Lionsgate CEO Jon Feltheimer honored the company’s policy of declining comment on M&A rumors during the company’s conference call today with Wall Street analysts to discuss its fourth-quarter financial results.
“We have a plan,” Feltheimer affirmed. “We’re super-confident about it. We’re executing on the plan. We felt that the window of opportunity [for expansion] was now. You can see the results already.”
Largely because of hefty investments in the international buildout of the Starz Play streaming offering, Lionsgate reported a lackluster quarter of results, which suffered further from ongoing softness on the film side.
Barge said the company envisions “compelling” return from its ongoing investment in boosting the formerly U.S.-centric network internationally. He said the spending would create annual losses peaking at $125 million to $150 million in fiscal 2020, with profitability coming by fiscal 2023.
By 2024, the service will have attracted between 15 million and 25 million subscribers, Barge said. As of now, there are 3 million international subscribers, largely through StarzPlay Arabia, a venture with Bell in Canada and an Amazon Prime partnership in Europe. (The network is distributed through linear systems only in the U.S. and Canada.) Starz — which ditches the “Play” in the U.S. — has racked up 4 million domestic streaming subscribers.
Lionsgate is also planning to raise equity against the value of StarzPlay, which is now in 51 global territories. Pointing to a “substantial valuation disconnect between our enthusiasm about the international business and the current investor perception,” Barge pegged the negative baggage at $500 million in market value. He promised future updates would deliver more “transparency” around the international growth effort, including more detailed financial specs and subscriber counts.
In terms of integration, the company has focused on uniting the previously separate production teams at Lionsgate Television and Starz and adjusting programming to increase its global appeal, Feltheimer said. Lionsgate acquired Starz for $4.4 billion in 2016.
“There’s typically for buyers a little bit of a ‘lean out’ kind of way. You wait for programming to come. With a studio, it’s a little bit of a ‘lean in,’ aggressively going after talent so that you can sell it,” Feltheimer said. “What we’ve done, from a cultural perspective, is bring them both together.”
The integrated team, he added, has been “super-aggressive, going after everything.” One project that eluded Starz/Lionsgate, he conceded, was The Gilded Age, a 10-episode period drama from the creators of Downton Abbey that wound up at HBO. But the chase is on.
The timing and forum for the equity raise is still to be determined, Barge said. The initiative will be “a very important valuation marker,” he promised, helping to unlock the “substantial value” of the Starz library. The company books a 50% cash margin overall on its TV and film library, which generates about $500 million in annual revenue.
Asked about the soon-to-expire film output deal with Epix, Feltheimer said those titles will be redirected to Starz, which will help offset the expected loss of Sony titles. The premium network will maintain a robust selection of later-window rights to Disney film titles despite the forthcoming launch of Disney+, which will feature first-window rights to the studio’s own wares. Executives refused to specify how much the company may have been compensated by Disney in exchange for those rights, which once were a key subscriber acquisition draw for Starz.
Joe Drake, who has been overseeing the turnaround effort at the film unit, told analysts mergers such as the one involving Disney and Fox and the larger trend toward mega-budget tentpole moviemaking allows “plenty of real estate for us to play in.” On an annual basis, he added, there is about $7 billion in box office generated beyond the top 10 grossers, he estimated.
While its smash release last week came outside the fiscal fourth quarter, Feltheimer pointed to John Wick: Chapter 3 — Parabellum as an example of the company doing more with less. The action sequel has pulled in $110 million around the world in its first week after a coordinated effort among multiple departments at Lionsgate to maximize a modestly budgeted movie’s potential.
“We add one plus one plus one at our company and generally come up with five,” Feltheimer said.