Lionsgate reported quarterly earnings that beat Wall Street expectations as its TV and film library helped drive revenue to $1 billion for the December period.
For Lionsgate’s fiscal year 2023 third quarter, revenue climbed 13% year over year, while OBIDA of $168 million was up 83%, with the company feeling confident as it gears up for a strong upcoming content slate. Lionsgate is also preparing to spin out its Starz and studio businesses into two separate companies this year, something management said is on track for the end of September.
“Separation will give our two core businesses the opportunity to pursue strategic and financial paths that make sense for each of them and unlock greater value by operating as pure-play entities,” said Lionsgate CEO Jon Feltheimer on Thursday’s earnings call.
For the period ending December 31, 2022, Lionsgate lost 200,000 Starz subscribers. Lionsgate CFO Jimmy Barge said the modest sequential decline was a result of a lighter slate of originals and Pay 1 titles. It ended the quarter with 37.2 million total global subscribers, including Starz Play Arabia. Excluding subscribers in seven international markets that Lionsgate plans to exit in March, the subscriber count was 28.7 million.
Lionsgate said it has 18.5 million OTT subscribers, reflecting 14% growth – including a 5% bump domestically and 33% growth internationally. Lionsgate counted 8.2 million U.S. linear subs and 1.6 million international, with around 12.4 million U.S. OTT subscribers and 13.7 million international, noted Macquarie Capital analyst Tim Nolan. In a research note to investors Nolan also highlighted revenue and OBIDA results as “surprisingly strong” and said Lionsgate “is well on its way to hitting FY targets.”
For its fiscal fourth quarter, the company expects around 7 million international subscribers following Starz planned exit in several major international markets, in a move towards better profitability.
While Starz saw sub declines in the period, executives on the earnings call cited a return to subscriber growth, something it’s already seeing in the current quarter.
Reducing its exposure to linear challenges with a continued focus on transitioning to digital is one of Lionsgate’s key priorities, noting that 73% of Starz subscribers and 64% of revenue came from digital in the quarter.
On the film content side, Lionsgate is preparing for John Wick 4, starring Keanu Reeves, to release in theatres March 24 and rolling out to Starz this fall. The John Wick TV event series “The Continental” is set to debut on Peacock and Amazon later this year, with a John Wick spin-off and video game also in the works.
“The John Wick franchise is set to drive outsized value across all of our businesses,” said Feltheimer.
Its upcoming slate also includes new chapters for Saw, The Expendables and Dirty Dancing franchises, as well as the newest Hunger Games installment arriving in theatres November 16. In its studio business, both TV and film helped drive revenue growth of 25% year over year to $894 million, with segment profit up 71% to $148 million.
Lionsgate TV segment is doing well, with segment profit growing 50% this year and similar growth expected next year, according to Feltheimer who added “these contributions are coming from every part of our television business.”
Within the studio business, TV production revenue was up 38% to $605 million, which executives attributed to continued output growth of both new and returning series, and strong library sales including licensing of “Schitt’s Creek” – which landed exclusively on Hulu starting last October after previously being available on Netflix.
Barge noted that while Shitt’s Creek licensing was a benefit in the quarter, upticks in library revenue were widespread, adding “AVOD continues to be a growth area for us and library sales is just great demand across the board.’
For the quarter, media networks revenue was down 2% to $380 million as OTT revenue growth was more than offset by pressure on the domestic linear business. Media networks’ segment profit was $50 million in period, up 74% year over year, thanks to lower marketing spend, content expense and foreign exchange.
Bundling agreement coming
During the call executives also pointed to industry shifts that favor bundling, with Starz “establishing itself in the streaming ecosystem as a complementary bundling partner of choice.”
Feltheimer noted the streaming industry is moving into a time of more rational content spend, greater focus on profitability over subscriber growth and increased receptivity to bundling and packaging.
“The bundling of Paramount+ and Showtime, the evolution of the HBO Max and Discovery+ offerings and the emergence of new retailers are indicative of a landscape that plays to our strengths as a complementary pure-play premium service with a focused content strategy and two valuable and scalable core demos that can sit on top of every platform and be part of every bundling and packaging conversation,” he said.
To that end, he disclosed Lionsgate will announce its first major domestic bundling agreement for Starz next week, without naming names yet.
Starz CEO and President Jimmy Hirsch said the other party is a complementary streaming partner that Starz is excited to go to market with. He noted that as with any bundle, there will be a joint price point that’s less expensive than the two individual services to give the consumer value.
“But in exchange for the lower ARPU on that business, you get better churn characteristics, lower SAC [subscriber acquisition costs] and all the benefits that you would see in the bundled linear world from the past,” Hirsch said. “So we’re excited to kick that off” and to have more down the line.