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

Great. Good afternoon, everyone. I'm John Hodulik, the Media and Telecom Analyst here at UBS. Welcome back to our third final day of UBS's Global TMT Conference. Very happy to introduce our next guest is Jeffrey Hirsch, the CEO of Starz. Jeff, thanks for being here.

Thanks for having me, John.

So again, we've got almost 40 minutes for... Great list here. I've also got to app up. So if anybody has any questions, just shoot it, and maybe I'll weave it into the conversation.

So, Jim always do this late in the year. Obviously, it's been a pretty eventful year for the company. And -- But can we turn our attention to 2022 and just talk about what your priorities are for the company as you look out in the next year?

Look, I think there's three core priorities that really don't change from year-to-year as we have gone down this path of pivoting the domestic business to becoming a digitally data-driven streaming service and launching international. First and foremost, obviously, it's about programming. It's what we do. We're a network that puts great program on the air and this is the most robust and the biggest slate that we've had in the history of the business. We're going from 7 originals last year to 12 originals this year. And for the last 6 months, we've really, really focused -- we focus on two core demos, the African-American audiences and the general female audience. We've really only activated the African-American audience, coming into the fourth -- fiscal fourth, we'll actually start to activate that second core demo with the Outlander coming back and a show called Shining Vale with Courteney Cox and then roll it into a show called Gaslit with Julia Roberts and Sean Penn. And so programming is obviously the biggest priority of the company. That's what we do. The second priority is domestically pivoting the business from a linear business to a digital business. But I do think there's a lot of growth still in the linear business for a premium service like ours. And as we've pivoted to a la carte, we'll continue to drive and work with our partners there. And then obviously, pushing international to turn positive and really grow that business into a profitable business is a huge priority for us. And lastly, but probably most importantly, is the employees. None of this happens without employees that are focused, happy and excited about what we do. And it's been a real tough 18 to 24 months working from home, being out of the office and bringing employees back, keeping them in focus is a real priority for us right now.

And we'll definitely dig into both programming and the linear digital side of things. Now first, I'd like to start off with some more recent news, the Lionsgate Board's decision to consider a spinner sale of Starz obviously, positive reaction we've seen in the market. What do you think this means for Starz longer term? And how would function potentially as a standalone?

I think in the last -- the last earnings in September end quarter, we made an 8-K announcement about looking at strategic options for Starz, whether it's the full spin and tracker stock, a partial spin. And I think the, obviously, as you said, the Street reacted very positively to that news. So I think our Board and our shareholders are aligned of doing something structural to the business. And that's exciting for, I think, everybody at the company because, obviously, if you look at the stock price, the valuation of the company, we weren't getting credit for the tremendous work of going at Starz, but also what we're doing on the studio side as well. And so structurally, I think that will help kind of realize and unlock the value of both sides of this company. In terms of a stand-alone for Starz, we -- because we merged with the studio, we really have been operating with a stand-alone structure since we actually closed the deal on December 17. We have a CFO. We have a head of HR. We have a separate marketing group. And so all of the personnel stuff that would have to happen to actually break the company part is already in place. And so I think that's something pretty easy to do. And then in terms of the content, we've just announced the Pay 1 deal with Lionsgate and Starz and Summit. And so that will -- that deal is in place, and that will continue for a few years to come. And we have had a bunch of inter-company arrangements, both domestically and internationally, and I think those will continue to work as well.

Got it. When management mentioned in a comment that even if Starz was separated from the TV and film studio that the two entities would still be able to maintain the synergies that exist today. Could you expand on that? And how confident are you that you can maintain those synergies?

Well, very confident. I mean, we've spent a lot of time in the last three or four years working very closely with the studio, both on the Joe Drake on the Motion Picture side as well as Kevin on the TV side. I mean half of half of our -- actually more than, I think, of the 12 shows, 10 of them are coming from the Lionsgate side of the family. And over half of Kevin's shows come from Starz and I think it's even bigger in terms of development. We spent a lot of time with Kevin working on what's important to hit our Starz programming mandate. And I think that work that we've continued to do we'll continue whether we are part of the same company or a separate company. We're a big buyer of content. He knows what we're looking for better than most because of what we've done, and I think that will continue. And as I said earlier on the Motion Picture side because the Lionsgate and Summit slates are coming to us, we spent a lot of time with Joe not only on their big films, but their segment 2 films talking about who the Starz consumer is and what we're looking for in terms of those films. And I think that knowledge will continue as well. So whether we're part of the same company and we have those intercompany agreements set up already, we'll still continue to see those benefits.

And then maybe in a little bit differently. Are there opportunities that Starz might have and can execute on as a stand-alone company or as part of a different entity even that it doesn't have as part of Lionsgate today.

Look, I think the process that will go down based on what the Board has announced will allow us to look at various different constructs, whether it's a strategic that would come in at some point or actually a spin. I do believe that having the ability to spend more and more on content to super serve these two core demos will accelerate the business. I think it will also help those internationally since the domestic slate really is what funnels the international business for us. And so I do think as a stand-alone, there are opportunities to kind of accelerate growth.

Okay. So let's dig into the Starz business a little bit in some of the recent trends. We saw a bit of a step-down in Starz domestic segment of profit and margins in the September quarter. Can you walk me through some of the dynamics on how margins and profitability in Starz domestically can start to improve from here? Or maybe what some of the drivers were of that and how you expect it to proceed going forward?

Yes. So the last quarter, I think we're down 14% margin, which is the low point in the year coming in the quarter before that, I think we're in the mid-30s, the low 30s. We launched three new shows in the quarter. So there was really two drivers of that. Content cost was up significantly because we launched three new shows to the content amort as well as the marketing around those shows was impactful versus the quarter before. And then we saw -- We did see an increased cost in acquisition, really coupled by two things. One is we had a lot of launches of other streaming services. So [ share of voice ] was more expensive in the quarter. And then we obviously had the privacy change coming off the Apple devices that I think, impacted a lot of different companies in the quarter. I expect this to normalize in the mid-20s for the year. And so that was, again, the low point based on the content spend.

Got it. So yes. I mean we're hearing about what IDFA has impacted your business, a lot of other businesses as well, video games, especially. Can you talk a little bit about what you guys are doing or how you guys are dealing with IDFA, what changes you're making and how -- how over time you guys can get around these issues and sort of again get back to the sort of profitability we've seen?

Well, the good news is that the worst is behind us. I mean, I just looked at the last month, SAC costs and they're back down to normalized levels. I do think there'll still be some bumps here and there, but I think the most of that's behind us. We -- I would say two years ago, let me back it up for a year when we launched our app in 2016, April 2016, what was really important about the app is getting the data that we weren't getting from our cable partners. And so we've been able to harness -- it's now our third biggest distribution channel domestically and we'll be able to harness that data to do a lot of things, obviously, to improve the performance of the business. But I think the biggest and most important thing that we were able to do two years ago was bring the bottom of the funnel or our digital marketing or modern direct mail or success-based marketing in-house. And so we've been able to actually do the bottom of the funnel in-house, which I think is not only removed about an 18% inefficiency between the top and the bottom of the funnel, but it's allowed us to actually have the data, move money around real time to try to drive acquisition and keep costs low. It's also given us the visibility into what they were doing pre the change. And so we were testing months before what was going to happen and what the change was going to be to try to isolate the various different components that were going to be left through us to play with that would be the -- to try to recreate the world before they made the change. And so I think with that -- having that in-house really gave us the ability to work with our partners to kind of figure out what was going to happen, then kind of have a plan and have one of the change happen to go in and try different things. I just lay on what worked best and bring costs down. I think we've seen that happen. So like I said, I think the worst is behind us down and feel pretty good about what we've done.

Do you think the industry will have to move away or sort of relook at it sort of advertising budgets and maybe less advertising and maybe focus more on traditional advertising if they the IDFA issue or you're not -- you don't try to sort of wait and work around it completely?

I don't know if that's the case. I think, again, you'll look at all of your different channels and see what's the most efficient in the new environment and you'll spend into those channels. Look, the best way to sell TV is still TV. And that's really the top of the funnel to build great awareness. But then harvesting subs on the bottom is really a really unique talent. I think we've got one of the best teams in the business doing that. And it's kind of fun to sit with them and watching them move money real time around and between channels and between changing ads, and it's really pretty proud of what they've built and how they operate the business. So I think it just depends on what your capabilities are. And when you look at your list of channels, what's the most efficient, where you spend the money and when you move it around.

Got it. Just one more question on the advertising and marketing topic. As we look into fiscal '23, it looks like a large percentage of your content will be returning series of IP that people expect to see on Starz, we've seen in the past, does that help you from a marketing standpoint versus sort of having to advertise behind sort of new IDP and sort of season 1? I mean, are there benefits to that, that allow you to sort of make your advertising spend more efficient?

I think there's fundamentally two things that really help lessen the deployments on the front end, and this is the game that we're playing, I think, versus others. We're not trying to be all things to everybody in the home. We don't have to be -- we're not a big broad-based streaming service that needs to get to 300 to 400 million subscribers globally. We said that we're going to get to about high end of the 60 million -- 50 million to 60 million subscriber range. And so we're actually playing a retention game. We've got the largest composition of women 18-plus in premium television, the largest network in American households. And what we're trying to do is extend lifetime value, right? And so try to bring churn down to low single digits. And one of the ways of doing that and one of the reasons we went through 7 shows to 12 is to have something on the air, every week, 52 weeks a year for each of those demos. And so fast forward back a couple of years ago, go back a couple of years ago, we'd have Power on the air, and then it would be 12 months before Power to come back, we would see large consumers come on for the first episode and then we see a lot of churn on the back episode. They've come back a year later as a win-back customer, but that we would lose that revenue in between that year. And so what we've tried to do is align our content strategy to move a customer from one show to the next to the next and really focus on retention versus acquisition. If you look at the way we lined up the end of Raising Kanan, so the final of Raising Kanan premiered the same night as the first episode of BMF. 80% of the consumers that watched the finale they Raising Kanan have completed the second episode of Raising -- of BMF. So three weeks later, they're still on the service. That gives us great confidence that our thesis is actually going to work. What it also does is it allows us to do what you're talking about, which is less dependent on the front end. One, because we're always on. So we don't have these periods where we have to reintroduce the show every year because we bring the audience from week-to-week-to-week. And then as you come back in the second and third seasons, the data shows that Season 2s and 3s really drive acquisition. And so the more of our slate is seasons 2s, 3s and 4s, the more impactful it's going to be for acquisitions for the business.

And let's talk about what it means for engagement. We recently saw a headline that the stockers [ applies ] most watched game in '21 during the finale of BMF and the season premiere of -- or season 2 of Ghost, which is surprising, especially given what we've come through with the pandemic, everybody locks in their homes and now you've got a whole competition and stuff. So how should we think of engagement as we sort of look into '23? I mean, first of all, would you be surprised that this that these trends are happening. And as you look out in the '23 and the slate, do you think this level of engagement, I guess, is sustainable and where does it go from here?

I actually think it's a great question. One of the things you saw if you go back to our fiscal first where we actually had sub loss in the quarter, we had not -- we didn't have any content on for 5 or 6 months. We weren't getting Pay 1 movies on Sony because the theaters are closed. And the theme last quarter and the theme now, I think, going forward is return to content, return to growth. And as you see these big shows coming on, especially in the Power universe, where we just have massive engagement, and we start to double up the shows on top of each other. I expect that engagement to continue. We're actually seeing engagement now on the service that's bigger than the peaks of the COVID levels because the big content that's coming back on the air. And I'm excited to get the Force, which is the next spin-off in February because that's the Tommy show. And he's one of the biggest characters in the show, and people have been waiting for that. So I think we'll only see engagement go up even more. And as we get into the slate where we don't have any more gaps in programming and then Pay 1, start -- Pay 1 movie start to come back on, I think you'll see engagement and continue to increase.

Got it. So it's a question of sort of filling out the calendar with new content. So I'm sorry, would you just say you want new content hitting the platform every week or every month? Or what's the case? I guess the question is, what's the cadence, right?

The cadence is really something for those two core demos every week, 52 weeks a year. I'm probably a new show every four weeks. But if you think about a linear network and linear time, which I use to organize my thoughts is something on the air at 8:00 and 9:00, each for our two core demos without any breaks. And I think if we continue to do that, if we can take a customer that's lifetime value is 5 months to make it 10 months by putting content 10 weeks then 10 weeks and move the customer over, it's massive for the profitability and increase revenue in the business without spending anything on marketing at all. And so that's kind of the strategy we're playing is that back end, let's extend lifetime value. It's bringing churn down and ultimately drive profitability and more revenue.

Got it. And is 12 the right number? You started off talking about how you guys have gone from 7 to 12 this year. I mean is that -- is 12 what you need? Or do you need more than that? I mean we've seen Disney talk about higher -- and everybody seems to be talking about higher budgets for content. I mean, where are we in that process?

Again, we're not trying to be all things to everybody in the home. We're really trying to -- were non-ad-supported, we're adult, we're edgy. We're very character-driven and focusing on those two core demos. So I think if you think about the service we're somewhere between 12 and 15 originals, over 4,000 titles of movies where you have the Lionsgate and Summit Pay 1 coupled with the Universal Pay 2 and a bunch of library titles around there at that $8.99 price point. I think it's really a great value proposition to the consumer. And that funnel is obviously the growth that we're going to see, and we're seeing on the international business right now.

Got it. So maybe let's talk a little bit about the segments. It seems like you said you have more experience in terms of the African-American market and then not focusing, I guess, more on women. First, let's talk about the African American base. You've got some great hits like BMF is awesome, Raising Kanan and Ghost, which I'm less familiar with. But do you think you've done enough in attracting that market? Is there more to go? How do you think of the sort of growth prospects in that genre?

Well, I think ultimately, what we're really focusing on is the female audience, right? And whether it's light green, yellow, blue, red, women, that's kind of the TAM for the business and 49.6% of this plan are women. So I think we've got a long...

So that's bigger. So that's...

I think in the African-American audience, we really are the destination for edgy adult content for that group. And I think 50 has done a phenomenal job with BMF and some of the other stuff he has in development right now that really understanding that market and what really pops the Power universe. I mean, other than Marvel, no one else has been able to really build four shows off of original scripted series. And I expect Force to be the biggest spin of all of them. I think Patena Miller's performance in Raising Kanan in probably the best performance of a female actor all year, and which we should be recognized for that. So -- and then we come back with P-Valley, which was a huge first year of success. So I feel pretty good about having completed that programming kind of loop throughout the year where we have something for that audience every year, every week. But COVID has not been kind of production for all of us and it's pushed a lot of our other core demo out. And we've got some content coming in our fiscal fourth with Outlander and Shining Vale, which, again, is a Cox -- Gaslit which is water get through the eyes of Martha Mitchell, which is a really interesting true story that I don't think the world knows. We come back with our -- we have this genre that we like to call great women of history, which is White Queen, White Princess, Spanish Princess. We bring the Catherine de' Medici story on with Serpent Queen, which is really looks great. We have becoming Elizabeth, which is Elizabeth at 15 and really coming into power when her father dies that really fits that genre well. We have the Dangerous Liaisons' prequel coming on, they're 18 falling in love in the French court. And so once we get in and start to activate those two core demos, I think you'll see engagement pop. I think you'll see acquisition pop. And I'm really excited about been eager to get into that period where we can get these big shows with big town on the air.

So it's suffice to say, obviously, much bigger demo, just going after just the female artists. So it's much more early stage there. It's a much bigger potential market, obviously. I mean, could you -- do you think as these projects sort of hit the platform, we could see some accelerating subscriber growth as they go through that demo?

Look, I think when you bring those -- when you activate that second core demo for the first time this year, we should see acceleration in subscriber growth for sure.

Got it. And I guess do you have any data on where you are at this point? And how many of your existing customers are subscribing because of women's content. I mean, I guess you get a sense for -- I mean, anything to say sort of how early or late in the process we are and how much runway you have for that group?

I think the data that the app generated for us over the last four years, and again, it's our third biggest sales channel. So the data is -- it's a real data source for us. When we looked at the data, what we saw that was driving the business is women, and we really leaned into that and decided in this really competitive streaming world where you've got these massive global companies trying to own that first SVOD position in the home. It would be hard for us to compete. And so we picked our two-core demos that we really were accelerating in and really kind of excelling in and really said, let's lean into that in a bigger way. Ultimately, I think what that does, just like it was in the traditional lending business, it makes Starz at premium add-on that's very complementary to all those broad-based services. It makes us a great bundling partner going forward. Just like you could buy Starz as part of a bundle in Comcast or you could get it if you bought DIRECTV. I think you're going to see that today, like you can get it as part of Amazon, you can get a part of Hulu, Disney was selling us for a while in the U.S. So I think you'll start to see those commercial bundles start to pop up again. And ultimately, all the research that we see says that four to six consumers want four to six streaming services in the home. I don't have to be one or two or three to hit my 60 million sub goal by 2025. If I'm three, four or five in the home, that's a great business for us and somewhere in the high 50 million to 60 million subscribers at a long-term steady-state margin of around 20%. That's a really great business for investors.

Right. And do you think to get to that 60 million sub goal, you need to move into a target other segments or move to other genres? Or just can you do it just by just focusing on these two sort of set?

No. Look, I think there's -- we've got some content coming for the Latinx market, that we really haven't activated. And since [ Meda ] came off the year, we've got a show called The Madonnas of Echo Park, which is this broad family drama that really kind of pushes into the looking at coming across the border from Mexico as an undocumented worker and losing your Mexican culture to becoming American and what that does on family. And I think it's going to be a massively successful show for us, but that will activate still within the genre of women, another key component of that. And so we'll lean into that as well. But I think that's -- we'll stay in this kind of focused programming mandate for a long time. And then again, 49%, 6% of this is planet are women. So I think that bodes well for the international business as well.

Makes sense. Switching gears a little bit, you rely heavily on Amazon Prime to help distribute your product, both domestically and internationally. So can you walk us through how that relationship has evolved over time, some of your peers at HBO more recently have sort of stopped selling through Amazon Prime? Just why -- how do you think of it? And why is it different for Starz?

Look, it's a great relationship, both domestically and internationally we're their fastest-growing premium service in every country around the world, including the U.S. We talk to them almost daily on all aspects of the business. We've done a couple of early renewals. And we really are tied-up to have partners, and it's a great relationship. We share data of our app with them and their data with us to really try to improve the product for both of us. And so it's a great -- really great working relationship. A little different than some of the other companies that you mentioned that have come off their service. We're not going to ever move into an AVOD world. So we're not concerned about owning the consumer from that basis. We really are primarily a wholesale strategy around the world with an app strategy for data and balance of the universe to a certain extent behind it. And so we don't -- you won't see us fighting with the Rokus that you've seen in the Amazons because we're not trying to control the consumer to ultimately control the data to control the ad load and be an AVOD service there long term. And so it really positions us, I think, well as their real primary premium partner around the world.

So the fact that you guys don't sell ads is the main differentiator there. And I guess it's -- you're getting all the data you need to service your customer as a non-ad as a sort of subscription service.

Yes. Ultimately, our strategy has been wholesale, right? We're not -- And that's true just domestically and internationally, and I think that's what makes us a little different and allows us to have that kind of margin profile and a lower subscriber base.

Yes. Maybe shift gears again, the Starz International announced that its path to getting to breakeven will take a year longer than expected and now it's getting to breakeven by calendar year '24 instead of '23. So yes. Could you talk about sort of the drivers of that and what's changed?

Look, I'm really excited about the progress of our international business. Like we saw domestically, there was a cost inflation in the quarter. And that really helped push some of -- that really unfortunately pushed a lot of stuff to the right, including international. But if you actually think about the 62 countries we're in, we really are 19 of them are in the medium markets with our STARZPLAY Arabia venture. There's really 35 markets, of which of that 35 -- five or six of them really drive the majority of the business for us. And if you really look today, one is already profitable, two is really close to being profitable. three and four have great characteristics that get profitability and the fifth and sixth market that we look at. I think they're taking a little longer than we hoped, but we still feel pretty good about that as well. And so the combination of that plus the increased cost that we saw in the quarter in terms of marketing pushed that breakeven out to the right. But very confident in that business turning. And then I think long term, having that global footprint as a premium service is going to be a very unique and special company.

Yes. So I mean as you look at the sort of change in guidance? Is it primarily sort of top line and subs related? Or was it -- as you mentioned or is there a cost issue? Or is it combination of both?

It was a little combination of both. I think primarily in the quarter was cost. But I think long term, there are some markets that are moving a little slower than we had thought, but it doesn't mean that they're not moving in a positive direction so that -- those combinations move everything to the right a little bit. But like I said, we've already got some markets profitable. Some are very, very close, three years into a very -- this is -- I think you probably heard this all week, streaming is very hard, right? And I think if you look at what we've built domestically, we're -- four years after launching our app, 53% of our domestic revenue and higher is from digital. We are over -- we've got more digital subs today than we have linear subs domestically. Internationally, we're growing like weeds. It's still hard, but I think we have built a pretty interesting wholesale business with a great content strategy, and I expect us to hit that 24 breakeven.

Got it. And maybe can you talk about sort of -- Anything you can tell us sort of about individual markets, so markets where you're doing well or other markets where you think you're lagging and maybe you need to focus a little bit more or spend a little bit more on content?

I mean, look, I think it's a combination of a couple of things. One is the domestic slate drives the business. And so like we've talked about earlier, we haven't really activated that kind of general female component yet. So Outlander will be on U.K. for the first time. That's coming. We've got Shining Vale, Gaslit, Serpent Queen, those shows actually really will work on a broader basis internationally than what we've seen with the Power universe shows where they work in four, five or six markets, not as global. So as that domestic slate turns over for the first time, I think well, the content portfolio will be much more impactful internationally. But we also knew that we had some holes. And so we've done two originals in Spain that we think we can put on in the world that will help us in Europe and it will help us in LatAm. We have four originals coming out of LatAm that I think we can put out in the U.S., and we can put it on Spain. We have -- I think we just launched an original in India, which was the casual remake called Hiccups and Hookups this past weekend, which I think will work very well in our India market, but we can also use that in Europe. And so when we need to, we are actually looking into local markets and actually getting content that works locally but can play globally. And those are just coming online now. So I expect those to be really impactful, especially in Europe and in that LatAm where we have a lot of opportunity.

And how sort of early are you in that process of sort of developing local content? I know you said that it's a lot of U.S. concept that plays internationally, but obviously, a lot of these [ drivers ] are spending more and more Netflix with Squid Game. I mean it's -- that seems to be the -- as we look to grow internationally, I mean, you've laid out a -- should we think of this as sort of a starter slate in terms of local language programming? Or does it grow from here?

I think we're actually -- it's somewhere in between there. We'll premier our first STARZPLAY Original in Madrid in February -- actually, I'm sorry, in January, mid-January called Express, and that's a really interesting show about these express kidnapping that you see all over the world. We think that will take LatAm. I think you'll see us somewhere in the neighborhood of 6 to 10 originals that come from outside the U.S. for the service. Again, very focused in the markets where the domestic slate doesn't complete the programming slate that we need, so we'll fill those holes in. But again, the stories have to be local and appeal but have to play globally. So I think we have a show called Nacho XXXL coming out of Madrid that I think will be a global hit when that comes on. So we'll continue to be look outside the U.S. for shows. We've got a great gentleman on the ground in Madrid that has producers throughout Europe in a kind of a hub-and-spoke system, looking for content for us. We just announced Xrey, which is the story of the Spanish royalty coming out of that. Mark working with Sony. So that, I think, will work globally as well. So being very opportunistic but being smart about how we position headcount around the world.

How should we think of the profitability of your international business versus the U.S. business? Are there meaningful differences in terms of, I guess, ARPUs or sort of economics just through distribution, the amount of content you need on that platform and competition as well. I mean, I think a lot of U.S. investors just don't have as much familiarity with what the sort of competitive market of DTC is in India or Latin...

It's interesting. I think everybody is starting to launch there. You also have the dynamic of the local kind of over-the-air folks that are really trying to compete with these global players. And that actually, again, makes us as a wholesale partner really compelling because they can take our service with their service bundle it to compete with Netflix in a certain market or HBO Max in a certain market. And so I think our -- the difference because we're a wholesale needs sets us apart a little bit makes us more complementary again, just like domestically outside the U.S. for all of these over-the-air partners, whether it's a [ Telefonica ] or [indiscernible] or IZZY or [ Clair ] or MercadoLibre. We're seeing a lot of momentum around distribution deals for our service with all of these announcements of people coming in the marketplace. So it's been really healthy there. From an ARPU basis, it's obviously lower internationally because the price point of the product is lower. I've been opportunistic with some bundles in a couple of markets. We do have some linear business that was part of the Canada deal that we did with Bell. So that's -- those dragged down ARPU a bit. But again, I think long term, non-bundled a la carte subs will be somewhere in the mid-2s to 3s area long term there. But again, I think I said earlier, if we get to that kind of where we think we can get to that high end range of 55 million to 60 million subs and steady state, I think the business is going to be somewhere around 20% margin business globally. And I think that's not -- [ 26, 27 ] out. But once we get through to the investment cycle and get to steady state, I think you'll see that normalize in that area.

Got it. Do you think as we hopefully are sort of seeing the other side of the pandemic here, which remains to be seen, but do you think you get any sort of benefit on margins in terms of a lot of the incremental costs around content production start to come down, right, with the testing and production issues? First of all, are you seeing any slowdown now from the existing -- from what would seem to be in cases moving in the wrong direction? Could things get worse before they get better. But then on the down side, is there any sort of benefit to some of these costs going away over time.

Well, yes, I mean, there will be great benefits to a lot of those costs going away over time. And I think it's -- just from a time perspective, the amount of testing that we're doing and -- but look, as the vaccines have come out, we got back into production pre-vaccines. So we had a lot -- we had some shutdowns. We had some delays. And now that I think we're on new shows going forward, we're mandating vaccines, I think you'll start to see a lot of that go away. But the testing is still going to be there and working with the guilds and the unions, obviously, is an important thing. But hopefully, we'll get to a place where if we get through this, and we can get back to removing a lot of that incremental logistics that we had to put around the business and then yes, you'll see costs on -- that cost come out of the business. But I don't think that's a near-term number right now.

Got it. I mean are you seeing any slowdown in -- or I guess, are you still off to sort of full production? And any hemp that you could see a slowdown, but given -- I know in some parts of the world, you're seeing some real spikes, but any impact on the business?

We're shooting shows all over the world. We've got to show The Continentals in production in Bulgaria, and that's moving nicely, and we haven't seen any issues there. We've got two shows in France, one in the U.K. -- three in the U.K., actually, a couple in that. So we're -- and a lot, obviously, in Atlanta, New York and LA. So we've got production all over the world. Even Lionsgate in the Motion Picture side has movies all over the place. And those seem to be moving well and not a lot of shutdowns. And I actually haven't seen any shutdowns recently. And so I think the more we get people vaccinated that we more we move through this, the less likely you're going to see that cost and those interruptions happen.

And then lastly for me. I mean, Starz definitely does have a -- say, a differentiated strategy from a lot of the [ BBC ] companies that meetings, we talk to in the [ BBC ] properties, it's definitely more of a sort of segmented and sort of premium focus versus sort of general entertainment. Can you talk about sort of other benefits that I might not have hit on in terms of attracting talent or getting access to projects that you're mining out of otherwise? Or how do you think that, that positions Starz as it relates to some of those what you would think of as more sort of broader-based services?

It's a great question. I think we've actually obviously seen -- you'll see Courteney Cox, Greg Kinnear, Mira Sorvino, Julia Roberts, Sean Penn on the network this year, and that's talent that we haven't seen. You'll see show runners with Sharon O'Regan and obviously, 50 and a bunch of great showrunners that we have Rebecca Cutter that we haven't seen before. And so I think as everybody has moved -- as HBO has moved from being this obviously premium competitor to this broad-based MAX service and really trying to focus on filling out all content for the home, and we've been able to stick and focus on that premium, adult, really character-driven non-ad-supported type content. It's given us a little bit of a white space to go really attract talent and showrunners and writers that we haven't seen before. We also, I think, our programming mandate, which is about content for buying about women and underrepresented audiences. If you look at our statistics, we have a brand initiative called Take the Lead, which is really telling that story. We have 49% of our directors are women or women of color. The industry average, I think, is like 4%, right? And so when you tell the store story about how we are putting women and people of color on the screen, behind the screen, in the director's chair and even in the office, 75% of my direct reports are women and half of them are women of color. And so it's a network that's run by women, for women about women with content that's driven by women. I think when you see that -- when the talent sees that commitment to inclusion and diversity. And look, we don't think putting power in the Power universe on the air is, yes, it's socially good, but it's good for business, right? It's driving our business. It's the right thing to do for our business. It's the DNA of our business. And when you people hear that story, it attracts people to bring their content to us because of the -- because we stand for something. And that's important in today's age. And I am very proud of the organization and how focused we are. I'm proud of the folks that run it. And I'm really proud of our commitment and our relentless defense of this positioning because one, it's obviously really good for our business. But two, if we can get the rest of the town to see what we're doing and say it's okay to give Victoria Hall, who is a first time showrunner, money for a high-end scripted show that's going to cost the network $100 million for P-Valley, and it's the biggest hit of last year, and that's great for our business than others should see that's okay, too. and hopefully, we'll be able to not only make an impact, but also continue to drive our business.

Makes sense. And I think that's a great place to leave it. So Jeff, thanks very much for being here, very important.

Thanks for having me really enjoyed it.

Ok.