Starz Entertainment Corp (STRZ) 2008 Q4 法說會逐字稿

Ladies and gentlemen, we would like to thank you for standing by and welcome you to the fiscal 2008 year-end earnings and analyst call teleconference call. At this time all participants are in a listen and only mode. Later we'll conduct a question and answer session and instructions will be given at that time. (OPERATOR INSTRUCTIONS) As a reminder today's call will be recorded. I'd like to turn the conference over to your host, Mr. Peter Wilkes, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you for joining us this morning on our fiscal year end analyst call. We will open the call with remarks from Jon Feltheimer, our CEO; Michael Burns, our Vice Chairman; Steve Beeks, our President and co-Chief Operating Officer; Joe Drake, Chief Operating Officer and President of our Motion Picture Group; Jim Keegan, our CFO; and Rick Prell, our Chief Accounting Officer. After their remarks we will open the call to questions.

The matters discussed on this call include forward-looking statements. Such statements are subject to a number of risks and uncertainties. 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 SEC on May 30, 2008. 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. Jon?

Good morning, everyone. And thank you for join being us on our fiscal year end call. I'd like to kickoff the call by touching on the momentum we are building as we enter fiscal 2009. Joe Drake will discuss how that momentum is reflected in our upcoming film slate. Steve Beeks will talk about home entertainment and new media. And Michael Burns will share some thoughts on our performance targets. We've had a great year. Our revenues are up 39% to $1.36 billion. We anticipate further double digit growth to more than $1.5 billion in fiscal '09. Our revenues have grown at a compounded annual rate of more than 30% since Michael and I started back in 2000. Under Steve Beeks's leadership, home entertainment market share for the fiscal year is approaching 7% with more than 9% market share in Q4. This is major studio level market share. We've achieved theatrical box office market share of more than 5% and as you'll hear from Joe, we're planning for an even stronger performance this year. We also ended the year with a great balance sheet. We had a $371 million cash balance and $437 million filmed entertainment backlog at the end of fiscal 2008. These are both Company bests. We're in great position heading into fiscal 2009.

Our growth came from many areas throughout our diversified portfolio of businesses. Theatrical box office revenue from our motion pictures grew by 80% propelled by nine straight box office successes. Home entertainment revenue grew by 18%. This increase reflected strong growth in new media, packaged media and library. We expect further growth to more than $700 million this year.

Television grew by 77%. It increased from $119 million in fiscal 2007 to 210 million in fiscal 2008. In addition, digital revenues were also up dramatically. They increased 60% from approximately $25 million in fiscal 2007 to more than $40 million in fiscal 2008. We expect them to grow to over $70 million this year and more than $100 million the following year.

There are of course a few areas where we didn't do as well as we wanted and where we expect to improve this year. We had a slightly negative contribution from Debmar in fiscal '08 due to the timing of their marketing expenses. In addition, we took a small writedown on The Dead Zone's ultimate in the fiscal year due to the softness in the syndication barter market as well as a small writedown on Wildfire due to sales that fell short of expectations, however this year we expect Debmar to generate a significant positive contribution based just on its current portfolio of product. In addition, we expect dead zone sales to begin rebounding starting with the recent sale to Ion Television.

Overall we expect our television business to approach $0.25 billion in revenue this year, with a significantly increased positive contribution to the bottom line. Overhead increased to $119 million in fiscal '08; however a significant portion of the increase was attributable to the consolidation of Maple Pictures and the acquisition of Mandate. Overhead as a percentage of revenue actually decreased from 9.3% in fiscal 2007 to 8.7% in fiscal '08. During the past year Lions Gate expanded its business portfolio more dramatically than any time since our acquisition of Artisan in December 2003. Before Joe, Steve, and Michael provide you with some color on our core businesses I'd like to touch on the highlights of our recent investments.

We've begun the process of leveraging our content into the channel business building upon the initial success of FearNet. FearNet continues to emerge as a powerful new brand reaching 19 million homes through Comcast, Cox, Verizon and Insight. Subscribers increased by nearly 20% over last year. FearNet is the number one horror site in terms of unique users, the number one provider of free movies on Comcast VOD and the number one HD provider on Comcast. Its programming offerings fed by our content leadership in tandem with Sony continue to grow in excitement and scope. For example, next month at Comicon, FearNet will launch 30 Days of Night, Dusk to Dusk, its third project with Ghost Towns production based on Mandate and Sony's box office hit. And in September, Fear Net will launch the anthology horror series, Fear Itself in collaboration with Lions Gate's television division and NBC.

As you know we're building our channel business with the launch of a new premium entertainment channel with partners, Viacom and MGM. With the resources of three major studios, marshalled under a single brand, we'll have thousands of motion picture titles from the libraries of Lions Gate, MGM, United, and Paramount, more than 50 first run feature films each year from the studios that have just brought audiences films like Iron Man, Indiana Jones and Forbidden Kingdom. Tremendous original programming capabilities and a business model unlike any of our competitors. We believe that our channel upon its launch next October will almost immediately command a premier position as a next generation entertainment service that quickly distinguishes itself from older, more traditional pay services. We also believe that it offers us tremendous opportunities for future revenue growth, cash generation, asset value creation and enhanced brand recognition with relatively modest up front investments.

Break.Com continues to gain momentum as a leading content provider for young men 18 to 34 years old delivering content to more than 40 million unique monthly visitors worldwide. We've achieved numerous synergies between Break and our motion picture and television businesses. We've already cross-promoted nearly 20 of our films on Break. It's ideal for generating awareness among young male audiences for action films such as Rambo and Crank, teen comedies like Good Luck Chuck and horror films like our Saw franchise. Break continues to excel as a vehicle for advertisers to reach young men and as a result its revenue has grown 150% over the prior year-to-date and we've already put together a best of Break television show that we are pitching to the cable networks. At the same time that we continue to expand into new digital channel platforms, we're extending our reach into new international markets for a product around the globe.

In addition to our Studio Canal partnership and the elevation sales joint venture in the UK, our alignment with Televisa to deliver films and television programming to the U.S. and Latin American markets and the launch of Lions Gate brand in Australia with partners Hoyts and Sony, we identified the fact that we are a $1.3 billion revenue Company that had generated less than $1 million in the past two years combined in India, a country of 1.3 billion people. So we came up with another way to exploit our content there, partnering with entrepreneur Kishore Lulla and his Company Eros International which has an almost 40% share of the Indian film market. Together we'll create a distribution Company to exploit Western libraries and remake writes to those libraries. We are looking to become one of the largest aggregators and distributors of Western content to to a fast growing Indian marketplace hungry for new content. We're, of course, very excited about the opportunity to bring the Lions Gate brand to more than 1 billion new consumers.

We see many other opportunities across the Asian continent. In the next few weeks we expect to announce a second Asian initiative that will also make great use of our content portfolio and brand. Closer to home we see excellent growth opportunities in our domestic television business. The revenue growth of 77% that we achieved in fiscal 2008 reflected strength in both our television production and distribution. Weeds and Madmen not only represent profitable shows in the short-term but important assets in the long term. The fourth season of Weeds kicks off on June 16. Madmen featured on the cover of this weeks Entertainment Weekly debuts in second season on July 27. We're releasing the first season on DVD three weeks before that and our debut of the television drama Crash, our first scripted series for Starz will air this Fall. Later this week we will air our first fully owned network primetime drama, Fear Itself on NBC and three months from now we'll launch it on FearNet. This is a perfect example of our ability to use our horror expertise from the film side to create a television show, then to extend it into a digital channel brand with cross-promotional opportunities for more horror themed shows and television series.

Another example is our upcoming reality series Scream Queens for VH1. The show features aspiring actresses competing to see who is the best horror queen. We are planning for this show to air in the 10 weeks leading up to our release of the first modern 3-D horror film, My Bloody Valentine. Following up our success with Weeds on Showtime and further diversifying our television portfolio is a new comedy pilot for that network, starring the Sopranos Edie Falco. Stay tuned for several more new series which we expect to announce in the next few months. ISH Entertainment, our venture with highly respected former VH1 program executives, Michael Hirschorn and Stella Stolper will bring us immediate benefits. Their leadership in the world of MTV music reality shows has already led to three series, Paris Hilton's My New BFF, Urban Apprentice with rapper 50-Cent, and up and a docu-drama with up and coming wrapper, TI. All of these shows are immediately profitable and will contribute to our earnings this year.

On the distribution front, Debmar-Mercury is premiering Trivial Pursuit, America Plays in syndication this fall with Hasbro. On July 14, Debmar will begin airing a six week preview of the Wendy Williams show in four major markets. Debmar is partnering with Fox on this new show featuring New York's number one DJ. And if Sixth Sense, the show has already been pre-sold for the Fox TV station group for a fall 2009 national launch. Debmar has also received an order for 26 additional episodes of Tyler Perry's House of Payne, nearly a full year ahead of schedule. That brings the total number of episodes to be produced and distributed to 126. The show premiers in syndication this fall led by the Fox Station Group.

As you can see we continue to grow our creation, ownership, and distribution of content in a wide range of businesses many of them recent investments. In the past year alone we've invested nearly $100 million in new businesses, much of it back loaded towards the end of the year. We've seen only the tip of the iceberg so far in terms of returns from those investments. Going forward we will start to see significant contributions from them in terms of revenue growth and cash generation. So our business keeps growing but our core values don't change. Focusing on assets generating recurring cash, delivering content to more targeted audiences, continuing to diversify our revenues and most importantly, promoting and rewarding entrepreneurial actions inside and outside the Company. Now, I'll turn the call over to one of those entrepreneurs, Joe Drake.

Thank you, John. 2008 was a year of phenomenal growth throughout our motion picture business. On the domestic front, $451 million at the North American Box Office up 80% from 2007 is a true testament to the quality of the Lions Gate team. Lions Gate UK also showed exceptional growth increasing revenue by 46% from last year. International sales operation returned last week from the Cannes Film Festival with its third straight record setting market delivering over $70 million in sales in just eight days. This record performance came from an increased portfolio of Lions Gate, Mandate and third party products including a new distribution agreement with Relativity Pictures. And Mandate Pictures delivered the best year in its history. In the seven months since the close of the transaction with Lions Gate, Mandate originated films including Juno, Harold and Kumar 2, 30 Days of Night, Mr. Magoriums Wonder Emporium, and this weekends Strangers have achieved a total of $435 million at the Worldwide Box Office with Juno leading the pack at $235 million.

Through its ownership of Mandate, Lions Gate has significant financial participation in all of these films. Even with all of this good news, I believe we have only begun to unlock the real potential of this organization. I've been here for seven months now and have developed a much deeper understanding and appreciation for what this Company can achieve. Pound for pound, I believe that Lions Gate has an out questioned the most sufficient and effective marketing and distribution infrastructure in the industry today. For example, take our theatrical distribution group which consists of 20 highly organized individuals. They are competing with the other major studios which each have over 100 people performing the same functions and Lions Gate is delivering comparable results. Another great example is the quality and efficiency of our marketing campaigns. Throughout the industry Lions Gate is recognized for brilliant cutting edge campaigns that consistently deliver, but the real magic in the formula is the efficiency of our marketing spend. Look at Forbidden Kingdom, for example. The film was released in North America in April to a $21.7 million opening weekend and will finish with $52 million at the domestic box office. On average the other major studios spend between 25 and 35% more money to achieve the exact same results. These efficiencies create an extraordinary opportunity to liberate significant unrealized value.

As we continue to mitigate risk with a diverse portfolio approach to our slate, significant international pre-sales, and a disciplined approach to production distribution, a committment to unlocking the full potential that each distribution slot represents is now the driving factor behind every programming decision we make. With this guiding principal, I made the decision to move a few pictures out of the line-up which resulted in higher film writedowns for the year; however, the short-term negative impact has made room for opportunities that should result in much greater long term value. I would like to highlight a few of those pictures.

In August, we will release Disaster Movie from the Masters of the spoof genre who created such hits as Scary Movie, Date Movie, Epic Movie and Meet the Spartans. This time they take aim at one of the biggest and most bloated movie genres of all-times, the Disaster Movie. In October, we released W, a provocative look at George W. Bush through the eyes of Oliver Stone, caring a blue chip cast of Joe Brolin, Elizabeth Banks, James Cromwell, Candy Newton, Alan Burston, and Richard Dreyfuss. Coming less than a month before the elections this is a film sure to simultaneously entertain and spark heated debate and it has huge upside.

One week ago at the Cannes Film Festival our acquisitions team pulled off a stunning coup when they acquired the distribution rights to Transporter 3 which we are announcing today and will release this coming November. Transporter 3 is a muscular action film starring Jason Statham, with Crank, War, and The Bank Job already behind us and Crank 2 in the works there's no company in the business better positioned to maximize the value of this great action franchise.

There are several movies that I mentioned on the last conference call that are shaping up to be explosive. The second Punisher film looks like a great addition to our slate of big action franchises. Filmed in Montreal under our partners at SGF it is a reimagining of the Marvel vigilante action franchise starring Ray Stevenson. We will release it on December 5. We also have the Christmas Day opening of The Spirit from the genius mind of Frank Miller. In the vein of the 300 and Sin City, The Spirit is a classic action adventure romance starring Gabriel Macht, Samuel L. Jackson, Scarlett Johansson, Eva Mendes, Jaime King, Sarah Paulson, and Paz Vega. With two big movies slated for December, Lions Gate has clearly grown its slate to a level where we feel comfortable competing in the heart of the holidays.

Then in February we will release a remake of the 1981 horror classic My Bloody Valentine which promises to be a must see event as the first horror film to be presented in stunningly real cutting edge 3D. Once again, Lions Gate is transforming the horror genre. Coupled with other films such as My Best Friend's Girl, the Kate Hudson, Dane Cook romantic comedy, the next two pictures from Tyler Perry and of course, the latest and most chilling installment in our record breaking Saw franchise, we believe that we have assembled a slate that's even more powerful than last years. Post-Juno, Mandate is reaping the rewards of its success. The enhanced creative opportunities became evident immediately with Sam Raimi's first film post Spider Man, Drag Me To Hell, we've also added Whippet with Drew Barrymore directing and co-starring with Oscar nominee Ellen Page in a great action comedy and Peacock, an intricate, high concept, psychological thriller starring Killian Murphy, Ellen Page, Susan Sarandon, Bill Pullman, and Keith Carradine. We expect to announce a major coup in the comedy world also within the next week. Between the Lions Gate slate, the Mandate slate and our international division, we are clearly creating diversification, dealing with entrepreneurial talent partners and generating recurring cash flow. Now I'd like to turn the call over to Steve.

Thanks, Joe. Home entertainment, library, and digital all turned in outstanding performances for the year. Revenue for the full year including revenue from our television series on DVD was nearly $650 million for the U.S. and Canada. And our conversion rate of box office revenue to DVD revenue continued to rank above all other studios at 1.15 to 1, 33% above the industry average for calendar year 2007. Library revenue which always includes international and television sales in addition to DVD revenue grew to approximately $264 million, generating cash flow of approximately 100 million. Fiscal Q4 was our strongest quarter to date hitting on all cylinders not just with our theatrical films but in every other area as well. Direct to video, family, television to DVD, and fitness. We scored our highest quarterly market share to date with 9.1% of the packaged media market. We released 10 theatrical films on DVD in Q4 with superior performance particularly from the big titles such as War, 3:10 to Yuma, Saw IV, Good Luck Chuck and Tyler Perrys's Why Did I Get Married. We had our first DVD release which is a Tyler Perry television series House of Payne as well as our television series Kill Point and a new play from Tyler, What's Done in the Dark, hit the shelves with typically superior results.

This strong performance would not be possible if it were not for the incredible team we have here in home entertainment led by Ron Schwartz, Anne Parducci, Aken Silhon, and Jed Grossman. We believe that in these executives and their teams, we have the best group in the industry. During the year, we added to our portfolio of brands and partnerships which will help contribute even further growth in the future. We recently announced our distribution partnership with Hit Entertainment which launched May 1, through which we will be releasing Thomas the Tank Engine, Bob the Builder, Barney, and many other brands. This will catapult Lions Gate into the top three studios for children's non-theatrical home entertainment. We also signed a distribution deal with Xenon Entertainment which will deliver a diversified schedule of releases but in particular, the premiere (inaudible) bolstering our growing presence as a number one provider of Latino entertainment. With strength in so many different categories we are very well positioned for continued growth and growing our share of the market through fiscal '09.

BluRay sales are off to a great start this year. Hi-Definition sales in calendar Q1 were approximately $150 million, and on track for $1 billion for the year, especially now that we have our first sub $300 BluRay machine on the shelves at retail. This is what all of us have said we need to spur growth in Hi-Definition. The world of choice for consumption of our films is growing, a great example of that is Rambo, which we just released on DVD last week. Consumers can acquire and consume this film in more ways than ever before. Standard DVD, BluRay DVD, electronic sell-through, from a growing array of digital retailers as well as through our own online Lions Gate shop. On the BluRay DVD and the Special Edition DVD which carries a premium price, we can also get a digital copy of the film in either the iTunes format or in Windows Media. And 30 days after the DVD release you will be able to rent the picture on iTunes. X-box, Amazon on Box, and other electronic retailers.

NetFlix just announced their Roku streaming device. Amazon recently announced a new streaming option through their Unboxed service and Zoom will now be offering downloads of television episodes. The world of digital delivery continues to multiply and grow creating new avenues of exploitation for our new releases and our library.

Our total revenue from digital delivery grew from approximately $25 million last year to over $40 million in fiscal '08 and we expect that number to grow to as much as $70 million this year and $100 million in 2010. We had over 3 million internet downloads both VOD and EST during the year, as compared to approximately 800,000 in fiscal '07. Now, if the absolute numbers don't seem so significant at first blush, it is important to take note of the trajectory of what is really going on here. Digital revenues are expected to grow by 250% by 2010. The single downloads of our programming have increased by 275% in the past year alone. What is critical to understand is that the significant investments we are now making in growing our most valuable assets, our library, by continually adding television, and film titles, we'll generate not only ever increasing revenue from the expanding physical and digital world but also the growing ubiquity of digital delivery will dramatically expand our available market at ever increasing margins with no inventory or obsolescence risks. All of these developments underscore the strength in home entertainment and further support our bullish expectations for continued growth in this core business for the foreseeable future. I'll now turn the call over to Michael.

Thank you, Steve. We are very proud of fiscal 2008 year we had. Before I get into fiscal '09 I'd like to touch on one accounting item. Due to technical requirements of FASB FIN 46R, we changed the way we present the GAAP based statement of cash flows from operations. As we stated in our 10-K, this change in presentation has no impact on our cash balances or our previous current or anticipated future free cash flows. Now let's talk about how we expect to carry last years success into fiscal '09.

We set five core upcoming internal targets. They are, double digit top line growth, free cash flow in excess of $100 million, domestic box office exceeding $0.5 billion dollars, library revenue exceeding $0.25 billion and the doubling of our digital revenue. Additionally we will continue aggressively pursuing an increased market share in each of our core businesses while expanding our channel plays throughout the world by leveraging our extensive film and television library. We will stay focused on generating significant free cash flow and completing smart, accretive strategic acquisitions. Past transactions like Trimark, Artisan, Mandate, Red Box UK, and Debmar-Mercury along with minority investments in Roadside, FearNet and our new paid channel as well as Break.Com are exactly the type of deals that continue to build upon the foundation that have led us to become the leading next generation major. Jon?

Thank you, Michael. To recap, we've had a great year with tremendous revenue growth, building our content pipeline and market share in all of our core businesses, and we believe this coming year will be even better. Now we would like to open the call to your questions.

(OPERATOR INSTRUCTIONS) Our first question comes from the line of David Miller of SMH Capital. Please go ahead.

Hi, good morning, guys. Congratulations on the stellar results. A couple items here. Jon or Michael, on the new channel, first of all competitively, how is this channel going to be differentiated relative to HBO, Cinemax, et cetera? There's a lot of chatter going around there may not be enough room in the marketplace for yet another pay service. Why is this one going to be different relative to the others that dominate the market? And then how are we going to account for this? Is this standard equity income accounting, third, third, third between Lions Gate, Paramount and MGM, or is there another twist to that? And then I have a follow-up, thanks.

Okay, I'll take that one, Dave. It's Jon. We're not yet prepared to talk about what our distribution plans are. I think what's unique to start about this channel is it's owned and operated, it's three studios that have a tremendous amount of first run movie capability, first run television capability, and tremendous libraries and it's the first time this has ever happened, so we have the ability to schedule programs, window, package, and price our contents the way we want to, and as you know in our previous pay television deal, the one we're currently working on right now, we don't really have that ability, we're stuck in certain windows and really are greatly hampered in terms of electronic sell-through, subscription video-on-demand, VOD, and so this is a great opportunity to essentially cut out the middle man and create the channel that makes sense for content providers. Distribution, the channel doesn't launch until October '10, and I'm sorry, October '09, and we're working on distribution right now, I think it's pretty obvious that this is going to be an incredibly compelling content offer. We're looking at packaging it in different ways as I said and we're obviously extremely confident that we'll have tremendous distribution going forward and in terms of the accounting, Jim?

Sure, we will be equity and accounting for it based on the percentage ownership we have.

What is that percentage ownership?

Well, currently, we are a little bit less than a third Viacom has a slightly larger market share than, -- slightly larger equity share than MGM and Lions Gate.

Okay, great. And Michael could you refresh my memory as to how many films you are into the Pride Pictures arrangement? What I'm trying to get at is just some idea of what portion of the film funds P&A you'll be expensing in fiscal '09 versus fiscal '08. I have a feeling it's a little less because you are fairly, I think two-thirds of the agreement but if you could just refresh my memory there, that would be great. Thanks.

Yes, David. We still have a number of new pictures coming out r under the Pride Fund, and it's also important to note that there are plenty of people and institutions out there interested joining us and sharing P&A or production costs going forward. For example, SGF on Punisher and Odd Lot on The Spirit.

Okay, thank you.

Thank you, David.

Our next question in queue comes from the line of David Joyce of Miller Tabak.

Thank you. Could you please discuss any changes you're seeing in the syndication market? Are there any kinds of different buying patterns that you're seeing versus say last year?

When you say syndication, are you talking about television syndication?

If you could comment on both that would be great.

Well, what would the other one be?

The television syndication with the extra Debmar, with the Trivial Pursuit coming out, how are things maybe looking different versus last year?

I think the syndication market is pretty much as it has been. It's always reasonably crowded. There are a number of shows that are coming up that are aging and probably by next year will be off the air leaving I think a number of interesting opportunities. So far, the syndication of Trivial Pursuit has been very strong and as I mentioned, Fox TV Station Group is leading the syndication on Tyler Perry, so I still think there is some great potential time slots available particularly in about a year.

Thank you.

Our next question comes from the line of Alan Gould of Natixis. Please go ahead.

Thank you. I've got two questions. First, can you give us some sense of what kind of growth we should be looking for in fiscal '09 from your theatrical product versus fiscal '08 and I'm looking at the number of wide releases '09 versus '08, the aggregate negative, the aggregate P&A?

I think, well we're going to be about 18 releases, most of them wide, P&A looks to be about the same, investment in film and television looks to be up somewhat significantly and I think that's pretty much a snapshot.

Now, Jon, if the P&A is going to be about the same, I know your P&A doubled in fiscal '08 or more than doubled in fiscal '08 versus fiscal '07 and that obviously, you had a great year creatively but that hit the earnings but shouldn't some of those earnings sort coming into the Company fiscal '09 given all that P&A is behind us now?

No question about it. We said in forecasts before that we see a big swing in terms of EBITDA. This year, we took about a $50 million charge against our theatrical current theatrical slate last year. It turns ultimately into I think $100 million contribution going forward but again, we do have a significant P&A this year as well as I said our investment film and television will be up somewhat, so no question about it we'll get the benefit of that swing this year.

And Michael gave the five targets you have for this year, EBITDA and EPS weren't two of them. You want to give us any sense of where the Company's forecasting those measures to be?

Not at this point. We're still playing with our theatrical slate as Joe said we've just added two or three pictures and just like last year when we added Rambo towards the end of the year, it certainly moved our earnings, so I think we won't be doing that at this time.

Okay, thank you.

Our next question comes from the line of Barton Crockett of JPMorgan. Please go ahead.

Okay, great. Thanks for taking the question. Wanted to ask you a little bit about one of the releases which is kind of interesting, the My Bloody Valentine, the 3D release there, can you give me a sense of -- I mean, how many screens do you think that's going to be playing on and remind us when that's going to be released and what kind of up charge do you think this film would merit?

The film is scheduled to be released in every February. It's to tie in with Valentine's Day, obviously. The numbers in terms of screens are moving a little bit but the expectation, the last statistic I heard was that there should be over a thousand theatres that are capable of playing two 3D movies simultaneously by then and the expectation for total screens is up from there, because, it's an exceptional opportunity because the per screen average in those theatres are double and more based on statistics so we have very very very strong expectations that that can be a major event not just in the 3D business but being the first horror film and Lions Gate being known for that brand, we think we have huge potential there. Okay, so are you anticipating that an up charge for a ticket would be more kind of in the 2 to $4 range or would it be more like a Hannah Montana, 15 to $20 ticket type thing? The up charge for the ticket is a bit unclear. Some of the theatres are charging the same, some are charging 2, $3 more. We don't ultimately control the ticket price, the exhibitors do.

But it's unlikely it will be like the Hannah Montana which was really a one week event that then got -- it will be much more traditional pricing.

Okay, all right and then I was wondering if we could switch a little bit to Mandate. You guys have got obviously a share on Juno and it looks like The Stranger did well this weekend. Can you give us a sense of what the contribution, some sense of what the contribution might be from Mandate in fiscal '09 as we look at what we see right now from the slate?

Well, actually, the benefits from Juno, a little bit came in in this year but the real benefits will come through next year so a fairly significant uplift from Juno which is a big win for us and Mandate, margins tend to be actually on the initial sales, not huge but due to the overages and specifically with Juno the margins come up pretty strongly and there's like $54 million of Mandate revenue last year.

But I think you mentioned The Stranger which did well this weekend does that look like it's going to be meaningful for you this year or not so much?

We would anticipate additional overages on that.

We anticipate some overages on that. That was actually a co-production that we did with Vertigo at Universal. It's not a traditional Mandate deal so we have a gross participation as a producer. It's a little early to call where that will come out.

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

We have a question from the line of Doug Creutz of Cowen & Co.

Thanks. You mentioned on the call several pieces of your TV business where I think you were saying you're expecting an improvement in profitability. Can you sort of talk about the TV business as a whole, I think your gross margins were around 10% in fiscal '08. Are you expecting that to come up meaningfully in fiscal '09? Thanks.

Well, the revenues coming from Debmar-Mercury really basically ex the House of Payne product should contribute to help the TV margins come up hopefully percentage points with the year. The television business as a whole without Debmar-Mercury does tend to run around 10%. Debmar-Mercury tends to hopefully contribute hopefully the 20% mark so you should see as Debmar-Mercury revenue comes up, TV margins will improve.

Thanks.

We have a question from the line of Lloyd Walmsley of Thomas Weisel Partners. Please go ahead.

Great. I was wondering if you could talk a little bit about any up front investment in the new pay TV channel in terms of capital or economics? And then aside from how you account for it what sort of economics will you be getting on your content vis-a-vis your old deal with Showtime?

The licensing arrangement is a very close to what our previous deal has been. A small discount, probably a little bit less than the market discounts that have been taken on renewals from other studios with other services. And I would say that for all three partners over the two or three year period of negative cash flow, our share will be less than $50 million.

And then as you think to license that digitally to other parties, how do you think of that in terms of competing with building a new channel if there's content available digitally? Is that involved in your discussions with distribution partners?

Well, we think digital distribution is going to be an important part of how we structure this going forward and it is definitely a part of the conversations with all of the potential distributors that we talk to because everybody right now is looking at digital distribution as a way of differentiating their service, as a way of competing in the marketplace, as a way of delivering through new devices that they are working on, putting out new boxes, et cetera. So there's no question about it that digital distribution as part of the service will be important, as I said before, being owned by the three operators gives us a possibility of windowing and packaging it the way we want to.

But are the, I guess as more traditional cables distribution partners, is that a concern of theirs if you're distributing your content digitally through other parties just in terms of talking economics with them?

We haven't certainly, we haven't said exactly how we're going to do that and what rights we're going to give and to whom I can tell you though that all of the major distributors, telcos, satellite and cable are interested in digital distribution and those additional rights so that will be part of the conversation with them.

Thanks.

Our final question comes from the line of David Bank of RBC Capital Markets. Please go ahead.

Hi, thanks, good morning. A couple questions. First is a lot of cash sitting on the balance sheet, just kind of an update there on what you're thinking is, has it changed at all, how do you envision deploying it over the next year? And then second question, I guess could you talk about, is there any kind of material difference in the 100 million of cash flow in the library generation? What's the primary difference there between the cash flow and the EBITDA from the library? Thanks.

Michael?

I'll answer the part about the cash balance. As you noticed, it's fairly significant at year-end. We did announce this morning I think actually just went in that our Board at our year-end meeting authorized an increase in our stock buyback from 50 to $100 million. We've bought back approximately $20 million so far in the first 50. Additionally, it's very important if you take a look at all of our transactions to date what we really are focusing on besides the strategic value is making sure that we're doing accretive transactions going forward and that's not going to change.

And regarding the cash flow, Steve already mentioned that we had probably $100 million of cash flow coming off the library but the margins on the library from an EBITDA standpoint tend to be 25% in that range, so that's the disparate between EBITDA and cash flow.

So what would that be in absolute 100 million of free cash flow and how much EBITDA?

So the EBITDA 50 versus 100, sure.

50 versus 100. Okay, thanks very much, guys.

Thank you, everybody. We'll look forward to the next call.

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