Starz Entertainment Corp (STRZ) 2016 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Lionsgate FY16 second-quarter earnings conference call. At this time, all participants are 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, this conference is being recorded. I would now like to turn the conference over to your host, Joanna Massey. Please go ahead.

Good morning. Thank you for joining us for our FY16 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 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; Rick Prell, our Chief Accounting Officer; and Laura Kennedy, EVP of Corporate Development.

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 factors, including the risk factors set forth in Lionsgate's 10-K filed with the SEC on May 21. 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, Joanna. Thank you all for joining us on the call. I apologize for the delay.

This morning we are announcing a deal in principal, subject only to documentation, to create a new strategic relationship with Discovery Communications and Liberty Global, two of the preeminent programming and distribution platforms in the world. They will each take a 3.4% stake in Lionsgate as part of an investment that we believe creates some very exciting strategic opportunities for our Company, and will help us continue to expand our content businesses around the world.

We're delighted to welcome David Zaslav, the CEO of Discovery; and Mike Fries, the CEO of Liberty Global, to our Board of Directors. We've known David and Mike for many years, and they will bring further depth and vision to our Board. This partnership is the latest in a series of alliances we formed with companies including StudioCanal, CBS, and Televista, to take advantage of the unique position we have as a pure-play content Company in the global marketplace.

Turning to the quarter, as we reported yesterday, Q2 will be our lightest quarter of the year, due to timing of deliveries, and a softer than expected performance of some of our recent film releases. On the good news front, the audible we called on Sicario, moving its wide release to October, paid off in its solid box office performance, although it also meant that we recorded the film's theatrical P&A expense in the September quarter without significant offsetting revenue. Driven by Mockingjay 2, Allegiant, Orange Is The New Black, and Nashville, we anticipate that our film and television slates will gain strong momentum in the back half of the year.

I'm pleased to report that we did have a strong quarter operationally and strategically, as we continue to replenish film and television slates with high-profile, branded, and repeatable content based on strong underlying intellectual property. In the quarter we acquired The King Killer Chronicle, based on the best-selling fantasy book series that ranks second only to Game of Thrones. We secured the rights to this coveted multi-platform property because of our emphasis on cross-divisional synergies, enabling us to commit to the simultaneous development of feature film, television series, and video game.

We also announced plans to adapt the critically acclaimed Borderlands video game franchise, which has sold 26 million units around the world into a tent pole film, in partnership with Take Two Interactive, GearBox, and X-Men producers Ari and Avi Arad.

We've also recently added to our already robust pipeline Monopoly, the first branded tent pole from our partnership with Hasbro. Hood, our inventive re-telling of the Robin Hood legend with a dynamic young cast led by Kingsman's Taron Egerton; and the Odyssey, a multi-picture fantasy epic directed by Francis Lawrence, and reuniting the Hunger Games' creative team.

Speaking of Hunger Games, we've already begun the roll-out of Mockingjay 2, with premieres in six cities on three continents. Next week the film opens in 86 territories around the world, the biggest simultaneous global launch in the Company's history, and a fitting grand finale for the current story arc.

Other tent poles showcasing the breadth of our slate include the next two films in the Divergent series; Now You See Me 2, the follow-up to the blockbuster that grossed more than $350 million around the world; the visual-effects-driven spectacle Gods of Egypt; the first of a series of live action Saban's Power Ranger films; and Jon Wick 2, our newest action franchise, with buzz already being generated by a ground-breaking virtual reality game.

In addition to these tent pole properties, we've recently wrapped production on the event films Deepwater Horizon, directed by Lone Survivors Pete Berg and featuring an all-star ensemble cast led by Mark Wahlberg; The Shack, a powerful drama based on the global best-seller with over 20 million copies in print; and Oscar-nominated Whiplash director Damien Chazelle's music-driven romance, La La Land, starring Ryan Gosling and Emma Stone.

Last week we also announced two new films from StudioCanal: The Commuter, a suspense thriller starring Liam Neeson; and Our Kind of Traitor starring Ewan McGregor, and based on the best-selling John le Carre spy novel. This morning I am pleased to announce the third StudioCanal title, the animated 3-D family adventure Robinson Crusoe, as we continue to expand our multi-faceted relationship.

Obviously we were disappointed that neither The Last Witch Hunter nor American Ultra found bigger theatrical audiences. It's important to note that our focus on risk mitigation limited our exposure on both films, and I'm pleased to report that The Last Witch Hunter is doing well in a number of international territories.

Our television business continues its growth trajectory, as we replenish our pipeline during the quarter with one of our deepest rosters of new series. Two weeks ago, Hulu announced an early second-season pickup of Jason Reitman's comedy, Casual, following its successful debut, becoming our third Hulu original series.

We began production last month on Graves, our first original series for EPIX, featuring an all-star cast including Nick Nolte Sela Ward, and Nia Vardalos. The show begins airing next fall. Production is also under way on the straight-to-series drama Greenleaf for OWN, executive produced by and featuring Oprah Winfrey in a recurring role.

We opened a writer's room for Broke, show runner Clyde Phillips' new drama for AMC slated for a February production start. Our high-end drama series Guilt, a story of murder, scandal, and political intrigue, was picked up by ABC Family, soon to be called Freeform, where we expect the show to become an important part of the network's re-branding initiative.

Coming off of our strongest development slate ever, we're continuing to add exciting new branded properties to our television pipeline. I'm delighted to announce this morning that we continue to expand our relationship with Twilight author Stephanie Meyer, as she focuses her incredible creative skills on television.

We're adapting the action-packed genre novel, The Rook, which she will executive produce into a one-hour television series. The show, introducing a new female protagonist with extraordinary powers, is to being developed by Hulu in the US and a leading broadcaster in the UK.

We've also just acquired the multi-platform rights to Highlander, an iconic character who was already generated in major film, television, book, and graphic novel franchise. We'll develop the property both as a one-hour television series, and a major film to be directed by The Huntsman's Cedric Nicolas-Troyan, and produced by Fast and Furious producer Neil Moritz, and Original producer Peter Davis.

Our current television shows also continue to gain momentum, led by the break-out tabloid drama The Royals, which debuts its second season on E network this Sunday. We're building on its ratings momentum by launching the series on Amazon subscription video-on-demand service, which will generate significant incremental revenue, while continuing to expand the show's audience.

Fresh off a historic Emmy win for supporting actress Uzo Aduba, Orange Is the New Black continues to be a major franchise for Lionsgate and Netflix around the world. As it wraps production of its fourth season, we're continuing our conversation with Netflix about building on this incredible success.

With a live plus seven lift of 80%, Nashville remains one of the most DVR'd shows on television. It continues to be a magnet for A-list talent, and this season has already featured Steven Tyler of Aerosmith, and will soon showcase Grammy and Tony winner Steve Kazee, who we just signed to a recurring role.

During the quarter we continue to build our presence in other high-growth areas of the television business. In the game and talk show arena, Celebrity Name Game hosted by Emmy winner Craig Ferguson is showing a 40% year-to-year ratings increase in the same time period market. The show is poised to become another hit for us, alongside Family Feud, which we syndicate for Fremantle, and our own Wendy Williams Show.

There's no need to ask Wendy how she's doing. She and Debmar-Mercury have built her show into an evergreen asset, and we just signed her to a new contract through 2022.

We're also expanding our footprint in unscripted programming, with a slate that includes Monica the Medium, renewed for a second season on ABC Family; the horror-themed game show Hellevator on GSN; and Freddie Wong's RocketJump series for Hulu.

I should add that in partnership with King Digital Entertainment, we're in active conversations with several broadcasters to develop the blockbuster video game Candy Crush into a competition game show. Drawing upon a base of over one billion installed users around the world, we believe that it can become a multi-country, multi-language and multi-screen format for us.

We are expanding our television and film slates internationally, as well. We recently announced a global distribution pact with David Ellison's SkyDance television to augment our worldwide distribution pipeline with the Emmy-nominated Grace and Frankie, and development properties that include The Terminator.

On the film side, the depth of our slate enabled us to renew and expand theatrical output deals in France and Italy during the quarter, and form a partnership with Disney's Buena Vista International for distribution of our films in Russia.

Our business in China is continuing to grow, as we established content licensing agreements with nearly all the major platforms there. Last month we announced a deal with online video service Ichi covering subscription transactional video-on-demand rights for some of our most eagerly anticipated films.

The increasing breadth of our portfolio brands has also enabled us to continue expanding our location-based entertainment around the world. In addition to the recently announced Lionsgate Entertainment Center being built near Macau with our Chinese partner Lia Fung. We also announced last week a partnership with Avatron Smart Park, a first-of-its-kind interactive destination theme park under development in metro Atlanta.

During the quarter we continue to find other ways to connect our content directly with consumers. On October 1, we launched our Tribeca Shortlist subscription video-on-demand service with Tribeca Enterprises, and its curated online commentaries by leading actors, filmmakers, and other cultural icons, are generating widespread recognition. We're planning to launch our next SVOD platform at Comic-Con International in March, and we expect to announce additional streaming services in the near future.

As you know, we continue to provide you with regular updates to our directional guidance, based on all of the moving pieces of our slates. The softer than anticipated performance of some of our recent films, and the movement of yet-to-be-announced franchise properties from FY17 into FY18 have us currently tracking towards adjusted EBITDA of $1.1 billion to $1.2 billion for the three-year FY15 through FY17 period. This does not include our start-up investment and our new direct-to-consumer business initiatives, which we'll talk about more in future quarters.

We move forward with the strongest balance sheet in our history, one that will be further bolstered by our fourth consecutive year of strong free cash flow generation, as well as a filmed entertainment backlog that continues at near record levels.

In closing, the key theme I'd like to emphasize is that we're going to continue to build the Company for the long haul, find the right dates for our pictures, take our time building new franchises, invest in new areas that will have long-term benefits, and continue our focus on shareholder value. I'd like to open the call to your questions.

(Operator Instructions)

Alexia Quadrani, JPMorgan.

Hi, thank you. This is Julia Yu on for Alexia. I have two questions. First, can you talk any more about what led you to partner with Discovery and Liberty, and maybe what the potential strategic opportunities are between the companies, and what David and Michael can bring to the Board?

What's your second question?

Second question is Paramount recently released two smaller films with shorter theatrical windows. After seeing the performance of the films, do you think Lionsgate would be open to a similar sort of deal if the economics make sense for you guys?

Sure. I'll let Rob answer the second question then I'll take the first one.

We've had a lot of conversations with our exhibition partners about dynamic ticket pricing and exploration of window opportunities. The great thing about all of this is that the conversation is occurring. We think it's a real opportunity in our business to look at all sorts of optionality as it relates to bringing our product to the consumer. It seems to be going well. Whether or not this worked financially at the moment doesn't really matter. What's happening with exhibition and the conversation that's going on with its distribution partners, we think, is very healthy.

In terms of this transaction, we've been working on this for a while. We're really excited about it. I think Mike and David are two of the best CEOs, not just in the entertainment business or in the media business, but anywhere. They've both built global businesses. We think clearly our business is becoming more and more global.

The opportunities to have them on our Board to have them investing in our Company, and to work on a number of the strategic alliances that we've talked to them about are really significant. We're really excited about it, and I think you'll read more about it. The story -- I don't believe has crossed yet, but we think it's a great opportunity for us. Frankly, we think we bring a lot of value to both of their business in terms of some of the new ventures that we've talked about.

Great. Thanks so much.

Ben Mogil, Stifel.

Hi, good morning. Can you hear me okay?

Good morning, Ben.

Great, guys. Good morning. We're clearly in this golden age of television. We've got more originals being produced than ever. We've even got some of your channel partners saying there could be even too much TV out there. Clearly it's a positive from your guys as a producer perspective, but we're seeing a lot of competition. We're seeing a lot of shows that don't get renewed for the second season or don't get renewed for a third season, and that obviously has implications for SVOD and syndication value, et cetera. From that perspective, is your preference to try to do more stuff on the margin with either SVOD or premium TV producers or TV channels where that L-plus-3 or L-plus-7 ratings is not so critical?

Hi, it's Kevin Beggs. Look, we love the new and emerging markets. We were an innovator and pioneer in the cable scripted space. We've done the same in the streaming area. We don't agree that there's too much content, but the bar is being raised higher for even better content. It's stickier, and that's really our specialty. Those noisy, auteur-driven left-of-center series like Orange Is the New Black or even a Mad Men. That's where audiences are gravitating, and we expect to do many more just like it.

Yes, we love the new markets. We're having a great partnership with Netflix, a lot of business with Hulu, some really interesting things in the pipeline at Amazon, and we're confident that more and more of those players will jump into the market.

I would also add, Ben, that we're not seeing -- we announced the deal that we have a syndication deal, if you will, on streaming media with The Royals. We are not seeing in terms of pricing of the second window of these shows when they're great shows -- we're not seeing any degradation whatsoever. As a matter of fact, I think we're seeing the pricing going up. I think all in all, that story's been over-written, if you will.

Okay, that's great. Thanks, Jon. Thanks, Kevin. One last one tried to the Discovery and Liberty Global deal. Is there any thoughts about all three moving over from Discovery to you guys from a Management perspective, or even from an ownership perspective?

That's not part of the current dialogue. Obviously, we think all three is a great Company. We know the Company really well. I will say we are expanding our business. You will see us for sure expanding our business in the UK in terms of television. We've got a fantastic theatrical operation there, and we've got a great executive there, Zygi Kamasa, who runs it. You can see us in the near future giving him more resources in the television area. I think, The Rook, is a perfect example of something we're going to develop both for Hulu under the British broadcaster over there. We're active in conversations there. Whether we can interface productively in different ways with all three remains to be seen, but it's something obviously we're going to take a look at.

That's great. Thanks again.

David Miller, Topeka Capital.

Hi, guys. A few questions. Jon, I know you're somewhat hamstrung from talking about Starz in general, just because you're still under a diligence operation here for the past 9 or 10 months. I think there's a lot of investors on this call that want to know your thoughts on the Company, just given the recent print from a couple weeks ago where I think they disappointed most investors based on most consensus metrics. I know there's only so much you can say, but you do have a below-the-line position in the Company -- very similar to EPIX, and you could talk about EPIX freely.

With that, under that guise, can you talk about Starz and your position in Starz? In the diligence process, what's different now? What's different now in your thinking versus 9 or 10 months ago? Does the Company appear to you the same, or what's different versus 9 or 10 months ago when you began the diligence process? Then I have a follow-up, thanks.

I'm not going to talk about Starz in any way connected to M&A.

Of course.

That story has been written too many times, as well. I would say yes, they had a little bump. I think they are -- they're transitioning right now. Obviously, they're continuing to replace some of the theatrical product with original series -- not unlike in some ways what Netflix is doing. I think that's very typical. I think Chris is doing a great job in doing that. I think a number of the series they are doing right now are getting sticky, and I think that's great. I think he's focusing a lot of those series on specific demographics. I think that's smart.

I think we all know that from the MSO perspective, they're going to be having a lot of changes. I think the one thing I think is important, Chris just added a great executive, Jeff Hirsch, who's got tremendous experience, worked for many years at Time Warner Cable. I think being sensitive to the changes that are happening at the MSO level in terms of some slimmer bundles, some over-the-top opportunities -- if you will, more direct-to-the-consumer customized packages; I think Starz has a great future. But honestly, that doesn't really mean anything in terms of what we're going to do, other than we love producing shows for Chris. We're talking about a number of other strategic things together, and really that's all I'm going to say right now.

Okay, that's fine. My audio faded out for about a minute when you were talking about the guidance. On the altered guide, can you talk specifically about which films are being pushed out to FY18?

I'm not ready to talk about FY18 and FY19. We are starting to figure out the slate for FY18. Probably be able to talk about it in more detail within the next couple of quarters. But we're not ready to talk about what films populate that slate at this point.

Fair enough. A question for Steve Beeks, if you're on the call. There's been a number of -- there have been a number of articles in the trades of late, particularly over the last five or six weeks, about the resurgence of Blu-ray in the home video market -- mostly in anticipation of 4K. For library-rich studio entities like yourselves, how are you guys getting ready for 4K, and do you believe in it. Do you believe in 4K, and is the industry ready for yet another upgrade cycle? Thanks a lot.

Hi, David. Yes, I'm here. As you know, we've always been a proponent of new formats. As you've read recently, there have been 2 million HDTV sets, ultra HDTV sets, sold so far this year, so consumers are definitely moving in that direction.

Right.

We're getting ready for it. Every current film, of course, is mastered in 4K. We're going back to the library, and starting with the top 50, and going to the top 100 re-mastering into 4K. We're having conversations with some of MVPDs that are starting 4K channels. Us, just like our studio (inaudible) are not only supportive of getting ready for it, and I think you're going to see another resurgence in library films as we enter this new phase.

Okay, wonderful. Thank you very much.

Thank you, David.

Amy Yong, Macquarie.

Thanks, and congrats on the deal with David Zaslav and Mike Fries. Can you actually disclose the financial terms of the deal? Is that available to us yet, or can you elaborate a little bit more on what the financial terms of their stake is? That would be my first question. My second question, it looks like EPIX grew nicely in the quarter. I was wondering if you could talk about size of streaming deal with Hulu, and how that's resonating with consumers? Any thoughts on carriage with Comcast, DirecTV, and Cablevision? Thanks.

I think John's going to answer the second question, and then I will get into the specifics if I can on the Discovery Liberty.

Yes, EPIX is continuing to grow. We are having conversations with the remaining linear MSOs, and not just in terms of their linear packages, if you will, but they are all right now, I think, looking to expand into some over-the-top areas that we think EPIX could play very well in. Other than that, I don't really want to talk about the numbers or exactly where we are in those negotiations.

In regards to the question about the Discovery Liberty deal, what we'll say is, as Jon mentioned, it's a deal in principle, and more details will be forthcoming shortly.

Great, thank you.

James March, Piper Jaffray.

Great, thanks very much. Two quick questions here. The first one relates to the TV business. I guess one of the reasons why I've always felt your TV business has done so well, because it's been positioned as an independent TV business. They're not tied to one platform or tied to one larger parent Company. I wonder if these new relationships with Discovery and Liberty start to impede that independence at all. Maybe just compare and contrast the benefits and the risks of these new partnerships as they get deeper, and how that might impact your independence over time?

Yes. Look, we own 32% of EPIX. We known 3.5% or 4% of Starz. We do business with everybody. I would say that we think the opportunities of doing all kinds of the business together with Discovery and Liberty Global are significant, and we've created a document that basically creates points of contact between us that we think are smart, that we think create motivation for both sides to get together and try to figure out a lot of things to do together, but don't restrict us from doing the business the way that we want. We think it's a plus-plus-plus arrangement for us, with extremely low downside. As I said, we're very excited about it, and we've been working on it for a long time.

Okay, that's helpful. Secondly on the Mockingjay finale, I was wondering if you could talk a little bit about the international opportunity there? It's under-performed on a relative basis to other global blockbusters in the international markets. I realize the content's a little bit different than some of that other fare, but it seems like there's some up side there. I know you're taking some steps in China to bolster the box office receipts there, but maybe you could highlight some other initiatives that could potentially help drive international receipts higher?

Sure, James. This is Jimmy. Look we're very excited about this film. Obviously, it's part of a major second half for us this year. We're excited about the film, and believe that on a worldwide basis it's going to be the biggest film in the history of the franchise. I think Rob is going to give you some more color.

Hi James, this is Rob. We're very excited. Obviously, and I think Jon mentioned in his remarks that he was in London and Berlin. Our cast is globally touring as we speak. They're in Paris now. They're moving on to Madrid and then to Beijing. We are spending a tremendous amount of our focus on our international opportunities. Every single one of our partners have seen the movie, and they couldn't be more excited. Their numbers are way above any previous performance.

We are very excited about it. As we said, we're opening day and date in China with a premiere and with our cast presence. Our profile in China is going to be bigger than it's ever been in the past. We see big things there coming, as well. We're very encouraged and excited about the worldwide opportunity.

It's Michael. I'm so excited, I'm going to China tonight. (laughter)

Excellent. All right, thanks very much gentlemen.

John Janedis, Jefferies.

Hi, thank you. As a follow-up to the deal, is there any commitment involved where either partner, if you will, will be buying content directly from Lionsgate?

I think, as I say, the commercial arrangements between the parties creates a number of touch points in terms of development of product, in terms of a preferred partner relationship that I think will probably lead to a lot of business together, which should probably include some sales of some of our content, both original as well as library content, across both of those companies.

Thank you. Then maybe for Kevin. You talked about raising the bar on content. As you know, the TV network owners and to some extent the cable network guys are talking about further increasing their ownership and their shows that are on their own networks. At the same time, you've got Hulu seemingly buying more from their owners, as well. I think they are some of the players that have the resources to pay up for content. As you look out over the next couple years, do you see any change at all in either the trajectory our demand for the TV content?

I just see the trajectory increasing. It's true that various network ownership groups are looking to own more of their content. We co-produce, we license, we do all kinds of different arrangements. One of the great advantages of our independence and our nimble and entrepreneurial skill sets is that we can move quickly and pivot where the business is growing. We welcome those relationships when a network has an ownership stake or studio partner in the network. They're highly incentivized to keep it on the air, as are we.

But at the end of the day, it's really about the best content. If you're programming a network on the basis of owning your content versus creating hits, you're inevitably going to hit rough waters. We're there as an all-end solution to finding great shows for networks that need to break out or re-energize their brand.

John, I've been hearing about networks that are only going to buy their own shows since the [fin cindrels] went away over 30 years ago. I think if you're a smart entrepreneurial company that has built the credibility and brand that we have in the television business, we've got so many buyers, and we're figuring out how to make money with so many different buyers that we're pretty content with the state of the television environment right now.

Thank you.

Barton Crockett, FBR Capital Markets.

Okay, thanks for taking the question. I wanted to unpack the guidance change in a little bit more detail. You're taking it down by $100 million. Really, two things. One, could you detail for us the buckets where that $100 million change came, relative to what you were thinking before? You gave us a little bit of color, but if you could give us more detail? Secondarily, I think in the past you guys were saying that your guidance would be back-end loaded, which suggests that would be bigger 2017 than 2016. I'm presuming you no longer see that, but if you could confirm that, that would be great.

Sure Barton, good question. From the standpoint of the guidance, remember this is guidance over a three-year period, so just to frame the level of that decrease. Look, it's affected by certainly some of the recent film performance that we've talked about, but more importantly by timing. As Jon specifically noted that we have some future franchise films that have been moved into FY18, which certainly should strengthen FY18 and beyond.

As you noted, as we've noted before, our guidance has been back-end loaded. It continues to be back-end loaded. We expect FY16 to have a very solid year. We've got a strong lineup in the second half of the year. When you go to FY17, we expect that to be the largest revenue and adjusted EBITDA in the Company's history, and we expect to extend that trajectory into FY18 and beyond. I would also add that we expect strong sustainable free cash flow throughout the plan period, and that will continue to strengthen our already strong balance sheet.

Jimmy, I want to add one thing. Barton, the most important component to a film's success is picking the right day and the right date. We are going to pick the right dates regardless of what fiscal year it falls into.

Okay. It sounds like timing -- film timing, and next year is a bigger driver than the recent film performance. Is that correct?

That's right.

Okay, then a separate question. Given that we are coming up on the end of Hunger Games, at least in the current iteration, any sense of how the interest is trending for Mockingjay 2 relative to Mockingjay 1 -- from any metric, whether it's tracking or online interest or trailers -- some sense of what you're seeing?

Hi, Barton, it's Rob. Tracking is at or above all of the previous installments. As far as the metrics of those numbers, they are excellent. Our Rotten Tomatoes score is higher or as high as any of the previous films. The enthusiasm that we've been seeing from our screenings around the world is way exceeding anybody's hopes and desires. We're very excited about the future opportunity.

Okay, that's great. Thank you.

David Joyce, Evercore.

You mentioned a couple film partnership renewals overseas. I was just wondering, with so many other new evolutions of the business model, are there some new rights involved? You had called out France and Italy deals. Secondly, if you could help us also think about sizing the start of business investments, and where those will be focused? Thank you.

Yes, great. The nature of the deals that we've renewed is very similar to the deals we've had before. I can tell you that each one and every renewal we've done over the last two years has been better than the one before. I think it's really important to note -- because again, we're not obviously, super unhappy about the performance of American Ultra and The Last Witch Hunter. I'm not going to give the exact numbers, but I think everyone would be extremely surprised to see how low of a number the loss is. As a matter of fact, we did take a pre-release write-down on Last Witch Hunter. My sense is we've actually taken more in terms of the write-down than actually the loss, so actually you can get a sense of the specific loss on that.

We are protected significantly, and it is our model to release our large films in a different way than most of the major studios. I have said before there is no question that in terms of a huge blockbuster we might be giving something away on the up side; but we sure like our model in terms of a return on risk capital and return on invested capital.

These losses -- if you sort of refer them back to the issues of guidance, it's clear that if you think you're going to lose -- and I'm just picking numbers, so don't take it to the bank -- but if you think you're going to make $15 million for $20 million, and you lose $10 million or $15 million, that's a $30 million, $35 million swing. But in terms of the absolute loss, we really are minimizing our risk. One of the major components of that is that we have the best out-put deals internationally of any Company.

David, look, with regards to your second question about our investment initiative and the amount there. What I would say, the level of our future investment in SVOD channels in the series is going to ultimately depend on the opportunities that drive future value. But as you know, we have a pretty good track record for creating value through very disciplined investment. We plan to follow that same approach as we pursue these opportunities in the future.

I would add, we have -- we're really developing these over-the-top channels in a very disciplined way -- very specific to our brand and our competitive advantage. I can tell you we've already been approached by a number of very strong deep-pocketed strategics who say they'd like to get on board. It's impossible really for us to give any kind of a guidance, because my sense is we will at some point take on partners. We'll mitigate our cash investments, and we will certainly get more granular as we go down the road a little bit.

Thank you.

Matthew Harrigan, Wunderlich.

Last entrant in the current story arc must be the mandarin title for Mockingjay. It's very catchy. I had a couple questions. One, it feels like OTT is getting a little splintered in terms of a lot of parties having ambitions. Do you think that something like a re-cast, FEARnet would make some sense, despite that, given the stickiness of the horror genre and your presence there, with or without partners?

Secondly, I think you commented a couple calls ago, also on the CE side, on people who are more mainstream on scripted programming and sports, or looking more and more at Oculus and virtual reality, and it being something that's potential new angle for the studios. I know you're always sitting pretty far along the curve on new technologies. I know you look to even shooting some movies in that 360. I'd love to get an update? Thank you.

In terms of your first point, I think I would say that horror content, we have a very deep library. I would say that it is definitely an area -- there is already one out there called Shutter, which is with AMC. I would say that we think it's a great area for direct-to-consumer, because you can actually do content that's way edgier. You don't have to worry that much about various content restrictions in terms of ratings. I think your point is quite prescient, and something we're definitely looking at.

The second point is we're really -- I will tell you, there was question about 4K. Clearly, there's been 3D, but I will tell you that we are spending a lot of our time on VR. As a matter of fact, we have our own little VR studio here, and we've been bringing people into look at the early iterations of our John Wick game. When you see it, you actually haven't seen anything really like it. You're not just sitting in a seat and turning your head from side to side. You're actually walking around within the environment, playing a first-person shooter game.

We're getting -- we're doing this with Vive -- that specific VR technology and company. I can tell you we're very impressed with what's happening in this area. We're going to be deeply involved in it. Maybe even make some investments in the space. But we think this is going to be a really important area of growth.

Thanks, Jon.

Doug Creutz, Cowen.

Hi, thanks. I know you guys are disappointed in the performance of a couple of your films. One thing we've observed is that while this has been a pretty strong year for the overall box office, there's also been an unprecedented amount of concentration at the top, and with the top five or six films. Obviously, we still have Star Wars yet to come. Do you think this year's unique to the slate this year, or are we moving to a world where there are fewer bigger films in the market?

Hi Doug, it's Rob. The answer is I think year in and year out the numbers are driven a lot by the product that's available, and the timing in which these releases occur. As you probably are aware, business is up 5% to 6% so far annually, and we know that the year is going to close out big between our Mockingjay and Bond that's just opened and obviously, Star Wars and the rest of the Christmas product. Truth is, the numbers of wide releases are basically flat to last year and the year before. It very often is product driven. We feel, obviously just taking our Sicario, we're doing very well, and that's a mid-range, low-to-mid range movie that is performing excellent for us. We think there's room in the market place for all sorts of movies to fit consumer demand.

Okay, thanks.

Jim Goss, Barrington Research.

I've got a couple, also. First, as an increasing number of delivery vehicles present opportunities -- Hulu, AMC, ABC Family, EPIX, a number of the ones you mentioned, can you discuss the similarities or differences in dealing with each of them? To the extent that you might have programming that might be applicable to a number of parties, how do you approach your strategy in order to syndicate to multiple partners and maximize value on a continuum from exclusive to cannibalization?

It's Kevin speaking. On the first part, every network, every platform, is different. Some are ad-supported, some are ad-supported with a subscriber revenue. Some are pure SVOD or premium, and some are -- have the broadcast model. Every one of them is different. They all have different brand objectives. Our job as a studio supplier is to find great shows that fit their needs at that time, and keep them on for as long as possible, which is where the value really accumulates.

When we go into the market these days, our average amount of pitches is anywhere from 11 to 16 buyers on a scripted series. The same on unscripted. We, in a perfect world, get four or five bidders or more on a project, and then do a very comprehensive analysis of both the creative and the business advantages of each. (Inaudible) show will find production, get produced, be on the air and thrive, ultimately becomes our final consideration.

We generally pick pretty widely. Sometimes network brands change or they go in a different direction, and your show happens to be in the middle of that change and it might not be the right show going forward. But in general, one of the reasons we like to be on the cutting edge of new networks or networks that are re-branding, or in the instance of The Royals, a network that's adding scripted to its lineup, is because if you do it right and the timing is good and the show is excellent, it becomes part and parcel of the DNA of the brand. Mad Men has been a great example of that with AMC.

The Royals is really becoming a big brand builder for E as they expand into scripted. It's paired up with their number one reality show, Keeping Up With the Kardashians, so we know we have a big audience flow. Bonnie and her group, Francis and the entire team there, are overhauling the whole network. We're part of the story, and that's right where we'd like to be.

Okay, thanks. One other thing. I think Michael just mentioned the timing of your releases is very important. I'm wondering in terms of Allegiant and the decision by Warner Bros. to put Batman versus Superman the following week. Are they totally different demos so you're not worried about that, or is there an interest in re-timing that opening?

They are different audiences, we believe. Obviously, there is some crossover. We're looking at our release dates, especially around the world, to make sure that we have enough time for our movie to take in the best results possible. We are always looking at this, but right now are domestic date is solid. We have, if you've noticed probably, we've adjusted our international dates up a week earlier.

Okay, one last thing. The shift in timing of Sicario. Are you providing any quantification of the value shift from Q2 to Q3 of that move, given the cost in one quarter and the revenues in the other?

Thanks, Jim. Certainly. Not anything real specific, but listen, clearly substantially all of the P&A was expensed in the September quarter, okay? All of the benefits relative to the revenue and the future profitability flows in the future periods.

Okay, but no numbers around those?

No, we generally don't provide specific numbers film by film. You can get an idea about the size of the P&A, given a broad platform release like that, as some idea.

All right. Thanks, Jimmy.

Your final question today comes from the line of Tuna Amobi from S&P Capital.

Hi, good morning. Question for Jon. I think you might have alluded to this in one of your earlier answers, but I'm just wondering how the OTT market has perhaps re-defined who you believe to be your target audience in terms of the genres of the films that you make -- I'm sorry, the overall business, film and television. It certainly seems to me that some of your recent announcements has been aimed to broaden your audience, your traditional audience. I'm wondering if you feel that the OTT market has opened up opportunities in terms of trying to re-define this segment.

Separately, in terms of today's deal announcement, I'm wondering if -- both companies, clearly, I think they have a fairly sizeable international footprint. The question is, did the international opportunities factor into your calculus of where you see the up side long term in terms of this deal? Since you're not having a separate call on the deal, I'm wondering if you can maybe help us understand why you feel the 3.4% stake is the right number, and the potential underpinnings in terms of the consideration related to that? I know Mike had said it's still going to cross the wires, but anything you can provide at this point to help us understand a little bit more the motivation would be helpful? Thanks.

Tuna, I think the belief has crossed now. I would say there wasn't that much magic to the amount of stock. I would also note that they are not precluded from being in the market place to buy more stock. I would say that the international is the global reach that both companies have. I think clearly Liberty Global is an international-oriented company.

I think if you look at what David Zaslav has said over the last three or four years, diversifying his Company into the international space, the really entrepreneurial deal he recently made for the Olympics, his interest in broadcast internationally, they are really two incredible global companies. As I said earlier in my remarks, the business is becoming more global, so we think taking advantage of that across all of our businesses, including these over the top platforms, which I think is quite exportable, I think is a very important part of this deal. Again, I don't think we could have two better partners, and you'll see I'm sure a tremendous value creation around all three of us as we go down the road.

Interesting question that you asked about over the top and the way you asked it. I think the thing that we have tried along the way as we built this Company -- to be specific to brand on our own model and the demos that we thought we could be very competitive with. I think part of what we're looking at -- I can't remember who brought up the FEARnet and that horror space -- that certainly has been one of the areas that we've excelled in.

I think it comes down to we've created a broad enough content platform that we can play in a lot of different ways. I think the considerations are, what kind of content do we have that puts us in competitive advantage? Who are the right partners? With Tribeca, it was one, we've got a great library of great grown-up important specialty films. We could tap into those. Also, the Tribeca's a great brand in and of itself, and could help us in terms of subscriber acquisition.

With Comic-Con, it was very much two things. It was we speak to that young audience a lot. We are a big presence every year in Comic-Con. I think they have Comic-Con International and Comic-Con San Diego, the biggest brand with that demo of anybody. We also have -- we're going to create a lot of new digital content. We have obviously with Freddie Wong, with Defy, our stake in Defy, a number of the other ways we are building our digital studio here. We have a big capacity and a big interest in both producing digital content and exploiting it in all media.

I think the considerations about what's the right ultimate platform for us are all of those -- what kind of content it is, what's that demo and do we speak to them on a regular basis, who the right partner is and how are we going to brand that in an effective way. But good question. I think it's going to be a great area for us, and we'll talk more about it as we go down the road.

Okay. Thank you very much for that answer. Quick clarification, here. I had the opportunity actually to go through the release while you were talking as it crossed the wires. The $195 million -- is that cash consideration per partner? Is that in cash?

Yes it is.

Given that then, that takes your overall liquidity post-closing to somewhere north of --

No, sorry. Let me say, these are shares they are purchasing from MHR.

Okay. All right, that's interesting. Related question to that. Your overall capacity liquidity will now probably go to north of one $1.3 billion, including the revolver. Am I correct? If so, that's fairly sizeable. I'm wondering if you had any additional thoughts on how you would -- how you might put that to use?

Tuna, this is Jimmy. This transaction is a stock swap. There's no proceeds coming to the Company between Mark and Liberty and Discovery. Obviously, we have an incredibly strong balance sheet and a lot of financial capacity, but it consists of over $170 million of cash on the balance sheet as of September 30, and an $800-million unused line of credit, but not affected by the transaction announced today.

Okay, thank you for that clarification. That's clear now. Thank you.

Thank you all. We'll look forward to our next call.

Please refer to the Reports and Presentation tab under the corporate section of the Company's website at www.lionsgate.com for a discussion of certain non-GAAP forward-looking measures discussed on this call.

Thank you all.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation, and for using AT&T Executive Teleconference. You may now disconnect.