Lionsgate Studios Corp. (LGFA) Earnings Call Transcript & Summary

Okay. Good afternoon, everyone. Thanks for joining us. I'm Bryan Kraft. I cover the media sector for Deutsche Bank, and I'm really pleased to introduce Michael Burns, the Vice Chairman of Lionsgate; and Jeff Hirsch, the President and CEO of Starz. Gentlemen, thanks for joining us this afternoon. Why don't we start with an opening question.

The industry has been evolving pretty rapidly over the past few years. That pace has only accelerated more recently. Michael, can you talk about where Lionsgate is now strategically as a company? How you've adapted to the changing landscape? And what the company needs to do in order to be successful going forward?

Yes, sure. And thank you for having us. I will tell you that we're firing on all cylinders at the moment, which is exciting. I guess, I look at our business as 4 very discrete components, and then we're out to talk about the environment today and how that fits in. Starting with the movie business, which we've got a great deal of optionality today. Joe Drake and his team have done a fabulous time, carving and slicing and dicing windows and sort of dealing with the landscape of the pandemic and our margins are quite good. And I think that the -- it really took a pandemic for the windows to change in many ways, whether that be hybrid releases or PVOD or moving up electronic sell-through or video-on-demand. And so we have a great deal of optionality in our motion picture. Can you hear me?

Yes.

Okay, great. I was just making sure. I thought I've heard a little feedback. And so we have a great deal of optionality in the business right now that I don't think is going to go away anytime soon. I do expect that theaters to open. I do expect that theatrical business will be once again a robust business. I do think that windows have changed forever. We want the theatrical window to continue to be robust, and we're betting on that. On the television side of the production business, run by Kevin Beggs and Sandra Stern, making -- I think we've got 85-some shows on a variety of different platforms and channels. And it's a good time to be a content seller at the same time that there's a great deal of synergy going on between. I'll let Jeff talk about Starz and the Lionsgate television production business. The third part of the business that is, I think, overlooked is just how valuable our library has become and increasing in value, in my opinion, every day. You saw the last quarter where it was record revenue, $740-some million in revenue, very high-margin business. And we're in the right place and the right time on that with the library because we are in a place right now where everybody else is hoarding their content, saving it for their particular platform. And so what's happening, it's pretty simple is that you have a shrinking supply of content out there and increased demand and that bodes well for us. And then on the Starz side of the business, which I know we're going to talk about, incredibly encouraged by the OTT move and the adoption of à la carte with traditional carriers, and obviously, the international rollout. So I think we've got all these businesses working together and the industrial logic to putting Starz and Lions together is coming through right now. And again, Jeff can talk about that, particularly when it comes to the international rollout. But so far, so good.

Okay. Great. Why don't we start off with Starz, maybe on the domestic side, Jeff. Now a year ago, the greatest concern with Lionsgate was whether Starz could successfully adjust to the change in the Comcast contract from fixed to variable. Can you talk about the success you've had in navigating that transition? And what's left there -- what's there's left to do to complete it?

I think it's first, you kind of have to set the environment from about a little over a year ago when we made the transition. We were in a big bundle with a lot of subs at very low ARPU that was shrinking at the same pace that you're seeing on the general industry term. And so not a lot of opportunity to grow revenue, not a lot of opportunity to grow subs and control our own destiny. And we also looked like a cost center to our partner in Comcast. And so we were really excited about pivoting the à la carte. And as we'll talk about further by the end of this fiscal year, 80% of all of our subs will be in some kind of revenue share in à la carte. And so we were able to transition to a business, where now both Comcast and Starz can make more money together. We can continue to grow the business and transition to a place where there is great upside, and we feel very confident about our coming content slate that gives us great comments to build and drive the business there. And so now that our incentives are aligned the same way and we're working together to grow both of our businesses, we've seen great success in that transition. As we reported last quarter, it's well over 1 million subs within just short of the first year of the transition. And we continue to see great opportunity to grow that business together.

And since the Comcast switchover, traditional Starz' domestic subs have been stable, while OTT has grown nicely every quarter. Any concerns at all about a pull-forward in demand due to COVID or elevated churn going forward as consumer behaviors normalize? Or do you feel like the momentum that you've been seeing will continue through calendar '21?

We did see a lot of increased engagement with the platform during the pavement. We were lucky a year ago to launch 4 new pieces of content in the pandemic. We launched Season 5 of Outlander, which was the best season yet. We launched a Freshman show in Hightown that set all kinds of records for us. And then we launched P-Valley on top of that, which broke all of the Hightown records and then came with the first Power spin-off in Ghost. And so we were very fortunate to launch great new star-studded shows throughout the pandemic. We did see engagement go up on older seasons of Power and Outlander, not just domestically but around the world. But we took a very different tact during the pandemic. We didn't give 30 days free. We did long-term offers that were discounted so that we'd have the consumer not understand there's a value to our service, but also had a long tail because we thought this was going to last a little longer, and we turned out to be correct. And so we feel very good about the consumer engagement with the platform. We feel very good about the success of our shows. We are coming into, what I call, the most robust and the broadest slate that we've ever had in the history of Starz. And so we feel very good, based on our first-party data, from our app that what is really driving our service is the launch of these big Starz originals. And so coming into the most robust slate we have, we feel really good about the opportunity to accelerate growth, both domestically and internationally.

Can you talk more about that original content slate? What it looks like through the end of fiscal '22? What some of the key shows are that we should focus on? And just give us some sense as to how much bigger that '22 slate is compared to '21?

So the name of the game for Starz right now is not really on the front end of acquisition. We have the -- our programming mandate is really focused on narratives by and about for women and underrepresented audiences. And we are going to be relentless about putting content on the air to serve those 2 demos. We have the largest composition of women 18-plus on the network. We have the largest composition of African-Americans on network. And the goal for us is to have something on the air every week, 52 weeks a year for those 2 core demos that we complete the programming slate and the demos and so that churn ultimately comes down to low single digits. If we have a piece of content on the air, every week, 52 weeks a year for those 2 core demos, we truly believe we can get churn down to low single digits. And so it's really a retention strategy for us versus an acquisition strategy. If you look at the "Power" universe, we just -- we launched the first spin-off in Ghost and it set all kinds of records. Coming into the summer, we have Kanan, which is the second Power spin-off. We've announced the show called BMF, which is another 50 show about Big Meech and his brother. Well, that will come on the air. That's really important. We've got the Joseph Sikora's spin-off Force coming onto the air. We bring back Hightown. We bring back P-Valley in a big way, and so you will see us really complete the arc there. We've got a great show coming up called Run The World, which is for African-American women in Harlem kind of running the world, and it's as funny as anything I've seen. We bring Girlfriend Experience back, which we moved from a domestic show to an international show to service the international network. We have Shining Vale, which is a Courteney Cox, Greg Kinnear and Mira Sorvino, a half hour that was written by Jeff Astrof. And so we feel really good about the slate we just announced. The Martha Mitchell story of Watergate with Julia Roberts and Sean Penn. And so we really feel like we've gotten and lined up this great content every week, 52 weeks a year, just to serve these 2 core demos and ultimately accelerate the growth in the business. In terms of your question about scale, we'll almost double the original slate this year versus next year. We do believe that, ultimately, on a steady-state basis, we need to get to somewhere around 16 originals to complete that arc and so that we are consistently moving customers and keeping churn to low single digits.

And Jeff, just to clarify, how close do you get to that 16 originals and having something 52 weeks a year in this year, I guess, fiscal '22 would be the right way to put?

So this year, we will be somewhere around 12 originals this year that will really help us complete that loop and then getting up into 16 the year after.

Okay. All right. A lot of people obviously wonder about how much budget are you ultimately going to need in order to make the service successful and not the ever-stop investing. But what's kind of the right level where you hit that balance? I mean, is -- could we take the 16 shows as probably an equivalent amount of budget to think about a steady state. Is that...

Yes. I think so...

Yes, 14 to 16, depending on the length of the arc of the story and how many episodes is really the steady state on originals. You couple that with the announcement we just made about the Lionsgate and Summit Pay 1 coming on to the service, which when we looked at our first-party data and we looked at all of the different Pay 1s that were out that we really felt like the slate that Joe and team were putting together really serviced our demos really well. And it was a great -- it will be a great addition to the service. And then we've got over 4,000 library titles to complete the kind of content strategy at an $8.99 price point domestically. We think that's a really good value proposition to our demos.

And maybe just a follow-up on the budget side of it. What are you seeing in terms of your cost to produce content at Lionsgate? Or Starz is always -- on the Starz side, you've always been, I think -- I don't want to say prudent, but you've always done really well in producing at a reasonable cost. Are you finding that more challenging today, putting COVID aside, of course, and the extra cost that, that brings? Or do you feel like that historical practice is something that you've been able to maintain?

One, we've been able to maintain that historical practice. I think when you have a programming strategy that is non ad-supported, R rated, really depth of characters and stories for the 2-core demos we have, we're in a different lane than most other networks looking to put what they're putting on there. And so we don't find ourselves heavily competition for certain shows. We have been in competition on a couple of big shows, we're able to win those, but we're still prudent in terms of the price points. I think the idea that we're creating a network that's a narrative for, by and about, women and underrepresented audiences, it gives us an advantage because people want to be part of that. And then we launched our Take The Lead initiative 2 weeks ago that really will focus on that. It's been a great draw for large talent and for shows. And so Girlfriend Experience that we shot overseas is $1 million, $1.5 million in half hour. And so I still think our average cost per shelf is still in the same ballpark that's been over the last couple of years. It just depends on the content in the storyline in the ark and the number of episodes.

Okay. And on the acquisition side, subscriber acquisition side, I wanted to ask you, just how do you decide how much to invest into performance-based marketing in order to drive gross additions? Do you just set a budget and spend what's budgeted? Is it based on spending up to customer lifetime value? Just curious of your approach toward that.

So when we launch the direct-to-consumer business or the OTT business in April 15, we were very slow to go wholesale because we wanted to launch a retail app of scale to get the first-party data, and we brought in a consultant McKinsey and MIT Media Labs to build a really robust data analytics engine behind the business. And so I can now tell you, from a dollar spent on marketing, what platform it goes to, what ad it was on, what the first title string was, what else they are watching, how many episodes or whatever the first title stream was in they were watching, what the lifetime value of that discrete customer is. And so I know by content, what we think we're going to get for acquisition, what we think the lifetime value is going to be. And ultimately, what we should spend to grow the business based on what content is on the air. And so our view is, we spend to $0.01 below breakeven on lifetime value, and we'll continue to harvest as we see that. And one of the things that we're able to do with our analytics is bring digital buying in-house over 1.5 years ago. And so now with the team -- the team will just continue to spend in as long as it sits within that parameters. And so unlike some other business companies that I've been -- we don't spend to a budget when we spent that budget number on the week and we go home. As long as it's still economically imprudent, we'll continue to spend into that and grow the business.

And you mentioned the churn side and how that is a big focus for you. Can you talk about how churn has trended among your OTT subscribers over the past few years as you've grown the base and expanded the original slate? Just if you could give us any additional perspective on that, that would be great.

Yes, churn continues to come down every month to all-time lows. I think last month was the all-time low of the business. We have seen it from our data where you have a show like Power on the air and then you don't have anything for 12 months and then spike at the end. And so that part of helped us build our programming strategy and our slate around servicing the core demos we have and not trying to go after other audiences because that becomes an opportunity cost of taking away from what you have versus trying to get new. And so we continue to see churn come down. I think when we get into the slate spring, early summer, where we're really completing that programming arc every week, week-to-week, 52 weeks a year, we'll continue to see it come down to really low single digits.

Okay. And on the domestic side, do you expect Starz to return to growing segment profit or product line profit, I should say, in the next few years? Or do you think that you will continue to reinvest into growing the domestic business for a while?

I think what I'd say is, we've done, I think, a great job of derisking the traditional linear business by converting almost 80% to à la carte, and I think that will continue to grow over time as we roll through deals. We continue to see great growth on the OTT side and where there's a more valuable, higher ARPU customer. I do think that once we get to that steady state original number we talked about earlier, plus originals and movies, you'll start to see, again, the bottom line accelerate as you see the top line accelerate. But that doesn't mean we're not going to be opportunistic if we see a great piece of content come up that we want to go after or there's something that Lionsgate TV group comes up with that we want to go after or we continue to see great growth. We'll spend in that to grow the business as long as it's prudent and economical.

Okay. Why don't we go over to the international side of the business and have a discussion about that. Maybe just to start off, can you update us on the Starz International OTT strategy? What markets you're in, talk about your distribution approach. And at a high level, maybe just give us a sense as to what the content slate looks like outside the U.S.

So we're very fortunate when we were acquired by Lionsgate to get access to the 17,000 title library that I think Michael and John were really ahead of their time putting together over the last 18 or 19 years. That, coupled with the fact that Amazon and Apple and Google looked at what they were doing domestically on the video side and said, "Boy, we can do that around the world." And so having a lot of content available robustly and broadly around the world, global partners that we could ride on somebody else's backbone gave us a great opportunity to expand Starz into now 56 countries around the world. And so the distribution strategy is really what we were, I would say, a long time ago in the linear business, which is it's really predicated on a wholesale strategy, which is the 3 global partners growing the business across the world. Then we have these great local partners, whether it's Orange or Vodafone or Izzi or Claro or Canal Plus in each of the markets. And then we sprinkle in our direct-to-consumer business in certain markets, really more to get the data than it is to grow the direct-to-consumer business. And so we're in 56 countries around the world. Right now, the goal is to get fully distributed in each of those 56 countries. I think we've done almost 80 distribution deals in the last 18 months with local partners to try to build that platform. We would like where the consumer wants to watch Starz, we would like to be on that platform. And so we continue to drive heavily into the distribution strategy. We've said publicly that we'll get to 15 million to 25 million subscribers by 2025, between a $3 and $4 ARPU. We're well on our way to getting there. And in that plan, it really didn't predicate any direct-to-consumer business. The breakeven, which we said is fiscal '23, end of fiscal '23, is really predicated on somewhere between 2% to 4% broadband home penetration in each of those countries. And so we feel that we've got good line of sight into breakeven and starting to turn positive, and we're really thrilled with the growth that we've seen to date.

Is there a point, Jeff, at which you think international net adds will really see the acceleration there? Or will it be more of a kind of a gradual ramp up? And are there any upcoming new market launches or distribution relationships that will take effect or content changes that you think will drive such an acceleration?

There's definitely an acceleration in the subscriber growth coming in the next, I would say, 0 to 18 months because as you start to lap the distribution deals and they start to build on each other, you start to see the strata of subs start to grow very significantly. And so there's a really steeper ramp on, I would say, the international side than we've seen on the domestic side. On the content side, it's 1/3 of content coming from Lionsgate. As the Starz domestic slate starts to ramp up, you will start to see more of Starz originals showing up overseas in those markets. And we're still buying some great shows from third parties like the "Great in the Stand" because we have this kind of best of global SVOD strategy, unlike domestic where we've been doing it longer, and we really refined our strategy, international, still early days. And so we're a little broader, but we are getting the data from our app in those markets, and we will refine our programming strategy. I think the most exciting thing on the content side is the Starz Plays originals. We have 2 originals being produced in Spain right now that are great. And I'd like to say they're produced locally, but they will perform globally, so we can put them on anywhere in the world. We're redoing Casual in India with Lionsgate Television, again, local Indian production, but it will be cast with a global cast, so it has to play globally around the world and it will. And we have 2 shows being developed in Lat Am right now that, again, I think, can work anywhere in the world. And Girlfriend Experience is a great example of a show that was a domestic show that we've moved the story to becoming a global international story, shot in London, based in London, big international cast should work on -- everywhere in the world. And then the Power franchise, we've seen Ghost, the first spin-off worked tremendously well in certain markets all over the world, and we're really excited about bringing more of those franchises on. So we are well on our way to achieving our goals. I feel really confident that the business will continue to accelerate based on distribution and content.

What have you -- what are you doing from an exclusivity standpoint with respect to the Lionsgate film and television library and also the Starz library, which I guess is part of the Lionsgate TV library now. But just trying to get an understanding as to how much internationally of the content catalog is exclusive versus perhaps a co-exclusive relationship or something that's not exclusive? And I think that there's different points of view on this in terms of how much has to be exclusive. So I'm just wondering what approach you've taken to exclusivity? And if we look at the catalog, where you have exclusivity and where the content could be found elsewhere?

So for the most part, I would say, it's all exclusive. I mean, I'm a big believer in exclusivity on the service, both domestically and internationally, for our content. I think domestically, we had some kids shows that weren't exclusive just because it was just there to support the moms that were watching Outlander, but I think we've realized that, that didn't work for us. But for the most part, everything that we do is exclusive, and that's the way we'd like to have it. If you look at the Lionsgate TV Group and the Motion Picture Group, because we are focused, at least domestically, on core demos, what they produce through Pilgrim and some of the unscripted and a lot of the content doesn't fit our programming strategy, and so we wouldn't take it either way. And so it's a nice balance of what Michael talked about, which is we can be an arms dealer on one side because it doesn't fit for Starz, but when it fits for Starz, we take it and we have it exclusively for a window for a long period of time. And so I would like, and we will continue to be exclusive on all of our content going forward because that's the best way to continue to provide a great value proposition for our consumers and the only place to find our originals during the original run is in our service.

Okay. Makes sense. I wanted to ask you a question about that path to breakeven in, I guess, slate '23 and profitable in '24 on a full year basis. Is that the right outlook?

Yes. I think so.

So is there going to be an improvement in fiscal '22 versus '21, so it's more of a progression toward getting to that profitability? Or will '22 be an investment year where you're getting maybe not a whole lot of improvement from a profitability standpoint in '21 because you're investing in that growth. And then there's a kind of a steeper curve in '23 and '24? Just curious as to how we should be thinking about that.

I think it's a slight improvement in '22. And '23, '24, it really starts to stair step more aggressively because you've got all those distribution deals laying on top of each other, and you see an acceleration in subs that we talked about earlier.

Okay. And the bearer cares around Starz international strategy, not unlike other streaming services, frankly, is that you can't scale the business internationally. What if the bearers are right? And I know you have a plan and you believe in the plan. But let's just say it doesn't scale, would you consider shutting it down and going back to a licensing strategy? Would you potentially divest the business? Just curious as to what plan B might be, should it not work out.

Well, look, it's working out, which is the great thing, and we continue to believe that it will work out. And there's nothing that we've seen in the numbers and the distribution deals and the conversations with consumers and partners to think differently. I think if you go back and look at the way we built the plan, which was a very Lionsgate risk-mitigated approach, each country has its own P&L. And again, the breakeven somewhere between 2% to 4% broadband homes from a breakeven. So it's not a huge penetration game to go get that. But we looked at each of the plans individually, and what we see is, we know where the breakeven year is by market. If we see subs accelerating earlier past that breakeven, we'll actually throw our direct-to-consumer app and start to spend against it to harvest that market faster. If it's growing exactly where we thought it would on the pace for -- on a wholesale basis, the breakeven, we'll continue to be in that market and invest in the market. And if we find that it's not growing at all, we have the optionality to go back and start licensing. And so very Lionsgate DNA risk-mitigated approach, where we have really 3 options, so we're flexible around that. And we'll look at each market individually as they go, and we'll make a decision from that point on.

I was just going to add one thing, if I could. The results, and we look at the numbers. Jeff looks at the numbers every single day, subscribers in all of these countries that we picked up. And the fact that, obviously, we're the #1 channel on the Amazon platform, Amazon channels. It's -- I will tell you that the results are very encouraging.

Yes. We -- again, we feel -- and if you think about the business, consumers will have, we think, based on research, on average, by 2024, 5 to 6 of these services in their home. The way we're set up is that premium ad on tier around the world. We could be number 3, 4 and 5 in the home and still get to that 50 million to 60 million subs globally that we've talked about. And I feel very confident that we're well on our way to achieving that around the world.

Okay. Great. And can you talk about how STARZPLAY Arabia and Pantaya fit into your longer term strategy? What are you going to do with those joint ventures over time?

STARZPLAY Arabia has been a great venture for us since we really launched it in 2015. We've learned a lot in terms of pricing. It's got a phenomenal technical back end that is interoperable with emerging markets and how people top-up their bills and cell phones. And we think it's, again, the market leader right now. It still continues to be bigger than Netflix. And it's been -- Maaz has done a phenomenal job leading that business. We obviously have seen great growth on the subscriber side. We did see some churn in the -- coming out at the end of this pandemic. But we have great confidence that, that business will continue to grow. And as a third shareholder, we do have some protections in terms of consolidation. And so we do love that business. We will continue to look at how Maaz is running the business. And at some point, we'll make a decision whether we'll consolidate or not, but there's not really a rush to do that right now. I think he's doing a great job. Pantaya, I think, plays a really critical role for us domestically. If you look at the demo that they serve, it's the fastest-growing demo in the country, also with the biggest pockets, and it's a very unique product. It's exclusive product domestically. I think Paul has done a great job there growing that product. It will continue to grow. And so it continues to be a great addition to the Starz domestic product. And I think we feel that it's an upcoming segment. And if you look at those targeted SVODs that are -- if you look at Starz as being a premium add on service and these really targeted SVODs, like Pantayas and Shutters and IFCs, we think there's a really great opportunity, again, to be one of the top 6 SVODs at least in the domestic arena.

Are there any insights that you could share around subscriber engagement, either on domestic or international?

Well, we saw during the pandemic, a 33% increase in subscribers going into the library in the Seasons 1, 2 and 3 on Outlander. We saw almost a 40% increase, 42% increase and subscribers going into the library on Power Season 1, 2 and 3. And so what we see there is more engagement into our big franchises, consumers finding it for the first time and staying in it, and we saw those same numbers overseas. We brought Ghost, which is the first spin-off of Power onto the service for the first time where Power was licensed to other services. And again, what we have heard about how successful Power was overseas, we saw that in Ghost. And so we have a lot of confidence as we head into our biggest and most robust play yet that the content we're putting on the air to serve these demos, not only just domestically but overseas, is going to work, and it's really going to help accelerate the business.

Okay. Great. I wanted to ask some questions on the motion picture segment, just to make sure we try to cover the entire company. The motion picture segments performs really well from a profitability perspective since the pandemic began, but it has left a gap in the pipeline of content flowing into the more profitable post theatrical windows. How should we be thinking about the time line for the transition of the business back to normal operations as it relates to fully reramping production activities and also returning to theatrical exhibition. So if you have any thoughts on that, Michael, that would be great.

Yes. I'll just jump in. I think that Joe and Nathan and Aaron, they have a pretty good plan, which is, we really put the pedal to the metal as far as pandemic, put our protocols in place very early, made a ton of motion pictures, a bunch of television shows, Starz made a tremendous amount of content. And so the position that we're in right now is that we do believe that theater will open back up, my guess, if not in a more robust way, probably summertime, but again, I don't have a crystal ball. But we do have a great deal of optionality with those motion pictures that we've wrapped or shooting. And in regards to controlling windows and making sure that we can sort of slice and dice the right way and get the most profitability we can, as you saw from the recent quarter, the margins in our motion picture business. So I think we're in pretty good shape. I think we're very much in a terrific place as far as content we have that will be available for the theatrical window. And I think those windows will have changed. I think they've changed forever in many ways. And I think that's good for us. I like the prospects for the motion picture business right now. And again, you have limited supply in what we feel will be increased demand in that business.

Michael, it sounds like you do intend to adopt this more flexible theatrical windowing approach. What are the positives and the negatives for Lionsgate as a studio to that approach? I mean -- and maybe it's all upside, but just curious about how you think about how it benefits the studio and if there are any downsides to it?

You ever have a great franchise. We had a bunch Hunger Games, Twilight, obviously, John Wick, more recently, and we're going to do another Hunger Games, as we've announced. And so -- and then, obviously, we're doing a couple of more John Wicks back to back. So when you have a big theatrical title around the world, it's a very profitable scenario. If you don't have -- if you take away that optionality of a big franchise taking off theatrically and all the other windows that come behind it, you're going to lose some upside if the movie is not released theatrically. Now that doesn't mean we can't hit our base case, but we're looking for -- you're looking for lightning in a bottle with a franchise. I do think that the big advantage of -- is the movies that don't work well, the big advantage of the shorter windows, whether it's 17 days -- and 17 days is -- for those of you that are wondering what that -- why it's 17 days, it's pretty simple. It's 3 weekends. So if a movie is not working to be able to piggyback off of that theatrical marketing spend, that's a really good thing as opposed to waiting 3, 4, 5 months before you're in the electronic sell-through or video-on-demand or DVD for that matter. So there are a lot of advantages to having flexibility. And so we're going to -- everyone -- we're not going to commit to one release pattern or another. Joe has said over and over again that the movie business is art and science. And so we're going to look at each movie individually and figure out where we can make the most money.

That makes a lot of sense. Thanks for walking through that. Can you talk a little bit about the pipeline, Michael, on the motion picture side in terms of big titles or bigger titles that we'll see in fiscal '22 and '23? And also, any update on the timing for the next Hunger Games film?

We're pretty excited about the scripts. And then it's a question of who's going to be cast where and then all of that. So there's still ... [Technical Difficulty]

Michael, I think we lost you. Jeff, are you still there?

Still here.

Okay. We lost Michael. I'm just going to reconnect. So bear with us for a moment.

Can you hear me now?

I can hear you now, yes.

Yes. Great. I switched over to my iphone, I don't know why that is. You don't want to pick a favorite child. Borderlands is a big brand, big cast. You guys can google that and see who is in that. That will be a big theatrical title for us. We're working on -- we have a great script on Monopoly, which is something we're doing with Hasbro. We have a bunch of action movies, including, by the way, back-to-back John Wicks. We have Snakes and Songbirds, which is in the Hunger Games world. And Joe will tell you, it's got 5 or 6 things that he thinks he can break out and also be a potential franchise for us, which is always what you're shooting for in the motion picture business. But we've got movies scheduled theatrically right on through the year and next year. And again, we took advantage of the pandemic from a standpoint that we shot a ton of movies.

Right. Okay. And shifting gears a little bit within motion pictures, can you talk about how the recently announced home entertainment distribution relationship with Sony, in the U.S. and Canada, will impact the business?

I think it will be good for us. It's just -- again, we're all in the same business, which is trying to make as much money as possible. So if you can consolidate operations and squeeze a little bit of margin, here and there, and by having significant volume, which gives you that opportunity, I think you're going to see more of that.

Okay. And I wanted to ask you about the Lionsgate and Summit deals that you announced last week. Are they structured like K1 deals have been structured historically? Or are there some fundamental differences, for example, different windowing or modified exclusivity or anything along those lines?

Jeff, what do you want to say about that? And again, we don't want to make everybody hear an insider so -- but what would you say broadly about that, Jeff?

I'd say broadly, it's very similar to a traditional pay 1 window. We think based on the data that there is a lot of value for the PA spend in the marketplace and the release. But I would say that knowing that the world has changed and there was a global pandemic that nobody thought about. We did obviously talk about what happens in a situation like that. I think the biggest value of moving the Pay 1 of Lionsgate and summit over to Starz, is the fact that now like I can share our first-party data with our partners over at Lionsgate and Joe and really work together to make sure that the slate and the timing of releases align with our originals and so that we can maximize our ability to acquire and retain customers with those big titles that they have and aligning with what I'm doing on my side.

Okay. It's really helpful. And I wanted to ask you, Michael, you talked a little bit about the library upfront and how that's become more valuable. How -- what's the outlook for that annuity, if you will, on the library over the next few years? Do you continue to see that growing and becoming a bigger source of income for the company?

Yes, I think it has to. I think when you have a bunch of different platforms and windows that have this voracious appetite and whether it's in the world of AVOD, the AVOD business is quickly becoming -- it will pretty close becoming a 9-figure a year business, and that just came out of nowhere. And then you have the -- you're to a place right now where you've got this ubiquitous situation where consumers can watch content on many different platforms in many different price points, and so the value of that 17,000 plus title library is increasing every day because, again, you've got rising demand and shrinking supply as others take their own content off the market and use it exclusively for their platforms. So I think our library is going to continue to go up in value just based on basic economics.

Make sense. And I wanted to ask you also about the production re-ramp on the TV side. Michael, you talked a little bit about it on the motion picture side. How is it going in television? Is it a major factor for fiscal '22 and the TV production business? Are you still playing catch-up in a significant way? Any color that you could share on that would be helpful.

Yes, Jeff, I'll let you talk about it so much of the production we're doing on the Starz side, but I know that you just wrapped blindspotting I think a couple of days ago, right?

Yes, Saturday morning, yes. We've been -- I think, we working with Kevin and the Lionsgate TV group, we got really early thinking that we'd get back into production, I think, probably 3 or 4 months earlier than we did. But we've been able to -- I think we've got something -- we have 15 shows in production all over the world right now. I think between Pilgrim and Lionsgate and Starz, it's maybe over 50. We've been able to really start and complete shows in the pandemic. This is a perfect example of that. Blindspotting is a perfect example of that. We're able to shoot Ghost during that. And so when I think the protocols that we put in place really were effective, and we were able to really keep people focused on the protocols, and we're able to get shows produced and completed. I think also the difference in a lot of these shows is that we have -- we go in with scripts done so that if we do have issues, we can shoot around issues. And so that's been very effective as well in keeping the cost down in terms of delays and any kind of interruption.

And within TV, can you talk about the pipeline of new shows and new IP in development? Just give us a sense as to what that's like? Is there anything early stage that you're particularly excited about, whether it's going to Starz or to another platform?

Yes. You're asking how to pick your favorite child again. We're really excited like the trajectory of one. We have this show, which is Zoey's Extraordinary Pilots. We're very excited about where the second season went on that. We're very excited about a couple of shows we have for a couple of other streamers. Jeff Scott, as you mentioned, a bunch of shows going. I think, we think we have -- I mean, look, I saw a pilot the other day, and it's a little bit up in the air. We're trying to do a little horsetrading on a pilot that we did for another big company that we have international and somebody else has the method. We like the world. So again, I think we've got 4 or 5 potential hit breakout shows that we're excited about, and we'll probably have -- probably 10 or 15 swings at the plate.

Okay. Maybe talk about the balance sheet for a minute. Michael, leverage has come down quite a bit over the past year. Can you talk about the plans for further deleveraging the balance sheet?

Yes. I mean, we came down below 4. We'll probably tick back up a little bit above 4 as we spend more money on production, and then we'll come back down. I think, for us, again, this could change around a little bit, but I think a 3.25 to 3.5 leverage is a good place for us to be. Money is inexpensive right now. So we're in the market right now for one of our bank tranches. And so we're watching interest rates like everybody else and trying to figure out, "Do we refinance? And what does that look like?" Right now, we have -- I don't know, we finished the quarter with, I don't know, $525 million in cash and no drawn revolver, which is $1.5 billion. So we have a tremendous amount of capacity and cash and we feel very good about our leverage ratio because we're spending a lot of -- we're still accumulating cash, at the same time, we are spending an awful lot of money on -- or I shouldn't say spending, we're investing an awful lot of money in content. So we're in pretty good shape, but we have committed to the rating agencies and the Street that we're going to continue to delever, and that's what we're going to do. Now that's not to say that there are not some bolt-on smart acquisitions, particularly in the world of libraries that we are always -- that we always find appealing.

Since you brought up the topic of consolidation, I'm curious as to -- just at the industry level, whether you think that we're going to see consolidation in the short to medium term? Or do you think that players are more or less working with what they've got for the foreseeable future?

I like the way that you actually -- you wrapped in me talking about bolt-on library acquisitions through a consolidation in the industry.

Well, you brought it on, Michael.

Well, tangentially, I guess, that's true. What I will say about that is that, look, everybody has the same issue, which is where you're going to show growth? You can show growth either organically or doing -- making acquisitions. So we're the same as everybody else in that regard. And when you have rising stock prices in some of these other media companies -- we've had a decent run, although I think we're still lagging, particularly compared to everybody else that's out there. But I think that we have had a descent run as we sort of tell the story and talk about the fact we're delevering how well? I mean, I sort of was chuckling the other day with Jeff. And I remember when people told us that, "Oh, Starz is going to peak out of the 1 million OTT subs domestically." And then it was 2, and then it was 3, an then it's 5 and we're on our way to 10 relatively soon. So the idea that we peaked out or that we're too overlevered when we're accumulating cash so that's sort of gone away. So my sense is that there will be consolidation. As others have had rising stock prices, I wouldn't be shocked to see people use their currency that is now significantly higher than it was before. And then the wildcards are, do the technology companies, are they going to want to get into the, whatever you want to call it, content space in a bigger way. And who knows? It's -- when you've got trillions of dollars of market cap, they can sort of do whatever they want to do. It's just a question of when or if they do it. So -- but I do think there's going to be, like you mentioned before about the deal that we did with Sony, which was basically trying to both save money. There are small versions of that, and there are much larger versions of that.

Okay. And one other thing I wanted to ask you about on the strategic side is you had talked in the past about potentially selling a stake in STARZPLAY International. And I'm just curious if that's something that's still of interest, still a focus for you. Or if your focus has shifted away from that?

Well -- and to be frank, we had a bunch of term sheets that today, we'd like to have this piece of this. And the question is, is how many bells and whistles can you stomach. So -- and then you sort of juxtapose that, the bells and whistles, to how the business is doing, which is widely encouraging. And then you don't have a capital issue so yes, we can validate to the Street and say, "Boy, look, how much international's working worth because you're giving us nothing for us or giving us negative value." But that may not be the right long-term strategy. Never say never, but if we got an investor or a strategic partner, which is more interesting at the right valuation, you never say never. But there is no sense of urgency there. And we're pretty excited about what Jeff and Mira Sorvino runs international and his whole team are doing. So it's just nice to see the subs adding up every single day.

Okay. Well, great. Well, that's a good note to end it on unless you guys have anything else that you wanted to mention before we wrap up.

Jeff, do you want to add anything on the Starz side?

No, I covered a lot.

Okay. Well, I want to thank you both for joining us. I really appreciate your participation in the conference, enjoyed the conversation and look forward to seeing you guys, hopefully, in person, next year in Palm Beach.

That would be great. Nice to talk with you. And thank you, everybody, for listening.

Thanks for having us.

Bye, everyone.