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Lionsgate Entertainment Corporation

Q1 2021 Earnings Conference Call

Thursday, August 6, 2020, 5:00 PM Eastern

CORPORATE PARTICIPANTS

Jon Feltheimer -

Jimmy Barge - Chief Financial Officer

Michael Burns - Vice Chairman

Brian Goldsmith -

Kevin Beggs - Chairman, TV Group

Joe Drake - Chairman, Motion Picture Group

Jeff Hirsch - President, Chief Executive Officer,

Scott Macdonald - Chief Financial Officer, Starz

Superna Kalle - Executive Vice President, International

James Marsh - Executive Vice President and Head of Investor Relations

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PRESENTATION

Operator Ladies and gentlemen, thank for standing by. Welcome to the Entertainment First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session; instructions will be given at that time. If you should require assistance during the call, please press "*" then "0." As a reminder, this conference is being recorded.

I will turn the conference over to our host, Executive Vice President and Head of Investor Relations, James Marsh. Please go ahead.

James Marsh Good afternoon. Thank you for joining us for the Lion Gate’s Fiscal 2021 First Quarter 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 the call for questions. Also joining us on the call today are Vice Chairman, Michael Burns, COO, Brian Goldsmith, Chairman of the TV Group, Kevin Beggs, and Chairman of the Motion Picture Group, . And from Starz, we have President and CEO, Jeff Hirsch, CFO, Scott Macdonald and EVP of International, Superna Kalle.

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 differ materially and adversely from those described in the forward-looking statements as a result of a variety of factors. This includes the risk factors set forth in Lions Gate’s most recent Annual Report on Form 10-K, as amended and our most recent Quarterly Report on Form 10-Q filed with the SEC. 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.

I’ll now turn the call over to Jon. Jon.

Jon Feltheimer Good afternoon. Thank you, James and thank you all for joining us. I hope everyone is staying safe and healthy. We completed the quarter with strong financial results in an extraordinary environment, in which our priorities were evident, monetizing our and library, embracing innovative distribution strategies for our , and acquiring new properties while renewing others. Most importantly, it was a quarter in which we continued to use our content engine to create a unique, valuable and scalable global streaming platform at Starz.

As I go through a recap of the quarter, one message stands out; our programming in Starz is working. The identity of the Starz brand is resonating. The growth of its domestic over-the-top business is robust, its international platform is successfully differentiating itself at a critical inflection point in the marketplaces. And the proposition of bringing Lions Gate and Starz together allows us to accelerate the growth of our direct-to-consumer offering by using the full portfolio of our resources is fulfilling its promise.

Let’s start with the quarter’s highlights. Starz programming drove domestic streaming paid subscribers to an all time high of 7.4 million in the quarter. Internationally, Starz continues to

Lionsgate Entertainment Corporation Thursday, August 6, 2020, 5:00 PM Eastern 2 establish itself as a must-have with continued subscriber growth and expanding distribution footprint and a best of global effort content strategy that is resonating with consumers and platform partners alike. Globally we reached 11.4 million over-the-top subscribers in the quarter and our growth trajectory is on target for 13 to 15 million over-the-top subscribers by of the fiscal year.

It was a productive quarterly for our line group as all five of our new series were renewed, with Love Life becoming the second most watched series on HBO Max. We entered a lucrative multi-faceted syndication deal from with Prime internationally, Amazon’s IMDb TV domestically, AMC, and STARZPLAY. We’re readying our next big property Weeds for syndication in the fall. And on the heels of last year’s record , our library continued its outsized performance in the quarter as we continue to capitalize for content.

Turning to our individual businesses, Starz continues to differentiate itself as the home for programming for women, African-American and Latin mix audiences who have been underserved in the premium TV landscape. The Outlander franchise is stronger than ever, rallying at its fifth season with record multi-platform viewing as it became the number one original series on Premium for women.

We also successfully launched two new series in the quarter; the crime drama "Hightown" from creator Cutter and producer Jerry Bruckheimer premiered to an all time high for a new series on the Starz app and grew 33% from its series premier to its final episode. Its record was broken just a few weeks later, when Katori Hall’s P-Valley launched to rave reviews that propelled audience growth week-over-week since its premier, a rare feat among new shows. Both series are squarely in our wheelhouse of bold, provocative programming that is unique within the premium space, and both have been renewed for second seasons where our research shows that we often see outsized subscriber growth.

Understanding the importance of the Tower franchise, our Lions Gate Television Group is doing a great job getting the next two power series ‘Ghost’ and ‘Raising Kanan’ ready for their scheduled launches as our vertical integration gives us an important element of control over the production of our shows. We’re also expanding the ‘World of Outlander’ with the new docu series, ‘Men in Kilts’ starring Sam Heughan and Graham McTavish.

Going forward, we’re continuing to open the creative aperture with a combination of exciting new series including the comedy ‘Run the World’ from ‘’ Yvette Lee Bowser. And returning favorites ‘The Girlfriend Experience’ from and ‘The Spanish Princess’, which follows in the footsteps of critically acclaimed ‘’ and ‘’. It was also a strong quarter internationally. Planting our flag early in many countries gave Starzplay the opportunity to develop relationships with a growing list of established distribution partners and secure an enviable pipeline of exclusive world class content to deliver on our best of global S1 strategy.

We've positioned ourselves as a destination for premium programming by curating a portfolio of provocative, edgy series, including ‘Normal People’, ‘The Great”, ROMI and ‘Killing Eve’, shows that have garnered a total of 17 Emmy nominations, along with iconic library series such as ‘Mad men’ and our full slate of Starz originals, with Starzplay now becoming the exclusive worldwide home of the Power Universe.

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Earlier this week, Starzplay announced its partnership with a sister company leading Spanish language streaming service PANTAYA for a slate of original, local language titles that reflects our focused premium approach. Exciting new series ranging from the thriller crime drama ‘Express’ from renowned storyteller Ivan Escobar, to addictive period pieces such as ‘Senorita Mexico’, and an unfiltered look at the life of international porn star Nacho Vidal.

With a track record of success at Pantelion films, strong subscriber growth at PANTAYA and the ability to create the best in Spanish language programming, as evidenced by our 11 recent Imaan award nominations. This is a vertical where we can create exceptional value as a true market leader.

Starzplay’s content strength has made it a must-have service on third-party platforms, as evidenced by the most recent launches on , Apple TV plus and and its fueling the growth on our own Starzplay App which we launched in three additional countries.

Our bespoke relationships now encompass 58 different international partners who have recognized the appeal of our offering and whose collaboration will continue to serve as an enduring competitive advantage.

To sum up, the transition to digital at Starz continues to accelerate. The majority of revenue from our traditional business is migrated to à la carte. We've executed a successful content strategy and we are continuing to grow a valuable, scalable, global streaming platform with unique characteristics that set us apart.

Turning to our Motion Picture Group, it was an active quarter where we moved major franchises forward, resumed theatrical production, and demonstrated the flexibility and optionality of our slate.

There's good news on ‘The Hunger Games’ front ’ ‘Ballad of Songbirds and Snakes’ has been a smash success, selling more copies than any other book released in the in the first six months of the year.

With all of the excitement around the franchise, sales of ‘The Hunger Games’ titles in our library are experiencing growth beyond expectations. And we're working closely with Suzanne and the rest of the ‘Hunger Games’ team to get the movie ready for production.

We're also busy preparing scripts for the next two installments of our action franchise. With John Wick 4 is slated to hit theaters Memorial Day weekend 2022. We hope to shoot both John Wick 4 and 5 back to back when Keanu becomes available early next year.

And to reveal one of the worst kept secrets in , we're pleased to confirm the Jennifer Grey will both executive produce and star in a new ‘’ movie for Lions Gate from ‘Warm Bodies’ director Jonathan Levine.

It will be exactly the kind of romantic nostalgic movie that the franchise's fans have been waiting for, and that had made it the biggest selling library title in the company's history. With the appetite for fresh content at an all time high and options for consumers dwindling due to the global shutdown, we made it a strategic priority to be one of the first major studios back into production. Over the past five months, we put together a thoughtful strategy to restart production with protocols to best ensure the safety of cast and crew.

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We recently began production on the thriller ‘The Devil's Light’ in Eastern Europe, and we're gearing up physical production to begin shooting several other films over the next two months, including ‘The unbearable weight of massive talent’ starring Nick Cage.

These efforts to put us in a strong position to capitalize on a market short on supply. On the distribution front, our slate is well positioned to embrace relief strategies ranging from global theatrical rollouts to PVOD, and SVOD launches, giving us new ways to monetize our current pipeline and create new models for the future.

This afternoon, we announced that our film ‘Antebellum’ will be released on premium on September 18. An electrifying and urgent movie, our PVOD strategy provides the opportunity to reach the greatest number of people at a moment when its central themes are an important part of the national conversation. Our is strong and informed by the learning's from our successful PVOD launches of ‘I still believe’ and ‘The Secret’.

Turning to television, the most important part of the ‘Mad men’ story is yet another reaffirmation of the long-tailed value of great library content. Our recent second syndication license of this series is a significant increase in value over its first indication license eight years ago to . In a world where people are consuming more content, we believe that this story would be repeated across all the top titles in our library.

It was a strong and successful quarter for our television business. Our output was prolific, our development pipeline is full. We're continuing to put new shows on the air and continuing to ramp up our highest priority, supplying premium scripted series to Starz. And while getting new shows on the air is great, it's really all about renewals. In this quarter, all five of our new series were renewed as Love Life, Zoe's Extraordinary Playlist, Mythic Quest, P-Valley and Hightown begin what we hope will be long runs building evergreen value.

We are already preparing to launch the next wave of premium properties, First Ladies at Showtime starring Academy Award winner as former First Lady . The , Adult comedy Santa Inc. for HBO Max and East Wing creator Ali Wentworth's comedy for Starz about life in the Reagan White House starring, Debra Messing. With more and more of our creative focus on Starz, we now have more than 20 series in development production already to launch on the network, as we continue to align all of our content businesses where we see the greatest opportunity for growth.

During the quarter, our television group was busy establishing protocols to allow us to resume production safely. Though every show represents its own unique set of issues, we will soon have a steady stream of premium-scripted series returning to production at the right pace, in the right locations, and with the right safeguards in place.

Meanwhile, ‘Pilgrim’ has achieved great success, producing unscripted series safely in the current environment, developing procedures that have won acceptance from health officials, local communities, talent and the guilds. They have 21 shows in various stages of production in every part of the country, and they just completed shooting the major competition reality series, ‘The Ultimate Surfer’ for ABC and ‘Dodge Ball’ for Discovery. While the new Mike Tyson series, ‘Tyson vs Rumble on the Reef’ is preparing to take a bite out of Discovery's Shark Week.

It was also an active quarter for Lionsgate 360 collaboration. With our television and motion picture teams together acquiring the coveted Pulitzer Prize winning 1619 Project in partnership with Oprah Winfrey, , and investigative journalist Nicole Hannah Jones,

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which we will adapt into a portfolio of content with some of the greatest African-American storytellers. It's an exciting reaffirmation of who we are and what we stand for as a company.

In that regard, as we create new paradigms for operating our business, we also named a chief diversity officer and formed an executive diversity council, which I chair, continuing to strengthen our commitment to diversity in our workforce and ensuring that all of our employees have an equal path to success.

As we think about where the biggest opportunities for value creation lie, we start by looking at the building blocks that we have carefully put into place over the last 20 years. First, assembling libraries in the distribution business to monetize it. Second, building a portfolio of dozens of major film and television franchises with renewable evergreen value. They're harnessing that content engine to a captive premium pay channel at Starz. And finally continuing the transformation of Starz into a premium global streaming platform, fueled by our IP and backed by our content library.

We've already changed the face of Starz in three and a half years. From a domestic channel with almost no over the top subscribers to a direct-to-consumer offering with over 7.4 million OTT subscribers today. From a network with no international subscribers to a global subscription service with over 5.2 million subscribers today. And from a legacy company generating less than 50% of its revenue from a la carte to a modern platform generating over 75% today, expected to reach nearly 80% by fiscal year end. This transformation is still in its early innings, but everything that we've seen so far and everything that we this quarter tells us that we're on the right path to creating something that's unique and lasting value for our consumers, partners and shareholders.

In closing, this was not only a strong quarter, but one that showcased all of our strength, resilience in the face of the , and creating new business models for a changing world. And most importantly, people working together collaboratively to continue to build our company and our brand. Though our environment remains uncertain, our businesses are strong, our balance sheet is healthy, our morale is good, and our own path forward is clear. Thank you.

Now I'll turn things over to Jimmy.

Jimmy Barge Thanks John and good afternoon everyone. I'll briefly discuss our fiscal first quarter financial results and provide some color on our outlook. First quarter adjusted EBITDA was $174 million, driven by strong Motion Picture Group segment profit performance and record demand for library, with revenue coming in at $814 million. Reported fully diluted earnings per share was $0.23 per share and fully diluted adjusted earnings per share came in at $0.39 a share. Adjusted cash flow for the quarter was $77 million.

Now, let me briefly discuss the first quarter performance of the underlying segments compared to the prior year quarter. You can follow along in our trending schedules that have been posted to our website and show greater detail around our global media network subscribers. Media networks, quarterly revenue was $367 million and segment profit came in at $72 million, up 19% from last year, driven largely by smaller losses at Starz Play International. Starz domestic generated 30% profit margins while transitioning one of our largest distributors to an a la carte revenue share model.

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Globally, on a pro-forma basis and including Starz Play Arabia, the company added 4.5 million subscribers year-over-year, up 22%, reaching 25 million global subscribers at the end of the quarter. Domestically, total subscribers were 19 million, which was up 2.2 million from the prior year pro-forma adjusted for changes and distributor packaging. You can see more detail in the new subscriber disclosure included in our trending schedules.

Now, looking at sequential performance, total domestic OTT subscribers were up 600,000 pro forma or 9% percent sequentially driven by Outlander and new freshmen hit series ‘Hightown’. I'd like to remind you that our sub counts all represent paying subscribers.

Turning to our Motion Picture group, revenue declined to $281 million, as a result of no theatrical releases in the quarter combined with tough comps against last year's strong performance of John Wick-Chapter 3. Segment profit came in at $101 million, driven by lower P&A spend and demand for high margin library and segment to titles, which is indicative of the increasing value of our content.

As we mentioned on our last call, we expect some motion picture group revenue to shift to the right as theaters remain largely closed due to the COVID-19 pandemic. And finally, television segment revenue for the quarter came in at $196 million, while segment profit was $35 million up 40% year-over-year. The results in TV significantly benefited from our licensing agreement of ‘Mad Men’, and we expect the balance of TV segment profit for the year to be weighted to the second half. On the balance sheet, our leverage ended the quarter, at 4.1 times adjusted EBITDA or 3.3 times excluding our investment in StarzPlay International. We continue to maintain significant liquidity with $376 million of cash on hand and a $1.5 billion undrawn revolver.

I would also like to remind you that we have no maturities before the end of fiscal '23. We remain committed to paying down debt with the bulk of our excess free cash flow. Lastly, we remain very comfortable with our maintenance covenants based on our revised forecast and having further stress-tested them for longer production and the actual delays, as well as the potential negative impact of a recession.

Now I'd like to turn the call over to James for question-and-answer session.

QUESTION AND ANSWER

Operator Ladies and gentlemen, if you wish to ask a question please press "1" then "0" on your telephone keypad. You may withdraw your question at any time by retaining the "1", "0" command. If you are using a speakerphone, please pick up the handset before pressing the numbers, once again, if you have a question press "1" then "0" at this time. And it will be a moment before our first question. We do have a few people queuing up, and as a reminder, "1" then "0" for any question.

We’ll go to the first question, Matthew Thurston with True Life. Please go ahead.

Matthew Thurston Hey, good afternoon everyone. Thanks for taking the question. Maybe two, if I could, maybe just to start I don't know if it's John or Jimmy. Can you just maybe update us on your thinking around the international or expansion just how you think you're pacing relative to the multi-year projections that you guys have put out there and just kind of a remind of how may many markets

Lionsgate Entertainment Corporation Thursday, August 6, 2020, 5:00 PM Eastern 7 you're in now and maybe how many, you're targeting just a little update there would be helpful. And then, just secondly, the library number you put in the release there was a pretty stellar number, just curious if that's a reasonable run rate number or maybe how we can think about that versus what a normalized number would look like. Great. Thanks guys.

Jon Feltheimer Hi Jeff, why don't you take the first one and then Jimmy the second.

Jeff Hirsch Hi, there. The international is doing great. We're really excited about the progress we've made since launch. We are in currently 50 countries and we feel great about those 50 countries right now and the goal in each of those territories is to get deeper in terms of our distribution relationships. As John mentioned in his remarks, we've done 58 different distributor deals over the last 18 months. We continue to see distributors coming to us because of the strength of the content that we put on the service. Right now, we've got the great on outside the U.S. and it’s performing really, really. So, we feel great about the trajectory. We think we are on track to hit the 15 million to 25 million subs that we've talked about probably by 2025 and we feel great about it.

Jimmy Barge And Matt regarding your question on library. As you've noted, we've actually had two back-to- back records in recorded library. We posted over 600 million, which was a record for us in fiscal '20. And then, really a great start to the year with the first quarter a record 219 million. So, for us this just underlines the increasing value of content. And in fact, as John mentioned in his prepared remarks, we saw a significant increase in value going from first second cycle with ‘Mad Men’, so that's just reaffirming that.

I would tell you this is a very diversified library driven across both motion picture and TV. This just continues to we believe be an undervalued asset and to give you more perspective, right? If you just took last year's revenue of $600 million plus and as we said before the cash margin on this is 50% plus, if you took that and just put a conservative 10 to 12 times multiple, you can easily see you're roughly $3 billion to $4 billion in value. There's another way to look at this too.

You can look at it in some of the parts, which we just recently had a valuation done on the unsold rights, and it was independently valued at approximately $1.9 billion pre-tax. And if you add to that the contracted backlog that we disclosed in the training schedule is $1.1 billion, you're at $3 billion and then you add development projects and sequel rights and spinoffs et cetera, you will see that's very consistent with this multiple approach of $3 to $4 billion. So really, when you look at it on some of the parts basis or a multiple, you come out somewhere around a $3 billion to $4 billion range.

Matthew Thurston Great. That's all guys. I'll jump back in the queue.

Operator Next, we go to line of Ben Swinburne with Morgan Stanley. Please go ahead.

Jon Feltheimer Hi, Ben

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Ben Swinburne Thanks. Hey, how are you? I think, Joe is on the call, I believe. I wanted to ask you about the Antebellum PVOD decision I'm sure you're not surprised. How do you think about, the sort of opportunity with that movie and a premium VOD window relative to your box office expectation and how do you think about the returns available to the company? I think a lot of this is happening because of the COVID situation or maybe all of it than the lack of a theatrical option. I am just wondering, from analytical finance point of view how you think about the return of the movie in a PVOD window and if you think that things have structurally changed in this business over the next couple of years and you’ll be doing more rather than less of this. Or is this truly you know a temporary phenomenon?

Company Representative Sure Ben. Thanks for your question. We…listen, I would love to see every one of our movies released theatrically and we certainly made this one with real theatrical aspirations. We have a great movie. It’s a movie that is also particularly strong because it speaks to this moment in time. So just from a movie-meeting cultural moment, there is no better time for it to reach its audience which factored into our decision a little bit for sure. Also, what I would say to you is that with the extraordinary demand for content and the short supply, what I can tell you is that the economics look really strong.

It allows us to still speak to a consumer directly and yet, the downstream appetite and pay and beyond is strong. So, what I would say to you is that it’s a really good model for us. We also have a good theatrical model, but we think that, in a model like this you actually accelerate cash and have the same opportunity for upside. So, between that and this move and this moment, it was just the right decision. When you think down the road, what I would tell you is we certainly, we believe very much in the theatrical business and as that opens up, we will be ready to exploit it aggressively and yet what you have seen in this moment is new opportunities being created.

And so I just look…I look at the environment and although it’s a little tough because theaters aren’t open, we have got more, I think, optionality and interesting ways to exploit our content to the consumer and so I think that going forward we will be looking at all of those things.

Ben Swinburne If I could just ask a follow-up. Thank you for that answer. One of the things we hear or you read is obviously talent once their movie about directors and also, I am sure participants want their movies really theatrically not only because they want it theatrically but they also know a lot of the economics are tied to box. Do you view that as a headwind to this model working or do you think that, these are changes in the air and everyone sort of sees the way technology and the consumer are moving?

Company Representative , I would start by saying we feel like Talent…we would like…we want it in theaters too, so, we all would like that to happen and we are all working aggressively and we are back in production already with the idea of…there is a lot of appetite out there to feed and so it is…it’s something that we are all looking forward to getting back to and at the same time Talent wants their told and they want to reach an audience and they are partners with us. We are not making the unilateral decision. We very much bring, our creative partners into these conversations to make sure that we are doing the right thing for the movie both creatively and economically. So it’s…you end up having a lot more conversations than you maybe had to before, but at the end of the day, creators want their stories to be seen and they want to have…they want have impact and so we are all kind of in it together dealing with the moment.

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Ben Swinburne Thanks a lot.

Operator And next, we will go to the line of Alan Gould with Loop. Please go ahead.

Alan Gould Thanks for taking my question. Hello guys. I have a few questions. First for Jimmy. Leverage took a nice step down and that what we are seeing with you in all the studios is that there has been a big push back on costs to later in the year. Should we expect that reverses a little bit as the year goes on?

Jimmy Barge Yes, Alan, listen, in terms of the leverage thank you, you did note that we significantly de- levered since last quarter. Look, we generated nice positive free cash flow after fully investing our business, and we plan to continue to do that. I would say that, on a debt basis, we reduced net debt almost $100 million dollars over the quarter, and we’ve done so over almost a half a billion over the last 18 months. So, I expect to continue to manage the net debt at this level or down and the ultimate leverage will be a context of what the ultimately trailing 12 months are and as you noted we were more front-end loaded with this first quarter. So, you would expect that to work a little bit against us over time, but we are very comfortable with where we are in our efforts to continue to de-lever.

Alan Gould Thanks. And just follow up on Ben’s PVOD question. Can you give us any sense of what the pricing is? Whether the movie will run in theaters after the PVOD wins over theaters are open and if there is a backend chair to the theaters?

Company Representative On ‘Antebellum’, it is currently planned at 1999 with the idea we will play it all the way through the holidays. There is not currently a plan…there is not currently a theatrical plan. It is to really maximize the opportunity for…in this moment for the biggest, the widest possible audience to see it. If things change, we will certainly take advantage of any opportunity out there.

Alan Gould Okay. And one last one if I could. ‘Mad Men’, did you recognize all of the syndication revenue…second type of syndication revenue for ‘Mad Men’ this quarter or you recognized more after Amazon’s exclusive window is over?

Company Representative Yes, there is…. we recognized a significant portion of it this quarter based on the avails that were available on Amazon. There are some avails throughout the year back half but the majority has been recognized in the quarter.

Alan Gould Okay. Thanks so much.

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Operator And ladies and gentlemen, again, if you would like to ask a question, please press "1" then "0" now. Again, for any questions "1" then "0." We will next go to the line of Steven Cahall with Wells Fargo. Please go ahead.

Steven Cahall Thanks. So domestic Starz’s network revenue has done pretty well. I think it is only down around 6% from where it was before the reset so we are just wondering are there any more fixed distribution deals coming up in fiscal 2021 that we need to think about? And do you think it's possible that you might end Fiscal 21, at a network revenue run rate that’s kind of back to where it was before that deal reset?

Jeff Hirsch Hi, it's Jeff. You have got great question. How are you. We continue to see great, higher ARPU subs on the digital side coming onto the, onto the business, which is replacing some of the lower ARPU subs that we saw on the Comcast deal. We continue to work with Comcast. We saw a little slowing of the growth on the a la carte side during the early stages of the stay at home order because they were giving away a lot of content. But we have seen acceleration in the July month and we're looking forward to having the first power spin-off in September. For the first time in under this new deals we think we'll see growth accelerate there as well. We generally don't talk about our distribution deals, but I would say just normally we have two to three a year, on a normal basis.

Steven Cahall Great. And maybe, Jeff, well I have got you. How many originals that do you think is the right amount for stars on a sort of cadence for your subscribers basis? And do you intend to run those on a like one per week or might you do more of like a binge type of approach for the Starz content and, and then just last one on the Starz’s content, how do you think about having a big movie library versus putting more of that cash into original content?

Jeff Hirsch Great question. We have a very specific programming strategy, as a premium service, which is a non-ad supported, very mature, very adult content that we like to say people are willing to pay for. We don't have to be broad and try to service the home as some of the other newer launch services that we have. So, we think the right numbers are on 15 originals. That way, we can have one new piece of content or two new pieces of content on the air every week for our two core demos, you couple that with our over 4000 library titles, plus our pay one at 899, we think we have a really good value proposition to be a complimentary service for all of the big services both domestically and then at 499 overseas. So, we think that's the right kind of the right mix of services.

Remember, this is really about, moving the customer from week-to-week and reducing churn to low single digits. And so, it's really a portfolio approach where we have a piece of content like power, and we come back with a piece of content like t-value where we can move the customer from 10 weeks to 20 weeks and really accelerate the growth in the business. So, we think that's the right mix. In terms of library versus pay one versus our originals, we've got a lot of first party data off the app, originals really drive acquisition, a library drives a lot of retention and usage and so, we think there's a really great combination there. The Sony pay one continues to drive a lot of usage and acquisition for their really big titles, so we think that's important. So, we think we've got the right mix of content at the right place to continue to drive the business and be successful.

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Steven Cahall Thank you.

Operator And as a reminder for any questions press "1" then there are now again one then "0" for any questions. We’ll next go to line of Doug Prewitt with Cohen. Please go ahead.

Doug Prewitt Hi, thanks. I'm sure you saw NBCU and AMC signed an interesting deal, which allowed for a PVOD window of 17 days from release in return for some revenue sharing. Just wondered what your thought was of that deal. How important you think it is and whether you're looking at any similar deals for your films? Thanks.

Jon Feltheimer Sure. Thanks.

Company Representative Yes, thanks Doug. Look, we there's some things to really like about that deal. I think, one of the things that, that I think it's a real standout in it is that it treats all the parties as partners in the theatrical and PVOD space. And so, it's trying to create a partnership model where everybody wins and figure out how it can work for everybody. We like that about it. I think that there's a ton to unpack. We're of course having our own conversations with all exhibitors as I'm sure you'd hope and expect. What I will tell you is that much like what we're doing with Antebellum, it just creates another opportunity in the marketplace, it creates more optionality for how we can exploit our content. I think for all of us, it's important to make sure that we're working hard to lift the theatrical business back up. And at the same time, it's just a greater reach to audiences who at the moment are incredibly hungry for premium content, and there's just not enough of it out there.

Doug Prewitt Great, thank you.

Operator And as a reminder for any questions, "1" than "0." We’ll next go to Matthew Thurston with True Life. Please go ahead.

Matthew Thurston Yes, hey, guys, one quick follow-up. Any, any color you can give us just on how to think about linearity this year for Starz subscribers, obviously, we've got the COVID kind of engagement bump in the calendar, second quarter, and then we've got, an original slate that we don't have great visibility into. Yet, so that's going to ebb and flow as well as me maybe any color, you can think about how you think about the linearity of service throughout, throughout the year any milestones we should be thinking about? Thank you.

Jeff Hirsch Yes, it's Jeff. We had the fortunate to be almost a year in advance in production. So, we don't expect any interruptions to our slate through the end of the fiscal until we have as we talked about the first power universe franchise coming on, on September 6, which obviously is a big driver subscribers for us. And then, we've got the Spanish princess coming behind that which again is another great driver of sub sitting against the Outlander audience. And so, we feel

Lionsgate Entertainment Corporation Thursday, August 6, 2020, 5:00 PM Eastern 12 pretty good that the, the business will continue to accelerate and grow on the on the digital side. I think as you've seen, most of our partners have announced on the traditional side, there is some still weakness there as a lot of our big operating partners transition to a digital product. So, we expect that business continue to shrink at a normal pace that it has over the last couple of quarters, but we do see great acceleration in our OTT service. As John said in his prepared remarks, we do believe that globally we can get to 13 to 15 million OTT subscribers by the end of the fiscal and we feel pretty good and we're on track to hit that that range.

Matthew Thurston Right. Thanks again guys.

Operator So once again, as a reminder, if you do have a question, you can press the "1" then "0", again "1" than "0" for any questions. And at the moment, we do not have anyone in the queue, so I'll turn the call back over to James Marsh. Please go ahead.

CONCLUSION

James Marsh Great. Thanks operator. Please refer to our press releases and events tab under the investor relations section of the company's website for discussion of certain non-GAAP forward looking measures discussed on this call. Thank you very much.

Operator And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect

Lionsgate Entertainment Corporation Thursday, August 6, 2020, 5:00 PM Eastern