, and you've talked about your distribution strategy, you've talked a lot about your very successful approach to monetizing the library, are we getting closer to a point where motion planners can also really ramp the segment profit profile? Thank you.
spk07: Yeah, this is Joe. It's a great question. We very much are. You know, John talked about the robust slate that we're driving into 23 with. We've been very intentional as, you know, we tested a few films this last year and we got a couple at the end of the year to really position ourselves for coming back into the market with a really robust slate. And yet he mentioned about, you know, how that streaming business and our multi-platform business has really been a deliberate business from what was opportunistic. And so what we've been able to do leading into 23 is stand up another leg of the business, faster turn on cash, high margins. Our margins have been very strong for the last three years. We now go back. Now we go into 23 with really probably the best slate we've had in years. You've got some giant brands in there like WIC and the Hunger Games. We've got some super targeted stuff. One of the things that we obviously want to be able to compete at the box office, but we're equally focused on profit. When you look at the box office Everybody's focused on these big tentpoles. We have our share of those. But if you also look, you'll see things like Scream, which we have a new participant in, Jackass, Dog, Black Home. These middle movies are really some of the most profitable movies that are out there in the marketplace. And when you look at our slate, in addition to those big drivers, we've got a number of action movies, Expendables, a little franchise for us, Shadow Force, where John mentioned we're launching a spinoff. of the WIC franchise in Ballerina. Really compelling economics, smart price point with an opportunity to kind of extend that brand. So the answer to your question is a resounding yes.
spk05: That's very helpful. Thank you so much. And if I could actually just maybe follow up, you know, related to the transaction and the studio, you teased us with a comment that the structure has become broader and that there's unsurprisingly interest in the studio as well. You know, we just talked about how motion pictures, at least, you know, the results and profitability over there is probably very subdued given all the investments. And, you know, in a multi-year period, if you have the patience, we should probably see that inflect quite nicely. You know, when you talk with interested parties about valuation, you know, what's kind of the framework that you look at to make sure that you'd be getting potentially fair value for this asset that, at least from the street's perspective, has been arguably undervalued?
spk17: I would answer that a little differently. I think the whole reason that we've entered into these discussions to separate the values of these businesses, we found that there's, interestingly enough, two very different sets of investors. And some investors really like the fact that we've got this targeted business platform, very specific. I would say, again, even in this recessionary period, we're sort of in the fourth or fifth inning. Sometimes it's better to be smaller. Our expectations are a little bit different. We're already making money in our domestic streaming business. And honestly, we're like in the fourth inning internationally in that business. And so instead of adding new territories, which everybody's doing, we're actually going the other way. We're kind of scrubbing each to make sure it's a territory we need to be in. And as we've said before, we're sort of within two years of a run rate of cash positive in our international business. So we have, you know, a different way of looking at those businesses. But certainly there seem to be a group of investors that really like the streaming side and the platform side. And there's another that understands the immense value that we have is really – after the MGM sale to Amazon, really the only real actionable, investable studio. And again, MGM, if that's a comp, well, there you go. Use that. Our library, honestly, is better than the MGM library. It's newer, it's fresher. We've been investing in it for five or six or seven years. So if you want, use that as a comp. But again, at the end of the day, It is not surprising that people might show interest in both sides, but we still have to create a vehicle so that we can value both sides separately right now. That's what we're doing. As Michael said, there are good complexities. The complexities of having a really smart financing structure, NOLs, and things that we want to preserve in this in this structure, and so we're taking our time, and we think we're on track in terms of our timing, as I said, to potentially be able to close the transaction as early as the end of our fiscal year, but we're going to do this right. We're going to create the value for our shareholders, and again, we're advancing just really pretty much at the speed we expect it to.
spk05: That's great. Thank you both for all the callers.
spk03: Thanks, Ken. Operator, can we get the next question, please?
spk11: Absolutely. Our next question comes from Brian Kraft at Deutsche Bank. Please go ahead.
spk04: Hi. Good afternoon. I wanted to ask you, I guess, two questions. First, on international subgrowth at STARS, can you just talk about sustainability of that and your confidence in STARS? you know, the next few quarters being able to, you know, continue to grow the way you did this quarter or even better the way you did last quarter. And then separately, I guess for Kevin, what are you seeing is generally as far as third party demand for newly produced content? I know that the studio's doing well and growing, but with some of the streamers like Netflix and Warner trying to become more disciplined around content spending, are you seeing, you know, any changes in demand for new projects or, Any renewed discipline around cost of those projects, maybe on the leading edge of the conversations at this point? Thank you.
spk18: Hey, it's Jeff. Thanks for the question. I think there's really two things that are giving us great confidence in continued subscriber growth in the international business. We're seeing a lot of great momentum and distribution deals. We've got a lot of distribution deals that are about to be signed and about to be launched, and so we're bringing As John said, instead of launching new markets, we're going deeper in existing markets where there's more consumers. And so we're seeing a lot of consumer uptake. We're seeing a lot of momentum in the distribution side of the business. We talked about in John's remarks, we launched a bundle with Disney. We've got some bundles in Benelux that we launched. And I think on top of that, if you take a step back, the content from the U.S. is really driving into the international business, much like we talked about on the domestic side. Now that we've lined up the content international, that content is really starting to come online and drive the subscriber business. And then in territories like Latin America and Mexico, we've got these great originals that we knew we had a programming gap from the U.S., and we built through these great originals. And Senior Reader 89 has performed really, really well. We're excited about Nacho coming out of Spain to come onto the platform very soon. So we feel really good about that we're on track to hit that 50 to 60 million subscriber milestone. target for the world in 2025, and that will come out of that, you know, and the run rate break-even coming out of the end of calendar 24.
spk13: And on the TV side and the demand, you know, it's always been the way that, you know, some platforms are a little more aggressive than others. The challenger brands, which is where we've really always built our business with new players that are emerging that have bigger needs that are not only programming, but marketing with their programming. When you go back to Mad Men, it built the AMC brand along with being a great show and opened the door for a lot of other great shows. That's where we always want to be. So while there is some discipline being displayed within some of the legacy streamers, if you can call them that now, the challenger brands are eager to take market share. I mean, it's a high bar. because the gray area between feature film and television talent has been blending over the last many years, and big stars and big auspices drive television events and television series. As a challenger independent, we have to be better than everybody else, certainly the internal studios, but that's what drives us. We're super competitive. We want to win, and most of the shows we bring to the market these days have multiple bidders, We're feeling really good about that, but development is just development. It's converting to production and making those shows for a disciplined price, which continues to renew our business.
spk04: Okay, thanks very much.
spk03: Thanks, Brian. Operator, can we get the next question, please?
spk11: Absolutely. Our next question comes from Jim Goss with Barrington Research. Please go ahead.
spk12: Thanks. Good afternoon. Jim. Some of these things have been addressed, but what I'm sort of interested in knowing is post-separation, I was wondering if you'd frame out the studio strategy as a renewed standalone business. Long ago, you had smaller TV productions and sort of mostly singles in the film side. Then you moved more aggressively with Hunger Games and Twilight, and recently you've been focusing on working with stars. With this new lease on life, how do you think you'd characterize your approach on the TV side and the film side? I think you just were talking a bit of the TV, but, you know, is there a way investors should perceive the overall approach to the business in terms of getting that 15 to 79 multiple you've referred to earlier?
spk17: Yeah, I honestly doing, continue to do exactly what we do right now, continue to build, you know, Great, particularly scripted television shows and big feature films. Take our franchises. There's more announcements coming on John Wick. Look what we're doing in television with The Continental. I'm not going to give all of Joe's fun away, but you'll see some interesting announcements coming down the pike. We're not going to separate these businesses without maintaining a lot of the synergies between Starz and Lionsgate Television's business. I can promise you that. So I would say, actually, both sides would be free, ultimately, to consolidate potentially some other businesses. But at the end of the day, both are strong in and of their right. They will maintain a tremendous amount of synergy, as I just said. and I like our mix of products in television. As Kevin said, he mixes in the portfolio some things with less deficit, but of course less rights. Joe, I like the fact that he's now got a diversified portfolio as well with big brands, bigger movies, our core sort of mid-range action pictures, as well as, as he and I both have said, a deliberate strategy around streamers and multi-platform, probably areas where All of the other studios really won't spend much time, but we make $50, $60 million a year. So I like our businesses on both sides. I like that Starz on the international side is going to be in a much shorter time frame than most of the other big streamers, operating cash flow positively. So, yeah, I don't foresee huge changes other than, as I say, it is possible that they will scale up each of their businesses, but much more specific to their business.
spk12: Do you think you'd have one or two bigger franchise films every year or two or something like that to keep that interest going along? And on the distribution strategy side, I know internationally... you don't have your own distribution network. I wonder how that will work as well.
spk17: Okay. Well, Jim, again, when you say that, all you're really talking about in that is the international exhibition business, which I don't consider a distribution business. And frankly, the discipline that we have of being able to go to a market internationally and cover so much of our our budget in terms of our movies from taking both third-party international distributors as well as going to streamers and putting those pieces together. I think it gives us tremendous flexibility, particularly in a period where you don't know are we in an inflationary and recessionary. We do self-distribute in the U.K., We like that market, but we retain, don't forget, as much as we can in LATAM, for example, we retain all of our other rights other than the exhibition rights. So, you know, I like the fact that we are scrappy and entrepreneurial and we don't have any legacy mores that we have to follow. We build these business models as the business changes. That's what we're going to keep doing. but again, I like the business that we do, and again, the multiples I referred to. If you look at some of the purchases of some businesses recently that actually don't even retain rights, and you look at the prices that are paid, you would say that this library and that this studio is immensely valuable. Thank you, Jim. Thank you much.
spk11: Yes, sir. Our next question comes from Alan Gold at Loop Capital. Please go ahead.
spk08: Thanks for taking the question. I've got two for Jeff and one for Joe. Jeff, we're starting to see a lot of advertising coming into the streaming business. Just wondering how that's going to affect stars. You'll be differentiated as one of the few that doesn't offer an ad business, but it may keep prices lower. Also, if you could just address what's happening with the ARPU, both domestically and internationally. And for Joe, Joe, pre-pandemic, Lionsgate was averaging about 14 wide releases per year. And given the changes in the box office environment, does it make sense for you to just be doing half that amount or a fewer number of films, but just bigger, such as The Hunger Games and John Wick?
spk18: Hey, Alan. It's Jeff. How are you? Look, I think as the other streamers start to replicate what we used to see in the linear business with advertising, it actually really, I like to say, the more things change, the more they look the same. It really then recreates what we used to have in terms of being that cherry on top of an advertising broad-based service. And so we think it lowers price points. It makes stars more accessible. It makes us a better bundling partner where we have not as supported, very adult customers. Very premium content is a great compliment to all of the broader services that can have advertised around. And so we are actually excited for that to happen. We look forward to those services getting launched and seeing where we can create some kind of commercial synergies through bundles of each of those services. In terms of the ARPU on the domestic side, relatively flat sequentially, we had a lot of big growth in the back third of the quarter. And so you'll see that, but I expect that to set us up pretty well for the rest of the year. So P-Valley came in in the back third, and that's what you saw there. On the international side, we had a big bundling deal come in the quarter that drove our fruit down a bit. I do think long-term, they're still somewhere between, you know, non-bundled, somewhere between two and three euro or two or three dollars. And so I would expect that number to start to accelerate as well in the coming quarters.
spk07: Thank you. Yeah, thanks, Alan. So the way we've geared the business is around 8 to 12 films in terms of really driving the flywheel. Because of these other areas of growth, our international business is stronger than ever in terms of the value of our rights. Our multi-platform business, our streaming business have added growth overall. So we don't require as many films. We're geared so that if we have 12 great offerings, and in fact the F23 slate right now is 12 films, we're certainly capable of still driving that output, but we don't need as many to hit our numbers. Okay.
spk03: Thanks, Alex. Thanks, Alan. Operator, can we get the next question, please?
spk11: Absolutely. Our next question comes from Matthew Harrigan with Benchmark. Please go ahead.
spk09: Thank you. Actually, honing in again on John's very favorable comments on TV. Firstly, Benchmark, If you do the math and you're up 50% this year and you're up a good hop again next year, it feels like you probably have about a 75 million increment or so where the street is on the TV profit and 24. Should we probably just regard that as a buffer to the economic macro uncertainty and creative execution and all that? Or are you feeling more optimistic about your overall outlook for the next couple of years? And then I guess as a corollary of that, You know, listening to the Warner Brothers discovery call, I mean, it feels like they're trying to rectify the, the effort to have tearing apart their business at one point and taking a more balanced approach. I know you've got a good relationship with HBO. I think it's like five pilots and Casey Lloyd's just renewed his contract. Is some of the, your admission that things are looking better for the TV business, just kind of a sense of things are rebalancing at some of the larger legacy streamers, as you alluded to, and it's helping you? I mean, is the TV increment kind of a surprise from where you are a couple months ago, or are you just being a little bit more open kimono about it? Thanks.
spk13: Go ahead, Kevin. You start. Yeah, I mean, I think there's a lot of positive momentum in television because there's just so many buyers. so many new buyers. And as Jeff alluded to, kind of the realignment of the linear bundle moving into the digital bundle, AVOD players are pressuring legacy SVOD streamers and legacy television in the same way that basic cable was pressuring the networks 15 to 18 years ago. That's just great from a selling perspective. A lot of optionality in places where we can sell and make at different price points based on customer and client needs. We have a great relationship with all parts of the HBO Warner Discovery family. We have several shows. We don't have any pilots there right now. We have shows that are being made or renewed and limited series. We expect and hope that those will continue to go on and be successful. If anyone falls out, there's others to replace them elsewhere. And we just look at the business holistically, and it's a very different business than even five years ago. with all the entrants. They're competing with each other, and that's great business for us. We've also had, you know, the amazing partnership and good fortune of partnering with Jeff and his entire team at STARS. That's built our business. We're going to continue that relationship in any iteration of the structure that's being alluded to before because we have so much shared in common and know each other so well and speak so frequently and have had a great partnership and relationship. Those have all been reasons that that revenue is driven. And as we've gotten older in age, we're kind of like pre-teen in the television business. Most of our competitors have been doing this for 60 or 70 years. We've been doing it for 20. Some of those libraries are now really turning into ongoing revenue. Many of our competitors have massive libraries that have been going since the 1950s. The other big component that we should just not fail to mention is that 3Arts is an amazing engine. That transaction was accretive on day one. All the partners have a huge business in the management and production side, and now we have four shared series together. We expect to have more. Serpent Queen is coming up on Starz. We're excited about that. Julia has been a big success for HBO Max and Warner. And we have a great model together, and we expect more down the line. Mythic Quest just got renewed for two more seasons. and season three is in the can. So those kind of things just didn't exist before, and it really goes back to John and Michael's overall strategy of getting closer to content and content creators. And it's a smart strategy in a world that continues to shift every day, as we're seeing today on the other earnings calls.
spk17: Yeah, I'll try to drill down even a little bit more for you. But again, the good news about television at this point in time, and it includes with three arts, and the shows they know are being picked up and the visibility Kevin has, including having the shows at Starz. You know, again, we have great visibility, and I don't know how you extrapolated your number, but I would say the television margin and contribution for fiscal 23 is significantly higher. I don't know that your number is that far off, and I could see a similar kind of a jump into fiscal 24, so I hope that's helpful.
spk09: Great. Thanks, John. Thanks, Kevin.
spk11: Thanks, operator. Yes, sir. That concludes the question and answer session. I'd like to turn it back to the management team for any final remarks.
spk03: 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. Thank you, everyone, and have a good evening.
spk11: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful evening.
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