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Lionsgate saw its base of streaming subscribers for Starz keep rising as the Hollywood studio released its second quarter financial results as it explores a sale or spinoff of the premium cable and streaming platform.
On Thursday, the Hollywood studio saw its number of global streaming subscribers for Starz rise to 26.3 million for the three months ending June 30, 2022, in an increasingly competitive global streaming arena. That’s up another 1.8 million subscribers compared to 24.5 million at the end of its fourth quarter of fiscal 2022 and a rise of 57 percent year-over-year.
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Lionsgate execs, on an after-markets analyst call, were expected to give an update on the studio 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 stand-alone companies so investors can value the Starz and studio assets separately.
In prepared remarks to analysts, Lionsgate CEO Jon Feltheimer, while not naming Starz directly, did point to continuing talks on an unspecified transaction amid continuing market chatter about a deal for the premium cable and streaming platform.
“In terms of our strategic initiatives, we are proceeding nicely. In spite of the turbulent economy and the complexity of ensuring that we retain and expand all of our strategic and operational benefits, we continue to advance conversations with potential sponsors and strategic partners, and we remain on track to conclude a transaction as early as the end of the fiscal year,” Feltheimer said.
The Lionsgate head, on the analyst call, insisted any deal for Starz will take time to get right. “As you can imagine, there’s a number of ways to do this and actually numerous complexities to address in order to make sure that the sum of the two parts when they are valued separately is significantly more than they’re currently valued together,” he said when asked about a possible sale of spin-off of Starz.
Lionsgate vice-chairman Michael Burns added: “It’s important to note that we have an attractively financed balance sheet and very valuable tax attributes. And we’re working very hard to preserve the value of both.”
Burns also revealed a possible transaction may involve the Hollywood studio beyond Starz on its own. “The structure that we’re considering has become broader. And even in a separation, some of our potential partners have expressed interest in both the studio and Starz and, as always, our priority is to create significant shareholder value,” he told analysts.
When pressed about wider studio interest, Feltheimer explained “two different sets of investors” had come forward, with some eyeing Starz as a streaming platform and others after Amazon’s purchase of MGM were looking at Lionsgate and its programming library as a possible indie studio acquisition.
“It’s not surprising that people might show interest in both sides, but we still have to create a vehicle so that we can value both sides separately right now … So we’re taking our time and we think we’re on track in terms of our timing,” Feltheimer added.
Burns added Lionsgate would unveil its decision in September as it weighed strategic initiatives, mindful that Wall Street analysts and investors are keen to see a resolution as current talks with potential dealmakers continue.
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, Blindspotting and Hightown. Lionsgate acquired Starz in 2016 for $4.4 billion.
“We are pleased to report strong global streaming subscriber growth at Starz, another standout performance from our Television Group and key financial metrics in line with expectations,” Feltheimer said in a statement ahead of the analyst call.
“Though we’re navigating an uncertain economic environment, we continue to successfully execute our core mission: filling our film, television and Starz pipelines and our library with premium content that creates long-term value for our consumers, partners and shareholders,” he added.
Feltheimer told analysts that the pandemic has gone on longer than expected, adding to studio costs. “There are growing pains in the streaming world and aging pains in the linear legacy businesses. In response, we’re taking steps to conserve capital, keep our balance sheet strong, streamline operations and mitigate risk while we continue to do what we do best: create great content and franchises that build our most important long-term asset, our world-class library,” he added.
Lionsgate’s overall revenue for the quarter came to $893.9 million, down from the previous year second quarter at $901.2 million. The studio widened its quarterly net loss attributable to shareholders to $119 million, compared to year-earlier $45.4 million loss.
The studio’s media networks revenue, which accounts mostly for Starz, came to $381.2 million, just down from a year-earlier $382.3 million. Starz Networks delivered $349.6 million in quarterly revenues, down from a year-earlier $358.2 million in revenue.
That was offset by Starzplay International revenue rising to $31.6 million during the latest quarter, compared to $24.1 million in revenue for the second quarter of fiscal 2022.
The total global subscribers for Starz increased to 37.3 million, which includes Starzplay Arabia. Motion picture revenue came to $278.8 million, down 4 percent from $291.2 million in the same period of fiscal 2022, as the studio pointed to fewer theatrical wide releases in the quarter.
And TV production revenue was up sharply to $423.3 million, against a year-earlier $386.1 million, oin the strength of greater content deliveries.
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