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Lionsgate Expects to Finalize Starz Spin-Off or Sale by End of Summer, CEO Says

Company misses quarterly earnings expectations, as TV productions drive overall revenue up 6%

Lionsgate
Lionsgate

Lionsgate came in below Wall Street expectations for the first three months of the year, but its TV production division again had stellar results and its Starz streaming business kept on growing.

The company previously announced that it would look at spinning off or selling Starz, the premium cable network and streamer it acquired in 2016, as part of reducing debt. Among the suitors are Roku and Apollo Group, which have teamed on a bid to acquire a minority stake in Starz.

On the earnings call Thursday, CEO Jon Feltheimer said Lionsgate is aiming to announce its plan for Starz by the end of this summer and that the company expects a transaction could close as early as the first quarter of calendar year 2023.

“We are engaged in a robust and productive process with our bankers and a number of potential strategic and financial partners,” Feltheimer said, without identifying prospective buyers. “Even after executing our strategic plan for Starz, we will continue to partner with them in the creation of great IP, building our library and achieving important synergies between Starz and our studio business.”

Right now, Feltheimer said, the expectation is that Lionsgate will retain some ownership stake in Starz although he added that “anything can happen.” Once separated from Lionsgate, “My sense is [Starz] will also see some opportunities — perhaps some strategic opportunities” that wouldn’t have been possible as a wholly owned unit of the company.

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Starz’s global streaming subscriber base grew by 4.8 million for the quarter, to 24.5 million — up 47% from the year-earlier period. Execs reiterated that they expect Starz to hit 50 million to 60 million global subscribers (TV and streaming) by the end of fiscal 2025; overall, Starz had 35.8 million customers worldwide at the end of March (up 21%).

Overall, the company reported revenue of $929.9 million, up 6% year over year, while its net loss more than doubled to $104.6 million for the quarter ended March 31. That translated to adjusted net income of $13 million, or adjusted earnings per share of 6 cents. Lionsgate’s operating loss for the period was $50.4 million, compared with an operating profit of $14.3 million for the first three months of 2021.

Lionsgate fell short of Wall Street forecasts. Analysts on average expected revenue of $961 million and adjusted earnings per share of 10 cents for the March quarter, according to S&P Global Market Intelligence.

“Despite a very competitive and disruptive environment, I’m pleased to report a strong fourth quarter to close one of our best content-building years as we continue to create significant long term value,” Feltheimer said in announcing the results.

In fiscal year 2022, Lionsgate incurred $158 million in cash costs related to COVID for its productions, according to Feltheimer. “Going forward, I’m certainly hoping to mitigate those costs. I hope those costs go down,” he said, saying some of that depends on “union demands.”

Lionsgate’s Motion Picture segment revenue decreased by 1.5% to $288.1 million and profit decreased 19.6% to $49.5 million.

By contrast, the Lionsgate Television segment revenue boomed 76% to $370.2 million year over year — and profit increased 264% to $33.1 million. The division had a record 14 new shows picked up to series in fiscal year 2022 and went 15-for-15 in current series renewed for additional seasons.

The company’s Media Networks unit, which comprises Starz and Starzplay International, saw revenue drop 5.2% to $380.2 million due to reductions in domestic linear TV revenue, partially offset by streaming revenue increases. The unit’s profit decreased 23.3% to $33 million.

By the end of the year, Lionsgate expects to return to its annual run rate of 45 to 55 films across its theatrical, multiplatform and direct-to-streamer businesses, Feltheimer said.

He noted that “John Wick: Chapter 4” with Keanu Reeves is finishing production for release in early 2023. Ana de Armas will star in “Ballerina,” the John Wick action spin-off which begins production later this year. “Expendables 4” has wrapped production for release next year. In addition, the latest film in the Hunger Games franchise returns to “its customary place on the release calendar” with the Nov. 17, 2023, global premiere of “The Ballad of Songbirds and Snakes,” directed by Francis Lawrence and starring Tom Blyth (“Billy The Kid”) as the young Coriolanus Snow.

Meanwhile, Lionsgate recently inked Pay 2 window movie output deals with Roku and NBCUniversal’s Peacock. Starz has the the Pay 1 TV window on Lionsgate releases, which will immediately be followed by a brief exclusive Roku Channel window, a Peacock exclusive window and then a second window on Roku Channel at a later date.

Last week, Lionsgate announced a pact with Great Point Studios, a studio investment/management company, and the New Jersey Performing Arts Center (NJPAC) to build a 12-acre production facility in Newark expected to begin operations in late 2024. The facility will be owned and operated by Great Point Studios; Lionsgate, as the long-term anchor tenant, will receive naming rights to the studio. In January, Lionsgate and Great Point Studios opened a $500 million studio facility in Yonkers, N.Y.