Lions Gate Entertainment Q3 2024 Earnings Call Transcript

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Provided by Quartr
February 8, 2024

There are 16 speakers on the call.

Operator

Good afternoon, everyone, and welcome to the Lionsgate Third Quarter 20 24 Earnings Conference Call. Also note that today's event is being recorded. At this time, I'd like to turn the floor over to Nilesh Shah, Investor Relations. Please go ahead.

Speaker 1

Good afternoon. Thank you for joining us for the Lions Gate fiscal 2024 Third Quarter Conference Call. We'll begin with opening remarks from our CEO, John Feldheimer followed by remarks our CFO, Jimmy Barge. After their remarks, we'll open the call up for questions. Also joining us on the call today are Vice Chairman, Michael Burns COO, Brian Goldsmith Chairman of the TV Group, Kevin Beggs Chairman of the Motion Picture Group, Joe Drake as well as Incoming Motion Picture Group Chairman, Adam Fogelson and President of Worldwide TV and Digital Distribution, Jim Packer.

Speaker 1

And from Starz, we have President and CEO, Geoffrey Hirsch CFO, Scott McDonald and President of Domestic Networks, Alison Hoffman. The matters discussed on this call include the proposed business combination of our Motion Picture Group and television studio segments and our film and television library with Screaming Eagle Acquisition Corp to launch Lionsgate Studios. We urge you to read the relevant materials that we and Screaming Eagle have filed with the SEC, including in our Form 8 ks filed on December 22, 2023, and a registration statement on Form S-four filed with the SEC on January 5, 2024. The information in the prospectus A proxy statement is not complete and may be changed. You can find these materials and other documents filed with the SEC free of charge at the SEC's website, www.sec.gov or on our Investor Relations website.

Speaker 1

Matters discussed on this call also include forward looking statements, including those regarding the performance of future fiscal years. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described and 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 ks as amended in our most recent quarterly report on Form 10 Q filed and in the S-four 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.

Speaker 1

Moreover, Lionsgate, its subsidiary LG Orion Holdings, Our directors, executive officers and certain other employees and other persons may be deemed to be participants in the solicitation of proxies from shareholders of Screaming Eagle in favor of the proposed business combination under SEC rules. Information about participants and their direct and indirect interests are included in the prospectus or proxy statement and the other relevant documents filed with the SEC as available. No offer to sale or solicitation of an offer to buy securities will be made except pursuant to an effective Form S-four or an exemption. I'll now turn the call over to John.

Speaker 2

Thank you, Nilay, and good afternoon, everyone. Thanks for joining us. We just reported another strong quarter, And the performance of our businesses in the quarter gives us confidence that we can continue to deliver the growth our investors expect while keeping our balance sheet strong. Turning to the quarter's highlights. We celebrated the holidays of the Lions Gateway, working through the end of the year to close 2 transactions and launch a third.

Speaker 2

We closed the acquisition of E1 from Hasbro, increased our equity investment in 3 Arts and took a significant step towards the separation of Lionsgate and Starz by announcing Lionsgate Studios as an independent publicly traded pure play content company. Our Motion Picture Group finished the year strong With over $1,000,000,000 at the worldwide box office for the first time since 2019, led by the reinvigoration of our Hunger Games franchise, We continue to develop and produce great in television properties with a half hour comedy, Extended Family, off to a good start on NBC, Production beginning on a Seth Rogen comedy for Apple TV plus in March and Spartacus preparing to start shooting in New Zealand for Starz. This makes 10 films and television series entering or resuming production in the quarter. Starz had another strong quarter, gaining 700,000 North American OTT subscribers and more than 340,000 overall net North American This subscriber growth, coupled with Star's recent rate increase, drove revenue and ARPU growth as well. All of these gains rolled up into a strong financial quarter with our key financial metrics exceeding estimates.

Speaker 2

With the fiscal year tracking in line with our guidance, we're looking at consolidated adjusted OIBDA growth of 20% year over year With our operations fully funded from our own balance sheet as we continue to throw off positive free cash flow and reduce our year over year leverage by nearly 3 quarters Against the backdrop of an uncertain economy, geopolitical turmoil, The aftermath of 2 strikes and continued industry disruption, we continue to navigate the headwinds in our environment by leaning into the diversification of our businesses and the resilience of our culture to move the company forward. Now let's recap each of our 3 business segments in the quarter. Our Motion Picture Group had a great quarter on the strength of The Hunger Games, The Ballad of Songbird and Snakes, which grossed nearly $350,000,000 worldwide. The lift it gave to the library performance of previous Hunger Games titles, strong ancillary market performances from John Wick Chapter 4 and Saw 10 and a robust contribution from multiplatform titles. Our Motion Picture business is tracking towards its best fiscal year segment profit performance Looking ahead, with fewer wide theatrical releases industry wide due to the strike, We see an opportunity to grow our share of the market with a slate of 12 wide theatrical releases and approximately 40 multiplatform and direct to streaming in fiscal 2025.

Speaker 2

It's a diversified slate with strength across a broad spectrum of films built on efficient production, strong international licensing presales and cost effective marketing. It demonstrates our confidence that moviegoers will continue to return to theaters for quality, commercial films while also showing the continued growth of the day and date early PVOD, hybrid and other multiplatform spaces that have become an important part of our business. We were also busy in the quarter deepening our portfolio of franchises With the signing of John Wick filmmaker, Chad Stahelski, to direct and create a Highlander franchise. Wrapping principal photography on the John Wick action spin off Ballerina and starting production on Michael, the definitive story of Michael Jackson produced by Oscar winning producer Graham King And directed by Antoine Fuqua, The Training Day and Equalizer Filmmaker. I visited the set of Michael here in Los Angeles last week and came away more convinced than ever that it will be an exciting and important tentpole on our fiscal 'twenty six slate and a very special property.

Speaker 2

Turning to television. The acquisition of E1 continued to diversify our business. We integrated more than 6,000 new titles into and added series like the Evergreen franchise, The Rookie, Yellowjackets, The Recruit and A Gentleman in Moscow to our slate. The acquisition of E1 has also allowed us to restructure our unscripted business into Lionsgate Alternative Television, combining 5 Lionsgate and E1 labels to increase our scale, enhance our efficiency and lower our costs. Our increased equity investment in 3 Arts expands a partnership that has become a pillar of our talent strategy and an important source of series Like Mythic Quest, The Serpent Queen and the sexy new thriller, The Hunting Wives, starring Billions' Malin Ackerman, which will soon enter production for Starz.

Speaker 2

With the strikes over, we expect a strong growth year from 3 Arts. I want to reflect for a moment on the growth of the television business we've built. 10 years ago, nearly all of our television profits came from our core premium scripted business. Today, our contributions are spread across scripted, unscripted, talent management, syndication and international productions, Enabling us to navigate downturns in any one part of the business and one of the reasons we're continuing to track towards record Television Group segment profit this year despite the strike and several series cancellations. Looking at Starz, its transition to streaming continues With 70% of its revenue expected to be digital by the end of fiscal 2025, its domestic OTT subscriber growth accelerating with a corresponding increase in revenue.

Speaker 2

Its core series performing strongly as part of a content offering supercharged But the addition of Pay 1 and Pay 2 movies and its resources concentrated exclusively on domestic growth as it continues to operate as a valuable and consistently profitable premium service in a highly disrupted world. To drill down on the quarter, the balanced slate of originals and movies from Starz Pay 1 and Pay 2 deals combined to drive its best domestic OTT subscriber growth in 3 quarters. As demand for movies on SVOD services continues to grow, with a recent consumer survey citing movies As the most valuable part of the streaming experience by a wide margin, Starz has capitalized on the opportunity to return to its roots by ramping up its slate of quality, world class features from 13 in fiscal 'twenty three to more than 35 in fiscal 'twenty five. In the coming months, Starz will offer a compelling mix of tentpole originals like BMF, Ghost and Raising Kanan, newly acquired series like the psychodrama Mary and George starring Julianne Moore And 3 Women starring Shailene Woodley, along with movies like Lions Gate's Saw 10 and Hunger Games' Ballad of Songbird and Snakes, as well as Universal's Oppenheimer, Fast 10 and Megan.

Speaker 2

Even as Star's core series continue to sell and it's readying great new properties with the reimagining of one of its biggest original hits, House of Usher and The Hunting Wives, While continuing to expand the worlds of Power and Outlander. The Outlander prequel Blood of My Blood is currently in production. On the distribution front, with a distinctively premium content offering focused on 2 valuable core demos, STARZ continues to become a distribution partner of choice, leaning into its partnerships with digital wholesalers, Amazon, Verizon, Hulu and many others. Its ability to be part of every package and sit on top of any platform positions Starz to bundle with more aggregators and stand up new partnerships with broad based streamers in the future. One of the hallmarks of Lionsgate's growth Over the past 25 years has been our ability to acquire and integrate companies with great libraries and other complementary assets.

Speaker 2

As we continue to integrate E1, we really like what we see, significant incremental value for our library, an opportunity to grow and diversify our scripted and unscripted television businesses significant G and A and revenue synergies an ongoing best of the best integration of our respective workforces. In closing, We're continuing to execute our plan to launch Lionsgate Studios as one of the world's largest independent publicly traded pure play content companies. I'm pleased to report that we expect to be launching on NASDAQ under the ticker symbol LION in the spring. Our investor roadshow is giving us the opportunity to tell our story to a broader audience, and we believe that investors are gaining a better understanding of the breadth and the depth of the portfolio of assets that we've assembled, The strategy driving its growth and our commitment to a full separation of Lionsgate and Starz that will help unlock the value that we've created. Now I'll turn things over to Jimmy.

Speaker 3

Thanks, John, and good afternoon, everyone. I'll briefly discuss our 3rd quarter financial results and provide an update on the balance sheet. Q3 adjusted OIBDA was $151,000,000 and total revenue was 9.70 $5,000,000 Consolidated revenue and adjusted OIBDA were down year over year due primarily to difficult comparisons at television, While both Motion Picture and Media Networks showed year over year revenue and segment profit growth. Reported fully diluted earnings per share was a loss of $0.45 per share and fully diluted adjusted earnings per share was a positive $0.27 per share. Adjusted free cash flow for the quarter was $64,000,000 We are reiterating our fiscal 2024 outlook for each of our business segments as well as our consolidated adjusted OIBDA target of $400,000,000 to $450,000,000 which at the midpoint reflects nearly 19% year over year growth.

Speaker 3

As noted before, our adjusted OIBDA target for fiscal year 4, excludes the net benefit from exited or exiting Starz International territories and also excludes the benefit from E-one, which was acquired at the end of December. We are also reiterating The fiscal year 'twenty five adjusted OIBDA outlook for the studio business that we announced as part of the Lionsgate Studios transaction. Specifically, we continue to forecast fiscal year 'twenty five adjusted OIBDA for Landscape Studios, which we define as the studio segment profit less all corporate G and A to be $370,000,000 This moves up to $430,000,000 of pro form a adjusted OIBDA inclusive of the projected $60,000,000 to post synergies run rate adjusted OIBDA from E1. Now let me briefly discuss the fiscal third quarter performances of our Studio and Media Networks businesses as well as the underlying segments compared to the previous year quarter. Media Networks quarterly revenue was $417,000,000 and segment profit was $86,000,000 Total revenue was up 10% as continued growth of domestic OTT and international OTT revenue More than offset domestic linear revenue pressure.

Speaker 3

Given the exit of nearly all Starz international markets, I want to focus primarily on domestic financial performance. Total domestic revenue grew modestly both year over year and sequentially As the impact of the June 2023 price increase continues to help Starz top line. Domestic segment profit was up 7.6% year over year, driven by revenue growth as well as lower content amortization, partially offset by higher distribution and marketing cost and G and A. Similar to Q2, As part of STAAR's exit from Latin America, International segment results for the quarter benefited from the accelerated revenue we recognized related to minimum guarantees from our bundling partner in LatAm. Finally, with Starz U.

Speaker 3

K. Exit expected to be completed in the coming months, STARZ will have a simplified streaming strategy in fiscal year 'twenty five that is focused on growing segment profit and expanding margins in the U. S. And Canada. Now let me discuss our subscriber trends in North America, which will be the market for Starz in fiscal year 'twenty five and beyond.

Speaker 3

We ended the quarter with 22,300,000 North American subscribers, which represented sequential net additions of 340,000. Focusing specifically on North American OTT subs, Starz ended the quarter with 13,400,000 subscribers, which represents sequential net additions of 700,000 10% year over year subscriber growth. OTT subscribers now represent 60% of the sub base And exiting fiscal year 'twenty five, we expect OTT revenue to be approaching 70%. Now I'd like to talk about our Studio business. Revenue of $692,000,000 decreased 23% year over year, while segment profit of $109,000,000 was down approximately 27%.

Speaker 3

On a trailing 12 month basis, library revenue of the studio was 784 down 7% compared to the prior year quarter's trailing 12 month library revenue. The year over year trailing 12 month library revenue decline was as the prior year's licensing of Schitt's Creek rolled out of the trailing 12 month metric in the December quarter. Excluding the impact of Schitt's Creek's relatively low margin revenue from the prior period, trailing 12 months library revenue was up year over year. In addition, library revenue for the quarter grew on a sequential basis. Breaking down the Motion Picture and Television Studio businesses, Let's start with motion picture.

Speaker 3

Motion picture revenue was up 53% year over year to $443,000,000 While segment profit of $100,000,000 was up 31% year over year. Revenue and segment profit growth was driven by strength in Hunger Games, Ballad of Songbirds and Snakes theatrical performance, library performance of prior Hunger Game titles and the carryover effect of prior quarter performances of John Wick 4 and SAW10. And finally, television revenue of $248,000,000 And segment profit of $8,000,000 expectedly declined on the difficult comparison given the strikes lingering impact on both the timing of scripted deliveries and revenues in our talent management businesses as well as The comparison to last year's licensing of Schitt's Creek. Now let's talk about our balance sheet. Excluding adjusted OIBDA from previously exited or soon to be exited Landscape Plus territories And including $60,000,000 of projected run rate adjusted OIBDA from E1, trailing 12 months pro form a leverage was 3.7 times.

Speaker 3

This includes a $375,000,000 use of our revolver to close E-one at quarter end. We continue to retain significant liquidity with $283,000,000 of unrestricted cash on hand and $875,000,000,000 of remaining undrawn revolver at quarter end. Looking forward, I want to remind everyone that we purchased an incremental 25 percent of 3 Arts for approximately $200,000,000 in cash in January, And we expect to close our equity raise in the spring. Finally, as we prepare for separation And look out to the next fiscal year. Implied stand alone leverage for both Landscape Studios and Starz is trending below 3.5x fiscal year 'twenty five adjusted webinar.

Speaker 3

For the studio, As previously outlined on the January 4 investor call, including the $350,000,000 of gross proceeds From the Lionsgate Studios transaction, we project the studio will exit fiscal 2024 with net debt of approximately $1,400,000,000 including standalone studio adjusted OIBDA of $370,000,000 in fiscal year 'twenty five and $60,000,000 of annual run rate adjusted OIBDA for E1, this implies fiscal 'twenty five pro form a leverage of 3.3 times for the standalone studio. For Starz, with our previously outlined net debt exiting fiscal 'twenty four of $700,000,000 This implies fiscal year 'twenty five leverage under 3.5 times, assuming Starz continues to generate in excess of $200,000,000 of adjusted OIBDA in North America. Now I'd like to turn the call over to Nilay for Q and A.

Operator

Jimmy, operator, can we open the call up for Q and A? Ladies and gentlemen, at this time, we'll begin the question and Our first question today comes from Barton Crockett from Rosenblatt. Please go ahead with your question.

Speaker 4

Okay. Thanks for taking the question. I wanted to maybe try and understand a little bit better what you're envisioning when you talk about the studio separation happening here in a few months and trading under the ticker Lion. Are you anticipating At that point that there'd be a separate public Starz or is the thought that Starz might be bought by someone or is that unclear Part 2 is, with the Studio Lion, would there still also at that time be a separate kind of SPAC vehicle trading with a stub interest or is the thought that those could be consolidated at that point? So, yes, if you could clarify that, I'd appreciate it.

Speaker 5

Michael can answer that.

Speaker 6

Sure. Hi Barton. What I'll say is that assume for a second 13% to 15% is in the public under the symbol LION, LION and the other 85%, 87% is retained at, call it, RemainCo, which will own 100% of Starz and 87%, 85% of the studio. So there'll be 2 public companies until, as we've said before, until the end of 'twenty four when we're anticipating the full separation.

Speaker 4

Okay. So thanks for clarifying on that. And then just switching gears a little bit in terms of The strike impacts on the TV production, is that something it sounds like from your guide, you see this is a pretty short kind of Down drafts here that we just saw in the quarter. Is that correct? I mean, do you think that the strike impacts are basically behind us next quarter or How quickly before that's kind of in the rearview mirror?

Speaker 7

Yes. Thanks, Barton. Yes, as noted and we

Speaker 8

said on the last call, We pegged what we thought the strike impact was around $30,000,000 in fiscal 2024. So that cycle through this quarter. You see the impact of that, right. It affected episodic deliveries as we noted as well as our talent management business, but we're Bouncing back strong in our Q4, we have a really good full fiscal year 'twenty four and even better year in fiscal 'twenty five.

Speaker 9

Just to build on that, it's Kevin speaking. Yes, we're bouncing back, particularly on the broadcast shows Ghost, Extended Family, The Rookie, which is part of the E1 transaction. All of those are swinging back into production in an abbreviated season. And as they move into their next seasons, they'll go to a full cadence of annual production, which will be great. A lot of shows are renewing.

Speaker 9

Certainly, there have been victims of the strike. We have a full complement of Levers to kind of adjust to the new dynamics of the post strike world. It's a lot about our great IP when you think about the John Wick universe and the Continental, E1 acquisition, which we've talked about, really strong for scripted and providing a nice new platform for our unscripted business, producing at every level. E1 business in Canada, which we're super excited about, our international productions in the Apex Group and also just high end IP premium elements, we think about our 3 Arts relationship, the best production management company in the world. And our new series with Seth Rogen and Evan Goldberg at Apple, the studio show, those are the kinds of things that are kind of striking even a correction environment resistant.

Speaker 10

Yes. How I would characterize

Speaker 5

it going forward, Martin, is

Speaker 10

a strong Q4 for television, finishing 24

Speaker 5

off with a really good year And moving into 'twenty five, we'll be having a great year in television.

Speaker 4

Okay. That's great. Thank you.

Operator

Our next question comes from Steven Cahill from Wells Fargo. Please go ahead with your question.

Speaker 11

Thank you. So first on the library revenue, Is the number you gave pro form a for any trailing 12 month contribution from E1 or should we think about E1's library that you're stepping into as additional to that. I'm curious if there's any way to think about your library in terms of splitting it between the motion picture contribution And the television contribution. And then Jimmy, thanks for confirming a lot of that information, pro form a for the spin. Just to ask a couple more around that.

Speaker 11

Does that debt level that you expect to be at for Studio or Starz include The necessary corporate tax payments, because I think this is not a tax free spin. And then the last deck had minority interests about $175,000,000 But I'm curious if that's going to be lower now that you've bought in more of 3 yards? Thank you.

Speaker 8

First, I'll take the last one first, minority interest. I think fairly similar, we'll true that minority interest up as we get into the ultimate separation which will be this spring. With regards to the spin, This transaction is not going to drive any significant cash outlay whatsoever. It will be a tax free spin with regards to our U. S.

Speaker 8

Shareholders and no real corporate tax impediments there. So it's all in. And in terms of the library trailing 12 months, That's not pro form a, that's a historical trailing 12 months. We rotated out of Schitt's Creek as I noted and we've had 2 quarters will increase and we expect further increases as we layer any one, but that'll be prospective.

Speaker 12

Great. Thank you.

Operator

Our next question comes from David Joyce from Seaport Research Partners. Please go ahead with your question.

Speaker 13

Thank you. I was wondering if you could update us with the landscape of the TV product sales, like how quickly you're ramping up to capacity? Where do you at what point do you think the industry gets to capacity? Are you seeing any new buyer trends given some of the studios and streamers are trying to achieve profitability since? That would be a first question, please.

Speaker 9

Sure. It's Kevin speaking. Just in the larger environment, obviously, they're right now, They're ordering fewer shows and there's a lot of focus on the budget levels of those shows and a little more financial discipline compared to The bake off streaming wars that we saw leading up into the COVID era, but there's still a big demand for shows. They need originals. Originals build subs, build awareness, drive advertising.

Speaker 9

But the bar is a little higher. They need them to be packaged. They need to be noisy. It really speaks to our strengths of putting together great packages and also delivering on various budget levels And shooting in tax friendly states, tax friendly countries or other approaches, which we pioneered, whether it's 1090 comedy model or other approaches, block shooting, just different strategies to try to accomplish what everyone needs, which is a premium show at a more reasonable price. So and you're seeing some things migrate from one network to another.

Speaker 9

Showtime is kind of backed off of original programming or at least A new suite of things that are not their internal titles, we had a big title there. It's going to move to another streamer. So selling begins with no and we've heard it a lot And we persevere and we find ways to get to yes.

Speaker 13

Thanks. And on the Starz Could you please remind me what your Payone window contracts are like in terms of any expirations and how you To keep those going forward, I know you did talk and John, you did talk about a few ways that NuStarz is But how what do you do to retain those relationships going forward?

Speaker 10

Hey, it's Jeff, thanks for the question. So we have paid home with Lionsgate that we've got a couple of years left on that. We don't actually go out and talk about the expiration dates, but we have movies with partnership with Lionsgate locked up for a long period of time. We're really excited about that partnership. So you can see on the service, all of the movies performed really well in the last two quarters, helping to drive the sub growth that you saw in the last two quarters.

Speaker 10

So we're excited about that. We're excited about Hunger Games coming on in the next quarter, quarter and a half. We also have a pay 2 with Universal that again that's locked up for a long period of time. So as John said in his prepared remarks, movies really help drive the business on both linear and streaming in a big way. So we have great titles from 2 big studios and a big pay one with Lions get locked up for a long period of time.

Speaker 12

Great. Thank you, Jeff.

Operator

Our next question comes from Alan Gould from Loop Capital. Please go ahead with your question. Alan, you may be on mute. Mr. Golden, is it possible your phone is on mute?

Speaker 11

Okay. Thanks. First question for Kevin. Kevin, now that you're separating, I was wondering what kind of reaction you're getting in the Is it opening up more opportunities for you to sell programming? And a second question for Jimmy.

Speaker 11

Once we're post the strike era, how much do you see spending or investment in content? Are we going to go back to the pre strike era of, say, fiscal 'twenty three? And I guess the third question, should we be worried about an IACI strike?

Speaker 9

Hey, it's Kevin. I'll start with the first part. And thank you for the good question. No, there's really no change. So just to remind everyone, the way That John and Michael set up the relationship with Starz that Jeff and I interact with every day was what I would call an enhanced arm's length arrangement.

Speaker 9

They are a buyer amongst many and we are a supplier that I think knows their needs maybe more than others based on all our communication and we've tailored much of our deals and other things to try to make them the first stop, but it's always been an open market and a free market both ways. So there was never a perception that somehow The best product wasn't available to the wider market. So that's not changing. The second thing I would say is that we have a huge amount of a big book of business together, the Powerverse, the The MF Universe, Surfing Queen, Hunting Wives, multiple shows, we're all super excited about the sequel to Spartacus. We're going to be in business together for years to come, if not decades, relative to the book of business we have right now.

Speaker 9

And every day, I'm trying to pitch Jeff Something new. He's sick of taking my calls because we always have something else to pitch. So that's not changing.

Speaker 8

And Alan with regards to Your question about content spend, yes, I would expect that to ramp up. I mean, there's some inflation obviously over the years, but I look back to like fiscal 2022 For a good level, remember too, we're on boarding E1 and integrating that in our business, very excited about it. So there'll be some content stand to support those that great IP as well.

Speaker 10

And on your last question,

Speaker 5

I'm the CEO of a public company. I worry about everything every day. I do think that nobody really wins in a strike, honestly. And we're hoping That this strike won't happen, the IA strike won't happen because we've got to keep growing this Business and innovating and everyone deserves a fair shake and we think everybody who works below the line deserves a fair shake. So I'm crossing my fingers and hopeful that there won't be.

Operator

Our next question comes from Paul Messier from Morgan Stanley. Please go ahead with your question.

Speaker 14

Thanks. Back on the Starz business, now that you've digested the 1st digital price increase you're seeing a return back to growth. Can you maybe just talk a little bit about your philosophy on what you see as maybe the primary revenue growth drivers going forward? Is the volume opportunity still about managing churn? I feel like Jeff has mentioned that in the past.

Speaker 14

And should we maybe expect rate increases become a little bit more

Speaker 6

of a normal course driver of the business as well?

Speaker 10

Yes. Hey, it's Jeff. I think there's really 3 components to drive the top line of the business. Obviously, one is rate increase. Our strategy and thought has always been with our 2 very valuable and profitable core demos, we're always looking to be the complementary service to these broad based streaming services that are out there so that we ultimately can be either the cherry on top in terms of the add on or a bundle.

Speaker 10

So it's important to keep a price gap of size between the 2. So the consumer understands that we are complementary. And so we'll always look at the broad based set, see what they're doing on price to see if that gives us room to continue to drive price in an opportunistic way. But I think the second piece obviously is growth as you saw in the last quarter, we had very strong subscriber growth that was driven by a couple of things. 1, obviously, churn mitigation Based on the way that we've lined up the content that we've talked about in the past, as well as continuing to have big movies going on week to week around that.

Speaker 10

But we also had access to some new distribution platforms that we haven't had before and we saw significant subscriber growth with access those in the first time and then some holiday promotion. So I think those are the 2 really two key drivers there. And then it's obviously lifetime value And really driving churn down and keeping consumers on the platform longer. And then those three things you saw added up to great ARPU and Acceleration of revenue growth quarter to quarter.

Speaker 14

Got it. And Jimmy mentioned the goal of expanding margins domestically At Starz, I wanted to ask a little bit about the cost structure. It looks like it's held pretty steady through the last year, even quarter to quarter. I know you took some pain last year when you were aligning your organization towards some of the growth areas of the business. But any way to think about how we should think about when and where we might see some of the opportunities for the leverage to show through and with the film output deals maybe be an incremental additive cost to the original programming lineup?

Speaker 14

Thanks.

Speaker 10

It's a great question. So we currently we're coming out the last couple of quarters around mid teens in terms of margin. We've talked previously about long term steady state around 20% margin. And really, as you said, there's a little bit of top line growth there with rate increase in growth, but it's also managing costs on the bottom on the backside. And part of that is really looking at the slate of programming both The Pay 1, the Pay 2 and Originals, there's a lot of other companies that are cutting back.

Speaker 10

We're actually looking at trying to lessen the tenure of our slate that we have newer shows put on the service that are at a cheaper cost than we currently have today. Working very closely with Kevin around trying to develop More spin offs around the power universe that are newer in tenure, which brings the cost of the programming down. And so we're going to be really it's a little bit like going into the NFL draft you're looking to bring in a rookie linebacker on a rookie deal versus having somebody who's a veteran on a minimum that is a good athlete. And so we're working with Kevin to to turn the slate over so that we can serve the 2 core demos with the components of shows that we know work for those demos, but on a much fresher type story and a different kind of cost perspective.

Operator

Thanks, Thomas. Operator, could we get the next question, please? Our next question comes from Jim Goss from Barrington Research. Please go ahead with your question.

Speaker 12

Hi. Just to stay on the Starz topic for a little bit more. With the increased streaming share And the increased focus on movies, including the types of movies you've talked about, and the notion of partnerships, Are you looking at a broadened appeal beyond the core demo you focused on in the past several years? And Could you talk a little more about the partnerships in terms of how formal they might be? Or are they basically just implied as a complementary option for a larger service?

Speaker 12

And how are they being promoted?

Speaker 10

So I'll start with the second part first and go back to the first part. So if you look within the quarter, we had Verizon announced a bundle with Starz In Netflix, it's a formalized partnership. It's really we've seen great incremental lift on subscriber add on that partnership on Verizon. We are in a bundle with MGM Plus on Amazon. We are in conversations with multiple different broad based streamers about bundling as well.

Speaker 10

And even our linear partners as Charter and Comcast moved to Xumo, which gives them the ability to kind of bundle some more services through a digital we're looking at talking to them about bundling there. And so these are both formalized partnerships that are actually generating great volume And in conversations to come, I think we've really because of the uniqueness and the value of our 2 core demos that have been hard to replicate in our price point. It makes it really a great complementary service. And as you've seen in a lot of the different reports, the more services you put together, Everybody's churn comes down and so I think you're starting to see a big move toward that in a way this year and next year that we haven't seen before. So we're excited about that.

Speaker 10

In terms of your question around movies, we have multiple different distribution platforms, whether it's on the linear side, AVOD supported services, but linear AVOD, we've sitting on top of Amazon AVOD. And so We have consumers that go to look at these services that are broader than just our 2 core demos. And so the combination of broader big title movies with our 2 core demos on originals expands our ability to grow TAM against all of our different distribution partners. And so we look we like the movies as kind of a third leg to the pole to try to drive incremental TAM outside of the 2 core demos.

Speaker 12

Okay, thanks. One other one, in terms of the reference to maybe a lighter film slate this year in general and ability to gain share, Are there any genres you're able to target that you have your eye on? And I know you've talked about a couple In some recent calls. And is there some redefinition of what a blockbuster is in terms of the cost and value, maybe with the change Cost Notions?

Speaker 7

Adam? Hey, it's Adam. Thanks for the question. In terms of genres, the truth is if you look over the last 5, 6 months, a bunch of films that fit into a variety of categories in the low and mid budget space have performed exceptionally well, in fact, Probably better than we've seen in the last 4 or 5 years from our own soft film to 5 Nights at Freddy's, horror continues to be terrific. Anyone but you in the romantic comedy space, which is a genre that people were concerned about performed exceptionally well.

Speaker 7

Beekeeper is doing spectacular business in January. Mean Girls is doing spectacular business in January. So I think that all of the genres that Lionsgate has historically performed in are not only doing well, but probably better than they have in many, many years. With respect to blockbusters, I think It's less for us about what the specific cost of the movie is and more about what the profitability of a movie can be. And we made both John Wick and Hunger Games at prices that are considerably less than what the industry sort of standard definition of a blockbuster might be.

Speaker 7

We marketed them for considerably less than what the industry standard would be. And ultimately, the return and the profitability on those films, That for us is a blockbuster all day long, and we have a lot of great opportunities going forward with the John Wick franchise, with the SAW franchise, we believe with the Hunger Games franchise with a bunch of new IP that Joe and everybody here have developed over the last few years and are now lined up to start creating real value for the company.

Speaker 12

Okay. Maybe one follow-up to that, and I'll let it go. You mentioned that the Hunger Games prequel drove library sale. I assume that's somewhat unique situation or maybe it's not. And I wonder if you might give any quantification of that Or also talk about whether there are any intellectual property plans you might have for that intellectual property either on film or TV?

Speaker 5

I'll have Jim Packard, Head of Worldwide Distribution answer that.

Speaker 15

So yes, we see drafting opportunities whenever these big franchises come out. The transactional team under Ron Schwartz has done a great job with I think we were up 8 times versus the previous quarter and almost 17 times the year ago quarter. So we see very big drafting on the transactional side, but we also You may have seen the movies on a number of different SVOD platforms. A lot of that was driven by the interest in the new movie. So we take advantage of that.

Speaker 15

We make sure that we maximize it and it's good for the whole ecosystem of the brand.

Speaker 12

All right. Thank you very much.

Operator

And everyone at this time, I'm showing no additional questions. I'd like to turn the floor back over to management for any closing remarks. 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 today. You.

Operator

Have a good evening. And ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.

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Earnings Conference Call
Lions Gate Entertainment Q3 2024
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