Lions Gate Entertainment Corporation

Good afternoon and welcome to the Lionsgate second quarter 2023 earnings 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 your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Nilay Shah, Investor Relations. Please go ahead.

Nilay Shah Good afternoon. Thank you for joining us for the Lionsgate Fiscal 2023 Second Quarter Conference Call. We'll begin with opening remarks from our CEO, John Feltheimer, 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, and President of Domestic Networks Allison Hoffman. 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.

Thank you, Nealey. Good afternoon, everyone, and thank you for joining us. I want to start with a few words about the charges we just announced, and then I'll talk about the quarter and close with an update on our strategic process. As you saw, we're taking a non-cash goodwill right down at STARS, as well as a charge primarily related to the restructuring of our STARS Play international business, now called Lionsgate Plus. We've made a strategic decision to exit seven international territories, six markets in continental Europe, as well as Japan. This process has already begun and will be completed by the end of the fiscal year. Though this was a tough decision, the restructuring leaves stars with a streamlined international business positioned to compete in places where we can win with a strong and scalable presence in the UK, Canada, and Latin America. Domestically, we're facing equally challenging headwinds, which I will talk about from an operational perspective and Jimmy will discuss in financial terms. But STARS remains a unique premium platform with a focused content strategy, a robust slate of hit series, and significant upside as bundling and packaging opportunities come to fruition. These charges are an acknowledgement of current market conditions and the challenges in our environment. But they also represent an opportunity to stabilize our STARS business, reset expectations, and drive higher adjusted orbita as we move forward. Now let's turn to the quarter beginning with STARS. During the quarter, there was continued degradation of the linear ecosystem, but Starz continued to grow both international and domestic streaming subscribers. Even more importantly, Starz continues its successful transition to digital. Streaming now accounts for 71% of Starz subscribers and 62% of its revenues, and the platform has remained profitable throughout this transition. Star's continued digital transformation helps to insulate us from further erosion in the linear space, while positioning us to benefit from new marketing and distribution opportunities when the overall streaming ecosystem becomes more robust. On the programming front, the critically acclaimed P-Valley emerged as a breakout success in its second season, becoming Star's most watched show with an average of 10.3 million multi-platform viewers per episode. All three of the quarter's standout performers, P-Valley, Raising Canaan, and The Serpent Queen, have been picked up for additional seasons. Starz now has five shows each with more than 8.5 million multi-platform viewers, an impressive track record for a streamer of any size. Given this level of viewership and with a focus on 2 valuable and scalable core demos, we are well positioned to be part of every conversation as the business evolves into a bundled direct to consumer world. Turning to our studio businesses. Our upcoming film slate is filled with new installments of nearly all of our major franchises. John Wick Chapter 4, The Hunger Games Prequel, The Ballad of Songbirds and Snakes, Dirty Dancing, Now You See Me 3, Expendables 4, Saw, and the John Wick spinoff Ballerina starring Anna de Armas, which begins production next week. With tentpoles in every quarter, we're putting together a lineup reminiscent of the slate that performed strongly in 2019, the last pre-pandemic year. But our film business is about more than tentpoles. With Pray for the Devil, our most recent wide release, and Fall, a smaller opportunistic release, we show that we can create successful business models for every kind of film. Upcoming releases like the Gerard Butler thriller Plane, prestige films like Are You There, God, It's Me, Margaret, the action thriller Shadow Force, and Alice Darling starring Anna Kendrick round out one of our most balanced slates in years, a slate that speaks to our optionality and ability to play in every part of the movie ecosystem. I would also note that in a highly competitive bidding situation, we moved quickly to acquire director Tim Story's horror parody, The Blackening, a film that fits our ethos of bold, edgy, and provocative fare. We're putting it on the schedule immediately and believe we have a real hit and a potential franchise on our hands. In terms of television, the headline is that we successfully operate as both a content arms dealer and a streamer. Our television group has become one of the world's leading independent suppliers of premium scripted series to third-party buyers, while also supporting Starz growth with a pipeline of 15 shows. Our licensing and windowing activities also extend to Starz in terms of how they stream, license, and bifurcate the rights to their shows. Having a bespoke partner at Starz has allowed us to scale to over 100 shows across our scripted and unscripted business, while our content partnerships with Three Arts Entertainment, Debmar Mercury, Pilgrim Media, BBC Studios in the UK, Bell Media in Canada, Stan in Australia, and talent management and production company 42 in the UK have allowed us to build a truly global content creation capability. This content platform continues to create hits. This quarter saw the continued growth of the comedy Ghosts on CBS, a breakout phenomenon that has steadily grown its audience since launch, emerging as CBS's number one comedy in key demos and already sold to Paramount Plus for SVOD as we begin to monetize its many windows. The John Wick TV origin story, The Continental, is on its way to becoming another transformative property. After licensing it to Peacock domestically, we announced earlier this afternoon that Amazon Prime has licensed the show internationally. With Peacock and Amazon aboard as partners, the global rollout of The Continental is positioned to be one of the streaming events of 2023. It puts a solid exclamation point on the continued growth of John Wick into one of the world's premier action franchises, driving value across our television and film businesses. With Ghosts and The Continental on their way to becoming drivers that will sit alongside Mad Men, Weeds, and Orange is the New Black in our library, we're continuing to convert this value into strong financial results, with our television group expecting to generate strong and increasing segment profit this year, as well as in fiscal 24 and fiscal 25. I want to close with a few thoughts about our strategic process. As we've said before, we are committed to separating our media networks in studio business. As part of this process to separate the businesses, we're disclosing today certain financial information prepared in connection with strategic and financial discussions. This disclosure provides additional information regarding management's expectation of the range of segment profit for each of the studio and media networks businesses in fiscal 23 and fiscal 24.