Starz Entertainment Corp (STRZ) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Lions Gate fiscal 2010 full year Q4 earnings call. At this time all phone participants are in a listen-only mode. Later there will be an opportunity for your questions. Instructions will be given at that time. (Operator Instructions) And as a reminder, this conference is being recorded. I'd now like to turn the conference over to Senior Vice President of Executive Communications and Investor Relations, Peter Wilkes. Please go ahead, sir.

Thank you for joining thus morning. John Feltheimer, our CEO, will have opening remarks and he will be joined during the Q&A by Vice Chairman Michael Burns, Steve Beeks, co-President and co-Chief Operating Officer, Joe Drake, President of our Motion Picture Group and co-COO, Jim Keegan, CFO, and Rick Prell, our Chief Accounting Officer.

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 risk factors, including those set forth in Lions Gate's annual report on form 10-K filed with the SEC on June 1, 2010, which risk factors are incorporated herein by reference. 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. John?

Thank you, Peter. Thank you all for joining us this morning. Fiscal 2010 was a very strong year. All of our businesses performed extremely well despite a difficult retail environment. While we pre-announced in April that our adjusted EBITDA would be $115 million rather than the $75 million in our initial guidance, we ended the fiscal year with a record adjusted EBITDA performance of $128 million, 70% higher than our initial forecast even as we continue to reinvest our cash to focus on long-term value creation. As we said previously, we expect strong EBITDA to continue in fiscal 2011 and we're targeting a return to positive free cash flow as well.

Today I would like to talk about the four characteristics that put the strength of our business in perspective. First, we understood the importance in value of a strong library. Ever since we merged the Lions Gate tri mark and artisan catalogs nearly ten years ago to establish the foundation on which our company is built, we've steadily grown that as a set ever since, and today we manage a library that encompasses more than 12,000 titles. It generated a Lions Gate record revenue of $323 million and cash flow of approximately $110 million in fiscal 2010, despite a challenging marketplace. This cash flow was up approximately $15 million, or about 15% on growing margins. As I said in remarks to our shareholders in Toronto three weeks ago, it is really pretty simple, libraries that are replenished with fresh product and innovative sales and packaging strategies work better than those that aren't. Therefore we continue to be the distributor of choice for many third party catalogs who know the value we place on libraries in a world of abundant and increasing opportunities to monetize them.

In that context we just licensed 139 of our theatrical films to Rainbow Media's various channels. We also announced an agreement to distribute the upcoming theatrical titles of New Market Films and their 250 title library. These two agreements remind us once again there is no successful distribution business without content and there can be no successful content business without distribution. These two deals also underscore the value and scalability of our business. In other words, we continue to control the cost of our overhead while growing our revenues, therefore increasing the productivity of every single Lions Gate employee. In fact, Lions Gate was just ranked the most efficient company in the entertainment industry measured by revenue per employee. According to the Wall Street research firm, Smart Trend, we currently average more than $2 million in revenue per employee, more than 35% higher than the next highest ranking company, a testament to our continued emphasis on productivity and discipline in our overhead.

Television is the second major driver of our growth. Our TV business has grown at a compound annual rate of more than 40% over the last eleven years, and in fiscal 2010 its revenue grew approximately 60% from $220 million to $351 million. The ingredients of this growth are attributable to our success rate in placing and keeping new shows on the air on the production side and assembling one of the strongest portfolios of syndicated product on the distribution side.

As part of our TV expansion, we targeted a disciplined approach to entering the network primetime scripted business, and we made just one new pilot for the network this is year. That pilot, Running Wild, was recently picked up by Fox Broadcasting as a 13 episode series order. We made a bet on the show's success based on a great cast and a superb creative team led by Mitch Hurwitz, the Emmy winning Executive Producer and creator of Arrested Development and Eric Tannenbaum, the Executive Producer of Two and a Half Men, whom I know and trust of many years of working together. Running Wild joins a pipeline of shows that includes Mad Men, Weeds, Nurse Jackie and Blue Mountain State, which have all been renewed for new seasons.

Now with a total of 15 shows on the air in production and syndication, we're the number one independent supplier of scripted programming to the cable networks and one of the most important syndicators of product in the TV marketplace today, and we've achieved this broad portfolio of product from a combined television production and distribution organization with less than $10 million of overhead. The contribution of our television business in fiscal 2010 was $39.5 million before overhead, more than doubling any previous contribution.

On the syndication side, we eagerly await the debut of our new Debmar-Mercury sitcom, Are We There Yet, produced by Ice Cube and Joe Roth. It will air tonight at nine o'clock between our hit shows, House of Payne and Meet the Browns, and we're very enthusiastic about it is prospects. If it is ordered for a relaunch in the Fall, the order would total 100 episodes and it would go into syndication in Fall 2012. This is a significantly faster return on investment than with a normal order pattern. Our other new sitcom, Big Lake, from Will Ferrell and Adam McKay is just finishing production in Comedy Central and is looking at air dates later this Summer. The show has been sold with the same business model and if successful, will also result in 100 episode order and be ready for syndication in Fall 2012. We have a target Fall date 2011 launch with the Tribune station group for Jeremy Kyle, the UK talk show star we signed in January. We have also just acquired US syndication rights to the ITV produced hit primetime show Hell's Kitchen now airing on Fox. These new shows during our sixth long running strips; House of Payne, Meet the Browns, the Wendy Williams show, South Park, Family Feud, and True Hollywood Story along with the Discovery show Deadliest Catch.

In short, television is a very good business for Lions Gate. We expect top line revenues to continue to grow and we expect the contribution from TV to continue to track towards a 15% margin.

Our channels are the third driver of the continued growth of our business and we expect them to make increasingly important contributions to our bottom line in the years to come. The path to success is already cleared TV Guide Network and Epix. We not only bought TV Guide Network at the right time and for the right price, but we're on track in building the channel into a fully distributed, full screen general entertainment network. We're doing exactly what we said we would do, making smart deals to acquire new programming like Curb Your Enthusiasm and Ugly Betty, leveraging it as a vehicle to exploit our own programming like Weeds, and renewing long-term carriage deals with distributors like Comcast and Charter that accelerate our conversion to a full screen channel.

We're continuing to build a channel that we believe will not only deliver increasingly significant EBITDA and free cash flow, but will create tremendous additional value for our shareholders. The important news about Epix is that we continue to develop momentum. Epix is now available in 30 million homes, up from less than 3 million homes six months ago, an impressive trajectory for a new channel. Now that we have completed a nationwide distribution deal with Dish Network giving us a total of six carriage deals, we believe that we have the momentum to convince the remaining major operators that we offer a compelling combination of extensive film libraries, exciting first run movies and distinctive original programming that will be very attractive to their subscribers. When we complete carriage deals with at least two of the three of the distribution partners with whom we're currently negotiating, Epix should be cash flow positive and a very valuable channel.

Something we haven't talked about much is the launch of our Tiger Gate platform in Asia. Our first two channels, Kicks and Thrill, recently launched in Hong Kong, Singapore and Indonesia. Last week I came back from a trip to Asia with our partner, Saban Capital, that reinforced our belief in the tremendous growth opportunities offered by the Asian market. The Asian paid TV market includes nearly 350 million customers and continues to grow at a double-digit annual rate. As of this year Asia now comprises more than half of all the world's paid television customers, and with that the appetite for original distinctive motion picture and television content continues to grow. With our partners at Saban, we just announced a deal with a media development authority in Singapore to make local language films over the next two to three years, which will be customized to Tiger Gate's Kicks and Thrill brands. We view Tiger Gate not only as the beginning of another tremendous channel platform, but also a source of incremental business in countries with enormous growth potential like China and India that have generated almost no revenue for us in the past. These are also territories where there is a lot of capital to invest in new co-production and distribution opportunities.

The fourth driver of our trend towards consistently strong, positive financial metrics in the future is our progress towards normalized, steady state performance in our feature film business. Our fiscal 2011 slate is off to a good start. Our first two films have grossed more than $100 million combined at the North American box office. And although we hope for an even stronger performance from Kick-Ass, both Kick-Ass and Tyler Perry's Why Did I Get Married 2 were solidly profitable. On the last analyst call, we mentioned that seven of our last eleven films have been profitable. We have now achieved profitability on nine of our last 13 films, which is consistent with our track record of 70% profitability for our film releases over the past ten years. We expect to maintain a running rate of 13 to 14 films a year, which is diversified among produced, acquired, and co-financed movies, and these slates will each be capable of delivering $125 million to $150 million in ultimate profitability.

These results coupled with our strength in our library, television, and channel businesses I've already discussed, should generated the consistent positive numbers we spelled out in the investor deck we sent to you in April. Because we won't continue to grow our feature film production and marketing each year as we reach steady state, we won't reinvest nearly as much of the cash generated by operations as we have the past several years. Even with a 70% success rate, one of the best in the industry, we will obviously have a few misses as well as hits. The key is continuing to manage our risks conservatively as we have done with this year's slate. Only $13 million of production capital is at risk before marketing costs on average for the 13 films in our fiscal 2011 slate. We expect to maintain the same financial model and cost discipline in the future. As a result, we expect our feature film slates not only to continue to serve the vital functions of organically replenishing our library and supplying our growing suite of channels, but to make increasingly positive contributions to EBITDA and free cash flow as well.

The message delivered by this year's numbers are clear. We're on plan, we're on track, and our business is strong. Our library shows how a well managed and replenished catalog continues to grow in value over time. This sustained and exceptional 11 year growth of our TV business underscores the tremendous value of a diversified business. Our new channels are growing along with the enormous appetite for branded content around the world and the performance of our film business reminds us that our feature films are the locomotives of growth in all aspects of our content business, and the continued progress of our slates towards steady state will be the key to unlocking their full potential.

I would like to open the call to questions but before I do, I would like to take a minute to it discuss the Icon Group's unsolicited offer. As you may have seen, Lions Gate shareholders once again rejected the Icon Group's offer yesterday with less than 4% of shareholders tendering into it. Lions Gate shareholders have demonstrated that they believe the Icon Group's offer is financially inadequate. We appreciate the continued support of our shareholders and believe that they clearly understand the real story. All of our businesses are performing well. Our momentum is strong, and our trajectory is positive. Again, I would like to remind you we're here today to discuss our fiscal 2010 results. We have no further color to provide on the Icon Group's offer at this time and we would appreciate if you would focus your questions on our earnings. Now we will open to questions.

(Operator Instructions) We'll go to David Miller with Caris and Company. Please go ahead.

Good morning. I have a bunch of questions. You have you a film opening this weekend, Killers, looks like a fairly expensive film, Joe, Drake, if you're on maybe you want to answer this. My understanding is that you presold a number of foreign territories. If you can maybe just detail what the economics look like of the film, which territories you own, which ones you don't own, that would be great. And then, John, I guess just based on your formal remarks there is no, obviously no formal guidance here. Is this just because you kind of to want get out of the guidance business because stylistically you just hate giving guidance and you want to get out it, or is there something else that we should read into it, perhaps the establishment of a film fund later on if credit markets thaw and I have two or three other questions. Thanks.

I will go first. I think you have all seen really all of last year, particularly the last three quarters we have gone through directional guidance and I am happy to drill down further. I think as the year goes on, again, we'll continue to give you lots of information about our film business and all of our businesses and allow you all to do the job that you have done so well. I would say directionally, again, to repeat and amplify a little on what I said before, even without consolidating TV guides, we see double-digit growth in revenue, strong EBITDA again, and as I said a return to positive free cash flow.

If it is helpful, David, I would say we're starting fiscal 2011 with higher expectations than we started fiscal 2010 with in terms of EBITDA. I guess what our business plan reflects is we're spending $150 million more investment in film and television still targeting the return I mentioned to positive free cash flow and still strong EBITDA. I think that's a really good story for our Company, and one of the ways we're obviously getting there is controlling costs, particularly over head. If you've looked at the chart you can see that net of non-cash RSUs and defense costs, I think over head this year is going to be about 7.6% of revenue. So that's directionally kind of where we are for this year. I will let Joe answer your other question.

Morning, David. I am glad you asked this question. There has certainly a lot of speculation around Killers. Let me try and simplify it for everyone. The easiest way to look at this move is we open it this weekend and the movie opens in the low to mid-20s we'll be on our way to nice profitability. If the movie opens in the mid-to low teens, we can lose somewhere between $10 million and $15 million, assuming a normal summer multiple. I think it is also worthwhile noting that separate from the stand alone economics on the movie, it has been a leader in other areas of our business and to date has generated approximately $20 million in additional value on other titles in our library, as well as rights to other movies that we have in our international slate.

Okay, great. Just a couple other questions if I may. John, I would assume with TV Guide just in better shape than it was a year ago, that you will be in the cable up front coming up in a couple of weeks, and since most of the programming that you have bought is sort of repurposed programs, I would take it that you're probably going to just sell as much inventory as possible and leave little for scatter if you can confirm that, that would be great. And just in the ultimate profitability scope that you talked about in your prepared remarks on the theatrical slate, what gives you confidence in that number? Have you done that number before? Just because we have seen tremendous successes off your theatrical slate over the years and some fairly high profile failures and just would love any color as to your confidence in that ultimately profitability bogey.

On the ultimate profitability, yes, we're very confident in it. If you look at the last six years, we have actually been within that range three times and have actually exceeded $100 million four out of those six years. That includes ten where we obviously didn't hit it because we were retooling the slate. I think that given our track record -- given our track record over the last six years as well as our continued discipline approach to the way we're building our 13 to 14 picture slate, we feel very good about that, about those numbers.

In terms of TV guide, I am not sure about your reference to repurpose programming. Most cable is based upon essentially strip or syndicated programming, and that's the model we're looking at. I think even on curb we're taking a very unique approach to what we're doing where we're airing it basically uncut as opposed to how it will air in syndication with basically seven or eight minutes taken of out, and we coupled that with an original mini talk show that we're doing with Larry and a really great cast. John Hamm has been in a couple of them. Jerry Seinfeld has been in them.

So I don't really look at it necessarily as a repurposed program. In terms of Weeds, when we start our script if the Fall we will actually be the only ones, in other words we're not sharing it with syndication. We'll take an equally interesting approach to how we air it and market it, and in terms of the up front we definitely believe the up front is going to be stronger than it was last year, and we'll probably have more emphasis on it. However, since a lot of our programming is going to start new programming later in the season, I think there is certainly be some room for scatter and we will look to measure that risk reward if you will.

Okay. The final question and then I will let someone else in the queue. You may have read just in the popular press a lot of distributors talking about the possibility of establishing sort of a premium video-on-demand window that may come for certain theatrical product 30 days rather after the advent of the domestic theatrical release. Is that something you support? Would you sign on for it? My understanding is that Paramount is not interested. Warner and Disney may be interested, a lot of it is sort of pie in the sky, kind of blue sky conceptual stuff. Do you see this happening number one, and would if so, would you sign on for it?

I will let Steve answer that question.

Hi, David. Obviously VOD revenue is becoming a much more important part of everyone's base. It is up this year. It is close to 10%. The situation with windows is definitely evolving very rapidly. We think this idea of variable premium pricing depending on the holdback is a pretty smart way to create new windows, and we actually think it will end up being accretive and should result in a large overall revenue pie. So it is something that we will look at very closely. I think that it is interesting opportunity. As to whether or not we'll automatically join it is hard to say, but it is definitely something we would consider, and support.

Thank you. Congratulations on the year.

Thank you.

We'll go to James Marsh with Piper Jaffray. Please go ahead.

A follow-up on that last question, you talked about some of the upside to the new VOD window. Talk about some of the risks you run with that strategy? How do you think the exhibitors might respond to a compressing it up the applicable window. And then I have a follow-up.

I think that if this window is going to be successful, you have to protect your traditional partners on both sides of that window. That includes the exhibitors as well as the retailers. There are a lot of things that have to be worked out. I think that's one of the reasons that the companies that have talked about it really talked about premium pricing, and it is not a window that's for everyone. They're trying to squeeze it in there, so I think it is -- I don't think all the answers are out there. I do think of course there are risks, but I think it is something if you approach it smartly, I think you can increase the pie and still protect your traditional partners.

I think you might look, James, at what has happened with the day and date DVD VOD window where, from our point of view, we approach it a little cautiously but from what we're seeing right now, we're seeing accretive margin coming back to us, and we haven't cannibalized any of our revenue streams right now. And I think the key thing on all of this is pricing, and if there is enough elasticity in the marketplace, we think there is a great opportunity, as Steve said, to protect our traditional customers as well as to create new revenue within these windows. And as I said before, we think the windows right now are really about to explode, and really for content owners and distributors have really significant improving margin possibilities.

Interesting. I guess just two other quick follow-ups. One, you talked a little about longer term affiliate deals with Comcast and Charter. I was wondering if you could just frame those out broadly? I know you don't want to get into specifics there, but if you could give us some sense for how those deals are different than the old deals and then just secondly on the theatrical release slate, what are you most excited about over the next six to nine months and if you could just give us a sense for potential surprise hits there?

I will basically take the TV Guide question and let Joe answer the other. I think the key component of the new deals that we're making, James, are that we are evolving the channel from a utility or sort of a combined entertainment utility to a full screen entertainment channel. We'll be going HD in the next couple of months. We will be rolling out the full screen as part of our agreements. We'll be rolling out the full screen product with the cable MSOs as their digital base expands and as those homes are available to us, and I think that's the key thing.

Really we're coinciding the transition into a full screen product with all of the new entertainment product that we're putting on air. So we basically targeted the acquisitions of that program in Curb, Betty, Weeds, et cetera, to when we were starting to roll out the full screen product. Obviously we're all already full screen on Dish and Direct and Verizon, but I think this was always part of our plan to evolve into a full screen general entertainment channel and we're right on plan with that.

On the slate, as you said we think we have the best slate that we've ever had. We're obviously excited about Killers. We have two big movie starts this is coming weekend. Looking forward, expendable to something exciting to us, it is a move that has every action star you can possibly imagine in it. We have Stalone, Schwarzenegger, Bruce Willis, Jason Statham, Jet Li, and a host of others. It has a lot of buzz. We're excited about that. It is a place we know how to play.

We made a really interesting low cost acquisition at Sundance this year in a movie called Buried, starring Ryan Reynolds, that lives in the open water model, something that we know how to do well, but it is a super exciting movie for us. And we just tested The Next Three days, which is the Russell Crow movie that we green lit a little over a year ago. It tested phenomenally. It is a very taught smart thriller that tested actually 90% to its core demo older men and women, so those are some of the exciting highlights we got. Great. Thanks very much.

We'll go to Doug Creutz with Cowen & Company. Please go ahead.

Thanks. I was wondering if you could talk about what you're expecting to spend in theatrical P&A this year, what you think the plus or minus is going to be in terms of the no risk P&A adjustment, and what films you have coming that are no risk, and lastly if you can talk about how much of the P&A spending for the Madea film and Kick-Ass came in the March quarter?

Jim can give you the financial details, and Joe can fill in that last piece.

For the upcoming year we're anticipating spending in the theatrical marketplace around $318 million. That's up from about 220. And you asked how much of the marketing costs for Killers came through, let me flip to that page, in our Q4 Kick-Ass had $12.8 million of marketing in our Q4 and Tyler Perry's Why Did I Get Married 2 had [$12.4] million of marketing, those are [titles that really] subsequently impacted this year.

And in our fiscal 2011 slate, the one non-risk title we have is, Knock Out, it's a movie that's coming from Relativity, it's Steven Soderbergh directed, it's an action picture.

Given that you had a couple of non-risk, I think at least one or two non-risk films last year or thinking about how to compare EBITDA to adjusted EBITDA, does that sort of imply there may be a negative adjustment in terms of there will be less non-risk P&A this year versus last year?

I never think about it that way as a negative adjustment. Obviously, it always adjusts up for me to adjusted EBITDA, but currently that's correct, there is only one. Again, we do play with our slates depending on as we look at our movies, as we look opportunities in the marketplace, but I think that is a fair assessment to start with.

Thanks.

Go to Alan Gould with Soleil. Please go ahead.

Thank you. I have a couple of questions. First for Steve, do you have any data that you can highlight how much of the downturn in home video that we experienced in the last year was cyclical versus how much was secular, and then two questions for Jim. First, the original guidance was greater than $115 million of EBITDA, so a little surprised was that as high as 129 and anything that came in there. And also for Jim how much of the fiscal 2010 back end should be hitting fiscal 2011 versus how much of the fiscal 2009 back end hit fiscal 2010? I am assuming there wasn't a lot that hit last year?

Again, when you talk about the 115 you're talking about the reforecast that we gave last quarter, as opposed to the 75 that we started the year with.

I am talking about the April 28 prerelease of at least 115.

Got you.

The 115 -- when we went in and gave the guidance we wanted to make sure we were conservative. We knew the year looked good and that was early on. The television division continued to perform quite well as we loaded in the revised ultimates for the Weeds and Mad Men numbers has greatly impacted our ultimate, and in addition the UK and Maple both had Hurt Locker, which performed exceedingly well on their DVD sales. So those were the two big contributors that greatly enhanced our year.

The main -- on the TV shows by the way, to provide a little more color, what's really happened there is that the DVD sales and the ESD sales, digital sales, they basically home entertainment has been very, very strong with TV shows, and I think I kind of forecasted that for everybody before. And the demise of packaged media, particularly in terms of television product is greatly exaggerated, and those TV shows, that I said before, will both do over $100 million in entertainment over their lives. So that was a very strong performer there. Steve?

The perfect segway. Al, I think we all wish we always had a crystal ball to figure out how much of the downturn is cyclical versus secular, but what I can say is that even though packaged media sell through is down by about 6% this year, it is up in eight of the last ten weeks. Conversion rates appear to not only have stabilized, but are up in the last five or six weeks, and conversion rates for our pictures are maintaining. We've had, as you can tell from our numbers, a particularly good year in library sales, primarily driven by packaged media and also television and digital and international as well, and we had a great year in fitness and family.

The truth is there is a lot of reasons, a lot of shows, a lot of reason to be bullish on it looking at this year. I think we'll still end up the year down, but no where near as down as people were forecasting at the beginning of the year.

It is not just product driven that last six or eight weeks?

I don't believe so. We're seeing it across the spectrum. Of course there have been some really big films released including Avatar and some others, Blind Side in particular. So I think of course product has been strong, but I think because it is across the board, seeing it across a lot of titles, and you're seeing the consumer spend up, I really think it is reason to believe that consumers are returning to retail stores buying DVDs again.

Okay. And, Jim, did you understand my last question?

Could you repeat that, please?

Sure. You've got some back end from fiscal 2010 that should give nice profits to kick off to fiscal 2011. Can you quantify how much of the back end of fiscal 2010 profits hit in fiscal 2011, and can you compare that to what you had a year ago where I assume there wasn't much back end profit from fiscal 2009 helping fiscal 2010?

In the fiscal 2010 profit that is going to be the tail moving into 2011, about $100 million, about $99 million to $100 million. Actually your fiscal in 2009 profit that rolled into 2010 was about $150 million.

Was 150?

150 going to 100.

A little bit of a head wind there.

(Inaudible) therefore the rollover is less.

Thank you.

We'll go to Marla Backer with Hudson Square. Please go ahead.

Thank you. When you talked about the upcoming theatrical slates there were a couple of titles you didn't mention. I was wondering if you have any more color on those. One is Alpha and Omega, which I think has been getting a lot of press lately because of Dennis Hopper, and the other is your sense for refreshing the Saw franchise with the next Saw installation?

Sure. Alpha and Omega is a movie that actually we have done in 3-D to take into account how we might help eventize that movie in the marketplace. It is a very fun family animated film that we moved into September slot to get a jump on the other 3D films and be the first animated move in that the window. It plays really well. We're very happy with it.

We're going to be seeing the first cut of Saw in a week or so here. We've done a lot of things to revitalize the franchise. As we have said before, we've done the move in 3-D and think it will help us a bunch and we've really done a bunch of work to maximize the use of the technology. We have also brought a couple of surprises back into the franchise. We're keeping it in that Halloween window.

Is Paranormal Activity 2 also going to -- from your understanding, also going to be released sometime around that same Halloween window?

Currently it is in that same window. We're keeping track of their production progress. We feel very strongly about what we have done with Saw and think we're the competitor in that window.

One other question on content, but this is on the television side. Epix. Can you give us a little bit of color on some of the original programming that you're doing for Epix and the opportunity down the road to repurpose that to leverage ancillary windows?

We're doing a lot of specials. We just did a pilot for them called Tough Trade. We're waiting to see if that will be picked up, but there is a tremendous amount of development being done there for all kinds of original content, including two or three different miniseries. We've mentioned before Villains of all Nations is one we're developing for them, and you should probably expect to see some announcements about their new original shows in the next couple of months.

And down the road will there be opportunities for syndication of that content or moving --

Well, we don't control all of that programming. If it is a show, obviously, that we develop and produce for Epix, and I would say probably we have been the most active of the three studios in terms of trying to get product that we develop, and own on the network, obviously we will do all of the things to generate incremental revenue from international sales to DVD, to ultimate syndication of the product. So the answer is yes.

Thank you.

We'll go to Ben Mogil with Thomas Weisel Partners. Please go ahead.

Good morning.

Good morning.

So sort of one question with just a couple parts. Curious to hear your views on how you see the capital markets private, public, in terms of sort of third party financing slates, how you're seeing the M&A markets, obviously the Miramax trade now getting done yet, so curious what your thoughts are, not that trade specifically, but how the financing world is for M&A.

And lastly you have been a good user over the years of state and local government money, SGF, and Quebec and state of Pennsylvania and $50 million a year of tax credits you benefit from. As you see the states under tremendous financial pressure, any concern that you have that a number of these sort of programs when they come up for renewal will not get renewed because of the cost situation? Curious your views on the financing market across the spectrum if will you.

Hi. It's Michael. Let me start with the last question. Even though some states, obviously, every municipality is having project constraints at the moment and even though you're seeing some states that are down playing their subsidies. there always seems to be another state or two that pops up. So we follow the money so to speak, and also as far as the credit market themselves, we were encouraged to see the village road show deal got done last week. That was a billion dollar financing. We have a fair amount of time, three and-a-half years left on our credit facility, as you know it is LIBOR plus 2.5. So we closed that at the right time. We also recently closed the mandate slate of financing facilities, and so that was good pricing as well. So the markets look to be a little better, but as of this morning, want to make it very clear that we have over a quarter of a billion dollars of cash and cash availability from a liquidity standpoint.

As far as the deals in the marketplace, we obviously look at every library because we're very good at distributing library. Steve and his group do a tremendous job there. We look at all of those transactions as they come up, and I know there has been a lot of speculation in the marketplace about the Miramax deal and right now it, obviously didn't close. It may close. It is really up to Disney is my guess. My sense is that on other potential transactions we'll look at them all. We do believe that libraries are going to have a great second wind when it comes to digital and we're seeing that ourselves. So we're paying attention to that market place.

Are you finding the banks sort of a little bit more open now to library deals than four or five months ago?

I think that, yes, I would say marginally better, but again what's most important to them is who is distributing that library product, and I think different amounts of money are available to different players and if you have a track record, frankly like we do and on the library side, I think they're more open to financing those transactions.

And then last sort of just one question for Jim and one question back for Michael. Jim, I don't know if you heard you correctly. Are you looking to spend $50 million more of investment this year in film and programming than in 2010, or in fiscal 2010, is that correct?

Actually about 150, we're probably going to spending maybe $80 million more in motion picture and television in that same range, 70 to 80.

So 150 more. Do you anticipate that in fiscal 2011 film will once again be below film investment?

Yes.

Last question back to Michael or to John on Epix. On Epix -- and thank you again for providing the financials. As you look at Epix, Viacom is being pretty open that they expect the channel to be profitable by the fourth quarter in the calendar quarter of I guess 2011. Do you feel the same way?

Yes. I think I mentioned that in my remarks. Again, we think if that's the case, it is a pretty quick turn around for a new premium channel and based upon the conversations that are going on right now, we're quite confident of that timeframe.

Okay. Great. That's it for me. Thanks.

Go to Vasily Karasyov with JPMorgan. Please go ahead.

Thank you. Good morning. Have a question about motion picture segment margins in fiscal 2011. Can you please please tell us what your internal forecast includes, is it at least directionally going to be an expansion, going to be a contraction at the same level and then I have a question about the library.

There will be general increase in the revenues from the motion picture division for our fiscal 2011. There will also be an increase in our distribution of marketing for 2011 also. You should see coming from motion picture operating contribution, the actually before amortization should be a little bit better without the operating contribution and amortization against it.

Thank you. If you were to look at the library and took a static view of the library without replenishing it, if you peel off the new titles coming into the library, how is it performing apples-to-apples this year and how do you think it is going to trend in fiscal 2011?

This is Steve. As John mentioned in his earlier comments, obviously when a library isn't replenished and managed properly you're definitely going to see decay, which is one of the reasons why some of the other deals may not have happened. That is an important part of any library management strategy, but the truth is even though all libraries do decay over time, we're seeing tremendous opportunity not only in Blu-Ray, but more and more of a library revenue for us is coming from on demand channels and digital and in fact far greater margins. So I think the good news, even if revenue were to drop I think overall contributions could remain fairly steady.

Vasily, it is Michael. I just want to add one thing. The search functions get better for the MSOs, and you look at something like FIOS or you look at the cable systems as their upgrading, and you take a look at what's happening in the world of satellite, as those functions get better, the functionality gets better and the server capacity is up there where we'll be able to put more titles of our library titles up there on a pay-per-view or video on demand platform, that becomes very incremental to us.

If you want off line you can drill down with Jim and Steve on some of the stuff. Most of it we haven't really broken out that way, but you can certainly drill down.

I would mention one other thing that I think people tend to forget which is essentially working on seven year ultimates. So some of the titles that start contributing actually while they're not incremental titles, but they're incremental beyond the original ultimate that we started with. So that becomes kind of additive if you will and makes that library not necessarily static. Do you understand my point?

Yes, I do understand that. Thank you. One quick follow-up question to finish and you talk about digital being one of the drivers in the better than expected results. Can you specify maybe what kind of distribution platforms in there because you seem to separate VOD from digital.

Actually I think when we're talking about digital looking at broadband delivered content, all the growing and obvious retailers, obviously iTunes, Xbox, PS3, Amazon, now you're seeing this growth into the market being driven by the conventional retailers recently on Best Buy announced Cinema Now partnership, Blockbuster really moving quickly after the Movie Link purchase. I was down there last week and saw a lot of what they're going to do in addition to Wal-Mart buying Vudu. So I think there is a lot of opportunity, particularly with these conventional retailers get entwined the business.

Where we tend to combine them, if this is what you're referring to, as we talk about on demand revenues, that's typically, Vasily, where we would combine VOD and digital revenue.

Thank you very much.

David Goldberg with Morgan Stanley. Please go ahead.

Good morning. Thanks for taking the question. Just a quick one on the TV business. Obviously moving into the broadcast business you talked about doing that in a very targeted way, and it is a slight departure from what you have done in the past. If you think about the TV business overall, as you continue to grow there and maybe move away from some of the low hanging fruit, does the business model have to evolve at all in terms of capital or risk? I guess on Running Wild, are you running any deficit funding on production and long term how do you see that evolving?

To start with I don't look at the other as low hanging fruit. It is not that easy to get shows on the air. It is not that easy to create the Mad Men's and the Weeds and the Nurse Jackie's of the world, and there is definitely, even on the paid television and basic cable side, there is definitely a risk.

What we have tried to do in television, same as all of our business, is measure that risk and put together a portfolio of products. So as I mentioned, we took a little over a million dollars worth of risk with Running Wild in terms of a pilot deficit this year. We targeted, as I said, going into this scripted network primetime business we did it sort of a Lions Gate way if you will. We looked around for things that somebody else maybe didn't want. If you remember with Mad Men, for example, that was a show that was sitting there. We didn't have development costs and this was no different. We didn't have development costs, we didn't have a producer deal with Mitch Hurwitz actually. Sony had paid a lot of money to him and Eric Tannenbaum. So we didn't do ten pilots for network primetime. We did one. So far we bet right.

In terms of going forward, there will definitely be a higher deficit for that primetime show than most of our basic cable and paid television shows, but after that in terms of syndication and in terms of actually home entertainment, Arrested Development was a very, very strong performer in terms of one of the best performances of any network show ever and one of the reasons that we thought this would be a smart bet to make. Definitely there is more risk, more reward to a network primetime show, but again it is part of this portfolio approach that we take in our feature film business and really all of our businesses is kind of measured risk.

Okay. One other kind of longer term question. You talked a lot about digital and various initiatives there. I guess most important for your channels, but probably applies to other pieces as well. At the cable show in LA a couple weeks ago there was a lot of discussion about TV everywhere initiatives and a lot of focus on the iPad and mobile platforms. Just curious on your perspective on how that evolves over the next couple of years and is there an opportunity to get paid significantly in opening up a new window for mobile devices and trying to get content kind of more ubiquitous across different platforms?

I think we certainly are very, very bullish, have been for a long time about the new opportunities that digital distribution is going to create. We're bullish about it in terms of not just incremental revenue, but obviously the improving margins that one can get given the cost structure, the kind of splits that we're getting. We think there is some huge players in the marketplace, and we're very, very active. We have been very active with Google and You Tube in terms of being one of the first companies to partner with them in terms of a channel platform and content for them as they move towards professional generated, commercially oriented product, and we're going to be very, very aggressive in that. As I said before, part of the reason that Epix made sense from a strategic point of view for us, Paramount and MGM is the opportunity to have some of those windows available for exploitation. So you're going to see us be very aggressive in those areas.

Thank you very much.

Our final question will come from the line of David Bank with RBC Capital. Please go ahead.

Thanks. Last couple to squeeze in. I guess follow-up on one of the earlier comments that Felt made about directional guidance for next year feeling a little bit incrementally better from where your initial view was of EBITDA when you set guidance a year ago. I guess the movie business is incredibly difficult to predict, less so for you.

What is it that -- what are the toggles on the TV side? I think you would be able to have pretty hard guidance on the TV side, and I wonder is one of them on the Are We There Yet, are you kind of structuring similarly to the way did you with House of Payne where if you end up getting the order as a legendarily successful $20 million EBITDA lift or something from the order? Is that one of the big toggles hanging out there or has that determined already?

That is probably not one of the big toggles because unfortunately the way reporting rules are right now, unless a show has been not only ordered but in some cases delivered, we can't even take the benefit of the incremental order and actually even in success in the first year, we'll probably have maybe even the second year some incremental marketing costs, particularly when we roll out the show in syndication. So that probably wouldn't be it. It could be a lot of factors really in terms of television.

I think it is probably a little bit more set because it takes long to her get new shows on the air, but incremental orders on something even on Running Wild would probably affect EBIT positively or negatively, the EBITDA from the deficit. So there are a number of them, again with this many shows in syndication and production that we have there could be a lot of ups and downs there.

Do you think that -- just one follow-up question, do you think that as you look at the two businesses you have really been diversifying in a way which I think is diversifying your businesses, which is a positive. Do you see more upside next year on the TV business or the movie business?

I wouldn't want to characterize that because I haven't done any percentages. I think again the key thing for us is that we have built a lot of resilience into our overall model. You saw that in almost $40 million contribution before over head from television this year. I think that really has been the plan over the last three or four years, again creating a portfolio of revenue generating activities and I think it is obviously successful.

This year mandates contribution was a little bit less and obviously we planned for -- Joe didn't mention talking about the last six years, but we're very close to what our business plan was for our slate in 2010, and I think we look at a very measured approach to the business and the economic environment and so we were barely off, even in fiscal 2010 on our plan. But at the end of the day we still had a very strong EBITDA year because of the contribution from library, from television. So I think we see significant upside, but typically I would say in a short-term scenario the feature film business probably has the most elasticity if you will in terms of up and down.

Thank you very much.

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