Starz Entertainment Corp (STRZ) 2015 Q4 法說會逐字稿

Ladies and gentlemen, good morning. Thank you for standing by as today's conference assembled and welcome to the Lionsgate FY15 fourth-quarter and full-year earnings conference call. At this time, all lines are in a listen-only mode. Later, there will be an opportunity for your questions, and instructions will be given at that time.

(Operator Instructions)

As a reminder, today's conference is being recorded. At this time, I'd like to turn the conference over to our host, Senior Vice President of Investor Relations and Executive Communications, Mr. Peter Wilkes. Please go ahead.

Good morning. Thank you for joining us for our FY15 analyst call. We will begin with opening remarks from our CEO, Jon Feltheimer. Following his remarks, we will 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.

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 factors including the risk factors set forth in Lionsgate's 10-K filed May 21. The Company undertakes no obligation to publicly release the result of any revision to these forward-looking statements that may be made to reflect any future events or circumstances. Jon?

Good morning, everyone. Thank you for joining us. Yesterday, we reported FY15 results that included record adjusted EBITDA and adjusted EPS. These results capped a three-year period ending in FY15 in which we generated almost $1.1 billion of adjusted EBITDA, nearly $100 million more than our guidance for those three years. We've also generated over $250 million in free cash flow each of the past three years. This performance is attributable not only to our strong operating momentum, but to the continuing maturation of a number of strategic initiatives we've launched in recent years.

Five years ago, we invested in Epix with our partners, Viacom and MGM, to exert greater control over our destiny in the pay television space. In FY15, the channel contributed nearly $50 million in profit to Lionsgate. Yesterday's announcement that the network has picked up its first two original series, coupled with it strong and growing financial performance, underscore the fact that Epix has evolved into a profitable, technologically advanced pay channel carried by a combination of digital and traditional partners and available in more than 50 million homes. This morning, I'm pleased to announce that we've joined with our partners in renewing our Epix licensing agreement. The network has become a key component of our television strategy and the most innovative and successful entry in the pay television space in the past 20 years.

We also acquired the TV network -- TV Guide network several years ago, and after transitioning into a full-screen channel and expanding its distribution footprint, we formed a strategic partnership with CBS and rebranded the network, Pop. Today under the leadership of Brad Schwartz, Pop has added more than 400 hours of original and new programming to its roster, consistently competes with and often outperforms its peer group of networks and has achieved eight straight quarters of ratings growth. We believe that as Pop continues its strong growth trajectory, we are on the cusp of another very profitable channel investment.

In recent years, we've launched a number of targeted labels outside our mainstream-wide release business including Pantelion Films, our joint venture with Televisa, and Codeblack Pictures, as well as investing in the specialty platform, Roadside Attractions. At the same time, we've increased our distribution of third-party product from A&E, Miramax, and other suppliers within our managed brands business.

Our investment in this segment of the business represents another strategic initiative that is now yielding meaningful results. Last year, it generated $64 million in gross contribution, and we anticipate that the contribution from our ancillary-driven releases and managed brands will increase to over $70 million this year as the segment continues to grow its margins and increases profitability. Even as these investments have begun to yield results, FY15 was a year marked by investments in new areas of the business.

We've invested in fresh initiatives, both in the US and internationally, in mobile games, location-based entertainment, and consumer products. We've launched or readied for launch several over-the-top subscription services, partnered with digital content platforms on original productions, forged relationships with leading technology companies in the virtual reality space, and expanded our content alliances and other strategic initiatives in China as well as India. The theme underlying all these initiatives is content, and the catalyst drive [mezzanine] increasing value of premium content to an expanding array of buyers around the world.

In FY15, our strategy of creating platform-defining programming for emerging digital pay and basic cable networks led to a great year for our television business by every performance benchmark. Revenue grew by 30%. Margins increased significantly. The key drivers of our slate were renewed, and our content pipeline was replenished with one of our strongest rosters of new programming. Not only were Nashville and Orange is the New Black picked up for their fourth seasons but four of the five new series launched last year have already been renewed.

The Royals, the first scripted series for E network, has been picked up for a second season. And, with ratings that have continued to grow since its debut in March, it is fast becoming a breakout hit. It leads a record roster of 14 new series that we expect to launch this year. We continue to mine intellectual property from increasingly diverse sources including books, graphic novels, toys, video games, and board games. For example, Candy Crush, a fast-track development property from the producer of Fear Factor and Wipeout, is based on the phenomenally popular video game franchise with nearly 1 billion installed users around the world.

We are also developing Titanfall, based on another blockbuster video game for a one-hour, sci-fi action series. We are about to start production on the high-end series Clan of the Cave Bear for Lifetime. Produced by Ron Howard and Alli Shearmur, in partnership with Fox 21, the pilot is being directed by Pierre Morel, the director of the box office blockbuster, Taken. Maleficent writer, Linda Wolverton, is writing the pilot and will executive produce the series.

We're also in post-production on the historical drama, The Devil You Know from Jenji Kohan, which is being produced for HBO and directed by Gus Van Zandt. The premium television drama is headlined by Eddie Izzard and represents Jenji's next series on the heels of her remarkable success with Orange Is the New Black and Weeds. With the addition of Graves, a political comedy starring Academy Ward nominee Nick Nolte, and The Devil You Know to the Epix and HBO lineups, respectively, we will have supplied programming to every pay network nearly all the major digital platforms, and 8 of the 10 leading cable entertainment networks.

Turning to our film business, while we spend most of our time talking about our wide releases, it is worth noting that our motion picture business encompasses 40 to 45 releases a year across nine different labels, efficiently targeted to specific audience segments we've served for a long time. In order to supply all of these platforms, we have become even more aggressive about securing films from outside suppliers including our new partners at CBS Films that complement our in-house production. I'd like to briefly recap our activity on the acquisitions front around the Cannes Film Festival just last week.

We bought several films including the award contender, Genius, starring Colin Firth, Jude Law, Guy Pearce, Nicole Kidman, and Laura Linney, as well as A Hologram for the King, a star vehicle for multiple Academy Award winner, Tom Hanks, that we're releasing with Saban Films and Roadside Attractions. Along with the true life drama, Freeheld, starring Academy award winner Julianne Moore, Ellen Page, and Steve Carell, and the already critically acclaimed crime drama, Sicario, featuring Benicio Del Toro, Josh Brolin, and Emily Blunt. We've now assembled our strongest slate of prestige releases since the days of Crash, Precious and Monster's Ball.

Our emphasis on franchise creation also continues to gain momentum as a significant portion of our upcoming wide releases are current or potential franchises. We are pleased to report that Director Francis Lawrence is reuniting with his Hunger Games creative team for an epic, multi-picture property based on one of the greatest adventure stories ever told, the Odyssey. Production begins early next year in what is shaping up to be an adventure fantasy in the vein of the Lord of the Rings.

With its upcoming release in China, the second film in the Divergent franchise, Insurgent, will approach $300 million at the global box office. On an apples-to-apples currency basis, it will be up 40% internationally from the first film. The next installment, Allegiant Part 1, began production this week in Atlanta. The combination of strong, international box office performance, book sales approaching 35 million copies, and continued robust home entertainment performance, underscores our belief that the franchise continues to have tremendous potential.

If you liked Now You See Me, you're going to love Now You See Me 2, the next installment of one of our most exciting franchises. The film has finished shooting in London and Macau. The new material looks terrific, and we believe that Now You See Me 2 is to be released next June is poised to exceed the blockbuster $350 million worldwide box office of the original. In fact, we've already begun early planning for Now You See Me 3.

Eight weeks ago, we sat in a presentation with a young filmmaker, Dean Israelite, who we believe is poised for a breakthrough with the first of what we will believe will be a series of films based upon Saban's Power Rangers franchise. When we watched the animatic reflecting his vision, we felt as if we'd already seen the movie, and it looked fantastic. It will be released on January 13, 2017, and we and Saban believe that this is a big, multi-picture franchise in the making.

Production began earlier this week on Deepwater Horizon, slated for September 30 release with Lone Survivor's Pete Berg directing an all-star cast of Mark Wahlberg, Kurt Russell, Kate Hudson, John Malkovich, and Gina Rodriguez, this action thriller based on the oil rig disaster in the Gulf of Mexico is shaping up to be an incredible story of courage and survival. Although we're very focused on franchises, recent box office successes such as Age of Adaline, John Wick, and the (technical difficulty), prove that our sweet spot continues to include a very profitable, very low-risk films that generate a high return on investment.

Obviously, no discussion of our film business would be complete without talking about the world of the Hunger Games. We are incredibly excited about Mockingjay 2, which looks amazing and lives up to everything you could expect. The Hunger Games has also led our charge into a number of new businesses. Lionsgate will have a major presence next to Sony and DreamWorks animation in the Motion Gate theme park opening in Dubai next fall.

It will launch with Hunger Games-branded attractions and a step-up live stage show with more franchise-driven properties to follow as we continue to roll out location-based entertainments around the world. As you know, we've already announced the Hunger Games exhibition launching in Times Square in July and the Hunger Games stage around live theatrical experience that will debut in a specially constructed 1,200-seat theater next to Wembley Stadium outside London next summer. Initiatives that were all set in motion within the past 12 months.

Under our President of Interactive Ventures and Games, Peter Levin, our premium film and television properties have also driven our recent entry into the games space. In this $30 billion revenue business, we see mobile game platforms as an incredible opportunity, not only to extend our current franchises but to source exciting new IP on a global basis. By investing in or partnering with Telltale Games, Next Games, Kabam, Starbreeze Studios, King, and Respawn Entertainment in the past year, we have forged relationships that have helped us secure rights to such great cross-platform opportunities as the two I mentioned earlier, Candy Crush and Titanfall, with additional major properties in advanced development.

Also, in the past year, we've launched or begun preparations to launch our first three subscription video-on-demand platforms. We are continuing to roll out our Lionsgate entertainment world streaming service with Alibaba in China, and along with our partners at Tribeca Enterprises and Comic Con International, we will soon name the heads of our Tribeca short list and Comic Con International SVOD services, launching later this year and early next. As we embark on these and similar initiatives, we are not only extending the reach of our content but identifying and acquiring new IP from all over the world as well. In the process, we are cementing our position as the leading, independent content Company in the world.

As our operational momentum continues to translate into strong consistent financial performance, we are reaffirming our three-year guidance of $1.2 billion to $1.3 billion in adjusted EBITDA which as I've mentioned before will be backloaded as we expand our film and television slates into FY17. We approach our initiatives with the strongest balance sheet in the Company's history. We recently refinanced our term loan to lock in a favorable, fixed long-term rate and extended its maturity to 2022. We also paid down our revolver to zero and have $800 million in unused capacity as we position ourselves with maximum flexibility in a fast-changing landscape.

By connecting content creators with consumers in every category of entertainment and every corner of the globe and extending the reach of our content to new platforms, markets, and technologies, we are continuing to create significant incremental value for our shareholders. I'll now open the call to your questions.

(Operator Instructions)

Alexia Quadrani, JPMorgan.

Hi, thank you. My first question is just: With such impressive free cash flow in the quarter, can you update us a bit on your outlook for the buyback? And I have a couple follow-ups.

The last part of that -- based on the outlook to what?

I was saying, with such impressive free cash flow generation in the quarter, maybe you could talk a bit about your outlook on the buyback?

Sure. Obviously, we had some small measure of share repurchase during the quarter, but not a lot since we've previously discussed and at our previous call. Keep in mind: We were blocked out -- blacked out for much of the quarter. We still think share repurchase is a great way to create value -- shareholder value -- and return to shareholders, so we'll continue to look at that. And as you note, we have an extremely strong balance sheet, and we can use that to drive value in the future.

And then, a question on the film outlook: I know no one has a crystal ball, but is it reasonable to assume that, with the Odyssey, with such incredible storyline and, of course, the benefit of having the Director from some of the Hunger Games movies -- it sounds like it's set up nicely to be another great franchise for you guys. Is that a fair assumption?

Hi, Alexia. Rob Friedman. Not only the Director, who we love and respect so, but also the writer and the producer of the Mockingjay series as well. So, we're very, very excited about the opportunity. We're feeling very, very bullish already in the conversations that we've had. So, we have high goals for this one.

And then just last question on the TV side: How should we think about the TV margins? You mentioned that you've had great success with your renewals so far for the TV shows that premiered recently. Give us a little color on how we should think about that, specifically Nashville now potentially going into syndication. I guess, any color you can give us on the economics of how we should frame that?

Sure. We are nicely poised for continuing strong growth in our television business, both revenues and contributions as we move into FY16. As you saw, we came in around 9.5%, 10% margins for FY15, and I would expect to see those to move into double-digit, low-teen territory as we move into 2016; and beyond, those margins would continue to increase as you have more and more of a mix of syndicated programming.

Great. Thank you very much.

Ben Mogil, Stifel.

Hi, good morning, and thanks for taking my question. First of all, on terms of Pop TV, maybe you can talk a little bit about that? Do you guys have a possible sale of that in your numbers for the year -- maybe talk about how core or not core you view that business?

The answer is we don't have an anticipated sale in our numbers. And we are doing -- Kevin, you can speak to this as well -- but we are actually doing a couple shows for Pop. We love the relationship with CBS -- really enjoyed building this, and Brad Schwartz is doing a great job. We think it's a terrific strategic asset, and we think it's a terrific strategic partnership, and hope we can do more with that asset.

Okay, thanks. Following up on Alexis's question, the buyback, obviously, was limited because of just the number of blackout periods. But maybe you can talk about the M&A market more broadly. We've seen a number of TV production houses like Mark Burnett and Mark Gordon sell in the last six months. Obviously, you are aware -- I'm guessing you probably looked at those. But maybe you can talk a little bit more to us about how you see the M&A market, both on TV and even on the film side of the film library side as well.

I would say -- I'm going to let Michael talk about potential future M&A. But I would say just specific to the way you asked that question, that I have been a little bit surprised at some of the multiples being paid, particularly for nonfiction companies. And when I think about long-term value creation, I've got to say -- and library creation -- I have got to say that one should be looking at the multiples of businesses like ours, with significant premium, long-term scripted programming, significantly higher.

So, I think we're going to -- specific to TV companies, I think, as we look at nonfiction companies, we think double-digit multiples just don't make a whole lot of sense. We're not interested in buying revenue. But, obviously, we have a great balance sheet right now.

And, Michael, I don't know if you want to add anything specific to future M&A?

As far as the balance sheet -- Jimmy talked about it, and Jon just did. It's sort of -- I would define it as bone dry. We have -- as far as powder -- we have an ability to do a lot of things. But the most important -- if you look at the past history of Lionsgate, we're not big fans of overpaying.

It has to be a very accretive transaction, and drive margin for us. We look at everything. Maybe we've missed a few deals, but my sense is that we are going to be very selective. And we think we have an opportunity where we can leverage our infrastructure and the ability to create accretive transactions, we will do it. We will not overpay.

Okay, that's great. Jon, especially thanks for the color on where you see the multiples were for some of that unscripted product. I appreciate that. Thanks.

You're welcome.

David Miller, Topeka Capital Markets.

Just a few questions here: So, of the $262 million in free cash flow in FY15, how much of that came from the library?

David, we're not -- we don't break out specific cash flows from library because you know library is $500 million of revenue contributions and margin of 38%. Every year that's continuing evergreen contribution to Company, and we're constantly refreshing our library. But we don't break out the cash flow separately.

Okay, fair enough. And then, was there -- Jimmy, was there a reason you guys didn't break out the Lionsgate UK revenue in the quarter? Or -- usually you do that. I don't see it here. Am I reading too much into it, or is there a reason you didn't do that?

I wouldn't read anything into that. It was just included with the international in our breakout on international geographic information. So, that's the sole reason.

Okay, great. And then, Michael, I would assume that, since the Starz transaction, you've had at least one Board meeting with Dr. Malone in the room. I'm just wondering if there's anything you can share from that Board meeting, just in terms of symbiosis between you guys and Starz? How it's working out so far? And any tweaks to strategy going forward, as it applies to Starz? Thanks a lot.

Well, the short answer of having John Malone at our Board meeting is -- we knew this going in -- but he's really smart. We think he is real value-added to what it is that we are doing. He's got a global perspective, and we're just thrilled to have him. Obviously, we don't talk about what is discussed in the Board meeting, but the universe of John Malone-influenced companies is vast, and we think there are enormous opportunities for us strategically with a lot of those companies.

Okay, thanks very much.

James Marsh, Piper Jaffray.

Great, thanks very much. Two questions -- first, it looks like you moved the Power Rangers release date from July to January, which, to me, just feels like a different release date to me. I wonder, should we be reading anything into this at all? Obviously, moving from a summer slot to a post-holiday release date.

Then, the second question, since we're discussing things we could potentially read into, in the last six months, I guess, Michael Burns has been elected to the Hasbro Board, and I guess Felt was nominated for the Televisa Board. Should we expect closer working relationships with these two companies with the Board seats in place?

Well, I'll answer the second one. You can expect my Spanish to get a whole lot better.

And I do think, on the Hasbro side, we think Brian Goldner is a superstar over there. A lot of people at the company, including Rob, myself, and Jon have longstanding relationships with Hasbro. And so, we think there is an opportunity. Obviously, they're in the IP business, the storytelling business, and we're very excited about the prospect of doing a lot of things with them. So, stay tuned in that regard.

Yes, I think you can look at it really simply. You're talking about possibly the world's greatest toy company, and for sure, the world's most important supplier of programming to the world-wide, Spanish-speaking audience. I think you know already of our relationship with Televisa with Pantelion and our television business with them. I think you can expect to see with both companies significant strategic thrust. I think both Michael and I are really excited, both to participate with those companies independently, but as well to bring some strategic alliance in both cases.

Rob, I'm going to let you answer the dating question for Power Rangers.

We're very excited; and with Dean's vision, we felt very comfortable in looking for opportunistic dating. As you've seen in the past, January is a great date. American Sniper has done over $350 million domestically. We really believe that great movies deliver, no matter what date they're on, and that's our positioning.

I think you can add: We see this as a significant series of movies. We are picking a date where we think we can win.

Correct.

Great. Thanks very much.

Barton Crockett, FBR Capital Markets.

Thanks for taking the question. I was curious, in this consolidating media environment, how applicable your advantaged tax rate at Lionsgate could be if you guys were to be acquiring other companies, or acquired? What constraints are there around that? Or what opportunities are that to be expanded to other companies?

Certainly, Barton. Certainly, a benefit, but we're not going to comment or speculate on M&A specifically. But having a lower effective tax rate, as you can imagine, is always beneficial. We've always been a Canadian multi-national company, and our lower effective tax rate really reflects the mix of lower international rates in those jurisdictions in which we do business.

As you've seen, we just reported an adjusted effective tax rate of 14%. And while the actual rate will always vary depending upon pre-tax income, we think a mid-teens effective tax rate is sustainable.

Okay. And that's also transportable if you acquire other companies? You see structures where that could be applied to them potentially?

Certainly, you can expand this as future opportunities.

Okay, all right. And then, switching gears a little bit on the movie slate, the new franchise attempts sound great, but you have some great movies in your back pocket that are coming to an end, at least from what we see announced. So, I was wondering if you could talk about what potential you see to maybe extend some of your franchises? Obviously, Hunger Games is top of mind, and maybe there's very little you can say, but also Twilight. To what extent can these be extended or brought back in other forms?

We're working, as you know, very, very much, and you used the word and I'll use it again -- extend these brands and these franchises. As you know, the short film project that we've been doing with Twilight has gotten a tremendous amount of response, so we're always very, very enthusiastic and encouraged by the fan interaction on all of these brand extension opportunities that are around.

Also, on the Hunger Games, clearly it's an enduring property in the echelon of Star Wars and Harry Potter. With our traveling exhibits, [StageAround] and Motiongate, and others, we continue to build more and more ways for our fans to interact in this world for years to come. We are not going to discuss specific plans, but suffice it to say that we see huge opportunities to extend this world.

Okay. And I'm just going to ask one final question. You highlighted Odyssey, which sounds interesting, but that's also a type of film where the spending on visual effects can be intense if you look at comparables out there; at least what I would think of as comparables. So, how do you create a film that visually is competitive, but is within the kind of budget constraints where you guys like to live?

Well, as you know, our model is a very efficient and effective model between our international licensing partners, our opportunities to take efficient production tax benefits, and also, Francis has proved himself to be a very, very efficient and effective filmmaker. We feel very, very comfortable that we will be able to bring a fantastic film to the screen within our consistent economic model.

I would say, Barton, a perfect example of a very high-end, expensive movie with almost 90% of the movie is special effects is Gods of Egypt. We figured out a way to do a $140-million picture, where our ultimate US [GAAP] is low-teens, close to $10 million. Again, it is a combination of tax credits, international sales, and investment partners. I think you could assume that we will have a similar mix with the Odyssey, and not go out of our franchise model, if you will.

Okay. That's great to hear. Thank you.

David Joyce, Evercore.

My first question is: Given that you have stakes in Starz now, as well as Epix, do you see any potential conflicts? Or how would you bifurcate what you would do for both of those entities?

Sure. First of all, we don't see a conflict. We continue to be very enthused about what we're doing at Epix. And as I mentioned, we've renewed our Lionsgate Films output deal. We have -- in the past -- we are doing business with all the pay television networks. We're supplying programming to all of them.

We have actually our Summit Label output deal is over at HBO. I've enjoyed a long, personal relationship with Chris Albrecht, who is a terrific CEO, a terrific executive. So, the opportunity to have an investment in Starz, and to have engendered all of the strategic conversations we're having with Starz is great, but it doesn't abrogate anything that we're doing with Epix. And, again, we are pleased with the growth of Epix. So, we think it's a great opportunity to be involved deeply with both of them.

All right. Thanks. And, on the China front, how do you view the economic situation there, from a macro perspective, in addition to your fill-in TV content ability to be monetized there, and what else you might do inside the country?

I'll let Brian Goldsmith answer that question.

Mr. China -- hi, this is Brian. We continue to be bullish about the Chinese marketplace and the growth in China. What you'll see is what we believe to be continued growth, certainly in the film space. You're seeing box office now tick higher and higher each year, by a significant amount. With recent western releases ticking nearly to $400 million in box office, so we continue to believe this will be a meaningful area of growth for Lionsgate.

In terms of our approach to China, and how we think about growing our business there, we're going to stick with the same approach we've used to date, which is expand our strategic alliances and content relationships with the leading local partners there such as Alibaba and Hunan and its TIK Film subsidiary, which is the company we recently closed the financing, production, and distribution arrangement that has already begun, and we are very pleased with. So, we're very bullish about the Company's prospects in China.

All right. Thank you very much

Matthew Harrigan, Wunderlich Securities.

Thank you. With Pantelion, you've got a great starting platform for the US Hispanic market and Latin America, but Latin America is really pretty underserved in the local production side, especially relative to China, for obvious reasons. Right now, it is a nice little ancillary business, and could that really become a much larger bucket over a period of time, particularly working with Televisa?

And then, with respect to the Odyssey, I can't resist coming up with the notion that if you put it out in a couple parts; you could actually leave Odysseus stranded with Circe at the Palace or something like that. If you did find that you got a lot of footage, where it looked really great, would you think about splitting that into two or three -- into two parts possibly?

I'll answer the last question first, which is: There's also this wonderful book called the Iliad, so we've definitely been thinking about all the opportunities. And, clearly, the Odyssey has thematically bred so many amazing movies over the years. We're very, very excited about all of the possibilities this brings us.

I would say, even more specifically, our deal with Francis contemplates more than one movie.

That's great.

In terms of LatAm, I think the simple answer to your question is yes. I can go a little bit further, but we actually see tremendous opportunity for Latin America, and particularly, in conjunction with our partners at Televisa. I can tell you that we are already having significant conversations about content distribution and new platforms together with them.

Thanks, again.

David Bank, RBC Capital Markets.

Thanks. That's a merger of names there. I have a follow-up on the Starz in the context of Epix question. I think as financial thinkers -- and first off, it's great to hear what Jon -- Jon's mind in the Boardroom is doing. But, I would love to know if you have any more thoughts around timing upon the moving forward of that partnership, more financially?

I think, as financial thinkers, we tend to think of benefits in scale, right. We generally think -- I think particularly in the media space, that owning more generally seems to be better, especially when it's accretive, right? There's cost savings potentially. I think my gut reaction would tell me there is not only operating leverage, but there's also negotiating leverage as you try and get distribution.

But, on the other hand, we are in a world where distribution seems to be pushing back on some elements of what it wants to carry. And so, if you look at Epix, which isn't itself fully distributed, how does adding another piece of content that you're trying to get distributed -- what is the industrial logic ultimately to having those two similar assets that you're trying to get increased distribution for?

Well, first of all, I smell a place that you want me to go is a place I'm not going. Because I'm not going to speculate about all the various possibilities that are going to happen, not only with those two companies, but all of the assets in the pay television world. I think, there's going to be all kinds of changes that are happening in this landscape, but I can tell you a couple of things.

First of all, I can tell you that we particularly like the subscription space. That's one of the reasons that we're playing, and we're doing it in the Lionsgate way, with branded, over-the-top platforms. We like the subscription space. And I could tell you that when you look at Epix and Starz, you see two perfect examples of where the companies distributing the content, if you will, are making money, and the platforms are making money.

So, I think those businesses are still poised to be very strong. I think that you might look at the ad-supported business and basic cable, and say that's really perhaps going under significant changes. We certainly are shifting a lot of our ad money to digital networks. We think the great players there, like AMC, certainly have a great future. But we see that area as perhaps really about to undergo some significant changes of the bundle changes, but we like the subscription space.

I'm not really sure what your point is, in terms of scale at this point? We are a 32% owner of Epix, and a 3% or 4% owner of Starz. The Starz investment not only positions us well to do strategic imperatives, content development, international growth possibly with Starz, but it puts us within the orbit of John Malone's other companies. Obviously, Charter Liberty, Global Liberty, Liberty Media, and Discovery. So, again, we think there's all kinds of strategic opportunities going forward, but I'm not going to speculate on those today.

Okay, can't blame me for trying. (laughter)

Jim Goss, Barrington Research.

Hi; couple of questions. First, with Odyssey, unlike Hunger Games, it's already known internationally. I was wondering if that impacts your approach to your foreign exposure? If you're willing to give -- or take more risk because it has a built-in brand globally?

I think it's an interstellar brand actually. The answer is -- our international partners, like our domestic marketplace, are all extraordinarily excited about the opportunities that Odyssey presents.

Jim, we're always going to be sticking to our financial model though, with regards to de-risking. We've got a great international distribution network, as you know, where we pre-license. So, this film would be ideal for that, and you can expect us to continue to follow the model that we've used in the past.

And, we, again, believe that we have significant upside opportunity with our own UK operation, as well as our IDC JV.

Okay. And, actually with regard to film pacing, I know you've described the next several years as being somewhat backend-loaded in terms of the EBITDA generation. You began with a couple of huge franchises that you either created or acquired, plus some smaller films. You have filled in with some middle tier, and I'm wondering if, despite the somewhat lesser expectations for this year, albeit with some large titles like Mockingjay, there would be any attempt to create somewhat of a more even flow as you move out and you have filled in all of the small-, medium-, and large-type films? Or do you not attempt to adjust for the inherent lumpiness in this business? It just comes as it comes?

That's a good question. The business is inherently lumpy, but I can tell you that when we put our slates together, we are very, very cognizant of the blend of pictures. It's more difficult to have the blend be exactly what we want it to be in terms of how we look at risk and opportunity when you have fewer pictures, which is one of the reasons that we are going to do 14 or 15 pictures in 2016, and actually a few more in 2017. So, we actually are very cognizant of the mix, and spent a lot of time with early development thinking about that, looking at release dates, and trying to figure out how to make it as consistent as we can, and predictable as we can.

A couple of small ones: You've established a March and November date, and I was wondering, post-Mockingjay 2, do you move Allegiant to November? How do you make sure you keep those dates you've established?

And, separately, Dubai seems to be an interesting choice for a first Hunger Games event place. I was wondering about the rationale there, and where else do you head from there?

Well, Dubai presented itself as an opportunity to us a little over a year ago as a theme park that we felt was well under way, well funded, and an opportunity in a region that we have had success with movies. But it looked like a good footprint to extend the Lionsgate brand, in addition to obviously the Hunger Games brand. I forgot the first part.

The March-November dates. (multiple speakers)

March-November. March-November. We ended up taking November from Harry Potter with Twilight, and that's how we've established a foothold in November in the past. Harry Potter is coming back in November. That doesn't mean, with the right film, that we think we will reposition ourselves in November with other properties. Allegiant is going to stay in March as we see it right now.

All right. Thanks much.

Doug Creutz, Cowen.

Hey, thanks. You guys are developing a TV series for Titanfall and Candy Crush, I think you mentioned, and the [Sagaia Falls] video game industry. I'm sure you know, that type of IP has had a tough go in terms of making successful transition to TV and movies Just wondering, how do you approach that, to enhance the chances of success? And does this say anything about the fact that there's so much demand for original TV content out there, that there's potentially some supply constraints cropping up? Thanks.

Hi, it's Kevin. On the demand front, you're absolutely right. There's more and more players; huge demand; IP that exists. IP that is successful is at an all-time premium to help creators and writers and producer/directors, show runners walk in the door with something that is immediately competitive and is viable.

Both the titles that we're talking about are quite different. One is a competition reality game show format, and that is what Candy Crush will be, with 1 billion installs around the world, that kind of familiarity, and then adapting into a game is really smart. I don't think that there's any -- too many precedents, honestly, in that space. But familiarity is always a good thing in TV, and particularly in light entertainment.

On the Titanfall front, it is a fantastic game, but one of the great advantages that Respawn brought to us when we, along with multiple other studios, were bidding on the property was an inherent knowledge of the TV narrative, in addition to their game expertise. The writer/creator is a person that comes from the TV world that's also a chief pillar within the Respawn management team, and that made it much easier for us to get our heads around as traditional TV people to understand what that will be.

So, we will be taking it out soon. We've developed the script internally. I think we're really excited about, and there's been some recent sales in this space that give us a lot of encouragement. We expect it will be a competitive situation.

Great, thanks.

Tuna Amobi, S&P Capital.

Hi. Thank you very much for taking the question. I've got a few questions as well. First, with regard to games, it appears that you were significantly accelerated your investments in that area. I was just wondering if that's something we should also expect this fiscal year?

And, generally, if you can remind us what your strategy there is? Where you're seeing the value, et cetera. That would be helpful.

Thank you, Tuna. We have invested, as you can see there, mostly in mobile-oriented game companies, and particularly with Telltale -- where I just returned from our first Board meeting -- narrative-based game companies. I think we see a great opportunity, as I mentioned in my remarks, to extend our current brands in the game space. We love the opportunity. A bunch of these game companies are very, very technologically advanced when we start looking at virtual reality, which we're doing a bunch of things in.

We think there's a huge boost that the game business is going to get from virtual reality, and we love that we're in business again with very advanced-thinking companies. I can tell you that Telltale, we think, is going to become an amazing investment, not only the recent announcement of Guardians of the Galaxy to add to the IP that they're already working with, which is amazing -- Walking Dead, Game of Thrones, Borderlands. We believe there is going to be another similarly strong piece of IP that they're going to hook up with in the near future.

But this is a company doing business in the game space unlike any other company that we've seen. We're very excited to have that relationship. But again, it's also that, as we go into this business -- as we do a significant amount of licensing of our own IP, which is all, by the way, MG is up front -- money up front against back-end participation -- no risk, so great return on investment.

We're also seeing the opportunity to show these game companies the unique virtues of our film and television business. And we are locking in -- and again, I think you'll see an announcement very soon from our feature film business about another very significant piece of IP that we are going to be developing as a feature film. So, we think this has been a great extension of our Business.

Again, everything that we've done in the game space and the location-based entertainment space, and really in the franchise and managed brand space -- three new executives, all entrepreneurs who have done this. Just all within a year, created significant amount of ultimates just in the business that we've already put together, and we think this is going to be a great strategic thrust for us.

Okay. That's very helpful.

The other question was maybe a housekeeping question. It seems like you guys combined the Lionsgate and Summit into Lionsgate Premier. I don't know if that's just a branding move, or if there's other financial ramifications that is associated with that?

I'll let Steve answer that.

Tuna, recently, as you mentioned, we announced the formation of Lionsgate Premiere. What that is -- that's an additional label. It is not the combination of Lionsgate and Summit.

As you've noticed over the last few years, we've released a lot of pictures with a multi-platform release strategy, primarily [day and date]. We also have grown in our platform releases, traditional releases. In the past, we've utilized outside, third-party distributors, and there are opportunities for us to bring that in-house.

We will continue to distribute with our partner, Roadside Attractions, on an opportunistic basis. But, other than that, we expect -- we built a small team, and we expect to release the multi-platform pictures, as well as some traditional releases, through that new team, using as a backbone the status and market heft of the bigger distribution company, but both will exist side by side.

Okay. Just to be clear: All of the infrastructure that you have will stay in place?

Yes.

And I've noticed also separately that Walmart has been making some major changes in their shelf space, et cetera. I don't know if you have seen anything there? And is that something that you're concerned about for your packaged media business, given your exposure there? And what other moves that you're taking to alleviate that, if at all?

Well, as we mentioned, Walmart obviously is the primary mover in the package space, and we are always watching what they're doing. They make changes about every 18 to 24 months, to which we need to react as they react to their customer base. They have made some changes with the secondary pictures -- smaller pictures to which we have responded. It just means they have moved around the dates on which we can load into their shelves.

And all it really does is -- a little bit of a strategy move on our part in terms of when we release the secondary pictures. It doesn't really impact the primary movers -- the bigger theatrical releases. It really impacts the smaller.

The drivers are really unchanged, but what they're doing is they're moving them around to drive traffic. They are still a big traffic generator -- movies, so to speak. And they're just -- basically it's just a modification of their existing strategy.

Okay, and lastly -- and thanks for being so generous with your time. Lastly, with regard to the backlog, just a housekeeping question: Given the acceleration in your license and pipeline, et cetera, it seems to me that that number should have been moving a little bit higher than it has been? I'm wondering if there's anything I'm missing here? Is there something that we should expect to accelerate this fiscal year? Or what are the puts and takes with regard to that number that we should be watching for? Thanks.

Sure, Tuna. Backlog moves up and down, depending on film slates and TV avail, so the current backlog is $1.1 billion, and it's no exception. It's in line with the prior quarter. It is slightly down from the previous year, and that is affected by fewer wide releases in our FY15 slate.

In fact, we are at -- the fact that we're at $1.1 billion is, on a smaller film slate, shows the resilience of our TV business and library. And, as you know, the majority of backlog will flow into revenue over the following 18 months to two years, which gives us a lot of visibility into the continuing strengths of our future periods.

Thank you very much.

All right. Thanks, everybody, and we look forward to our next call.

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