Lionsgate takes $1.8 billion by exiting seven former Starz markets

Lionsgate takes $1.8 billion by exiting seven former Starz markets

Lionsgate elected to exit seven international territories for Lionsgate+, its international operations rebranded to Starzplay, resulting in a second-quarter operating loss of $53.7 million before the impact of approximately $1.7 billion in fees accounting and non-cash restructuring.

The streamlining move comes as the Hollywood studio released its second-quarter financial results while exploring a possible sale or spinoff of the premium cable and streaming platform or its studio business. Lionsgate will exit Lionsgate+ markets in France, Germany, Italy, Spain, Benelux, Nordics and Japan.

The studio will remain with Starz internationally in the UK, Latin America and Canada. Lionsgate’s global streaming subscriber base for Starz during the second quarter grew to 27.3 million for the three months to September 31, 2022 in an increasingly competitive global streaming arena. This represents an increase of 1 million subscribers from 26.3 million at the end of its first quarter of fiscal 2023 and a 52% year-over-year increase.

Lionsgate recorded a restructuring charge of $218.9 million around the streamlined scope of Lionsgate+, and another non-cash impairment charge of $1.48 billion related to its acquisition of Starz in 2016 to account for changes in future free cash flow projections.

Lionsgate CEO Jon Feltheimer, on a conference call with analysts, told investors about the restructuring and goodwill charges around Lionsgate+ internationally: “These charges are a recognition of current market conditions and challenges in our environment. But they also represent an opportunity to stabilize our Starz business, reset expectations, and increase adjusted OIBDA as we move forward.

In a filing with the SEC, Lionsgate offered guidance that the adjusted OIBDA for media networks business is expected to drop from a range of $100 million to $120 million for the fiscal year through March 31, 2023 to a projected range of $175 million to $225 million for the fiscal year through March 31, 2024. This suggests improved earnings for Starz in fiscal year 2024.

So far, the studio in its latest financial results for the second quarter posted an operating loss of $53.7 million when removing Starz’s impairment, on overall revenue of $875.2 million. dollars, compared to revenue of $887.8 million in the same period of fiscal 2022. The studio recorded approximately $1.7 billion in one-time charges, with goodwill impairment being non-monetary.

Lionsgate CFO Jimmy Barge told analysts that the studio’s focus on its remaining Starz territories “will provide our international business a clear path to profitability,” with Starz expected to break even by the end of 2024 or earlier.

In its latest financial results, Lionsgate posted a net loss attributable to shareholders of $1.81 billion, compared with a profit of $7.5 million the previous year. Lionsgate’s media networks business, which includes Starz, saw segment revenue increase to $396.1 million from $384.7 million a year earlier as lower domestic linear revenue was offset by rising revenue from domestic streaming and Lionsgate+.

On the studio side, revenue from the cinema segment was $224 million, compared to $330.9 million a year ago, but this was offset by revenue from the television production segment which climbed to $430.9 million, compared to $336 million in the same period last year.

On an analyst call after the market closed, investors were weighing comments from senior executives for an update on ongoing strategic talks, including the possibility of spinning the studio’s business into a separate stock. The release of Lionsgate’s latest results comes amid strategic talks to potentially spin off from the Starz platform or the studio, balanced by pressure on Starz’s valuation as media stocks drop in value in the industry amid increased cord cutting and content competition.

Feltheimer told analysts that Lionsgate “remains committed to separating our media networks and our studio businesses.” He conceded the current uncertainty around capital markets, but insisted Lionsgate still saw the right terms for a strategic transaction to unlock hidden value in the studio and its core Starz and film and television divisions.

“Obviously, that’s not helpful when there’s a big disconnect between the separate values ​​and the sum of the parts of our core businesses, and where our stock price is right now,” Feltheimer added in his comments. comments to analysts. Starz is a pay-TV channel similar to HBO and Showtime, and also offers a streaming service aimed at domestic and international audiences. Its program includes the Power franchise.

Lionsgate acquired Starz in 2016 for $4.4 billion. The studio has set its target of subscribers between 50 and 60 million by 2025.

Lionsgate has explored its options for Starz, including a possible separation of pay-TV and streaming businesses and its studio operations. The goal appears to be to create two stand-alone companies so investors can assess Starz and studio assets separately.

“The path to achieving a higher share price is progressing with the split as soon as possible, with key concerns such as tax on cash (we expect tax separation) and the division of debt between the Starz and the studios. Once complete, we expect significant interest from studios as a driver of a higher share price,” Wells Fargo analyst Steven Cahall said in a Nov. 1 note to investors.

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