Starz Entertainment Corp (STRZ) 2015 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Lionsgate FY15 second-quarter earnings call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Peter Wilkes, Senior Vice President of Investor Relations and Executive Communications. Please go ahead.

Good morning. Thank you for joining us for our FY15 second-quarter analyst call.

We'll begin with opening remarks from our CEO, Jon Feltheimer. Following his remarks, we'll open the call for your questions. Joining us on the call today are our Vice Chairman, Michael Burns; Motion Picture Group Co-Chairman, Rob Friedman; Chairman of the Lionsgate Television Group, Kevin Beggs; Steve Beeks, Co-COO and President of the Motion Picture Group; Brian Goldsmith, Co-COO; Jimmy Barge, our CFO; and Rick Prell, our Chief Accounting Officer.

The matters discussed on the call include forward-looking statements, including those regarding the performance of future fiscal years. Such as 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 factors, including the risk factors set forth in Lionsgate's 10-Q filed with the SEC on November 6. 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?

Thank you, Peter. Thank you, all, for joining us this morning.

We reported another solid quarter yesterday, positioning us well for both the fiscal year and our three-year guidance. It's worth noting that we achieved these results with contributions from our entire portfolio of businesses.

Last week, I was at CASBAA, the leading Asian conference for cable, satellite, and telecommunication companies. And I was struck by the incredible velocity of change in Asia, where the emergence of online video continues to create opportunities for companies like ours to deliver our content to consumers in exciting, new ways.

It reminds me of where we were as a Company when we started out 14 years ago, and how we've created our own unique approaches to producing, marketing, and distributing our content. This morning, as we look at the quarter, I'd like to begin by highlighting a few examples of these strategies.

Two weeks ago, we announced the Tribeca Short List subscription video platform. Tribeca Short List draws upon our pedigree of great specialty films, from Monster's Ball to Precious, and from Crash to The Hurt Locker, and combines it with the world-class brand and customer base that Tribeca has built through its prestigious Tribeca Film Festival.

Tribeca Short List will be more than a premium subscription video-on-demand service, offering movie lovers a curated selection of prestige films. It will be a guided experience, including personal recommendations and insights from leading voices in contemporary culture, along with exclusive, original content.

By the end of the calendar year, we also intend to launch our Lionsgate Entertainment World streaming service in China with Alibaba. And we're in discussions with several other prospective partners for additional online branded platforms. These initiatives all capitalize on our ability to innovate in the digital space, as well as to reach niche audiences with branded quality content and targeted marketing.

Next week, we'll kickoff our Twilight Digital Shorts partnership with Stephanie Meyer, Facebook, and Women in Film by launching a video on MTV that features our celebrated panel of judges. We're also pleased to announce that Volvo Cars has come aboard as a corporate sponsor to support our commitment to promote diversity within the creative community by increasing opportunities for female filmmakers. It's great to be exploring new projects within the world of Twilight, and the storytellers' new voices of the Twilight Saga initiative reflects our commitment to expand our franchises into new lines of business and partner with online platforms to extend the reach of our storytelling.

Another initiative reflecting our approach to the business is our recent acquisition marketing and distribution of the hit film John Wick. The film showcases our ability to secure the right release date, mobilize a highly effective social media campaign, and create an innovative video game partnership -- all within 11 weeks of acquiring the property. John Wick's Internet-focused marketing campaign, built on our base of nearly 70 million Facebook friends for Lionsgate action properties, such as Rambo, Red, Expendables and Transporter.

Peter Levan, our new President of Interactive Ventures and Games, has been building our video game relationships and teamed with our digital marketing executives to establish a partnership with game developers Starbreeze Studios in less than a month. Starbreeze created new, downloadable content, specifically based on the film's title character, and made it available for the Payday 2 video game two days before the film opened, with 3.3 million downloads in the first 24 hours from gamers who form the core of John Wick's action audience.

These elements combined for a $14 million opening weekend. And a film that we picked up with no acquisition cost will gross over $40 million at the domestic box office, on its way to becoming a very profitable hit.

I might add that John Wick was our second successful film last month. It followed in the footsteps of Addicted, from our CodeBlack Pictures label.

We originally plan for Addicted to be a Lionsgate-wide release. But when we realized that its appeal was more limited, we called in Audible and changed the entire distribution plan and financial model.

We released the film with a laser-focused marketing campaign targeted to reach the fans of author Zane's erotic thrillers, as well as drawing on CodeBlack's brand equity with its core urban audience. The strategy paid off, and Addicted became a low-budget hit.

Turning to initiatives. Within our television business, we continue to be focused on building our position as a leading supplier of original programming to digital networks. Last week, Hulu made a 10-episode straight-to-series order of a half-hour comedy, Casual, for us to produce and distribute. Casual, which follows a bachelor's brother and his newly divorced sister who coach each other through the world of dating, will be executive produced by Academy Award nominated director, Jason Reitman, and writer Zander Lehmann.

The new series continues to expand our relationship with Hulu, whose lineup already includes the original Lionsgate comedy, Deadbeat. Hulu also provides catch-up viewing for our critically acclaimed series, Manhattan, the day after it airs on WGN America. Both Deadbeat and Manhattan have already been picked up a for their second seasons.

During the quarter, Orange is the New Black continued to be the most-watched series on Netflix in every one of their territories around the world. Entering its third season, it is becoming an increasingly valuable Lionsgate brand.

I'd also like to single out the continued success of Wendy Williams and our other talk and game shows, which, to use Wendy's words, are doing pretty good. Wendy hit an all-time high in household ratings last week, and season-to-date, is the fastest-growing of all talk shows, with a gain of 23% over last season. And two nights ago, it beat everyone in the ratings, including Ellen, among women 25 to 54.

Family Feud, hosted by Steve Harvey and also distributed by our Debmar-Mercury subsidiary, continues to achieve record ratings. And in recent weeks, has pulled ahead of syndication later, Judge Judy, and among both women and adults 25 to 54.

Last month, we launched our third major entry into this space, Celebrity Name Game, with former Late Late Show host, Craig Ferguson. It has already become the top-rated new first-run syndicated show in the coveted demo of women 25 to 54.

These at three shows represent the kinds of nonfiction formats that may be slow-built at first. But once they start working, they can become a very long-term annuities that contribute meaningful profitability to our Company.

Speaking of annuities, we'll again kickoff the worldwide rollout of Mockingjay with a London world premiere this coming Monday, with great tracking in advanced ticket sales that set an all-time first day record for the AMC Theater chain, topping The Hunger Games, Catching Fire, and The Dark Knight. Mockingjay is poised to continue the franchise's track record as one of the most consistent performers in motion picture history.

We're also continuing to extend the franchise into exciting new lines of business, with this morning's announcement that we're partnering with live entertainment production company, Imagine Nation, for the summer 2016 premiere of our Hunger Games live theatrical experience at a specially constructed theater near Wembley Stadium in London. Based on the state-of-the-art revolving stage technology that made Soldier of Orange one of the most popular Dutch musicals in history with four years of sold-out shows, the Lionsgate theatrical show will offer a uniquely immersive experience for fans around the world. The theatrical experience in London and the traveling exhibit launching next year are the first of a number of location-based entertainment opportunities we're planning around the world as we continue to build The Hunger Games into a truly global phenomenon.

I'm also pleased to report that we launched our Hunger Games: Panem Rising mobile game in 120 countries yesterday, in partnership with Kabam. After its very first day, it ranks as the number two game on a Google in the United States and number three around the world.

Meanwhile, the momentum of our Divergent franchise also continues to accelerate. And with book sales nearing 30 million, it's on a sales trajectory similar to The Hunger Games.

We're releasing Insurgent in both 3D and 2D to capitalize on the tremendous visual spectacle of the second film. And you'll see the franchise's growth potential for yourselves, when we released the first Insurgent trailer with Mockingjay on nearly 10,000 North American screens November 21.

We also continue to strengthen our pipeline of branded properties beyond these three tent poles. The Last Witch Hunter, starring Vin Diesel in his next move after the highly anticipated Fast and Furious 7, is currently shooting in Pittsburgh. We love how the film is looking and moved it up three months to October 23, 2015, a terrific date that recently became available.

We just looked at extended Gods of Egypt footage. And although the film is nearly a year post-production ahead, what we saw reinforced our conviction that director Alex Proyas has created a movie of incredible visual scope and spectacle that is poised to take the world by storm on February 12, 2016.

Next month, we begin shooting Now You See Me 2 in London. With a talented filmmaker and GI Joe's Jon Chu and the return of nearly our entire all-star cast from the first film, along with new cast members, Daniel Radcliffe, Lizzy Caplan from Masters of Sex, and the Green Hornet's Jay Chou, Now You See Me 2 is positioned to continue building on the first film's $350 million worldwide gross. We're also continuing to develop Power Rangers, a live-action film with big production values, for release on July 22, 2016, giving us six high-profile properties in a nine-month span.

Our momentum continues with a next wave of films that includes Academy Award nominee JC Chandor's Deepwater Horizon, a blend of The Perfect Storm and Towering Inferno, with Mark Wahlberg heading an all-star cast. The Glass Castle, based on the riveting New York Times bestseller, teaming Academy Award winner Jennifer Lawrence with a major male lead. And acclaimed Whiplash filmmaker Damien Chazelle's La La Land, starring Emma Watson and Divergent's Miles Teller.

Our television pipeline is equally robust. In addition to the shows that I mentioned earlier, the drama Chasing Life, which we produced with Televisa USA, was just renewed by ABC Family for a second season.

Buzz continues to build for The Royals, E Network's first scripted drama, starring Elizabeth Hurley as the matriarch of a dysfunctional British royal family. The Royals was the toast of Mipcom and will debut in March.

And other show generating heat is the space adventure series, Ascension, from Smallville writer-producer Philip Levens, which debuts on Syfy December 15. And after seeing a really outrageous animatic for its pilot, we're feeling very bullish but our new animated series, Harold and Kumar, for Adult Swim.

With stronger than anticipated international and home entertainment sales for Orange is the New Black, robust international sales for Nashville, strong ancillary licensing from the domestic Hulu SVOD deal for Manhattan, and the stellar performance of Family Feud in first-run syndication, we now expect television revenues this fiscal year to increase more than 30% from last year, with growing margins.

In closing, we took significant steps this quarter to expand our Hunger Games, Twilight, and Divergent franchises, continued to assemble a strong pipeline of new brands and franchises, built on our leadership in creating original programming for digital platforms, and the readied online platforms of our own that will enhance our ability to deliver content directly to the consumer. As we do, we will utilize our unique combination of strengths, an entrepreneurial culture, a discipline financial model, deep content pipelines, and a willingness to construct innovative solutions to the challenges of today's fast-changing, competitive landscape.

I'd now like to open the call to your questions.

(Operator Instructions)

Ben Mogil, Stifel.

Two questions. Operationally, you saw better gross margins in both segments, and it wasn't a particularly big [across] movie quarter either, except for the Divergent DVD. Can you talk a bit about what's driving the gross margins?

And then on the capital allocation -- the balance sheet -- not much stock bought back for the quarter. A big deceleration from the prior quarter. There's still, obviously, room left in the authorization. Can you talk about what your thoughts are on capital return and the buyback pacing we should be thinking about, going forward? Thanks.

Michael, when you start.

Yes. Ben, why don't you let -- it's Michael. Let me start with the first one.

There are obviously numerous factors that affect when we're going to be in the market buying back shares, including blackout periods. We still believe that the share repurchase is an important way to return value to our shareholders and continue to be opportunistic in that execution.

Jim, why don't you talk about the [margins]?

And Ben, on the margins, yes. We've got a bit lower direct operating expenses, which is helping the margins in the quarter as well.

On the TV side, we've got the strength of, really, across-the-board lineup there, including Mad Men, Orange, as well as Manhattan sales to Hulu. Really strong margins across the board.

Is some of that just more syndication revenue? Or is some of that also with digital -- transition to digital that obviously lowers some costs, as well?

Certainly, the Hulu sales is digital and ancillary revenues, without incremental cost. So, absolutely. The digital is helping on the margin side.

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

Alexia Quadrani, JPMorgan.

We continue to see growing demand for TV content. And your studio has obviously had a number of really big successes on this front.

Can you give us some more color? I know you touched a bit on this in your opening comments. But some more color on how robust your pipeline is on the TV side, and I guess, generally, how you're positioned in this competitive marketplace?

Thank you. It's Kevin Beggs.

We feel we're positioned perfectly. There's new buyers coming to the market almost monthly.

We like to describe ourselves as the Switzerland of television. We can sell and bank with anybody, and we are in businesses across five sectors, from broadcast, cable, premium cable, syndication, and streaming, with no sign of slowing.

We've got some great things in the pipeline. John touched on those things that are premiering this year and other fantastic projects and developments -- some from our film library as TV adaptations. And others like the Casual, which he mentioned, at Hulu, which came together the last couple of months. It is a fantastic time to be in the TV studio supply-side business.

If I can just have a follow-up of, maybe, a bigger-picture question. How much you do think scale matters in your business, in general? I'm talking about both the TV and the motion picture production side. You've done a great job on both those segments, but you're neither biggest, I'd say, in terms of scale in the movie sector the TV side.

How much [do you think] scale matters for you guys to have a longer-term success? And I'm trying to look at this from both angles -- your positioning as a standalone, but also the others' interest, in terms of getting bigger in this space.

It's Jon. I'll answer that, Alexia.

I actually think that our competitive advantage, in all of our businesses, is that we have the scale and the capital to do pretty much anything that we want. But the flexibility to move quickly to take advantage of, both things like John Wick -- which came to us, as I said in my remarks, 11 weeks ago -- and to turn it into a hit, as well as to be able to produce, as Kevin said, content for every buyer that's out there.

So I think that, that's why we're getting -- Casual, actually, came to us. And it's going to be -- we think it's a big, potentially, hit scripted series with a major filmmaker.

But it came to us because we have the scale, the ability to finance, really, as many films and television shows as we think are appropriate. But the ability to move quickly and develop new financial models as well. I think it's, again, a combination of scale and nimbleness.

Thank you very much.

David Miller, Topeka Capital Markets.

Congratulations on the stellar results. I have three questions.

Jimmy, you guys were a net cash user in the quarter of some $50 million. That's, I think, fairly unusual for a fiscal Q2 for you guys, although not unheard-of course. And I am mindful of the fact that you guys killed it on free cash flow last quarter.

If you could just call out some of the puts and takes there. Looks like the working capital mix was somewhat unfavorable in the quarter. And of course, investment spending on film was fairly high. But anything else you want to call out?

And then, I have a couple of follow-ups. Thanks.

Sure, David. Absolutely, it's timing, and you put your finger right on it. The entire decline is attributable to changes in working capital.

With regards to year-to-date, we're up over $100 million, which is 35% up over the prior year. So we're tracking very nicely for the full year.

And we've got a very strong second half. And particularly in Q4, when you look at the collections, it will be coming in on Mockingjay one.

Okay, great.

And then, Rob Friedman, if you're on, could you remind me how many Hunger Games books were sold after Catching Fire, after the theatrical release? I'm just trying to gauge worldwide demand for the third film, in light of book demand right after the second film. Appreciate it.

Yes. I believe it was right around 36.5 million after Hunger Games and a little over 50 million after Catching Fire.

Okay. Wonderful.

And then, Michael, there's just some of blurbs in the press. Or there have been some blurbs in the press over the last month about Mark Rachesky perhaps wanting to sell his stake -- I don't know -- to Alibaba. I guess, that was a rumor. It was more sort of Hollywood reporter chatter.

Any comment you have? I'm not sure I really believe it, but any confirmation you have therein would he helpful.

Looks like you guys could easily lever up and take out half that stake and keep your net leverage below five times. But I'm just surmising here. Any comment you have would be great. Thanks a lot.

Sure, David. We obviously can't comment on speculation in the press about any of our shareholders, including our largest and very supportive Mark Rachesky.

We do believe that, obviously, we are not levered. That is true. And as I said earlier, we still believe that, when appropriate, returning capital through share repurchases is a smart idea.

Okay. Wonderful. Thank you.

James Marsh, Piper Jaffray.

Two bigger-picture questions, here. First, with the TV industry in flux these days, clearly it's good for your business. As you guys mentioned, it's driving a lot of demand for original series.

But I was just wondering if you guys could shed a little bit of light on how you're structuring your TV deals to maintain that proper, risk-adjusted return. Examples of that would be, how do price these SVOD deals, when you don't know what the ratings are?

And maybe just an update on what is going on with the 10/90 deals, which seem to have promise but have been difficult to replicate. But I guess, in general, how are you structuring your TV does, these days, to respond to changing industry dynamics? And then I have a follow-up.

Kevin?

With respect to the deals, it is fluid. It is changing.

Going back to an earlier question, one of our advantages is that we are nimble and can move and are not handcuffed by 40 years of precedents that tell us that we can or can't do a certain deal. The Netflix deal is very different than the Hulu deal, which is very different than the Amazon deal. (fire alarm)

On the 10/90s front--

[Hold on. It's a fire alarm. Okay.]

On the 10/90s front, we're really pleased that Anger Management is moving toward 100 episodes. We're shooting episode 95 this week. Not all of them are going to work, which is typical of the TV success to failure ratio.

Were quite bullish on the straight-to-series model. Many of our shows are straight-to-series, including Orange Is the New Black, Manhattan, Deadbeat, Anger Management, Ascension, and Casual -- almost half of our lineup. And we see the business moving that way, so we're going to keep pursuing it and trying to find the right mix of talent, writing, and network homes.

Okay.

I just have a quick follow up on these direct-to-consumer channels -- or MCMs or YouTube channels. I'm not even sure what to call them yet. But it seems if all your peers are actively investing in them, acquiring them, partnering, and launching them.

And I just hoped you could elaborate a little bit on what Lions Gate's strategy is in this space. Maybe just comparing and contrasting what you guys good are doing, relative to your peers. Maybe what you think the critical success factors are.

And then just also, really, how you monetize these or utilize them to drive audience flow. What's their purpose in your portfolio?

Speaking specifically about one particular prolific filmmaker in the digital space, we're a little cautious. And never want to jump into something and get over our skis.

But Freddie Wong and RocketJump is a deal that's already paying dividends for us. He's got 7 million or 8 million followers. His series, Video Game High School, is a bona fide success for YouTube and Netflix. And we've made an overall film and TV deal with Freddie.

And we're about to start production on two different series that he's doing that are long-form and working in our television model but come with digital economics, which are pretty favorable. And both had multiple offers before we've even begun production on them.

That deal is a smart first-look overall deal, the kind of deal we would do in the TV space with a smart writer/producer or non-writing producer. And it's paying dividends without a huge acquisition price tag that some of our competitors are doing. That's the way we want to look at a player like that as a potential incubator for TV and film product, in addition to what we can do in the digital space.

Alright. That's very helpful. Thanks, guys.

Barton Crockett, FBR Capital Markets.

Glad the fire alarm has stopped, so hopefully on your movies are catching fire.

We're glad, too. (laughter)

I guess, to get on the equity question, I understand there's a lot you really can't say. But Jon, you did lead by talking about Asia as an innovative, interesting area. Obviously Asia is far away.

To what degree could it be helpful for Lions Gate to have a meaningful equity investment from someone or some company that really has feet-on-the-ground, major presence in Asia? Is that something that could potentially take you to another level in that area?

I think we've shown, with our relationship with Televisa, our relationship with (Inaudible) and Studio Canal, that having interesting partners in other territories can be a benefit -- doesn't need to be on an equity basis. So I think that's the main thing.

You're going to see me spending a lot of time in China and India this year. As I said in my remarks, I just got back from Hong Kong.

And at the end of the day, if there is an equity component, certainly equity always encourages people to do other strategic things with you. But at the end of the day, I think it's just creating great partnerships.

And I'm just going to add one thing, Barton. [Is that our work] -- it's not like we're not there already. And in many ways, we are, with our partnership with Saban over there. And obviously, the already previously announced relationship with Alibaba.

Okay. Great.

And then, just to follow up a little bit more -- a fine-tooth comb on the free cash flow question. Would we expect that the cash burn that you have this quarter, that we'd pretty fully recoup that and then some over the next couple of quarters by the end of the year?

Absolutely.

Okay. Great. Thank you.

David Joyce, Evercore ISI.

A couple things. If you could dig in some more on the Alibaba deal. I was just wondering what content is going to be available there. How does that fit into the windowing strategy?

And then secondly, there was a huge jump in the TV episode deliveries, there in the quarter. I was just wondering, given there are more buyers now, how should we think about the phasing of TV episode deliveries throughout the course of the year? Thank you.

We've got a lot of content available in China -- some premium series like Mad Men, movies like Divergent. But I want to be clear that it's not only going to be our content. We're going to be curating other content for that platform.

I would say, in general, as we're looking at these online channels -- whether it's migrating BeFit to a subscription channel, whether it's the Tribeca Short List -- we see most of the channels that we will invest in to be, perhaps, more branded, more focused on affinity groups than, perhaps, the channel that Alibaba will be. I think that's probably -- if that is helpful -- more of our focus.

But it should to be, perhaps, a broader offering in China. We have quite a lot of our premium content available, but as well, we will be supplementing it with other content.

With regards to your question on TV episodic deliveries -- we've got a strong lineup for the second half of the year. And we'll continue to deliver a number of episodes across the board.

Alright. Thank you.

Matthew Harrigan, Wunderlich Securities.

Firstly, could you update us on Chaos Walking? And you've obviously got a number of potential hit movie franchises. You've talked about [most] Witch Hunter, Gods of Egypt -- you've clearly spoken about a lot. But what else is in the hopper, as far as that goes?

And this is a really [specky] sort of fun question. But some of the things that are going on -- Oculus Rift and Sony's Project Morpheus -- they're talking about versatile reality movies.

And I'm sure you were at CES last year. When people put on those headsets, they did that even want to take them off.

And then you've always been very proficient on the gaming and the CE side. I'm curious if that is just something you would think of as a novelty, or something that, ultimately, could give a little bit more pop to the home entertainment business?

The second part is actually interesting. We are starting to shoot some content on a number of our movies with a 360 camera, actually, to take advantage of Oculus Rift and similar kinds of technology. And we're actually pretty excited about it.

We think that's one of the kind of enhancements that will make our home entertainment product significantly more valuable -- game product as well, game versions of some of our [IP]. We think -- we agree with you. We think it's some pretty cool technology starting to happen out there, and again, we're already taking advantage of those.

Rob, I'll let you answer the first question.

First of all, Chaos Walking, we have a rewrite that's coming in we're very excited about. So we're awaiting that script, but we are getting further and further along with the development of that. So we're excited about that.

As Jon did mention, we're excited -- we've seen some early footage of Gods of Egypt, which is going to be extraordinary. Now You See Me starts next month. Deepwater Horizon, which as John mentioned in his remarks, will start in the end of March next year, which is going to be an extraordinary property.

There's a lot going on that we're thrilled about. Allegiant 1 is in the writing form now. And we'll start production next year. And of course, Highlander is very high on our list to get done. Lots going on -- all good stuff.

Thanks, Jon. Thanks, Rob.

Doug Creutz, Cowen.

Obviously, the demand side of TV is looking very healthy right now. I wonder if you could talk a little about the supply-side. Obviously, you've got day source all these shows from somewhere.

It seems that the supply can't be totally [elastic] to demand. That there's got to be a limited number of good ideas out there, a limited amount of talent. Is it becoming harder for you guys to find quality ideas? And/or are the price of the talent behind the shows going up?

No. I mean, look. It's always hard to find the right show for the right player. But when there are more buyers, it just gives us incredible flexibility. We really develop based on great ideas, great writers, great [offices]. And happily, today, instead of being able to take it to 3 places, we take it to almost 20 on a regular basis.

The [authors] that are driving the business of television -- the Matt Weiners, Vince Gilligans, Jenji Kohans -- we've been lucky and happy to be in business with many of them. They are getting paid more for what they are do, but they're delivering in a huge way, for both their studio partners and their network counterparts.

And we're out there, looking for those next show runners of tomorrow. Sam Shaw is the writer/creator of Manhattan. He is a relatively new voice in television. He comes from investigative journalism, and the show is phenomenal. Within a year or two, he will be in the same ranks.

So we're always on the lookout for new talent. And they want to come here and work with us because they've seen some of these great shows, and they want to emulate some of the writer/producers that have had these great successes. And we provide them a great platform to do so.

I'd add one of the thing, which is, there's invention, but there's also reinvention. So I mentioned, in my remarks, Harold and Kumar. We're about to take out another property we think is going to be fantastic for television -- Lord of War -- a movie that we had out a number of years ago.

So it's a combination of finding great, new talent to execute. It's also coming up with the ideas. But there's a lot of ideas out there that are going to be reinvented that are going to make great television.

Okay, great. Thank you.

David Bank, RBC Capital Markets.

Two questions. The first is, can you remind us of the timing of the expiration of your first deal, I guess, with Netflix on Orange Is the New Black? When do you renew that agreement?

And would we expect to see a pretty significant step-up in license fee? What are you thinking about on the monetization after that first four-season run?

And a second question for John. There certainly seems to be a lot of interest, both chatter in the paper and actual interest, from foreign investment in the space. There's really only a handful of players with any scale that could be legitimate partners. So we imagine you must be having some really interesting conversations.

And we could see why you would find partnerships valuable. But when you talk to the other side, what is it that they're trying to get? Is it exclusivity of IP for their platforms? What is it that they're trying to get, from your perspective? Thanks very much.

Those are good questions. I would say, what's happening a lot in the television business, actually, is you're almost constantly in a negotiation with the buyer. I can't be -- I'm not going to be more granular about, specifically, Netflix and Orange Is the New Black, other than to say that clearly, if you look at their expansion around the world, you can understand their needs a change. Our interests, in terms of being able to sell to incremental platforms and create incremental dollars, change.

So these very productive conversations happen constantly. And I can only say that I think that Orange is going to be a very strong profit contributor to our Company.

In terms of international, there are probably more in some of these territories, if you're talking about, for example, China and India.

Right.

Probably more deep-pocketed companies that you wouldn't even think about -- some are in the game space. Some are MSOs, if you will -- traditional MSOs -- telcos, if you will. And others are players in content, they're players in theatrical, the cinema business.

But in general, what we found is certainly, it's about two things. One, it's clearly about the content. And we still have, in this country, we still have a tremendous ability to create very high-level content in film and television that seems to resonate.

Look at Transformers in China. Look at Orange Is the New Black on Youku Tudou -- the very next day it airs on Netflix here, it's airing there online in China. So there's no question, I think, that we still have a tremendous ability to use our content across multiple platforms and international territories.

But I would say, funny enough, that for people that would really want to invest in your equity -- have true strategic partnerships, what they're really looking for is expertise transfer. That's really what they're looking for -- to figure out how, ultimately, for themselves to do some of the things we do here.

And again, I still think we have a really long runway, in terms of them wanting to use our content -- co-finance, co-produce. But I would say, in general, to your question, that's probably the most valuable thing -- is for them to learn how we do things.

Perfect. Thank you.

Jim Goss, Barrington Research.

I've got a couple. First, on the TV side. You've talked a lot about television today -- this strategy is definitely picking up steam and getting more robust and well-rounded.

Do you see, as an endgame -- a desired endgame -- an equal balance with the films, in terms of, say, the revenue and profit mix? And do you think there could be a potential Lions Gate over-the-top channel of your non-exclusive content domestically, not just overseas?

Yes. Without an acquisition, it'd take a long time, organically, to build television to the level of our feature film contribution. But obviously, that's what we're working on.

We do think we now have such a nice scale, in terms of our scripted and unscripted business, that there might be an interesting time now to have some bolt-on acquisitions in the TV space. At the end of the day, we're growing it organically. It's looking strong. We're going to keep doing that.

In terms of the over-the-top, actually, I've mentioned two, Jim. And one is the Tribeca Short List.

And the other, I mentioned BeFit, which is, at this point, the number one fitness platform on YouTube. And something that we see potentially migrating into the subscription business.

Again, for us in general, we think, particularly in the United States, that our over-the-top platforms will really be very focused on brand and affinity groups. We like that. We, as you know, have always looked at our content, particularly in the feature film business, that way, in terms of groups of people -- whether it's the urban audience, whether it's that specialty film, whether that's the horror audience.

And so we think there's a real -- a strong possibility to have some expansion. Sort of a boutique array of online channels. But probably, fairly focused.

If I could Jim, I just wanted to add one thing. Jon mentioned the TV space and acquisitions, et cetera. We are very disciplined, as you look at the history of this Company and acquisitions -- whether Trimark Artisan, recently, Summit -- it's all about, we're not going to overpay. And unless we think a transaction is incredibly accretive, we're not going to do it.

Alright. That's very helpful and very consistent.

On the film side then, what caused your change of heart, if you will, in terms of having Insurgent be available in 3D?

That's Rob Friedman.

Well, the production itself. There's a lot more action, a lot more visual opportunity to enhance the viewing for the customer. And it just was a perfect opportunity to do that.

Obviously 3D, especially in markets like China, Russia, are a tremendous opportunity. So it felt like the right thing to do for the right reason, so we feel very good about it.

And I wouldn't call it, Jim, a change of heart. I would actually say, after seeing the material, our heart was just is beating a lot faster.

Okay. And it looks like--

You'll see that when you see the trailer with Mockingjay, by the way.

Okay.

And when you do the -- you've talked about Hunger Games having a variety of other platforms. It seems you're planning to -- getting back on television or film.

Do think there's a period of rest you need before you come back with another series of films? Or do you lose momentum if you don't do it fairly quickly?

The good news is, we have another one coming in two weeks. And then we have another one after that.

So we're very excited, and we're very focused on making sure that we're crossing all the Ts and dotting all the Is on those movies. But we're constantly looking at how and when we can expand the universe of our franchises.

Alright. Thanks so much.

Tuna Amobi, S&P Capital.

My first question is on TV Guide. It seems like you guys admitted some more contributions on that. And I -- granted, I think it's been on a remarkable turnaround since you have CBS as a partner.

And I am just wondering, how much more funding commitments do you have? And does the performance of that asset -- does that change your view now of whether it's becoming a strategic asset as opposed to some asset that you're waiting for the right moment to monetize? Any color on that would be helpful.

Look, we think this is a great asset. And any funding is relatively modest, and the performance is really strong. This is all about driving ratings, which has been significant with more increased hours of programming, and we're very had about the value we're building that asset.

Yes. I would say, Tuna, to add to that, we are actually already doing some pilots for the channel. The ratings have gone up very consistently. We love the new brand that we're going to start rolling out in January, POP. We think it's a great move for the channel.

We've got a bunch of new shows on it, and we've got a great partner in CBS. They have been so responsive, and this is a pretty small business for them, but they have been tremendous partners. I think, together, we can keep building something really terrific.

Okay. That's helpful.

One more question on your relationship with Netflix and the announcement that they made, regarding the streaming release of Crouching Tiger. I'm just wondering -- you guys have this uncanny ability to figure out economic models were other studios might otherwise pass on them. I'm just wondering if you envision expanding the Netflix relationship, at some point, into movie production.

Do you figure that you might have the model -- since you guys tend to make a lot of hits on the low-budget side. Do you figure -- do you anticipate a point where you might figure out a model to pursue that direction?

And if you can also provide comment overall on the whole idea of shifting the window -- the theatrical window -- along those lines that Netflix is pursuing, that it would helpful. Thank you.

Okay. Here's how I'd answer that, Tuna.

We're definitely big believers in the theatrical window, which really is the driver of the food chain, particularly for big movies. But we also welcome new ideas and innovation.

As you alluded to, we do spend a lot of time exploring these new business models. We've experimented with a number of new windows, the day-and-date releases we did with Arbitrage and Margin Call.

I think to start, we're all basically time to figure out the combination of quality and accessibility for the consumer. And the good news is, when we get it right, they'll pay a premium for it.

I would say, if I think about Netflix, one of the interesting ideas could ultimately be with them that there's a feature film that also becomes a series. So it would be the right place or something that they would look at as a Netflix event movie, if you will. But ultimately, becomes, within a short period of time, a series.

We think it's always interesting when people try new things. We like disruptors. We think of ourselves as a disruptor. And again, I think it's interesting that people are trying different things.

Okay. Thank you very much.

Thank you.

Thank you, all. We'll talk to you next time.

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