Lionsgate Entertainment Corp.

2Q Fiscal 2018 Earnings Conference Call

November 9, 2017, 5:30 PM Eastern

CORPORATE PARTICIPANTS

Jon Feltheimer - Chief Executive Officer

Michael Burns – Vice Chairman

Jimmy Barge - Chief Financial Officer

Chris Albrecht – , President & CEO

Joe Drake – Motion Picture Group Co-Chairman

Kevin Beggs – Chairman of Television Group

James Marsh - Head of Investor Relations

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PRESENTATION

Operator Ladies and gentlemen, thanks for standing by and welcome to the Fiscal 2018 Second Quarter Earnings Call. At this time, all lines are in a listen-only mode. And later, we will conduct a question-and-answer session with instructions being given at that time. And if you should required assistance during the call, please press “*”, then “0” and an operator will assist you offline. And as a reminder, today's call is being recorded.

I would now like to turn the conference over to our host, Head of Investor Relations, James Marsh. Please go ahead sir.

James Marsh Thanks Kerry, and good afternoon everyone. Thank you for joining us today for the Lionsgate’s Fiscal 2018 Second Quarter Earnings Conference Call. We'll begin with opening remarks from our CEO, followed by remarks from our CFO, Jimmy Barge. After their remarks, we'll open up the call for your questions.

Also, joining us on the call today are Vice Chairman, Michael Burns; Starz' President and CEO, Chris Albrecht; Starz' COO, Jeff Hirsch; Starz' CFO, Scott MacDonald; Co-Chief Operating Officer, Brian Goldsmith; Motion Picture Group Co-Chairmen, and Patrick Wachsberger; Co-Chief Operating Officer and President of Motion Picture Group, Steve Beeks; Co-President of Motion Picture Group, Erik Feig; Chairman of TV Group, Kevin Beggs; Chief Operating Officer of the TV Group, Laura Kennedy; and Chief Accounting Officer, Rick Prell.

The matters discussed on this call 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 materially differ from these and adversely from those described in the forward-looking statements as a result of various factors, including the risk factors set forth in the Lionsgate's Annual Report on Form 10-K filed with the SEC on May 25, 2017, as amended in the Lionsgate's quarterly call on Form 10-Q filed with the SEC on November 9, 2017. The company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.

With that, I'll turn it over to Jon. Jon?

Jon Feltheimer Thanks James, and thank you all for joining us today. Our strong performance in the quarter keeps us on track for our fiscal year expectations. And our robust free cash flow is enabling us to continue our consistent deleveraging ahead of schedule.

In today's dynamic content environment, audience fragmentation, distance remediation, industry consolidation, and the ramp in content spending by the major digital platforms touch every part of our company. We believe that we’re very well positioned to benefit from these trends, leveraging our strengths, mitigating risk and focusing on segments where we can continue to win. You'll see the evidence of this as I take you through the performance of our business segments in the quarter.

At Starz, our programming strategy is working, in terms of ratings, subscribers and rights monetization. The latest seasons of Power, Outlander, and the Girlfriend Experience, are all

Lionsgate Entertainment Corp. Thursday, November 09, 2017, 5:30 PM Eastern 2 achieving record viewership and deep engagement with their fans. Focusing on targeted core audiences is resulting in strong brand loyalty among women and African American viewers. And the recently green lit new series, Vida, will continue to expand our Lionsgate and Starz outreach to Hispanic audiences as well.

Starz subscribers grew sequentially by 400,000 in the quarter, driven by the rapid growth of the networks over the top offering, which has crossed the 2 million subscriber mark. The data we’re collecting in the digital world on subscriber acquisition, retention, and churn is making our business more predictable and our success more repeatable.

The Starz distribution footprint continues to grow in digital and linear platforms alike. And today, I am pleased to announce that Starz has entered into an agreement in principal to launch on Hulu, as it continues to become a great value proposition for all platforms.

On the international front, STARZ PLAY Arabia is performing well and continuing to grow its subscriber base across the Middle East and North Africa. Our success at STARZ PLAY Arabia, coupled with our strong programming and rights retention, will allow us to expand selectively into other international territories. To close on Starz, the combination of our companies is everything we hoped for and more, and we’re going to continue to invest in its success.

Turning to our film business, The Hitman’s Bodyguard, The Big Sick, and Boot 2 released in October, all connected with their target audiences. The Hitman’s Bodyguard, the kind of hip edgy film that we know how to make and deliver, topped the box office three weeks in a row.

The Big Sick, one of several films we released with our partners in , became the biggest Hindi hit of the year.

While the industry suffered through a tough summer at the box office, our domestic slate was up 20% year-over-year.

Moving forward, our slate will continue to focus on our core strengths. It includes tent pole properties, like Chaos Walking and the Kingkiller Chronicle. Our third movie in the John Wick franchise, Starz driven films like the and Charlize Theron comedy from , and films targeted to Hispanic and African-American moviegoers, such as Pantelion and MGM's Overboard, Uncle Drew, and the next to Tyler Perry films.

Next Friday, we’ll release Wonder, starring Julia Roberts, Owen Wilson, and Jacob Tremblay. And it’s a great example of what we look for as we assemble our slate, bold original content based on a great property and driven by AAA talent.

The highest testing film in our history, it's tracking well and it’s choose kind promotional campaign has resonated in schools and communities across the country. Our exhibition presales are very strong, audience reaction from early screenings has been exceptional, and we expect the film to play all through the lucrative Thanksgiving and Christmas holidays.

Part of our ability to continue scaling our platform and mitigating risk, lies in the quality of our relationships with many of the leading content companies in the world. During the quarter, we renewed and expanded our theatrical distribution agreements with StudioCanal and CBS Films to elite partners, who are dependable suppliers of premium quality films.

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Last month, we acquired the production and distribution company, Good Universe, bringing Joe Drake and back to Lionsgate, adding a pair of respected entrepreneurs to our leadership team, and continuing to diversify our content platform.

Joe and Nathan are adept is creating business models partnering with high-end talent, like Seth Rogen and Fede Alvarez, enhancing one of our greatest strengths unique, repeatable, long- term talent relationships. I want to remind everyone that our film business is more diverse than just our wide-release slate. Our specialty and targeted releases and managed brands had another strong quarter with a full-year contribution expected to increase by 20%.

Let me turn to television, where our focus is clear: creating premium quality content in the most profitable genres, leveraging our platform agnostic ability to sell to everyone, and collaborating with our platform partners to create win-win business models. That strategy was evident during the quarter as high-end properties were green lit at Starz, acquired by Showtime, and readied for launch at YouTube.

The Rook, our first series for Starz since the acquisition, begins production in February. Co- produced with our friends at Liberty Global, Executive produced by -creator, , and with acclaimed producer Steven Garret serving as show runner. It heads a Lionsgate television roster of high end properties for Starz.

We're also excited about the continued progress of our Kingkiller Chronicle franchise. Showtime announced last month that it's developing a premium television series adaptation of Kingkiller. The series will be a subversive origin story that leads up to the events of the trilogy to first novel, which will frame our Kingkiller feature film.

We’re continuing to assemble a world class creative team for the films as we move our unprecedented film, television and interactive game franchise forward under the direction of producer and creative mastermind, Lin-Manuel Miranda. We’re looking forward to premiering two new series on YouTube early next year.

The first is , the television adaptation of our dance film franchise. The second is Kevin Hart’s What the Fit? Just one of several television series and other initiatives on which we’re partnered with Kevin.

What you might see that’s a little different for us this year is that we're now also focusing on broadcast procedurals, where we believe we can achieve outsized returns. We've taken five network procedurals to market this season, selling all five in competitive bidding situations. One of them was an ABC pilot order from Get Christie Love, the first series developed by Power show runner, Courtney Kemp, under her expanded development deal with Lionsgate and Starz.

Finally, our strategy of pairing our shows with the right network partners has enabled us to create a core of long-running series that includes Orange Is the New Black, Nashville, The Royals, Greenleaf, and Dear White People--all building evergreen value for our worldwide distribution team in our library. And let's not forget the very strong ratings for Wendy Williams and Family Feud this year, our long-running talk and game shows.

As digital platforms continue to increase their spending on content, just like legendary bank robber, Willie Sutton, we’re going where the money is. With the resources to adapt, be entrepreneurial, and become an early and preferred supplier to every platform, we now have multiple films in partnership with Amazon, multiple shows in partnership with YouTube, ,

Lionsgate Entertainment Corp. Thursday, November 09, 2017, 5:30 PM Eastern 4 and Hulu and multiple projects with Facebook, which premiered the Laugh out Louder original series, Lyft Legends in the quarter.

We're also building content alliances with Pop Sugar, Buzz Feed, and other platforms eager to bring targeted premium content to their audiences. I'm also pleased to report that this was one of our strongest quarters for growing our own consumer-facing businesses. Our first Lionsgate branded theme park zone opened at Motiongate in Dubai last month. We have five additional Lionsgate-branded theme parks and indoor entertainment offerings scheduled to open in the next three years.

And our state-of-the-art Atom Ticket movie going app continued to gain traction among the nation’s exhibitors. In addition to the success of Starz direct-to-consumer offering, we launched two new streaming services, the PANTAYA premium movie platform for Spanish language and bilingual consumers, and the Laugh Out Loud comedy service with Kevin Hart. Both are off to fast starts.

In closing, though our operating environment is changing faster than ever, we believe that we have just the right balance between scale and agility, strong growth prospects with less than the usual risk, and undiminished opportunities to win in the spaces where we like to compete. Disruption has always been our friend, and we believe that we're on the right path to keep it that way.

Now, I’ll turn things over to Jimmy.

Jimmy Barge Thanks Jon and good afternoon everyone. I will briefly discuss our quarterly financial results, highlight where we stand on leverage, and update you on our outlook. As you've seen, we’ve reported solid results for the quarter.

Revenues declined 10% versus the prior year on a pro forma combined basis to $941 million, largely driven by fewer theatrical releases in the quarter, while adjusted OIBDA increased 66% to $109 million. Reported basic earnings per share was $0.07 in the quarter, while adjusted earnings per share came in at $0.30. Free cash flow came in at $347 million with a commensurate reduction in the net corporate debt of approximately $330 million.

Now, let's discuss performance at our underlying business segments compared to the prior year on a pro forma combined basis. You can follow along on the updated trending schedules that we’ve posted to our website. Media Networks, quarterly revenues increased 7% versus prior year to $393 million, while segment profits increased 42% year-over-year, driven by higher over the top revenues, lower programming costs, and Season 3 of Power license fees.

Starz ended the quarter with $24.5 million subs, up $400,000 sequentially, despite lower than anticipated conversion of U-verse subs to DIRECTV. Over-the-top subs exceeded $2 million at quarter end, driven by Power and Outlander. We will continue to opportunistically invest in programming and marketing to grow this business.

Our Motion Picture Group had a solid quarter, despite an anticipated revenue decline of 24%, driven by fewer theatrical releases. Segment profits increased nicely from $6 million loss in the prior year quarter to $9 million of profit this quarter.

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The improvement was driven by lower P&A expense. And as Jon said, a solid performance from our Managed Brands business. As expected, quarterly TV revenues slipped 5% to $169 million and profits declined $4 million to $9 million. The decline reflects the timing of episodic deliveries and is largely driven by comparisons to Orange Is the New Black, which will be delivered in the third and fourth quarters of this year versus the second quarter of last year.

We continue to feel comfortable with our adjusted OIBDA guidance range of low- to mid-teens growth over the next several years. I would note that some recently announced changes in our theatrical release slate will likely result in some timing differences and impact the shape of that growth.

Recall that we had previously expected adjustment OIBDA growth rates to build over time, but with changes in the film slate and opportunistic incremental spending on Starz original programming, this could result in higher growth in fiscal '18, followed by flatter growth in fiscal '19, while still achieving a three-year CAGR in the low- to mid-teens range.

Now turning to our balance sheet. With regards to deleveraging, we have exceeded the initial target leverage goals we laid out at the time of the Starz acquisition. At quarter end, our net leverage was 3.2 times. Free cash flow in the quarter was robust $347 million, and we reduced corporate net debt by $263 million, while increasing our cash balances by approximately $70 million. Free cash flow in the quarter benefited from the timing of certain payments and our full year outlook of free cash flow remains unchanged.

We expect to continue to maintain a strong balance sheet and deleverage over time with quarter-to-quarter variances, dependent on the timing of content investment and production schedules.

Now, I'd like to turn the call back over to James for Q&A.

James Marsh Great, thanks Jimmy. Kerry, could we open up for Q&A please?

QUESTION AND ANSWER

Operator Sure. Ladies and gentlemen, if you would like to ask a question, please press “*”, then “1” on your touchtone phone. And if you are using a speakerphone, please pick up your handset before pressing the numbers. Again “*”, “1” if you would like to ask a question.

And our first question comes from Ben Swinburne from Morgan Stanley. Please go ahead.

Ben Swinburne Thank you. Good afternoon guys. A couple of questions for you. On the Hulu front, that's a nice addition, I’m wondering if you could just talk about the timing of their making the product available and if you have any sense for pricing or packaging on that service?

And then, Jon, maybe you could talk high level. We've seen a decent rush towards a lot of these digital players doing Showrunner deals and locking up some of the top talent out in Hollywood. How is this at all impacting Lionsgate as you think about your relationships with key talent? And do you feel like you guys are well positioned, whether it's on the Starz side or the Lionsgate side to sort of continue to play as the dollars get bigger and bigger?

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Chris Albrecht On the first question…hi, Ben. This is Chris.

Ben Swinburne Hi Chris.

Chris Albrecht Hi. We've really said all that we can say right now about the Hulu deal. But more details will be forthcoming very quickly.

Jon Feltheimer Yes, much longer answer on your other question, Ben. I’d frame it like there is no question that some of the big talent is now going direct to the platforms. But there has always been a lot of competition. I would say that most of the talent that we see and have seen, and I've been doing this about 35 years, talent wants to have a lot of optionality. And I think that that's what we provide more than anything else.

We are a film business, we are television business, we are game business, we are location- based entertainment business. When you look at a property like Kingkiller, where we are developing three different platforms, all for the same piece of IP, I think that that's really the beauty of our company. And so we are going to continue to attract our share of talent, I promise you that, I think they see us as an entrepreneurial company that can do everything that has a worldwide distribution infrastructure. And you know, again, it's going to be a major part of our focus.

Company Representative Thanks Ben.

Ben Swinburne Thank you.

Operator Thank you. And now to line of Amy Yong from Macquarie. Please go ahead.

Amy Yong Thanks, and following up on the Starz question. Maybe Chris, I think Jimmy mentioned some…that the U-verse started to see migration. How much longer should we expect this to happen? And then, obviously, there has been a lot of noise this quarter on PayTV. Did you feel the impact from the storms or anything else that I think a lot of the PayTV and the MVPD players mentioned?

And then Chris, can you just help us think about the over-the-top and direct-to-consumer trends that you are seeing in the marketplace? And obviously as you go through, for instance, direct- to-consumer there’s obviously a lot of data that you are collecting. Maybe you could talk to us about what the feedback has been? Thank you.

Chris Albrecht Sure. With regard to the U-verse question, I mean, from everything that we are being told, they still plan to shutdown that platform. Having said that, the bleeding seems to have slowed a little bit. We don’t know what to attribute that to other than, I think it's the data over the last couple of

Lionsgate Entertainment Corp. Thursday, November 09, 2017, 5:30 PM Eastern 7 days is showing that maybe the PayTV business is healthier in general than a lot of people have projected. And on the storm, we have accounted for all of that, and it's not really a material effect, and it's been incorporated in all of our numbers.

With regard to the OTT business, we are very bullish on it. The wholesale business, which is going well, will certainly be bolstered by the Hulu deal. By all accounts, they've done a really nice job with the other premiums and we are really looking forward to that relationship. The exciting story for us is also the retail business, the direct-to-consumer business. And that's where the data is really coming into play. I mean what its showing is that the strategy is working, the originals are driving the acquisition, and the retention is obviously part of the story. We are doing a good job with that. But our goal is to get the sat cost down, to get the churn numbers down, and we think we’ll do that as we see more shows come on.

The demographic groups that we are targeting are responding really well. We’ve got a great product offering with the originals. We've got a great product offering with the depth of our movie line up. The technology is really well received. There was a survey out that was published yesterday and today as well. USA Today picked it up, which shows Starz number six in the list of the top 10 SVOD services in our category, obviously behind names like Netflix and Amazon. But considering that we’re the last of launch in that category, I think that's a terrific showing for us, and we are very confident about our position going forward.

Amy Yong Great. Thank you.

Chris Albrecht Thanks Amy.

Operator Thank you. And now to line of Matthew Thornton from SunTrust. Please go ahead.

Matthew Thornton Hi, good afternoon. Thanks for taking the question guys. Maybe two if I could, I guess, one probably for Chris here. Can you talk a little bit about just what you are seeing on the OTT side in term of churn trends as you kind of worked through September, October, into November? And I ask that question because obviously Power and Outlander are kind of behind us. So I am just curious what you are seeing there.

And then secondly, maybe for Jimmy, just wondering how you are thinking about any updated thoughts just around capital allocation? Obviously, leverage is coming down really nicely. Any updated thoughts there? How you’re thinking about M&A versus buybacks versus just continuing to deleverage as quickly as you can. Any help there would be great. Thanks guys.

Chris Albrecht Matthew, on the OTT space, I think what we are seeing and what the data is telling us is that shows like Outlander and Power are doing the job they need to do. They are attracting the subscribers. We also are seeing that they are different habits or different behavioral trends between those two Groups, and we are reacting to that. This is terrific information. We think we have the resources and the right shows to extend the life of these subs, which obviously is how you reduce the churn, obviously how you reduce the stat cost.

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The best way to grow yourself is to keep the ones that you are acquiring. We are very focused on that. The programming strategy going forward is, it has that as the main goal and we think that will also just lift the boat in terms of our visibility and the success we are having with our long-term NPPD partners, which shouldn’t be forgotten in all of the rush to be excited about the [indiscernible] space, which we certainly are as well.

Jimmy Barge And thanks, Matt, with regards to capital allocation, I mean certainly deleveraging below those initial thresholds down to 3.2%, you know very quickly and way ahead of schedule has given us a lot of flexibility. As you have seen from the quarter, the company clearly we have significant free cash flow generation capability, so this is all nice. Certainly, from capital allocation standpoint, you know we are going to work to drive shareholder value. First and foremost, invest fully in our core businesses and incremental content spend Starz originals, excited about the kind of data that we are getting from our retail services, which helps you make smarter investment. And it gives us a lot of optionality, so at the end of the day it is going to be back driving long-term shareholder value and we are in a good position to do that.

Operator Thank you and now it is the line of Alan Gould from Rosenblatt Securities. Please go ahead.

Alan Gould Thank you for taking the question. I have got two. Chris, I was wonder if you can give us a breakdown of 400,000 sub gain was quite impressive. Can you give us a breakdown how much of that was OTT versus traditional?

And Jimmy, can you give us some sense on the timing of program spend for the year. I guess it is on 680 so far for the first half. What do you think the program spend is going to be for the full year?

Chris Albrecht Alan, on the OTT breakdown, we are not breaking those numbers out specifically but I can tell you that John’s report on having crossed the 2 million mark, especially since it as a quarter end, which is a relatively short period of time since we announced approximately 2 million number. And you know we think that both sides of the business are healthy and you know our great force in helping us grow our overall business on a year-over-year basis, which is how we look at it.

Jimmy Barge And Alan, regarding the content spend, I think you will see content spend pick up in second half of year rather than first half. We are not going to peg a particular number for the full year, provide guidance on that, but clearly, there is lot of opportunity for us to invest and own content and you will see that pick up a bit in second half.

Alan Gould Thank you.

Operator Thank you. And now it’s the line of John Janedis from Jefferies. Please go ahead.

John Janedis Thank you. Just one from me, as you guys broaden out the demographic focus at Starz, can you talk about the balance between going deeper with fewer demos rather than broadening?

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And digital players spend, can you update us on the expectations you have now for the number of Starz original. Does that round to say from 18 to 20 or we end out on a flat number going forward?

Chris Albrecht So on the…I was thinking about the answer for the first question might have missed the second one, but on the demos, we have just gone to production with our first show for the Hispanic audience, which we think is a terrific opportunity for us. We are continuing to expand on a relationship with women, African Americans, and one of the benefits of that is not only to establish a relationship, it is easier for us to extend the life of those subscribers. And we think that is really important. We also have a really interesting offering for the LGBTQ Group, and as we expand and target these groups, what you also have is a terrific representation of millennials in each of these categories. So as we expand there, we are going to be interacting and hopefully being able to attract that group as well, which historically has been a group that premiums have stayed away from because they weren’t able to afford the stack.

So with the direct-to-consumer model that we have now, we have to go after a whole new audience and basically the story is that Starz is now going to be available to every person that has a cell phone and nine bucks.

What’s the second question? Part of the question John was about just original programming, episodic goals….something like that?

John Janedis Yes, for example, tier point, if you’re going to have say focusing on maybe four or five demos over time, do you need say two or three shows per year free to those, or is it one or two? And so I guess asked in a more broadly will the number of originals of Starz increase going forward or are we sort of at a flat number here going forward?

Chris Albrecht I think you know there are two things one is that Jon has stated that there is no priority higher than Starz and as we look to the allocation of resources of Lionsgate, that’s one of the first places that we are going to look, but it’s because we see the opportunity there to grow our business, not because we hope there is an opportunity there.

We also look at shows of acquisition and retention shows. The acquisition shows being maybe a little bit more high profile kind of jumping the gun a little, you are going to see a press release shortly that announces our first foray into doctor series, non-scripted series, which we look at as retention vehicles for these demos and are dramatically less money, a fraction of the cost of these big scripted shows. So there is lot of levers that we can pull to satisfy these audiences, build a relationship, expand the audiences and grow our overall subscriber base.

Jon Feltheimer Yes, I should add that we are having budget, a tremendous amount of success in picking some of the shows that Starz had put on the year previously and monetizing them on a worldwide basis. Then I think the really simpler answer to your question is: we are going to be putting on more programming but, frankly, we think we can do it very efficiently and that the results w ill more than pay for themselves. So, I think that’s kind of the right answer to your question.

John Janedis Okay. Thank you.

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Operator And that comes from Stan Meyers from Piper Jaffray. Please go ahead.

Stan Meyers Thank you. I have two questions if I may. First on film, we are getting closer to comping last year’s breakout hit and I was wondering how you guys feel about wonder tracking relative to La La last year. Maybe, how you feel about your spending there? And then on the TV side, we are seeing some reacceleration in that segment here mid-year for you guys. How do you see the segment growing over next few quarters?

Joe Drake This is Joe on Wonder, we are happy with the tracking. I think that, even more important to the tracking, we have done I believe over 500 screenings that have had extraordinary…we tested incredibly well and our presales are really, really strong. So we think we have a movie that is going to open well and play all the way through the holiday season.

Kevin Beggs And with regard, Stan to your question on TV, we expect to see a continued strong growth in second half of the year as you said earlier. The episodic deliveries are weighted towards the second half of the year and for the segment as a whole for the full year we expect to see revenue and segment profit growth.

Stan Meyers Thank you and now to the line of Barton Crockett from B. Riley FBR. Please go ahead.

Barton Crockett Okay. Thanks for taking the question. I was wondering, you know I think Jimmy Barge, you threw out some commentary about a higher growth rate this year and a flattening next year and you were a little bit kind of thin on the details around that. I was wondering if you could flush out a little bit more what has changed versus what you were thinking before in more detail to drive that kind of outlook.

Jimmy Barge Sure Barton. I mean we are not going, you know as you can imagine we are going to refrain from giving year-by-year guidance, so we are staying to the three-year guidance if you will the low to mid-teen. But to give you a little more color on that, the film swipe we have announced certain changes in film releases.

So for example, Robin Hood in particular, moved out of March of our Fiscal ’18 into September of our fiscal ’19. So that will take P&A out of ’18 and move it into ’19. You would feel great about the film which is all about what is the right thing for the film, which is you know that’s how we run our business across all business sectors, and particularly in film where release dates are important so that will effect to the benefit of ’18 and lower the ’19 result, which will have a tougher comp against ’18 as well, when you think about growth rates.

And in the other aspect of that that I alluded to was the incremental investment in Starz originals. As Chris alluded to and is discussed. And Jon, you are getting more and more data out of the retail sector of our business so we have an opportunity with the free cash flows. We have -?? made incremental investment in that space which we will consider so all of that will

Lionsgate Entertainment Corp. Thursday, November 09, 2017, 5:30 PM Eastern 11 affect the ultimate shape of that growth rate over that three-year period. So that was what I was trying to give you some color on.

Barton Crockett Okay. That’s helpful, and then one other quick question, you know Orange is the New Black on Netflix a core kind of property for you on TV. But Netflix is putting a lot more content and is a ramp up to 8 billion of expense to more than that in terms of cash spent on content. Is Orange Is the New Black still able to attract the audiences that it could before or is it getting diluted by all the other content at Netflix? You know how do you see that kind of holding up?

Jimmy Barge As you know, Netflix doesn’t share any of the data on their originals. We continue to hear from them that it's a huge performer and certainly opened the doors to their international launch we know just by virtue of the castings and all over the world to open up markets. It's a mainstay getting a hit for any platform is hard enough. Keeping it on and continuing to have great creative output year-after-year from Jenji and her team is central. It’s one of the most sought after writer producer, creators in the business. We expect there'll be on for years to come. And I think it only grows more valuable with time, and actually omits other shows, because not many stand down, and Oranges has been a hit from day one.

Jon Feltheimer I think from a more macro perspective, there are definitely more shows, there's more competition for eyeballs. But if you just look over the last five years, consumers are viewing two hours more of content on digital platforms. And I think that what you're going to continue to see is the area that I think is our real sweet spot in television, which is premium content. It's going to be kind of the haves and the have nots, and we're really focused on premium content. But again, people are watching more television than ever before. We just want to get our fair share of that.

Jimmy Barge Okay, that’s great. Thank you.

Jon Feltheimer Yes thanks, Jon.

Operator Thank you. And now to the line of David Joyce from Evercore. Please go ahead.

David Joyce Thank you. I guess another corollary to the question about the episodes that we’re able to maximize on Starz. How should we think about the opportunity to be producing at the TV division and putting more content on Starz? Do you have a preference for selling externally versus internally? And how should we think about when we would be seeing the cash flow impacts versus the income statement impacts on that?

Jon Feltheimer I'll let Jimmy respond, John. I’ll let Jimmy respond financials. The thing that I have said over- and-over again, we didn't spend over $4 billion on Starz to not invest in it. And so, there is nothing that is a higher priority at our company than creating hit programming for Starz. On the other side, we are, for our talent as I expressed early, we are a full service global studio. And in

Lionsgate Entertainment Corp. Thursday, November 09, 2017, 5:30 PM Eastern 12 television, we probably have currently right now shows on 35 or 40 different platforms. And there are times when a certain show will be better on another platform than it might be on Starz.

The beauty of doing things with Starz is that Kevin and Chris and I can put our heads together and we can actually really plot out the most efficient way to produce a film from a timing perspective, from a partnership perspective. We can make assumptions about monetization that we might not be able to make. Otherwise, we can make assumptions about how many shows we need to order in order to actually make it a more efficient production. So, clearly, for all of the right reasons, pairing our internal resources together is the best and most efficient way to go. But, again it's not the only way.

Jimmy Barge And David, your question about the timing and the cash flows and the P&L impacts, to John's point, obviously, the preferable solution here is to be producing this internal for Starz versus acquisitions. And when you are producing internal, the cash flows are more upfront during the production cycle. And then, the P&L side of that comes to the benefits through TV, when those are made available to, in this case, to Starz original programming. And then ultimately Starz is monetizing that through subscriber growth, et cetera. And then, and ultimately, as you know, all of this goes into library and the P&L benefit continues on and on well after the cash outlay has been made. And obviously, with the future P&L comes all the future cash flows as well that more than replenishes the cash that was spent upfront.

Jon Feltheimer Again, it's definitely a preferable to keep things in the family if you…that's all what we did when we launched All Eyes on Me, a film that targeted the African American audience. We also had power of debuting at the same time. We did a cross promotion on it. If we want to open up a window that contractually we wouldn't be allowed to in order to monetize content on another platform, we can do it if it's an internal project. So again, there are so many reasons why to invest in internally that it just makes a whole a lot of sense.

David Joyce Thanks. And if I could just dial back to free cash flow question to the more near term with the big results here in this quarter. Was there anything unusual in the timing of receipts that drove it, or the timing and other quarters where you would be spending? I am just trying to figure out if there is some sort of seasonality given the new combination with Starz that we should be thinking about on the free cash flow?

Jon Feltheimer I appreciate it, David. Look the free cash flow out of Starz is fairly consistent. It will move a bit based off the timings of investment. But certainly, more of the variables come from production cycles, and Motion Picture in particular as well as TV. So you'll remember that in the first quarter of this year, we were negative to the effect of a little over $100 million in free cash flow. Then to come roaring back at 347 positive this quarter. So, some of that is timing that we noted in the first quarter where it's negatively affected by timing. And some of that obviously benefited in second quarter as you're seeing again being timing related.

Second quarter did benefit for some performance as well, because you've seen the strong performance in the second quarter. So, that was nice, not everything was timing. But, there is certainly timing involved here and I think you'll continue to see though free cash flow in the second half of the year in a positive manner. And quarter-to-quarter will always be impacted by

Lionsgate Entertainment Corp. Thursday, November 09, 2017, 5:30 PM Eastern 13 the timing of production schedules, payment or production loans, participation payments, and things of that nature.

Operator Great, thank you very much.

Jon Feltheimer Thanks David

Operator Thank you. And now to the line of David Miller from Loop Capital Markets. Please go ahead.

David Miller Hi guys, congratulations on the stellar results. Joe, question for you, nice to hear your voice. Welcome back. I was actually just very curious as to why you came back to Lionsgate, and what enticed you to come back. Then I have a follow-up for Jimmy. Thanks.

Joe Drake Alright, thanks David. Nice to hear your voice as well. Look, I think Jon hit it on the head a little bit. I just think that there is, Lionsgate from my perspective is one of the most dynamic content distribution platforms out there and there is a real opportunity here, which is how it wants of upper spoke experience. Talent doesn’t just want to be bought out on everything that they do. They want a film that can be released. They want to tell their stories across television. They want to tell their stories in video games. They want a place where they can have the opportunity to tell their stories across different platforms and have a different creative experience. And when you look at Good Universe, a great deal of our success was built-on very deep, valuable relationships with top-tier creators. And I think that Lionsgate has the platform and the assets that create a really unique opportunity to bring creators in here and build deep relationships. And so, I came here because I think it's a place where we can be very aggressive there and win.

David Miller Okay, excellent. And then, Jimmy, if you don’t mind me asking. What was the pro forma media networks revenue number from last year?

Jimmy Barge One second, we’ll put our hand on it. It’s in the trending schedules, but they are here.

David Miller Or you could just give me pro forma revenue growth, if you want?

Jimmy Barge The pro forma revenue number for the quarter, second quarter in fiscal '17 was $369 million.

David Miller You mean fiscal '16, or its fiscal '17, right. 367, okay. Thank you so much.

Jimmy Barge You are welcome.

Operator

Lionsgate Entertainment Corp. Thursday, November 09, 2017, 5:30 PM Eastern 14

Thank you. And now to the line of Steven Cahall from The Royal Bank of Canada. Please go ahead.

Steve Cahall Just two for me, maybe first now that you’ve had a few quarters with Starz under your belt, I mean some strong sub-growth this quarter and a good view as to what's going on, can you give us an expectation as to maybe where you might end-up with sub-growth for the year?

And then also I think we saw a deal today signed for a new show with Apple. I was wondering where your television studio is in terms of working with some of the emerging players who it sounds like are splashing a lot of money around Hollywood, including Apple and Facebook. So, any update on relationships there? Thank you.

Chris Albrecht With regard to sub-growth on the OTT platform, certainly the Hulu deal is going to help. And although, we can’t project any numbers, we look at that as a positive trend. And I think that we are learning more about the business as we have more shows that impact the acquisition and the retention. We expect that to be a positive trend. But, I can't really give any specific numbers. What is the second question?

Kevin Beggs On the new platforms, it's Kevin speaking. We’re in business we’re calling on them pitching in more business development. We’re excited about YouTube Red and YouTube, where we have two…both the scripted drama and a nonfiction show coming. We’ve had multiple shows on Hulu. We have two series ongoing at Netflix. We’ve had a fair amount of development to TV side with Amazon, obviously there is feature film relationship. We’re calling on Facebook quite regularly. We have got our first offer from Apple on a future development, that's great. We’re in there quite regularly too. So any new player that really is in the game of premier programming, premier-scripted programming and nonfiction programming, as Jon mentioned, we are wearing out a welcome mat and getting in there as often as we can.

Steve Cahall Just to follow up, Kevin. Are the new players asking for exclusive global rights or are you still able to retain some rights in those.

Kevin Beggs Every single one has a different model. They all vary. There is not a single one that is the same. Sandra Stern spends much of her time crafting new models with these players. And it really just depends. We start with the premise of the right show for the right platform creatively and then work backwards into engineering the right business deal. And depending on a level of competition, the models are also pretty flexible. Some are pure long-term buyouts of distribution rights and for the right show that makes sense, for other shows it doesn’t. As Jon mentioned, the optionality and new partnership that we have with Starz and the family makes it really attractive to present as much as we can there. If it make sense we develop and they choose to go forward and if not we go elsewhere.

James Marsh Okay. Next question, please.

Operator

Lionsgate Entertainment Corp. Thursday, November 09, 2017, 5:30 PM Eastern 15

Thank you. And that comes from the line of Todd Juenger from Sanford Bernstein. Please go ahead.

Todd Juenger Hello, thanks for taking the question. Chris, I am afraid I am going to put you back to work again. So, just wanted to talk a little about international opportunity for Starz, just thinking about where you are sitting now. You’ve had Starz Play Arabia out for, I think at least two years. I mean surely whatever you were hoping to learn there, you’ve got a lot of learnings under your belt. You’ve got your OTT service here in the States that you’re clearly very excited about. And I would say you believe it's doing just well. You seem to be in a really sweet content cycle in a number of original fronts. I'll begin the question the times seems maybe right, may do pursue a lot of these places around the world.

And so, I guess building that into a question. And my question would be: what would keep you from doing that? And if you could walk us through some of the, even investment startup efforts that it would take, both from a cash and just the bandwidth perspective in terms of setting up operations and launching a service in the subscriber acquisition? And if there's any conflicting syndicated rights that you have to cover back and any other rights you need to add to your own originals to make a full service? And what the cash flow from launch plan you think might look like as you open markets around the world? Thanks.

Chris Albrecht Todd. Could you repeat the question, please? So look, I mean you obviously have a crystal ball because you’re asking about things that we’re working on as we speak. International is a terrific opportunity for us and I think it's one of the great benefits of the combination with Lionsgate, just gives us more muscle, more firepower, more rights, and more ability, and a greater ability to do this effectively and efficiently. Look there is a few different models we look at. The STARZ PLAY Arabia model has been a great and successful experiment for us. It’s a business that’s growing its subscriber base, as John mentioned. It's on track to become profitable in the next two years. It's got a great content offering, great technology platform. It's extended its position into premium SVOD in the region, UAE, Saudi Arabia, Morocco, Tunisia, Egypt, other places.

Right now it's an equity investment, so it falls below the line and it's one of the models that we look toward. Another model that we look toward is maybe a similar relationship to a company like Amazon, and so Amazon specifically, where we can do a kind of plug and play. And there is also an aspect of the relationship that we have with the business model that we have with STARZ PLAY Arabia where we partner with local telecom or large media company to piggyback on them as well.

All of this is our plans that are being made, little like operational award in World War II, where we're looking at different territories targeting which model might work best, seeking out the best partners, trying to do the best plan that we can with regard to investment. And we think that we’ll be having more announcements in the near future. This is a priority. And thanks for your question, Todd.

In the intersection I would add, Todd, the intersection of Lionsgate and Starz mean as we think about which territory we should go and do, which partner retail, wholesale, we’re also thinking about what rights we retained, both from our Lionsgate Television business, as well as from our theatrical distribution business. And thinking about it in certain key territories whether we want to change our alright theatrical distribution to one that accommodates freeing up those paid

Lionsgate Entertainment Corp. Thursday, November 09, 2017, 5:30 PM Eastern 16 television rights. So again, this is the beauty of this integration and the consolidation of companies.

Todd Juenger Fair enough. And if you don’t mind me asking a follow up to my very long question, just bringing Jimmy into this. From a guidance perspective, or even from a cash flow perspective, how do you think about the opportunity to launch some of these services? And relative to targets you put out there and how does that all fit in? Have you accommodated any room for this stuff in your plans? Thanks.

Jimmy Barge Now look, I think the key from a cash flow prospective as you heard Chris and Jon mention, we’d likely be partnering those territories. So that certainly mitigates the effect. We’ve not pushed through changes with regards to our current plan. But obviously, continue to evaluate those. And in the long-term, regardless how it may shape…effect the ultimate shape of growth period-to-period. This would obviously be undertaken in the context of expanding our overall growth long-term to create shareholder value.

Todd Juenger Great. Thanks everybody.

Chris Albrecht Thanks.

Jimmy Barge Thanks.

Operator Thank you. And now to the line of Jim Goss from Barrington Research. Please go ahead.

Chris Albrecht Hi, Jim.

Jim Goss Thanks. Despite tying a little bit to the last question, but to the extent that you are expert at super serving demographic niches, both in theatrical and Starz, would it make any sense in the OTT service to have it be, not just one channel, but have a collection of channels that would be sold as a package that could appeal to multiple demographics and might appeal to their family on that basis?

Jimmy Barge Well, we talk about what we call a federation model here with the Starz platform to drive consumer platform. And there are obviously other SVOD businesses that are launched here within Lionsgate. There very likely could be an association there that helps us widen the opportunity with several of these demographics. And we think that, as we’ve established the core of that federation idea, which is the Starz platform, these ideas are just going to become more likely to happen. And we think that they’ll be more opportunities that will come our way. So it's definitely part of a projected strategy.

Jim Goss

Lionsgate Entertainment Corp. Thursday, November 09, 2017, 5:30 PM Eastern 17

Okay. And one other topic, you mentioned Atom Tickets earlier on, and I know that's one of your investments. Are there any ways you expect to experiment with it? Or are there things we should look at beyond just being an investor in that business?

Jon Feltheimer I think Michael Burns will answer that question.

Michael Burns Hi, Jim. I think if you look at Amy Miles, she talked about at our conference calls. She talked about the idea of the testing being launched for dynamic ticketing. To us, it always seems sort of crazy that the theatrical business didn’t take advantage of that when every other industry is doing that. So we think there's an opportunity there. But as we’ve talked about knowledge over the top platforms, what Lionsgate is focusing on, particularly obviously the data that Starz is now getting is getting as close to the consumer as possible.

We have great partners at Atom. We're getting more information than we've ever gotten from our theater-going going population. So you'll see more and more of that. And obviously, we have two big studio partners in there right now. I would expect more. We have Disney and Fox alongside us and a bunch of exhibition as well. So the closer to the consumer that we can get, the better we think we are. And so I think you'll see more and more of that.

Jim Goss And just one follow-up. Does that mean you would also use that information to help drive the programming it creates?

Michael Burns I think the answer is the more data you have, the better information, and we can use it in a lot of different ways, including programming.

Jim Goss Alright. Thanks much.

Michael Burns Thanks Jim.

Operator Thank you. We have no one else in queue. Please continue.

CONCLUSION

James Marsh Okay great. Thanks Kerry, I just want to give one final closing statement here. Please refer to the reports and presentations tab under the corporate section of the company's Web site for any discussion of certain non-GAAP forward-looking measures discussed on this call. Thanks everyone for joining us today. Thanks.

Operator Thank you. And ladies and gentlemen, this conference will be available for replay after 4:30 PM Pacific Time today through midnight November 16, 2017. You may access the AT&T replay system at any time by dialing 1-800-475-6701 and entering the access code of 431170.

Lionsgate Entertainment Corp. Thursday, November 09, 2017, 5:30 PM Eastern 18

International participants may dial 320-365-3844. Again, those numbers are 1800-475-6701 and the access code being 431170.

And that does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference service. You may now disconnect.

Lionsgate Entertainment Corp. Thursday, November 09, 2017, 5:30 PM Eastern