Lionsgate Takes $1.8B Hit As It Exits Seven Former Starz Markets
Lionsgate has chosen to exit seven international territories for Lionsgate , its rebranded international operations for Starzplay, leading to a second quarter operating loss of $53.7 million before the impact of around $1.7 billion in non-cash goodwill accounting and restructuring charges.
The Hollywood studio has released its second quarter financial results. It is also exploring the possibility of selling or spinning off its premium streaming and cable platform or its studio business. Lionsgate will leave Lionsgate markets across France, Germany and Spain, Italy, Spain Benelux, the Nordic Regions, and Japan.
The studio will continue to be with Starz internationally, in the UK and Latin America. Lionsgate’s base of global streaming subscribers for Starz during the second quarter rose to 27.3 million for the three months to Sept. 31, 2022 in an increasingly competitive global streaming arena. That’s up 1 million subscribers compared to 26.3 million at the end of its first quarter of fiscal 2023 and a rise of 52 percent year-over-year.
Lionsgate recorded a $218.9 million restructuring charge around the streamlined Lionsgate reach, and another $1. 48 billion non-cash impairment charge related to its acquisition of Starz in 2016 to take account of changes in future free cash flow projections.
During an analyst call, Jon Feltheimer, CEO of Lionsgate, stated that the restructuring and goodwill costs relating to Lionsgate internationally were an acknowledgment of current market conditions. He also said that these charges were an opportunity to stabilize our Starz business, reset expectations and drive higher adjusted OIBDA as we move forward. They also offer an opportunity to stabilize Starz, reset expectations, and drive higher adjusted OIBDA as we move forward
In an SEC filing, Lionsgate offered guidance indicating adjusted OIBDA for the media networks business was expected to grow from a range of $100 million to $120 million for the fiscal year to March 31, 2023 to a projected range of $175 million to $225 million for the fiscal year to March 31, 2024. This suggests that Starz will see a profit increase in fiscal
For now, the studio in its latest financial results for Q2 posted an operating loss of $53.7 million when stripping out the Starz writedown, on overall revenues of $875.2 million, against revenues of $887.8 million in the same period of fiscal 2022. The studio recorded approximately $1.7 billion in one time charges with the goodwill writedown being non-cash.
Analysts were told by Jimmy Barge, Lionsgate’s CFO, that focusing on Starz territories would “provide our international business with an easy path to profitability,” with Starz expecting to break even at 2024 or earlier.
Lionsgate reported a net loss of $1. 81 billion, against a year-earlier profit of $7.5 million. Lionsgate’s media networks business, which includes Starz, saw segment revenues rise to $396.1 million, just up from a year-earlier $384.7 million, as lower domestic linear revenue was offset by rising domestic streaming and Lionsgate revenue.
On the studio side, the motion picture segment revenues came to $224 million, down from a year-ago $330.9 million, but that was offset by TV production segment revenues swelling to $430.9 million, compared to $336 million in the same period last year.
Investors listened to top executives’ comments during an analyst call following the market close. They were looking for updates on current strategic talks, which could include the possibility of spinning off the studio business as a separate stock. Lionsgate’s most recent results were released amid negotiations to possibly spin off Starz or the studio. Starz valuation is under pressure as media stocks fall in industry due to increased content competition and cord cutting.
Analysts were told by Feltheimer that Lionsgate was committed to separating its media networks and studio businesses. However, he insisted that Lionsgate still believed the right conditions existed for a strategic transaction to unlock hidden potential in the studio’s core Starz and film/TV divisions.
“Obviously it’s not useful when there’s a large disconnect between the distinct values and the summation of the parts of our core business, and where our stock prices are right now,” Feltheimer said in comments to analysts. Starz is a pay TV channel similar to HBO and Showtime, and also offers a streaming service aimed at domestic and international audiences. Its programming includes the Power franchise.
Lionsgate purchased Starz in 2016 from Starz for $4.4 billion. The studio has set its subscriber target at 50 million to 60 million by 2025.
Lionsgate is exploring its options for Starz. This includes a possible separation between the streaming and pay TV business and its studio operations. It appears that the goal is to create two separate companies so investors can evaluate Starz and its studio assets separately.
“The only way to achieve a higher stock price is to move forward with the split ASAP. Key concerns include the cash tax hit (we anticipate a taxable separation), and the division of debt between Starz and studios. In a Nov. 1 investor note, Steven Cahall, a Wells Fargo analyst, stated that studios will be the driving force for a higher stock market price once it is complete.
Lionsgate’s Feltheimer on the analyst call also talked up the streaming deal for The Continental from Lionsgate Television that will see the special event series that is part of the John Wick franchise pivot from Peacock domestically in 2023 to also become available to Prime Video subscribers worldwide, excluding the U.S., Middle East and Israel, next year.
He also hinted at a John Wick Triple-A video game, which is currently in the making to expand the universe of Keanu’s John Wick: Chapter 4 will be in theaters in March 2023.. “I don’t want to get ahead, but we believe there is a big triple-A game made out of John Wick .. We have been receiving proposals. Analysts were told by Feltheimer that they are interested in moving this forward, but that they don’t want any more details.