After reporting mixed results for its fiscal third quarter, Lionsgate executives offered Wall Street analysts an update on Starz as the premium network’s longtime chief, Chris Albrecht, gets set to exit the company in the coming weeks.
Albrecht did not appear on today’s conference call with analysts, but earned a shout-out from Lionsgate CEO Jon Feltheimer for his nine-year tenure. The former CEO of Starz, Feltheimer said, was central to “transforming Starz from a legacy media network to a forward-looking streaming platform. He worked closely with me to position Starz for the next phase of its growth and he leaves behind a strong programming slate and a talented leadership team. I’m confident we will maintained our momentum without missing a beat.”
The quarterly numbers continued to show the value of Starz, which Lionsgate bought for $4.4 billion in 2016. The Media Networks unit posted 10% higher profit in the quarter and Starz subscriber numbers, while flat sequentially, gained 1.1 million over the prior-year quarter to 25.1 million in the U.S. The company did not update its streaming tally, which it put at more than 3 million last fall. Internationally, the network is also expanding across streaming and linear.
“We remain confident that our response to the operating environment is the right one,” Feltheimer said. His remarks, and those of Television Group chairman Kevin Beggs, also highlighted the synergies that drove the acquisition in the first place. As a top supplier of TV content, the company can turn that machine in the direction of Starz and have a more reliable pipeline of owned programming, something all network bosses are making a priority.
That strategy hit a bump in the third quarter, though, when revenue fell as shows they produced did not air in the quarter as planned. One of those is The Rook, an ambitious show now planned for the summer on Starz, in a kickoff to the era of homegrown fare airing on Starz. Beggs said the decision to push the show, which meant a financial hit to the quarter, was a mixed blessing. On the upside, it would enable the production to spend more time perfecting special effects. “When you have an opportunity to take some extra time, you take it,” he said.
As Lionsgate Television looks to funnel more of its output toward Starz, it is also benefiting from a hot market thanks especially to buyers like Apple, Netflix and Amazon, as well as premium competitors trying to step up. (HBO plans a 50% increase in original hours as it revs up the engines under AT&T.)
One major upcoming Lionsgate show, the adaptation of global bestseller The Kingkiller Chronicle, is moving down the track, with scripts being written and locations scouted around the world; but it is not set to air on Starz, but rather on Showtime. Feltheimer was asked about balancing in-house opportunities with market-driven ones.
“It’s a super-high-class problem,” he said. “For us, the magic of what we’ve done is this collaboration between the studio and the platform. … The key thing for me is that the studio and the platform work hand in hand. That’s what’s happening right now. Kevin [Beggs] and Jeff [Hirsch, Starz COO] are going out to the community and basically saying, ‘We’re in this together. We want to open the creative aperture just a little bit wider. We want to attract talent that we haven’t attracted before.’ ”
Cases like Kingkiller — a major property executive-produced by Lin-Manuel Miranda and also headed to the big screen in a feature form — will remain in play but are a healthy ingredient in the financial recipe, Feltheimer said.
“You would think maybe it was bad news when we take a big piece of property, like Kingkiller or something else to another network. But we’ve been very much involved with creating a model where we retain most usually the international rights,” the CEO said. “We don’t mind, if it’s a deficit [-financed] show, that somebody else comes in and helps pay for the deficit. That’s great in terms of present-value earnings or lowering, ultimately, our investment in the project. As long as we get the kind of rights retention that we want.”
As the Starz-era strategy takes shape, Feltheimer said, “We don’t believe that value is being recognized right now, but when people understand the way these pieces fit together, we will get that value recognition.”