Starz Entertainment Corp (STRZ) 2010 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Lions Gate fiscal 2010 Q2 earnings call. At this time, all participants are in a listen-only mode and later we will conduct a question-and-answer session with instructions being given at that time. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now 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 for our second quarter call this morning. We will open with remarks by Jon Feltheimer, our CEO, Michael Burns, our Vice Chairman, Joe Drake, Co-COO and President of the Motion Picture Group, and Steve Beeks, Co-COO. Also joining the call are Jim Keegan, our CFO, and Rick Prell, our Chief Accounting Officer. Following these remarks, we will o open the call to your Q&As.

This call includes forward-looking statements. 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 important factors including risk factors set forth in Lions Gate's annual report on Form 10-K filed with the SEC on June 1, 2009, and in exhibit 991 to our current report on form 8-K filed with the SEC on October 13, 2009. 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. John.

Thank you, Peter. Good morning, everyone. I am pleased to report another strong financial quarter with contributions from our entire portfolio of businesses. As we continue to grow our assets, we are on track for delivering these kinds of results on an increasingly consistent basis. I'd like to touch briefly on our performance and our television and channel operations, and then Joe and Steve will take you through recent developments in our feature film and home entertainment businesses respectively. Michael will close with a look at steps we have taken to bolster our operational flexibility in the future with our recent capital market transactions.

Without stealing too much of Joe's thunder, I would like to note how pleased we are with the opening weekend of Precious generating record per screen averages at the box office to go along with rave critical reviews. Precious follows in the tradition of other Lions Gate prestige films like Monster's Ball, Crash, and 3:10 to Yuma that defined our brand and we're particularly pleased to be partnered with both Oprah Winfrey and Tyler Perry in this endeavor. Our television business continues to consistently grow on all fronts as we track $300 million in revenue at double digit margins this year. We, going into the sixth season, leaves our television franchises that also includes Mad Men and Nurse Jackie.

The key to our television business is consistency. Our TV operations enjoy a success rate that adds iconic brands to our roster each year. Three years ago we added Mad Men and House of Payne to our slate. Two years ago we added the House of Payne spinoff in Meet the Browns and last year we expanded our slate to include such potential evergreen properties as Nurse Jackie and the Wendy Williams Show. This high batting average for shows placed on the air allows us to keep development costs low as well.

This year our new comedy, Blue Mountain State, will premier in January on Spike in the time slot immediately following Entourage. Spike has already ordered seven back-up scripts for potential second season before the first season has even aired and Blue Mountain State is already shaping up as a show that will help define the Spike brand. (inaudible) Mercury is continuing to roll out new shows like the Will Ferrell and Adam McKay produced sitcom starring Jon Heder for Comedy Central, and Ice Cube's Are We There Yet, a sitcom based on his hit movie for TBS. The Wendy Williams Show continues to move towards a probable second year in syndication.

Now adding to the value of our television business of course, are our new channels like TV Guide Network and Epix. TV Guide Network continues to perform as we hoped when we bought it earlier this year. Ratings are up, our programming line-up is growing, and we are gaining traction with shows like Ugly Betty even before we put a supporting cast of shows in place. We have begun using fans who have already watched the ABC airing of Ugly Betty to introduce and do promos for the shows encore airings on TV Guide Network, part of our process of building a TV Guide Network brand that is unique in its celebration of fandom and entertainment. We also just acquired basic cable rights to the award winning HBO comedy series, Curb Your Enthusiasm, produced by and starring Seinfeld co-creator, Larry David. This deal includes exclusive rights to air Curb from January through October of next year. It will then air as a weekly strip from October 2010 through December 2012 in conjunction with its syndication release. Viewer excitement at the upcoming reunion of the Seinfeld cast for the latest season of Curb will give the show strong momentum as it is rolled out.

Our Epix premium channel launched on October 30 with a major promotional push from Verizon Fios, our first distribution partner. Our opening weekend of movies represented the biggest combined box office of product ever to appear on any pay television network including 15 world television premieres and such blockbuster hits as Marvel's Iron Man, Indiana Jones and the Kingdom of the Crystal Skull, Tyler Perry's Medea Goes to Jail, and Cloverfield as well as original programming like the Madonna concert from her latest world tour and Eddie Izzard's exclusive comedy special. We ultimately expect our new channel not only to make money but to build long-term equity value as well, and we and our partners are very proud of our newest brand.

We are taking advantage of our success and consistently generating hit content by creating a slate of original programming specifically for our own networks. We start shooting Tough Trade, which will be our first original series for Epix in Nashville next month. We have a terrific director in X-Men Wolverine Gavin Hood and an exceptional producer and Weeds creator, Jenji Kohan. Tough Trade along with Atlas Shrugged which we previously announced as a major mini-series development for Epix symbolizes our commitment to produce premium shows with premium talent for our new premium network just as we have done to help raise the profile of other cable networks.

Epix, along with our other linear and digital channels, is taking our array of theatrical, television and digital content and finding new ways to protect it, expand it and create an equity opportunity for the future. Now I would like to turn the call over to Joe to talk a little bit more about this content and our future film business.

Thanks, Jon. Good morning everyone. We have a productive second quarter. We closed an important piece of finance, released two pictures and continue to build out a diversified pipeline by acquiring several picture that offer a great strategic fit and will make a meaningful contribution to fiscal 2011.

Before I go in to that, I want to take a minute to discuss the release of Saw VI. In October, Saw VI ran head long into a cultural phenomenon in Paranormal Activity. It took a big piece of our core audience and led the performance well below expectations. We are planning Saw VII very carefully and I can ensure you that the next installment of this franchise will be far more than just a continuation of the saga in 3D.

As we refresh the properties that have driven our growth over the last five years, we have been equally focused on finding and exploding those new franchises that will drive our growth over the next five years and beyond. Some of these pictures are already part of the line up in fiscal 2011 including Killers, Expendibles, and Conan the Barbarian. And in fiscal 2012 we are planning a release for the best seller Hunger Games, which continues to catch fire with audiences. The target audience for each of these movies falls squarely in to our core areas of expertise and each is in a genre that could over convert in the ancillary markets.

Other the last quarter we have continued to build on our momentum by closing deals for several more pictures that have the potential to become franchises for us as well, all with comparatively limited up-front costs. One of these pictures, Kick-Ass, based on a comic book series published by Marvel's icon label will be released in early fiscal 2011. It stars Nicolas Cage and introduces a new star in Chloe Moretz. At Comic-Con this year it created a frenzy when just a few minutes of footage was shown in a packed auditorium. We also included a deal for Steven Soderbergh's Knockout, a picture that should break a young action star in Gina Carano and kick off a franchise that combines the action and intensity of movies like Transporter with the grit of Lafemme Nikita. This is also targeted for fiscal 2011 release.

Lastly, we announced a partnership with Steven Gaghan on a forthcoming action thriller which he is co-writing, producing and directing. The film is in the vein of the Bourne Identity but built the Lions Gate way with limited up-front costs. This deal, along with the Soderbergh deal have built on the momentum we created with Paul Haggis on the Next Three Days and provide proof that our initiative to make right-priced pictures with top talent is being embraced by the best of the creative community.

I also want to mention Precious which earned $1.9 million this past week on only 18 screens, that's more than $100,000 per screen. To give you some contest for that figure, this weekend Precious broke the record previously held by Blair Witch for highest per screen average for a film released on ten more or screens and just as importantly, Precious played equally well across a wide and diverse audience, affirming our convictions about the potential empower of this story. From here we expand aggressively into Thanksgiving weekend. Our ability to bring to life releases like Monster's Ball, Crash and Precious as well as wide releases like My Bloody Valentine with no separate addition and no additional overhead is a true testament to the versatility to our team and underscores the kind of value we drive from our organization.

Before I turn the call over to Steve, I want to touch on our recent announcement of the $120 million production facility by JPMorgan and Union Bank. This facility has continued vote of confidence in our business by the banking community and we are working with additional banks to join and upside the facility to its full capacity of $200 million. Most importantly, the deal further solidifies our financial position at a moment in time when production capital is increasingly scarce, further separating us from our competitors and increasing our operating leverage. Looking at the balance of the fiscal 2010 and fiscal 2011 slate, our slots are filled with the kind of targeted content we promise to deliver and our organization is poised to deliver equally balanced and exciting slates into fiscal 2012 and beyond. Steve.

Thanks, Joe. This quarter our pictures continue to overconvert and our solid performance on DVD as well as digital was a primary driver of our strong revenue, EBITDA and net income results for the quarter. We have had six of the industry's top ten converting titles in the calendar year with that trend continuing in our fiscal Q2. We are on track to grow our library revenue from $280 million last year to around $300 million this year, our fourth straight year of record library revenue. Crank 2 achieved a box office DVD conversion rate of well over 150%, exceeding even our expectations, and 16% of that revenue was from Blu-Ray. This is a prime illustration that action films are maintaining their mojo in the DVD market and it further bolsters the strategy of our picture slate going forward. Haunting in Connecticut, also released on a DVD in Q2, has been the top converting PG-13 horror title for the calendar year.

The strength of our pictures in home entertainment is the natural outgrowth of our business model. We continue to overindex the broader market by following R rated and edgier PG-13 action, suspense and thrillers that typically overperform. Coupled with simple hard work and a great home entertainment team, we expect this to continue to be a winning formula. Continued sales of Mad Men and Weeds on DVD and Blu-Ray not only contributed to our quarter, but also demonstrate the continued vitality of our TV to DVD business. Excuse me.

As we mentioned on our last call, first seven seasons of Weeds are expected to generate approximately $100 million of home entertainment revenue and Mad Men is on a similar trajectory. What we didn't say is that these series are generating that revenue on digital and packaged media in a very complimentary fashion. During one recent week, seasons of these shows occupied the top seven slots for television season digital sales. At that time, DVD and Blu-ray sales of both shows were achieving strong increases.

The strong performance by (inaudible) and packaged media is mirrored by great results in downstream markets such as digital and on-demand platforms. A prime example is New in Town which we released on DVD in late Q1. Even though it also over converted, we initially projected loss of the picture. Since then, it has earned nearly $4 million on demand and it continues to sale on DVD. The strong performance in the downstream markets turned a loss into a solid profit.

Crank 2 is the first major title to be released since we announced our deal with Red Bucks on our last call. As part of the Red Bucks deal, we now receive a deeper level of rental data from them and the results support our belief that we made a smart, opportunistic move to secure space at approximately double our market share for all our titles. The results also support our belief that our pictures would continue to perform at sale-through rental and digital. Crank 2 sold through very well on DVD and Blu-Ray, it rented very well in kiosks, brick and mortar, internet mail order, digital and on demand. It performed across the board expanding its potential revenue with no evidence it cannibalized any particular venue, demonstrating that increased availability drove incremental revenue. We will continue to watch the results for all our upcoming pictures and we believe our slate will continue to overconvert in all areas of packaged media and digital.

When you look at any one product across the entire spectrum of packaged media, sale through, rental, digital and the various on demand platforms, it is clear that for individual pictures, the overall home entertainment pie can be made larger, not only by sometimes turning losers in to winners, but by making our winners even bigger. Our strategy of focusing on large niche markets allows us to overconvert on DVD and ancillary revenue streams to mitigate some of our box office losses when they occur and to generate fresh and expanding incremental revenue streams for our products and success. Now I'd like to turn the call over to Michael.

Thank you, Steve. Since our last call we have pleased several significant capital market transactions designed to both increase our operational flexibility and to facility our continued growth. We have built our asset foundation to a combination of internal growth and opportunistic acquisitions as you witnessed most recently when we acquired TV Guide Network earlier this year. Approximately $219 million in proceeds from our debt offering was immediately used to pay down our revolving credit facility to $39 million outstanding. After making that payment, we were left with over $300 million of availability with a very favorable interest rate of LIBOR plus 2.5. The money raised gives us greater flexibility with respect to our outstanding convertible debentures as well as other potential opportunities.

As Joe mentioned, we recently closed the motion picture financing of the favorable rate of LIBOR plus 3.25. This financing further diversified our sources of motion picture funding and compliments our track record of securing production and financial partners like Relativity, Lake Shore, and Gold Circle on individual films. We see the previous glut of film product in the market place that affected our fiscal 2010 slate beginning to ease and we plan to capitalize next year with our traditional portfolio approach to a balanced, diversified and disciplined slate. I would emphasize that it continues to be a disciplined slate because our risk profile most of our films hasn't changed significantly from the financial model we have used for years. Being specific, the capital at risk on the films of our fiscal 2010 and anticipated 2011 slates averages approximately $11 million premarketing and after international presales are subtracted from our production or acquisition costs.

The importance of having a diversified slate is underscored when you consider Steve's remarks about what works well for us this past quarter. A balanced mix that included an action film, a romantic comedy and two television shows all overconverting on digital, on demand and DVD. Our emphasis on a strong laser focus balanced slate is also a key component of our annual target of generating in excess of $125 million in profitability from each of our yearly film slates. Although we reported an accounting loss of $125 million in fiscal 2009 from our fiscal 2009 film slate, it is important to understand that this slate will generate an estimated $82 million of ultimate profitability. This means that is from fiscal 2010 forward, we will realize more than $200 million of accounting profit on this slate, the vast majority of which will booked over the next 36 months. In other words, we continue to see tremendous long-term value in our substantial film entertainment backlog, unsold rights and ultimate profitability in downstream markets.

Our robust fiscal 2011 film slate combined with continued strong growth of our highly diversified television business and increasingly meaningful returns from our recent investments, especially our new channel platforms, are expect to be an important component of our return to significant positive free cash flow beginning in the latter portion of fiscal 2011 and beyond. We are looking to achieve all of this growth with continued individual lens toward the SG&A, we believe that our overhead to revenue ratio of 9%, excluding TV Guide Network, is one of the best in the media sector and we will continue to identify areas for further improvement on both the cost and revenue enhancement side to the equation. We aren't satisfied with our current stock price and we understand the streets focus on Epix. We continue to believe that [Epix] is right move to make now in terms of controlling our window, pricing and premium content while having significant ownership of our own channels, like the TV Guide Network, which is already beginning to validate our underlying channel strategy. As we deliver our financial guidance for this year and reiterate our adjusted EBITDA guidance in excess of $75 million, continue to achieve strong and consistent growth from our diversified portfolio of television businesses, approach steady state consistent profitability in our film business and begin to unlock the value of our ripening investments, we believe the street will once again recognize our unique enterprise value. We'd now like to open the call to your questions.

Thank you. (Operator Instructions) One moment please for the first question. Our first question will come from David Miller at Caris and Company. Please go ahead.

Hi, guys. Good morning. Congratulations on an outstanding quarter. A couple questions. First of all, Steve or Michael, how much of the home entertainment being down this quarter is attributable to less theatrical pictures compared to last year and then also on Curb Your Enthusiasm, can you talk about what you're spending on a per episode basis for the syndication window, and then I have a couple of follow ups, thanks?

David, this is Steve. I will take the first question. Virtually all of the difference is due to the actual picture. This is year we released Crank 2, Haunting in Connecticut. Last year I believe we had Bank Job, Forbidden Kingdom, Meet the Browns and a fairly large tale on Rambo. I think the box office on those four pictures was approximately 150 and box office on the two pictures this year we released were 62. That is virtually all of the difference.

Right.

And, David, on Curb we are very pleased. We think we made a good deal on Curb and it is indicative the way the business is going right now and the flexibility one can have when we have our own channel, our channel platform. We are sharing the window, as we announced with TV Land, but the good news is we not only got the first window in terms of the strip, but we actually are going the earlier repeat rights before they go in to syndication. We think this is a big win for TV Guide. Obviously, I really can't talk about the price.

Okay. Fair enough. Then also Jon while I have you, you guy sort of intimated two quarters ago the possibility of a name change for TV Guide, it sounds like you are not going to change the name of the channel and come January 1, 2010, when this whole thing rolls out I think on the digital tier, do you see changing the name or not and I have a follow up on FX once we get to that?

As we did our work, we realized at this point that the TV Guide name has nice brand equity, what we have done instead is we have really revised how we are looking at our marking approach to the brand. We will start rolling that out, you are starting to see some of that right now. As I said, if you have seen the commercial spots that we are doing, and the intros to the new episode of Ugly Betty we are using real fans to do the promos and I think that's part of the new brand we are creating which is to be a fan-friendly, entertainment friend network, and I think we have got a really smart approach to distinguish our brand from similar networks out there right now.

Okay. And then finally, on Epix, Viacom stated on their last call last week that some sort of announcement could be made with regard to additional distribution deals with a couple of the major cable MSOs. They didn't talk about specifics. Obviously the street is very concerned about this. Can you shed any other color here on timing beyond Viacom said last week?

Yes. I think I would say we are still pointing not only to come upcoming announcements but I think we are really pointing to trying to get a couple of other distributors on for the beginning of the year for potentially even as early as January. So, we think we are on track on those negotiations. They do typically take longer than would we think they should, but they are complicated. We do believe we are on track.

Wonderful. Great quarter. Thank you.

Thank you. Our next question will come from Ben Mogil at Thomas Weisel Partners. Please go ahead.

Hi, guys, good morning and thanks for taking the call.

Morning.

So on the guidance, sort of the non at-risk P&A, are these guaranteed by relativity or by (inaudible) itself at the end of day?

We can't really answer that question other than to say that we feel very strong with it. They're backstopped sufficiently.

Okay. Fair enough, Jon. So maybe just one other question, the amount that you sort of highlighted in the quarter was pretty small. When you look at the $75 million adjusted EBITDA guidance, what should we all be looking for that will be the add back in this P&A at the end of the year? I am guessing it is more second half weighted.

I noticed one of the notes mentioning it. The add-back is not a benefited to adjusted EBITDA, it is actually just taking away the loss that we would have had by expensing that, and considering that these are essentially service deals. That's all, we are actually adding back not necessarily the full P&A, we are adding back essentially the loss that we would have had by expensing that P&A. It is affected of course by the amortization participation. But basically I just need to make that clear as I looked at that note. There's no benefit we getting from that, we are actually just staying even with the loss that we would have booked had we expensed that.

If I look at the quarter $1.253 million, that I'm assuming is the P&A you put on on behalf of relativity that you don't have risk for. Is that a correct way of saying it?

Sort of. Jim.

Yes. That is correct for the quarter but because we haven't released anything yet, back to Jon's comment, it will be, as I said on the last call, about a $50 million adjustment which is really just negating what we've had to expense and it takes in to effect all participation.

Okay. So, Jim, just to make sure I am clear, $50 million of non at-risk P&A, is that correct?

It's more than that. That is the net impact of the adjustment. So there's more P&A then that, but it's (inaudible) participation. That is the net impact, the number you should see added back as of the year end.

Okay. That's very helpful. Okay. Thank you. And then, in terms of Epix itself, I think in the 10-Q you mentioned that you are at $41 million and subsequent to the quarter you were at $41.2 million of an investment so far. If I look back I think your ceiling before was $42 million. You talk about going higher from the $41.2 million. Are you looking at going like only $800,000 higher or are you potentially looking at going above the $42 million mark now?

I think the number you are referring to, Ben, was a mandatory investment. I think where we will go from here is really going to be dependent upon how quickly new distributors come on, we will know a lot better by the next call. In the next three months we will have a much better sense of any incremental contributions we might make.

Okay. And then subsequent to the quarter, are all three partners, obviously yourself included, up to date on the current capital commitments?

Well, we have made all of our contributions. I don't really feel, it is not appropriate that I discuss sort of our, my other partners and how they're treating their contributions but we are up to date in terms of our contributions.

Okay. Fair enough. Am I right that in the quarter we are in now, the third quarter 2010 will be the first quarter you will receive Epix revenue, I guess Bloody Valentine, is that correct?

That's right.

Your anticipation for the quarter is that your license fee or at least the portion that is due upon delivery will be paid in full?

Absolutely.

Great. Okay. I think that's it for me. I will let someone else get on queue. Thanks, guys. Thank you.

Our next question comes from the line of James Marsh at Jefferies. Please go ahead.

Hi, guys. Just a couple of questions here. One, the TV production margins is about 25%, a little higher than the 20% you discussed before. Is there anything in there that would SKU those higher or is that kind of a good number to look at going forward? Go ahead.

No, it was actually what happened was Weeds had been performing so well in the DVD market, as Steven indicated, had SKUd the margins up.

I would say this is sort of interesting as we have continued to build our television business we have said often that at the beginning of the term of new shows and well into actually the second and third season, we are keeping our ultimates on those shows very, very low and they're not typically indicative of what the margins will be going forward, as we've had success and consistently renewals and turning short-term series into long-term series, you will always see our TV margins going up.

Great. That's helpful. And then on Precious you started with a limited release of 18, and you talked about that going wider. How wide should we expect that release to move over the next few weeks?

This is -- James, this is Joe. We are expanding this next week into a couple of hundred theaters and going fairly wide based into what we learned in to the Thanksgiving weekend. At it's widest, it should look like any wide release well over 2,000 prints but part of what you do in a release like this because we have such pent up demand is you feed it out slowly so probably over the Thanksgiving weekend will be between 800 and 1200 screens and continue to feed the demand as it grows.

Okay. One last question, what was the last time you had the film library appraised and then if you can kind of maybe opine on why there seems to be such a difference between what the banks kind of consider the valuable library and what equity investors think about the value of library.

Well, as part of the bank facility, the bank values the unsold right which is not really a true library valuation but we never, we don't generally disclose that number. But it is the unsold -- because we did have the value of the company is really because you have the unsold rights and then you have backlog and AR. So there's much more value in a library value than just the unsold rights that is valued by the bank,.

James, it is Michael. Jim is again sort of reiterating that the point is that they have a different definition of library valuation being only on sold rights. When we look at the library, obviously the backlog and accounts receivable are a significant portion of that. The other point is even if you break out, James, just the unsold rights portion, what they're doing is they are doing solely a seven year, they're looking at mostly a seven year ultimate, and they're doing it on a taxed basis and they're throwing in overhead into that. Typically when you look at it from some of the parts analysis, people typically wouldn't look at it that way.

Okay. My point was more related to the banks seem to still give the library a lot of value, and it doesn't seem like the equity markets do.

Yes, you are preaching to the choir.

Okay. All right. I will leave it at that.

Thank you. We will go next to the line of David Gober at Morgan Stanley. Please go ahead.

Morning, guys. Quick question on guidance. Obviously through the first six months adjusted EBITDA is well ahead of the full year guidance, and correct me if I am wrong, I didn't see any changes to guidance in the release. Is that just conservatism in terms of the back half or is there any reason to expect EBITDA declines for the last six months?

We did say in my remarks reiterated adjusted EBITDA in excess of $75 million. There's still a bunch of pictures to release. So we are not raising guidance but we certainly are reiterating what we have said.

Okay. And obviously you guys have done a lot on the capital market side and clearly the film financing environment seems to be improving. Just quickly, I think in the past you guys have talked about I want to say between 12 and 16 films a year. Any updated guidance on how many films per year over the next couple of years you guys expect to make?

I think as I said on the last conference call, as we look into 2011 and beyond we have -- we are looking at how to maximize this distribution backbone, we think that is a minimum of about 14 pictures, that's how we are building into 2011 and as we see opportunity, we continue can toggle up or down by a picture or two. But our steady state is a business plan that is targeting 14 films a year starting in 2011 and beyond as a minimum.

I think I would also just adjust, in terms of our question, when you said how many films are you making our mix of product going forward will still include the same kinds of film production acquisition, negative pick up and service deals that we have always had which lowers our risk on each of those pictures but we think about 14 is about right.

Okay. And one question on TV Guide. Obviously, there's some up-front investment here in terms of gaining content and clearly you guys have gone after some premium stuff. What is your view in terms of how long it will take to monetize that and how long over what period of time can you renegotiate distribution agreements and I guess how quickly can you see the upside there?

Well, we are having ongoing discussions, they came due at different times in terms of our distribution agreements and obviously two things are going to happen. We are going to try to obviously raise license fees but, just as importantly, particularly with the cable MSOs, as we have mentioned before, we are going to try to move as much as we can toward the full screen product and I think that's really important as we continue to invest in great programming of channel that's profitable right now. We expect the channel to remain profitable and I think the really interesting things we do in terms of being able to monetize some of the content we are buying and content we are creating as well as some of the event-type stuff like the red carpet things, shows that we do. So we are building this. We are right on track with our plan.

Great. Thank you very much.

Thank you. Next we will go to the line of Doug Creutz at Cowen and Company.

Hi. Thanks. I was wondering if you can discuss what kind of leverage you have to potential box side on Precious, what kind of economics you have on the film and also if you can update on what you are expecting the fiscal year spending for both theatrical P&A and capitalized film and TV costs to be? Thanks.

It is a little early to be predicting Precious. It is doing unprecedented business. I can tell you that when you look at a traditional platform release they --traditional platform release would build very slowly over six or seven weeks because of the awareness that needs to be generated. We are seeing aware and interest that you normally find three or four weeks in to a traditional release so we will start to expand quickly. We, as I say, we are expanding into the Thanksgiving. It's the biggest box office week every year and we expect when you look at movies like Slumdog Millionaire, Juno, you can use metrics like Brokeback Mountain it has an extraordinary amount of upside in the box office.

And it's been widely reported in the press about what we paid for the picture which was $5.5 million it is important to note there's obviously, in all the deals that Joe does, a significant distribution fee and a nice back end.

I think you could say we expect the picture to be solidly profitable in any case.

To give a little color on the P&A, we are probably going to spend around $210 million in that range, we are going to spend on motion picture division probably about $317 million on prior calls that have been about $300 million, but due to some films that are basically delivering early next year, that number is up about $10 million to $20 million.

Great. Thanks.

Thank you. Next we will go to the line of Vasily Karasyov of JPMorgan. Please go ahead.

Good morning, congratulations on this strong quarter. Had a followup question on TV Guide. Ghen do you expect programming costs to increase when all of the new acquisitions hit the income statement. Can you please provide some color? Is it starting January 1 and what would be the order of magnitude of sequential increase in costs at TV Guide?

Well, it is not just about increasing our budget for content. It is also shifting our expenses. We have lowered some of the production, the in-studio production we had which I did not feel was delivering the kind of ratings we need and we shifted some of that in to acquired programming. We are not seeing such and any of the increases we plan are fitting in to our profitability that is currently budgeted. But I do think over the next two or three years I would say we will see some measured but significant increases in that, in the programming but what we always try to do just like with the whole company is we will try to gauge our increase in spending in terms of increased revenue. So we expect the channel to remain profitable.

All right. Thank you. Then I had a question quick about P&A this year. How much of the decrease year on year or savings due to the weak advertising market? Do you think this level is a level you can keep going forward or when the TV advertising pricing comes back we will see an increase because of that? Thank you.

Well, the overall decrease in spending is really largely few to the number of films that we have cut down and, however, the actual cost of advertising has decreased on a national basis, you are looking at network inventory of between 5% and 15% and on local TV and radio it can be upwards of 25% to 30%.

I would l think as obviously as we expand our slate into next year, but as the ad market comes back we will be spending more per picture than we were this year.

Thank you very much.

Thank you. We have time for one more question and that question will come from the line of David Joyce of Miller Tabak & Co. Please go ahead.

Thank you. Just tagging along on that marketing piece, is there any difference in how you're allocating your ad spin? Is that making any contribution to the change in the marketing? And, secondly, I was wondering how the volume of TV series deliveries looks in this current quarter versus last year's December quarter? Thank you.

There is a bit of a shift in our ad spend towards the internet where the kids are. We focus our business very much on the audience that we have an intimate relationship which is a younger demographic. They spend a lot of time online, we are being very innovative in that space. We have some shift towards online, but it is not significant in the overall pie. The large driver to the movies today is still off of television.

And volume wise, we actually -- I'm looking at six -- five episodes of Crash this season, eight episodes of Mad Men this quarter, I should say, and 3-1/2 hours or so about 3.5 which is seven episodes of Weeds and that compares to eight episodes of Fear Itself last year, eight episodes of Mad Men season two and about nine episodes of Weeds.

David, you can you are going to call Jim directly if you want to drill down further on that specifically.

That's the exact answer.

The only other shift we had this year in terms of marking spend is we were much more present in the up front. We looked at as this a great opportunity to get inventory early on when it was priced down. We think [scatter] is going to go up significantly, it seems like it's already heading in that direction. So we actually were much more aggressive in the up front and I think we had a nice savings by doing that.

Great. Thanks for the color.

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