Lions Gate Entertainment Corp
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Lions Gate Entertainment Corp. Third Quarter Fiscal 2020 Earnings Call Thursday, February 06, 2020, 5:00 PM Eastern CORPORATE PARTICIPANTS Jon Feltheimer - Chief Executive Officer Jimmy Barge - Chief Financial Officer Michael Burns - Vice Chairman Brian Goldsmith - Chief Operating Officer Kevin Beggs - Chairman, TV Group Joe Drake - Chairman, Motion Picture Group Jeff Hirsch - President, Chief Executive Officer, Starz Scott MacDonald - Chief Financial Officer, Starz Superna Kalle - Executive Vice President, International James Marsh - Head, Investor Relations 1 PRESENTATION Operator Ladies and gentlemen, thank you for standing by and welcome to the Lions Gate Third Quarter Fiscal 2020 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session; instructions will be given at that time. If you should require assistance during the call, please press "*" then "0." As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. James Marsh, Head of Investor Relations. Please go ahead. James Marsh Good afternoon. Thank you for joining us for the Lions Gate Fiscal 2020 third quarter conference call. We'll begin with opening remarks from our CEO, Jon Feltheimer, followed by remarks from our CFO, Jimmy Barge. After their remarks, we'll open the call for questions. Also joining us on the call today are Vice Chairman, Michael Burns, COO, Brian Goldsmith, Chairman of the TV Group, Kevin Beggs and Chairman of the Motion Picture Group, Joe Drake. From Starz, we have President and CEO, Jeff Hirsch, CFO, Scott MacDonald, and EVP of International, Superna Kalle. The matters discussed on this call today include forward-looking statements, including those regarding the performance of future fiscal years. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors. This includes the risk factors set forth in Lionsgate's most recent annual report on Form 10-K as amended in our most recent quarterly report on Form 10-Q filed with the SEC. The company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. I'll now turn the call over to Jon. Jon Feltheimer Thank you, James and good afternoon everyone. We're pleased to report a quarter with strong performances by our feature film and home entertainment slates, multiple new production commitments in television and robust over-the-top subscriber growth at Starz. Here are the highlights. An outsized performance from Knives Out, one of the biggest original box office hits of the year and a new Lionsgate franchise. A strong award season for Bombshell, the latest addition to our catalog of critically acclaimed brand-defining films. The continued growth of one of the world's premier action franchises as John Wick Chapter 3 recorded the best home entertainment performance of any Lions Gate title in over five years. Strong momentum in our Television Group with 17 scripted series in production and eight new scripted series in pilots picked up and finally strong subscriber gains. We continue to make significant progress in the quarter, building out our streaming business with 8.6 million global over-the-top paid subscribers across Starz, STARZPLAY Arabia and PANTAYA accounting for 30% of our 28.5 million total global subscribers. Lions Gate Entertainment Corp. Thursday, February 06, 2020, 5:00 PM Eastern 2 Now, let's drill down in each of our businesses. At Starz, beginning on the domestic front, we continued our transition in the quarter to an on-demand environment that will ultimately result in higher ARPU linear subscribers and higher value over-the-top subscribers. We reached a multifaceted long-term agreement with Comcast that provides a revenue glide path into a new distribution arrangement allows us to build an a la carte revenue sharing business together and includes a content licensing deal with Peacock. I'd like to remind everyone that Starz has been successfully sold a la carte on the platforms of cable and satellite operators and telcos, as well as, streaming platforms for years. In fact, we'll end the fiscal year with a projected 61% of Starz revenues already coming from our a la carte business. On the programming front, we've put together a diverse slate that delivers premium programming year-round to our core female, African-American and Latinx audiences. We approach the Season 6 finale of Power this weekend, with the show drawing over 10 million multi-platform views and four Power inspired series lined up to continue building out the Power universe. The first of these, Power Book II: Ghost, featuring Mary J Blige and Method Man along with a number of returning casts arrives this summer. Other new original Starz series are being greenlit and produced at an accelerated pace, with the crime drama Hightown from Producer, Jerry Bruckheimer set to debut at South by Southwest ahead of its premier this spring, P-Valley from playwright Katori Hall debuting this summer, and Run the World' From 'Dear White People show-runner Yvette Lee Bowser and Writer, Leigh Davenport arriving in the fall. The wrestling drama Heels with an all-star cast led by Stephen Amell, star of Arrow and Alexander Ludwig, star of Vikings along with the provocative dangerous Liazon, continues the expansion of our slate next year. He joined the returning hit series Outlander, which will launch its fifth season next week. Season two of The Spanish Princess, The Girlfriend Experience at this year in London and the third season of the Critically-Acclaimed Vida, all targeted to our valuable and scalable core demos. Internationally, the strategy for our STARZPLAY streaming service, delivering world-class premium content and leveraging strategic partnerships at an attractive price point continues to drive strong results. I'm pleased to report that we're executing fully on this strategy having launched on 49 platforms in 30 countries and we remain on track to hit our financial and subscriber targets. The portfolio, the claim STARZPLAY programming featuring The Spanish Princess, Dublin Murders and Power, along with such award-winning acquisitions of The Act, Rami and Killing Eve is resonating with global audiences and fuelling our growth in key markets including the U.K., Spain, Germany and Mexico. And we have begun to compliment this original programming with local language co-productions and a line up of hit movies in key territories. As we announced this afternoon, we will be splitting the first pay window for our theatrical releases in the U.K., with Amazon, our critical distribution partner in that territory. In India where our service is called Lions Gate Play, we’re supplying our first run movies exclusively to our platform, and I've already entered strategic partnerships with market leaders, Vodafone and Airtel. Lions Gate Entertainment Corp. Thursday, February 06, 2020, 5:00 PM Eastern 3 As we continue to expand internationally, our experience with the STARZPLAY Arabia Venture serves as a perfect blueprint for our new territories. In 2015, we saw an opportunity in the Middle East North Africa region with consumer behaviour just beginning to pivot to digital consumption and growing demand for a subscription video-on-demand service that could partner with the regions, cable, and telco and satellite operators. Five years later, STARZPLAY Arabia has achieved 1.7 million subscribers, and is one of the top two SVOD services in the 19 MENA markets. The current opportunity and the characteristics of the 30 additional territories in which we've launched STARZPLAY are similar to what we saw with STARZPLAY Arabia in the MENA markets. So in an environment that is more disruptive than ever, our own identity and focus are clear, to again, take advantage of our early mover position as an expertly curated, well-differentiated premium service that sits on top of global and local platforms alike as we continue to convert our strengths into reaching our target of 15 million to 25 million paid international subscribers over the next five years. As we continue to hit our financial numbers and accelerate our trajectory to reach our subscriber goals, we're confident that the value we've already created and will continue to create will be recognized. Turning to the Motion Picture Group; we continue to demonstrate our diversity as we positioned and released three films in the quarter that brought us success in areas that might not seem obvious but are very intentional. The domestic box office performance of Midway started the ball rolling and reaffirmed our strength in the action zone, a key pillar of our content strategy. Then we shifted gears for the Thanksgiving holiday with Knives Out, which will soon break $300 million at the worldwide box office, has earned multiple award nominations and serves as further proof that franchises can emerge from any of our content verticals. And finally, we released Bombshell in December, a film that earned multiple SAG, Golden Globe and Oscar nominations and rounded at a calendar 2019 slate that solidified our position as the dominant player in the mid-budget space. Looking ahead, the value of our strategic partnerships with best-in-class creators is evident both in our release slate and production pipeline. Next up in March is I Still Believe, kicking off our faith-based collaboration with the Erwin Brothers Kingdom studio as we release the follow-up to last year's Roadside Attraction’s hit, I Can Only Imagine. We begin production later this year on two more Kingdom titles, American Underdog, the inspiring story of Super Bowl Winning Quarterback, Kurt Warner, slated to release this Christmas and Jesus Revolution.