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

Thank you. And we're back, everyone. Thanks for joining us again. I'm really excited to have my next speaker here. It's Jeff Hirsch, President and CEO of Starz. This is the first time he's joining us. So we're excited to have you, Jeff. Thanks for being here. We appreciate it.

Thanks for the invite. I'm really excited to be here. I really enjoy your work. So...

Thanks. As I was saying just a minute ago, you're one of the few executives who straddled Moffett's world in my world, distribution and content.

And I just wanted to pull back a bit and ask you this big, broad question, which is I'd love to hear your thoughts on whether or not streaming broadly is a good business and then how it differs from the businesses of traditional basic or premium networks, right? That's something that we've been writing a lot about, and I want to hear your view on that.

First of all, I think it's a great business. It's a very hard business. You've got wholesale companies like Starz that have -- now have the opportunity to get closer to consumer, own the consumer and get consumer data that we've never had before that not only impacts and influences how we run our business going forward, whether how we pick content, how we market, lifetime value, churn, all those traditional retail metrics that a wholesale business has never had to do before. And ultimately, it makes our business stronger, both from a digital side, but also from the linear side as well. But I don't look at streaming as a separate business from our linear business. It's -- you have to start with the consumer. And it's a different consumer than it was. So there's my mother, who's 75 years old, isn't going to take a Fire Stick, plug it into an HDMI port to download Amazon and Starz to watch Outlander. But my sister is happy to do that. And so you have to serve both your consumers in this world. And so streaming to me is just the natural evolution of technology in the space. First, it was cable, then there was -- satellite business came in, and everybody said don't do deals with satellite, but we did satellite. And then there was ADSL and telco. And now there's Amazon and Hulu and streaming. And the benefit of that is the consumer has more choice, and we get consumer data that we've never had before. So to me, it feels a little bit like the catalog business was to Sears 30 years ago. It's a way to reach a consumer that just wouldn't come into the store before. And it's been very successful for our business.

Okay. And then to dial it down to Starz right now to you, what are the trade-offs? And how do you assess them between what was your legacy D2C model and going over-the-top, right? So you have cohort management. So how do you think about those trade-offs?

Well, first of all, we had to build a business that was a retail business and a wholesale business for -- to serve all of our consumers. And so we had to go build the expertise in the building. And we went out and reached out to people, I like to call, the original direct-to-consumer business, which was cable, and really understood acquisition, churn, lifetime -- and we had to build data. And everything that we do today globally in the 56 countries we're in is based on data, and we really have operationalized that and used it, I think, and it's a big competitive advantage to Starz. But what we've also been able to do over time as the linear business has changed is we've been able to convert our business from, when I started at Starz, primarily a packaged business where we were part of these large bundles. And really, we're at the mercy of the cable company in terms of selling those bundles to really convert those to now 80% of our traditional linear partners are à la carte, which means consumers are actually choosing Starz for our content, and it gives not only our cable partners great confidence that our content is resonating, but it's also that we're making money together. And so we're all incented to grow the business. And so I think about the total pie as this revenue share model, both on the linear and the D2C and OTT side. And so we're all aligned to make money together. Obviously, being -- owning the consumer and owning that consumer relationship brings in other skill sets and costs that we didn't necessarily have on the traditional side. But I think ultimately, getting that data and the expansion of data and understanding 1-month churn, 12-month churn to 36-month churn has really helped us improve our business not just for the digital customer, but for the linear customer as well.

So stay with that. So let's look at the economics of the Starz model. Where do you see the biggest opportunity to really improve a key revenue metric by going D2C?

So I think if you think about the way the business is unfolding, we see 3 -- if I take a step back, 3 kind of tiers of streaming. There's the basic stream -- tier of streaming, which is these broad-based services that need to get to around 300 million subscribers globally to be successful, ad-supported. They're trying to be all things to all people. Starz plays that premium add-on tier, which is non-ad-supported, edgy, adult content. We have really focused on 2 core demos. We're focused on women and women of color to really differentiate ourselves in terms of our content. And then there's -- that's the premium streaming tier. And then there's the kind of targeted tier, and I know you'll hear from Josh tomorrow, which is really where AMC is playing. And so we think in that second tier, with HBO coming into the first tier, becoming Max, and Paramount Plus becoming the focus, it's created a lot of white space for Starz to be that complementary add-on to all these big services. But what it means is that we're playing a different game. We're playing a retention game, not an acquisition game. And so we have these 2 core demos that we own today. The goal is to extend lifetime value. So it's all about retention. And so this year is the biggest content slate we've ever had in the history of the business. We've gone from an average of 6 originals when -- my first 5 years. We'll be at 12 originals this year, with the idea of using the data to line them up so that we can move a customer from one show to the next, to the next, increasing lifetime value and driving churn down to low single digits and ultimately accelerating revenue. And so that's kind of the game that we're playing, is lining up the content to bring churn to low single digits and ultimately accelerate revenue and reduce our importance of acquisition on the front end.

Yes. I was just going to say, so what happens then to acquisition? So it's kind of what Netflix just has gone through where I think -- we think their gross adds are really slowed, but churns come down, right? So what happens on the gross add front? And how important is that? I guess it's not that important to drive given your goals to get churn down as much as you can?

Well, again, bringing customers into the boat or -- is obviously really important, but extending lifetime value is incredibly important. And so where we had historically our biggest show, Power, we'd see huge gross adds come in when we launched Power, but we had nothing after the 10 weeks of Power for another 12 months. And so we would see churn come and go until they came back. And then the nice thing about digital, unlike the traditional side, is win back is a 0 cost game. So you send an e-mail or in-app messaging, and people come back and they're customers. We wanted to kind of fill that gap by putting shows. So we have 3 Power spin-offs now: we have Raising Kanan, which we premiered this summer; we've got Force, which is coming; we just premiered Ghost, which broke all kinds of records for the Power franchise. We've got a show coming back called P-Valley, which was as big as Power. We've got Hightown coming back. We've got Black Mafia Family. We've got Run the World premiering next weekend. And so the idea is to have something on the air every week, 52 weeks a year for that audience so that we don't have people disconnecting after that 10-week run. If we can bring churn down to low single digits sooner than later, that really accelerates our business in a big way. And so we're unlike those big, broad-based tiers that are trying to be all things to everybody. We're just trying to keep the audience that we have longer and accelerate our business. And that's why retention is the key for us.

Okay. It's funny because I always thought churn on pay TV -- it was my -- as a customer of pay TV, I have the hardest time getting off from Showtime and HBO, just spending the time to try to get it off. But your point -- is your point that churn now in D2C is better than the churn that you witnessed when Starz was more part of the ecosystem, is that true?

So I think the -- it's easier for consumers to come in and out in the digital world because it's a click-in and click-out world. You really have to think through how you're going to manage that life journey of that customer. And so we have that first-party data. We know that if you watched 2 or more Starz originals, your lifetime value is 4x longer. And so we know who our consumer is from that first-party data, which ultimately has allowed us to build a content mandate that focuses on those 2 core demos, which ultimately should help all of our partners because we're putting something on every week to keep that customer from churning in and out. But it's -- I think churn on the digital side, if you compare it to the à la carte churn on the traditional side, both are -- this month, we're at an all-time low for the business. But both are around the same, and it should come down accordingly as the content comes on. We have the biggest slate in the history of the business coming this summer. And so we don't foresee any kind of slowdown in terms of our subscriber growth, both on an acquisition and the churn side as well.

Okay. So we had Zaslav on about a couple of hours ago, and we asked, one of the things we like with Discovery was the ability to grow internationally. So I know this is a new focus. Can you talk a bit about the opportunity to improve your economics internationally? So that's a second [ opportunity for you ].

Well, look, we were fortunate enough to be acquired by Lionsgate, which gave us access to a 17,000 library -- title library, which really allowed us to expand internationally very rapidly. So we're now in 56 countries around the world, growing like weeds. We're really thrilled with the distribution partners we've had. We've got 3 layers of distribution, global partners, which is the Amazons, and we're the fastest-growing channel in Amazon everywhere in the world. We have local partners like Izzi, Claro, Orange, Telefónica, again, where consumers are. And then we have our D2C app, again, to get the data back to the business so that we can really refine our programming strategy in 13 countries -- in the big 13 countries where we're seeing the growth. And so ultimately, there, again, same strategy, premium, complementary, add-on, lower priced than these broad-based services because we think we're a great bundling and complementary partner, but it's the best of global SVOD. So 1/3 of the content is from the Lionsgate library, 1/3 is Starz originals and 1/3 is acquired content like The Great and Killing Eve and The Act. And so we think the strategy is working really well, but we will refine the programming strategy by country as we learn more and more. We just completed a study in Germany about what works there. And so we'll learn the content focus a little better country by country. And then ultimately, our economics will come down. We're seeing that on our acquisition cost. International was kind of in chapter or inning 2, and so we're really learning as we go. But we're well on our way to achieving that 50 million to 60 million global subscriber target by 2025 that we've said publicly.

So I'm sure in the past years you've been there, you've asked yourself this question, what's your competitive advantage? And how do you ensure that you have a big enough moat in what's a competitive industry? So...

Yes. I mean look, like I said, I think there's 3 tiers of services that -- everybody says, "How can you compete with the big ones?" And the real answer is we don't. We are sold on top of Amazon. We're sold on top of Hulu. I think as Disney, Hulu and ESPN+ bundles starts to really become prevalent in the marketplace, at least domestically, you'll start to see other people want to bundle up, and we're a great partner in the ecosystem to bundle because of the uniqueness of our content so I think -- put us in a really unique system. I think our competitive advantage is really 2 things -- 3 things. One is that first-party data that we're getting and how we operationalize that data into almost every decision that we make globally for the business. And as -- 4 years ago, we made the decision to build the data capability of scale, and we use that daily to drive content decisions, acquisitions of library. It was very important in forming our decision not to try to renew the Sony Pay 1 deal based on the performance of their titles and move to Lionsgate. We use that data to really learn about how impactful that was going to be, and that really helped us inform our decision to walk away early from that. But I also think tying to Lionsgate is a real competitive advantage. That 17,000-title library and Kevin and the TV group making fresh content all the time gave us broad availability and access to get into those 56 countries around the world on the backs of an Amazon, on the backs of an Apple and Telefónica faster than anybody else in the world. And I would say our footprint is probably the third biggest of any of the companies out there today.

Okay. I was going to say, one of the things we've seen in doing analysis of Netflix is -- in media, it was an 80-20 rule of the top 20 shows or the -- it's 80% of viewing. And what we see in Netflix data, it's really this massive long tail where the top 80 shows is 20% of the [indiscernible] flip on its head. I wonder, for Starz, are you saying you're more in the more traditional media camp where you just need a couple big temples every month to retain your audience versus what you think Disney+, Amazon, Netflix, Paramount Plus have to do? So is that part of it, the consumption patterns look less long tail than maybe these other guys look?

Well, I think Netflix, obviously, is -- because they binge, it's -- they've got to feed the consumer every week with something new. Else, you start to have -- lack pricing power to raise that rate, what they've been doing. And so -- but we go week to week. We are premium. We are bespoke. We are very tailored. You can see that in our marketing. We treat every show like it's our only show on the air, and I think the creative community is really seeing that and loves working with Starz because of that. But to your point, yes, it's a much more of a traditional pattern where we saw a large audience for Outlander and a large audience for Power, which was the foundation of our programming mandate. And now it's about keeping those customers from those 2 core shows week to week, every week, ultimately driving churn down and accelerating revenue. And so we're not out looking to go put a show on the air that is like the old HBO days that is groundbreaking for television that brings a new audience for us. We're trying to find programming that serves the audience that we have to keep them longer. And ultimately, we think that's a real competitive advantage for us.

So on that point, you mentioned HBO, look at how much Game of Thrones cost to make, and it's kind of now ushered in another arms race with Amazon doing Lord of the Rings and Netflix doing The Crown, all these big shows. How does that inflationary cost per hour impact your business? I know you're competing in a different space. But are you feeling any pressures from just the rising cost of content spend on a per [ talent ] basis?

It's a great question. I think because we are looking for content that is not broadcasted in a sense where it's procedural, so you can put ads in there or it's family-based or it's unscripted or it's news, sports and weather, we are kind of off on our own side looking at content. And because we're really focused on narratives by, about and for women and underrepresented audiences, we're kind of off on our own space seeing that content right now. But I'll give you a good example. We have 2 shows in Spain right now that we bought and acquired, and I thought I was going to be in a huge competitive battle for one of them. And when I went to the content creator, I said, "Well, I thought I was going to have to do my [ shell stick ] to get the show." And she said, "Look, everybody is in the market looking for family fare. You're the only SVOD service looking for adult, authentic, edgy content. And so you're the perfect plum for it." And so I think the nature of what's going on in the business, this kind of push to get the scale and broad-based -- be all things to everybody has people focused in a different space than we are. But that's not to say that we won't be competitive. We have a show called Gaslit that stars Julia Roberts and Sean Penn, which is -- everybody's done a show about Watergate, except nobody has done a show about Martha Mitchell and how she exposed Watergate. So it's Martha -- it's Watergate through the eyes of Martha Mitchell, and it was competitive, and we thought it fit the programming mandate really well, and we stepped up for it. But back to what we talked about earlier, we're going to go from 12 -- 6 originals to 12 this year and have the biggest slate in the history of the business. And I don't think we've seen that kind of -- in the programming that we're doing, that kind of inflation on cost.

Okay. And you mentioned before that your SAC is going the right way at this point in time. But we wonder, just broadly -- I worried about this at the Roku quarter. Given the massive spending, and even Zaslav said this morning that he may -- they may have overcommitted in the first quarter on marketing. Given how much HBO Max has spent and Paramount has spent, how does that impact the category for churn and SAC longer term? You have people who need to get on the scoreboard early and quickly and scale. So how is that impacting your ability to find subs and just the churn in the category?

I mean look, as I said, it's a really good business, but it's a really hard business, right? And the first 12 months or the fun 12 months, month 13, when you lap your launch is really it gets interesting, and that's where I think the proof is going to be in the pudding for a lot of people. But again, it's the data, right? So we are so -- we did this 4.5 years ago. In 2 quarters, we had more global OTT subs than we have linear subs. We'll have more OTT revenue than we have linear revenue in the next couple of quarters. And so we've made that pivot in that inflection point a long time ago. The data has allowed us to be able to find customers and keep customers in a very effective and efficient way, so much so that we brought our bottom-of-the-funnel buying in-house almost 14 months ago because we thought we could do it better than a third party. And it's really about moving money around real time to less-churning channels, where your cost is lower, and optimizing that on a regular basis. And we have a team that does that almost every night and every weekend better than I think most. So the data has really been such a competitive advantage for us, and it's allowed us to really continue to grow at a record clip.

Who did the buying for you before? That's really interesting. So you brought it in. Who did you guys rely on...

A third-party, bottom-of-the-funnel, digital-buying agency. But we found having it -- having the data that we had in the building with the team that we built, we can move money around real time versus an agency trying to do it, and it really optimized churn because channel cleansing and channel management is really important in terms of churn on the back end. A lot of companies will say, "Here's your budget for the weekend. Go spend against the budget." We spend to $0.01 below breakeven because we know by content, what the lifetime value is by the customer. And so we'll continue to spend in as long as that acquisition cost is below $0.01 below breakeven. And so we're continuing to grow the business that way versus saying, "Here's your budget for the weekend. When you're done, shut the lights off and go home."

So with that betraying any trade secrets, how is the efficiency of spend on a platform like a Roku or an Amazon versus efficiency in social? So just big picture, how do those trade-offs look?

It really -- not to give trade secrets, but the -- there's some big social platforms that do a great job driving. Some of them have changed their privacy policies, and that's impacted acquisition a little bit. But we were testing that well in advance of the change so I think we've handled that well. I think it depends on the content, right? So if you look at Power, we outgrow our biggest digital competitor on our D2C app, 4:1, on Power, but they outgrow us 3:1 on [ Outlander ]. And it just depends on the consumer and where the consumer wants to watch the content and how to acquire, and we know that. So what happens is when we come into Outlander, we allocate more of our spend to our channel partners there than it is to our direct-to-consumer app. But when Power comes on, we pull it back to us versus [indiscernible] So we're optimizing those dollars across the board all the time.

Okay. And just big picture, going back to your Time Warner Cable days when you traveled the country, are you surprised that the cable industry did move more quickly to be a gatekeeper on the channels business? Has that surprised you?

Look, I think they kind of are. I mean the broadband access to the home is the gatekeeper, and I think they've done a phenomenal job of investing into broadband speeds that -- I think when I left Time Warner Cable before, Tom and John took it over, we were -- 50 meg was our highest tier. Now it's -- 200 is their average tier. And I think Dave at Comcast and Tom, they've done a phenomenal job of building out an infrastructure on their own dime that has allowed this to happen. But I still think there's -- I'm a cable loyalist because that's where I grew up. I still think there's a lot of value in the aggregation of channels to the consumer. And I -- that's why I think for us still, the linear business is still a great business. And with 80% of our consumers à la carte, I think we're seeing great growth on Comcast, and they see the value of the service, and they're making a lot of money now from us. And our -- once you align the incentives, I think it works really, really well. So -- but I think they've done a really good job, and they still are the gatekeeper. I mean -- and they put services out there. But I think broadband is the gatekeeper to that service, and that's what they've invested in, and I think Spectrum has done a phenomenal job of building that out and so is Dave with Comcast.

Right. But there's not a channel -- there's not a fully built Roku-like channel story yet. I don't think that's going to monetize in a different way. That's kind of -- that was my question. So if [indiscernible] was here, he would say, going back to the differences in models, what his concern would be is just the long-term pricing power of a D2C model. As you know, from your cable days, every year, I pay 5% to 6% more for my cable bundle. I was angry, but I'm angry at Time Warner Cable, not the content owners, right? So can you talk a bit about how easy it will be in this new model to raise consumer prices versus the old model that you came from?

Well, right now, I think because we're early days in streaming, it's really hard to raise prices. To me, when you can get churn down to a steady-state, low single digit, I think then, you become -- you have pricing power on -- to the base. And then ultimately, I think that's our goal. And we'll see in the next 4 to 6 months, when this content slate comes on, if it delivers as we expect it to do and we can get to low single digits on churn, then I think, ultimately, because we keep the consumer for that long a time, we'll have some pricing power against the base. Right now, we're still early innings in the build-out of this -- the channel. So I think to raise price at this point would be not such a great idea for us. But I think ultimately, once we get fully deployed in content and we get down to low single digits, we'll have the ability to do that. And Netflix is probably 20 years ahead of us. They're at low single-digit churn, and they've been able to raise rates significantly so.

That's right. Yes. And that's the playbook. So let me ask you this question, do you think it's inevitable then for the companies that are not Amazon, Netflix and Disney competing in that big mega tier that we'll have to have more consolidation within this space if they don't get critical mass or get churn down low enough? So how do you see the next 3 to 5 years playing out in terms of consolidation within streaming?

Well, I think first you'll see commercial agreements, right? You're going to see -- as you said, David spoke earlier, you can compete on that to get scale on 3 areas, right? So you can spend, you can brute force the spend to try to grab subscribers. You can play on price, which I think Apple TV and HBO Max has been playing on significantly, or you can actually start to bundle services at a value prop for consumers. We think the next phase is bundles. And we think the more things change, the more they look the same. And we think we're very well positioned to be that complementary bundle because of our programming strategy and our 4,000 titles of movies on around that $8.99 to be that great bundling partner, not just in the U.S. but around the world. And so we think that's kind of the next phase of evolution. So more commercial agreements and arrangements than consolidation. I'm not going to speculate on any kind of consolidation in the business. I think we're in this phase right now where people were in the launch phase, and everybody is trying to figure out who they are and what they have and what they're good at. And then we get through that, then people will either try to add to what they're good at or figure out they've got to get better at something else. And then who knows what will happen.

Okay. It sounds like we're still 12 to 18 months away from now even for people understanding what they have in their hands. Because we just initially launched all these products in the next -- past 6 months. Okay. Hey, let me ask a question that -- this goes to the core of strategy as well. I know that ad sales isn't a core competency at Lionsgate. But would you ever consider adding an ad tier to bring down the cost of ownership in the U.S. and especially abroad? So you're seeing HBO Max do it, Hulu do it, Peacock, Paramount Plus, Discovery. Everyone is doing it. So how do you feel about using an ad tier or doing -- or getting into that model?

So it's not a model that we're really that interested in. We think that by adding an ad tier, you've got to get the scale to compete for digital dollars, not with just everybody else, but with the Facebooks and the Googles. And that's a very competitive game. We really like this premium, add-on, adult, non-ad-supported content. We don't make content that -- we say to creators, go figure out how to put commercials in here and there. We let them create and tell stories, and we're seeing great consumer demand for our content right now. We think it sets us apart, and we're playing a different game right now, and that makes us, again, a great complementary partner to all those AVOD services that are being built out there. And so we're really focused on keeping it to who we are, what we do well, laying this content into that strategy that we talked about, getting churn to single digits and really getting to that 60 million global sub number as quickly as possible.

Yes. It's funny because tomorrow, we have Jason from HBO Max. And that's one of my questions for him, is they announced a $10 tier. Is that low enough? I don't know. Like, it has to be low enough for people to start to care. I'm really interested in that. Okay. Cool. So let me talk to you about this. You talked about this before, but how has Starz' position changed in the linear world? So walk me through 2, 3 years ago, what the model was vis-à-vis distributors and what's it now and how the economics have changed here.

So we were, I think, borne out of Malone as a third premium channel to have some leverage for TCI's negotiations as a movie service. And I think [ Albert ] came in 8 or 9 years ago and started to do originals and, I think rightly so, started to kind of go after these underrepresented voices to differentiate the product and really -- but we didn't have that many originals on the air. We had a very low ARPU. We were bundled significantly in a lot of our cable partners. I would say 90% of our cable linear deals were bundled deals and not à la carte deals, which were nice because it protected the downside, but it really limited your upside. And it was a good business, but we had one revenue stream, and we were a domestic cable company with one revenue stream, which is linear television. Fast forward to today, we've got 5 revenue streams. We're in 56 countries around the world. We are more -- you have to think of us more of a global streaming network than a cable network because we have more subscribers that are digital. And today, I think that surprises a lot of people. Revenue will follow as well. And we're well on our way to being that premium complementary partner around the world with great, compelling, adult, edgy content. I think we have a point of view now that we didn't have before. We know who we are. And I think our cable partners, our digital partners, even our consumers are seeing that we stand. We just did a bunch of research with consumers, and that came back to us and went back to us in a really big way. And so we've gone from, I think, not really having a true identity and being bundled and being carried in bundles to now, we're 80% à la carte on the traditional side. We're bigger on the digital side. And consumers are picking our product at a pace that we haven't seen before. So I feel really great about what we're doing. I think it's all about execution at this point, and we're well on our way to that number.

And how important was, you mentioned before, the Sony output deal to the old model versus losing the Sony output deal to the new model, right? So what did that do for you in the old world versus now?

I think each of these is premium -- part of premium was defined by having a Pay 1 deal in the old model. And I still think we have that today. It's -- we have all the first-party data so we know how important movies are. And I can tell you how important movies are at year 2 from the box office, year 4 from the box office, year 7 from the box office. I can tell you what they mean to our certain originals or not. And if you look at the Sony Pay 1, 50% of the movies that were coming from Sony that we're paying for did under $10 million at the box office. And if you look at our top 10 movies over the last 12 months, if you take Spider-Man, Jumanji and Venom out, none of the other movies that we got during the year were in the top 10, right? And so we looked at it and said, based on our consumer, and now Netflix is a different model so we can't compare there. But based on our consumer, on a title-by-title basis, we didn't think the value was there to pay for that Pay 1. When we looked at the 13 titles or the 15 titles that we're getting from Lionsgate, with the Wicks and the Borderlands, these bigger, impactful titles, while we were getting less from Lionsgate in terms of total, they were more impactful to our base based on our data. And so we early on went and started negotiating to get that Pay 1 deal ahead of Sony. So I know there's a lot out there about it, but we really looked at the data and found that other than those 3 movies, we were paying for stuff that wasn't really resonating with our consumer. Netflix may be different because of scale and because they're broader so they may be impactful, but for us, it wasn't -- the value wasn't there.

Okay. Jeff, a big investor debate, as you know, is now about this idea of a pull-forward from a pandemic, so a pull-forward demand. How much of the growth in the business last year, do you think, was driven by the pandemic and a great content slate? So when you try to figure out this outlook going forward, how do you think about the year [ they get extended ] and the impact on growth?

There's no doubt we saw great people going deep into our library. So we saw a 33% increase on people watching Power season 1, 2 and 3 and a 38% increase of people going back into the library and watching Outlander. We launched 5 new shows during the pandemic. All of them broke records. Outlander season 5 was the best season that -- to date. We launched Hightown, which set all kinds of freshman show records for us, then P-Valley came behind it and broke all those records. So there's no doubt that consumer engagement was elevated during that period of time. But if you go back to what we talked about earlier, we're playing a retention game, not an acquisition game. And so we already have that audience. We're coming into our biggest content slate in the history of the business with 12 shows. And that's only starting next weekend. And so we actually really feel good about our growth trajectory this year. And then we've got earnings on the 27th so I don't want to get in trouble here. But we'll -- I think we'll come out and shape the year a bit so that people can see that this isn't -- it wasn't a pull-through for us, that with our retention strategy and our biggest content yet to date and how we line it up, we expect to have a good growth year as well.

Okay. Awesome. You've been in this seat for less than 2 years. How have you changed the way that Starz works with Lionsgate versus the previous way, which was a short way? So how was your integration with the parent company different? And what's changed?

Look, it's been, I think, a wonderful combination of the 2 companies. Again, going back to that 17,000-title library, we couldn't be international to the level that we are today without access to that library. So that's really exciting as a starting point. The Lionsgate Pay 1 is coming over to the service when it ends in -- when you have Borderlands and the John Wick franchise and you've got Hunger Games and Twilight prequel/sequels, we're really excited about moving that content on the air. We've already been actually over in those meetings, educating the Motion Picture Group on who the Starz consumer is so when they go out and look for content, they know what they're looking for to help our service long term. We wouldn't be able to do that with any other partner. And so that's been a really great -- working together with Joe and his team to kind of help shape what those movies are that come on the service, and that's been a really nice competitive advantage for us. And then Kevin's out there, the TV -- the Lionsgate TV group, looking for content, whether it's scripted, unscripted all over the world, as we are. So we've got 2 groups hunting for content for us. And the nice thing is it fits the Starz programming strategy. It comes to Starz -- like Run the World that -- which premiers on the 16th, and Blindspotting, which premieres in June, which is going to be in Tribeca, both Lionsgate TV shows. Actually Blindspotting was a Lionsgate TV movie that we have made into a TV show so there's really great synergy there. And so it's been a wonderful kind of combination on those 3 factors. And on top of it, they've been phenomenal producers of television, going back to the Mad Men days when they produced it for AMC. And so right now, Lionsgate TV production is -- all of our Starz originals are being produced through that entity, and it's been -- helped us to be able to be connected, to keep COVID costs down, keep production going through the pandemic. I think we did -- started and completed 5 shows in the pandemic and had 15 in production at this point. So we really haven't lost that step in terms of -- ahead in any kind of content. So it's been a great combination. I think the access to all that resources have been really great. The nice thing is because of our programming strategy is so focused, not everything that Kevin produces works for Starz. So unlike other big broad-based services that everything is going on there, they can still develop and monetize content to other providers that wouldn't be a good fit for me and Starz. And so we get the best of both worlds there.

And are you looking to buy all rights in all media? So when Kevin brings you a show or Joe brings you a movie, how much of the international piece are you willing to take?

We have great flexibility based on the show. So if it's -- if we don't think it's going to play internationally, we'll just take it domestically. If we think it will only play internationally, we'll take it just for international. We can take it for the world. We can take it for the U.S. in certain markets, whether it's a show that we think is U.S., U.K. and France. And so we have great flexibility to buy, whether it's just domestic, whether it's the world, whether it's just international, not just for Lionsgate but for any piece of content that we have.

And then internationally, as I've noticed this on Netflix, I'm watching a lot more international shows from Netflix, they're coming back. How you structured international programming? So how much of the international channels are local-based content? And then are those shows also potentially coming back to the U.S. at some point?

It's a great question. I mean I think we look at local productions as they've got to be local stories that can play globally. So we've got 2 shows being produced in India right now that we've cast with a lot of British cast members that we can bring it to Europe and bring it to the U.S. We're shooting 2 shows in Spain right now that I think stories can play anywhere in the world. And so we bought it, we took the world on those shows. We have 2 coming out of Lat Am right now that I think can play in the U.S. and play anywhere in the world. And so the idea is to find local stories that were -- are great in the local market, but also can play everywhere else in the world. And so we're acquiring in that sense.

And do you have local managers programming each regional Starz business? So it's [ out of L.A. ], there's a local presence?

So in India, we've got a big office there with a local presence that's really -- we just launched in Indonesia. We just launched in India. So we've got great boots on the ground there. Rohit Jain, who's the manager, he used to run the satellite equivalent there. So great distribution minds. He's got a good content partner there, and we really like what's coming out of there. We've got boots on the ground in Madrid, which is kind of our hub for Europe. We've got an office in U.K., which is also -- we do a lot of U.K. productions that we bring over here. The Lionsgate TV group has a partnership with the BBC. So we see a lot of content coming out of there. And then we've got a deal with Pantaleon and Pantaya out of Lat Am. And so we've got the hubs of content -- eyes looking for great stories around the world. And then we've got that great 3 Arts partnership that the Lionsgate TV group works with, and they brought -- they were shooting the Catherine de Medici story in Marseilles right now that came from 3 Arts and Lionsgate TV that I think will be a great complement to the Outlander, White Queen, White Princess, Spanish Princess, Becoming Elizabeth story that we're in production on right now. So we've got a lot of people all over the world looking.

So let me ask you, going just back to Pay 1 and watching what HBO Max did, I know you -- Sony is behind and Lionsgate is coming. How important is Pay 1 as a kind of perceived value? Is there anything that you picked up in your years that, look, if you missed it in the box, this is available, now hopefully sort of window on SVOD. Is there any -- is that a key to a pricing strategy besides churn mitigation, this perception for Pay 1? Have you found that at all?

Yes. Look, I think the big box office movies really help the perception of your brand and your service. There's no doubt that Spider-Man and Venom and Jumanji are great brand builders, having them on the service. We see a lot of acquisition come on when they come on the service. We see a lot of usage also. Don't forget, we still have Disney in Pay 2. So Frozen is still on the service and gets a ton of usage from a retention point of view. We -- we'll have Sony, Pay 2 and Pay 3 for a long time based on this as well. So movies are a very valuable component to that value proposition with our big originals at that $8.99 price point. But you have to do things differently because people come on to watch the movie. If you have a 7-day free trial when that movie comes on, there's a lot of usage and people -- conversions come down. So you have to be really focused on pricing strategy around bringing some of those big titles on. As the titles get farther and farther from the box, they really become great retention and usage titles and nonacquisition titles. But ultimately, it's the big originals that drive both acquisition and retention. But you have to have Pay 1 as a component because it's the P&A at the box and the title and the movie, and it brings a lot of cachet, obviously, to the brand. And again, that's why we're excited about the Wicks and the Borderlands and those kind of shows.

Okay. And next question, I don't expect granular details, but one of the questions we have is, of your OTT base, can you share a high level breakdown of the retail versus wholesale subscribers? Because we're trying to figure that out. Not every sub is going to be the same. So...

I would say it's about 2/3 wholesale, 1/3 retail. And it moves up and down depending on what content is on. But I would say 4 years ago, our top 3 distribution partners were our traditional linear partners. Today, our top 3 distribution partners are one of our digital partners, our own app and one traditional cable partner.

Okay. And then talk about, if you could -- you mentioned data a lot in this conversation. Where -- what are the data advantages? How much data do you get from a third-party seller versus getting it direct to yourself?

So we get the most -- obviously, the most data from our own app. I would say one of our digital partners, we've now decided to put a joint dashboard together. So weekly, we share our data and their data back and forth. Because, again, everybody's incentives because, for the most part, we're à la carte everywhere. The better we all do it together, the better -- the more money we make together. So we're sharing data more freely than we ever have before. And it helps us inform what content we should go acquire. Instead of going buying bulk libraries from different studios, we now are very specific about what we're looking for in terms of titles and movies and age of those movies. But I can tell you from a dollar spent in marketing, to what platform it's on, to what ad they clicked on, to what the first title stream was, to how long they watched that, to what else they watched, to their 12-month, 24-month, 36-month lifetime value in churn and what those curves look like. And so we're really operationalizing that data to an extent to really help the business. If we can move 24-month churn on a show from one of our big shows, the decay curve gets -- we can move it up 10 points. It's incrementally massive on a revenue game, without sharing too much data. And so the fact that we can see it, measure it and impact it now is really an impactful piece. Our first month churn was much lower than one of our biggest digital distributors because we actually have built in our retention queue and a lifetime management journey into our app. They didn't have that. And so we shared that with them. They built the same queue, and we saw their numbers came down and on scale. It was massive for their churn number.

Yes. I see that with products I use. If I drop someone, they're back to me a couple of weeks later, hitting me with some type of offer. Let me ask you this. I'm a massive -- I'm a very big consumer of streaming content. Do you ever foresee a day where we have an aggregation tool, Apple, Amazon, Roku, where there's a suggestion engine across all platforms, right? Like, so I watched the show called The Vow on HBO, and you have your own NXIVM show. So I went from one to the other because someone told me. Would you ever think that's going to be fueled by an aggregation layer, either set-top box, a smart TV or a third-party service?

I mean I think aggregation is a huge ease and convenience for the consumer. I mean you look at the travel industry, everywhere that -- it popped up all these services and then KAYAK came in and was kind of the aggregation layer for all of those. And I think yes, ultimately, somebody will see that. There's a couple of start-up companies who are looking at that right now. And I just think it comes down to what the economics are and what that looks like and how much they're going to take from the consumer. But again, the value of cable and that incremental economics is the value of ease, simplicity and aggregation, right? I think that's why [indiscernible] has been so successful as well.

What cable never gave us was a great recommendation engine, right? This seems like a natural, right, that you guys have not given us that. Maybe it's too late. Okay. Let me ask show you a couple more on international because that's really interesting to us. So walk us through your international launch plan. And what has been the gating factor to getting into more markets?

We're actually -- when we started the plan, we thought we'd be in 1/3 of the markets that we're in today. I think what happened was there was a great confluence of 2 events going on at the same time. We were acquired by Lionsgate. We got access to a 17,000-title library. But these large U.S. tech companies like the Amazons and the Apples realized they could do what they were doing on video around the world. Amazon took much more of a forced march, country by country because their engine was set up for commerce. So they have to bring it down and bring it back up for video. Apple realized they could do a light switch because the iTunes Store was one and the same in 109 countries. So we were able to launch based on having content available and those large global partners launching in technology into these -- we're already in 19 markets in the MENA countries with STARZPLAY Arabia, but into the balance very quickly on the backs of these global partners. The second piece of that was we were out in the market doing distribution deals for our content across the world in Spain with the Telefónicas, in France, the Oranges, Izzi, Claro. And so we bolstered that global partners with these local partners. I think we've done over 85 local distribution deals in the last 18 months. And then we dropped our app really -- we took the U.S. app, retrofitted it for the world and dropped it into 13 countries, more to get the first-party data that we've used to refine the domestic business [ but ] to refine the international business as well. But we're in the countries that we think we should be in right now. I think the goal right now is not to expand to more countries, but it's actually to go deeper in distribution in the countries that we are. Because we're seeing, as we lap distribution, subs accelerate, and as we put more distribution on, subs accelerate. And so the countries that we have 5 or 6 distribution partners are growing like crazy. The ones we have 1 or 2 are growing fast, but they're not -- when we get 4, 5 or 6, because that's where the consumer sits, we'll start to see that growth match those other markets.

And what are those further countries, right? So where are the places where you're seeing a 4, 5 and starting to see the growth?

Our big countries right now, just not the -- U.K. is great growth for us. France is great growth. Brazil is great growth, Mexico. There's -- we're seeing -- there's a handful of countries that are really driving growth because content is resonating and we have a bunch of -- we have deep distribution relationships in each of those countries.

Right. It's funny because -- what about places like Canada and Mexico?

Canada is doing great. I always think of Canada as U.S., unfortunately. The Canadian people, I don't want them to get mad at me...

Exactly, yes. My coworker from Toronto...

Yes. And we've got a great relationship. We're a part of Crave and with Amazon in the U.K., and we've got a linear channel there as part of the deal with Bell. So that's been a great kind of barker for driving people to the content. And Canada, clearly, one of our top growth markets, I just always think about it as part of us. So..

No. I got it.

I apologize to our Canadian partners.

No. No, it's -- I got it. One of the things we were not surprised because we had to buy Disney at the time, but just Disney's ability to really launch quickly. And you think of like all the heavy lifting that Netflix has done, right? So there are probably markets like the Nordics and Latin America that's now been kind of built out by 2 or 3 products, right? So is that -- so as I think about Latin America, is that -- you mentioned Brazil. Was that going to be -- to come market? So what do you think about like that and maybe Asia Pac as potential new markets for you? And what do you need to get right about those markets?

So obviously, we've got to get the content right, first and foremost. We've got -- and that gets great distribution deals and the price point. We think Lat Am is going to be a huge growth engine for us. And as Disney+ comes in and really those broad-based services set the foundation, we, as that add-on, really start to benefit from that, right? So the markets where we're seeing great growth, I think Netflix has been there for a long time, and the consumer is now catching up to the U.S. consumer in terms of their behavior changing. We're there. We're first with those other 2. So I think it's going to be great for us. We just launched in Indonesia. We've got some great channel partners there already that we've launched with. We'll launch the direct-to-consumer app into that market. We've got -- like I said, we have got great management on the ground there. So -- and in India, instead of coming in at a very high price point looking for that credit card market, we came in at the lower end to kind of grow with the middle class and make it more of that kind of product. We think that was a better strategy for us. We learned a lot from STARZPLAY Arabia in terms of connectivity to the local telecom, how people pay their bills, where they go to their cell phones, they tap up their bills. Instead of taking out the full month, we take a little every time so that churn is lower. And so we've learned a lot by that venture in terms of how to price the product, how to grow the market, where we want to go. And I think I'm really excited about our international growth. I think we said 15 million to 25 million subscribers by 2025. We're well on our way to hitting that range. And again, I think we're going to get to 60 million subscribers globally by 2025, 50 million to 60 million.

Yes. Well, I was going to say to you -- my last question is, why isn't the TAM bigger? Look how large Netflix' international base is. Look what Disney had been able to do. So why isn't your goalpost bigger and broader than 15 million to 25 million abroad?

Well, again, it comes back to our positioning and our content strategy. We're not trying to be all things to everybody. So our content is very focused and bespoke on these demos. And so we're not trying to be all things to everybody in the home, which then reduces the TAM in terms of our opportunities. We think we see a world where Disney and Starz is -- are bundled up together in these markets or -- and I think at some point, Netflix, as it matures and laps its international growth and start to play on price, we'll look for other revenue streams and potentially bundle it well at some point over the time, just the natural evolution of the content space that I see, at least. That's my opinion, not anything in particular. But we think as that premium add-on tier, if you look at the domestic business over time, HBO, in the heyday of their business, and you can argue they had some of the best programming on in the history of television, got to 33 million subs, plus another 3 million for their hotel business. And so I think that the premium tier penetration is somewhere between 20% and 30% of the broad global basic streaming service. So we're right in the middle of that space.

Well, I can say to you, that was the big aha in my mind when I started covering Netflix. I never thought the -- I thought that HBO was the TAM potential for a service like Netflix, and then they blew past that, right? So to your point, HBO and Starz, you guys were capped by the pay TV world that you were marketing to. It seems obvious, right, now that HBO has moved to where they moved to. One last question, we're almost out of time. The question is, do the economics of Pay 1 deals change, if windows become shorter, right? So most Pay 1 deals are based on box. But all of a sudden box is compressed because windows are shorter. How does that change the value or the economics that you pay to Pay 1 deals in a different window environment?

I think that's yet to be determined. I think it depends how long the PVOD window is. I think it depends on how long -- when we get the -- if it slides it up, I think, obviously, the sooner -- the closer to box, the more economic valuable it is to us. So I think there'll be mechanisms in all these deals that, say, based on when it leaves box and goes to PVOD or come to us, sooner or later, there'll be mechanisms in those that actually change the economics based on delivery. And that's -- we see it in our data, how important it is. And so we're obviously very willing to play on those economics based on the impact on the service.

Okay. Well, Jeff, I'd say first time in a long time. We'd love to have you back. Thanks for doing this. It was great. Wish you well, and we'll be in touch as the year continues.

Thanks for having me. I really enjoyed it.

Pleasure. Be well. Take care. Thank you.