U.S. Markets open in 1 hr 18 mins

Edited Transcript of LGF earnings conference call or presentation 8-Aug-19 9:00pm GMT

Q1 2020 Lions Gate Entertainment Corp Earnings Call

SANTA MONICA Sep 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Lions Gate Entertainment Corp earnings conference call or presentation Thursday, August 8, 2019 at 9:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* James Milton Marsh

Lions Gate Entertainment Corp. - Senior VP & Head of IR

* James W. Barge

Lions Gate Entertainment Corp. - CFO

* Jeffrey A. Hirsch

Starz - COO

* Jon Feltheimer

Lions Gate Entertainment Corp. - CEO & Director

* Joseph Drake

Lions Gate Entertainment Corp. - Chairman of Motion Picture Group

* Kevin Beggs

Lions Gate Entertainment Corp. - Chairman of Lionsgate Television Group

* Michael R. Burns

Lions Gate Entertainment Corp. - Executive Vice Chairman

* Superna Kalle

Starz - EVP of International Digital Networks

================================================================================

Conference Call Participants

================================================================================

* Alan Steven Gould

Loop Capital Markets LLC, Research Division - MD

* Alexia Skouras Quadrani

JP Morgan Chase & Co, Research Division - MD and Senior Analyst

* Andrew M. Borst

Goldman Sachs Group Inc., Research Division - VP

* Benjamin Daniel Swinburne

Morgan Stanley, Research Division - MD

* David Carl Joyce

Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst

* Douglas Lippl Creutz

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* James Charles Goss

Barrington Research Associates, Inc., Research Division - MD

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by and welcome to the Lionsgate 2020 First Quarter Earnings Call. (Operator Instructions) And as a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Mr. James Marsh, Head of Investor Relations. Please go ahead, sir.

--------------------------------------------------------------------------------

James Milton Marsh, Lions Gate Entertainment Corp. - Senior VP & Head of IR [2]

--------------------------------------------------------------------------------

Good afternoon. Thank you for joining us for the Lionsgate Fiscal '20 First Quarter Conference Call.

We'll begin with opening remarks from our CEO, Jon 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 Starz, we have COO, Jeff Hirsch; CFO, Scott Macdonald; and EVP of International, Superna Kalle.

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 and 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 turn over the call to Jon now. Jon?

--------------------------------------------------------------------------------

Jon Feltheimer, Lions Gate Entertainment Corp. - CEO & Director [3]

--------------------------------------------------------------------------------

Thank you, James, and thank you all for joining us this afternoon. We just reported strong Q1 financial results to get the fiscal year off to a great start. I'll begin with a few headlines from a very active and productive quarter, preview the rest of the fiscal year and close with a few thoughts about what we've been doing to create significant, additive and lasting value across our company.

Let's start with the headlines. Starz domestic over-the-top subscribers grew to 4.4 million in the quarter, one of our best over-the-top quarters ever and have continued to grow as we head into the launch of Power in 3 weeks.

STARZPLAY International launched in 26 additional countries during the quarter and is now live in a total of 45 countries, ahead of schedule and building on our early-mover advantage. We announced 3 new STARZ Original Series at TCA with several more being ready for production as we continue to widen our creative aperture.

Lionsgate Television has launched or is readying for launch new series on Apple, ABC, Starz, HBO Max, Turner, OWN and Pop, demonstrating our ability to tailor our content and create different business models for every kind of platform.

John Wick: Chapter 3 passed $320 million at the worldwide box office. And we continue to expand the John Wick universe into a series of new films and a television show for Starz.

And finally, our Lionsgate Entertainment World indoor theme park opened in China as we continue to build out a global network of location-based entertainment and live stage attractions.

Now let's drill down on each of our businesses. Beginning with Starz, we had a great quarter driven by the premieres of new series, growth of our domestic over-the-top business and the continued expansion of our international footprint.

On the domestic front, as consumer viewing continues to move to a subscription video-on-demand world, Starz is continuing to capture over-the-top market share, outpacing its peer group. With the debut of the expanded two-part sixth season of Power less than 3 weeks away, we expect this momentum to continue. With the continued growth of our higher ARPU streaming customers, it's noteworthy that 23% of Starz domestic revenue in the quarter came from over-the-top subscribers compared to just 14% a year ago, driving sequential and year-over-year Starz overall revenue growth.

Internationally, we're delivering on the plan that we laid out on our last call. With international subscription video-on-demand market penetration currently at only 5%, we saw enormous upside opportunity, capitalized on it quickly with strong content and great distribution partnerships and are rolling out ahead of schedule, potentially giving us a 2- to 3-year lead over most domestic competitors.

As mentioned, during the quarter, we launched in 26 additional countries to bring our live footprint to 45, and we expect to augment our existing distribution with more local platforms and the launch of our direct-to-consumer app which will debut in early fall. This positions STARZPLAY to be broadly available on key video platforms, including Android, iOS and others.

In terms of content, we start with an amazing portfolio of Starz original programming, Lionsgate films and television series and our 17,000-title library. In addition, our speed to market and broad global availability have positioned us as a preferred buyer for some of the world's most acclaimed scripted series, enabling us to enhance our slate with over 20 exclusive premium acquisitions. These include highly sought after hit shows such as Killing Eve on BBC America, The Act and Ramy on Hulu and the Batman prequel Pennyworth.

And our agility, content offering and attractive price point have made us the launch partner of choice for everyone, from global streaming platforms like Apple and Amazon, to top local distributors like Virgin, Bell Media, Vodafone and Orange, whether as a premium service sitting on top of general market television or as an add-on bundled with other services. I cannot overemphasize the value of our head start in lining up premier distributors, securing great content and building a tech platform that supports managed services and our retail app alike.

On the domestic programming front, we continue to lean into our strategy that emphasizes premium content for women. Starz recently ordered the timeless and provocative thriller Dangerous Liaisons, the third installment of The Girlfriend Experience and the first Power spin-off Power Book II: Ghost. And for those of you who missed the news coming out of TCA, I'm pleased to report that Ghost will feature superstar Mary J. Blige in a lead role in the next chapter of the franchise.

Power creator Courtney A. Kemp continues to deliver groundbreaking material as the driving force behind the expansion of the Power cinematic universe in addition to several other projects she's currently developing for Lionsgate Television. With these new series joining a lineup that already includes the supernatural spy thriller The Rook, fan-favorite Outlander, the critically acclaimed Vida and The Spanish Princess and other new series like P-Valley and Hightown, complemented by a fast-growing documentary slate, Starz is well positioned to continue building upon its leadership as the premium television destination for women, African-American, Latinx and LGBTQ audiences across our MVPD platforms and our own OTT service.

Turning to our Motion Picture business. We see plenty of room for our films at the theatrical box office, and we've continued to focus our content strategy on places that play to our strengths and where we know we can win: action, comedy, horror, faith-based and new and returning franchises. The outsized performance of John Wick: Chapter 3, which more than doubled the box office of the last installment, reaffirms our thesis that there's a place for mid-budget action movies properly executed in today's marketplace.

The rest of our slate reflects our focus on diverse but well-defined audiences that we know how to reach effectively. From Roland Emmerich's World War II action epic Midway and Rian Johnson's ensemble whodunit Knives Out, to the eagerly anticipated award season release of the Jay Roach-directed drama starring Nicole Kidman, Charlize Theron and Margot Robbie as well as next year's wildly inventive reimagining of Saw with Chris Rock and Samuel L. Jackson, our slate returns us to what we do best: bold, original and provocative films.

This quarter, we also integrated our location-based entertainment and games division more fully into our film group to facilitate the cross-pollination of ideas as we continue to expand our IP into new markets. As a matter of fact, Motion Picture Group Chairman Joe Drake just returned from the grand opening of Lionsgate Entertainment World in China, a first of its kind vertically designed theme park built around 6 different Lionsgate properties. It's the latest addition to a growing portfolio of properties that includes the Motiongate theme park in the Middle East, 2 branded attractions in Las Vegas, live-to-film concert tours built around The Hunger Games, Twilight and La La Land and 3 Broadway shows in development. With nearly 20 projects already operating or in the pipeline, we've built an annuity expected to return significant high-margin revenue to Lionsgate over the next 10 years.

Turning to Television. On our last call, we talked about decentralizing our infrastructure by partnering with top-tier producers, leveraging their talent, relationships and investing in their entrepreneurial success. I'm pleased to report that this pod strategy has been a resounding success. Lionsgate Television is coming off its best development year ever with over 65 projects set up at the networks as we continue to be able to utilize different, bespoke business models for every kind of platform. As many of these projects are moving towards production, a record development season is fast becoming one of our most promising television slates in years.

Earlier this week, ABC announced the major event limited series Fall and Rise which we'll produce together with our partners at 3 Arts. It joins new series like the musical drama Zoey's Extraordinary Playlist for NBC, series Love Life for HBO Max starring Anna Kendrick, the office comedy Mythic Quest: Raven's Banquet from creators Rob McElhenney and Charlie Day which just wrapped production for Apple, our true-crime anthology Manhunt: Lone Wolf for Charter Spectrum and the breakout series Florida Girls for Pop, yet another partnership with 3 Arts which is earning some of the best critical reviews of the year. And if you've been watching television lately, you've probably seen the wall-to-wall promotional campaign for the groundbreaking live crowd-sourcing medical series Chasing the Cure anchored by Ann Curry for Turner which debuts tonight.

A number of the shows I mentioned earlier originated with our partners at 3 Arts. With 3 series and 1 pilot ordered, 10 properties sold and over 25 projects in development, the first year of our collaboration has been a huge success. They've become a major source of high-end quality programming for our television business while we've been able to offer opportunities across all of our businesses to their talent.

Our current series are performing well led by Dear White People and Orange is the New Black in their third and seventh seasons, respectively. They highlight our continued ability to create iconic, inclusive and enduring programming that speaks to a diverse global audience. And the collaboration between the Lionsgate Television and Starz creative teams has shifted into high gear in recent months with the greenlighting of Power Book II: Ghost, 3 more Power-related series in the pipeline, an exciting new series about to be announced and nearly 20 additional projects in the works.

To summarize, our feature film slate continues to gain traction. Our television pod strategy is working and capitalizing on its deep content, speed to market and ability to operate as a premium overlay to virtually any kind of platform. Starz continues to grow over-the-top domestically while it expands around the world.

In closing, I want to spend a moment talking about how we're positioning ourselves in a world that is changing faster than ever before in which talent cost continue to increase and media consolidation has created scale of previously unimaginable proportions.

We've always found opportunities in a rapidly changing environment, and we continue to rely on speed, innovation and disruptive business models for our success. We continue to scale our Motion Picture business effectively and capture significant market share while finding those places where our agility, talent, relationships and track record give us a competitive advantage. Our Television Group has carved out a distinct position as the platform-agnostic, independent content powerhouse that supplies everyone else. In today's environment, we like our role better than ever. And Starz continues to build on its leadership in delivering premium programming to women domestically while rapidly rolling out its SVOD service around the world.

We continue to play our own game to find success according to our own terms and create value according to our own benchmarks. And as we continue to build upon a unique, non-replicable portfolio of assets that includes deep film and television pipelines, a 17,000-title library and a premium global subscription platform, we will continue to create value that is incremental, enduring and increasingly well understood.

I would like to turn things over to Jimmy.

--------------------------------------------------------------------------------

James W. Barge, Lions Gate Entertainment Corp. - CFO [4]

--------------------------------------------------------------------------------

Thanks, Jon, and good afternoon, everyone. I'll briefly discuss our fiscal first quarter financial results and update you on our balance sheet.

The fiscal first quarter adjusted OIBDA was $67 million while revenue was $964 million. Reported fully diluted earnings per share was a loss of $0.25 and fully diluted adjusted earnings per share was a loss of $0.02. Adjusted free cash flow for the quarter came in at $24 million as cash flow from operations was impacted by timing of changes in working capital and monetization of certain assets.

Now let me briefly discuss the fiscal first quarter performance of the underlying segments compared to the prior year. Media Networks quarterly revenues increased 5% versus the prior year to $372 million on strong over-the-top subscriber growth. Overall, Media Networks segment profits declined 32% year-over-year to $61 million as STARZPLAY International investment ramped up. Excluding SPI, Starz domestic segment profit was up 3%.

On a global basis, Starz subs were up 2.6 million year-over-year or 11% while subs slipped 175,000 sequentially. Domestically, Starz ended the quarter with 24.4 million total subs which was up 500,000 from the prior year and down 300,000 sequentially as over-the-top gains partially offset MVPD losses. Domestic over-the-top subs were up 400,000 sequentially, our largest sequential gain for a non-Power quarter. International subs increased 6% sequentially and should ramp up more meaningfully once our global partners fully deploy their platforms and marketing efforts this fall. Overall, ARPU improved sequentially in the quarter driven by an increase in MVPD ARPU and over-the-top subscriber mix.

Motion Picture revenue increased 9% in the quarter to $398 million due in part to the strong theatrical performance of John Wick: Chapter 3. Segment profits came in at $8 million, reflecting the 4 wide release films and approximately $100 million of P&A spend during the quarter relative to the prior year which only included 1 wide release.

TV Production revenues of $280 million were in line with last year while segment profits increased 60% to $25 million. The strong performance of the TV segment includes timing of episodic deliveries for Orange is the New Black and Dear White People.

Now I'd like to turn to our fiscal '20 outlook. Recall on our last call, we discussed our core business before SPI investment generating $650 million to $700 million of adjusted OIBDA in fiscal '20. As many of you have pointed out, this midpoint represents healthy year-over-year core growth of 20%. We continue to feel comfortable with that core business forecast with projected Starz International investment approaching $150 million. The quarterly cadence we discussed on our last call remains unchanged with quarterly adjusted OIBDA improving sequentially from a low in the fiscal first quarter with the majority of adjusted OIBDA hitting the back half of the year.

Now for a quick update on the balance sheet and our plan to delever while still investing in our business. We ended the quarter with leverage at 5.8x including SPI or just under 5x excluding SPI. In the quarter, net debt declined slightly to $2.7 billion on positive free cash flow. Accordingly, the increase in leverage was the result of the lower trailing 12 months adjusted OIBDA. We expect that to reverse by year-end with an increase in trailing 12 months adjusted OIBDA as quarterly adjusted OIBDA increases sequentially throughout fiscal '20 and we start to lap the fiscal '19 rollout of SPI.

We continue to be focused on deleveraging to 4x including SPI by the end of fiscal '20. As noted on the last call, our preference is to raise capital at the right price point to both validate the valuation of SPI and delever more quickly.

Now I'd like to turn the call over to James for Q&A.

--------------------------------------------------------------------------------

James Milton Marsh, Lions Gate Entertainment Corp. - Senior VP & Head of IR [5]

--------------------------------------------------------------------------------

Great. Thanks, Craig. We can open up to questions for Q&A right now. Thank you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) We first turn to the line of Alan Gould with Loop Capital.

--------------------------------------------------------------------------------

Alan Steven Gould, Loop Capital Markets LLC, Research Division - MD [2]

--------------------------------------------------------------------------------

I've got 2 questions, please. First, Jon, can you give us some idea on how your progress is going on finding an international strategic partner for Starz? And second, I know you said you like to play your own game and I've seen Lionsgate grow over the last decade-plus against the majors, but how do you position an $8.99 Starz product against a $6.99 Disney+ product?

--------------------------------------------------------------------------------

Jon Feltheimer, Lions Gate Entertainment Corp. - CEO & Director [3]

--------------------------------------------------------------------------------

Yes. I'm going to let Jeff take the second part of that.

--------------------------------------------------------------------------------

Jeffrey A. Hirsch, Starz - COO [4]

--------------------------------------------------------------------------------

Great question. We don't actually start off positioning against a $6.99 Disney+ product. We think we're additive to that. If you look at the history of Starz, we've always been a premium add-on service sold on top of broader general television, and I think the Disney+ product will be a broader general television. And as I said at TCA, we think that our focus on premium programming for women, coupled with a Disney+ kids product is a really great combination. I think we'll see and we'll talk more in the fall about a compelling proprietary marketing product program that we'll have with Disney.

--------------------------------------------------------------------------------

Jon Feltheimer, Lions Gate Entertainment Corp. - CEO & Director [5]

--------------------------------------------------------------------------------

Yes. Alan, you mentioned international strategic partner. I don't think that's been really a part of our thrust. I would tell you, the international is going extremely well. If you're referring to the fact that we mentioned that one of the things we may be doing is looking for a capital raise specific to STARZPLAY International, I'll let Jimmy take that. Is that sort of what you were referring to?

--------------------------------------------------------------------------------

Alan Steven Gould, Loop Capital Markets LLC, Research Division - MD [6]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

James W. Barge, Lions Gate Entertainment Corp. - CFO [7]

--------------------------------------------------------------------------------

Well, certainly, as Jon mentioned, the SPI business is exceeding our expectations virtually every territory we've launched in. Superna and her team under Jeff's leadership are doing a great job. We're very excited about our results to date as well as our future opportunity here.

But it's clear we're not getting the value for that in our share price. And obviously, we're exploring parallel paths to raise capital and unlock value. We're looking at several alternatives. And at this point, I'll make it clear, we're not planning an equity raise at the parent company. I also want to make it clear, we do not have to raise capital to fund our business. We have plenty of existing financial capacity. We have a $1.5 billion unused revolver. And organically, without a capital raise, we'd be well under 5x by the end of this year, in fact, closer to mid-4x leverage without a capital raise.

Nevertheless, we made it clear and want to make it clear, we prefer to raise capital at the right price point, both to validate the valuation and also to delever more quickly. In terms of the timing to that, I would just say that we factored that into our target of 4x leverage by the end of the year. And similarly, I would say in terms of timing that we'd expect the capital raise by the end of our fiscal year.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

And next, we turn to the line of Ben Swinburne with Morgan Stanley.

--------------------------------------------------------------------------------

Benjamin Daniel Swinburne, Morgan Stanley, Research Division - MD [9]

--------------------------------------------------------------------------------

Just sticking on the Starz International topic. Apple TV+, I think, is a big part of your distribution strategy across many markets. I'm just wondering, it's a relatively new distribution platform. Can you guys give us an update on how that's performing relative to your expectations? I don't know if you have any sort of qualitative comparison to how it's done versus what you've seen from Amazon in Germany and the U.K. and if there are other distributors you are working to launch on that we should be thinking about.

--------------------------------------------------------------------------------

Superna Kalle, Starz - EVP of International Digital Networks [10]

--------------------------------------------------------------------------------

Ben, thanks for the question. It's early days with Apple, but in almost every market that we've entered, as Jimmy had mentioned, we've exceeded our subscriber targets. We're growing quickly. Our content is resonating and our distribution deals are definitely expanding. You'll hear more about distribution deals in the near future when we're ready to announce them. So again, we're very excited about our growth to date, remain positive about our future outlook. And as these markets and these platforms continue to develop, in the early fall, we'll see more and more deployment and marketing efforts against them.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

Next, we turn to the line of Doug Creutz with Cowen.

--------------------------------------------------------------------------------

Douglas Lippl Creutz, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [12]

--------------------------------------------------------------------------------

It seems like there's a potential for a decent amount of disruption in the kind of studio ecosystem. I mean it seems like FOX is having some issues after the Disney acquisition. You've got CBS and Viacom maybe going to merge, maybe not. Are you seeing any change in the dynamics of getting content due to all that flux or does the presence of other players like Netflix and Amazon and so forth keep it about the same?

--------------------------------------------------------------------------------

Joseph Drake, Lions Gate Entertainment Corp. - Chairman of Motion Picture Group [13]

--------------------------------------------------------------------------------

This is Joe. I would say that we're certainly seeing more opportunity sort of on both sides of the equation. On the one side, exhibition, we become an ever more important supplier for exhibition as the ecosystem of theatrical distributors and film majors narrows. So that's good for our business. And on the content side, we continue to differentiate ourselves as more of a middle-market player. We're one of the very small group of companies in the world that can reach the consumer in this way, and that's an incredibly important thing to talent. So we really haven't as much as the streamers are very busy, of course. We haven't had a hard time. And as you know, we've signed a number of innovative talent deals and have a number in the works that will really round out our supply.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

And next, we turn to the line of David Joyce with Evercore.

--------------------------------------------------------------------------------

David Carl Joyce, Evercore ISI Institutional Equities, Research Division - MD & Senior Analyst [15]

--------------------------------------------------------------------------------

I was wondering if you could comment on the churn experience so far with your over-the-top channel in the U.S. and what is that doing to help your programming outlook and plans. And then secondly, I was wondering how much of the content on STARZPLAY International is Starz, Lionsgate IP and how is that going to trend.

--------------------------------------------------------------------------------

Jeffrey A. Hirsch, Starz - COO [16]

--------------------------------------------------------------------------------

Great question. When we launched our direct-to-consumer product earlier than we did digital wholesale, we wanted to get a business of scale so that we could get a lot of data to help us inform not only our programming decision, but our marketing decisions and our content acquisition decisions. And we've learned a lot over the last couple of years in terms of how to schedule programming, what kind of programming we need. It helped inform our decision to really focus on the premium programming for women and in African-American audiences. And what we've learned and what we're now executing against, as you heard Jon talk about the Power universe, is that we need a big piece of content on every quarter for each of our 2 segments and then augmented behind it with either some unscripted or other library content. And so what we've seen to date based on where we are is the churn continues to sit at an all-time low since we launched. We'll continue to lean in as we start to bring more of the Power universe onto the service, and we think that will continue to bring churn down.

From an international point of view, right now, based on the launch of the service, we're probably around 30-ish percent of homegrown or family-type content, going up to about 70% by 2024, '25.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

And next, we turn to the line of Drew Borst with Goldman Sachs.

--------------------------------------------------------------------------------

Andrew M. Borst, Goldman Sachs Group Inc., Research Division - VP [18]

--------------------------------------------------------------------------------

Wanted to ask about the TV Production business. You talked about the new pod strategy that you've implemented. And by the sound of things, you have a lot of momentum there with projects and development orders, et cetera. I wanted to see if you could talk to us a little bit about the margin structure of it. Is it any different than the way you used to run the Television Production business? And maybe you could also give us some idea of how we should think about growth for the TV studio as these deliveries take place over the next year or 2.

--------------------------------------------------------------------------------

Kevin Beggs, Lions Gate Entertainment Corp. - Chairman of Lionsgate Television Group [19]

--------------------------------------------------------------------------------

It's Kevin, so good question. So speaking to the margin structure, the TV business and the platform models continue to evolve. The traditional license fee deficit structure is in place in broadcast and a number of cable outlets and then premium but also on the streamers are in a cost-plus universe, most of them, or a kind of bifurcated domestic studio taking international. So it's kind of all over the place. On a cost-plus basis, you're in a short-term profitability, but you may be kicking yourself later on a hit that might go for years and years and years. So the good news is, we're selling now on an average or pitching to about 14 to 16 different scripted players on almost any given project with multiple bids. And we can really take our time and evaluate both the creative and the business models on each and then pick what's best.

We always like to retain rights and retain optionality. But even on the shows that we're selling domestically to other parties outside of the Starz universe, we're retaining those international rights. And those become high-profile shows that work for STARZPLAY, including Kingkiller which is with Showtime, Love Life which is at WarnerMedia/HBO Max and other series as well. So we try to keep optionality.

In terms of growth, we've supercharged our relationship with Starz since mid-February. We've put 20 more projects into development since then. I think others have alluded to and Jon in his comments, we've greenlit together 2 or 3 new series and more coming. The 3 Arts relationship has been extraordinarily productive on both sides, 3 or 4 series on and more coming. So I think growth is absolutely in the works and what we're planning on.

--------------------------------------------------------------------------------

Andrew M. Borst, Goldman Sachs Group Inc., Research Division - VP [20]

--------------------------------------------------------------------------------

Great. And if I could ask a follow-up on a different topic on Starz. And I want to see if you could give us any color on the linear subscribers. They were down in the quarter. I think this was the third consecutive quarter of declines. I think everybody on this call is aware of cord-cutting and what's happening there. But is there anything else that you could add in terms of what you're seeing in the trends on the linear Starz product?

--------------------------------------------------------------------------------

Jeffrey A. Hirsch, Starz - COO [21]

--------------------------------------------------------------------------------

Yes. As you've seen from all of our traditional partners that reported this quarter, there's been continued disruption on the traditional side. Starz is really well positioned to harvest subscribers as they move over to the SVOD side, and you continue to see that in our growth on the OTT side. We do think that at some point soon that, in the coming quarters that some of the disruption that you see on the traditional side will start to slow and ease. But again, we know we, as a premium content partner, we are very well positioned to make money for our traditional partners. We're a valued partner to them. And we continue to think that based on our new flexibility that we'll continue to help them make money and grow.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

Next, we turn to the line of Jim Goss with Barrington Research.

--------------------------------------------------------------------------------

James Charles Goss, Barrington Research Associates, Inc., Research Division - MD [23]

--------------------------------------------------------------------------------

Recently, Lionsgate was among a number of companies who were supposedly interested in some potential library additions M&A-wise. And traditionally, that has been a thrust that you have acquired some property for your libraries. I'm wondering how you view that market right now and if you think there are such opportunities.

--------------------------------------------------------------------------------

Michael R. Burns, Lions Gate Entertainment Corp. - Executive Vice Chairman [24]

--------------------------------------------------------------------------------

Jim, it's Michael. We obviously don't comment specifically on M&A speculation, but you're right, we've got a long history of doing very well with library purchases. And obviously, the one that you're mentioning has always been an interesting library and one that we're currently distributing. So we're incredibly excited about the asset value that we're building when we do these type of deals. But again, as you know, we're often not accused of overpaying. But because every potential deal has got to fit very disciplined set of conditions that we have, it's got to be accretive, as Jimmy talked about, delevering before getting down to that 4x, we have to pay attention to that and has to be compelling returns. And so that's what I'll say about that.

--------------------------------------------------------------------------------

James Charles Goss, Barrington Research Associates, Inc., Research Division - MD [25]

--------------------------------------------------------------------------------

Okay. One other thing. Starz has, under your leadership recently, tried to identify a theme that it could differentiate itself and it's tended to be underserved audiences more recently and I think you were referring to it before that women was a theme that seems to be more front and center. I'm wondering where you are headed with that and what that implies in terms of your marketing that product and securing or creating content for it.

--------------------------------------------------------------------------------

Jeffrey A. Hirsch, Starz - COO [26]

--------------------------------------------------------------------------------

As you rightly said, we've always talked over the last couple of years about putting programming on the air, serving underserved audiences. And we've always include women in that underserved audiences. And we think it's actually a bigger portfolio than we've had in the past. And so we're really leaning into it now. We're hoping in the next couple of years to have a show every month really focused on the premium programming for women, also every quarter for the African-American audience. If you look at Power today, 65% of that audience is African-American women. And so to a certain extent, we are already doing the strategy, we're just leaning into it more now.

--------------------------------------------------------------------------------

James Charles Goss, Barrington Research Associates, Inc., Research Division - MD [27]

--------------------------------------------------------------------------------

Okay. And lastly, a number of IP creators will license the IP to other theme park operators when you don't happen to own them. And I know you were talking about that sort of concept earlier. But I wonder if that would be more of an aggressive strategy where you might be able to monetize some of the value you've been creating.

--------------------------------------------------------------------------------

Jon Feltheimer, Lions Gate Entertainment Corp. - CEO & Director [28]

--------------------------------------------------------------------------------

I would say we're pretty focused. I mean we're certainly always looking to make money for ourselves and our shareholders. But at the end of the day, what we think we're building with these theme parks, we have no capital investment in them. There's about 20 projects, as we said, in the pipeline. And when we can build them with our own IP at the end of the day, we're creating annuities that could go 10, 20 years out. So we think that's certainly the best strategy.

If you look at our game business, certainly, we're dealing with all kinds of publishers. And again, those are typically not capital-intensive at all and we're certainly going out to third parties. But where and when we can create actually the kind of things that we're doing in China, which is just amazing as Joe Drake who just got back from there kind of would tell you or the one that we're launching groundbreaking in South Korea soon, if you're looking at the Broadway shows that we are developing with 3 of our most important properties, these are annuities that we're going to create that can go on forever. So I think that's the core part of our strategy.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

(Operator Instructions) Next, we turn to the line of Alexia Quadrani with JPMorgan.

--------------------------------------------------------------------------------

Alexia Skouras Quadrani, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [30]

--------------------------------------------------------------------------------

Just 2 quick questions. One just on the sub growth that you saw in the quarter and how, I think, you said it was driven a lot by not only the digital growth but international expansion. Any color you can give us to where you think that could be toward year-end given that you have a better preview into when you're opening up in new markets and when. And then second question really is just on the TV side. Really, are you having any concerns or is the market getting a bit more crowded in terms of competition for getting showrunners and talents? You see these crazy figures being paid by Netflix to attract talent over there to produce content and I'm wondering if it's been increasingly more difficult to compete.

--------------------------------------------------------------------------------

Jeffrey A. Hirsch, Starz - COO [31]

--------------------------------------------------------------------------------

So on the domestic side, we expect to grow this year. We expect to be over 6 million paid domestic OTT subs by the end of the year. And I'll let Superna talk about international.

--------------------------------------------------------------------------------

Superna Kalle, Starz - EVP of International Digital Networks [32]

--------------------------------------------------------------------------------

So International, as we mentioned earlier, is growing week on week. We see a very, very strong cadence. And as everyone else has mentioned, we're ahead of schedule. So by year-end, I expect that the growth rate will be pretty terrific and we'll report on it more later.

--------------------------------------------------------------------------------

Kevin Beggs, Lions Gate Entertainment Corp. - Chairman of Lionsgate Television Group [33]

--------------------------------------------------------------------------------

And speaking to the ecosystem of deals and talent deals, obviously, there's a lot of headlines about a lot of unbelievable megadeals. We've never been chasing others in that business. We've always been really disciplined, always focused on the genres that we really pursue. And for writers and producers and directors that are overperforming, there's always been an unbelievable upside in the way we structure our deals. So we can't really compete with those, but we look at a whole tier of people that are looking for optionality and want to take their product to multiple platforms as opposed to being stuck in just one. And we think we have a really great, nimble, first-mover advantage in that space in the deals that we've done, the deals that we have that we've done over the years and the ones we're doing. And Joe touched on some that we're doing that are both feature and TV together, like a Point Grey, speak to the flexibility we provide.

--------------------------------------------------------------------------------

Jon Feltheimer, Lions Gate Entertainment Corp. - CEO & Director [34]

--------------------------------------------------------------------------------

Yes. Alexia, I've said this often. I think, certainly, there are IP creators who just say, okay, I'm fine just going to Netflix and I know I'm not really creating a whole lot of back end value and I'm just going to do shows for Netflix. There are people that might go to a studio and say, I'm just going to do some films with the studio. The great thing with a company like Seth Rogen and Evan Goldberg's Point Grey or any of the folks that we're in business with is, we actually present them with all kinds of alternatives. And I think that, that's what talent really wants. They want the ability to do a feature film. They want the ability to go to Netflix. They want the ability to own a big piece of a back end. They want the ability to potentially do a show for Starz. And I think that's really -- surprisingly or not, with creators, I think they really want to know that they have all of those options. And I think that's something that nobody, frankly, provides quite as well as we do.

--------------------------------------------------------------------------------

Operator [35]

--------------------------------------------------------------------------------

(Operator Instructions) And Mr. Marsh, we have no further questions in queue at this time.

--------------------------------------------------------------------------------

James Milton Marsh, Lions Gate Entertainment Corp. - Senior VP & Head of IR [36]

--------------------------------------------------------------------------------

Great. Thanks, Craig. I just want to make one quick closing statement. Please refer to our Press Releases & Events tab under our Investor Relations website for any discussion of certain non-GAAP forward-looking measures discussed on this call. Thank you very much.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive TeleConference service. You may now disconnect.