Lionsgate has disclosed its financial results for the first quarter, concurrently with discussions involving multiple potential buyers regarding the potential divestiture or independent establishment of its premium cable and streaming platform, Starz, and its studio operations.
However, the anticipated dissociation of Lionsgate and Starz, an event long predicted by the financial community, has been postponed to early 2024. This modification comes after Lionsgate recently acquired Entertainment One (eOne). In a post-market conference call with analysts, Lionsgate CEO Jon Feltheimer explained, “Considering the implications of the eOne acquisition on regulatory approvals, uncertainties related to ongoing labor strikes, and our endeavors to optimize our capital structure amidst a disruptive market, we now anticipate executing the separation in the first quarter of the calendar year 2024.”
Feltheimer further emphasized, “We deemed this opportunity too significant to overlook,” addressing inquiries regarding the eOne deal’s impact on the studio spinoff timeline that regulatory and financial restructuring concerns substantially influenced the decision to delay the transaction to early next year.
Lionsgate’s CFO, Jimmy Barge, supplemented this by noting that the studio would gain better insight into the Hollywood writer’s and actors’ strikes by year-end. This insight helps eliminate uncertainties ahead of finalizing the separation transaction.
About the ongoing financial ramifications of the strikes, Feltheimer disclosed that Lionsgate has already predicted a $30 million hit up until the end of September. This impact has been dispersed across the 3 Arts Entertainment talent management division and the film and TV production segments.
On August 3, the studio unveiled a $500 million agreement to acquire eOne from Hasbro as the toy conglomerate transitions into digital gaming. The acquisition is anticipated to conclude by the close of 2023. Concurrently, Lionsgate announced its intention for Starz to withdraw from Latin America by year-end, focusing instead on the United States, the United Kingdom, Canada, and Australia.
This decision reverses Starz’s recent global expansion, limiting its operations mainly to English-speaking territories. Lionsgate had previously chosen to exit specific markets for Lionsgate+—the rebranded international Starzplay endeavors—including France, Germany, Italy, Spain, Benelux, the Nordic regions, and Japan.
Despite these adjustments, the UK, Latin America, and Canada were initially positioned as regions where Lionsgate would maintain its association with Starz. However, this has been updated to exclude Latin America, in line with the company’s reshaped expectations for the TV platform’s online pivot and its future as an autonomous entity after the intended separation transaction.
In the latest quarter, they witnessed a decline of 300,000 Starz subscribers, culminating in 29.4 million subscribers. In terms of streaming, Starz concluded the second quarter with 19.9 million global OTT (over-the-top) subscribers, marking a 9 percent increase year-over-year.
During the same period, Lionsgate saw its net loss attributable to shareholders in the fourth quarter shrink to $70.7 million, a reduction from the previous year’s loss of $119 million. The overall revenue increased by 2 percent, reaching $909 million compared to $893.9 million in the prior year’s corresponding period. This performance exceeded Wall Street expectations, surpassing the forecasted $885 million total revenue for the quarter.
Lionsgate reported a per-share loss of 31 cents, a positive development from the loss of 53 cents the preceding year. According to analysts ‘ consensus, this was notably better than the anticipated per-share loss of 45 cents. Adjusted earnings per share stood at 4 cents, an improvement from the year-prior loss of 23 cents per share. This again exceeded the predicted 23 cents per-share loss for the quarter.
The studio also achieved a record trailing 12-month library revenue of $896 million, sourced from a mixture of film and TV content, and the fourth quarter particularly benefited from the resurgence of box office performance, propelled by the success of John Wick: Chapter 4.
In the breakdown of segment results, media network revenue experienced marginal change at $381.1 million. Simultaneously, the studio business, encompassing the Motion Picture and Television Production units, witnessed an impressive 46 percent increase in revenue to $406.5 million. This growth was attributed to the success of John Wick 4 across multiple platforms.
Addressing upcoming releases, Feltheimer showcased optimism for The Expendables 4, Saw X, and The Hunger Games: The Ballad of Songbirds and Snakes, underscoring the studio’s positive outlook for movie releases throughout the year. Additionally, the studio has wrapped up production on Ballerina, the latest addition to the John Wick franchise.
Furthermore, Feltheimer highlighted the substantial portfolio of renowned properties, including Dirty Dancing, Now, You See Me 3 directed by Ruben Fleischer, and Highlander, directed by Chad Stahelski, reinforcing the potential of the Motion Picture Group.
In contrast, television production revenues decreased to $218.5 million during the most recent quarter, a decline from the $432.3 million generated in the corresponding period last year, with a higher volume of episode deliveries.
Lionsgate is actively exploring various avenues for Starz, including the potential disentanglement of its pay TV and streaming business from its studio operations. This strategic move aims to establish two distinct standalone entities, enabling investors to assess the value of Starz and studio assets independently. The timeline for this endeavor, previously anticipated to be disclosed by the end of September, remains under scrutiny.
Regarding Starz’s performance, Feltheimer pointed out that a recent price increase has temporarily impacted subscriber growth on the platform, although it continues to remain profitable. Lionsgate has already submitted SEC documentation outlining the proposed split into two publicly traded companies. This process also entails addressing organizational and governance considerations that accompany the separation, including an intra-company agreement to uphold certain tax benefits.
The corporate structure for the separated studio and media networks businesses was detailed in a July 12 SEC Form 10 filing. These entities are slated to be rebranded as New Lionsgate and New Starz. Pending approval of the separation arrangement, holders of Lionsgate’s existing Class A voting shares will receive corresponding shares of new Class A voting common stock of New Starz and New Lionsgate’s voting common stock. Similarly, holders of shares of Lionsgate’s existing Class B non-voting common stock will obtain shares of new Class B non-voting common stock of New Starz and shares of New Lionsgate’s non-voting common stock proportionately.
The prospective separation seeks to segregate the studio operations, including the Motion Picture and Television Production groups, into a publicly traded independent company. Meanwhile, the media networks division, primarily comprising Starz, is slated to remain within the existing publicly traded entity.
Barge, Lionsgate’s CFO, projected that the acquisition of eOne is poised to generate annual cost synergies ranging from $55 million to $75 million.
