Starz Entertainment Corp (STRZ) 2008 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the fiscal 2008 third quarter earnings and analyst call. At this time, all participants are on a listen-only mode. Later we will conduct a question and answer session. Instructions will follow at that time. (OPERATOR INSTRUCTIONS)

I would now like to turn the call over to your host, Peter Wilkes, Senior Vice President, Investor Relations. Please go ahead.

Thank you. We will have opening remarks from Jon Feltheimer, our Chief Executive Officer, Michael Burns, our Vice Chairman, Steve Beeks, our President and Co-Chief Operating Officer, and Joe Drake, Co-Chief Operating Officer and President of our Motion Picture Group. Also joining the call are Jim Keegan, our Chief Financial Officer, and Rick Prell, our Chief Accounting Officer. Following our remarks, we will open the call to your questions.

Matters discussed on this call include forward-looking statements. Such statements are subject to a number of risks and uncertainty. Actual results in the future could differ materially and adversely from those described in the forward-looking statements, as a result of various important factors, including the risk factors set forth in Lions Gate's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on May 30, 2007.

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.

Jon?

Good morning, everyone. Thanks for joining us. Lions Gate had a strong third quarter in which we achieved our best third quarter revenues ever, and showed continuing growth throughout our core businesses. After the close of the quarter, we also had the best DVD month in our history in January. War, 3:10 to Yuma, Good Luck, Chuck and Saw IV, all debuted at #1 or #2 on the nationwide DVD and BluRay charts. We shipped more than 14 million DVDs during the month, and have captured an 11% DVD market share for 2008 to date.

At the end of January, we had four of the top eight DVD titles in North America. With our strong DVD performance, and excellent momentum in our theatrical, television, library, international, and digital businesses as well, the upcoming March 31st quarter is poised to be the biggest revenue and free cash flow quarter in the Company's history, with revenue in the quarter expected to be in excess of $400 million.

As a result, we are on-track to meet our guidance in all financial metrics, including more than $110 million in free cash flow, and over $1.2 billion in revenues. This represents approximately a 25% top line growth from last year, and maintains our compound annual growth rate of more than 30% in revenue since we started in 2000.

In my remarks this morning, I will touch upon the momentum that Lions Gate is achieving in all of its businesses. Joe, who is on his way back from the Berlin Film Festival, will then talk to you about recent developments in our Motion Picture Group, and our very strong upcoming theatrical slate. Steve will briefly discuss the continued growth of our home entertainment business, and Michael will close with a recap of our balance sheet, our growing backlog, our success in managing our interest rate risk, and other aspects of our capital structure.

In addition to an extremely strong January in our DVD business, we are on a roll in our theatrical business. We have had seven films in a row debut at #1 or #2 at the domestic box office. War, 3:10 to Yuma, Good Luck, Chuck, Tyler Perry's Why Did I Get Married?, Saw IV, Rambo, and The Eye.

While first priority is achieving profitability, this string of hits also underscores the consistency of our motion picture performance over the past six months. The success will be reflected in increasingly positive earnings momentum, as the sales of this product with DVD, Pay TV, free television, and VOD beginning in the March quarter, and continuing into fiscal '09. With the releases of Rambo and The Eye over the past few weeks, we have already achieved $375 million at the box office this fiscal year.

With Tyler Perry's Meet the Browns, Witless Protection, and The Bank Job still to go, we are on-track to exceed the $400 million box office target we set at the beginning of the year. One important highlight is the continued strong performance of our Saw and Tyler Perry franchises. Saw IV and Why Did I Get Married? combined for nearly $120 million in domestic box office, showing that both franchises have plenty of upside remaining.

Our home entertainment business is showing equally strong growth momentum. We currently project record full year revenue of approximately $560 million in our home entertainment business, up approximately 6% from last year. All segments of our DVD business are turning in strong revenue performances and maintaining stable margins, due to our continued leadership in quality product and box office to DVD conversion rates.

It is also clear that we have been on the right horse with the BluRay high-definition format, which should deliver incremental high margin revenues from DVD in the year to come. Steve will fill in some of the details in a few minutes.

In television, joining our critically-praised hit series, Weeds, which will begin its fourth season on Showtime this summer, and Mad Men, our Golden Globe award-winning drama, our two new series, a 13-episode order of the horror anthology, Fear Itself for NBC, which begins filming this month, and a 13-episode order of the television series Crash, based on our Academy award-winning film, which is being produced in partnership with Starz Encore. Crash will be Starz first drama series, and will premier in August.

We have equally strong momentum on the distribution side, where our Debmar-Mercury syndication company continues to build its portfolio of product. In addition to its established lineup of House of Payne, The Dead Zone, South Park, and Family Feud, which has now been renewed through 2010. Debmar has cleared Hasbro's Trivial Pursuit for five-day-a-week syndication on the FOX stations, and in all Top 10 markets for a launch this fall. We believe that this property, which is the first of Debmar shows to be sold worldwide has real breakout potential.

Debmar also sold two of Discovery Network's highest rated properties, American Chopper and Deadliest Catch, for weekend syndication over the next three years, and they are also starting a syndication effort for popular New York talk show host Wendy Williams. Debmar had three or four properties in syndication when we bought them in August 2006. Now they have a roster of more than 10 shows in syndication, and their continued growth of our television business.

Mandate Pictures has begun paying off very quickly on our recent investment. We bought the company in August 2007 and within two months, Joe Drake had led our newly combined Lions Gate and Mandate International sales teams, to the best AFM in the Company's history, achieving more than $60 million in international sales for the upcoming slate.

Three months later, FOX Searchlight released Mandate's sleep hit, Juno. We modestly budgeted the film internally to do about $10 million at the domestic box office. It has already grossed $117 million at the box, and with four Academy Award nominations under its belt, it appears headed to at least 130 to $140 million. Through our ownership of Mandate, Lions Gate has a large participation in the film, and we will achieve double-digit millions in profitability.

Mandate continues to strengthen its upcoming slate, with the comedy sequel Harold & Kumar 2, and the crime thriller, Horsemen, scheduled for release later this year. Mandate also had Drag Me to Hell, the highest profile title at the current Berlin Film Festival and European film market, the first Sam Raimi directed film since the Spider-man franchise. Raimi, who is Mandate's partner in Ghost House Pictures will direct the film, an edgy horror thriller for 2009, and it will star Juno's Oscar nominated Ellen Page.

FEARnet, our branded horror channel with partners Sony and Comcast had a record-breaking December quarter. The channel attracted distribution deals with Cox Cable and Verizon FiOS, and increased its footprint to include all Top 10 markets. FEARnet achieved more than 10 million VOD views in December, 30 million for the quarter, and it is now one of Comcast's Top 5 VOD services.

breakdotcom launched new sites last quarter, Cage Potato, chicapedia, Holy Taco, along with the breakman's ad network, as it continues to emerge as the #1 branded site, targeting the coveted 18 to 34-year-old men's audience online. Break's total reach now exceeds 35 million unique monthly visitors, and it has already served as an important adjunct in the viral marketing success of our recent films, such as Good Luck, Chuck, Saw IV, and Rambo, as well as providing a good opportunity to attract new talent to the Lions Gate family, and generate new content, designed specifically for online audiences.

Lions Gate U.K. completed a very strong quarter, contributing $22 million in revenue on the strength of theatrical titles, like Good Luck, Chuck, which opened at #1 in the U.K., and Saw IV, which outperformed Saw III on it's opening weekend. Driven by the smash stage production in London, Lions Gate U.K. sold 400,000 units of Dirty Dancing Special Edition, the biggest selling special edition title in U.K. history.

The play opens next in the Netherlands and the first U.S. production is scheduled to open in Chicago late this year. In addition to driving various ancillary revenue opportunities, we are achieving a great return on our Dirty Dancing stage play investments. In Hamburg alone, where the play is just finishing its first two-year run, we are expecting close to a 300% return.

The growth of our businesses is complimented by continued growth of our brands, in the past month alone, Lions Gate has earned another five Academy Award nominations, for 3:10 to Yuma, Away from Her, and Sicko, and Mandate's Juno has earned an additional four Oscar nods, including Best Picture. I think it's fair to say that the Golden Globe, VGA, and WGA Awards for Mad Men and Weeds, serve as still further emphasis that Lions Gate is currently delivering some of the most original and exciting content in the industry today, as we continue to grow our traditional and new businesses, expand internationally, and build our diverse portfolio of innovative, entrepreneurial investments, that are rich extensions of the Lions Gate brand.

Now I will turn the call over to Joe to talk about our upcoming theatrical slate.

Thank you, Jon. When I arrived four months ago, it was apparent that our Motion Picture Group was already operating well, but even tracking toward a $400 million year at the domestic box office, and releasing seven box office hits in a row, there are always ways to make our business more effective.

We operate in an extremely competitive industry, and we can only succeed through constant innovation, and continual striving to further improve our efficiency. We have quickly integrated Lions Gate and Mandate's international sales team under the Mandate internation banner, and the leadership of Helen Lee Kim. This has yielded a significant reduction in overhead and important efficiencies.

With integration of our team complete, we are coming off a very successful Berlin Film Festival and European film market, that will set a new record as Lions Gate's best film market ever, surpassing our previous best at the American Film Market just three months ago.

As we discussed on the last call, we also launched a proactive information and relationship-sharing initiative between the creative and acquisitions division of Lions Gate U.S., Lions Gate U.K., and Mandate Pictures. This program has already yielded individual new feature film projects for each division, that would not have existed if it were not for the new system of intercompany cooperation and communication. These are great results for a process that is still in early stages. We have now assembled a big, muscular, and diverse film slate for fiscal '09.

I would like to touch on a few of the highlights. Our first film for the new fiscal year is the martial arts action thriller Forbidden Kingdom. The film unites legendary masters Jet Li and Jackie Chan on screen for the first time in the history of film. For every action fan, a battle royale between these two great masters has been the unfulfilled dream matchup. Lions Gate makes those dreams come true when we release this film nationwide on April 18th. Anticipation is high.

Next up is Midnight Meat Train, a May 16th wide release sure to please, by serving up the requisite gore and chills for our loyal base of horror fans. We tap another vein that has been very successful with Lions Gate, with Religilous, a pointed satirical challenging and hilarious look at religion in our society today. From the Vatican to the Wailing Wall, Larry Charles and Bill Maher travel the globe, asking probing questions about the foundations of our civilization. The film is scheduled to open in platform release June 20th, and expand on July 2nd. This is the same release window that delivered hits for Lions Gate on both Michael Moore documentaries, Fahrenheit 911, and Oscar nominee Sicko.

Then in September we begin the real meat of our fiscal '09 release slate, much as we did this year. Punisher War Zone is a high-powered action film opening September 12th. Ray Stevenson owns the lead role, and essentially reinvents the Punisher franchise with a whole new look, style and attitude. We believe this entry will help Punisher take its place alongside our enormously successful Saw, Tyler Perry, and Dirty Dancing franchises.

We opened the romantic comedy My Best Friend's Girl the following weekend, September 19th, starring Kate Hudson and Dane Cook, the star of Good Luck, Chuck, and Employee of the Month. Kate once again demonstrated her wide box office appeal as a funny, sexy, romantic lead in her latest film, Fool's Gold, which opened to #1 this past weekend with $26 million at the box office. She has a stellar track record in the genre, and we are thrilled to get her next in My Best Friend's Girl.

Saw V, of course, is our Halloween tent pole. The Saw franchise has already grossed more than $500 million in worldwide box office, and sold more than 20 million DVDs for Lions Gate. Most of you know about the $250 million-plus that the Saw films have already generated at the North American box office, but some of you may not realize that they have also grossed $253 million in international box office receipts. Saw IV alone has grossed more than $60 million internationally and counting, opening at #1 in Germany this past weekend, with Italy on deck.

Speaking of international box office, in addition to its extraordinary domestic success, which Jon spoke about earlier, Juno has just started its international run to record-breaking numbers, with superb results in the first few international markets to open, Australia, the U.K., France and Spain, the movie is exceeding all box office projections by a wide margin, and it looks like it's set up for long and prosperous run in every territory, which will result in significant overages to Lions Gate.

Then there is The Spirit, directed by the iconic Frank Miller. It is a high concept, highly stylized film created in the mold of his two most recent block busters, 300, and Sin City, it is aimed squarely at the young male demographic Lions Gate knows so well. The film opens wide on January 16th, 2009, and features an all-star cast of Samuel L. Jackson, Scarlett Johansson, Gabriel Mach, and Eva Mendez. The Spirit promises to create yet another new Lions Gate franchise, as it follows in the footsteps of previous Miller films, that have essentially invented their own unique genre.

We have also completed principle photography on The Game, a high octane adrenaline ride that features nonstop action, and stars Gerald Butler of the 300, in his next big action vehicle.

For a change of pace, we will also release Chilled in Miami later this year, a broad romantic comedy starring Rene Zellweger, who has a great track record attracting female audiences to her stereo typical girl next door films. With Kate Hudson and Rene, we have a growing lineup of films designed specifically to feed a hungry female audience. Rounding out our fiscal '09 line up, we have the sixth and seventh films in our Tyler Perry franchise, The Family That Prays Together starring Kathy Bates, Sanaa Lathan, and Alfre Woodard, followed by Medea Goes to Jail, the most highly anticipated of all the Tyler properties, based on Tyler's most popular stage play.

We also have a number of tent pole movies in the pipeline for fiscal 2010 and beyond, starting with the remake of Conan the Barbarian. Lions Gate won a hotly contested battle for the Conan brand, and locked it up early this year, with plans to begin production this summer. We will also follow up on our action thriller Crank with a sequel. And we have Five Killers and Kane & Lynch, based on the popular video game in development, both with big name stars attached.

And lastly, in keeping with our commitment to remain on the cutting edge in lock step with the audience, Lions Gate has two films in active development in the 3D digital space moving towards production dates. We are keeping the titles under wraps for competitive reasons, but if all goes as planned, we should have the first one ready for release in the first half of calendar '09.

We believe we have set in place a muscular slate of predominately wide releases, capable of exceeding this year's box office performance, and drawing upon our greatest strengths. A diverse portfolio of product, star-driven films accentuating our repeat talent relationships, innovative edgy and distinctively Lions Gate story lines, and a very efficient cost structure, that reflects the Lions Gate business model, that has been the trademark of our success over the past eight years.

Now I would like to turn the call over to Steve.

Thanks, Joe. Our home entertainment business is having another strong year. Turning in it's third consecutive revenue performance north of $500 million. We are on-track for a record annual revenue of about $560 million, driven by consistent strength throughout the year, and by what we anticipate to be a record-breaking DVD quarter in the current March quarter. We are operating in an industry that is displaying more strength and resiliency than many of the bears that our business previously thought.

DVD sales were down only 2.5% in calendar '07 compared to the previous year. And we believe this downtick was primarily due to product mix, not broader economic or industry trends. Sequels represented 25% of the box office for films released on DVD in '07, compared to just 18% in 2006, and since sequels generally convert box office dollars to DVD at a lower rate than non-sequel original films, this accounts for most of the difference in consumer spend between '06 and '07.

So far, the industry is actually showing some strength in 2008. Consumer spending for DVD purchases is up over 2% for the first five weeks of the year compared to last year.

And it looks like we are finally going to have an industry unified behind a single high-definition format this year. We expect the industry to unite behind BluRay by the summer, which should drive the high-definition market to more than triple its current size, from $300 million last year to nearly $1 billion in 2008. NetFlix just announced they will only support BluRay, and we think that two or three other retailers are poised to follow suit. The industry can now focus on consumer education and conversion to high-definition, rather than battling over the format.

As a result, we may even see some growth in package media industry-wide, if not this year, then at least in 2009. We are off to a great start in the calendar year, coming off the best month in our history in January. As Jon noted, War, 3:10 to Yuma, Good Luck, Chuck and Saw IV, all debuted at #1 or #2 on the DVD and BluRay charts, and in the final week of the month, three of these films were still in the top four on the charts, validating our strategy of releasing many of our high profile titles in January, and underscoring our continued leadership in theatrical box office to DVD revenue conversion.

We also expect significant VOD performance from these titles as they become available on a VOD platform in February and March. Most of our January titles overindex the box office performance on DVD by a wide margin, and Saw IV performed well, for the fourth film in a long-running franchise. We also expect a strong performance from Tyler Perry's Why Did I Get Married, which is being released on DVD today, along with a brand-new Tyler play, What Is Done in the Dark.

We finished calendar '07, again #1 in box office to DVD conversion. A full 20 percentage points higher than the industry average. Our current average conversion rate is slightly over 1.1:1, compared with about 0.9:1 for the industry as a whole.

In addition to performing well on DVD, our January titles also performed strongly in BluRay format. BluRay sales in January '08 were approximately 7 times higher than in January '07. We have already shipped nearly as many BluRay disks this calendar year, as we did in all of 2007. It is exciting to again have a true growth opportunity in home entertainment, as we expect BluRay revenues to be largely incremental for the near term.

Our library business continues to perform strongly as well. We are again on-track for at least $250 million in library revenue, and $90 million in free cash flow generated by our library this year, showing that our margins are holding pretty well. This is the year in which we should start to see meaningful revenues from digital delivery as well.

With Apple's recent announcement of the entry into the VOD business, and their introduction of a new version of the Apple TV, along with a number of similar internet VOD-enabled set top boxes on the market, from Sony, Xbox, Tivo, Vudu, and Arcos, broadband delivery of VOD is getting close to bridging the gap to the consumers' living room, which is the holy grail in driving the broadband digital delivery business.

This is the final element that we have always needed to make digital delivery an important and financially meaningful market. It is why, as we have indicated on the last call, we see our digital revenues growing from less than 1% of all home entertainment revenue in fiscal '07, to between 10 and 15% or more by 2010. We have always believed that digital revenue would primarily be incremental, and as we see the continued vibrancy of our traditional package media business going forward, it is becoming increasingly certain to us that these digital revenue streams will be accretive to our overall business, and will be instrumental in adding excitement to the home entertainment market.

I would now like to turn the call over to Michael to discuss our balance sheet.

Thank you, Steve. You have heard Jon, Joe and Steve discuss growth momentum across our businesses. I would like to briefly describe the capital structure we have designed to support that growth. As you know, we have no corporate bank debt. Our debt consists solely of $325 million of convertible debentures locked in for the next several years, at a blended cost of capital of approximately 3.31%. At a time when the financial markets hang on every pronouncement of the Fed, we believe we have done a good job of managing our interest rate exposure and cash management.

As of December 31, our combined cash, cash equivalents and restricted cash was $215 million, which we expect to grow to more than $350 million in available cash by fiscal year end. As a result, at current interest rate levels, our interest income from our corporate cash position covers our entire interest expense on our sub debt. We believe that being underlevered in this credit market is the prudent approach to take. We also continue having an undrawn credit bank facility of $215 million. We are currently in the process of negotiating a new and larger credit facility at better rates, and we will update you on the progress as it develops.

We also continue building our stable of recurring revenue assets that smooth out the cyclicality of our businesses. As Steve mentioned, we will again generate approximately $0.25 billion in library revenue this year. As we have grown our theatrical slate over the last eight years, we have had a significant additional benefit of continually refreshing our overall library.

Another source is significant cash flow visibility is our growing film to entertainment backlog. By the end of the third quarter, our backlog had grown $100 million to a record $416 million. Just to remind you, backlog is the amount of future revenue not yet recorded of the licensing of films and television product, for television exhibition in the international markets. The size of our current backlog is due in part to the large number of recent and past box office releases now headed for various television windows, with a significant percentage of that $416 million turning into revenue over the next 12 months.

As you know, our Board of Directors authorized $50 million to be utilized for stock repurchases. To date, we have retired approximately $18 million of common stock. In addition to our stock repurchases, we have also continued to invest cash for various businesses.

In August of 2006, we bought Debmar-Mercury Television Syndication Company for $27.5 million. Within a few months, Debmar successfully launched Tyler Perry's House of Payne into first run syndication. House of Payne will ultimately contribute a large percentage of the entire Debmar-Mercury acquisition costs.

This past year, we closed our Mandate Pictures acquisition for $59 million. A few months later, Fox's Searchlight Division released what has turned out to be the surprise hit of the season and a Best Picture nominee, Juno, which as Felt mentioned, has certainly surpassed all of our expectations.

To summarize, our balance sheet remains robust and unlevered, with very minimal interest rate exposure. We remain well-positioned financially to continue investing in our core businesses, while maintaining our strong growth trajectory.

We would like to now open the call up for questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question is from David Miller from SMH Capital. Your line is open.

Yes, hey, guys. Good morning. Couple questions for Michael, and then for Felt. Michael, I noticed a couple of movies, Bank Job and Witless Protection weren't mentioned, either by you or Joe, or on the press release. Are those pictures significant investments for you?

Then also, if you could just detail for us where you stand on the buyback, the $50 million buyback. As I understand it, you guys weren't all that free cash flow generative in the December quarter, but stand to be hugely free cash flow generative in the current quarter. What are your plans for buying back additional shares in the open market? And then I have a follow-up, thanks.

The first question is that we have really minimal risk on both those pictures that you mentioned, because of a partnership on both of those pictures.

As far as the stock buyback, we bought $18 million of stock. We were authorized by our Board to buy another $32 million, and obviously David, we don't telegraph to the market when or if we will be in the market.

Okay, and then Felt, you guys have done a pretty good job of sort of zagging where other studios zig, in terms of overall genre production, so for example, when no one was doing horror, you guys did a lot of horror, and were obviously very successful at it. You know, when there was sort of a dearth of action pictures out there, you guys moved sort of to action, with War, and other genre pictures like that. What do you see as sort of the next genre or category creatively out there, where the demand curve might be to the right of the supply/demand equilibrium, in terms of audience participation, that the rest of Hollywood just isn't doing right now? Thanks.

Joe, do you want to take that?

Yes, as much as we do try to zig where others zag, it is awful difficult to look into the crystal ball and predict, so really what we do is look for films on an opportunistic basis, one film at a time. We are measuring not just consumer taste. We are measuring the economics of those films, relative to how we can layoff risk internationally.

How will they fit into our existing lineup, if we have too many action films, we will be more likely to look for something else to fill that second or third or fourth, or last slot. So I would hate to try to predict the next great thing. We try to operate within the economic model that we set forth, and just find great material that we think has potential with low risk.

Wonderful. Thank you.

Our next question is from Doug Creutz of Cowen and Company. Please go ahead.

Thanks. Could you say where you think your theatrical P&A is going to come in for this year?

Looking ahead to next year, looks like you have got pictures in the lineup that are more ambitious like things you have done in the past, like Spirit. Do you think that means that P&A will be growing next year and roughly by how much? Thanks.

This is Joe. Someone back in L.A. can speak to the numbers, but at present we have, at present for next year we actually have a plan that is slightly below this year. We are very focused on that number, and then do everything we can to keep it in line. That number could increase in success if a movie, Juno is a perfect example.

When a movie takes off, it can make sense to chase movie with some additional P&A, with an eye specifically towards generating more net, but right now we actually have set a P&A target that is slightly below for next year what we have done this year.

Joe, it is Michael. I want to add on a picture like Spirit, which is a bigger picture, we do have a significant equity and P&A partner on that picture.

Yes, overall, we have spent this year $310 million for our slate, spent about 355 including contributions that we didn't have to expense from third parties, and the current budget is actually that we will expense lower P&A. As we have said to everybody, this was a big growth year for us, in terms of our slate and definitely next year, given that we want to maintain stable P&A, we would expect those lines between EBITDA and free cash flow to start to converge.

Great, thanks.

Thank you. Our next question is from Alan Gould of Natexis Bleichroeder. Please go ahead.

Thank you. Jon, I just want to confirm, when you started off, did you say the fourth quarter will be greater than $400 million in revenue?

Yes, I said I expect it to be, or some verbiage like that, yes.

Okay, and second, on the Spirit, which sounds expensive, when you say a financing partner is set, other than Pride, or in addition to Pride?

Yes. Yes, it is.

Okay.

As we continue to, as always, try to mitigate our risk and one of the things we have been able to do, as we have expanded our slate, and putting a lot of drivers into our slate, and particularly in continuing the idea of putting pictures in our slate that are very efficient, in terms of their DVD conversion. As we have had some bigger pictures, I think we have been pretty successful so far at bringing in partners to share the risk with us.

It has been in the trades Alan, that it is Gigi Pritzker's Odd Lot.

Okay. Thank you, Michael. And then last question for Jim. Jim, looks like that the production costs have increased dramatically with the additional financing and the expanded production this year. Are we looking for a number over $450 million of production spending this year? And do you think production spending is increased, flat, or down next year?

This year you can see we spent about 390 for the first three quarters of the year. So it might be actually maybe another 20 to 30 million of production spend in Q4, so under 350. I would anticipate next year, under 450, excuse me.

So about 425 this year roughly?

That is correct.

Okay.

Next year I would anticipate, I don't see this being quite as large next year as I have this year.

Okay. Thank you very much.

Thank you. Our next question is from Lloyd Walmsley of Thomas Weisel Partners.

Good morning. Thank you. I was wondering if you could talk a little bit about the VOD day and date trials, and if you expect any window compression in this calendar year, and if you could just talk a little bit more about what sort of titles are performing well, and where you see that going forward?

Lloyd, this is Steve. It is still early to say any more about the VOD day and date trials. Still we are getting together to talk about the results. I think the industry wants to kind of have a general view of that before going forward. Obviously you saw Warner announce that they are expanding their VOD day and date commitment. We have yet to do that. It is too early to say exactly what we are going to do.

As I mentioned before in the last call, we have seen VOD/Pay Per View revenues really jump up in the last year, to the point where they are contributing between 10 and 15% of box office, depending on the picture. We expect that to continue, and we expect that to grow even further, especially this year, since you are really going to have true broadband-delivered VOD become a reality this calendar year.

And then maybe if you could just comment on 3D. I know you don't want to reveal the titles, but perhaps you could tell us what genres these films are in, and then what genres that you guys specialize in, that 3D might apply to, and if there is anything in your catalog that we could potentially re-release in 3D, if that makes sense?

I would actually rather not reveal the genres at the moment, because I think part of the strategic advantage of the decision is related to that, and some branding on those specific titles within those genres. I can tell you that they are live action. It does fall within, in terms of the kind of movie. It definitely falls within the sweet spot of the skill set of both our production and distribution operation, but I wouldn't want to say much more than that at the moment.

Thanks a lot.

Thank you. Our next question is from Barton Crockett of JPMorgan.

Okay, great. Thank you for taking the question. You guys have reiterated, or given us some of the revenue and free cash flow updated common shares for the upcoming quarter, but I was wondering if you could talk about EBITDA and net income? In the past you guys have talked about an 80 million loss, and a 50 million loss on those lines, does that still hold for the year.

And then looking out to next year, what do you see about the convergence of those two, and kind of talk about the mechanics of how we get there, in terms of free cash flow and the net income?

I think as I have looked at the ranges that the Street has, including yours Barton, that the Street has the range in about the right place for EBITDA and net. I think I have said before, and stand by it, that we expect the lines, if it can lead a converge next year, we are targeting positive EBITDA for next year, and obviously as you know, our key metric is always revenue and key, and free cash flow, and we expect to continue to concentrate on having positive, strong positive free cash flow.

Okay. All right. Then I wanted to ask a little bit about the Juno contribution out of Mandate. I think we might be eyeballing depending on what Juno ends up, something like a 15 million share that you guys could gain. I was wondering if you could comment on that number, and also talk about where it would fall, whether it would be in equity and JV line, or in revenues, how you would account for that?

Jim?

It will show through as we get the participation as revenue, is where it will show through.

Okay. Any comment on the number I threw out?

Well, we said,--

Double-digit.

-- double-digit millions, I believe it will be on the high side of that. We are just starting to see now in the international a similar performance from what we are getting here, very strong openings in a number of European territories, and I can tell you that when I have looked just three or four months after the purchase, we believe we have already essentially covered all of the goodwill of that purchase by the recent performance of Mandate, and this is looking like a very, very positive investment for us.

Outside of all of the other benefits that we have outlined before, in terms of strengthening our international business, bringing Joe on to run our Motion Picture business, but as I say, we already believe we have covered all of the goodwill on that investment.

Okay, and then can you give us any quarterly breakdown of the library revenues so far this year?

No, I, I think that it is not that illustrative to break it down by quarter, because it depends on the opportunities, the promotions that we have, when titles fall into the catalog. We really do look at it opportunistically, but also more on an annual basis.

Okay, all right. I will leave it there. Thanks a lot.

It does, however, look pretty even, Barton, for the quarters.

Okay. That is helpful. Thank you.

Thank you. Our next question is from Matt Harrigan of Ferris, Baker, Watts, your line is open.

Good morning. Couple of questions. When you look at the 3D, you have got a number of competing formats out there. Obviously for marketing purposes, it was important that the industry coalesce around BluRay on the advanced delivery there. What do you see happening in terms of the evolution of 3D? Do you think it is going to be a premium product with IMAX, and then you are going to have REAL D doing lower per screen grosses, or do you think inevitably it is going to go toward a common approach, as different people move towards digital, and there will be one winner?

Secondly, most of my other questions were answered, but on the Conan and Frank Miller projects, it looks like those are also potential franchises, given that I think there are a number of titles that some studios could conceivably work with, if the public appetite is there for the product.

Well, I think that one of the things that we look at, when we look at our, what we are going to put into production or acquire, we definitely look to make sure that a strong number of the titles in our lineup in a given year have franchise potential. You never know whether they are ultimately going to turn into franchises, but you can certainly figure out those that don't have that kind of potential, and Conan and Spirit, the decisions on those movies were heavily impacted by the idea that they absolutely have big franchise potential. Conan actually has a long series of books, and the plan is in success to grow that significantly, as is the same with The Spirit.

As it relates to the 3D, we really have not formed a view on that yet. Right now for us, we have spent a significant amount of time researching it from a production standpoint, so we understand, both the cost, the cost implications and the physical production implications of it, and from a distribution standpoint, I think the biggest issue is making sure that since there is, although the infrastructure is being built out, there is a limited number of screens.

So in planning your production and release strategies, you need to make sure that, we talked about zigging and zagging earlier. You need to find that spot where you don't have competitors in the marketplace gobbling up those screens. In terms of actual format, we haven't formed a view yet.

Lastly, I know this is small, but an underserved genre. Your venture with Televisa, is anything interesting going on there?

We actually have finished principal photography on our first motion picture that was produced in Mexico with them. It is being cut. We are going to see a Director's Cut soon, and the second picture is getting prepped.

We have got some other pictures coming up, and we have also got the library on the release schedule. We will start to see those coming out in March or April in the spring. As you know, quite a few pictures we have increased our presence in the Latino market. I think these library titles will help that dramatically.

We are also working on a sales for TV series for one of their formats. It is really across the board relationship with Televisa.

Great. Look forward to your March call. Congratulations.

We have time for one more question. Our final question is from David Bank of RBC Capital Markets. Your line is open.

Thanks. Sorry it is a long one for my last question. So we have got a couple of things I wanted to ask about. The first was television production. The second was the balance sheet. Third was some other minor stuff in the Q.

On the television production side, could you actually talk about the profitability, or the potential profitability of something like a Trivial Pursuit, how big an impact could it be on the revenue and the bottom line for next year, not necessarily Trivial Pursuit specifically, but a project like that?

The second question is how big a contributor is the TV business now, in terms of home video, given Weeds and Mad Men, and all the other stuff you have going on?

On the balance sheet, can you kind of come back a little bit to the cash balance, and I think you guys talked about potentially increasing your line of credit, I understand the desire to have more dry powder, but you have like $300 million of cash on the balance sheet at the end of the year, and you are talking about increasing your untapped line. What is the plan for that? And last, in the MD&A and the Q, there was reference to not a huge write-off, a minor write-off, I think it was about $5 million in the quarter. Can you talk about what properties that was associated with? Thanks for letting me get so many in on the last question.

Can you start over? (laughter) No. I am sorry.

We had some small write-offs with one of our films, which hasn't been released yet, which we took a conservative, might not perform as well as we had hoped. And the other part of that $5 million comes from some barter revenue, the weekend barter market right now is a little bit soft, and we took a write-down on a film package in one of our television series.

So in terms of a show like Trivial Pursuit, I can't answer it because it has got an amazingly large range. You could go from obviously probably losing a couple of bucks or breaking even. However, if it gets cleared not only in syndication, but you get a network run as well, obviously you could have a big homerun.

We think it is a great title, not only for the U.S., but we are already right now in the middle of a U.K. sale. I expect it to be a format sale or selling the show that would exist here in the U.S. all over the world. So obviously, we think it is going to be a potentially big contributor.

In terms of overall, we expect the syndication group, Debmar-Mercury to contribute something around 80 to $100 million from television. Television, over $200 million, and as we have said before, with increasing margins. That is kind of a snapshot for television. Michael, do you want to address the balance sheet?

I want to address the credit--

I'm sorry, the home video contribution from how your TV is ramping, is it material yet?

We don't break out the contribution. We could probably give you some sense of performance.

It has been significant. I think we have talked about it in the past. Obviously Weeds, especially as it has gotten the Award notice, has done incredibly well for retail. We have sold several hundred thousand sets of that, and I think it continues to hang in there month in, month out, we are prepping the DVD release of the first season of Mad Men now, in conjunction with its second season, and obviously the Golden Globe Awards and the other notice that it is getting are going to help that dramatically. We are getting a lot of advance interest in that, to be meaningful.

Thank you.

As far as the credit facility, much the same way that we zig when everybody else is zagging on the movie front. It's important to note that last year we got out of all of our potential issues, as far as cash management, CLOs. We went to cash, because everybody was sort of piling into that, the same way that you want to borrow money or set up a credit facility, when in fact you don't need to borrow money. Current rates, which is, it will be a LIBOR-based facility, but at current rates, our credit facility should be less than 5%.

Our current credit facility expires later this year. The idea of having that facility in place at what we consider to be a terrific rate makes a lot of sense for us, and we are so damn cheap, but I think we have negotiated a pretty good non-drawn facility charge, meaning that the unused portion of a facility will go down dramatically from what it has been in the past.

Okay, thanks very much.

All right. Thank you all. We look forward to our next call.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation, and for using AT&T Executive Teleconference. You may now disconnect.