Adjusted operating income totaled $30 million in the quarter, compared with negative-$24 million and an operating loss of $58 million in the prior-year period. The company reported free cash flow of $347 million and reduced corporate net debt by $332 million, two reasons it said full-year financial targets will be hit.
During a conference call with Wall Street analysts, Lionsgate CEO Jon Feltheimer didn’t face the same epic-scale questions his media peers have faced during earnings season and with recent developments at Fox, Disney and Time Warner. Instead, while the company has grown steadily and merited a share price to match its ambitions, he and other execs made the case for nimbleness as a core value of the Lionsgate culture. “Disruption has always been our friend and we feel we’re on the right path to keep it that way,” Feltheimer said.
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Starz was a major engine behind the strong quarter, and its app will soon be added to Hulu, the company revealed, though it declined to provide any specifics on pricing or timetable.
Given the timing of the Starz close last December, the comparable quarter of fiscal 2017 includes Starz results on a pro forma basis. As the premium network gets further integrated into the company, the results have been positive, the company said. Its subscriber level of 24.5 million was flat with the year-earlier quarter, but the higher-margin OTT version gained 440,000 subscriptions compared with the first quarter, so it is growing sequentially.
Starz chief Chris Albrecht said the company is “very bullish” on the OTT business. “Our wholesale business will certainly be bolstered. With our direct-to-consumer business, data is really coming into play. Originals are driving subscriber acquisitions. Our goal now is to get the churn down.”
Albrecht demurred when asked about investment in original programming down the line, but he said diversification would be the plan. The network’s first foray into docu-series — a fruitful arena for premium peers HBO and Showtime — will be announced soon, Albrecht teased, providing no details.
Revenue in the media networks unit increased 7% to $393.4 million. Profits increased 42.2% in the quarter to $116.5 million on higher OTT revenues, lower programming costs and the licensing of Power. Among other originals, Outlander premiered to record audiences at the end of the quarter, the company said.
Film revenue declined 24% to $385.7 million primarily driven by fewer wide releases in the quarter, and television production revenue sagged 5% to $168.7 million.
On the movie side, while the third quarter has not been pretty at other studios, Feltheimer said the company’s domestic slate posted summer box office gains 20% ahead of last year. He promoted upcoming family film Wonder, which he predicted would “play through the lucrative Thanksgiving and Christmas season” after earning what he claimed were the highest test scores in company history. (Tracking indicates a much more modest opening.)
Joe Drake, a former Lionsgate exec who returned last month as co-head of the motion picture group after a period running a an affiliated production outfit, Good Universe, was asked by one analyst why he came back. “Lionsgate is one of the most dynamic content distributors out there,” he said. “Talent wants a bespoke experience. They don’t just want to be bought out.”
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