Starz Entertainment Corp (STRZ) 2013 Q1 法說會逐字稿

Ladies and gentlemen, good morning. Thank you for standing by and welcome to Lionsgate fiscal 2013 first-quarter earnings conference call. At this time all lines are in a listen-only mode; later there will be an opportunity for your questions. Instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Senior Vice President of Investor Relations, Mr. Peter Wilkes. Please go ahead.

Thank you for joining us on the call this morning. Jon Feltheimer, our CEO, will lead off with opening remarks. We will then open the call to Q&A.

Joining us for Q&A will be Michael Burns, our Vice-Chairman; Patrick Wachsberger, Co-Chair of our Motion Picture Group; Steve Beeks, Co-COO and President of the Motion Picture Group; Kevin Beggs, President of Lionsgate's Television Group; Jim Keegan, our CFO; and Rick Prell, our Chief Accounting Officer.

The matters discussed on this call include forward-looking statements including those regarding performance in future fiscal years. 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 risk factors as set forth in Lionsgate's 10-K filed with the SEC on May 30, 2012. The Company undertakes no obligation to publicly release any revisions to the forward-looking statements that may be made to reflect any future events or circumstances. Jon?

Thank you, Peter, and thank you all for joining us this morning. Having completed the first quarter of the first full year of our operations as an integrated Company, we are right where we expected to be for the year and our three-year plan. More than two-thirds of the profitability of the first Hunger Games lies ahead of us, and this translates into a typically backloaded year where our profitability will grow every quarter, keeping us on track for our three-year guidance of $900 million in EBITDA.

We released five films in the quarter, and all of them will be profitable. However, this quarter was atypical relative to what you can expect for the rest of the year due to the marketing costs associated with these five films, the $18 million in prerelease marketing costs for films slated for release later in the year, as well as some primarily non-cash stock-based compensation.

In addition, you may have noted the non-cash charge for paying down our Summit debt early, as well as the impact in the quarter of $16 million in marketing costs associated with the releases of Lionsgate U.K., which as you will hear in a few minutes is having a tremendous year.

Although our costs were partially offset by The Hunger Games' profitability in the quarter, you will see a more meaningful contribution from the film beginning in the second quarter.

Turning to the quarter's operational highlights, The Hunger Games is nearing the end of its very successful theatrical run as the 12th highest-grossing film of all time. But its growth into a transformative franchise continues.

The trilogy's book sales have more than doubled this year, passing the [$50 million] mark, and our motion picture event of the year will become the biggest home entertainment rollout in our Company's history next week. We finalized the remaining release schedule for the franchise and will release a Hunger Games sequel every November for the next three years, beginning with the November 22, 2013, release of The Hunger Games Catching Fire, which begins shooting next month.

Coupled with this November's release of Twilight Breaking Dawn 2, this gives us significant forward visibility from our film business. The rest of the branded and franchise properties that comprise a large portion of our film slate are in equally strong shape.

We anticipate a strong opening next Friday for The Expendables 2, which is tracking well and gives every indication of following in the footsteps of the original. Ender's Game has already completed principal photography, and we will be looking at it next month before it enters postproduction to complete its visual effects. With Ender's Game and Catching Fire back-to-back, we will have a six-week continuous run in IMAX theaters next November and December.

Red 2, the sequel to another Summit franchise, will begin production next month for a summer 2013 release. Catherine Zeta-Jones and Anthony Hopkins will join the cast of Bruce Willis, Helen Mirren, John Malkovich, and Mary-Louise Parker returning from the original film that grossed more than $200 million at the worldwide box office.

By testing the summer for the first time with Madea's Witness Protection, we found another great release period for Tyler Perry, whose brand continues to demonstrate its remarkable resilience. With nearly $65 million at the North American box office and counting, Witness Protection is Tyler's second-highest grossing film ever.

We have also been exploring ways to position our franchise in branded properties to drive the profitability of our entire slate. Our expanded pipeline following our acquisition of Summit has now enabled us to capitalize on one of the biggest growth opportunities in our industry, the international theatrical marketplace.

A few months ago we embarked on a strategy to take full advantage of our diversified portfolio of products by establishing output deals around the world that offer greater stability in an uncertain global economy, increase the long-term visibility from our film business, and strengthen our partnerships with the leading distributors in the world. Because of the strength of our product, we have made rapid progress in implementing this strategy.

We have just completed new output deals with Nordisk in Scandinavia, Village Roadshow in Australia, and IDC in Latin America. We will announce additional deals in Germany, Spain, Russia, Korea, and Poland in the very near future.

When we finish executing our plan, we will be covering on average more than 50% of our film budgets even before receiving the benefits of our tax credits, all without sacrificing the overages from our backend in success. In fact, these deals have allowed us to improve our backends in virtually every territory, mitigating our risks while enhancing our potential reward.

We have also continue to grow our Liongate U.K. business, and I am pleased to report that we're having the best year ever. Through the first four months of the fiscal year we have already surpassed our box office in the UK for any previous year. Our UK operations are on track to generate more than $100 million in box office this year, ranking among the top-five film distributors in that territory.

The growth of our UK business will continue to be spurred by our pipeline of franchise movies, including the next three Hunger Games films. But it's interesting to note that more than half of Liongate U.K.'s box office performance this year will be attributable to third-party product. As a matter of fact, all of our overhead in the UK is covered by our success in distributing and cofinancing third-party films; and this strategy is exemplified by Lionsgate U.K.'s resounding success this year with Magic Mike, which was bought well ahead of its North American release, and the early acquisition of Salmon Fishing in the Yemen.

Our television business continues to fire on all cylinders as well. Anger Management debuted to the best ratings of any cable comedy series in history, and it continues to be one of the most-watched shows on cable TV this summer. We expect strong ratings from next week's episode introducing Martin Sheen as a recurring character, and FX has already expressed their confidence in the show's ability to achieve a 90-episode pickup, which would make it another signature Liongate brand.

We also have high hopes for our new broadcast series, Nashville, which debuts on October 10 on ABC in the coveted Wednesday 10 o'clock time slot. And Jenji Kohan's Orange Is the New Black begins production next month and will premiere on Netflix next spring.

As we've discussed the next wave of TV projects, including a musical drama from American Idol creator Simon Fuller, an adaptation based on Mystic River author Dennis Lehane's Gone Baby Gone, and a deal with comedy star George Lopez to develop a new sitcom, are all proceeding nicely. We also announced yesterday that GSN, formerly known as the Game Show Network, has just picked up our new reality series Family Trade as part of our nonfiction programming initiative.

Meanwhile our current primetime cable series continue to perform well, earning another 22 Emmy nominations last month, including another Best Drama nod for Mad Men. Weeds is completing its eighth and final season with strong ratings, ending its run on a high.

We also continued to strengthen our library in the past year. Following on the heels of our distribution deal with Miramax, the acquisition of Summit and its library, and renewal of our long-term distribution agreement with StudioCanal, we just announced our new partnership in home entertainment with A&E Networks. The new A&E Networks deal includes thousands of library titles and great brands, including award-winning documentaries, original movies, and hit TV franchises from the A&E Lifetime and History channels as well as programming from A&E's exclusive partnerships with Major League Baseball and Monty Python's Flying Circus. With completion of this deal, Liongate now handles more than 15,000 titles. The agreement also deepens our overall relationship with A&E Networks, with whom we are already doing business across multiple channels.

With 9% market share in our home entertainment business already this year, next week's launch of The Hunger Games not only marks the biggest home entertainment rollout in our history but gives us an opportunity to build our position on digital and traditional platforms alike. Hunger Games is the ideal vehicle to launch our UltraViolet initiative, and next week we will offer the Hunger Games on DVD, Blu-ray, VOD, and -- in partnership with Walmart and Flixster -- in the UltraViolet format as well.

But our continued inroads in the digital marketplace aren't limited to our big franchises. By looking at the digital marketplace the same way we look at physical media in terms of placement, promotion, and pricing, we found new ways to monetize our entire feature film slate on digital platforms. For example, last week we had two of the top-three titles on Apple iTunes. Interestingly enough, not with The Hunger Games and Madea, but with LOL, which ranked number one, and Friends with Kids, ranking number three.

While we continue to invest in our content business we are also focused on significantly reducing our debt and interest expense. We have paid down $201 million of our $500 million Summit term loan in the seven months since the acquisition, and we are ahead of schedule in our commitment to pay it down completely within three years. We also recently redeemed $23.5 million of our convertible notes.

By the end of the fiscal year, we anticipate having at least $200 million less leverage in terms of corporate debt on our balance sheet. And we will continue to reduce not only our leverage but the cost of that leverage going forward.

As I noted at the start of the call, we remain on track for the year and for our three-year plan. We anticipate significant and growing profitability beginning with the second quarter, although as usual the year will be backloaded.

With most of the profitability of our first Hunger Games movie still ahead of us, coupled with the other catalysts in our film and TV business that we have discussed, we anticipate that the benefits of our Summit acquisition, the strength of our young adult franchises, and the continued evolution of our TV business will translate into significant and growing contributions next quarter and for the balance of the three-year period. I would now like to open the call to your questions.

(Operator Instructions) David Miller, Caris & Company.

Yes, hey, guys. Three questions. First of all, on the guidance of $900 million in EBITDA over three years, I recall that 90 days ago I think I asked a question about whether or not that was adjusted or unadjusted. I am pretty sure you guys said unadjusted.

If you could just reiterate that answer for maybe some of the other folks on the call today, I think there might be some confusion out there about whether that formal guidance is adjusted or unadjusted. I'm pretty sure you're going to say unadjusted; but if you could drive at home for the folks out there, that would be great.

Then, on Anger Management, how is this going to work with the other 90 episodes, assuming that FX goes ahead with the 90-episode order? Which it looks like that is the way things might fall. I know you have a couple episodes to go.

Should we assume that like another 10 episode block is going to air in January, February, and March; and then the other 80 will air in fiscal '14? Or is it going to be muddier than that?

Thanks very much, and then I have a follow-up. Thanks.

I think you owe me one more question, David. In terms of EBITDA, yes, that is an unadjusted number.

In terms of Anger Management, I don't want to speak for FX right now because I think they have a fair amount of flexibility. But I think you could assume a significantly larger amount of episodes airing over a period of time.

I think -- Kevin Beggs is in the room. Kevin, I don't know if you want to add any color there.

Sure. Well, our plan is to furnish them somewhere in the neighborhood of 40 episodes a year. How they then program them out will be completely up to them and air them. But our writers are working in anticipation that it goes forward and we start shooting in September to be able to furnish new episodes in a large, large block for them as early as January '13.

Okay, great. Then as just a quick follow-up, Felt, were you guys in the upfront this past June for TV Guide? And what were the price and volume statistics if you're willing to give that out on the call? Thanks very much.

Sure. Yes, we definitely were in the upfront; and from both a revenue perspective and from a CPM perspective we were up about 5% in revenue and about perhaps 3% in terms of CPM. Pretty much really in line with other networks of our size, so we had a good upfront.

Wonderful. Thank you.

Ben Mogil, Stifel Nicolaus.

Hi, guys. Thanks for taking the question. Good morning. So I want to talk a little about P&A. It looks to us that the domestic P&A for titles released in the quarter was around $98 million, which seems pretty high given that The Hunger Games would have been the quarter before. So can you maybe talk a bit about that, particularly given that they were pretty targeted releases? And also maybe talk about whether or not you actually increased The Hunger Games' P&A after the strong opening weekend.

Sure, okay. We had $116 million of total P&A theatrical marketing cost in my Q1. $18 million of that did pertain to the next quarter.

There was not very much marketing costs associated with Hunger Games in my Q1. Most of it had been expensed in my Q4.

I am just saying -- and it was obviously five films that generated the $98 million in marketing costs for theatrical.

So that seems like a bit of a high number, given that a couple of them were targeted by African-American, a couple of them were pretty limited -- not limited, but sort of very niche releases. Are you guys thinking now the P&A environment is one where you've got to spend a little bit more than you historically had?

No, I wouldn't say that at all. Actually if you take away the pre-expense we had some somewhat atypical pre-expensing specifically for Expendables; we wanted to hit the Olympics, which if you have been watching them you can see we did pretty extensively, although I think it was pretty effectively as well in terms of cost.

But I think if you look at five releases, particularly Tyler Perry's was done I think on the last day of the quarter. If you do five releases and average $100 million, that is worth about $20 million minus that $18 million pre-expense. So I think that on a per-picture basis we are definitely keeping our foot on the brakes in terms of cost, and I think that will be pretty much through the year.

Obviously, a bigger release like Expendables will have more P&A than perhaps a genre movie. But at the end of the day, I think we are still on track the same way we have always been, trying to be as targeted as we can be with our P&A spend. Ben, does that answer your question?

(Operator Instructions) Here you go, your line is reopened.

Okay, that's great. Then I guess for Jon, is the $200 million of deleveraging that you talked about, does that include the $23 million subsequent to the quarter, or is that in addition?

You know, that does not include that $23 million. That was done subsequently. That is in addition to that, $23 million.

Okay, that's great. Then lastly, do you guys have any update on TV Guide, either on the strategic review or on -- obviously it has had a tough couple quarters now. Any thoughts on what to change around that?

I think, Ben, we would probably have a little bit more to say in the next quarter. We are working on some interesting strategy.

We think obviously again we had a good upfront. We have done I think a very good job in the distribution side. Perhaps have more to say about that as well next quarter.

And on the programming strategy, again, I am working on some things. I think perhaps in the next quarter we can talk about them.

Okay, that's great. That's it for me. Thanks, guys.

Alan Gould, Evercore Partners.

Thank you. I've got a few questions, so let me take them one at a time. First, with respect to The Hunger Games, I had anticipated a little more profits this quarter.

I know, Jon, you say two-thirds of the profits lie ahead. Will most of that occur in the September quarter?

And Steve, can you tell us what your sell-in is for the title and what information you get from Amazon or others telling you about the consumer pre-buys?

I think on the first question another way to look at it would be to say 50% or so of the entire profitability will lie in the next three quarters, if that is helpful.

And I'm sorry, Steve, you --

Is the bulk of that, Jon, going to be in the -- is more than half of that 66% going to be with the home video release in the September quarter?

I think that is fairly accurate.

Okay.

Yes, Alan, I can give you some directional information. The pre-orders for The Hunger Games have been significant, not only at Amazon but a lot of the retailers are starting to take pre-orders now. And iTunes is obviously taking pre-orders, so it is moving up the charts.

The sell-in obviously is going to be huge. I don't know if we're going to give you the exact numbers, but it's obviously the biggest release we have ever had.

Product has already started shipping. We anticipate that with the demand that the conversion rate is going to be on the high side for a film of this size.

Okay. Let me move on to two more questions. One for Michael. Michael, can you tell us about the timing and annual savings you expect to get from the new credit facility?

And with rates this low, does it make sense for you to lock in some of your debt position longer-term? Not the portion that will be deleveraging, but just whatever permanent debt you want to put in place.

And lastly for Jim, can you just tell us why the Accounts Receivable reserve for returns dropped by $13 million this quarter?

Yes, hi, Alan. What I will say is that we are fairly deep in the process with our existing bank group to refinance and upsize the existing credit facility. And I am happy to report that we have received bank commitments well in excess of our current facility.

So as far as locking in long-term rates, that will be a LIBOR-based facility. When we do draw that down to a significant enough number, I suppose we can certainly look to lock those with a forward contract. We have not done that typically in the past; we don't want to be in the business of guessing which way interest rates go.

But we are -- we do want to take advantage of this low interest rate environment. That is for sure.

And then to answer your question, in our -- Breaking Dawn 1 was released in February, so my fourth-quarter home entertainment revenues had more receivables built into it. So we do not have as much revenue in my Q1 of this year from home entertainment; so we do an appropriate reserve based on outstanding AR. So it decreased.

Okay. Thank you very much.

James Marsh, Piper Jaffray.

Great, thank you. Two quick questions here. One, Jim, I was hoping you could back up a little bit and discuss with everyone the Summit film purchase accounting adjustments. Could you just elaborate a little bit on what the drivers to those adjustments are?

And then just looking forward, should we assume that the pace and the size of these adjustments start to moderate? Just any insights you could give us there for forecasting this number. And then I had a follow-up.

Sure. Well, the drivers for the purchase accounting was primarily Twilight series. You know, Breaking Dawn 1.

And that is why last quarter when we announced we said there was about $26 million worth of purchase accounting related to that. So there will be purchase accounting related to Breaking Dawn 2 and there will be purchase accounting -- so what you will see driving, as I had indicated on the last call, that about maybe $90 million to $100 million of purchase accounting will be this year, impacting this year.

And again, that impact is primarily from Breaking Dawn 2 and some rollover from Breaking Dawn 1.

And if this is helpful, I think you can assume that as you look at all of the purchase accounting going forward you might assume that the number Jim talked about is approximately two-thirds of the total amount of it going forward. So in other words, about a third of it for the two remaining years, total.

Okay. All right. That's helpful. Then just a follow-up question on EPIX. Obviously there was a fairly public battle between DIRECTV and Viacom over some broader carriage issues. And some of the trades were reporting that EPIX carriage was a part of that discussion.

In the end it was resolved, which was described as a -- quote unquote -- option to carry the network. And it just didn't seem like very typical terminology to me. So I guess as partners of EPIX, I was wondering how we should read that language. What is your take on it?

I don't really want to talk specifically about that, other than to say that EPIX was a part of that conversation, obviously. But in general, I would say EPIX stands alone. I think the financials from EPIX and our contribution are becoming significant and consistent.

And that particularly all of the people that are currently carrying it digitally and linearly are actually very pleased with the contribution, the results, and the effectiveness of EPIX. So any discussion of EPIX with a carrier, an MSO, can stand on its own.

Again it's -- going forward we are talking to everybody. And obviously we would hope to be carried by DIRECTV, but we have significant carriage conversations going on with everybody in both the linear and the digital space.

Okay. Just one last one quickly on Hunger Games 2 and Ender's Game in IMAX, are those going to be international releases or just domestic releases, or just digital-only? Obviously Hunger Games 2 is going to be using IMAX cameras, so that will be film based as well.

But is Ender's just going to be a digital-only release? Do you know if it's going to be an international release? I know there are some distribution issues related to IMAX films. So if you could flesh that out a little bit, that would be helpful, if you are aware of the details.

So you're talking about Ender's Game right now, correct?

Yes.

Okay. First of all, we don't control the international rights of Ender's Game. We are only involved in the domestic market. And in the domestic market we definitely will be playing IMAX, and I cannot basically answer to you in terms of the international.

Okay. All right. That's helpful. Thank you.

David Bank, RBC Capital Markets.

Thanks very much, guys. A couple of questions. I guess the first one is, part of the extraordinary structural transformation of the Company is that as you have laid out the release schedule you have visibility into one really enormous tentpole franchise annually. You have underlying some of the less big films, but still really meaningful franchises rolling out relatively predictably.

So my thought is, can we start moving away from looking at this on a movie-by-movie basis and start thinking about basic margin targets annually, and talk about the differences over the next couple of years? What general EBITDA margin targets are we talking about for fiscal '13, '14, '15, where we are seeing the guidance?

The only real delta is the biggest delta in terms in the next couple years. This is the year with the big P&A step-up because you've got more films with the Summit franchise, and that goes down. Can you just help us flesh out the margins a little?

The second question is I guess for Kevin. What is your plan for syndication of Anger -- assuming it gets picked up, which looks pretty good, what is your approach to the syndication process going to be?

Mike & Molly it would seem like would come out around the same time, and that has just been sold. So, we know you can -- we know there is a lot of time in all this. So if you could give a sense of what the approach would be.

Thanks. Sorry for the long question, but it's a -- modeling Lionsgate has always been pretty complicated. I think it's getting a little bit easier, but thanks for clarity.

Yes, we agree that it's going to continue to become easier. In terms of trying to lay out margins we will try to help you with that in the future.

But I would say that you also have to remember, with TV becoming a growing part of our overall revenues, the early stages of a television show are -- clearly margins are depressed. As you get later obviously it will be a lot faster; the time will be compressed with a show like Anger Management, any of our 10/90 models.

But with TV becoming a larger portion of it, again, that will depress your overall corporate margins until the maturity of those. So it really would partly depend on the blend of product between features and television and our branded and library contribution.

Kevin, do you want to answer --?

Sure, on the syndication front, Debmar-Mercury, which is our partner, our sister company that handles all the syndication of our TV product, they've had a lot of discussions, a huge amount of interest in the series. It all kind of hinges on the additional 90 episodes.

But when that is in place, they will then make the appropriate station deals. And many of the off-net deals that you have read about are primarily focused on big cable sales, whether it is 2 Broke Girls or Mike & Molly. So they feel that the runway is wide open for what we need to do on Anger Management.

But I think your point was actually well taken, David, which is these conversations are happening earlier and earlier. And actually I think you can assume we have actually already had some conversations.

Then one follow-up would be, I am guessing that as part of your original guidance, you weren't necessarily assuming this kind of extraordinary success -- the likely extraordinary success on Anger Management. So can we assume that that leaves us room for potentially some upside in guidance if we go to syndication?

I think for -- perhaps that's true, although the major contribution of Anger Management from a timing perspective will come somewhat beyond the end of that three-year term.

Thank you very much, guys.

Alexia Quadrani, JPMorgan.

Thank you. This is Caroline Anastasi for Alexia. Just following up on your comments on P&A expense, how should we think about spending for the next two quarters? Specifically around the last Twilight movie, how will that compare to the P&A spending on the previous Twilight film?

The P&A spends I think are comparable for the Twilight --

Absolutely.

-- Twilight films in the next quarter. Yes, nothing changing.

Nothing changed at all. Nothing change at all. We have a huge franchise and we are spending the exact same amount of money as the previous one.

And I think you can actually look at -- perhaps you can look at this quarter as a proxy for the rest of the year when you look at total P&A spend for the year. Perhaps slightly more than that.

Okay, then just a couple questions on Anger Management. How can we think about the expenses there given your comments of 40 episodes a year?

And can you just update us on the international sales of Anger Management and where they stand today? And if it were picked up, where do you think they could go?

Kevin?

On the expenses side, I assume you're just talking about the production costs?

Yes.

Yes, well the production costs will be consistent with the 90 episodes, a little less than the 10 episodes. And those are well handled by both the domestic license fee and the international.

Since our last quarter we have added several more territories to the international lineup, and there are many more countries clamoring to buy it. We're in really great shape. It's a really substantial number.

And compared to most comedies, it would be really, really good. So we feel quite good about this being in the black before we even start shooting.

I would say, to be a little more granular, we think the international sales could approach $900,000 to $1 million an episode when we are finished.

$900,000.

$900,000 to $1 million.

Okay, thank you.

Doug Creutz, Cowen and Company.

Yes, thanks. Jon, at the top of the call, you made a comment; I just want to make sure I had the language parsed right. You said that it will translate into a typically backloaded year where all profitability will grow every quarter.

Does that mean your profitability in every quarter for the remainder of the year will grow year-over-year? Or should I take that to mean you expect sequential profit growth in every quarter for the remainder of the year? Thank you.

I am trying very hard not to get back into the guidance business, but the answer to your question is I was giving you the year's trajectory.

Okay, thanks.

Third quarter more than second quarter; fourth quarter more than third quarter.

Okay. That's what I was asking. Thank you.

Matthew Harrigan, Wunderlich Securities.

Thank you. On Ender's Game, I think Jon indicated in the last call that your effective profit or percentage on the economics would be north of 50%. The way the rights are divvied out is pretty complicated.

You talked about the international distribution already. You've got 11 books; I mean you've almost got too much material to work with prospectively after that. And obviously you want to see how the first movie does, regardless of the buzz on it right now.

Can you talk about what your plans are for that franchise longer term, and what sort of long-term play you really have there?

Then secondly, I think Michael in particular has talked about in the past the geological layers in your profits with Hunger Games, Summit, and the legacy Lionsgate. You provided a lot of detail on the revenues by year of release.

But I know you were looking for a big ramp on the movies [from] years ago. Some of that is masked obviously by the increased P&A you are seeing this year. But on the movie's that were out a couple years ago, is that approaching your realization on the serial ramp rate, if you will? And that's it for me.

Patrick, if you could answer the question about the Ender's Game franchise?

Well, the Hunger Games franchise has been, as you know, done extremely well, fantastic domestically and very, very well internationally. We are planning to start the next production of Catching Fire this September. This will be a significantly bigger movie and it will have a bigger budget.

However, I should say that the pre-sale of Catching Fire are generating substantially higher minimum guarantees internationally. And we also secured a larger tax credit. We truly anticipate lots of [arbiters].

Then after that, we are going to be shooting Mockingjay 1 and 2 back-to-back. We should save money, and we expect the budget of Mockingjay 1 and 2 to be slightly lower than Catching Fire.

So, as Jon said earlier, looking at the overall trajectory of the franchise, I would anticipate that, while the profitability of Catching Fire might decrease just slightly due to the scope of the film, the profitability should come back up with the final two installments of 2014 and 2015.

David, I think Patrick gave you more information than you asked for, specifically in terms of the Ender's Game, obviously. You made the point. There is a lot of books.

We're excited about the franchise. It's a very different kind of a franchise than Hunger Games. And obviously we just have to wait and see where we stand with the first movie.

In terms of your first question, if I got it right, I think the simple answer would say -- as you can see in our filing, our current backlog is $992 million; and I think that pretty much gives you a sense. As you know, typically the backlog rolls out over a reasonably short period of time, call it most of it over kind of a two-year period.

So I think in terms of the past movies and how that plays out, I think that is probably the best way to look at the accumulation of those contributions.

Great, thank you.

Tuna Amobi, S&P Capital.

I have a few questions as well. So first, I think it is fair to say that you guys are well ahead of your deleveraging plan. I think you have laid out a case for very strong earnings and cash flow visibility. So I am wondering if it is fair to assume that by the end of fiscal '13 that you may in fact be looking to address possibly other capital allocation questions.

Separately, with regard to your China strategy, so first you got an approval to screen Hunger Games in China, which was really, I would imagine, very positively surprising. You have since gone ahead to do some more than decent business in China, which I understand is really your first major, if you want to call it, splash in that market.

So I guess the question there is, how does that affect your overall strategy in China, in the context of what some of your peers are doing in that market? And I have a follow-up.

I will let Michael answer the first question.

Okay. I'm sorry. Who asked that question, Jon?

This is Tuna Amobi from S&P Capital IQ.

Okay, great. Nice to talk with you. We are going to continue to delever over the next three quarters significantly, as we have said. We expect our overall debt to come down $200 million.

And, Jon, are you going to answer the China question?

Well, sorry about that, so you have laid out that; and I was wondering if by the end of '13 we can expect some maybe clarity as to other uses of cash, given the strong earnings and cash flow visibility.

Well, if you're asking the question are we going to do acquisitions -- is that the question that you're asking?

Well, I guess that is implied. Or other uses, kind of. I think dividend is probably maybe -- are we getting ahead of ourselves here?

Yes, I think so. And again, we don't telegraph that. But we don't have anything imminent on the horizon.

I will tell you, and Jon said it over and over again on other calls, we are looking to divest of non-core assets, so you should see us continue to pursue that path. And as I said, at the moment there is nothing imminent on the acquisitions side. Our focus is really on deleveraging.

Okay.

In terms of your question, I will let Patrick start, just specific to the Hunger Games; and I will take it from there.

Okay, yes. Your question about The Hunger Games performance in China, it was very strong. You are absolutely right.

It was by far the best box office performance of any Liongate or Summit film in China. We grossed about $25 million.

To compare, previously box office of any one of our movies was between $7 million and $8 million. So we very, very, very happy there. And we are going to see a substantial amount of overages coming from this movie in this territory, which fare extremely well for the sequel.

One of the things that I have mentioned before on these calls is the benefit from our Celestial Tiger partnership, where we have a team on the ground in Hong Kong representing our product, working together with us on sales, working together with us on potential cofinancing, coproductions, etc.

And it is already paying off. We expect it to continue to grow. And Patrick and I are intending to go back to China in a few months. We are being invited to have a number of very interesting strategic conversations.

So yes, we are overall excited about the expansion of our business internationally as I expressed on this call. The strategy (technical difficulty) output deals and great partners in almost every territory.

The other thing I wanted to mention, though, is the other territory that we are really concentrating on right now is India. Jim Packer, our head of sales, just spent 10 days in India.

I think you should also looks towards a much bigger expansion of our revenues and contributions from that territory. We think not many people are talking about India right now. We think that is really another tremendous opportunity going forward.

Okay. That's helpful. Lastly, I had a question on your retail and merchandising strategy. It seems like you have stepped up your efforts there pretty recently, perhaps more so than ever before, on a variety of titles.

Can you help us understand how you are coordinating these efforts on an integrated basis with Summit, and so on? And if you can update us on how that fits into your three-year plan, to the extent that you can quantify any upside that you see there as well would be very helpful. Thank you so much.

This is Steve. On your retail merchandising question, I assume you're talking about primarily the package media business linked with licensing and merchandising products. Obviously, The Hunger Games gives us a huge opportunity at retail. As we have announced, next week there will be a giant event Friday night at every major retailer; displays are being shipped in now; you're seeing displays of all the licensed goods going up in Wal-Marts right now.

Obviously, Summit has a lot of experience in these big franchises, so we're obviously utilizing that. So we are well positioned I think. We've got special packaging at every single retailer.

I think this is going to be the entertainment event of the year for every retailer. I am not sure what more you want. I know we have a co-promotion -- a huge co-promotion going on with the Kindle Fire that is going to launch right around the time of the DVD release. So you're going to see a lot going on.

And that sponsorship is not only in the US, but it is international as well. I think I could say -- we can't quantify it for you specifically right now; but I would say that our revenues right now from licensing and merchandising of Hunger Games are ahead of our plan. We expect them to go up significantly for the second, third, and fourth movies.

And it is one of the reasons why, although the budget is higher for the second Hunger Games, between our significantly higher international sales as well as the licensing and merchandising growth that we see, that movie will be very, very profitable. Does that answer your question?

Thank you.

David Joyce, ISI Group.

Great, thanks for the question. One, could you please outline the timing for your major TV episode deliveries over the course of the next few quarters?

And secondly, on your SVODs rights internationally, with Amazon, do you retain those rights or have those been presold with your other theatrical rights sales? Thank you.

Jim, if you could do the --?

Sure, the TV episodes you are going to see the deliveries and actually the contributions coming -- Mad Men, Q3 then even stronger Q4. Weeds, strong in Q2; that's when the bulk of that will hit. Anger Management, you'll start -- assuming, all happening -- you would see something later on in the year; Q3, 4, depending on what occurs there.

Those are the big -- that's how we're -- so the TV deliveries and actually profitability are pretty much backloaded in the year.

Steve?

David, on your SVOD question regarding international, when we do -- obviously in every territory with the exclusion of the UK, we license generally all rights to the in-market distributor. The SVOD rights are usually linked to the pay television deal in that particular marketplace.

But since we have a major library and these rights that we license do always come back to us, we are making major SVOD licenses or entering into big SVOD licenses around the world.

Particularly in the UK. As you notice that is probably the most competitive marketplace with both Lovefilm and Netflix in that market.

And we do retain -- with the library we also retain digital rights when we are licensing products in the library. And we are opening in every iTunes store around Europe right now. So you will see that our worldwide digital revenue begins to grow significantly, just like it is doing here in the US as we go forward.

Great. Thank you very much.

I would now like to turn the conference back to Mr. Wilkes for closing remarks.

For discussion of certain non-GAAP forward-looking metrics discussed on this call, please refer to the Presentations tab under the Investors Section of the Company's website, www.lionsgate.com. Thank you very much for joining us today.

Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation and for using the AT&T executive teleconference. You may now disconnect.