Starz Entertainment Corp (STRZ) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Lionsgate fiscal 2013 fourth-quarter earnings conference call. During today's conference all participants will be in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be 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 our host, SVP of Investor Relations, Mr. Peter Wilkes. Please go ahead.

Good morning. Thank you for joining us this morning for our Q4 analyst call. We will begin with opening remarks from Jon Feltheimer, our CEO. Following his remarks we'll open the call to questions. Joining us on the call today are Vice Chairman, Michael Burns; Co-Chairs of the Motion Picture Group, Rob Friedman and Patrick Wachsberger; President of Lionsgate Television Group, Kevin Beggs; Steve Beeks, Co-COO and President of the Motion Picture Group; Brian Goldsmith, Co-COO; Jim Keegan, our CFO; and Rick Prell, our Chief Accounting Officer.

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

Good morning, everybody, and thank you for joining us this morning. We completed a strong fiscal 2013 with an outstanding fourth quarter. We are pleased to have delivered strong results in all key metrics for the quarter and for the year. I'd like to discuss the factors contributing to the strong performance and outline our strategy for continuing to build on our momentum in three key areas. One, creating new franchises as we continue to leverage and exploit our existing brands. Two, diversifying our television operations into new lines of business with strong margins and high growth potential. And three, capitalizing on opportunities for international growth by continuing to refine our unique infrastructure.

We talked about these priorities before and many of our competitors are discussing similar themes. However, they bear repeating because in each of these areas we are pursuing strategies unique to Lionsgate that utilize our specific skill sets and differentiate us from our competitors. For example, of course everyone talks about franchises, but one of our areas of differentiation is our focus on young adult properties. We're obviously not the only ones mining the young adult space but owning the top young adult franchises, The Hunger Games and Twilight, gives us enormous catalyst. These franchises have been designed from the start to harness the power of social media and other online fan bases, an area in which our track record extend back to the Saw franchise.

We'll mobilize our fan base and utilize our social media expertise as we launch our next young adult franchise, Divergent, which wraps in Chicago next month with a terrific cast starring Shailene Woodley, Theo James, Ashley Judd, and Kate Winslet. Sales of the first two books in the Divergent trilogy have now topped 3 million copies and continue to compare favorably to The Hunger Games and Twilight at a similar stage in their trajectory. The third book, Allegiant, will be published in October. And as we've noted previously, Divergent will be released in the original Hunger Games slot on March 21, 2014. Ender's Game is another young adult brand with an enormous following. After receiving an enthusiastic reception from our exhibitors at CinemaCon, the Ender's Game trailer officially launched on Star Trek to a tremendous response from our fans.

Outside the young adult space, we continue to build our existing franchises. After seeing Red 2, we have such confidence in the film that we've retained the original writers to begin working on Red 3. Expendables 3 will begin production in August for release in 2014, and we're currently in advanced negotiations with Jackie Chan, Wesley Snipes, Nic Cage, and Milla Jovovich to join the all-star cast of Action Heroes. We're also looking at a potential 2014 start for Sinister 2, the sequel to last year's sleeper hit as we build on our strength in genre titles where we've had four straight box office successes. At the same time, we're in the process of bringing to the screen the exciting new brands The Last Witch Hunter, starring Vin Diesel, Gods of Egypt, Houdini, and Highlander.

Our second major initiative is in the ongoing diversification of our television business into higher-margin areas of growth. We saw a lot of the characteristics that define our television business produce results in the past quarter. Our unique 10+90 television model, our emergence as a favorite supplier of content to digital platforms, and our partnerships with Sea to Sky Productions in Canada, and Televisa in the US and Latin America that allow us to access important new markets.

Using our 10+90 model, we recently sold St. George, starring comedy star George Lopez and written by Roseanne and Home Improvement creator Matt Williams, to FX, where it will air in a block with Anger Management. Writing began last week with production of the first 10 episodes scheduled for August and September. Anger Management recently completed its 38th of 100 episodes, and I'm pleased to report that in addition to its regular airing on FX, 4 episodes will be shown on the Fox network in June. We've already begun shopping our next 10+90 series, the Kelsey Grammer, Martin Lawrence comedy from prolific show runner Bob Boyett. Nearly every network will hear the pitch in the next few weeks and we have a high degree of confidence that it will join our other 10+90 series on the air next year.

We're pleased that Nashville, one of our first shows for a major broadcast network has been renewed for a second full season of 22 episodes. One of the reasons we were attracted to Nashville was the opportunity to generate incremental revenue through concert tours, merchandising, and soundtracks. And as a matter of fact, Nashville's music has already sold more than 2 million downloads, and its second soundtrack ranks number 3 on the iTunes country chart and is outperforming the first.

Our television business is also beginning to reap significant benefits from our first mover status in distributing content to and partnering with digital platforms. By establishing early relationships with Netflix, Amazon, and Hulu, for the licensing of our content and the formation of innovative distribution partnerships like EPIX, we're now on the way to becoming one of their favorite suppliers. Orange is the New Black will premiere on Netflix in July, adding to their critically acclaimed freshman lineup of originals. Early reaction from critics and international buyers at last week's LA screenings suggest that this will be another strong brand for Lionsgate and we have significant confidence in a second season pickup.

We are also in development on a comedy for Hulu and we expect the 10 scripts currently being written to trigger a full production order this fall. In addition, we are developing an animated comedy with Amazon from Everybody Loves Raymond creator, Phil Rosenthal, and The Simpsons Executive Producer, Rob LaZebnik. This is just the tip of the iceberg. We believe that creating content for the next wave of premier content distributors will become an increasingly important part of our television business going forward.

Looking at our first run business, The Wendy Williams Show has turned the corner in its fourth season. Wendy has continued the ratings surge I mentioned on the last call, with ratings up 37% since May 2012 in its key daytime demo of women 25 to 54. It's the only 1 of 12 nationally syndicated entertainment and information shows to achieve year-over-year ratings growth in this key demo, and we've capitalized on Wendy's growing popularity and expanded the show by ordering original new episodes for June and July. Meanwhile, we continue to replenish the pipeline of programming we supply to the cable networks as Chasing Life, the first series from our South Shore joint venture with Televisa, premiers on ABC Family in January 2014. Our established cable series continue to demonstrate great resilience. Season five of Nurse Jackie premiered with increased ratings, and Showtime is already discussing a season six renewal. Don Draper is not only back but better than ever as Mad Men, benefiting its exposure to millions of new fans on Netflix, continued its ratings growth in its sixth season on AMC, and we're already ramping up for season seven.

Our television business is on its way towards achieving the scale of our film business. We have a total of 28 series on 20 networks, including 20 series on 16 cable networks, 5 shows in national syndication, 1 series on a broadcast network, and 1 series on a digital network, with 2 shows for other digital networks in advanced development. In addition, our 10+90 business has already generated more than 500 episodes of programming, with hundreds more in the pipeline, and our TV business will approach $500 million in revenue in fiscal 2014. Margins will begin to grow in subsequent years as new 10+90 series come online and several shows enter their syndication windows.

Turning to our international operations. We believe that growth in territories like Latin America, Russia, China, and India, proliferation of digital platforms worldwide, and the critical mass of content we've assembled are combining to create a perfect storm of opportunity for the unique international infrastructure we've created. This infrastructure includes output deals around the world, an efficient hybrid joint venture in Latin America, a successful self-distribution business in the UK, and initial forays into distribution in China and India.

Our combination of traditional and digital distribution in Latin America includes not only our IDC joint venture, but Netflix and Televisa as well, and it's already delivering stellar results in what has emerged as one of our most important growth territories. Not only did Breaking Dawn 2 generate $123 million at the Latin American box office, 50% more than Breaking Dawn 1, and a record for a nontraditional major, but films like The Impossible also significantly over indexed their domestic performance in the region. As we've noted previously, we believe that Catching Fire will generate more than double the profit of the first Hunger Games in Latin America. Russia, barely a blip on our radar a few years ago today is one of our five leading international territories and Breaking Dawn 2 grossed nearly $50 million at the Russian box office. In China, we've licensed more than 900 films and over 250 hours of television programming to leading digital networks, and we believe that we're just beginning to scratch the surface of this enormous market.

Our steps capitalizing our international growth were reflected last week at Cannes, where, led by a strong slate of films, including Mockingjay 1 and 2, Step Up 5, and The Last Witch Hunter, we achieved record sales of more than $250 million, 50% higher than last year's record total. What makes this number even more remarkable is that it doesn't include anticipated revenue from territories where we distribute directly, such as the UK, or through direct distribution partnerships such as Latin America and India. We're achieving similar growth in our international television business, where revenues increased more than 50% last year, driven by licensing of series like Anger Management and the tremendous growth of digital and subscription on demand platforms around the world, which will exponentially increase the demand for our content.

The big news in our channel business during the quarter was a 50-50 partnership with CBS and our newly rebranded TVGN. We expect the combination of our content leadership and CBS's vast programming resources to accelerate TVGN's transformation from a utility service to a branded entertainment channel. Since we announced our new partnership, TVGN has already named a new head of programming, and licensed the long-running CBS daytime soap The Young and the Restless. The Young and the Restless will air day-and-date in the 7.00 PM time slot where it was generating ratings on Soapnet that were several orders of magnitude greater than our current TVGN programming. It should become an anchor tenant on our evening schedule.

Earlier this week we announced that Big Brother After Dark, the live late-night companion to CBS's long-running hit reality series Big Brother, would also move to TVGN after a successful seven-year run on Showtime. Like The Young and the Restless, the show brings with it a large and dedicated fan base. We expect to unveil our broader programming and development slate in June, we believe that the network is firmly on track to achieve the potential we recognized from the outset.

It's hard to believe that this is the first full year of the integrated Lionsgate and Summit operations. We've combined two independent and entrepreneurial companies and relying on the best attributes of our respective cultures and business models, built a diversified next-generation global content leader, noteworthy for the critical mass of our content, differentiated by our digital leadership and distinguished by the magnitude of our growth. In the first year alone, the results have been noteworthy, a nearly 12% market share at the domestic box office, ranking among the top five studios, $1 billion home entertainment business, dramatically expanded scale in the international marketplace, and a motion picture and TV library that is rapidly approaching $0.5 billion in annual revenue with growing margins.

However, the Lionsgate qualities in which I take the greatest pride are far less tangible. Although I believe that they are the traits that will continue to set us apart in the future, the breadth and depth of our Management team, the entrepreneurial spirit of our employees, and the empowerment of our Executives to believe that their willingness to do things a little differently even if it means the occasional disappointment will ultimately lead to our most notable successes. Thank you. And I will now open the call to your questions.

(Operator Instructions)

Alan Gould, Evercore Partners.

I've got three questions. First, Jon, I'd like a clarification of the three-year guidance that you provided last year. I'm assuming you weren't anticipating the debt extinguishment costs or this level of stock comp. Are you basing that $900 million off the $254 million of reported EBITDA, or the $330 million of adjusted EBITDA? And in the past you've said fiscal '14 should grow from '13 and fiscal '15 should grow from '14. Are you still confident in that trajectory? I'll take that answer and then I'll come back for my other two.

You thought I wouldn't remember the last two, Alan? Yes. I think we've tried to make clear on our last couple of calls that the proper metric to evaluate our Company is EBITDA, adjusted by unusual and nonrecurring charges, particularly ones that we pursue in order to grow our Company, particularly the extinguishment of debt charges. And so while I'm not going to get into quarter to quarter providing or even annually providing updates to our guidance, I would say for clarity that using the metric that we believe everyone should be using, and frankly the one that we will be reporting a going forward, although of course we'll continue to give you all the information that you need to evaluate our performance, I would say that using EBITDA adjusted by those charges, we are tracking well head of the $900 million I would say in excess of $1 billion.

Okay. And the trajectory '14 better than '13, '15 better than '14, you still feel confident that way?

I think obviously we significantly over-performed in the first year, but I would say that the trajectory will still be positive over the next two years, although I would say that the biggest rise in that trajectory would be in '15 given that we've got at this point three or four movies scheduled for fourth quarter '14, including Divergent, the benefits of that will mostly hit in '15.

Okay. My second one, Jim, what tax rate should we be using for book purposes for fiscal '14 now that you've reversed the deferred tax reserve?

It's approximately federal and statutory rate I would run about 38% for '14 just again, that's non-cash that's just book purposes.

Okay. And lastly, Jon, the $250 million of sales at Cannes, that's an impressive number, is that part of your $1.1 billion backlog? And can you remind us how quickly that revenue flows into the income statement?

Well, that Cannes sales were after our reported backlog, so the $1.1 million(sic - see press release "$1.1 billion") in that report did not have any of those in it. And I guess backlog tends to come in at about 18 month window, generally.

Okay. Thank you very much.

Ben Mogil, Stifel.

Alan got one of my questions. Wondering, from Jim, on the $200 million of Summit step up purchase accounting, how much of it has been amortized through March, if you will?

Through March, it's about $130 million of the $211 million.

And then obviously you've got no more or at least right now no more Twilight films and the bulk of that was obviously tied to Twilight, should we assume relatively straight line going forward?

Actually it's going to be a little heavier next year, candidly, then trailing off significantly.

When you say next year, you mean '14 or '15?

Fiscal '14.

Okay. So subsequent to the quarter you repaid the state of Pennsylvania loan facility of $65 million. You do the debt deal with [core serve] on the convert side, which kind of offsets that. Any other debt repayment subsequent to the quarter?

Those are the two that have occurred, both the core serve and the debt repayment.

Okay. And then one for Jon, while on a more larger thought question, when you look at what's going on on SVOD, everyone seems to talk a lot about Netflix, but obviously Amazon is now aggressively starting its original programming. Can you talk about what you're seeing on SVOD from a larger perspective in terms of competitive environment both in the US and abroad? And although you guys aren't really a supplier to Hulu, if Hulu does trade to someone else, what are your thoughts around that as another really viable outlet for you guys?

Thanks Ben. Actually, we are a supplier to Hulu.

My mistake.

Steve, I don't know if you want to opine on that further, but as we said we're not only a supplier to Hulu, but we are developing a show for them. Steve, want to add any color to that?

Ben, Hulu has actually been growing customer of ours. We've licensed them several series, obviously in second-run, as well as movies, Hulu Plus is growing as you know, Hulu Plus has over 1 million subs, so we expect them to actually be a growing customer for us in the future.

And I would say that what we are really excited about is when we look all across the world, a lot of the sales that we've made, a significant amount of the sales we've made in China have been to online video players. And we are seeing expansion for all of the players, you're going to see Netflix continue their expansion, you're going to see Amazon continue their expansion, you're going to see new players endemic to the various countries doing their own. You're already seeing that, you're seeing that in Latin America, you're seeing that some other places. So we think the fact that we don't have as many legacy deals as most of the other majors is going to give us tremendous advantage to do different kinds of deals with these players to play with our windows. And again, we are already seeing significant growth in that area.

We've talked before about the fact that these players are giving us not only an advantage but at places where we had a significant disadvantage, as in the UK where we didn't really have a paid television deal and we now have a paid television deal that puts us at parity with all of the major studios. We think there's competition that's being created in all of the territories that's really going to allow us to take advantage of the huge amount of content that we've been investing in for the last 13 years.

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

David Miller, B Riley and Company.

Congratulations on the stellar results. Just a couple questions. Actually first one for the Summit team, where are we guys, with the release slate that would have occurred if the combination had not taken place? In other words are we at -- when does the apex occur where the films that you guys were developing before the combination have already been released? Are we there pretty much right now? Or do we still have two or three films to go? And with the combination now fully integrated, Rob, are you guys doing anything different than versus what you would have done if the combination had not occurred?

And just a housekeeping question, the $1.1 billion backlog, just obviously a monster number, does that include contractual obligations with Netflix for original programming? Or is that all late window economics off of previously released material? Thanks very much.

I'll let Rob go first.

I would say that we're now at steady-state. We've managed the inventory of both the Companies now, so we feel very confident on a go forward basis that we are fully integrated and on a steady-state basis. As far as what are we doing differently? Obviously the combination has been very, very advantageous to us on many levels that we've discussed in the past, with our exhibitor relations, our duplication and replication relationships, our agency relationships, so we feel very, very satisfied and encouraged about our go-forward status.

And I guess to answer your backlog, backlog is anything that's contracted for at that time, so if there's a pickup on a television series or whatever it may be and it's a signed deal and it's signed, basically that is absolutely included in backlog.

Even if it's original programming, correct?

Even if it's original programming.

Excellent. Thank you.

James Marsh, Piper Jaffray.

Two quick questions here. First, with your increased profitability, seems like you have much more flexibility in structuring your balance sheet, and with the notes callable later in this year I was hoping to get your current thoughts here. Are you likely to refi that at lower rates, or maybe pay it down with the revolver? Could you just talk about the potential savings there?

And then the second question relates to November, and obviously you've got the tag team of Hunger Games 2 and Ender's Game, it's got a very strong offering there. Has there been any change in the competitive environment at all in November? I think the only major release I recall there was Thor, but are there any others that we should consider in November?

I'll take the first one. Hi, James. It's Michael. We're looking at the interest rate environment the same way the rest of the world is. We can call our high yield bonds in November with that 105.125%. That's expensive money for us, double-digit money. In the tens. I think we are looking at a couple different scenarios, one of which is to simply use our credit facility in November, which at the moment is sub 3% money, but that's LIBOR plus 2.5% and it floats. Or we could refinance our existing high yield with another bond deal. I think that is a pricing that works for us. I think that's a likely scenario.

I think it would be fair to say, James, that looking down the road, we're expecting and intending to have significantly lower interest payments.

Okay. Great.

James, it's Rob. As it relates to November, you're correct. Thor is the only competition in that month and that competition status has not really changed all that dramatically, and that's true internationally as well. We feel very, very good about our November positioning. And not only that, we will be controlling the IMAX screens from November 1 through until the middle of December. So we feel we're well-positioned.

Excellent. Thanks very much.

Drew Borst, Goldman Sachs.

Wanted to ask a strategic question. You guys mentioned the growth that you're seeing internationally. We obviously see that the box office numbers for everybody in the industry and you guys have been doing well. I was wondering, do you guys think about changing the structure that you have with these international output deals? And how do you think about the possibility of self-distributing in some international markets?

We're very happy about the structure as it stands presently. We are just really exploring now some additional output deals or slate deals in the few territories where we don't have any solid presence. We think this gives us the opportunity of protecting our downside, and also getting a huge upside because of the structure of those deals, so we're very happy. We're not planning to change these at all.

I would again emphasize to you that we do a number of territories very differently. And what we've done since we put the Companies together, is we've taken the best of all the worlds that both Companies had been in, so the best of the output deals in the territories where we wanted to have output deals. The structure in Latin America is essentially a hybrid deal where we have split rights between the theatrical distribution and the other ancillary sales, and so we think actually, we have the best of all worlds in Latin America. UK obviously we self-distribute and we've got a fantastic executive in [Ziggy Comahsen], who's not only done a fantastic job with the Lionsgate films but has created a business of his own, co-financing and buying and distributing movies. In China and India, frankly we are looking at some different ways of doing things, and if there were one or two territories where we felt self-distribution would be more profitable and have a better return for our shareholders, obviously we would explore that. But again, I want to emphasize we have a diverse and different kind of infrastructure than all of the other majors, and frankly, we think we are getting the best of all worlds.

Thanks. That's helpful. If I may just one other question on a separate topic, regarding the 10+90 deal with Anger Management, we've seen reports that the ratings have fallen off a good amount in the latter episodes after the first 10. Does that have any implications contractually to the payments that you guys receive?

Ratings can affect and will do affect ultimately syndication for example. And could affect some of the payments, but the numbers that we are reflecting, we take a fair amount of caution when we are forecasting, and the numbers that we are reflecting are reflective of the ratings that we are getting at this time. I would add as well, the confidence that the network has in the show is also reflected in the fact that they are putting four episodes on the main network itself this next month. So again, the Anger Management, it looks to be a big success story for us.

Okay. Thank you very much.

Doug Creutz, Cowen.

This one is probably for Jim. I wonder if you could give a little sense of what you expect your cash spend next year or this year to be on both summer TV programming and also on theatrical P&A? Thanks.

Well, I'll give you the film and TV programming, and I'm going to anticipate next year probably motion picture cash outflows around $550 million, and television $340 million to $350 million.

The thing I've got to say to Rob, Rob, from a steady-state, why don't you talk about what's expected how many movies now that we're --

We are anticipating 15, 16 movies a year. It could be 14, it could be 16, but our target is always around 15 annually, we think that that's a great run rate for us for the Company.

And P&A range?

P&A range will go anywhere from on an individual picture basis can go anywhere from $18 million to $35 million.

Okay. Great. Thank you.

Alexia Quadrani, JPMorgan.

Just following up on that recent past question. If you look at the cost associated with your maybe next potential big franchise films, Ender's Game and Divergent, how does the production cost for those type of films just generally compare with maybe your past bigger films such as the first Twilight and Hunger Games?

Alexia, I'm going to answer that question, because as I've said before, the budget of the picture is not something we worry about as nearly as much as what we call the gap of the picture. And so in other words, if we've spent -- which we haven't and I don't think ever will -- but if we've spent $200 million but we got back $180 million from international guarantees and forecasts, that gap of $20 million while it would be high for us would be manageable. Actually we're still pretty much around our historical average for gap of $13 million, $14 million even with the big franchise films that we have.

And that would be the case for these two newer films as well?

Pretty much, yes. Again, as an average across this year call it 14 to 15 pictures, we're right on target.

Okay. That's helpful. And just -- sounds like with the pilots and the new stuff in development on the SVOD side, it sounds like there's a lot going on in that area. Could you remind us how the economics for producing either a pilot or a syndicated series for an SVOD player differs at all from your more traditional model?

Kevin?

The closest parallel is really the premium players, HBO, Showtime, Starz, because that's really how it operates. It's a subscription service so the economics, we try to emulate and replicate are very similar to those outlets, which are really good and we've had a great run with those networks. So it's traditionally a license fee situation in which a license fee is paid by the SVOD end-user and we are keeping all rights internationally and domestically.

Every one is a little bit different. As you know, Netflix is expanding into a few territories. So the deal with them is slightly different because they take a slightly bigger footprint. But we adjust the economics in order to keep ourselves whole and ahead and replicate our usual model. And Amazon's a little bit different than that, we have a model with them, and Hulu is also somewhat different. But they're all predicated on a license fee arrangement and either a pure ownership of rights on our side or a share of rights in exchange for splitting the deficit.

I think to give you a little bit more color, I would say that as Kevin said, the model closely resembles pay, in that it's pretty much similar to most of the Lionsgate television operation, which is we give a little bit up on the backend in order to reduce our risks upfront, and frankly, tend to try to make money almost from the get go on every one of our series.

Okay. Thank you very much.

Matthew Harrigan, Wunderlich Securities.

I think Emilio Azcarraga Jean, and some of the other managers at Televisa have been incredibly cognizant of the size of the US Hispanic market relative to Mexico, I know Fast 6 I think about 35% of the audience was Hispanics. Can you delve a little bit more into what you're doing with Televisa, it seems like it has a little bit more potential sometimes than people factor in, both down in Latin America and stateside as well.

And secondly, Jon referred to approaching $500 million on the TV revenue side this year, I assume we're probably going to see a big delta on the operating leverage on that business as far as the profit flow goes to, can you address that at least directionally? And that's it for me. Thank you.

Yes. Let me go backwards. I think again, television, we think we could surpass $500 million this year. But -- and should be a strong year for contribution. But I would say what you'll start seeing more in '15 and beyond is when some of the backend of these shows starts hitting, that's when I think you're really going to see a large increase in margins and contribution.

The answer to your first question is, we are very cognizant of the Hispanic market. And we are doing a lot of things in that area. You mentioned Televisa and our relationship with them is very, very important to us. We have a number of partnerships with them. We have our Pantelion Film partnership, which is going into I believe its third year now, where this year I think we could do as many as eight pictures for the Hispanic market, both English and Spanish language.

We have our television partnership with them, which is already yielding results in terms of the ABC Family show that we're doing together, Chasing Life. And they are part of our consortium if you will in Latin America where we have a television deal with them and they will be distributing our Pantelion Films theatrically in Mexico. So as I say that's a very important relationship, nobody has a bigger brand than Televisa in the Latino marketplace. And we are going to continue to progress that partnership and that relationship going forward.

Thank you.

David Bank, RBC Capital Markets.

Two questions. The first is could you talk about where you are with respect to the plans for TV Guide and your partnership with CBS? And also more specifically, where you are in the affiliate fee cycle negotiation process, when do the next round of agreements come up? And what kind of step ups do you think we can anticipate?

And the second question is more for Kevin, when you think about typically the business model on the TV stuff you produce, you think about window one as maybe 5% profit margins or something, and then the real opportunity is to monetize the content in the next windows to either syndication or SVOD as well as international. Starting out with SVOD, I don't think there are a lot of SVOD syndicating to TV stories out there. So what's the thought in the other windows with this content? Thanks very much.

It is uncharted territory but as Jon mentioned, going into anything we do, we try to be profitable out of the gate and then allow for upside in all kinds of other platforms. These lines are blurring and I'm really excited about Orange is the New Black, and I'm very confident that when the syndication window opens on a show like that, should we take it the full distance, they're going to be a number of TV players that want to license that product. Actually when we announced the show, two different networks called to say, could you make an introduction to us with Netflix and let us come in together on a joint window? Obviously we can't say yes to that now but the interest is there, and just like the pay product, as exciting as it is, they still have a small measure of the actual TV watching audience. And that means as 80 million, 90 million, 100 million people that don't have it that are watching TV that don't have these services. So we're pretty confident about the reverse windowing if you will and what can happen going forward. And as always if a show catches on and really has that critical buzz, then all the platforms from home-end to international simply just get better.

I would just add a little footnote to that to say that I've been doing television 30-plus years and I've never seen a case where a quality piece of television isn't extremely profitable. This is premium television that we're talking about. And I believe these [negatives] will be very, very valuable additions to our library.

In terms of your first question I would say, Les Moonves is one of the great television executives ever. And you can see why when you watch what he's doing here in terms of the partnership with us. He has mobilized every single key executive as his company in their respective areas to come to the party and join this partnership and add value to the network. And obviously this isn't certainly at this point a huge piece of the CBS broadcasting empire. But he intends to win on TVGN and this has been a fantastic partnership. I'm not going to tell you -- take you through all the affiliates deals, but I can tell you both in terms of the affiliate deals, as well as in terms of programming and the advertising we expect to come along with the improved ratings, we're both very bullish on this asset.

Okay. Thank you.

Tuna Amobi, S&P Capital.

So I've got a few. First one on, I think Jon you pretty much articulated a very compelling plan to increase your TV margins. But I also did pick up that your investments -- sorry, your programming hours and distribution plans at Debmar-Mercury is going to decline meaningfully in this fiscal year, so I'm just trying to piece all of that together. I don't know if that has something to do with the 10+90 deals that you're ramping up, but I would have thought that those programming would be going up at this point as opposed to dialing back. I'm just trying to understand the various moving parts that kind of factor into that as well as the margins strategy, if that's all part of the plan to ramp down on that.

And then separately, I don't know if this is for Michael or anyone else, in terms of your equity investments, clearly you've addressed the issue with TV Guide, but I'm wondering if you guys talked about any kind of long-term plan to either consolidate or rationalize or monetize any of those other assets, if there's anyone that might be contemplating in near term, that would be helpful to help us think about those assets? Because I think you probably agree that the value from most of those -- some of those at least are not being fully realized in the current structure.

And then lastly on the NOLs, I think you're probably running north of $300 million now, and I'm wondering if how that might all factor into your expectations of the valuation allowance reversal, if you expect that to be fully realized in the coming quarters, and how we should all think about that in terms of the overall tax profile, that would be helpful. Sorry for the lengthy questions.

Thanks Tuna. I'm going to let Jim start, and we'll work back.

Sure. The NOLs in the 10-K we filed, we have $129 million of federal NOLs remaining, so that's obviously going to be used up as I mentioned earlier to Alan, we don't anticipate really paying taxes in my fiscal '14, so we'll use up NOLs in other tax strategies, hopefully not a taxpayer in fiscal '14, but I will have an effective tax rate of about 38%.

Okay.

So on I think you're referring really to the minority partnerships we have, and I think I've said on the last couple of calls we're going to continue to evaluate those and make sure and rationalize and make sure that we're bringing a return to our shareholders, and frankly that we are focusing on the right things. This past quarter, we actually have made a deal with Warner/Chappell to do a co-publishing deal and for them to acquire most of our music library, because we felt, frankly, it was a good time to monetize that asset and to have an expert go and try to exploit the rest of our catalog, and that was again a good use -- not the best use of our time to do that. And so we've done that transaction. I think you'll see very shortly a similar kind of event with TVGuide.com, certainly some things have been reported in the press but I think you'll see something there.

I think we are continue to look at Break, and make sure again that we are handling it in the best way possible, we think there's a great opportunity there, but we want to make sure that the way the deal is structured is the best again to bring value to our shareholders. So we are continuing to look at all of our joint ventures, obviously the TVGN deal with CBS we think is a great opportunity for our shareholders. And that's the kind of thinking that we continue to have and will continue going forward.

And I'm not sure I understood your question about Debmar. Wendy Williams as I say I think Wendy Williams is becoming a 10-year plus asset. We actually have just made a new barter arrangement which we think in terms of Wendy, in terms of South Park, and in terms of shows like Anger Management, we're going to bring a tremendous amount of margin improvement to those shows. And Debmar is involved in with all those, so --

Just to clarify that question I think your 10-K alluded to about 20% or so decline programming target hours at Debmar for this fiscal year, fiscal '14? And also in terms of the number of episodes that you're going to produce? And I'm trying to tie that altogether to your --

There may be some timing attached to that, but again, all of the shows that Debmar is involved in are all going on. Wendy, South Park, Family Feud, which has actually become a tremendous success for Debmar. And so why don't you review that with Jim and the team offline?

Debmar is actually, just a little insight, is going up from fiscal '13 to '14 projected revenues.

Okay. That's very helpful. Thanks a lot, guys, and for reaching out, was very proactive Michael and team. So appreciate that.

Alright. Well thank you, everybody. We'll look forward to talking with you on the next call.

Ladies and gentlemen, that does conclude our conference for today. This conference will be available for playback beginning today at 8.00 AM Pacific Time, running through Friday, June 7, 2013 at midnight Pacific Time. You may access the AT&T playback service by dialing 800-475-6701 and entering the access code of 292007. International participants, please dial 320-365-3844 with the access code of 292007. Once again this conference will be available for playback beginning today at 8.00 AM Pacific Time running through Friday June 7, 2013, at midnight Pacific time. You may access the AT&T playback service by dialing 800-475-6701. International participants, 320-365-3844, with the access code of 292007. Once again, that does conclude our conference for today. Thank you for your participation.

Shannon, if I could just jump in for a second, I also just want to mention quickly for a discussion of certain non-GAAP forward-looking statements mentioned on this call, please refer to the presentations tab under the Corporate Reports section of the Company's website at www.lionsgate.com. Everybody, thank you very much for joining us today.

Thank you. That does conclude our conference. You may now disconnect.