Starz Entertainment Corp (STRZ) 2024 Q1 法說會逐字稿

Good day, and welcome to the Lions Gate, First Quarter of Fiscal Year 2024 Earnings Conference Call. (Operator Instructions) Please note, today's event is being recorded. I would now like to turn the conference over to Nilay Shah, Head of Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us for the Lions Gate Fiscal 2024 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 for questions. Also joining us on the call today are Vice Chairman, Michael Burns; COO, Brian Goldsmith; Chairman of the TV Group, Kevin Beggs; Chairman of the Motion Picture Group, Joe Drake; and President of Worldwide TV and Distribution, Jim Packer. And from Starz, we have President and CEO, Jeffrey Hirsch; CFO, Scott MacDonald; and President of Domestic Networks, Allison Hoffman.

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 could differ materially and adversely from those described in the forward-looking statements as a result of various factors. This includes the risk factors set forth in Lions Gate's most recent annual report on Form 10-K as amended and also as amended in our most recent quarterly report on Form 10-Q filed with the SEC.

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. The matters discussed on this call also include the proposed separation of our television and movie production business from our Media Networks business. We urge you to read the relevant materials that we and our subsidiary, LG Orion Holdings, have and will file with the SEC, including a registration statement on Form 10, which was filed on July 12, 2023, that includes a preliminary joint information proxy statement.

The information on the joint information proxy statement will not be complete and may be changed. You can find these materials and other documents filed with the SEC free of charge at the SEC's website, www.sec.gov or on our Investor Relations website. Lions Gate, LG Orion and our directors, executive officers and certain other employees and other persons may be deemed to be participants in the solicitation of proxies from the shareholders in favor of the proposed separation under SEC rules.

Information about participants and their direct and indirect interest will be included in the joint information proxy statement and the other relevant documents filed with the SEC as available. I'll now turn the call over to Jon.

Thank you, Nilay, and good afternoon, everyone. Thank you for joining us. It's been only 2 months since we spoke with ELAs, but it's been a busy period, culminating and are signing a definitive agreement with Hasbro last week to acquire a global entertainment platform, E1.

The E1 deal allows us to do what we do best, adding 6,500 titles to one of the largest and most valuable libraries in the world, growing our portfolio of brands with properties like the Rookie, yellow jackets, Naked and Afraid and film development rights to Monopoly, continuing to strengthen our scripted and unscripted television business and scaling our operations in Canada and the U.K.

On closing, we expect the transaction to be immediately and highly accretive. Jimmy will provide more color on that in a few minutes. Taking a look at each of our businesses, beginning with motion pictures, our feature film Group reported strong profits in the quarter, thanks to the overperformance of library titles, multi-platform releases like the thriller, CSI, theatrical carryover from John with Chapter 4 and the home entertainment performance of Plain.

The strong financial performance even with 3 releases that opened softer than anticipated in the quarter, speak to the resilience and diversification of our film business. With the expendables 4, Saw X and the long-awaited return of the hunger games coming up. We're bullish about our slate for the rest of the year.

Looking ahead, we have completed principal photography on Ballerina, the first of what we expect will be several movie spin-offs from the John Wick universe and we're readying the Michael Jackson film from producer Graham King.

Beyond that, we have a strong roster of branded world-class properties, including dirty dancing, now you see me 3 from Director Ruben Fleischer and Highlander from John Wick Director, Chad Stahelski. In the faith-based vertical, our partnership with the Kingdom Story Company has already produced the box office hits, I can only imagine and Jesus Revolution.

In October, we'll release the next film from Kingdom, the inspirational drama ordinary Angels, starring 2-time Academy Award winner, Hillary Swing and Kingdom's Unsung Hero, it screens next April in time for Easter.

Turning to television. We have a robust slate of content at all stages of production, Acapulco, Manhunt Lincoln and the Seth Rogen Comedy all for Apple TV Plus, the John Cryer Comedy extended family for NBC, Son of Critch for the CW and Ghost, raising Canon and the Serpent Queen for Starz to name a few. And we've completed and delivered one of our biggest and most eagerly anticipated properties.

The John with Prequal event series, the Continental, launching on Peacock and Amazon Prime on September 22nd. As a number of our series moving to later seasons, our scripted serious slate continues to drive growing profit contributions that are expected to reach record levels this year with continued growth into Fiscal '25 and Fiscal '26.

Ghosts, one of TV's highest-rated comedies for CBS, MyFicQuest for Apple and BMF for Starz had a roster of 10 Lions Gate television series in their third or fourth seasons. On the distribution front, with platforms now selling some of their best content to third parties, there's more supply than ever in the marketplace. In response, our aggressive approach to fast channels has created distribution opportunities with a whole new generation of MVPDs like Roku, Pluto, VIZIO, LG and Freve, and we're driving substantial and growing incremental revenue using our existing infrastructure through Lions Gate's owned fast channels, Movie Sphere, Her sphere, outer Sphere, Nashville and more than a dozen others.

We anticipate this revenue stream will double next year. We've also become a leading distributor of great third-party content. Our television group was chosen by creator, director and producer, Dallas Jenkins, to distribute the acclaimed event series that chosen, which has grown from a crowdsourcing project to a massive global phenomenon with over 110 million viewers, within a few weeks of our securing global distribution rights. The series was picked up for multiple seasons by the CW network in the U.S.

The Quentin Tarantino films, kill Bill volumes 1 and 2 in Jack Brown have become great recent additions to our library, giving us distribution rights to the industry's largest portfolio of Tarantino films. And as you read yesterday, our worldwide television distribution group and Debmar-Mercury have partnered with the Carty Werner team to license their hit television series, the Connors, ABC's #1 comedy for 5 straight seasons to SVOD, AVOD, basic cable and fast platforms worldwide, along with domestic syndication.

This growing slate of third-party properties reaffirms Lions Gate stature as a place that the world's leading IP creators and trust with their big brands. And all content roads lead to our film and television library, which achieved yet another record performance in the quarter, reporting nearly $900 million in trailing 12-month revenue.

I want to make an important point about our library. 10 years ago, over 60% of our library revenue still came from acquired and managed third-party content. By contrast, nearly 80% of higher-margin library revenue today is driven by Lions Gate films, television shows and Starz original series that we have created many in the past few years as we continue to grow our crown jewel asset organically and through acquisitions.

Turning to Starz. The service continues to take steps to strengthen its business in preparation for becoming an independent stand-alone public company after the separation. During the quarter, it streamlined its distribution footprint, executed a rate increase across its platforms and began a ramp-up of first-run studio movies to complement its original series. Though the rate increase may have impacted subscriber growth in the short term, we continue to be profitable and expect the financial benefits of that increase to become apparent in terms of revenue and contribution growth in the next few quarters.

Combined with new efficiencies in content and marketing spend, it will be an important contributor to the growth of Starz domestic margins. On the international front, after being approached by a key distributor in Latin America, we transacted a favorable agreement that motivated us to exit the territory by December 31 as we move towards focusing the service on the U.S. and other English-speaking territories, the U.K., Canada and Australia, while also continuing to take significant cost out of the business.

As movies play a large and growing role in shaping which streamers offer their consumers, Starz continues to ramp its roster of hit films alongside its original series. In that regard, I'm pleased to note that the theatrical output agreement between Lionsgate and Starz has been extended through 2027. The Lionsgate Pay1 and Universal Pay2 slates will take Stars from 14 movies last year to 28 films this year and more than 40 next year, with the eagerly anticipated Starz launch of John Wick Chapter 4 on September 26th.

In closing, we remain committed to the separation of Lionsgate and Starz. We filed a Form 10 with the SEC last month as the next step in the process. With the impact of the E1 acquisition on regulatory approvals, uncertainties surrounding the strike in our efforts to create the most efficient capital structure within a disruptive marketplace. We anticipate that the separation will now take place in the first quarter of calendar 2024.

Now, I'll turn things over to Jimmy.

Thanks, Jon, and good afternoon, everyone. I'll briefly discuss our first quarter financial results, provide an update on the balance sheet and then provide some details on last week's E1 acquisition announcement.

First quarter adjusted OIBDA was $86 million and total revenue was $909 million. Revenue grew 2% year-over-year, while adjusted EBITDA was up over $80 million. The year-over-year increases reflect revenue growth at Motion Picture and segment profit growth at all 3 business units. Reported fully diluted earnings per share was a loss of $0.31 and fully diluted adjusted earnings per share was a loss of $0.04 a share.

Adjusted free cash flow for the quarter was $35 million. We are reiterating our fiscal 2024 outlook of adjusted EBITDA of $400 million to $450 million, which at the midpoint reflects nearly 19% year-over-year growth.

Now, I will discuss the fiscal fourth quarter performance of our Studio and Media Networks businesses as well as the underlying segments compared to the previous year quarter. Media Networks' quarterly revenue was $381 million, and segment profit was $32 million. Revenue was flat year-over-year as continued growth of domestic OTT and international ancillary distribution revenue was offset by domestic linear revenue declines.

Domestic revenue was down 3%, while international revenue was up 38%. Media Networks segment profit compared favorably to last year's due to lower international losses and lower domestic distribution marketing and direct operating expenses. As a reminder, STARZ $1 price increase for retail domestic subscribers went into effect in the last week of the June quarter.

Accordingly, we expect the revenue benefit of the price increase to start in the September quarter. Now, let me discuss our subscriber numbers, which for comparability purposes or pro forma figures that exclude the historical subscribers and territories we have already exited, which includes Continental Europe and Japan. We ended the quarter with 29.4 million total global subscribers, including STARZ PLAY Arabia. This represents a sequential decline of 300,000 subscribers driven by domestic pressure.

Focusing specifically on our OTT subscribers, we ended the quarter with 19.9 million global OTT subscribers. This represents a year-over-year global OTT subscriber growth of 9%. As Jon announced in his prepared remarks, subsequent to the end of the quarter, we decided to exit the Latin American market. We expect that we will fully exit Lat Am by the end of calendar year 2023.

As part of this decision and subsequent to quarter end, we received accelerated payment of unpaid future contractual revenue guarantees from one of our largest bundling partners. This consideration more than offsets the remaining in-territory content commitments and shutdown costs.

Now, I'd like to talk about our studio business. Revenue of $625 million decreased 12% year-over-year, while segment profit of $92 million was up 31%. On a trailing 12-month basis, library revenue at the studio was a record $896 million, up 1% compared to the prior quarter's record trailing 12 months library revenue. The studio has now reported 3 consecutive quarters of record trailing 12-month library revenues.

Breaking down the motion picture and television studio businesses, let's start with motion picture. Motion Picture revenue was up 46% year-over-year to $407 million, while segment profit of $69 million was up 37% year-over-year on strength in John Wick for box office and home entertainment as well as library strength. This segment profit growth is particularly impressive in light of the greater than 220% year-over-year increase in theatrical P&A spend in the period.

And finally, television revenue of $218 million expectedly declined year-over-year on a difficult comparison with last year's elevated content deliveries. Segment profit of $23 million increased 17% on favorable year-over-year comparisons at Debmar-Mercury. Now, let's talk about our balance sheet. Excluding adjusted EBITDA from previously exited Lions Gate Plus territories in Continental Europe and Japan, trailing 12 months leverage for the quarter improved almost a full turn to 3.6x.

We continue to retain significant liquidity with $323 million of unrestricted cash on hand at quarter end and $1.25 billion of an undrawn revolver. This level of liquidity is particularly strong after another quarter of reducing the face amount of unsecured bonds outstanding. In particular, we purchased $85 million of our bonds for just over $60 million.

Life to date, we have repurchased $285 million of our bonds for less than $200 million, resulting in a total net debt reduction of approximately $90 million and significant future cash interest savings.

Finally, I want to talk about our recently announced E1 transaction. We're paying $375 million of cash to acquire eOne's TV and Motion Picture studios as well as its 6,500 title library. We expect that the transaction will close before the end of the calendar year.

In terms of the financial profile of E1 asset, I wanted to provide some more color on the normalized pro forma adjusted OIBDA that we expect to realize from the transaction. Specifically, after the transaction closes and synergies are layered in, we expect the run rate annual adjusted OIBDA of the E1 asset to be between $55 million and $75 million.

At the midpoint, this implies a highly attractive enterprise value to adjusted OIBDA multiple of just under 5.8x. We intend to fund the transaction in an efficient manner through a variety of options, which include potentially using a combination of cash on balance sheet, using our $1.25 billion undrawn revolver and/or a non-recourse IP-backed facility similar to the structure we used to acquire the Spyglass library.

As we integrate E1 with our complementary businesses, the overall impact to leverage on a pro forma basis post synergies is expected to be less than a half turn. So, while leverage will increase by more than a half turn at closing, we expect it to fall quickly. You have seen us lower our leverage almost 2 turns in the last 9 months, and we remain confident in our ability to continue to deliver through strong adjusted OIBDA growth. Now I'd like to turn the call over to Nilay for Q&A.

Thanks, Jimmy. Operator, can we open up the call for Q&A?

(Operator Instructions) And our first question today comes from Steven Cahall with Wells Fargo.

So first, just on E1. I think a lot of investors feel like it's been a long time since you started the strategic review and the spin of the studio was coming up. And so, I think the big question is, well, it seems like you paid a pretty attractive multiple and you get some library. Why did this transaction need to happen now pushing out the date of the spin until now it sounds like the beginning of the next calendar year versus waiting until you got the spin done, which is only about a month away and then looking at that acquisition thereafter. And then as a follow-up for Jeff, you've got 2, I think, defined audiences at Starz that you target. Can you talk about how you're looking to phase the content to retain subs, drive more pricing increases really ultimately just get back towards the 20% segment profit margin that you've targeted historically. Do you feel like 4 to 5 show the year in your 2 key demos is enough or that you'll need to change tax at all?

I'll answer, Steven, it's Jon. I'll answer the first part, which is really pretty simple. You partly answered your own question, which is it was a really attractive multiple, particularly in our hands, frankly. This is something, again, we do really well. We built the company with a lot of library acquisition, and there's a lot of operating assets there and frankly, in our hands. I think this is, as I said in my remarks, super accretive. So the other is, this is when it was for sale. And so pretty simple. We felt it was an asset that would really bolster the value of our studio side upon separation. There were other timing issues and regulatory stuff and financial structuring capital restructuring that we're working on, but we felt this was something that we really didn't want to miss, and I'm glad we didn't. Jimmy?

Yes. I think bottom line, we're excited to have this. It puts us in a much stronger position, both operationally and strategically. And as we go forward into the new quarter of the calendar year, a lot of things will line up, as you've seen, we've restructured Lat Am. That will be in our favor as well as we exit Lat Am by the end of the December quarter. And I expect there'll be more clarity around the writers, actor strike by that time as well. So, any time you move uncertainty, it's a good thing and will put us in a position of strength.

Steven, it's Jeff. As we've talked, I think we have these very valuable 2 core demos. And I think 4 to 5 shows for each done is actually the right number for us to kind of string shows together, move the consumer from one show to the next extend lifetime value and ultimately reduce churn. Unfortunately, in the current quarter, we had DMF and goes back to back in the prior quarter. We had scheduled to run the world behind it, hoping that it would extend it and it was a little softer than planned.

But ultimately, we do believe that that's the right portfolio of number of content shows, coupled with movies to drive the business back to a long-term approximately 20% margin. I think there's really 2 components to that. One, on the revenue side, obviously, rate increases you've seen, we've just executed our first rate increase in the history of the business. And I think over time, we'll be able to drive more rate there as well as bundling on the revenue side, I think you'll start to see bundling accelerate, which will ultimately help obviously, lifetime value and churn. And then we've been working very closely with Kevin on the Lionsgate side to look at the shows, and I think ultimately, we've got to start to turn the slate over to be more cost-effective in the shows that we have. And so as we do those 3 things, we can approach long-term approximately 20% margin on the domestic business.

Our next question comes from Barton Crockett with Rosenblatt Securities Inc.

Okay. I guess 2 things I'm just kind of curious about. One, could you talk a little bit more about the financial impact of exiting Latin America in terms of subs, your trending schedules, give us subs for markets you've already exited, but we don't have Liam. We don't know the revenue and the EBITDA impact, but some color there would be helpful. And then secondarily, I just was wondering if you could address the question that I've heard from some quarters about whether there could be some pushback from Starz bondholders around maybe some concerns around the possibility of their view that substantially most or all of the business might be taken away from them and the split and that might cost some resistance? Are you seeing anything there? And how do you feel about your position?

Yes. Thanks, Barton. I'll take the financial piece on Lat Am and if Jeff wants to add on the subs. But broadly speaking, as we said, there's going to be -- and cash has been received that will more than cover our exit costs, so to speak, in our commitments in that territory. You'll see that play out over the next 2 quarters, but it's not overly impactful. But it's beneficial. It's a beneficial way to exit the territory. And so we're happy with what we're doing there and focused on the U.K.

With regards to the bonds, definitely, as we've said before, these travel with stars, so to speak, or another way to say that is they remain with remain core. That's the issue of the bonds. And we'll evaluate that long term, but that's part of that structure. We'll refinance the Term Loan A and Term Loan B as part of the studio structure. There's more than ample assets to do that. And then as we evaluate the Starz structure, it clearly includes the bonds.

Similarly, we could also layer in a level of secured financing, regular type of bank relationship financings. Term Loan A as an example with the revolver and set that capital structure up and their cash flows are very visible and very capable of financing that. And I'll remind you, it will be financed off of the domestic businesses because the international has been restructured. It's moving to profitability, and that will happen and the banks will focus on it that way.

Next question comes from Thomas Yeh with Morgan Stanley.

Jimmy, you mentioned some uncertainty on the strike, but you also reiterated the fiscal '24 guidance. Can you talk about any strike impact that's baked into there? And does that elevate uncertainty on expectations for deliveries that still might happen through the duration of this fiscal year? And then I wanted to ask about the spin in the context of the idea that you've spoken about separate assets having greater strategic option and a longer term. There's some language in the Form 10 about a 2-year waiting period if strategic conversations have been discussed in the past. Can you just talk about any limitations you might see there that limits you from pursuing those options?

Okay. Well, let's first take the strike and the uncertainty of the strike. First, our assumption -- first, we're happy to reiterate guidance. And I'll tell you, it's not only in the aggregate, but it is also on a line-by-line basis for both the studio as well as Media Network. So that's reaffirmed. We have, in our assumptions, we've built in an assumption that the strike goes through the September quarter. That was about a $30 million impact. As you can imagine, it most primarily affects our talent management business of 3 Arts and television in that context. So, we factored that in. If it goes longer, it's a similar impact probably as it rolls quarter-to-quarter, if it does, we're hopeful that things get resolved, and we're back to work in the mid fall.

Having said that, in terms of the overall guide, we factored that in, and we're comfortable with where we are at this time.

Yes. And the other part of your question, I don't think there's anything there that we're worried about in terms of strategic limitations. I would say, that is part of our plan. I think scaling up on both sides of the business is certainly part of the plan. And on the studio side, we are pretty aggressive, and E1 deal is indicative of that. I think Starz is a great business. It's a profitable business. It's got 2 really strong demos. I could definitely see after separation, and Jeff has mentioned this before, we're going to be looking for ways to scale that up with other like kinds of platforms. I think that's definitely in plan. I don't see any limitation.

And the key there is nothing in contemplation at that time. And as you know, it's a corporate as we've said before, it's taxable on a corporate basis, it's tax-free from a shareholder perspective. So, that puts you in a better position as you go forward if opportunities do arise in the future to capitalize on those.

Got it. Super helpful. And maybe just to clarify one last thing, Jimmy, on the moving pieces around that accelerated payment in Latin America for Starz. It sounds like it's net OIBDA neutral just in terms of how it relates to the guide for the year. Is that right?

Yes, that's right. It's somewhat positive. And certainly, the cash was received after quarter end. So, it's not reflected in the current strength of our balance sheet.

Our next question comes from Jim Goss with Barrington Research.

All right. A couple of them. First, I was curious on the exiting of Latin America. You want had high hopes, and I was just wondering if it was just not generating adequate traction that caused the separation. And I was curious, too, between that and the content you just purchased, how complicated does it get when you're moving towards a separation of 2 businesses and you're still making these strategic businesses that would affect one or the other and possibly both?

If I understand your second part of your question, Jim. We spend a lot of time and have spent a lot of time working out our internal deal between and part of the extension of the pay television deal is part of that our intercompany agreements about Seres and who owns the IP. And so I think we're pretty much there, which all of those rules have been set when you say the new IP, I'm not sure if you're talking about E1. But again, that was fit into the Intercompany. Yes, E1. That would fit into the intercompany agreement that we have negotiated amongst ourselves. So all taken care of. And again, we've said numerous times, even after separation, there will be a great brotherhood between Starz and Lions Gate numerous projects together, a pay television deal for 4 years. So, there will be still a very, very productive relationship between the 2 companies.

Yes. Jim, the pricing is representative of fair market values as close as we can get those. So, it does make it easier to reposition that content to other third parties who are still within various territories. So, you saw us do that or maybe you didn't see us do that, but we did in Continental Europe and other territories. So the content has continuing value. And in terms of Lat Am, we were pretty excited about the territory. We have great distribution. Obviously, our content was continuing to work there. But it was really backstopped by one of a large partner that we had when the partner approached this, as Jimmy said in his prepared remarks and didn't have the same excitement about the partnership. We negotiated a very favorable deal. And with that deal being done, it didn't make the path to profitability within the portfolio that we wanted. And so we've made the decision to exit.

Okay. Jimmy, too in terms of intercompany revenues that effectively both sides will be able to count in some way when the separation occurs. Is there a way of sizing that? Or is it just whatever is showing up on your books right now? Because it would seem like the 2 parts will be bigger than the aggregate revenue base, way of thinking about it.

Yes, absolutely, Jim. You're right. The eliminated revenues just completely goes away. So does the eliminated profit as well. The revenue happens one for one dollar for dollar kind of never comes back to you in a consolidated world. In a separated world, it's just never eliminated to begin with. And likewise, the profit similarly doesn't get eliminated because you're 2 stand-alone trading companies. So yes, I would just eliminate everything you see there in the historical financials. And in terms of going forward, again, with the Pay1 window, on the film side of the business in television, you'd expect that just to continue to be big and grow as we phase into that. So, I'd size it using the numbers that you see in our reported financial statements.

Okay. And then one last one. Regarding your access to the chosen and then marketing that to various other partners. Does that provide any template that you're going to pursue for any genre of content that you might be able to given the mouth to feed out there with streaming services and the distribution agents. Are there some things that you'll be able to do with that sort of content to create more revenue opportunities?

Jim, it's Jim. So yes, I think it's clear that we have a lot of really valuable partners that have chosen us on to distribute their content. The chosen is a unique show that's got an incredible audience that's pretty much over 110 million people globally. And we've done, I think, a good job of getting them on the CW. They're going to run it all the way through the holidays. Seasons 1, 2 and 3. It's also on Peacock, which was a deal that we did and Amazon premiered in the last 2 weeks or 3 weeks and is in the top 5 after it's Premier. So, we get these shows, and they tend to be really great opportunities for our company, great opportunities for our partners, and they do add to our overall revenue pie.

Maybe the strike provides you with an opportunity right now with some holes to fill.

Yes. The other one that we've been able to pick up that you saw yesterday with the Connors, which is really unique in the sense that it is a 5-season show. It is the #1 comedy on ABC for 25 to 54 adults, and they had not been out with the show in the marketplace. So we're now going to take it out our partnership with Debmar-Mercury, traditional syndication and then our team for global distribution. And that is another example of just taking advantage of our distribution infrastructure and bringing something to market actually during the strike that I think will be quite unique and different, and we're very excited about it.

Our next question comes from Alan Gould with Loop Capital.

First, Jimmy, I realized that a lot of the value you've created over the years has been through these accretive acquisitions. That $65 million of adjusted EBITDA, how much synergy are you projecting there?

Well, we're not going to lay out the specific synergies there as I know you can appreciate, Alan, but we feel confident with that. I mean it is a pretty big range, the $55 to $75. I obviously hope we're at the 75, okay? And it's in the range for a reason. I think the synergies, in particular, this library, you put that in hands of Jim and Ron Schwartz and the team here, it's just over indexed. So I really am excited about the revenue synergies capabilities there and really nobody does it better there. And then the assets on the television side, just felt like a glove with Kevin's business in terms of the scripted obviously as well as unscripted. So, we feel really good about that. And as you know, we do accretive transactions. We know this is accretive, and we'll utilize those cash flows to effectively pay for the asset.

Okay. And that leads to my next question for Jim. How exploited is that library already? Or is there a lot of opportunity to license the heck out of it.

You're speaking about E1, Alan?

Yes. E1.

I think it's a really unique asset or great library. It's complementary to what we have, Alan. I mean, as an example, we have 2 procedurals there, the Rookie, Rookie Feds. We do not have big procedurals internationally. So this is going to add to our portfolio, and I think be really complementary. It's also really interesting because E1 was our partner on Summit in places like the U.K. So now all of a sudden, where we did not control movies like Twilight, now you see me in red. My team is going to be able to go out there and take advantage of that. And I think those are the kinds of things that we buy these libraries for. All of a sudden, you can take those franchises and put them with Hunger Games and John Wick, and we have a full complement. So I'm really excited about it. And I'm sure we'll find things in there that we didn't even know which is what we do on most of these Library acquisitions.

Okay. And one question for Joe. Any change here to the mid-budget film strategy? The mid-budget films seem to be having a tough time out there, not just everyone there.

Yes. Look, Alan, it's a fair question. We learned a couple of things over these last couple of titles that will certainly focus our content strategy, particularly around the audiences that we will serve theatrically versus multi-platform and how we focus those segments of the business. We'll get even more define pretty darn disciplined on that mid-budget level. We'll get even more disciplined on the greenlight metrics there. Jon mentioned in his opening remarks, there was really at the same time this quarter, the performance on the quarter really highlighted the strength of the diversified nature and the diversified nature of the portfolio structure we have in the motion picture business, because while those movies did underperform a little bit, I think we'll see a couple of them get to profitability.

We have a multi-platform business that did really, really great business there. John talked about prior theatrical releases and their value in the ancillary market. That is true for all theatrical films. I've spoken before about how the general economics of theatrical films are as strong as they could ever be. And so while it will focus us a little bit more on what we released in that mid-budget range, we'll continue to lean hard into our big brands. We've got expendables and saw and hunger games coming up. So, we are as bullish about the theatrical business as ever, we'll be a little more disciplined on the mid budget. Overall, the business is performing really, really well.

Yes. And by the way, one thing the numbers in the quarter reflected actually great performance in the ancillary markets on plan. Plan was in that same realm worked really well. And I think that we're honing in, at least on some rules, Alan, which is these mid-sized pictures have to have a real recognizable name, maybe recognize a little brand. As you know, we have SEC coming out. We've got expendables coming out. We got to have the right budget and actually you have to really know who the audience you're going after it. So look, we learn every day just like everybody else.

One last quick accounting question for Jimmy. The Starz International revenue, does that still include revenue from the exited territories? And when does that change?

That's as we close those territories, the revenues are excluded. So, the numbers are on a historical basis. We do pro forma the subscribers for you to make that trending easier, but the revenue recognition and losses just follow suit with the closures.

Our next question comes from Matthew Harrigan with Benchmark.

The monopoly movie in development certainly seems like an exciting project, but a lot of the family IP is being retained. It has grown clearly, our transformed and dragons and then some franchises where Lions Gate's been involved before you Power Rangers, my Little Pony, I'm sure a lot of people on the call are waiting for the next My Little Pony movie. Do you feel like this transaction actually pushes you to do some more things with Hasbro in terms of some of the retained IP? I mean, do you fully expect to be involved in more of the projects they have hopper and everyone's getting a little greedy on the count of Barbie. Clearly, not everything is going to be Barbie, but they certainly have a lot of great content in-house that they will have even after the E1 sale?

Yes, sure. It absolutely does. We're really, really, really excited about Monopoly. Brands are working. We talk about leaning into brand. This is a brand for the entire family globally. And that's a category of film that is working in theaters everywhere and drives enormous ancillary value when you think about adding that to a pool like now you see me in Naruto, and Hunger Games and John Wick and Highlander.

This is the conference operator. Are you all back? Sorry about that, please continue.

I don't know where we lost you. But what I was saying is that we're looking forward to getting back, also getting into their development site and seeing where else we can be great partners and helps grow brands together. And it's really the internal franchise, too.

Our next question comes from Douglas Creutz with TD Cowen.

I think in the past, you talked about a willingness and desire to explore the possibility of bundling stars with other streaming services. And it seems like there's been more conversations about that at a high level. Can you tell me, are there people in positions of power actually actively talking about that at this point, particularly with some of the labor issues that are going on with the industry?

It's Jeff. Actually, it's already going on. I mean we're bundled with MGM Plus on Amazon today. We're bundled with AMC Plus on Amazon today. We're bundled with a bunch of other premiums on Roku. We're bundled on a couple of other platforms with Verizon just launched Verizon Plus bundle with you buy Star, you get Netflix included for a year. And so the bundling is happening. It's happening across the industry. Paramount did it with Showtime. And so I think it will accelerate as we get through the year. So we're excited about that. What we've seen around the globe and bundles is that lifetime value, expand churn comes down. Obviously, you don't have to market as much on the front end and what you give up foreign rate, you more than make up for a lifetime value and churn reduction. So we like the bundles we're in today, and we expect to be in a lot more in the coming months.

And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Nilay Shah for any closing remarks.

Please refer to the Press Releases and Events tab under the Investor Relations section of the company's website for a discussion of certain non-GAAP forward-looking measures discussed on this call. Thank you, everyone.

Ladies and gentlemen, this concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.