Lionsgate Studios Corp (LION) 2025 Q4 法說會逐字稿

Good afternoon, and welcome to the Lionsgate Studios Fourth Quarter 2025 Earnings Conference Call. (Operator Instructions). Please note, this event is being recorded.

I would now like to turn the conference over to Nilay Shah, Executive Vice President and Head of Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us for the Lionsgate Studio Corp's Fiscal 2025 Fourth Quarter Conference Call. We'll begin with opening remarks from our CEO, Jon Feltheimer; followed by remarks from our CFO, Jimmy Barge. After their remarks, we'll open the call for questions.

Also joining on the call today are Vice Chairman, Michael Burns; COO, Brian Goldsmith; Chairman of the TV Group, Kevin Beggs; Chairman of the Motion Picture Group, Adam Fogelson; President of Worldwide TV Digital Distribution, Jim Packer; and Senior Adviser to the Office of the CEO at Lionsgate and Co-CEO of 3 Arts, Brian Weinstein.

The matters discussed on the call also 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 various factors.

This includes the risk factors set forth in our public filings for Lionsgate Studios Corp. The company undertakes no obligation to publicly release the result 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.

Thank you, Nilay. Good afternoon, everyone, and thank you for joining us. On May 7, we completed the separation of Lionsgate and Starz, and we began trading on the New York Stock Exchange under the ticker symbol LION. I want to take this opportunity to thank all of our shareholders for your overwhelming support, our Board of Directors for their patience and guidance throughout a long and complex process and the hundreds of Lionsgate employees who worked tirelessly to bring this important strategic initiative across the finish line.

We're confident the separation will unlock significant value, not only for the shareholders of both companies, but for our respective business and talent partners as we position our companies for continued growth. The separation also simplifies our capital structure by collapsing our previous two classes of stock into one. On Monday, June 9, we hope to see some of you at the New York Stock Exchange as we ring the opening bell to celebrate the launch. Turning to the quarter's highlights.

Our Motion Picture Group closed the fiscal year with a strong financial quarter driven by a familiar combination. The profitable mid-budget successes of Flight Risk and Den of Thieves 2, robust library sales, strong performances from our multi-platform and direct-to-platform business and disciplined theatrical P&A spend.

Our television group launched Seth Rogen and Evan Goldberg's critically acclaimed comedy the studio on Apple TV+, where it has already become a major Emmy awards contender and has been renewed for a second season. Our TV group secured a number of other key series of renewals in the quarter, including Ghosts, picked up for its fifth and sixth season on CBS.

The Rookie renewed for an eighth season on ABC. The Sherri Shepherd show renewed for a fourth season in syndication and Yellowjackets picked up earlier this week for a fourth season by Showtime. And finally, our library achieved a record performance with trailing 12-month revenue of $956 million, driven by a fourth quarter that was our best quarter ever.

We've been able to maintain strong library sales in a challenging environment through a combination of organic replenishment, distribution of third-party titles, library acquisitions and the rollout of new proprietary FAST and AVOD channels. Turning to our individual businesses. During the quarter, our Motion Picture Group unveiled a strong slate of films for our theatrical exhibition partners at CinemaCon last month.

Our lineup is notable not only for the strength of the IP, but the breadth of new and repeat talent driving it. Francis Lawrence, directing his fifth Hunger Games movie as well as the adaptation of the gripping Stephen King Classic, The Long Walk. Keanu Reeves anchoring our John Wick franchise and also starring with Seth Rogen and Aziz Ansari's comedy, Good fortune.

Ruben Fleischer directing Now You See Me 3 and beginning development of Now You See Me 4. Paul Feig, directing Sydney Sweeney and Amanda Seyfreid in the eagerly anticipated thriller, The Housemaid. Kingdom Story Company partners on our faith-based hits, I Can Only Imagine and Jesus Revolution, preparing I Can Only Imagine 2.

And Blumhouse and James Wan's atomic Monster collaborating with us on the reimagining of Blair Witch. Adding to our roster of repeat filmmaker relationships, we announced last week that Mel Gibson has chosen Lionsgate to be a studio partner on the Resurrection of The Christ, his long-awaited follow-up to the blockbuster, The Passion of the Christ.

Most of you have seen the announcements this week of the incredible talent we're putting together for the Hunger Games: Sunrise on the reaping with Jesse Plemons, Ralph Fiennes, Kieran Culkin and Elle Fanning, joining newcomers, Joseph Zada and Whitney Peak with more star power to come. The film based on Hunger Games creator, Suzanne Collins' best seller is one of the hottest properties at the Cannes film festival this week, and we are already seeing a corresponding major uptick in the sales of all of the Hunger Games library titles.

The film opens worldwide on November 20, 2026. In two weeks, you'll see Ana de Armas squaring off against assassin and former mentor, Keanu Reeves in Ballerina, the first major release of our fiscal '26 slate. We're holding the ballerina World Premiere in London today and fan response to early material and preliminary tracking indicate that it will be a strong addition to the John Wick Universe.

That Universe continues to expand with production scheduled to begin in September on the upcoming John Wick spinoff, Caine directed by and starring Donnie Yen, an animated John Wick prequel in the works and Chad Stahelski and Keanu, beginning development on John Wick Chapter 5. And if you're in Las Vegas, please check out the John Wick Experience branded attraction to open to strong ticket sales in March.

In regard to our Michael Jackson biopic, we're excited about the 3.5 hours of amazing footage from producer Graham King and Director, Antoine Fuqua, and we will be announcing a definitive release strategy and timing in the next few weeks. I would note that it is likely we will move Michael out of the fiscal year which will impact fiscal '26 financial results, but will bolster an already strong fiscal '27 slate.

Turning to television. In addition to the success of The Studio and Ghosts, we're continuing to add other premium properties such as Spartacus House of Ashur, which has wrapped its first season of production for Starz; The Rainmaker, the adaptation of John Grisham's best seller being readied for USA Network; and a new version of the classic Robin Hood saga for MGM+. Behind them, we continue to develop the Twilight TV adaptation, Midnight Sun for Netflix.

The John Wick Under the High Table series and a TV adaptation of the hit comedy Bad Moms. In addition, the assets we acquired with our A1 deal are performing well. We finished integrating these content assets into our company. Strength in key properties like The Rookie and Yellowjackets, reinforced existing talent partnerships, launched new series, Mistletoe Murders and Private Eyes West coast, monetized thousands of additional library titles and reduced overhead.

Turning to three Arts. Our premier talent management and production company has always been a leader in broadcast network comedies with The Office and Parks and Recreation. Now it has expanded that leadership into streaming comedies with the second season renewals of the hit series, Nobody Wants This, A Man on the Inside, Running Point and The Four Seasons all for Netflix.

And you'll be hearing more about our initiatives to grow and diversify three Arts into adjacent new areas of representation in the near future. We've also launched a major initiative to become a force in the creator economy. We're creating original content for digital platforms, negotiating with two leading advertising agencies to form brand partnerships to support that content and building digital businesses for our talent at the studio in 3 Arts.

Initiatives that are all designed to take advantage of our critical mass of IP to unlock its full potential. And with half of YouTube viewing now taking place on traditional connected TVs, our content portfolio will have more applications in the new digital ecosystem than ever before. In closing, the separation of Lionsgate and Starz doesn't diminish the headwinds in our operating environment but it does give both companies more flexibility in responding to them.

And it enables us to launch an exciting new chapter in the growth of our studio, positioning ourselves in the sweet spot of the entertainment ecosystem making and delivering great content for our buyers, expanding opportunities for our talent in old and new businesses and translating our unique portfolio of assets into incremental value for our shareholders, partners and audiences.

In a moment, Jimmy will take you through the component parts of a very strong quarter, whose drivers, another outsized library performance our Motion Picture group's diversified model and a strong post-strike uptick in deliveries of key television series demonstrate what we can do when all the pieces of our business are working as they should.

And it affirms our confidence at a content investment strategy that enables us to refill our content pipeline in fiscal '26 while positioning us for a strong growth year in fiscal '27. Jimmy?

Thanks, Jon, and good afternoon, everyone. I'll briefly discuss our fiscal fourth quarter and annual studio financial results and provide an update on the balance sheet. For the quarter, Lionsgate Studios revenue was up 22% year-over-year to $1.1 billion. Adjusted EBITDA reached a 10-year high and was up 49% to $138 million and operating income was up significantly to $94 million.

Reported fully diluted earnings per share was $0.10 per share, and fully diluted adjusted earnings per share was $0.21 per share. Net cash flow from operating activities was $256 million, while adjusted free cash flow for the quarter was a positive $395 million. Quarterly library revenue was a record $340 million. For the year, the studio's revenue was up 7% year-over-year to $3.2 billion.

Adjusted EBITDA was down 8% to $302 million, and operating income was down 11% to $125 million. Reported fully diluted earnings per share was a loss of $0.43 per share, and fully diluted adjusted earnings per share was a positive $0.10 per share. Net cash flow used in operating activities was $107 million while adjusted free cash flow for the year was a positive $89 million.

And finally, as Jon mentioned, our trailing 12-month library revenue of $956 million reached another record and grew 8% year-over-year. Breaking down the studio performance in the quarter, let's start with Motion Picture. Motion Picture revenue was up 28% year-over-year to $526 million and segment profit reached a 10-year high of $135 million, up 65% year-over-year.

Revenue and segment profit growth were driven by strength across the group's various lines of business. On the wide theatrical side, we had successful releases of Den of Thieves 2 and Flight Risk. We also benefited from strong performances on our direct-to-platform releases of Another Simple Favor, Reagan and Jingle Bell Heist, as well as robust library demand for key franchise titles like The Hunger Games.

Moving to TV. Quarterly television revenue of $543 million was up 16% year-over-year, while segment profit of $41 million was down 23% year-over-year. TV continues to rebound from the strike with revenue strength driven by continued growth in episodic deliveries. Segment profit faced a tough comparison with last year's Q4, which included a library sale of content to MGM+.

Now let's take a look at the balance sheet. We ended the quarter with $1.5 billion of net debt at the studio, which compares to $1.8 billion at the end of Q3. The quarter-over-quarter decrease in net debt reflects the anticipated strength in Q4 free cash flow as we closed out the year. On a trailing 12-month basis, studio leverage at the end of the quarter declined to 4.9 times, as we benefited from both free cash flow and an increase in trailing 12-months adjusted OIBDA.

Subsequent to the end of the quarter, we fully separated our Studio and Starz businesses. At the date of separation, the term loan A was paid off. We assumed $390 million of 2030 unsecured bonds from our previously announced debt exchange and established a new $800 million revolver. Net debt at separation was just under the $1.650 billion we noted on our last call.

Looking forward, a strong film and TV slate in fiscal '26 will help replenish the pipeline, providing the financial underpinning to go into fiscal '27 with operating and financial momentum. We expect this momentum, coupled with an exciting fiscal '27 slate will result in solid two-year adjusted OIBDA growth from fiscal '25 through fiscal '27. Now I'd like to turn the call over to Nilay for Q&A.

Thanks, Jimmy. Operator, can we open up the line for analyst Q&A?

(Operator Instructions), David Joyce, Seaport Research Partners.

Jimmy, if we can just follow along in more detail your outlook for the next two years. Granted with the Michael film getting delayed, but you also took on a lot more production-related borrowing, there's clearly a big revival in production activity. So what should we think about the cadence over the next two years? And what gives you confidence in further library sales to help out the cash flows while you're producing new content.

Great. Thanks, David. I appreciate the question. Obviously, a very solid fourth quarter. And as we move into '26, we're super excited about our slate. We're looking at strong growth, as I mentioned, over the two years into '27. So '26 is -- we're refreshing the pipeline. As Jon noted and you referenced, Michael is likely to move out of fiscal '26. So that likely will take place. I think the cadence overall in '26 is going to be back-end loaded, very similar to what we saw in fiscal '25.

So similar territory, we'll refresh the pipeline. This will drive carryover into '27, refreshing the pipelines in both TV and motion picture. I mean you see the tent poles on the film side of Ballerina, in Q1, Now You See Me in Q3. There'll be some P&A spend, of course, to support that. That will affect the cadence throughout '26 and then we've got a number of mid-budget films.

We're very excited about The Housemaids, The Long Walk, Good Fortune. On the TV side, a lot of returning and new series and growth at 3 Arts and really feel good about rebuilding that pipeline as we go into '27. So all of this really provides improved carryover into '27, where we got an incredibly strong slate, likely including Michael Jackson, Hunger Games, Resurrection as well as our paid TV deal will be in full swing. So really feel good about '27, both strong numbers and sustainable numbers in '27.

And if I could just ask back on the fourth quarter, there was elevated direct OpEx. Was that related to content amortization from the strong library sales -- the P&A spend for the couple of wide releases? Is there anything specifically you would call out on the elevated direct OpEx there?

No, I think you have it. It's just a cycle of the revenue cycle and the specific films and TV project and episodic deliveries because you're amortizing on a revenue curve.

Steven Cahall, Wells Fargo.

Maybe first, this might be for Michael or Jon. So now that you have the separation complete, just wondering how you think about opportunities to unlock value. Is there anything that you do differently now that Lion is stand-alone versus part of the larger Lion entity before. So just curious on strategy? And then Jimmy, maybe just on free cash flow conversion for the year.

So you kind of gave us a sense as to where EBITDA may land as we think about either cash taxes or content working capital maybe including the production loans. Any way to think about how that EBITDA will convert to free cash flow for deleveraging in '26?

I appreciate it. Yes. Let me just take the conversation about deals. Obviously, we're not give away our equity at these levels. One of the major reasons we did the separation is obviously to create liquidity in the Lion stock with 286 million shares now trading one cost of stock trying to keep it very simple. And so we're not going to do deals with giving away equity at these levels.

But we have a lot of capacity. As Jimmy mentioned, we have an undrawn credit facility. We have the ability to do that, but only to do deals where we think it's going to be incredibly accretive like, for example, our results so far, we're very happy with, for example, the one transaction that we did.

And Stephen, on your question on free cash flow and the cadence. I would expect the free cash flow similarly to be back-end loaded throughout the year. I think the content spend will generally be in the same area as our prior year spend, so call it $1.6 billion, probably spread pretty evenly between motion picture and TV. On the cadence, we came in very strong in Q4. So $395 million of free cash flow.

There were some timing in that context related to lower content spend. Some of that content spend actually payments will flow over into the first quarter of fiscal '26. So you'll see some of that. So you'll see some timing reduce the cash flow in Q1 and the cadence. What I would say is we have very good free cash flow conversion.

I mean taxes are just near zero, not quite zero, but you can call it $10 million or $15 million. We don't really have any CapEx to speak of. As you know, we do have cash interest, but we manage that very well. So you're going to generally have a good conversion there. But I would look at the overall positive cash flow that we delivered in fiscal '25.

And then look out to '26 and '27 and say, over that two-year period, I would expect positive free cash flow. The cadence is going to be more back-end loaded.

Thomas Yeh, Morgan Stanley.

I had a quick question just on some of the news that's been coming out about potential tariffs impacting movie production. I know it's preliminary and pretty hard to speculate, but anything you're seeing about the direction of travel there and your positioning as a studio that obviously kind of runs production and takes advantage of tax credits around the world?

Maybe give us a sense of how you might approach it. And then on the TV side, I think it sounded like there was a healthy pipeline of renewals that you mentioned for some of these more anchored shows that have long-dated seasons. Is there an update on the broader industry rationalization and any expectations for how you think about navigating the continued focus for some of your buyers on controlling spending?

Yes. Thomas, I'll let Kevin answer the question about the TV business, and I'll cover tariffs in a second.

Okay. Yes, I think in general, you're still seeing a lot of pressure on the key platforms to control spending, reduced budgets and be very disciplined about how they meet out their programming dollars as they try to balance earnings and profitability with customer and subscriber acquisition. So we kind of are continuing to rely not only on digging deep into the renewals that Jon went through and he touched on and you mentioned as well as finding new models, lower budgets, different locations, different buyers, new buyers and programming solutions that fit this moment.

With the regulatory pieces still coming together with something like Skydance and Paramount and inverse spending off from Comcast and Warner discussing spinning off cable assets, there's still a lot of uncertainty in the market, which typically dampens buying. I feel like towards year-end, that's going to start to bounce back a little bit and get to a new run rate.

And we're hopeful that, that will trigger more buying. But even without that, we're trying to definitely navigate in a disciplined way, getting our shows renewed and getting new ones on the board.

Yes. And in terms of tariffs, I think we're taking a wait-and-see approach. We are giving our feedback into the process. But I think we think certainly that if some version of a federal tax credit is better for the business. I think that film and television production is complicated in terms of a tariff, the component parts are sourced from many different places.

And so we think there's a better way to protect what is already a surplus in terms of balance of trade in our industry. But for us, we also have a lot of flexibility where we produce. We've got stages in New York and in Georgia. We've got a very special deal in working on stages in New Jersey. So we have a lot of flexibility in terms of where we produce.

But I think there's probably some smarter ways other than tariffs, to support our business and support the overall US economy.

Brent Panter, Raymond James.

First one for me. You talked about leverage a bit. And now that the split is done, I appreciate the comments on not doing deals with your equity value where it is. But where do you all think stand-alone leverage needs to be and what's the road map to get there? Obviously, EBITDA growth helps bring leverage down. But is there anything else you can do in terms of asset monetizations there?

Yes. Thanks for your question, Brent. Look, we're finishing the year 4.9 times, okay? At separation on May 6, we brought net debt in -- right in the range we talked about before $1 billion -- well under $1,650 billion. So that would be right around on a pro-form basis, 5.5 times.

So with the cadence back end loaded for trailing 12-months and free cash flow, you'll see the leverage ratio move up a bit before it starts coming back down. And then what I would think is when we move into the back end of fiscal '27 that we're in between a 3.5 times to 4 times range, and our long-range target would be 3 times, to 3.5 times.

And then other question for me. has talked quite a bit about expanding margins. And one way, I think they plan on doing that is focusing more on new and owned IP. Obviously, this has been planned for a while. So how do you all think about maybe the risk of Starz kind of shifting towards some of its own IP? And what's embedded in your expectations in terms of Starz spending with your TV production business?

Yes, this is Kevin speaking. From the get go, the way Jon and Michael set up the Starz relationship with Jeff was for us to be an arm's length supplier, just like any supplier out there with some advantages of knowing much more about what their programming needs are and hammering out license fee arrangement that we didn't have to renegotiate every time we sold them a new show.

We have some very important key franchises together, assets that we own. The power universe, BMF, Spartacus, P-Valley, which we're delivering right now in its third season. Those are the ones we're quite focused on and have the potential for, we think, many more iterations. We're on the fourth iteration of power and more in the pipeline.

We've just sold them something last week in a competitive situation. So we expect it will continue to do business. And that aspiration to own some of their own properties and their franchises is no different than any buyer we've ever sold to over the years. So we know our product has to be great. It has to be something they must have.

The good news is we've got a template in place for how we work together for years to come on licensee distribution and other ways. So it's very turnkey.

Yes, I would say -- I'd add to that. Sometimes, sort of a more arm's length relationship actually leads to a better allocation of resources. We've got, as Kevin's saying, we've got 3 of their 4 biggest franchise at this point in time. We've got the bulk of the -- the core part of their movie lineup. So there's significant if you will, appropriate creative tension between both parties, and I think and we have a great relationship.

And by the way, we're all , and I am a big shareholder of Starz right now. So we're going to figure out a smart way for us to work together to win-win.

Matthew Harrigan, Benchmark.

This may be your first ever eternal balance sheet question. When you mentioned The Resurrection of Christ, I actually Googled it, and I found the Catholic Harold and the interview Joe Rogan did with Gibson. And it sounds like it almost has like a Marvel type feel to it. I mean, he says it's an acid trip, if you tell the story properly, you have to start with the fall of the Angels, you need to go to hell.

And then he talks about the de-aging of Jim Caviezel, I hope I'm not mangling his name. So this just sounds like a really premium project. And clearly, there's a lot of interest in religion, both in the US and Europe with the new Pope and all that. So this sounds like a real upside. But I'm curious, what would the financial exposure be?

I mean, it just sounds like this is going to be a really expensive movie even if you've got a lot of upside on the possible commercial reception. I'm well aware it's kind of a funky question, but it certainly seems like an interesting project to say the least.

Matthew, it's Adam. Thanks for the question and a funky question that includes rabid enthusiasm for something we're doing is okay by me. Look, I would say that the international marketplace is every bit as enthusiastic as you just were, if not more. And there are tons of people, both in the international marketplace and elsewhere who are really excited about finding a way to participate in this.

I can tell you that an incredibly conservative model relative to not only what the first movie did, but the size and scale and theatricality of what Mel and Bruce are planning on putting together does not make it a remotely frightening proposition for us.

Obviously, every movie comes with a certain degree of risk, but I would not put this as anything other than an incredibly exciting opportunity, both creatively and financially.

Barton Crockett, Rosenblatt.

Okay. I was kind of curious for kind of a temperature check or check in on one of the core thesis for the whole split, which -- part of it was that it would create opportunities for the studio business to be acquired and what has been an industry that has historically been consolidating at premium multiples. And to that point, I'm just wondering what would be the process to get there?

Is this -- given that you've just completed the split, obviously, it'd be kind of quick to think about looking at the other side of it. But is this something where if you were to pursue M&A, you have to wait for a period of time for offers or interest to come in? Could there potentially be a process where you hang a for sale sign and ask people to come in and make offers?

And if you were to do that, do you feel like -- or whether you do that or not, do you feel like this is a time that is optimal or maybe suboptimal for consolidation given that I think the consensus view is that we've kind of come off a peak TV environment, maybe off kind of a valuation bubble in content and maybe it'd be better to wait for a better period. So how do you feel about that?

Well, that's a mouthful, Barton. And I would say, I'm not going to comment on most of your speculation, including that the reason we did it was to sell the company. But I think that the reason we did it was multipurpose, it was to allow both companies to go forward with a path that is specific to their core business. And I think you're going to see that happening very early in the process.

I think part of this was getting liquidity in our stock and combining the A and B shares which we've done, and I think you're seeing just from a liquidity perspective, that seems to be working. I would say that listening to Jimmy's cadence on the financials and sort of looking at the time frame of this incredible portfolio of films that we haven't even finished announcing some of them.

Most of the carryover that we would expect in a really strong year goes from really '26 to '27 as opposed to '25 to '26 as well as the backload. So both of our businesses are back loaded this year and lead very strongly into '27. So from a perspective of stock price from a perspective of earnings, whether it's using our currency in terms of doing things like the A1 transaction is a very, very accretive transaction, one that we're really doing, I think, a pretty good job of integrating quickly and renegotiating certain deals like The Rookie and Yellowjackets.

So we think we have a lot of work to do to start getting people to do what really was the point of the whole thing, which is to recognize the value, the unique value of the non-replicable value of the studio. And so I'm not going to answer the speculation on how we would sell it what a process would be. I'm focused. We're focused right now for the next year on getting the stock where we think it should be in terms of looking at the sum of the parts and realizing the value of these projects that we've got in the pipeline, Michael, and Resurrection and Hunger Games and the series, Twilight and John Wick.

So we've got a lot coming out. I think once we get us there, I think the value will start getting to a place where we'd be comfortable to see what happens. But at this point in time, that's our job. I believe the bottom line is when the businesses perform, you'll see the stock perform as well.

(Operator Instructions) Patrick Sholl, Barrington Research.

I was just kind of curious on how you are approaching like just the environment for theatrical content? And if you think like the maybe reduction in the screen size in the US has maybe created any additional challenges on like franchise development and getting traction on some of the smaller, higher upside potential films that you tend to focus on?

Patrick, it's Adam. Thanks. Look, I think the entire theatrical environment, the conversation we're all having today is pretty radically different from the one we were having three months ago. There were lots of questions about the viability of theatrical in general. And three months later, literally, every weekend, we're seeing massive over performance and not only from giant films like Minecraft, but also films like Final Destination last weekend.

And the reality is, while it may not be headline grabbing, as you saw from the numbers, movies like Den of Thieves and Flight Risk are really genuinely meaningful to the contribution that we're able to deliver to the company. So we absolutely think there will be room not only to maximize what we're delivering on our franchise films on our tent poles, and we have many more of them in the next chunk of time, certainly than we had over the last year. but also that we're going to be able to grow and build new franchises on low and mid-budget films and we think the overall health of the theatrical environment speaks volumes to what's possible for us going forward.

Jason Bazinet, Citi.

I just had a question about potential consolidation among DTC apps. I guess my question is, on the one hand, it seems like it could be a positive view because you'd have healthier potential customers. On the other hand, it seems like a potential negative just cause there's fewer buyers. So can you just talk about how you see the shape of your production business changing if at all if we end up seeing fewer DTC apps in the marketplace two or three years from that?

Bazinet, I'm afraid it was really hard to hear that question. I don't want to answer it wrongly, but you're kind of breaking up on it.

Can you repeat it, Jason? I think I kind of heard but can you repeat it one more time?

I'm going to try. So if we saw DTC apps consolidate, is that good or bad for your business?

Yes, that's a great question. I think we could see it both ways. What we want, what we're hoping for is for all of our -- by a stream of buyers to be really profitable and do very well. It looks to us like that's happening right now, whether they consolidate or not. Certain of the consolidation probably would be very good. I'm doubting that it could be bad for us. It's not going to end up all in one place.

But I think at the end of day, it's really important that our buyers be profitable, be strong. And again, there's going to be new buyers that pop up every day, and we're starting to spend a lot of time working on new buyers. And really, the bottom line is to find out like where the audience is right now with YouTube having such a large share of viewership and advertising you're not calling that an avid streamer, but we are.

And so we're looking to find where that audience is as opposed to waiting for that audience to come to us. and we're going to figure out how to serve them properly and make money with newer, if you will, apps or newer sources of monetization. And so I think we're fine in that and we're fine again, if there has to be consolidation as long as at the end of the day, those companies are more profitable, that will be good for us.

Alan Gould, Loop Capital.

I've got two, please. First, on the Michael Jackson film, 3.5 hours of film sounds more like two films than one film to me. Are we talking about two films in '27. And what gives you confidence given that the films push back. Normally pushing back isn't a great thing, but this situation could be different. And my second question is for Michael. I guess, about six months ago that you did a deal with runway for AI for just a tiny portion of your library, you've got a big library. Any update as to what opportunities do you see licensing your library or using your library internally for AI?

AI. You want to start with that one?

Yes. Let me start with that one. We're really, really excited about the collaboration. It's helping both of our teams in both pre- and post-production leverage using AI to optimize the workflows for new movies and television products. So that's very exciting, and that's a long way to say we think we can save money and the customized AI models are helping streamline many of the use cases for visual effects. So it's exciting opportunity, and we love that company.

Adam?

Yes, Alan. So look, I would say a couple of things. On one hand, any number of the biggest motion pictures over the last 10 or 20 years, have had first cuts of movies that were well in excess of 3.5 hours. And when Jon mentioned footage, it wasn't a cut. It was an accumulation of scenes that we've seen. The reasons for the delay are kind of out there and they're twofold.

But at the end of the day, when you look at the music library, when you look at what Michael Jackson was able to deliver in terms of music and contributions to art, whether or not that can be fit into one movie comfortably or not is a question that we are absolutely asking and your hypothetical is not inappropriate, but we'll be ready to answer more specifically in the coming weeks.

This concludes our question-and-answer session. I would like to turn the conference back over to Nilay Shah for any closing remarks.

Thanks, everyone. Please refer to the press releases and events tab under the Investor Relations section of our website for a discussion of certain non-GAAP forward-looking measures discussed on this call. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.