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Lionsgate and Starz to Spend $1.8 Billion on New Films, TV Shows

Lionsgate is banking on the old adage that content is king.

As part of that strategy, the media company will spend $1.8 billion this year on new films and television shows, Lionsgate Chairman Jon Feltheimer said during a shareholders meeting in Toronto on Tuesday. That figure represents the programming budget of not just the studio, but also Starz, the cable player that Lionsgate has a deal to buy for $4.4 billion.

That will work out to roughly $1.5 billion spent by Lionsgate for film and TV content combined, and approximately $300 million shelled out by Starz for TV programming.

In some brisk remarks to investors, Feltheimer said that, backing this programming will allow Lionsgate to “…deepen our relationships with current distribution partners as well as to forge alliances with new digital platforms.”

Analysts have questioned the sales price for Starz, arguing that it leaves the company heavily leveraged. But Feltheimer also argued that bringing the players together would lead to cost savings, in the form of more than $200 million in combined operating cost synergies and cash tax savings. That deal is expected to close by the end of 2016.

A union with Starz also gives the studio greater negotiating heft in a field that is dominated by sprawling media conglomerates such as Disney and Comcast — companies that command theme parks, cable channels, and massive merchandising operations. That allows them to demand better pricing for the shows they license to cable providers and other distributors.

A marriage between Lionsgate, the studio behind “The Hunger Games,” and Starz, the maker of “Outlander” and “Power,” will, in Feltheimer’s words, give the two entities “more leverage [and] better relationship for us with all of our buyers.”

The company’s theatrical business has struggled in recent months due to the failure of “Gods of Egypt,” a pricey fantasy film, and the end of the “Hunger Games” franchise.
But Feltheimer argued that Lionsgate’s mojo is back. Its film business is on a roll, he claimed, while hailing the upcoming release of the acclaimed musical “La La Land” and the World War II drama “Hacksaw Ridge.” He also cited the success of television programs such as Hulu’s “Casual” and HBO’s “American Lion.”

The Lionsgate chief stressed the company’s willingness to take advantage of digital platforms as a means of bringing its programs to the masses, noting recent pacts with the likes of YouTube Red and Verizon’s Go90, as evidence of its flexibility. Once the merger closes, the companies will also be involved on five over-the-top services and a Starz app.

“These new platforms are bringing us closer to the consumer and capitalizing on our natural advantages as a young, digitally-fluent next generation studio,” said Feltheimer.

The gathering took place at the Shangri-La Hotel, with a crowd that was dominated by board members, executives, and only a handful of investors. As part of the meeting, shareholders approved the nominations of Mike Fries, the CEO of Liberty Global, and David Zaslav, the CEO of Discovery, to the board of Lionsgate. The two executives helped orchestrate the Starz merger through the companies’ stakes in Lionsgate. Sir Lucian Grainge, the CEO Of Universal Music Group, was also approved as Lionsgate’s newest director.

John Malone, Liberty Media and Liberty Global’s chairman and a Lionsgate board member, was not on hand.

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