Lionsgate has chosen to exit seven international territories for Lionsgate+, its rebranded international operations for Starzplay, leading to a second quarter operating loss of $53.7 million before the impact of around $1.7 billion in non-cash goodwill accounting and restructuring charges.
The streamlining move comes as Hollywood studio released its second quarter financial results while exploring a possible sale or spinoff of the premium cable and streaming platform or its studio business. Lionsgate will exit Lionsgate+ markets in France, Germany, Italy, Spain, Benelux, the Nordic regions and in Japan.
The studio will remain with Starz internationally in the UK, Latin America and Canada. Lionsgate’s base of global streaming subscribers for Starz during the second quarter rose to 27.3 million for the three months to Sept. 31, 2022 in an increasingly competitive global streaming arena. That’s up 1 million subscribers compared to 26.3 million at the end of its first quarter of fiscal 2023 and a rise of 52 percent year-over-year.
Lionsgate recorded a $218.9 million restructuring charge around the streamlined Lionsgate+ reach, and another $1.48 billion non-cash impairment charge related to its acquisition of Starz in 2016 to take account of changes in future free cash flow projections.
Lionsgate CEO Jon Feltheimer during an analyst call told investors of the restructuring and goodwill charges around Lionsgate+ internationally: “These charges are an acknowledgement of current market conditions and the challenges in our environment. But they also represent an opportunity to stabilize our Starz business, reset expectations and drive higher adjusted OIBDA as we move forward.”
In an SEC filing, Lionsgate offered guidance indicating adjusted OIBDA for the media networks business was expected to grow from a range of $100 million to $120 million for the fiscal year to March 31, 2023 to a projected range of $175 million to $225 million for the fiscal year to March 31, 2024. That suggests a profit improvement for Starz into fiscal 2024.
For now, the studio in its latest financial results for Q2 posted an operating loss of $53.7 million when stripping out the Starz writedown, on overall revenues of $875.2 million, against revenues of $887.8 million in the same period of fiscal 2022. The studio recorded around $1.7 billion in one-time charges, with the goodwill writedown as non-cash.
Lionsgate CFO Jimmy Barge told analysts that the studio focusing on its remaining Starz territories “will provide our international business with a clear path to profitability,” with Starz expected to break even at the end of 2024 or earlier.
In its latest financial results, Lionsgate posted a net loss attributable to shareholders at $1.81 billion, against a year-earlier profit of $7.5 million. Lionsgate’s media networks business, which includes Starz, saw segment revenues rise to $396.1 million, just up from a year-earlier $384.7 million, as lower domestic linear revenue was offset by rising domestic streaming and Lionsgate+ revenue.
On the studio side, the motion picture segment revenues came to $224 million, down from a year-ago $330.9 million, but that was offset by TV production segment revenues swelling to $430.9 million, compared to $336 million in the same period last year.
During an analyst call after the market closed, investors were weighing comments by top executives for an update on current strategic talks, including possibly spinning off the studio business into a separate stock. The release of Lionsgate’s latest results comes amid negotiations to potentially spin off the Starz platform or the studio, balanced by pressure on Starz valuation as media stocks fall in value across the industry amid increased cord cutting and content competition.
Feltheimer told analysts that Lionsgate “remained committed to separating our media networks and studio business.” He conceded the current uncertainty around capital markets, but insisted Lionsgate still saw the right conditions for a strategic transaction to unlock hidden value in the studio and its core Starz and film and TV divisions.
“Obviously it’s not helpful when there’s a big disconnect between the separate values and the sum of the parts of our core businesses, and where our stock price is right now,” Feltheimer added in his comments to analysts. Starz is a pay TV channel similar to HBO and Showtime, and also offers a streaming service aimed at domestic and international audiences. Its programming includes the Power franchise.
Lionsgate acquired Starz in 2016 for $4.4 billion. The studio has set its subscriber target at 50 million to 60 million by 2025.
Lionsgate has been exploring its options for Starz, including a possible separation of the pay TV and streaming business and its studio operations. The goal appears to be creating two standalone companies so investors can value the Starz and studio assets separately.
“The path to realizing a higher stock price is moving forward with the split ASAP, with key concerns including the cash tax hit (we expect a taxable separation) and division of debt between the Starz and studios. Once complete, we expect significant interest in studios as the driver to a higher stock price,” Wells Fargo analyst Steven Cahall said in a Nov. 1 investors note.
Lionsgate’s Feltheimer on the analyst call also talked up the streaming deal for The Continental from Lionsgate Television that will see the special event series that is part of the John Wick franchise pivot from Peacock domestically in 2023 to also become available to Prime Video subscribers worldwide, excluding the U.S., Middle East and Israel, next year.
And he hinted at a John Wick Triple A video game now in the works to expand the universe of Keanu Reeves’ John Wick: Chapter Four arriving in theaters in March 2023. “I don’t want to get ahead of myself here, but I would say we believe that there is a big triple A game to be made out of John Wick. We have been fielding proposals. We’re interested in moving that forward, but I don’t want to say anything more about that at this time,” Feltheimer told analysts.
