Starz Entertainment Corp (STRZ) 2018 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Lionsgate Fiscal 2018 Fourth Quarter Year-end Earnings Call. (Operator Instructions) And as a reminder, this conference is being recorded.

I'd now like to turn the conference over to Senior Vice President and Head of Investor Relations, James Marsh. Please go ahead.

Thanks, Noah. Good afternoon, everyone. Thanks for joining us today for the Lionsgate Fiscal 2018 Fourth Quarter Call and Year-end Earnings Conference Call. We'll begin with opening remarks from our CEO, Jon Feltheimer; followed by remarks from our CFO, Jimmy Barge. After their remarks, we'll open the call up for questions.

Also joining us on the call today are Vice Chairman, Michael Burns; Starz President and CEO, Chris Albrecht; Starz Chief Operating Officer, Jeff Hirsch; Lionsgate Chief Operating Officer, Brian Goldsmith; Chairman of the Motion Picture Group, Joe Drake; Chairman of the Television Group, Kevin Beggs; Chief Operating Officer of the TV Group, Laura Kennedy; and Chief Accounting Officer, Rick Prell.

The matters discussed in this call today 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 could differ materially and adversely from those described in the forward-looking statements as a result of the -- of various factors, including the risk factors set out in our annual report on Form 10-K filed with the SEC on May 24. The company undertakes no obligation to publicly release the results of these revisions to these forward-looking statements that may be made to reflect any future events or circumstances.

With that, I'll turn it over to Jon. Jon?

Thank you, James, and thank you all for joining us today. Many of you have already read the exciting news that this morning, we launched our Starz offering on Amazon Prime in the United Kingdom and Germany. This is another major step in rolling out Starz as a global consumer brand. I'll talk more about this international rollout in a moment. But first, I'd like to briefly recap a strong quarter and a successful year in which we exceeded our internal and consensus financial expectations.

We achieved this performance with significant contributions across our film, television and Starz platforms, enabling us to grow adjusted OIBDA by 11% to a record $604 million last year. We also continued to generate the robust free cash flow we anticipated.

Let me take you through the highlights of the year that contributed to our strong performance. At Starz, we signed new deals with Verizon, Amazon, Altice and Sprint that reflect the compelling value proposition we offer to linear and digital platforms alike. We achieved record ratings from returning series Power and Outlander, and renewed key properties like American Gods and Girlfriend Experience. Earlier this month, we launched new series Vida, Sweetbitter and Howards End, driving over-the-top subscriber adds to their highest level since last October. And year-over-year, we've more than doubled Starz over-the-top subscribers. With our new programming connecting with its core demos, we reduced subscriber churn to its lowest level ever, as data from our direct-to-consumer business continues to enhance our ability to target our audiences. In spite of disruption in the traditional MVPD universe, success of our Starz over-the-top offerings allowed us to grow overall Media Networks segment revenue by 5% last year, and we anticipate growth again this year.

Turning to our film group. We increased our calendar year domestic box office by 30% in a highly competitive environment, with hits from all areas of our slate: Wonder, a targeted film that we transformed into a $300 million worldwide box office success; Ryan Reynolds and Sam Jackson's The Hitman's Bodyguard; Pantelion breakout film, How To Be A Latin Lover; and together with our partners at Amazon Studios, The Big Sick, one of the biggest indie hits of the year.

We're off to a fast start again this year with the faith-based I Can Only Imagine; The Commuter from our friends at STUDIOCANAL; and Pantelion and MGM's comedy hit, Overboard. In fact, Overboard is on its way to becoming Pantelion highest-grossing film ever, reaffirming our ability to deliver hit content to the Latinx community. And overall, thanks to a targeted diverse slate and an efficient business model, we achieved ultimate profitability on over 90% of our fiscal '18 theatrical releases. We're looking forward to another great slate this year with the feel-good comedy Uncle Drew; Sundance sensation Blindspotting; The Spy Who Dumped Me, starring Mila Kunis and Kate McKinnon; A Simple Favor with Blake Lively and Anna Kendrick; Robin Hood starring Taron Egerton and Jamie Foxx; and the Seth Rogen, Charlize Theron comedy, Flarsky. Fiscal 2018 was also a year in which we prepared to launch new franchises like Chaos Walking and The Kingkiller Chronicle; expanded the universe of existing brands, like John Wick; and adapted our Step Up film series into a hit television show that has just been renewed for the second season on YouTube.

Last week at the Cannes Film Festival, our presentation of Kingkiller led by director Sam Raimi was a hit with international buyers as we move forward with a major event film, a premium origin series and mobile, console and board games with 3 different partners, all under the creative leadership of Lin-Manuel Miranda.

In television, we not only readied a number of signature properties for our network partners, but most importantly, assembled our first Lionsgate-produced lineup of premium programming for Starz. The Rook, our coproduction with Liberty Global, began shooting in London earlier this month with a terrific cast. And the John Wick spin-off, The Continental, is slated to begin production early next year.

It was also a year in which we continued to form new relationships with top streaming platforms while expanding our existing partnerships with 6 scripted and unscripted series for Netflix, a growing supply of premium shows for YouTube and our first original series for Facebook Watch. It was a year in which our interactive games, location-based entertainment and Lionsgate over-the-top initiatives continued to gain momentum. Just yesterday, our fast-growing Pantaya Spanish-language streaming movie service launched on the Comcast X1 platform.

With the continued success of Pantelion's slate of films including the recent hit, Overboard, the debut of STARZ Original Series like Vida and the rollout of Pantaya, we continue to build our leadership in the very important Latinx vertical. In addition to what we achieved in our individual businesses, we had a very successful year integrating Lionsgate and Starz, bringing our employees together, achieving greater-than-expected financial and operating synergies, working collaboratively to extract maximum value from Starz Original Series on the distribution front, while partnering creatively to add exciting new properties to the Starz pipeline.

And as I mentioned at the start of my remarks, earlier today, we launched Starz Play-branded channels in the U.K. and Germany on the Amazon platform, bringing Amazon Prime subscribers over 1,000 hours of premium Starz Original Series, Lionsgate shows like The Royals, Casual and Boss, and blockbuster film franchises from Saw to The Hunger Games. The Amazon relationship is an important part of our plan to create significant market share worldwide by rolling out the Starz brand in 15 territories over the next 3 years.

All of this activity comes on top of a successful Starz launch in Canada and the continued growth of our STARZ Play venture in the Middle East and North Africa. In Canada, where we recently announced our partnership with Bell Media, Starz programming is already available to consumers with full over-the-top and linear rollouts slated for early next year. And in the Middle East and North Africa, our STARZ Play Arabia venture has become a market leader poised to cross the 1-million subscriber mark.

Our strong growth momentum also continues on the domestic front, starting with renewal of our domestic distribution deal with Amazon, creating win-win incentives designed to accelerate subscriber growth on one of our most important over-the-top platforms. And today, we're pleased to report that Starz will launch on YouTube TV next month, bringing our full array of programming to consumers via their smartphones, tablets, PCs and connected TVs. We follow that with another major digital platform launch on Hulu in October, and we expect meaningful subscriber increases from all of these new deals. These steps are just the beginning as our programming investment continues to bear fruit and as we roll out additional distribution partnerships domestically and internationally. We're locked and loaded for accelerated global expansion and overall subscriber growth in fiscal '19.

I'd like to note that none of these initiatives would have been possible without our unique value proposition, a massive content library, rich slates of original Lionsgate films and television series, and a robust lineup of Starz programming to populate our expanding portfolio of branded channels around the world.

In closing, we believe that the dynamics of today's industry environment play to all of our strengths: our expertise in creating targeted content for passionate affinity audiences; our agility in adapting to changes in our business; our ability to attract talent through a holistic Lionsgate approach that leverages opportunities across all of our platforms; and our focus on finding the right partners to help us continue growing our global business.

Now I'd like to turn things over to Jimmy.

Thanks, Jon, and good afternoon. I will briefly discuss our quarterly financial results and update you on our outlook as well as provide an update on our balance sheet.

We reported solid results for the quarter and the full year. For the full year, adjusted OIBDA increased 11% over the prior year on a pro forma combined basis despite an expected 4% decline in revenue driven largely by a smaller film slate. Fiscal fourth quarter adjusted OIBDA was $136 million, while revenue was $1.04 billion, down 16% and 17% respectively, driven largely by difficult comparisons in the Motion Picture segment relative to the prior year December release of La La Land. Reported fully diluted earnings per share was $0.41 a share in the quarter, while fully diluted adjusted earnings per share came in at $0.25 a share.

Now let me briefly discuss performance at the underlying segments compared to prior year on a pro forma combined basis. You can follow along in the updated trending schedules that we've posted to our website.

Media Networks segment quarterly revenues declined 1% versus prior year to $366 million, while segment profits declined 8% year-over-year to $115 million. The Media Networks revenue and segment profit decline related to difficult comparisons at the content and other subsegment level where, as you will recall, we licensed a significant amount of Starz original library in the prior year quarter. In fact, Starz Networks actually accelerated revenue growth in the quarter to 3%, despite the temporary disruption of service on Altice. Excluding the impact of Altice, revenues would have been up 5%. Similarly, Starz Networks profit declined 4% but would have been up excluding the impact of Altice. Starz ended the quarter with 23.5 million subs, down 500,000 from the last quarter.

Our Motion Picture segment revenue declined 35% in the quarter, driven by difficult comparisons related largely to the carryover effect of La La Land. Segment profit slipped 44%. Recall last year, the fiscal fourth quarter also included material contributors like Deepwater Horizon and John Wick Chapter 2.

In Television Production, segment revenues of $253 million were up 4% in the quarter. TV segment profits came in at $23 million. The improved results were driven by the timing of both scripted and unscripted new episodes. Full year TV segment profits were up 6%.

Now looking ahead, we continue to feel comfortable with our updated guidance from last quarter for a 3-year adjusted OIBDA CAGR of mid- to high single digits.

Now turning to our balance sheet. During the quarter, we took a number of steps to restructure our balance sheet, including upsizing our revolver and term loan B, repricing our revolver and term loan A and hedging our exposure to higher interest rates. We repriced our revolver and term loan A to LIBOR plus 1.75, saving 25 basis points. We also extended the tenor on both to 5 and 7 years, respectively. In addition, earlier this month, we limited our interest rate risk by hedging $1 billion of notional value of 7-year LIBOR at just under -- just over 2.9%. We will also explore repricing our term loan B upon the expiration of the soft call in June.

During the year, we generated $330 million of free cash flow, which along with the proceeds from the sale of EPIX, was used to reduce net debt by $650 million. Net leverage at the end of the year came in at 3.4x, which is down nearly a full turn from 4.3x at the beginning of the year. And we continue to be below our initial target of 3.5 to 4x. Also, with an increased revolver, we have $1.5 billion of unused capacity and concluded the quarter with $378 million of cash on the balance sheet.

So overall, we ended the year with a significantly stronger balance sheet, reduced interest rate exposure and enhanced flexibility.

Now I'd like to turn the call over to James for Q&A.

Great. Thanks, Jimmy. And Noah, we can open it up for Q&A now please.

(Operator Instructions) Our first question will come from Matthew Thornton with SunTrust.

Maybe 2 if I could. First off, Jimmy, you talked about comfort in that 3-year OIBDA outlook. Are you still comfortable with kind of the shape of that? I think previously you guys have talked a little bit about fiscal '19 being kind of flat and then obviously seeing the growth manifest in fiscal '20. Just checking in if you're still comfortable with that. And then maybe over to Chris, on the Starz subs, any color you can offer there just in terms of OTT sequential movement versus MVPD channel? And any quantification you can give us and just what the impact from Altice was would be helpful.

Jimmy, go ahead.

Sure, Matt. Look, as we previously mentioned, we expect fiscal '19 will be a year of investment in Starz and realignment at our Motion Picture Group. So we're not likely to see growth in adjusted OIBDA. Obviously, we just concluded fiscal '18, so it's still early in the year. And of course, there are a number of factors that could impact fiscal '19 results either up or down. In terms of the cadence, for fiscal '19 quarterly cadence, we expect it to be a bit back-end loaded like last year, with the fiscal first quarter being the smallest seasonal quarter. And we expect the quarters to largely build sequentially throughout the year.

So Starz subs, it'd been a tough couple of quarters in our MVPD space, but we're poised for growth in the Starz subs in fiscal '19. As Jon mentioned, we've locked some new distribution deals in. We've extended our Amazon deal. When you put that together with what we think is going to be our best lineup for quarters to come on our original programming, this couldn't come at a better time. So we feel very good about the YouTube, Hulu launches and other deals that we're working on that we're going to announce in the near future. With regard to the MVPD business, we think that will stabilize as we cycle through the U-verse shut down. We were impacted by repackaging of the Time Warner systems under the Charter deal. And we haven't seen what will be positive impact as the Altice deal starts to ramp up. So we're looking for a good story on subs with Starz in fiscal '19.

And next, we will go to Steven Cahall with RBC Capital Markets

Maybe first just a follow-up on the Starz sub question, Chris. Just wondering if you could give us the timing of the Altice deal. I think you end up on more subs than Altice than you were on before, so if you could just confirm that. And I was wondering if you would give us an indication as whether you think Starz subs will be up year-on-year in the first quarter, which would kind of be back over that 24 million watermark. And then secondly, maybe one for you, Jimmy, so you deleveraged a lot last year, and you just talked about some of the refinancing. Can you give us any indication as to maybe what the free cash flow tailwind in the interest line might look like in fiscal '19?

Yes, with regard to Altice, I can't give you too many specifics. But I can say overall that the deal is a win-win. Obviously, there was some short-term impact, but we look to grow subs in that deal in the coming quarters. OTT, as I said before, we're poised -- as Jon said, domestically poised for meaningful growth. We look to grow our Starz subs overall in fiscal '19.

Yes, Steven, on the interest, the average interest rate going into the year is 4.5%, so that should help you model that. And of course, we're 60% fixed now. So that should give you some feel for that on a modeling perspective.

Next we will go to Amy Yong with Macquarie.

Two questions as well, following up on Starz and leverage. Just on Starz, I think you commented that 2019 will grow again. Maybe if you could talk through kind of the mix of linear versus OTT. And do you think that digital and international efforts are enough to offset kind of the linear pay TV decline that we've been seeing? And maybe if you could give us some color on the economics of digital versus international and how that might impact OIBDA going forward, that would be helpful. And then Jimmy, you're obviously deleveraging really quickly. Just thoughts on priorities of cash. The stock is clearly under pressure. Any thoughts around a buyback or accelerating that?

So Amy, with regard to Starz, look, we grew revenue in the Starz subscription business, which is really our focus. As you know, a lot of these deals are flat deals. So revenue is not necessarily impacted up or down with specific sub numbers. As I said, I think that some unique situations, disruptions, in our MVPD partnerships will subside, and we'll see that stabilize, which gives us room to improve our overall numbers with the meaningful growth of the OTT business. And that's an a la carte business. Those are good subs. Each sub we get paid for. In the international space, it's an a la carte business as well. So we look for similar splits as we go forward and expand globally. And as Jon said, it's just the beginning of that international expansion.

Amy, could you repeat the question for Jimmy please?

Yes. So my question was on deleveraging. Obviously, you're deleveraging really quickly and hitting your targets. Maybe, Jimmy, if you could update us on your thoughts on priorities for cash. The stock is fairly under pressure. Any thoughts on a buyback or accelerating that?

Well, certainly, look, we generated significant free cash flow this year and certainly expect to continue to generate free cash flow in fiscal '19 even with our investment in international rollout and original content. We have -- we always are balancing a number of potential uses for our free cash flow, with the primary focus -- sole focus really, to drive long-term shareholder value. So that certainly includes cash for M&A opportunities, buybacks, as you referenced, as well as returning cash to shareholders through a dividend. So while we did not repurchase any shares in the current quarter, we do have a $185 billion share buyback authorization and a really strong balance sheet. Other than that, I'm not going to comment specifically about our plans.

Jimmy, I just want to add one thing. Amy, we're obviously -- in the fall, we expect a conclusion to the [dissenters] of it all. So obviously, we have to be prudent until that outcome happens.

Next, we will go to Aravinda Galappatthige with Canaccord Genuity.

Two from me as well. First of all, on the content and other segment within Media Networks. Obviously, that bounces around a lot on a quarterly basis. Just wanted to get a sense of how you see that trajectory going into '19 and beyond. And then in terms of sort of a reliable margin that we can rely on for that, I mean, it's 33% for the year. How should we think of a baseline there? And then secondly, a bigger picture question with respect to Starz. Obviously, a lot of incremental programming going into the platform. Longer term, should we -- is it reasonable to expect sort of stronger affiliate fees on a per sub basis? Obviously, there's still a big delta versus the other premium networks, albeit not to say that you should close the gap. But over time, is there sort of meaningful upside there as you look to kind of get a return on those investments?

Right. Thanks, Aravinda. Jimmy will take the first question on content, other comparisons in '19 over '18 and then the growth rate forward. And then I guess Chris can take the affiliate fee question on Starz.

Aravinda, look, one thing we don't do is we're not providing specific guidance into '19 on a specific subsegment. But the content and other segment's obviously very profitable for us. We had a lot of sales last year, so it produced a tough comp. But longer term, that continues to be strength to LIBOR and one of the advantages of owning worldwide rights, coming to exploit those.

So with regard to the Starz MVPD business, look, we look forward to be a powerful and stable revenue generator. We don't comment on specific deals. But as most people know, there are yearly increases whether they are a la carte deals or whether they are nonconsignment deals, and I would expect that trend to continue. I don't know what the other services are getting, but we're obviously working on creating the best win-win partnership that we can with these long-term partners. But the OTT business is clearly the business that we see there being real growth potential, and the economics are good for us there, and we're very bullish as we expand our global reach.

Next, we go to Alan Gould with Loop Capital.

I've got a few questions, first for Joe. Joe, could you tell us what major changes you are making at the studio, and how long it should take until we see the impact of your films? Second one on Starz, I guess it would be Chris. I thought you didn't have Altice for 2 months this past quarter, maybe I'm wrong on that. So I was sort of surprised to see that sequentially, the Starz Network revenue is almost flat with the prior quarter. Obviously, you're getting a lot more, a lot higher ARPU. And then third question for Jimmy. Your investment in content was about $1.5 billion. Is it going to stay at that level? Or are we going to be closer to like the $1.8 billion level this year?

Alan, this is Joe. We just completed a management change in the Motion Picture Group on the creative side, the film generation side. We've done that around -- we're organizing that around a much more focused strategy and movies that we're self-generating -- more movies that we self-generate here. I think the company has been a little too reliant on the acquisitions marketplace. And going forward, we want to have more control over the films that we make, a more reliable supply built around talent relationships that are experts in specific segments with an idea of retaining more rights and supporting not just the Motion Picture business but driving value into the TV business location pace and all the other platforms of the company. In terms of -- we've -- the fiscal '19 was largely baked, but we're doing a lot of work to make sure that it's set properly and run efficiently. The first films that will really come out of things that we greenlight here will start in fiscal '20, predominantly.

Alan, I guess the other question for Chris was about ARPU going up even though Altice wasn't in for the full quarter. Is that the gist of the question?

Yes. I mean, was Altice out for 2 of the 3 months? Is that accurate?

Yes, that's almost...

Yes, Altice was out for 2 of the 3 months, Alan. And factoring that in, Starz revenue still grew 3%. If you had included a full quarter, we would have been up 5%.

And Alan, to your question regarding the level of content spend, yes, we'd definitely be increasing the amount of content spend going into fiscal '19. I think your estimate of 1.8 billion sounds reasonable.

That will come from Barton Crockett with FBR and Company.

Yes, from B. Riley -- the firm name is now B. Riley FBR. And I wanted to ask, I guess, a couple of things. One is to understand on the outlook for Starz as being a year of investment where there's not really OIBDA growth. Is there revenue growth this year? Is that -- so it's investment against a growing top line. Is that a fair way to think about it?

Yes.

Yes, Jon said that in our prepared remarks.

Okay. And in terms of -- maybe for Michael, just stepping back, we've had this acceleration and -- a little bit of a change and probably an acceleration in the consolidation wave around Content Media with Comcast and the CBS-Viacom thing heating up. I'm just wondering if there's any kind of evolution in your view of Lionsgate's ability to operate at scale in this changing environment.

So Barton, I think let's start with the fact that all of these deals certainly speak to the value of content. And frankly, ever since we got Starz and we've integrated these business and looked at how much content we're touching and our worldwide distribution platform, I think it's fair to say we kind of love our assets and think we're incredibly well positioned for all kinds of partnerships, various kinds of M&A, and we've got a great balance sheet. We are a great partner. As you start seeing who we're partnering with, we announced one of those partnerships today, you'd see that we are a desirable partner for a lot of companies. So I'm not really sure which way any of these deals are going to go, but I can tell you that, as you know, for '18, '19 years, disruption has been our friend. We've been able to be nimble and move quickly. And again, with a great balance sheet, with a great broad infrastructure covering every part of content creation, I think we're in fantastic shape in this environment.

I was just going to add one thing if I could. Barton, scale does matter and also, so does strategic alliances. And obviously evidenced by the rollout of Starz with Amazon, that's an incredibly important strategic alliance.

And next, we go to David Joyce at Evercore.

Two questions, one for Kevin and one for Joe. For Kevin, I was just wondering if there's any new trend evolving in terms of your TV episode deliveries. I know you're -- there's some that you're selling to Starz. But if there is others going to platforms like Netflix, are you still able to retain global rights? Or are you selling them typically at cost plus a margin? And just if you can talk about any -- the volume changes there. And then for Joe, in terms of the film slate, with you owning more of the rights, producing more films, should we think about a -- maybe a slight deceleration in the number of new releases each year, obviously offset by you owning the long-term rights post-2019?

So it's Kevin, speaking on the first point. I mean, it's really a portfolio approach. We have shows all over with many, many different networks. Obviously, most of the streamers have a cost-plus model and have moved to that. And that is about them retaining worldwide rights for a fairly long period of time. So we have 2 high-profile series at Netflix in the scripted side in Orange is the New Black and Dear White People and a number of unscripted shows there; and Step Up: High Water at YouTube. And we've got a lot of business at Hulu and other places. So -- but we're -- much more that's in the rights retention model of license fees and/or coproductions. Obviously, all the stuff that we're doing together with Chris and Carmi and his team at Starz is owned and retained and monetized for many years to come. And I think for us, it's about diversifying that portfolio and picking the right shows for the right platform with the best economic outcome.

And on the film slate side, no, we don't -- we expect to have a similar volume. It will just be a different mix, slightly more focused in areas where we think we can really own a space and win, where we can build long-term relationships around -- with talent that are aligned with us, that are kind of best of breed in any one space. And it should allow us to capture more upside and drive more value across the platform.

And we go now to Vasily Karasyov with Cannonball Research.

I wanted to ask where we will see the impact on the P&L from STARZ Play U.K. and Germany. First of all, do you need to recognize any incremental programming costs now that you're making programming available beyond the normal scale? And also, will you be reporting it in the same segment? And then a quick question about free cash flow next year, if you could just give us puts and takes what would affect the, let's say, EBITDA to free cash flow conversion in '19 so that we could sort of ballpark where it would come out.

Certainly. From a P&L perspective, you should see the impact in the Starz Networks segment, Media Networks in total. And that will play out -- we're not going to break that out separately, but it is factored into our thoughts relative to guidance. With regards to free cash flow, we had a very strong year this year. We expect to continue to generate significant cash flow in the future. I'm not going to break out a specific number. But clearly, we do have investment in original content and rollout of international plan at Starz, so that will affect the cash flow. But we still expect very strong balance sheet and continued strong cash flow.

So just a quick follow-up, should the programming costs go up at Starz because of the launch of the new services in Europe?

No, not really. What -- as we've sort of look at the terrific success of STARZ Play Arabia, we certainly have noted that the combination of strong library product and customized products for the region has certainly worked. We're fortunate we're launching in the U.K. and Germany right now. We have about 5 production companies in the U.K., and we're fortunate that we have the ability to create content there that will work really well there, but we will then sell it off in the rest of the world. So that's probably the pattern that we'll use on customized products in various territories. As you know, I think we've got this Globalgate partnership with 12 different international partners. They are sourcing local content everywhere. But we will source that unique local content in a very efficient Lionsgate way. So we've got all of that factored into our budgets.

And our next question is from Jim Goss at Barrington Research.

A couple of them. First, with the discussion you've had about the various types of films you're trying to make, you've tended to veer toward, I think, more smaller films anyway. But I'm wondering if given that the Warner Bros. and Disneys especially are focusing on a lot of films with blockbuster potential, do you think there's a specific heightened value to filling in that gap on the other end? And what does that imply in terms of your film costs, ROI implications and also the value in negotiations with HBO and EPIX at the other end once you have that slate together?

What I would say is that from a mix perspective, we're going to -- we still look for needle movers where they make sense. I think Jon spoke a little bit about Kingkiller Chronicles. So we have our Lionsgate version of franchises, but we're certainly not reliant on those big movies to be successful. And in fact, I think if the box office has shown anything the last couple of years, there's movies across the spectrum. Take a movie like Wonder, where you can drive enormous value and build a big franchise at a price. And so we're focused on things that create urgency genres, that create urgency at the theatrical box offices, where there are audiences that are very enthusiastic about going to theaters, both genres and audiences and our slate that we built around that. In terms of the size of the budgets, the investment shouldn't change significantly from what it traditionally has. It will just be a different mix of product.

Yes, and to your second question, I can tell you that there's huge enthusiasm in the marketplace for that first pay and second pay window. We are strategizing right now all of our film content. And obviously, our priority overall is Starz and making sure we have a robust lineup. But I can tell you, the demand from outside, both streamers and traditional pay networks, is extremely high for first-class film content, which obviously we provide.

And our final question will come from Todd Juenger with Sanford Bernstein.

Two, if I may, so one on churn, whoever wants it. I noticed, I think, in Jon's opening remarks, I think you said lowest churn for Starz ever, in a long time, low churn at Starz. Did that comment refer to the overall Starz business? Or was it for the traditional business as opposed to the OTT business? And what is the difference between -- in churn between the traditional business and the OTT business if there is one and -- in terms of churn? And are you going to say roughly what that churn -- what is the churn?

What is churn? Or what is the churn? Todd, this is Chris. We received the lowest rate of churn in the last 2 months on our OTT business, is the one that we were referring to. We don't -- it's not our churn number to give on the MVPD business. It's their number, and you can ask them for a lot more accurate information than we have.

Got it. Good. Glad I asked. And I guess my second one and maybe the final one, probably for Jimmy or maybe Michael. It was a couple of years ago, I think, when you guys had talked about, I think there were 15 initiatives you identified of either money-losing lines of businesses or JVs that were off balance sheet where you thought you could get value. And I guess we sort of lost focus of that or maybe with Starz, maybe your priorities changed. Just now I just wondered, are those opportunities still -- so where are we? Have you achieved any of that? And to the extent the answer is maybe no, is that still an opportunity in front of you?

Well, it certainly is an opportunity when you're referring to the noncore assets, which have significant value, continue to have significant value. And certainly, we have executed on that in a large way in the context of EPIX, so $400 million basically in a very tax-efficient manner. So that was part of our original paydown of debt and part of our deleveraging story, as you know. But all the remaining assets, including assets like Atom Tickets, et cetera, continue to build in value. And we continue to evaluate those and maintain all the flexibility that we need.

Yes. I would say though, your last point is we are not afraid to try new things. When they don't work, we cut them off. Again, that's part of us being entrepreneurial and being nimble. But I would tell you that we are super focused right now on our 3 legs of the stool, which is our film business, our television business and our Starz business, and most importantly, making sure those 3 businesses work together really efficiently, really productively, turning already high-margin business into higher-margin business, particularly in the direct-to-consumer place. So thank you for your last question.

Thanks, Todd. All right. Noah, I'm going to wrap up with my closing statement here. Just please refer to the Press Releases & Events tab under the Investor Relations section of the company's website, investors.lionsgate.com, for a discussion of certain non-GAAP forward-looking measures discussed in this call. With that, can you provide the dial -- the replay number there, Noah?

Certainly. Ladies and gentlemen, this conference will be available for replay after 6 p.m. today through midnight on Thursday, May 31. You may access the AT&T executive replay system at any time by dialing 1 (800) 475-6701 and entering the access code 446831. International participants, dial (320) 365-3844.

That does conclude our conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.