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Operator
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.
spk15
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.
Shah Good
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.
Nealey
Now I'll turn things over to Jimmy. Thanks, John, and good afternoon, everyone. I'll briefly discuss our second quarter financial results and update you on the balance sheet. Second quarter adjusted OIBADA was $47 million and total revenue was $875 million. The year-over-year adjusted OIBADA decline primarily reflects the tough year-over-year comparison as motion pictures prior year quarter benefited from strong rollover revenue from the fiscal 2021 slate. Reported fully diluted earnings per share was a loss of $7.95 a share. and fully diluted adjusted earnings per share came in at a loss of 12 cents a share. Adjusted free cash flow for the quarter was $124 million. As John mentioned in his prepared remarks, we took two large charges this quarter that impacted our unadjusted operating results. First in the quarter, we took a non-cash goodwill impairment charge of $1.475 billion related to our 2016 STARS acquisition. This write-down reflects changes in the market valuations for streaming assets and related factors stemming from increased competition and a slowing global economy. Additionally, we recorded a $233 million charge primarily related to the restructuring of our streaming service in several international markets. We believe that Star's focus on the remaining territories will provide our international business a clearer path to profitability while continuing to grow subscribers off a lower base. Now let me briefly discuss the fiscal second quarter performance of the underlying segments compared to the previous year quarter. Media Network's quarterly revenue was $396 million and segment profit was $21 million. Revenue grew 3% year-over-year as we continued to see favorable shifts in subscriber mix driving continued OTT revenue growth, partially offset by continued linear pressure. Domestic revenue was essentially flat year-over-year, while year-over-year international revenue was up 48%. Media network segment profit was up significantly year-over-year. and primarily reflects lower marketing spend both domestically and internationally, partially offset by higher content expense. We ended the quarter with 37.8 million total global subscribers, including Stars Play Arabia. Total Global Media Network's OTT subscribers grew 1 million sequentially to 27.3 million subscribers. This represents year-over-year global OTT subscriber growth of 52%, comprised of domestic OTT growth of 18%, and international OTT growth of nearly 100%. I want to update everyone on the impact of the international restructurings we'll have on our subscriber trajectory and financial outlook going forward. While the exact timing is still being finalized, we expect our transition to be completed by the end of this fiscal year and our total international subscriber base at year end to exceed 7 million. We expect international segment profit will improve significantly on a quarter-over-quarter and year-over-year basis starting with the current December quarter. we remain committed to reaching break-even in our international business exiting calendar year 2024 or earlier. Now I'd like to talk about the studio business in aggregate. Revenue of $655 million was down 1.8% year-over-year, driven by the motion picture group. Segment profit of $69 million was down year-over-year, driven by declines in both television and motion picture. Our total library revenue at the studio was $747 million on a trailing 12-month basis, which is in line with the prior quarter. Breaking down the studio business between motion picture and television, let's start with motion picture. Motion picture revenue was down 32% year-over-year to $224 million, while segment profit of $56 million was down due to a difficult comparison with the last quarter's second quarter, which benefited from the rollover of the 2021 slate. Revenue and segment profit trends reflect continued strength in our library while we move into the second half slate with the return of some of our larger theatrical titles, including fourth quarter release of John Wick 4, as well as several major releases in fiscal year 24. And finally, television revenue was up 28% to $431 million, driven by continued growth in output, which included both new and returning series. Segment profit came in at $14 million and was down year over year, reflecting the impact of accelerated content amortization related to a series cancellation. Now let's talk about our balance sheet. Excluding the restructured Lionsgate Plus territories from the trailing 12 months adjusted to EBITDA, leverage for the quarter improved to 5.5 times. We also continue to retain significant liquidity with over $550 million of cash on hand and a $1.25 billion undrawn revolver. Currently, we have no maturities until the fourth quarter of 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. In anticipation of separating our studio and media networks businesses, you will see that we have provided an adjusted webinar outlook for fiscal years 23 and fiscal year 24 that breaks out each of these businesses. Given some of the headwinds we are seeing from the slowdown in the global economy, most acutely felt at STARS, we now forecast adjusted webinar for the year to be between $275 million and $325 million. This implies a healthy ramp in adjusted OEBIDI in the back half of the year, driven by strong library sales, including the licensing of Schitt's Creek to Hulu, the direct-to-platform release of Shotgun Wedding to Amazon, and continued cost rationalization most directly evidenced in our international restructuring. As for fiscal 24, we see adjusted OEBIDI in the range of $400 to $450 million. We see a strong year in fiscal 24 as John Wick follow through along with the licensing of the Continental to Peacock in the U.S. and Amazon internationally should make for strong studio segment profits and margins. Finally, you will notice that our eliminations are larger than normal drag on adjusted to EBITDA in fiscal 23 and fiscal 24. This is due to the increase in intercompany activity between STARS and the studio businesses, as represented by the healthy amount of content for STARS made by our television studio, as well as the Q3 onset of the Pay One deal between our motion picture group and STARS. Over time, the eliminations at the profit line should normalize to zero, but I wanted to point out this near-term impact on our overall consolidated adjusted webinar. And finally, it's important to note that when we separate the studio business from STARS, the eliminations will go away. Now I'd like to turn the call over to Nealey for Q&A.
Jimmy
Can you open the lineup for questions?
Operator
Certainly. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then two. Once again, that's star then one to ask a question. And our first question comes from Kutbun Mural at RBC Capital Markets.
John
Great. Thanks for taking the questions, too, if I could. First, can you provide some background on what seems to be a decision or maybe a path to spin off the studio business instead of stars. And if there's anything you can share on how those discussions are evolving and any expectations around timing. And just second, when we think about the Lionsgate Plus exit in the seven international markets, I was just curious if that could offer any content licensing opportunities as you kind of dig into the business plan and more broadly, if it does, you know, what does that kind of, how does that impact your thinking on, you know, other international markets or even stars domestically? Thanks.
John
Let me go back to the first slide.
Nealey
Sure. You know, with regards to the decision to spin the studio and the separation, Look, we've done a lot of work here, and there's definitely, as we've noted before, structural benefits to handling it in this fashion, particularly on the financial side of things. There are advantages, and I would just remind you that the debt structure, including the favorable interest rate bonds, reside on the stars side of the business. So there's obviously benefits to spending in the studio in lieu of stars. From a tax perspective, there's a couple things, because we've had the question, so I would just note that, as we said before, the separation and spend of the studio would be done in a very tax-efficient manner. I would expect that it would be tax-free for shareholders, but in order to retain flexibility, it would be taxable from a corporate spend perspective, but without any significant cash tax consequence. The other thing I'd point out from a tax perspective, as you've seen in our filings, we have over $1.4 billion of NOLs, which would not be degraded during the spin process. $1.2 billion of those NOLs would travel with the studio, leaving a little over $200 million with STARS. With regards to timing and the regulatory process, I would just say that We've done a lot of work here, and I would just say that this does not preclude a transaction or deleveraging event prior to or in conjunction with pursuing any regulatory approvals. I would also note that we can also separate the companies without a deleveraging event.
John
Yeah, in terms of your other question, John, I'll answer. Jeff may want to jump in. If I understood your question, you know, we're exiting mostly territories that have low ARPU, a lot of bundled subs. And frankly, when you think about it that way, sort of the ability to pay in those territories for expensive content, whether it's our content at STARS and Lionsgate or Third-party content, really, it's not the most efficient use of that content, frankly. So, you know, we're a global distribution business. We will take the content rights that we own. We will sell them. Hopefully, we'll do better. And in terms of even the write-off, we hope and, frankly, expect to mitigate a large portion of that with our sales. So does that answer your question?
John
Yeah. Yeah, it does. Thanks so much. I really appreciate it. Thank you both. Great.
Jimmy
You're welcome. Thanks, Cutman. Operator, could we get the next question, please?
Operator
The next question is from Matt Thornton at Trust Securities.
Matt Thornton
Hey, good afternoon, everyone. Thanks for taking the question. You know, I think, John, I think your goal here was to strike and find a transaction that enabled the leveraging, provided a valuation marker, and I think perhaps provided some strategic benefits if that could be found. Obviously, the macro is pretty turbulent here, but deals are getting done, as we saw with with Skydance. So my question here is, has your confidence in getting a deal done that meets your criteria changed since the last earnings update?
John
No, I wouldn't say so. Obviously, it's not helpful. Number one, when there's a big disconnect between the separate values, some of the parts, if you will, of our two core businesses are and where our stock price is right now, because obviously when people are looking at either of those sides, they may look at Topco and say, well, maybe that's a better and smarter investment for me, at least as part of my investment thesis and being in business with us. So that's not particularly helpful. It's frankly one of the reasons that we put out these numbers today to give all of our investors, frankly, an equal playing field with anyone we may have given this information to before, frankly, to show, you know, the transparency. And frankly, particularly at the studio level, where I think sometimes the consolidated company eliminations have somewhat masked, I would say, the real value of what we're doing at the studio. And I don't know if everyone understands those eliminations. So, Jimmy, I don't know. Can you fill them in a little bit? Yeah, certainly.
Nealey
Yeah, the 8K is prepared in conjunction with preparing for separation. And to John's point, and as I noted in my remarks, the intercompany eliminations go away upon any separation. So this is important to look and see that you can see that some of the parts adjusted to EBITDA for the studio and STARS together, just look at that, excluding the intercompany eliminations, of course, which go away, the midpoint of that projection is over $500 million in fiscal 24. So that's worth noting. The other thing I think is worth noting in particular, and it masks perhaps a billion dollars of value in the studio, is if you look at the corporate G&A, if you want to just use a 10 times multiple or whatever you would want to put on it, in any ultimate monetization of the studio, the corporate G&A would likely be significantly reduced or eliminated. And, again, that masks a billion dollars of value in the studio if you look at those numbers.
Matt Thornton
That's helpful. Maybe, Jim, I could just ask you for a quick housekeeping follow-up. The TV production accelerated amortization in any quantification there, and then just currency in the quarter I would assume was probably some headwind, top line, bottom line, and international, I guess, any quantification there. Thanks again, guys.
Nealey
Yeah, to give you an idea, the FX was over $10 million in the quarter, and primarily in STARS International, as you would expect, as well as the Motion Picture Group. So in terms of the amortization, in terms of the amortization, That's really timing. There was a specific series that was not picked up for renewal, and so we took that out of our ultimate estimates, which accelerates the amortization into the current period. So it's timing of cost that would have ultimately been amortized in following periods.
Jimmy
Thanks, Matt. Operator, could we get the next question, please?
Operator
The next question is from Phil Cusick at J.P. Morgan.
Phil Cusick
Hi, thank you. A couple if I can. First, can you quantify the level of profit improvement in the December quarter from international restructuring and then how it evolves from there? And then second, can you just talk about the latest data points in the theatrical business and how those influence your theatrical strategy going forward? What do you think the preference is today on the studio side for making direct-to-platform versus theatrical movies? Thank you.
John Wick
Okay, got it. What I was saying was that we're actually quite bullish on the theatrical market. And equally, as we have said in past calls, we have a very intentional additional leg of the business that's leaning into streaming. For the theatrical side of the business, what I was saying was that we have, on the one hand, the best lineup we've ever had. John talked a little bit about it with John Wick coming back into the new year. Ballerina, which is the first spinoff, which we think has enormous potential. We've got The Hunger Games, Dirty Dancing, and a bunch of more targeted movies that we always talk about. What I wanted to share with you on the theatrical business is we think that even what we did this last weekend really speaks to the strength of our strategy moving back into the theatrical marketplace. Pray for the Devil did sub-10 in the opening box office. And that's actually, in some ways, the good news for the business in that we have with our ability to be super disciplined in P&A, what we're seeing happening in the ad market, and I think some benefits we're going to get there, the strength of the international values that we've talked a lot about, and the strength of those downstream values, we can have a very profitable business on these targeted movies. at lower box office levels. And yet when they break out, tons of upside in the business. So from the theatrical side, even at these levels of box office that we're seeing today, there's a super compelling business for us and we're really excited that we're moving back into the market with a 10 to 15 picture slate every year. On the streaming side, we have a very intentional business. We release on a multi-platform basis between 30 and 40 movies a year very low risk, very high return for us. And so we've, as we've said on past calls, and still feel very strongly about it because we're still seeing the demand, there's an opportunity to generate additional low risk, high margin for our business. And so all in all, this is actually a fantastic time for us in the motion picture business.
John
Bill, does that answer your question? for the next question. Okay, we're going to actually, we apologize for that delay. We all got here, but we understand Jimmy got cut off as well in the middle of his explanation on eliminations, and I think that's important. So I'm going to let him give a quick recap of what those eliminations mean.
Nealey
It was on the STARS International, and Phil, I'll thank you for your question a second time. Just to round that out, we would expect the second half losses and Lionsgate Plus to be less than half of what they were in the first half. And then we'll expect continuing sequential improvements into fiscal 24, reaching run rate positive in calendar year 24.
Jimmy
Thanks, Phil. Sorry again, everyone, for the delay. Operator, could we get the next question, please?
Operator
Certainly, the next question comes from Rich Greenfield at LightShed.
Rich Greenfield
Hey, thanks for taking the question. You know, I guess just from a high level, The capital allocation I think is sort of the, something I hear a lot from investors of like, how do you all think about where to put your dollars? You know, I heard what you just said about the theatrical business, but obviously it's, it's changed a lot. And, you know, there's obviously been some real headwinds to that business over the course of the kind of, even in the post pandemic period. And so like, as you think about sort of putting the capital you have to work and let's, keep the spinoff as a separate issue for right now. If you had to put a dollar into each of your three businesses between movies, TV, and stars, what's the best use of Lionsgate Capital today?
John
Yeah, that's a great question. I think you should know, I think we've mentioned before, but there isn't a piece of product that we go forward and make that we don't run a financial analysis that includes an NPV and a return on capital. We think that's important. As you know, it's also important, you know, we've got corporate overhead. Jimmy mentioned earlier, if we separate the businesses and if there's further transactions or monetization, obviously, it's a big number, but that's a big number that's got to be covered on a gross basis. And so, You know, we've got to build business that's big enough to cover, you know, corporate overhead and obviously all the expenses. But we do an analysis of all of our businesses. Getting out of the territories that we got out of was an analysis of the return on the incremental investment in that area. Obviously, you know, part of the analysis, the calculus that we did at one point in time, and the investment overall in the Stars business and the Stars Play International business was based upon multiples. So you do that analysis. Obviously, when those multiples were 20, 25 even, I mean, nobody has seen the moves more than you have, Rich. Then you would have said, let's put even more money into it. As those multiples have come down, as we look forward at what they could be and will be, where they'll stabilize, we think they'll certainly stabilize higher than where the linear cable multiples are now. But then you shift that a little bit. So I would say it's the analysis you would expect us to make on a more macro basis and a micro basis in terms of every specific thing we invest in. And I know that's a little broad, but I think that's how we do it.
Jimmy
Thanks, Richard. Thanks, Rich. Operator, can we get the next question, please?
Operator
Certainly. The next question comes from Barton Crockett at Rosenblatt Securities.
John
Okay. Thanks for taking the question. Let me see. I was wanting to ask a little bit about the outlook for 2024 that you gave. Can you give us a sense of the trajectory in stars that you're assuming versus the trajectory in the separated studio businesses. We know you've got some more movies coming out, but maybe some of this is in the AK that I haven't yet had a chance to disclose, but maybe talk through what happens. I know you talked about the international except, but just broadly what happens with the EBITDA to get us to the number that you were talking to for 2024 by segment.
Nealey
Look, there's a Barton. Thanks for the question. You know, as you can see in our outlook, you know, in the ranges we're giving, there's nice acceleration both in STARS, you know, particularly as we've restructured the international operations, and great acceleration on the studio side. So, you know, nice acceleration. As John mentioned in his opening remarks, we're, you know, we're looking forward to really a strong fiscal 24. And, you know, that's reflected in these numbers. And I just think it's important, as we noted, that the eliminations mask some of that because the eliminations are going up, as you would expect, as television product is ramping up further and further in terms of stars programming. And we're also, as you know, this next quarter, meaning the current December quarter, starting to pay one window, starting with the Nick Cage movie, and to the pay-one deal between motion picture and STARS. So overall, you know, strong trajectory on a consolidated basis, and that includes some ramp-up and eliminations, which ultimately go away.
John
Yeah, and just to kind of follow up on that idea of strong STARS, you know, obviously you flagged kind of increasing linear pressures, and what's your view over time in this kind of outlook about what happens to those linear pressures?
Jeff
Hey, it's Jeff. Thanks for the question. In the current quarter, I think there was really three things that we saw that impacted the sub-trajectory in the quarter. Obviously, the economic pressure that we've all talked about really accelerated some linear loss. We did see some of that pressure hit some of our big digital wholesale partners. The good news in the quarter is P-Valley premiered to a massive growth curve for us. And what we saw in P-Valley was that half the audience was net new to the franchise. and so we saw great growth pushing up into the TAM. The downside to that was only half of the audience overlapped with the power cohort, and so we did see some elevated churn. We do expect to sit within this economic environment for another quarter or so, but in the fourth quarter of the fiscal, we have BMF and Ghost, which are our two biggest shows coming on, so we expect to turn to great growth in the fourth quarter.
Jimmy
Thanks, Barton. Operator, could we get the next question, please?
Operator
Certainly the next question comes from Steve Cahill at Wells Fargo.
Steve Cahill
Thank you. Maybe first, Jimmy, thanks for all of that info on the studio spin. I was wondering if you have any target leverage ratios for studio and stars upon completion of the separation. My guess is that some of the external interest might be greater in the studios business, but you would also maybe want to deleverage the stars business. So does it make sense to put more of the debt on the studio than stars that separation to kind of expect that potential for a transaction? And then on the FY24 guidance, it looks like you've got the studio business above the fiscal 21 level of AOA Bada. I'm guessing library is pretty steady in there. I understand what you're talking about eliminations, but is there more to that ramp? Are there some big TV deliveries you expect or is it really the film slate that's driving that? Thank you.
Nealey
Well, let's take that one first. In the projections, looking out through that, it's library for sure. Library continues to be strong and a great contributor. And then it's a ramp up in the titles coming out theatrically with a great carryover from uh, from the, uh, uh, John Wick release, which is right in our March quarter of fiscal 23. So good carry over there. Uh, Kevin and the team's got a great lineup, uh, rolling and deeper and deeper, more mature, uh, series that, uh, have higher margins that's rolling into 24. So really got a lot of good things happening there. And, and then, uh, strength and stars as they continue in particularly with the international restructuring. So that's, uh, That's that piece. In terms of the first part of the question was, and I've come back to that. Yeah, I got it. On the leverage side of things, we have a lot of optionality. So I wouldn't make any particular assumptions, but as you've seen, we concluded the quarter when you look at it on a pro forma basis, given the international structuring, we concluded with five and a half times leverage. As we've talked about before, we'd expect to come into the end of this year closer to the five times range, and then moving into fiscal 24 in the four times range. So even without a deleveraging event, I think it's eminently financeable in terms of the separation. And of course, with any and involves a deleveraging event, then, you know, you manage debt levels down from there.
John Wick
Thank you.
Jimmy
Thanks, Stephen. Operator, can we get the next question, please?
Operator
The next question is from Alan Gold at Loop Capital.
Alan Gold
Yeah, thanks. I've got two questions. First of all, Jim, you said before how the corporate overhead goes away. Would the corporate overhead go away, or would it just get split up between the two companies? And then secondly, on a free cash flow question, I noticed in the quarter that you had a big increase in net production loans taken out. I know you've done this regularly throughout the years, but it just seems hugely high this quarter. I was wondering if you could just address that.
Nealey
Sure. Well, look, in terms of the corporate overhead, I think, you know, on the star side of the business, having been a standalone public company before, they have a a pretty large accompaniment, not large, but sufficient accompaniment of talent and abilities. There may be some more there that would be needed in separation, but it really depends on the ultimate party in a monetization as to what may be needed. But generally speaking, I think on the studio side, there wouldn't be a lot more needed within those operations. From a free cash flow perspective, Yes, we are at peak content spend, particularly on the television side of things, given the ramp-up in television production, which is a high-quality aspect and use of capital. And we ramped up, from a working capital perspective, we ramped up the production loans relative to television product in the quarter, and so that's what you saw there.
Alan Gold
Okay, thank you.
Jimmy
Thanks, Alan. Aparita, can we get the next question, please?
Operator
The next question comes from Thomas Yeh at Morgan Stanley.
Thomas Yeh
Thanks so much. Following up a bit on Barnes' earlier question, within the media segment network, media network segment profit improvement that's expected for next year, could you help us think about the U.S. business in particular? It seems like based on what Jimmy said about the international profit cadence into the latter half of this year and into next, that that's largely the driver of the improvement. And, you know, in the quarter, it looks like U.S. stars expenses came down. Just wondering how you're thinking about what the cost structure looks like domestically into next year in light of the industry headwinds. Is it right to spend through it? And then if I could squeeze a housekeeping one in for Jimmy, the corporate G&A expectations are baking in a 20% growth in fiscal 24, which is I think it's typically been pretty flattish at $100 million. Is there anything transaction related that might be going on there? in any way to kind of help think about how to allocate that 120 in the event of a separation between studio and media? Thank you so much.
Nealey
Sure. I'd just say on the corporate GNA, that ramp up is related to bonuses expectations with regards to going from fiscal 23 to fiscal 24. So that's the delta there primarily. With regards to the domestic side of the business and international, I'm not going to frame and break those out separately other than what I said to you with regards to the kind of improving international numbers relative to the restructuring. Jeff, is there anything else you want to add to that?
Jeff
Yeah, I would say in terms of your question about the expense portfolio going forward, obviously when you're in any kind of tough economic time and you have – you know, pressure on one side of your business, you always go back and look at all aspects of your business to make sure you're putting the expense where the growth and the profitability is. You know, if you look at what we've done over the last five years, we've pivoted this business from a linear only to a digital first business with over 70% of our subs being digital, 62% of our revenue coming from digital. And so we aren't as pushed on the linear side, especially because we don't have advertising. But again, we're out looking at every part of the business and making sure that as One part of our business is shrinking. We're putting resources and efforts against places that are growing.
Thomas Yeh
Thanks so much.
Jimmy
Thanks, Thomas. Operator, can we get the next question, please?
Operator
The next question is from Jim Gross at Barrington Research.
Jim Gross
Thanks. As you've been rebuilding this theatrical business, I was wondering if you could talk about the value of that may have been created with windows of various types and how it might vary by size of film. And you might also comment on the sequencing of windows from theatrical to other downstream windows and how that might vary by size of movie.
John Wick
Sure. I think that the, I think that the most obvious opportunity for us has been in the intentional growth on the streaming and multi-platform side of our businesses where it's had the most current impact. We've been growing in that business both in terms of the kinds of movies that we're making directly for streamers as well as those that we're either making or acquiring. We ended up picking up three movies in Toronto. Two of those would be multi-platform. And of the let's say 30 films that will release through that side of the business, there might be eight to 10 different release strategies across those 30 movies with different windowing, some going to shorter window PVOD, some day and date theatrical releases. We did that with this movie Fall recently. And similarly, We have an opportunity with our partners here at Starz, as you know, that our theatrical slate is now rolling into Starz to drive value there. And we are able to have conversations with them regularly about different windowing on movies as we see opportunities in the marketplace. And so on the direct, too, it's been a real growth engine for us. On the theatrical side, depending on the size of the movies, I think you'll see Our big brands stick to slightly more traditional. I don't know that we're going to be having full old-fashioned pay windows. We may accelerate those a bit, but they'll be exclusive theatrical releases. And as we get into some of those more targeted movies, you may see us move up to slightly shorter windows into Pivot and the like. So it's just created optionality for us. It's helped us stand up a whole additional leg of the business. and continues to evolve.
John
I would add one more thing, really, to make it simple. The windows are shorter, the prices are higher, many of the windows are split, and at the end of the day, when you add all of that up, the downstream revenue from a theatrical movie is significantly higher than it was before.
Jim Gross
Okay, and sort of one related thing, Knives Out, which is now being brought for a very limited release by Netflix. Are you watching that with interest to see whether that might offer another opportunity in ones you hadn't even considered a window to?
John
Well, I mean, you know, Netflix controls Knives Out 2 and 3, and obviously we wish them luck with it. And obviously, again, talking about the downstream revenue, I promise you, all the PR that they're putting into this and the next one is going to make our Knives Out one significantly more valuable.
Jim Gross
I meant similar movies that you might have where you wouldn't have really considered a – you might have gone direct to video type or direct-to-streaming. like you now reconsider that?
John
Yeah, great. That's a great question. If I understand it, you're saying if we created a hit movie franchise, but the money was good enough, would we consider doing the next one, you know, one after that with a streamer? And I say we're pretty agnostic to how we make money. We just want to make money. But I would also say part of that making money is keeping a franchise that alive and important if you see what's happening right now with John Wick. I think really we've done, Joe's team, they've done an amazing job, you know, not only keeping it alive, but actually making each movie more and more valuable so that now we have the spinoff television show and we're talking about a AAA video game and a spinoff ballerina and which is really exciting. And so, you know, you could give up by taking the short money. Frankly, you can give up the much larger long money. And so those are decisions we make every single day, like Rich's comment about where you spend your capital. I mean, you've got to think about short-term profits because you have to cover your overhead. You've got to most importantly think about long-term value creation for your shareholders.
Jim Gross
Okay. Thanks very much.
Jimmy
Thanks, Jim. Operator, can we get the next question, please?
Operator
Certainly. The next question is from Brett Felsman at Goldman Sachs.
Brett Felsman
Thanks for taking the question. So I'm curious, you know, to the extent there is a spin, you're able to complete the proposed transactions. What level of long-term commitment might there be between SARS and the studio? And the reason I ask the question is I'm looking at the AK and I'm looking at your fiscal 2014. And it looks like you're expecting that in fiscal 24, the studio business is going to see OIDA grow year on year by nearly $100 million at the midpoint of the range. But you're also highlighting that you would expect eliminations that year at a corporate level to increase by about $40 million. Maybe I'm reading it wrong, but that would imply that you're expecting about 40% of the growth in the studio business's OIDA to come from increased business growth. with stars and I'm wondering if that's indicative of the level of business that you would expect between those businesses on a go forward basis once they're separated and if there'd be any commitment to that or if there's something unique about fiscal 24. Thank you.
John
Yeah, I think that's a great question. I think we've said a number of times that regardless of the separation, we've built a business between Kevin and Joe and Jeff that is incredibly efficient. Communication happens every single day. And I think we know at the studio side what Starz is looking for in terms of series. And, again, I expect there to be, after the separation, significant crossover in terms of production, development and production, as well as distribution opportunities. Starz doesn't have a built-in global distribution business. They're expensive to run. And I think that you will probably see... you know, a synergistic relationship there. But, you know, hard to look forward and, you know, sort of extrapolate that exact percentage of business. I would doubt that there will be any sort of specific requirement like that, but I can promise you there will be numerous things we do to create that synergy officially and unofficially that relationship is pristine. Does that answer your question? Yeah, thank you.
Jimmy
You're welcome. Thanks, Brett. Operator, I think we have time for up to maybe two more questions. Okay.
Operator
The next question is from Matthew Harrigan at Benchmark.
Matthew Harrigan
Oh, I'm sorry. I thought I took myself out of the queue. I was going to ask about John Wick. He pretty much answered it, so I'll give you guys your respite since it's been a long call. Thanks.
Jimmy
Okay. Thank you. Thanks, Operator. Could we get the last question then, please?
Operator
Certainly. We have Matt Thornton at True Securities. Matt, please go ahead.
Matt Thornton
Can you guys hear me okay?
Jimmy
Yeah.
Matt Thornton
All right, perfect. Real quick one, maybe one for Jeff. Would you guys consider any price increases at stars, whether that's 50 cents or a buck? Obviously, we've seen a lot going on on the pricing curves across other streaming services. I'm curious how you're thinking about that. And then just one maybe clarification. I think you noted a John Wick video game. Is that something new that's in the pipeline, or were you referring to prior IP? Thanks again, guys.
Jeff
Hey, it's Jeff. We continue to look at doing pricing studies all over the business and Not only the U.S., but every territory we've been in. We actually have just completed a pricing increase in the U.K. in the last six months that we think went very well. And we saw a great ARPU increase and not a lot of spike in churn on the back end. I think right now, at least domestically, you know, we've gone from 6 to 11 originals. We've got a pay one with Lionsgate. We've got a pay two coming on with Universal and a bunch of libraries at $8.99. And if we take a step back and think about our strategy of being complementary to all of the other partners, we always want to be priced below those big broad-based services that we're seeing. And so, you know, that coupled with the state of the economy right now, we think it's best to kind of hold serve for our audience and our core demos with the content portfolio and the price part we're at right now. But it is something that we consistently look at.
John
And in terms of John Wick AAA, I don't want to get ahead of myself here, but I would say we believe that there is a a big AAA game to be made out of John Wick. We have been fielding proposals. You know, we certainly are interested in moving that forward, but I don't want to say any more about that at this time.
Jimmy
Thanks, everyone. Please refer to the Press Releases and Events tab under the Investor Relations section of the company's website for a discussion of certain non-GAAP forward-looking measures discussed on this call. Thank you, everyone, and our apologies again for the technical issues. Thank you.
Operator
conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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