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Edited Transcript of LGF earnings conference call or presentation 6-Feb-20 10:00pm GMT

Q3 2020 Lions Gate Entertainment Corp Earnings Call

SANTA MONICA Feb 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Lions Gate Entertainment Corp earnings conference call or presentation Thursday, February 6, 2020 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James Milton Marsh

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

* James W. Barge

Lions Gate Entertainment Corp. - CFO

* Jeffrey A. Hirsch

Starz - President & CEO

* 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

* Superna Kalle

Starz - EVP of International Digital Networks

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Conference Call Participants

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* 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 Walter Miller

Imperial Capital, LLC, Research Division - Research Analyst

* James Charles Goss

Barrington Research Associates, Inc., Research Division - MD

* Steven Lee Cahall

Wells Fargo Securities, LLC, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Lionsgate Third Quarter Fiscal '20 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

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

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

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Good afternoon. Thank you for joining us for the Lionsgate's Fiscal '20 Third 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. From Starz, we have President and CEO, Jeff Hirsch; CFO, Scott MacDonald; and EVP of International, Superna Kalle.

The matters discussed on this call today 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 Jon.

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

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Thank you, James, and good afternoon, everyone. We're pleased to report a quarter with strong performances by our feature film and home entertainment slates, multiple new production commitments in television and robust over-the-top subscriber growth at Starz.

Here are the highlights: an outsized performance from Knives Out, one of the biggest original box office hits of the year and a new Lionsgate franchise; a strong award season for Bombshell, the latest addition to our catalog of critically acclaimed brand-defining films; the continued growth of one of the world's premier action franchises as John Wick: Chapter 3 recorded the best home entertainment performance of any Lionsgate title in over 5 years; strong momentum in our television group with 17 scripted series in production and 8 new scripted series and pilots picked up; and finally, strong subscriber gains. We continue to make significant progress in the quarter, building out our streaming business with 8.6 million global over-the-top paid subscribers across Starz, STARZ PLAY Arabia and Pantaya, accounting for 30% of our 28.5 million total global subscribers.

Now let's drill down in each of our businesses. At Starz, beginning on the domestic front, we continued our transition in the quarter to an on-demand environment that will ultimately result in higher ARPU linear subscribers and higher-value over-the-top subscribers. We reached a multifaceted long-term agreement with Comcast that provides a revenue glide path into a new distribution arrangement, allows us to build an a la carte revenue sharing business together and includes a content licensing deal with Peacock.

I'd like to remind everyone that Starz has been successfully sold a la carte on the platforms of cable and satellite operators and telcos as well as streaming platforms for years. In fact, we'll end the fiscal year with a projected 61% of Starz revenues already coming from our a la carte business.

On the programming front, we've put together a diverse slate that delivers premium programming year-round to our core female, African-American and Latinx audiences. We approached the season 6 finale of Power this weekend with the show drawing over 10 million multiplatform views and 4 Power-inspired series lined up to continue building out the Power universe. The first of these, Power Book II: Ghost, featuring Mary J. Blige and Method Man, along with a number of returning casts, arrives this summer.

Other new original Starz series are being greenlit and produced at an accelerated pace with the crime drama Hightown from producer Jerry Bruckheimer set to debut at South by Southwest ahead of its premier this spring; P-Valley from playwright Katori Hall debuting this summer; and Run the World from Dear White People showrunner, Yvette Lee Bowser and writer, Leigh Davenport, arriving in the fall. The wrestling drama, Heels, with an all-star cast led by Stephen Amell, star of Arrow, and Alexander Ludwig, star of Vikings; along with the provocative Dangerous Liaisons, continues the expansion of our slate next year. They joined the returning hit series, Outlander, which will launch its fifth season next week; season 2 of The Spanish Princess; the Girlfriend Experience set this year in London; and the third season of the critically acclaimed Vida, all targeted to our valuable and scalable core demos.

Internationally, the strategy for our STARZPLAY streaming service, delivering world-class premium content and leveraging strategic partnerships at an attractive price point continues to drive strong results. I'm pleased to report that we're executing fully on this strategy, having launched on 49 platforms in 30 countries, and we remain on track to hit our financial and subscriber targets.

The portfolio of acclaimed STARZPLAY programming featuring The Spanish Princess, Dublin Murders and Power, along with such award-winning acquisitions as The Act, Ramy and Killing Eve, is resonating with global audiences and fueling our growth in key markets, including the U.K., Spain, Germany and Mexico. And we have begun to complement this original programming with local language co-productions and a lineup of hit movies in key territories.

As we announced this afternoon, we will be splitting the first pay window for our theatrical releases in the U.K. with Amazon, our critical distribution partner in that territory. In India, where our service is called Lionsgate Play, we are supplying our first-run movies exclusively to our platform and have already entered strategic partnerships with market leaders, Vodafone and Airtel.

As we continue to expand internationally, our experience with the STARZPLAY Arabia venture serves as a perfect blueprint for our new territories. In 2015, we saw an opportunity in the Middle East, North Africa region, with consumer behavior just beginning to pivot to digital consumption and growing demand for subscription video-on-demand service that could partner with the region's cable, telco and satellite operators. 5 years later, STARZPLAY Arabia has achieved 1.7 million subscribers and is 1 of the top 2 SVOD services in the 19 MENA markets. The current opportunity and the characteristics of the 30 additional territories in which we've launched STARZPLAY are similar to what we saw with STARZPLAY Arabia in the MENA markets.

So in an environment that is more disruptive than ever, our own identity and focus are clear: to, again, take advantage of our early mover position as an expertly curated, well-differentiated premium service that sits on top of global and local platforms alike as we continue to convert our strengths into reaching our target of 15 million to 25 million paid international subscribers over the next 5 years. As we continue to hit our financial numbers and accelerate our trajectory to reach our subscriber goals, we're confident that the value we've already created and will continue to create will be recognized.

Turning to the Motion Picture Group. We continue to demonstrate our diversity as we positioned and released 3 films in the quarter that brought us success in the areas that might not seem obvious but are very intentional. The domestic box office performance of Midway started the ball rolling and reaffirmed our strength in the action zone, a key pillar of our content strategy. Then we shifted gears for the Thanksgiving holiday with Knives Out, which will soon break $300 million at the worldwide box office, has earned multiple award nominations and serves as further proof that franchises can emerge from any of our content verticals. And finally, we released Bombshell in December, a film that earned multiple SAG, Golden Globe and Oscar nominations and rounded at a calendar '19 slate that solidified our position as the dominant player in the mid-budget space.

Looking ahead, the value of our strategic partnerships with best-in-class creators is evident both in our release slate and production pipeline. Next up in March is I Still believe kicking off our faith-based collaboration with the Erwin Brothers Kingdom Studio as we release the follow-up to last year's roadside attractions hit, I Can Only Imagine. We begin production later this year on 2 more Kingdom titles, American Underdog, the inspiring story of Super Bowl winning quarterback, Kurt Warner, slated to release this Christmas; and Jesus Revolution.

Just as the Kingdom partnership cements our position in the faith-based vertical, our collaboration with Seth Rogen and Evan Goldberg's Point Grey Pictures continues to solidify our position in comedy. We're in early preproduction on 2 broad appeal concept comedies from Point Grey in addition to the growing slate they're putting together for our television group.

We also continue to build our leadership in the action category where we achieved success this year, not only with Midway but with John Wick 3, Angel Has Fallen and Rambo: Last Blood. And we recently announced a strategic partnership with Chad Stahelski, the co-creator and director of the John Wick franchise, who will be a key driver of our action slate.

Our slate continues to be a strong and proper balance of exciting new original properties and extensions of our existing brands. In May, we will launch Spiral, a reimagined Saw film with Chris Rock and Samuel L. Jackson. You'll see the return of Hitman's Bodyguard in August with an even bigger cast and more of what audiences love about the property. And we'll continue the stories of 2 other successful franchises as we plan production starts for both John Wick 4 and the next Knives Out film. In addition to John Wick and Knives Out, we will be announcing in upcoming weeks a number of new film packages and production starts involving world-class talent and premium intellectual properties. And I expect that our fiscal '22 slate will be one of our most exciting ever.

Turning to television. We had a very productive quarter in terms of series launches and new series and pilot commitments, taking advantage of robust demand for premium properties from our streaming, broadcast and cable partners. Mythic Quest: Raven's Banquet from Rob McElhenney, Charlie Day and our partners at 3 Arts has been picked up for a second season ahead of its first season debut in the Apple platform tomorrow. The musical dramedy, Zoey's Extraordinary Playlist, is already giving us something to sing about as NBC made the pilot available across digital and linear platforms ahead of its February 16 network debut, and it became the widest online launch in the network's history. The romantic comedy, Love Life, starring Anna Kendrick arrives in the first wave of high-profile programming for HBO Max this summer. And we've recently announced 2 more premium series, Run the World at Starz and the drama First Ladies at Showtime starring Oscar, Emmy and Tony Award winner Viola Davis as former First Lady Michelle Obama. Finally, earlier this week, we secured pilot orders for This Country at FOX and Ghosts at CBS, part of an extensive programming slate that we're putting together with our partners at BBC Studios.

An important catalyst for our television group's momentum has been our collaboration with 3 Arts Entertainment, which has emerged as a powerhouse studio in its own right. Since joining forces with us 2 years ago, we have secured 3 network production commitments together with another 10 projects in development. And we continue to explore ways to further expand our relationship on a global basis with an asset that is already making strong financial contributions.

I'm also very pleased with the level of collaboration now taking place between the Lionsgate and Starz creative teams. Bringing our combined expertise to bear on creating hits for Starz is our highest priority with 7 Lionsgate shows picked up as series or being ready for production and another 16 projects in development.

In closing, our plan is simple continue to be the most prolific independent producer of film, television and digital content and use all of our content creation capability and distribution strength to support Starz' transformation into an immensely valuable global subscription platform. As we move forward, we're maintaining a careful and appropriate balance between short-term profit and investment in longer-term value creation. And we bring to this task a clear sense of who we are, a firm grasp of our place in the ecosystem and a focused strategy for continuing to grow and evolve our business.

Now I'd like to turn things over to Jimmy.

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

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Thanks, Jon, and good afternoon, everyone. I'll briefly discuss our fiscal third quarter financial results and update you on our fiscal '21 outlook. Fiscal third quarter adjusted OIBDA was $124 million, while revenue was up 7% to nearly $1 billion. Reported fully diluted earnings per share was a loss of $0.42, and fully diluted adjusted earnings per share came in at $0.14. Adjusted free cash flow for the quarter was $88 million.

Now let me briefly discuss the fiscal third quarter performance of the underlying segments compared to the prior year quarter. You can follow along in our newly reformatted trending schedule that has been posted to our website and shows greater detail around our global media networks subscribers.

Media Networks' quarterly revenue of $382 million was up 4% from last year, and segment profit came in at $102 million. Globally, the company added 2.1 million subscribers year-over-year, up 8%, reaching 28.5 million global subscribers at the end of the quarter. Domestically, total subs were 24.1 million, which was down 1.2 million from the prior year. The decline in domestic MVPD subscribers was more than offset by domestic OTT and international growth.

Now looking at sequential performance for the fiscal third quarter. Total global subs were flat as international gains offset domestic losses. However, global over-the-top gained almost 1 million subs to 8.6 million. This 12% sequential gain was driven by improvements at STARZPLAY International and Pantaya, while domestic OTT Starz subs were in line with the prior quarter, reflecting a strong hold post Power.

Turning to our Motion Picture Group. Revenue increased 31% in the quarter to $474 million, and segment profit came in at $49 million. The strong performance in our film group was largely due to the theatrical performance of our slate, which included Knives Out as well as the continued ancillary performance of prior releases, including John Wick 3. And finally, television production revenue came in at $189 million, while segment profit was impacted by a difficult comp to the prior year quarter, which included season 7 deliveries for Orange is the New Black.

Now I'd like to turn to our fiscal '21 outlook, starting with TV. We continue to invest and develop a strong pipeline of programming and see strong fiscal '21 growth, partially driven by Mad Men syndication. In Media Networks, we expect to deliver fiscal '21 performance in line with fiscal '20, even after fully investing in the future growth of our international platform as well as content and marketing spend to support the transition of our domestic business to an a la carte revenue sharing model.

In Motion Picture Group, our profit is expected to reflect the timing of a tough comp against the early fiscal '20 release and strong performance of John Wick 3 relative to a back-end loaded fiscal '21 slate with 4 wide releases and associated P&A spend in the fiscal fourth quarter.

So in fiscal '21, we plan to continue to fully invest in our future growth, while still delivering consolidated adjusted OIBDA in line with fiscal '20. We believe this will position us for substantial growth in fiscal '22 as we continue to exploit a strong TV development pipeline, substantially complete the international rollout, transition to more profitable network distribution models and benefit from a fiscal '22 film slate that is expected to have a number of strong franchise leases.

We expect to fully fund our investment in future growth from free cash flow without tapping our $1.5 billion undrawn revolver. Also, I would note that we have plenty of room under our bank covenants and no debt maturing for another 3 years. With regards to leverage, we will continue to reduce net debt and leverage as we move into fiscal year-end '20, while leverage in fiscal '21 will depend on the timing of trailing 12-month adjusted OIBDA and any potential capital raise.

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

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

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Thanks. Lori, you can open up for Q&A at this stage.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question from the line of Alexia Quadrani with JPMorgan.

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Alexia Skouras Quadrani, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [2]

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Just a couple of questions. First, on Starz. Just if you could update us if you have any major renewals coming up with distributors in the calendar 2020? And then the -- I'm just curious because it sounds like you've got some great TV content in the pipeline going to some of the major broadcast networks and such. And I'm just curious how you evaluate what the process is, internally evaluating the allocation of content to third parties versus selling it to Starz directly. If you could walk through that, I'd appreciate it.

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Jeffrey A. Hirsch, Starz - President & CEO [3]

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Alexia, it's Jeff. We don't disclose the renewals that we have each year. But I think it's safe to say that we always have 1 or 2 renewals up every year on an ongoing basis.

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Kevin Beggs, Lions Gate Entertainment Corp. - Chairman of Lionsgate Television Group [4]

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Alexia, Kevin Beggs speaking. On the question about product that goes out to the larger market versus what we're collaborating on with Starz, the really good news is that Jeff and his team have built out a very clear brand filter about premium female viewers and really overserving that audience. So we look at our whole portfolio and think about what things might be right. And typically, the kind of things that we would take to broadcast, and we are quite excited about the broadcast pilots that John touched on, are going to make sense in the premium Starz environment.

So those decisions are pretty easy generally because just the nature of the shows, the tone, kind of what they are, premium lives in its own really special lane, and we feel that we know a lot about premium. And when we get to the other buyers out there that might have more shades of gray, it really is about what makes sense for the entire ecosystem, whether it's Starz domestic and it's right for them or for another buyer and taking it to STARZPLAY International. We keep a lot of optionality and always looking to build shareholder value.

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Alexia Skouras Quadrani, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [5]

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Kevin, just a follow-up on that in general. I know you -- I think you mentioned in the opening comments -- someone mentioned the earlier broader distribution of Zoey's Extraordinary Playlist. Any sense of how that is performing in general versus your expectations?

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Kevin Beggs, Lions Gate Entertainment Corp. - Chairman of Lionsgate Television Group [6]

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Yes. Well, I can only share anecdotally the enthusiasm that's been building over at NBC that they're loving their early results. It was put on a 10:00 on a Tuesday for a onetime broadcast airing and then a 6-week digital rollout culminating on February 16 from the pilot and the second episode will go into its regular Sunday night time slot. And I think they've been knocked out by the results. So they opened it up to Facebook and YouTube in addition to Hulu and nbc.com, and they're just thrilled. The traction and the sampling has been massive, and they're very hopeful about that translating into viewers when the show returns to its normal time slot.

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Operator [7]

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Our next question from the line of Ben Swinburne with Morgan Stanley.

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Benjamin Daniel Swinburne, Morgan Stanley, Research Division - MD [8]

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Jeff, you talked a little bit about the content strategy at Starz, both domestically and globally as you look out into fiscal '21. You guys have had -- actually had some margin expansion in the U.S. this year despite a pretty flat top line. So I'm just trying to understand how you're thinking about overall hours and investment level as we move forward, particularly given you guys just gave us some nice guidance for fiscal '21?

And then I think, connected to that, for Jimmy, on the free cash flow front. Year-to-date, I think the free cash flow is -- the conversion is down a bit from last year. Can you just help us think about free cash flow for the year and sort of the drivers of some of this working capital that's leaning in on the content side and how you think about that trending into next year?

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Jeffrey A. Hirsch, Starz - President & CEO [9]

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Ben, it's Jeff. Great question. I think when you look at the ecosystem, I think Jon alluded to it in his remarks, there's a lot of services coming out there, what we call basic streaming. They're trying to be all things to all people and replace that first product in the home. We've always been sold, as you know, on top of broad-based television with a very focused and bespoke and premium kind of programming strategy, both domestically and abroad. And Superna will talk about it right in a minute.

And so we believe that this focus on women and African-American audiences, Latinx audiences and a hyperfocus on that continues to drive our transition to the digital world and will continue to lean into that. The goal is to fill out every week all year with some piece of content, whether it's something from the Power universe to serve that audience or Run the World, which is a show with Lionsgate that we just announced it's a comedy, for the first time putting comedy back on the network.

But we're really, really focused on being that premium, specific tier on top of broad-based television. And we think we can partner with everybody, and we can bundle with everybody, and we feel really good about our place in the ecosystem. Superna, anything about international?

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

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Internationally, we're really lucky in that we have all the plays that comes out of the Starz domestic, including great shows like Spanish Princess and Vida and Dublin Murders. We also couple that with shows like Manhunt from Lionsgate Television alongside our acquisitions and some of the ones that we talked about earlier. But there's a lot coming this year that we're very excited about, including Castle Rock and The Great. Additionally to all of that, we're starting to invest more and more in local content, leveraging all of our Lionsgate resources for multiplatform and window sharing across the world.

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James W. Barge, Lions Gate Entertainment Corp. - CFO [11]

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And thanks, Ben. Relative to your question on free cash flow and conversion, look, we don't provide specific free cash flow guidance, as you know. But certainly in the quarter -- and thanks for noticing, we came in at a very strong conversion of 71%, $88 million of free cash flow. We would -- what I would say going forward is we expect to continue to generate positive free cash flow, and that's after fully investing in our core businesses for content and marketing as well as our international opportunity in STARZPLAY International. So we can do that and would expect to continue to modestly reduce debt as we go. I'll remind you, we have significant NOLs with regards to taxes. And so we're a minimum cash taxpayer, which also helps the conversion, as you might guess.

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Operator [12]

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And we'll go next to David Miller with Imperial Capital.

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David Walter Miller, Imperial Capital, LLC, Research Division - Research Analyst [13]

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I have 2 for Jimmy and 1 for Joe Drake. Jimmy, the programming write-down, $74 million of programming write-downs. Was that on the Starz level or the film level, or what was the nature of that? And then it looks like you guys have generated -- have got $324 million in free cash flow, TTM. That's pretty darn good. How -- if you had to -- I know you don't really report it this way, but if you had to kind of ballpark it, how much of that $324 million came from the library or the library as you define it? And then I have a follow-up for Joe Drake.

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James W. Barge, Lions Gate Entertainment Corp. - CFO [14]

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Okay, David. Well, first, with regards to the trailing 12 months free cash flow, that is -- we don't break that out relative to library, but library is a constant generator of free cash flow. A lot of it too is we're closely managing our working capital as we go throughout the year. So we're squeezing more out of our balance sheet as we go, and we're using that to reduce debt, and we'll continue to do the same going forward.

With regards to the programming write-down, it primarily relates to the Starz network, as you will see that in our 10-Q. This is part of the ongoing evaluation of content and really reflects changes in programming strategies and recent management changes.

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David Walter Miller, Imperial Capital, LLC, Research Division - Research Analyst [15]

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Okay. Great. And then, Joe, could you just give us a quick update on what's going on with Chaos Walking? I know that when you came back into the company for your sort of second tour, you would look at some of the dailies and more particularly satisfied with what had been shot at the time. I think since then, there's -- according to trades, there's been some reshoots and additional script treatment and so on and so forth. And can you just update us on where that project stands? Would appreciate it.

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Joseph Drake, Lions Gate Entertainment Corp. - Chairman of Motion Picture Group [16]

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Yes, sure. We fished all photography on it. We'll be -- the movie will be completely posted and done by mid-April. You'll see that we will announce the release date of the movie either tomorrow or Monday. You'll see where it's at. We've got -- we're very happy with where we ended up, and we've got 2 of the biggest stars on the planet today leading that. So we're at a place where we can finally now -- we got our work done. We're in a good spot, and you'll see very soon when we're going to be releasing it.

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Operator [17]

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And we'll go next to Steven Cahall with Wells Fargo.

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Steven Lee Cahall, Wells Fargo Securities, LLC, Research Division - Senior Analyst [18]

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Maybe first, a couple on the guidance. So I think Mad Men is currently unlicensed for like $1 million an episode. Any sense as to how much that could go up in a future transaction? And then I think you mentioned that Media Networks is going to look similar on adjusted OIBDA in fiscal '21 as it did in '20. Would you contemplate there that the drag from international is going to get a little better and then maybe that offsets a little bit of the challenge that you're going to have as you reset at Comcast? Am I thinking about that correctly? And then I got a quick follow-up.

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James W. Barge, Lions Gate Entertainment Corp. - CFO [19]

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With regards to Mad Men, we're not going to provide specifics as to our expectations per episode, but it's strong, and that's a great programming. I know Kevin is excited and Jim Packer to take that out. So we're really looking forward to that. I also remind you, we have Weeds next year as well. So we're nicely positioned, as I said in my remarks, for a very strong television year commensurate with the strong pipeline that Kevin and his team has developed. I missed the question on the international drag.

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Steven Lee Cahall, Wells Fargo Securities, LLC, Research Division - Senior Analyst [20]

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Just on the Starz overall, it's flattish versus international...

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James W. Barge, Lions Gate Entertainment Corp. - CFO [21]

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Right. Yes. On the Media Networks side, as you know, we're absorbing the transition, if you will, to -- on the domestic side from kind of a fixed model more to a revenue sharing a la carte model. And we factored that in as well, as you noted, the ongoing investment in STARZPLAY International platform. So we expect to do all of that and still bring Media Networks in, in line with where they were in fiscal '20 and feel good about where we are.

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Operator [22]

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Our next question from the line of Alan Gould with Loop Capital.

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Alan Steven Gould, Loop Capital Markets LLC, Research Division - MD [23]

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Yes. I know it's a little bit early, but could you comment how well the international Starz is doing sort of on the backdrop of the Apple and Amazon, particularly the Apple rollout internationally? And secondly, given all the competition in the streaming business, how do you feel about how much do you have to spend content-wise on Starz going forward?

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Superna Kalle, Starz - EVP of International Digital Networks [24]

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This is Superna. In terms of how we're doing internationally, I'm very pleased to say that we're absolutely on plan. And despite some of the early time that we're having with Apple, they are new to this, and so we're growing as they grow. And we're very confident that as Apple continues to invest in the platform and invest in educating consumers, et cetera, we're going to be right on track. But we've set the stage really nicely this year with 49 distribution deals and launches throughout our footprint of 30 countries. And so we're looking really -- we're looking forward to a lot of growth this coming year.

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Jeffrey A. Hirsch, Starz - President & CEO [25]

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In terms of the domestic content spend, I think, as we continue to say, we're not trying to be a broad-based kind of basic streaming service like you see on these announcements every day. We think that we're complementary to all these services. We've got a very focused programming strategy. Our goal, as I said, is to put something on the year, every week, 52 weeks a year, that serves the female audience, the African-American audience and the Latinx audience as a complementary service to the folks trying to replace basic television.

So we feel like we've got a great programming strategy. The '21 slate, I think, is our strongest slate yet. I think Hightown will be one of the best shows on TV next year. We've got the Power universe coming online in a much bigger way. We'll have almost 3/4 full with the Power universe. We'll put comedy back on the network with Run the World and Shining Vale. And so we feel really strong about the slate. But again, we're not trying to be all things to all people. So we're very focused, and we think we have the right spend to complete our strategy.

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Operator [26]

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(Operator Instructions) We'll go next to Jim Goss with Barrington Research.

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

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Conventionalism seems to imply that it's tough to create midsized pictures on a profitable basis, especially with the compression in physical media market. But you're pointing out a strong position in this mid-budget area. I wonder if you could talk to whether you found a hole you're able to exploit, what the distribution and splits and demand for those products might be? And what is the situation in aftermarket home video options as to the disc market shrinks? I know you pointed out John Wick is having particular strength, but can you talk about those issues?

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Joseph Drake, Lions Gate Entertainment Corp. - Chairman of Motion Picture Group [28]

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Sure. I would first say that I think that there's -- I love the narrative because I don't think it's true, but everybody else is listening to it, which is that if you actually look at the box office and pictures the top 60 pictures, and look at cost versus consumer appetite, there's an enormous amount of appetite that isn't tied in any way to cost. And so it really has to do with understanding your verticals, understanding your audience, being able to speak your audience in a different way and a lot of focus.

And so we've -- what we have done is we've talked a lot over the last year about our content strategy in the various verticals. We're very focused on action, live action, family, comedy, horror. We talked a lot about our faith business, and we still have a focus on those brands that can be franchises for us. And we just worked with a lot of focus in those areas. And this year, we've had a ton of success doing that. We hit $77 million at the box office, almost doubled our box office, doubled our market share from last year and have a pipeline to continue to do that.

So whether it is in the action space, you talked about how -- you talked about the downstream, revenue streams, take home entertainment, for example. Jon talked about how action is over converted. If you look at our slate of Rambo, Angel Has Fallen, John Wick, both at the box office and the values that those are creating out-of-home entertainment, still incredibly strong on packaged media, but those action fans really transact on digital as well on consumer spend. So what I would say to you is it's a -- it's not only a really strong strategy. It's one that is fairly unique to us, and we're winning at it. And we're going to continue to do that.

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James Charles Goss, Barrington Research Associates, Inc., Research Division - MD [29]

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Okay. And maybe just a corollary. The 2020 is a year when it seems there are fewer apparent blockbuster franchises. Does this enhance your opportunity that much more? And in terms of franchises, what qualifies for a franchise in your regard? Just the built-in audience that is repeatable, or is there something more?

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Joseph Drake, Lions Gate Entertainment Corp. - Chairman of Motion Picture Group [30]

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Well, I think that ultimately, you have to have more story to tell and a reason for a movie to exist beyond its original story. But one of the -- one of the things that Lionsgate has continued to show is that franchises can come from any one of our verticals. A perfect example this year is Knives Out, which 2 years ago, you probably hear a lot of studios saying, oh, who done it, it's a dusty streaming movie. And yet, Rian Johnson created an absolutely brilliant movie with a brilliant character in Benoit Blanc that has established itself to do over $300 million globally.

But more than that, there's a lot of story left to tell for Benoit and a filmmaker who loves that theatrical experience, that theatrical audience and that feedback. And so we've been able to -- as part of our content strategy every year, you'll find that stories -- we put movies in there intentionally that have the potential to be stories told over again or have more story to tell. And when they perform at a level, we've got a franchise on our hands.

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Operator [31]

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And our next question from the line of Drew Borst with Goldman Sachs.

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Andrew M. Borst, Goldman Sachs Group Inc., Research Division - VP [32]

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Great. Jimmy, in your prepared remarks, you mentioned the leverage ratio and that will be impacted by your decision on potential capital raise. So I was wondering if you could give us kind of an update of what's going on with that process.

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James W. Barge, Lions Gate Entertainment Corp. - CFO [33]

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Sure, Drew. Look, it's helpful, as we've mentioned, to conclude the recent renewal discussions on domestic distribution, which is great. We are, as you know, exploring parallel paths to help us delever and unlock value at the same time. So our preference is to raise capital at the right price point, which will allow us to both highlight the valuation within our businesses as well as delever more quickly. We are not planning an equity raise at the parent company.

And I would also point out, as I did on the last earnings call, we can be patient. We have plenty of free cash flow to fully fund our content marketing spend as well as our STARZPLAY International rollout, and we have no debt maturities for another 3 years.

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Andrew M. Borst, Goldman Sachs Group Inc., Research Division - VP [34]

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Okay. And if I could, a follow-up on the TV growth for fiscal '21. If I remember correctly, on the last call, you guys talked about the potential of 50% growth. I mean is that still sort of good guidance in a sense for fiscal '21?

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James W. Barge, Lions Gate Entertainment Corp. - CFO [35]

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I don't want to put a particular number on it, but we definitely have strong growth in TV. And the timing of that throughout '21 will depend on ultimately the timing of avails in any particular quarter. But yes, strong growth, segment profit as well as margin improvement as we move into '21 with TV.

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Andrew M. Borst, Goldman Sachs Group Inc., Research Division - VP [36]

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And if you indulge me with one more. On the international business, I think you talked about $150 million of losses -- EBITDA losses this year being kind of a peak, or I guess trough better said. Is that still kind of your view of the business going forward?

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James W. Barge, Lions Gate Entertainment Corp. - CFO [37]

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That's right, yes. The guidance that we laid out previously on international, including moving to profitability in '23 and 15 million to 25 million subs in 2025, is all on course. We like what we see. We love the opportunity. We think the 150-ish that we've laid out previously as the high watermark for this year is, in fact, the case, and we look forward to executing on our plan.

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Operator [38]

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I'll turn it back to our presenters for any closing comments.

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James Milton Marsh, Lions Gate Entertainment Corp. - Senior VP & Head of IR [39]

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Great. I have a closing statement here. It's James Marsh. Please refer to our Press Releases & Events tab under the Investor Relations section of our company's website for a discussion of certain non-GAAP forward-looking measures discussed on this call. Thank you very much.

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Operator [40]

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Thank you. And ladies and gentlemen, this conference call will be made available for digitized replay, and that begins today at 4:00 p.m. Pacific Standard time, running through February 13, 2020, at 11:59 p.m. You can access the AT&T teleconference replay service by dialing 1 (866) 207-1041 and entering the access code 8182620. International participants dial (402) 970-0847. And that does conclude our teleconference for today. Thank you for using AT&T Conferencing, and you may now disconnect.