Final Transcript
th LIONSGATE ENTERTAINMENT: Fiscal 2012 4 Quarter Earnings Call May 31, 2012/6:00 a.m. PDT
SPEAKERS
Peter Wilkes – Senior Vice President of Investor Relations Jon Feltheimer – Chief Executive Officer Michael Burns – Vice Chairman Rob Friedman – Co-Chair, Motion Picture Group Patrick Wachsberger – Co-Chair, Motion Picture Group Steve Beeks – Co-COO and President, Motion Picture Group Kevin Beggs – President, Lionsgate’s Television Group Jim Keegan – Chief Financial Officer Rick Crowell – Chief Accounting Officer
ANALYSTS
Alan Gould – Evercore Partners Caroline Anastasi – JP Morgan Ben Mogil – Stifel Nicolaus James Marsh – Piper Jaffray David Miller – Caris & Company Doug Creutz – Cowen & Company Matt Harrigan – Wunderlich Securities David Joyce – Miller Tabak & Company Marla Backer – Hudson Square David Bank – RBC Capital Markets
LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 2
PRESENTATION Moderator Ladies and gentlemen, thank you for standing by and welcome to the
Lionsgate Fiscal 2012 Fourth Quarter Earnings Call. For the conference
all the participants are in a listen-only mode. There will be an opportunity
for your questions. As a reminder, today’s call is being recorded. I’ll now
turn the conference over to the Senior Vice President of Investor
Relations, Mr. Peter Wilkes. Please go ahead, sir.
P. Wilkes Thank you for joining us on the call this morning. Jon Feltheimer, our
CEO, will lead off with opening remarks. We’ll then open the call to
Q&A. Joining us for Q&A will be Michael Burns, our Vice Chairman;
Rob Friedman and Patrick Wachsberger, Co-Chairs of our Motion Picture
Group; Steve Beeks, Co-COO and President of the Motion Picture Group;
Kevin Beggs, President of Lionsgate’s Television Group; Jim Keegan, our
CFO; and Rick Crowell, our Chief Accounting Officer.
The matters discussed on this call include forward-looking statements,
including those regarding performance of future fiscal years. Such
statements are subject to a number of risks and uncertainties. Actual
results in the future could differ materially and adversely from those
described in the forward-looking statements as a result of various
important factors, including risk factors as set forth in Lionsgate’s 10-K LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 3
filed with the SEC on May 30, 2012. The Company undertakes no
obligation to publicly release ... any revisions to the forward-looking
statements that may be made to reflect any future events or circumstances.
Jon?
J. Feltheimer Thank you, Peter. Thank you all for joining us on the call this morning.
Fiscal 2012 was a milestone year for Lionsgate. We acquired Summit
Entertainment and significantly increased the scope of our business and
the depth of our content portfolio. We saw our strategy of building brands
and franchises reach fruition with the launch of The Hunger Games
worldwide, and we continue to increase the diversification and enhance
the profitability of our Television business.
We’ve had a very productive four months since our last call. First, we’ve
begun to achieve significant benefits from our acquisition of Summit
Entertainment, bringing to our buyers, partners, and consumers a business
whose scale has increased dramatically in the past year. Our theatrical
slate is positioned to generate more than $1 billion to the North American
box office this calendar year, leading off with The Hunger Games,
finishing up with Twilight: Breaking Dawn – 2, and anchored by The
Expendables 2 in the middle. LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 4
Our Theatrical and Home Entertainment businesses are on pace to achieve double-digit market share throughout the year, ranking among the industry leaders. We continue to strengthen our 13,000 title library, not only with the addition of the number of valuable titles from our Summit acquisition, but with our renewal last week of our long term distribution deal with
Studio Canal, whose titles include such blockbuster hits as Terminator 2:
Total Recall, Basic Instinct, and Rambo. Our library achieved a record
$416 million in revenue last year, and with increasing margins it generated close to $150 million in cash flow.
In the four and a half months since the Summit acquisition we’ve taken several specific steps to translate our increased scale into margin improvement and a stronger position in the marketplace. We’ve revisited our theatrical exhibition, retail, and vendor relationships across our motion picture companies to take advantage of new economies of scale and new opportunities reflecting the scope of our combined Lionsgate and Summit
... .
In January we pointed out that one of the major benefits of the Summit acquisition was strengthening our international licensing business, and our focus on this year is already achieving results. We have just extended and LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 5
expanded our output deal with Nordisk in Scandinavia to encompass
Lionsgate as well as Summit titles, and we strengthened our multi-faceted relationship with our valued Studio Canal partner with last week’s announcement that they will distribute The Hunger Games: Catching Fire in Germany. We’re also finalizing plans to extend the IDC Summit partnership in Latin America to the Lionsgate brand as well. These deals increase our long term visibility and retain our upside while continuing to mitigate risk because of our up front minimum guarantees.
With The Hunger Games and Twilight we’ve established ourselves as the number one studio in young adult franchises, and we’ll continue to leverage our market leadership to serve as a magnet for the most compelling new properties in the marketplace. Our next wave of young adult films includes Ender’s Game, a book series which has a passionate and long standing fanbase of its own, and is scheduled for a November
2013 release, three weeks ahead of Catching Fire.
We also have a number of very promising development properties, including the first book in our Chaos Walking trilogy, The Knife of Never
Letting Go; Veronica Roth’s Divergent, the first book, and another New
York Times bestselling young adult trilogy of books; and Erin LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 6
Morgenstern’s highly acclaimed The Night Circus, to be produced by
Harry Potter Producer, David Heyman. We’re already exploring ways to extend some of the properties we acquired in the Summit deal across all of our businesses, including potential TV series based on the Red and Step
Up film franchises.
We’ve completed the bulk of the integration of Lionsgate and Summit on schedule, eliminating 80 positions, or approximately 12% of our combined workforce, and our divisions are headed by executives who represent the best-in-class from our two companies. Our overhead to revenue percentage remains the best in the media sector. It’s important to note that we’ve already paid down more than $100 million of our $500 million
Summit term loan, leaving a balance of less than $400 million.
Turning to our second area of focus, we’re positioning ourselves to take full advantage of the continued rollout of The Hunger Games franchise in the years ahead. As you know, the first Hunger Games film is nearing
$400 million at the North American box office and already approaching
$650 million worldwide. We will open The Hunger Games in China next month, with a launch that includes 67 IMAX screens, and its performance there should drive its worldwide box office significantly higher. LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 7
The Hunger Games will have the biggest home entertainment launch in
Lionsgate’s history on August 18th. Like our theatrical marketing campaign our home entertainment rollout of The Hunger Games will take an integrated approach to digital and traditional media, with significant utilization of social networks. We’ll kick off the launch with midnight retail events across the country that we expect to recapture the excitement and fan frenzy of its theatrical debut. And we’re already setting in place all the elements to make the next installment of the franchise Hunger
Games: Catching Fire an even bigger success. We secured a very talented director in I Am Legend’s Francis Lawrence and we’ll begin production in September for a scheduled November 22, 2013 theatrical release. We began licensing Catching Fire as well as Red 2 and a number of other significant titles at the Cannes Film Festival last week. I’m pleased to report that our newly combined sales force achieved a record
$170 million in sales.
Turning to our other young adult franchise, Twilight: Breaking Dawn 2, it’s completing post-production for its November 16th release. Director
Bill Condon has done a terrific job and we believe that Breaking Dawn 2 will be the strongest Twilight film to date. A special 60 second Breaking LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 8
Dawn 2 teaser will be included on The Hunger Games DVD in August, as
we capitalize on our dominant young adult presence.
Continuing our emphasis on repeatable franchises, our next three releases,
Medea’s Witness Protection, Step Up Revolution, and Expendables 2 are
all proven brands. In fact, more than half of our upcoming release slate is
comprised of franchise properties. In addition to the titles that I just
mentioned, these include Hunger Games Catching Fire, Twilight Breaking
Dawn 2, Red 2, and Texas Chainsaw 3D.
Turning to our third area of focus, the successful diversification of our television business continues, as our core cable shows continue to move through or towards their syndication windows. Mad Men returned for
Season 5 with record ratings, up 9% from last season, driven in part by its increased exposure on Netflix. Nurse Jackie is our next candidate for syndication, and we and Showtime are announcing today a fifth season order, with new show runner Clyde Phillips, the creative force behind
Dexter. Our critically acclaimed drama, Boss, is currently shooting its second season in Chicago, and will resume airing on Starz after the
Olympics.
LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 9
But the biggest news makers are the four exciting new series that highlight the increased breadth of our TV business. We’ve completed shooting the first ten episodes of Anger Management and it will begin airing on FX on
June 28th. Charlie Sheen’s performance shows why he has been, and continues to be, one of the top television stars the world and why FX has committed such an impressive and creative marketing campaign forthe show. As we’ve mentioned before, there’s strong interest in Anger
Management internationally. I’m pleased to report that we’ve now generated more than $600,000 per episode in just five territories.
Again, contemplating the 10 plus 90 model of Anger Management, we’ve recently announced a new deal with major TV star, George Lopez. We expanded into broadcast television this year, batting 1,000 as both our network pilots Nashville for ABC and Next Caller for NBC were ordered to series. Nashville is written by Academy Award winning screenwriter,
Callie Khouri, and ABC has announced it as their new Wednesday 10 p.m. show, airing right after the comedy block anchored by Modern Family.
Mining one of our most important assets, Weeds’ writer/producer, Stephen
Falk’s Next Caller joins NBC’s mid-season lineup in early 2013 and stars
Dane Cook and Jeffrey Tambor in a workplace comedy set in a satellite LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 10
radio station. Both series will be co-financed with their respective network studio partners and both are shot in the States, with significant tax credits in order to mitigate risk. Next week we’ll begin pre-production on
Orange is the New Black from Weeds’ creator, Jenji Kohan. It’s our first original series from Netflix as we diversify into original programming for digital platforms. As a first mover in this space we’re attracting a lot of attention from other digital platforms with an appetite for original programming of their own. We’ve established a track record of creating
shows that help put emerging cable networks on the map and we believe
that we can expand our spectrum of buyers by doing the same for digital
platforms.
Turning to our development slate, we’re delighted to be teaming with the
great Simon Fuller, the TV and music entrepreneur who built the
American Idol franchise, on a musical drama about the lives and loves of a
young rock and roll band in Los Angeles. This project is already
generating tremendous excitement in the creative community.
The promise that we’re seeing today across all of our businesses is a
culmination of 12 years of building our company, growing our content
pipeline, and defining those areas of excellence where we believe we can LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 11 operate as a long term market leader. We’re gratified when our exhibition partners discuss our emergence as a seventh major studio, as they did at their recent annual CinemaCon convention. But let me assure you that we will never operate in a traditional manner. We will continue to adhere to our disciplined film and TV business models, maintain the lowest ratio of overhead to revenue in the industry, and use the cash generated by our
Summit assets and the success of our Hunger Games franchise to reduce our interest expense and lower our debt. Having The Hunger Games and
Twilight franchises coupled with a prolific library, a strong and profitable
TV business, and a record backlog of $1 billion gives us highly visible cash flow and earnings for the next several years.
For all of the reasons we spelled out last year, we still believe that timing issues and the movement of films on our slate make it inadvisable to give annual guidance. However, because of the transformative nature of the events of the past several months, we believe that it is prudent to provide our shareholders and analysts with some directional guidance. With substantially all of the profitability of the first Hunger Games film still ahead of us, we anticipate that with the base case performance of our future product we will generate approximately $900 million in EBITDA over the next three years. With this level of profitability we remain LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 12
confident that our Summit term loan will be paid down on schedule, and
our corporate debt at the Lionsgate level will be significantly reduced.
I’d now like to turn the call over to your questions.
Moderator And we’ll first go to the line of Alan Gould.
A. Gould Thank you. I’ve got a question regarding the $900 million of guidance,
and Jim a question for you regarding the write up of the Summit film
costs. It looks for purchase price accounting you wrote up the Summit
film costs by $250 million. The question is, how much of that will impact
fiscal year ’13 EBITDA and fiscal year ’13 to ’15 EBITDA, having to
amortize that additional $250 million?
J. Keegan The step up was probably closer to $200 million, Alan, and it will impact
the ’13 EBITDA, it could be probably in the $100 million range and in
’14, maybe ’15, it will drag out. As you amortize that step up over time,
however, that has no impact to the cash flows on it. And the guidance that
Jon has given took into account the step up in bases for the Summit films.
LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 13
A. Gould Okay, but your free cash flow, doesn’t that affect the EBITDA, because
you have to amortize that film cost and then you add it back when you
calculate free cash flow?
J. Keegan The answer is yes, so that’s what I said, EBITDA is impacted, however,
cash flow is not impacted.
A. Gould So it will impact the three year EBIT, the $900 million that Jon gave as a
base case, that’s an EBITDA number or a pre-cash flow number?
J. Keegan That was an EBITDA number with the Summit step up in bases baked in.
A. Gould With the Summit baked in, so it already accounts for that $150 million,
$200 million increase?
J. Keegan Absolutely.
A. Gould And then my second question is, can you give us an update on the TV
Guide status?
LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 14
J. Feltheimer Yes, I think, Alan, as we said before, we’re continuing to have
conversations with our partner, OEP to maximize the value of that asset. I
can tell you that we are proceeding on track to where we want to be, which
is about 80% full screen by the end of the year. We’ve completed most of
the distribution deals that we anticipated, and we’re having a number of
conversations about, as I say, the best way to maximize the partnership.
A. Gould And one last thing, you said substantially all The Hunger Games profits
are still ahead of you, I was projecting north of $300 million for Hunger
Games profit. How much got recognized in the March quarter?
J. Feltheimer I won’t comment on your projection, but I would say that we probably
have about approximately 90% of The Hunger Games profit to go.
A. Gould Thank you very much.
Moderator Our next question is from Monica Dicenso.
C. Anastasi Hi, this is Caroline Anastasi for Monica. Can you just give us a little more
color on the bottom line impact of each of the Summit related charges and LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 15
to what extent we may see more in Q1, particularly with respect to the
stock appreciation rate?
M The Summit related charges, the step up in bases that happened on the
Breaking Dawn 1 ..., Breaking Dawn 2 will also have a step up in bases.
But that is always factored into Jon’s numbers. The stock appreciation
rights are just depending on how the stock performs, so you’ll have to do
the math. If it goes up as a standard stock appreciation charge maybe
between, I don’t know, $8 million to $10 million a year but –
J. Feltheimer Effectively, what I was going to say is that on ... it’s almost a marked to
market, that’s how I would look at that. At March 31st it was at a certain
price and we’ll look at it at the end of the quarter as well.
C. Anastasi Okay, and just a follow up, can you update us on your opinion
surrounding EPIX’s deal with Netflix and where things stand today, and
do you think it makes sense to continue with an exclusive deal?
M I would say it’s not really appropriate for us as just one of the three
partners to discuss ongoing discussions. I would say we’re very pleased
with our relationship with Netflix, and I would also say that if you look at LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 16
their numbers that have been published recently in terms of their prime or
heavy usage times, a significant portion of that is going to EPIX films, but
obviously as well there are new players, new deep pocketed players who
are interested in the product as well and so we’ll just have to see how that
goes. But we’re very pleased with the Netflix arrangement right now.
C. Anastasi Okay, great. Thank you.
Moderator Our next question is from Ben Mogil.
B. Mogil Good morning and thanks for taking my questions. I want to just go back
to EPIX. You now have a situation where the channel’s relatively
profitable. Have you thought a little bit about return of capital to the
shareholders and how should we be thinking about the relationship
between EPIX’s net income and EPIX’s free cash flow? Are there more
original programming investments to come as a steady state?
J. Feltheimer I think for EPIX their EBITDA and free cash flow should pretty well track
each other and I think there’s no question that as we continue to generate
cash I would say there’s a strong likelihood that we will distribute that
cash. Does that answer your question? LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 17
B. Mogil Yes, it does. Thanks, Jon. Do you have any sense of timeline? I realize
that there are partners, so it’s not just a solo decision, but any sense of
timeline that you can see based on the ... deals that you have and what the
upcoming schedule looks like in terms of programming costs?
M I think the timeline would be fairly current.
B. Mogil Okay. And then lastly, just going back, you take an EBITDA number of
$900 million, you add in $200 million of amortization from the step up
situation, is it fair to say that on an unlevered pre-tax free cash flow basis
we should be looking at about $1 billion, $1.1 billion of free cash flow,
sort of ... and new investment are going to be roughly equal?
J. Keegan I don’t think if you did that with all your fingers and toes, Ben, but I’d say
that’s a pretty accurate number.
B. Mogil I have a calculator, but thanks, Jon. That’s it for me, guys. Thank you.
Moderator Next we go to James Marsh.
LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 18
J. Marsh Yes, two quick questions, first, on Anger Management, assuming the
ratings reach the appropriate threshold and FX takes the additional 90
episodes, when would you expect to announce the additional 90? And
related to that, could you elaborate a little bit on that threshold calculation,
is it as simple as the show just generating above average ratings, a typical
show on FX?
J. Feltheimer I’m actually pleased to have for the first time one of our analyst calls,
Kevin Beggs here runs our television production business, so I’ll let him
answer the question.
K. Beggs We will know by early September from FX about reaching the ratings
threshold. The formula is complex and obviously it’s confidential, but in
general it’s an achievable rating that is in keeping with FX’s other
originals.
J. Marsh Okay, that’s helpful. Then, earlier you guys were talking about talking to
vendors, exhibitors, etc., about your new market power. Should we expect
any change in film splits with exhibitors going forward?
J. Feltheimer I’m going to let Rob answer that question. LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 19
R. Friedman We had very, very successful conversations and negotiations with our
exhibition partners across the whole world, actually, and yes, our
settlement rates will increase, definitely.
M I would say, by the way, it’s not even necessarily just a question of
leverage. I think that the exhibitors, it’s really a win-win and I think the
exhibitors can see that we’re delivering, between the two labels, we’re
delivering a lot of the kinds of product that works for them, obviously the
franchise’s product, and so they’re rewarding us for what’s working for
them as well.
J. Marsh Excellent, thanks very much.
Moderator Our next question’s from David Miller.
D. Miller Hey, guys, one question for Rob and then a question for Michael. Rob,
my understanding is that there are a number of scenes on Catching Fire
where you’re going to have to shoot on water, and I don’t have to tell you
this, but I just know, shooting water is just a royal pain in the butt, there’s
all kinds of things that can go wrong. Is that the reason for the higher
negative cost on the second film, or is the reason for the higher negative LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 20
cost just broader production value in general, if you can couch that for me,
that would be great.
Michael, just in terms of timing of taking out the high yield debt, are you
comfortable with doing that, if you’re willing to tell us, are you
comfortable with doing that in the current quarter or do you see that as a
back half of the fiscal year type of situation? Thank you.
J. Feltheimer Rob?
R. Friedman The answer to your question is that there will be a greater and more
exciting production value which is one of the reasons for the increase in
production costs. As it relates to water, the actual water scenes do not
involve vessels which generally are the ones that create the problems in
production. The water that we’re talking about in Catching Fire is a much
more controlled situation, so we’re way on top of that.
M Given that, I think Patrick might want to talk about the international,
because the budget will go up, we think, in a very disciplined manner, but
I think Patrick perhaps has some good news on the other side.
LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 21
P. Wachsberger Well, first of all, we’ve done extremely well in Cannes in licensing the
rights to Catching Fire. We had a lot of competition from a lot of buyers
who wanted to get in, and we got the best deal, improved the back end,
improved on the front money and also the quality of the distributors. We
are anticipating that Catching Fire will probably reach $400 million
international box office. We based those calculations on the history that
we had with Twilight, the first Twilight did $197 million internationally
and the second one did $413 million. There is new development of
countries that did not exist at the time, such as China, which becomes
really a very, very important market for us. In fact, The Hunger Games is
actually opening next month in China, and it’s going to be, in fact, the last
foreign non-Chinese movie opening before June 20th of this year. So we
are very, very pleased with the reaction and anticipate a huge number for
Catching Fire.
J. Feltheimer Yes, David, I think the key point that really I wanted to make is even with
the franchises we’re still going to continue to look at them the same way
we always do, which is what is our risk capital really, taking the budget,
taking out the pre-sale and the minimum guarantees from the international
marketplace, that’s what we always intend to manage is the GAAP.
Michael, do you want to answer the second question? LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 22
M. Burns David, in regards to your other question, we have about 14 months left on
our current credit facility, so you should expect us over the next 6 months
to look to redo that. And obviously that is a LIBOR based facility, which
is a lot cheaper than 10% money on our high yield. Our high yield bonds
are callable at 105.25 and ... in about 17 months they’re trading five or six
points higher than that right now, but I think you certainly should expect
us over the next 24 months to lower our cost of capital. We finished the
year at about $300 million of cash and cash availability and our
expectation is that as we collect additional revenue and additional profit,
for us to lower our cost of capital and our debt significantly, as Jon talked
about.
D. Miller Wonderful, thank you.
Moderator Our next question’s from the line of Doug Creutz.
D. Creutz Yes, thanks. I was wondering if you could comment on what you’re
budgeting in fiscal ’13 for the actual P&A expense excluding stock comp
and your investment ... . Thanks.
LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 23
J. Feltheimer I’ll give you some metrics, you’ve heard them before, to help you build
your model. Late this year we’ll probably have about 10 additional films
than last year. I think Rob has noted on the last call that that’s not the
steady state. We see it going back down in fiscal’14 and ’15 to around 14.
You can assume an average of some larger, some considered real small,
but an average of about $25 million of P&A for those pictures and you can
also assume a GAAP on each of those movies in terms of investment ...
but a GAAP in terms of risk capital of approximately $12 million or $13
million per picture.
In terms of television, you’re talking about around $350 million to $400
million of investment in film. However, as you recall, almost all of that,
over perhaps 80% is covered by network license fees. So perhaps those
elements would help you build your model.
D. Creutz Can you talk about what G&A will look like in fiscal ’13?
M It will probably be somewhat flat compared to our G&A this year,
actually.
D. Creutz Okay, great. That’s very helpful. Thanks. LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 24
Moderator And we’ll go to Matt Harrigan.
M. Harrigan Thank you. Most of my questions were answered. On the new
development side some of the real promising things like The Night Circus
and I think Ender’s Game you’re sharing a lot of the economics with
various partners. Are you pretty much able to keep most of the economics
in house on some of the projects that you talked about, apart from
Ender’s?
And then, I guess a question for Jon, at CinemaCon some of the major
directors were really saying that 3D was going to be the norm on
productions before too long and there’s a pretty big schism on the reaction
to the ... side, but I was just curious if you could comment on the in theatre
experience and where Lionsgate was in the spectrum of studios. I think
Universal was pretty skeptical, but some of the other studios are pretty
over the top in terms of the long term benefits of the faster frame rates and
all that.
J. Feltheimer Sure, I’ll let Rob answer all those questions.
LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 25
R. Friedman A comment about the 3D experience and the IMAX experience, I think the
consumer is enjoying the opportunity to have the variety to be able to pick
and choose. And with the explosion of digital cinema throughout the
world you can switch on or switch off any one of those experiences at will
as an exhibitor and so that I think the consumer is definitely enjoying it.
We like the idea of 3D for particular movies, and we like the idea of
giving the consumer the opportunity to choose an experience. We feel
that it’s very, very good. We see 3D as a real opportunity around the
world. What was the other –
M. Harrigan And on the deal economics on the Ender’s Game I think you have a
minority share of the profits, if I’m not mistaken.
R. Friedman I wouldn’t say we had a minority. We’re sharing in the profits but
remember we’re also the distributor, so we have fees that we collect in
addition to our equity participation. On our other properties, we look to
risk mitigate all of our productions, so appropriately we’ll bring in equity
partners where we think it’s correct to do on the overall fiscal planning
basis and try to retain as much of the upside as possible. That’s just
generally the way we operate our business.
LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 26
J. Feltheimer I think, again, to extend that a little bit, I think our whole business model
is predicated on, number one, we’re a distributor and we get distribution
fees first, we recoup our P&A first, and we’re generally happy to take on
partners to mitigate the risk, as we recently did with What to Expect When
You’re Expecting. I would tell you parenthetically that we were offered a
number of slate deals a year and a half or two years ago, all of them were
to include The Hunger Games, so the bet that we made at the time was that
the upside of The Hunger Games really mitigated any interest in laying off
some of the risk on the rest of that slate. I think we made a smart decision
on that obviously. But in general we’re happy to share the risk. As Rob
said, we always want to mitigate the risks of losing much money on the
ones that don’t work and really maximize the benefit of the movies when
they work. That’s going to be an ongoing strategy for us.
M. Harrigan Thank you.
Moderator Our next question’s from David Joyce.
D. Joyce Thank you. A question about the Twilight – Breaking Dawn Part 1 home
entertainment revenue, the receivables have gone up and I was wondering
if you’re still expecting cash to be coming in from that, even though that LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 27
was back in February. And I was also wondering if you could talk about
the participations involved with those properties. Thanks.
M Regarding receivables, ... did go out in February and pretty much the jump
in receivables in our financials was almost 100% from the – we had not
received the home entertainment receivables, nor have we received The
Hunger Games theatrical film rental, so you will see a big increase, the
receivables coming down on a go forward basis.
D. Joyce On the participation level?
M There will obviously be participation associated with it. We basically
recorded it but I don’t see that as being a huge number in relation to our
total participations.
D. Joyce Great, thank you.
Moderator And we’ll go to Marla Backer.
M. Backer Thank you. A couple of questions, first, on Hunger Games you’re
obviously engaged now in greater discussions with international LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 28
distribution partners, but my understanding is that the books have not been
as popular internationally as they have been here. Are you doing any
marketing now to boost the fanbase ahead of the sequel?
P. Wachsberger You are correct, but that was months ago. Now, actually the book is
becoming really, really popular. There was a major delay between the
success of the book in the United States and the success of the book
internationally, so The Hunger Games series is really starting to catch up
all over Europe.
M. Backer Okay, that’s good. And then my other question is, given the success that
you’ve had with these major franchises, first Twilight with the Summit
acquisition and now Hunger Games, does that imply that there will be less
importance placed on some of the smaller franchises that you’ve
historically had?
R. Friedman Not at all. We think that having a varied release schedule is an important
element in operating our business and we think movies from Tyler Perry,
we couldn’t be more excited about this, Madea’s Witness Protection, we
think it’s a great opportunity, and we’re bringing it into the summer
environment because we think it’s a real opportunity. It’s the first time it LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 29
will be brought into this summer and we’re excited about that. We
generally take a portfolio approach to our slate, so we think it’s important
to have a varied mix.
J. Feltheimer If you go back in history some of the most profitable pictures that we’ve
ever had have been some of the lower budget pictures, including platform
releases. Precious has been one of the most profitable pictures that we’ve
had and obviously Saw we all know about. So there’s an old adage you
don’t know where your next hit’s going to come from, and in this case I
think we do know where a couple of our hits have come from. But
certainly we still want to mine the businesses that have been a really
strong suit for us all along.
M. Backer Okay. Thanks very much.
Moderator And having time for one more question, I will go to David Bank.
D. Bank Thanks very much. A couple of questions, the first is, I just want to make
sure that I understand the $900 million of cumulative EBITDA. Does that
include all of The Hunger Games existing releases, or is there one that’s
outside the three year time frame? I’m not sure of the timing of the fourth LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 30
release. The second question is, on the international pre-sales, obviously
the astounding success of Hunger Games is going to allow you to increase
the international guarantees, as Patrick cited. Can you quantify a ball park
even of what you got on the first one versus what you expect to get on the
second one? I realize it’s going to be bigger, Patrick clearly said that, but
something a little more quantified, and maybe for perspective what those
numbers look like for something like a Breaking Dawn 2.
And then the last question, I guess for Kevin, this is an unusual, Anger
Management as a 100 season order, even if it gets picked up, is different
than some of the other 100 season Debmar-Mercury deals you guys have
done, in that those were shows that are strips, so you had an episode a day,
you get to 100 episodes in less than a year. What is the timing, with an
Anger Management strip how long would it take to get to 100 episodes
and what do you think the prospects for syndicating that show somewhere
else would be? Thanks for taking all the questions.
J. Feltheimer ..., Kevin.
K. Beggs The prospects are really good. Getting to 100 we would do those 100 over
the next 24 months and that would fit nicely with Debmar-Mercury’s LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 31
model of syndicating it to the station groups within two years of an
original pattern on FX. FX is going to run the 10 episodes this summer, as
they have announced, and when we get the back 90 obviously they’ll start
running them sometime next year and they’ll run them on a weekly basis
while we accumulate enough episodes to be in syndication. But we will
get them quickly, that’s the key to the whole model, is to get them quickly
so that we can be in all those platforms simultaneously, almost within 18
months of the FX premiere.
D. Bank It’s sort of a first run, once a week every week for 52 weeks a year.
K. Beggs That’s right.
D. Bank Okay.
J. Feltheimer Patrick?
P. Wachsberger To try to answer your question to give you a rough lease on parameters,
the estimate on The Hunger Games coming from international before the
overages is probably, call it $70 million. The Catching Fire numbers
between the licensing and the projection on the U.K. where we basically LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 32
shall be shooting the movie, is already $100 million. And that does not
include any potential overages and just bear in mind that we improved
tremendously, tremendously the back end agreement with all our
distributors.
M As it related to your initial question about the $900 million over the three
years, the final Mockinjay would not be included in that.
D. Bank Thank you very much.
Moderator And we will take a follow up from Ben Mogil.
B. Mogil This question’s more for Patrick. Patrick, conceptually when you’re
thinking about how you want to be looking at international guarantees, are
you more of the view that just take a higher guarantee and somewhat
better but somewhat similar terms to the first one, or are you willing to
really bet more on the foreign overages and take a smaller MG and take
much better back end economics? I’m curious, as you think about the
film, think about the opportunity but think about the risk management,
how you’re balancing out the two?
LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 33
P. Wachsberger First of all, the approach now is that we’re basically setting up some ...
deals. We started negotiating already one ... deal with Nordisk. On the
Summit front we have set up a lot of international ... deals. We selected
distributors which we think are the best in each country and we ... back
end terms. We are going to progressively create the same model for the
Lionsgate product, which means that we’re looking at maximizing the MG
and also creating the best possible back end for us in success.
B. Mogil Thank you. That’s very, very helpful.
Moderator And we do have a follow up from David Miller.
D. Miller Hi, guys. Just a quick follow up. I just wanted to clarify on the guidance,
the $900 million in EBITDA over the next three years, I’m assuming
that’s an unadjusted number, and the only reason I assume that is because
I’m assuming you guys sell TV Guide and so I just want to make sure
that’s a pure consolidated EBITDA number and not an adjusted number.
Is that correct?
M Yes, that’s correct. You used the word guidance, I would say the
direction, but yes, that’s an unadjusted number, David. LIONSGATE ENTERTAINMENT Host: Peter Wilkes May 31, 2012/6:00 a.m. PDT Page 34
D. Miller Wonderful, thank you.
Moderator And with that, I’ll turn it back to you, Mr. Wilkes.
P. Wilkes Okay, for a discussion of certain non-GAAP forward-looking measures
discussed on this call please refer to the Presentations tab under the
Investor section of the company’s Web site at www.lionsgate.com. Thank
you for joining us today.
J. Feltheimer Thank you all.
Moderator Ladies and gentlemen, this conference is available for replay. It starts
today at 10:00 a.m. Pacific Time and will last until June 7th at midnight.
You may access the replay at any time by dialing 800-475-6701, or 320-
365-3844. The access code is 248708.
That does conclude your conference for today. Thank you for your
participation. You may now disconnect.