Lions Gate Entertainment Corp. (NYSE:LGF.A) Q1 2023 Earnings Conference Call August 4, 2022 6:00 PM ET
Company Participants
Nilay Shah – EVP & Head, IR
Jon Feltheimer – CEO & Director
James Barge – CFO
Jeffrey Hirsch – President and CEO, Starz
Michael Burns – Executive Vice Chairman
Kevin Beggs – Chairman, Lionsgate Television Group
Joseph Drake – Chairman of the Motion Picture Group
Brian Goldsmith – COO
Scott MacDonald – CFO Starz
Alison Hoffman – President of Domestic Networks
Superna Kalle – President of International Networks
Conference Call Participants
Philip Cusick – JPMorgan
Matthew Thornton – Truist Securities
Steven Cahall – Wells Fargo
Peter Supino – Wolfe Research
Thomas Yeh – Morgan Stanley
Kutgun Maral – RBC Capital Markets
Bryan Kraft – Deutsche Bank
James Goss – Barrington Research
Alan Gould – Loop Capital Markets
Matthew Harrigan – The Benchmark Company
Operator
Good day, and welcome to the Lions Gate First Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, today’s event is being recorded. I would now like to turn the conference over to Nilay Shah with Investor Relations.
Nilay Shah
Good afternoon. Thank you for joining us for the Lions Gate Fiscal 2023 First Quarter Conference Call. We’ll begin with opening remarks from our CEO, Jon Feltheimer; followed by remarks from our CFO, Jimmy Barge. After their remarks, we’ll open the call for questions. Also joining us on the call today are Vice Chairman, Michael Burns; COO, Brian Goldsmith; Chairman of the TV Group, Kevin Beggs; and Chairman of the Motion Picture Group, Joe Drake. And from Starz, we have President and CEO, Jeffrey Hirsch; CFO, Scott MacDonald; President of Domestic Networks, Alison Hoffman; and President of International Networks, Superna Kalle.
The matters discussed on this call include forward-looking statements, including those regarding the performance of future fiscal years. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors. This includes the risk factors set forth in Lions Gate’s most recent annual report on Form 10-K as amended in our most recent quarterly report on Form 10-Q filed with the SEC. The company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.
I’ll now turn the call over to Jon.
Jon Feltheimer
Thank you, Nilay, and good afternoon, everyone. Thank you for joining us. We’re pleased to report a quarter of strong global subscriber growth at Starz, continued growth of our film and television pipelines and key financial metrics in line with expectations. As I go through my remarks, you’ll hear us focus on the operating environment, dealing with issues of economic uncertainty, recession fears, cord cutting and the pandemic like everyone else. But as I lay out how each of our businesses is addressing this environment, you’ll also hear how our business model insulates us fairly well from some of the existing and potential headwinds.
Starting with our Motion Picture business. With the box office making a strong comeback, our Motion Picture Group is in great shape to capitalize on its return with a strong lineup of exciting movies. Let me lead with our tent poles. We began shooting the eagerly anticipated Hunger Games prequel, the Ballad of Songbirds and Snakes in Poland 2 weeks ago and the early footage looks great. The film rolls out globally in a prime holiday slot on November 17 next year. The other anchor of next year’s slate is John Wick, which has grown into a cultural phenomenon. We will release John Wick Chapter 4 on March 24, 2023, to a huge and engaged fan base around the world. As we expand the John Wick universe across multiple businesses, production has just wrapped on the John Wick Prequel event series for television, the Continental. And in that same regard, we’re in advanced preproduction on the John Wick action spin-off, Ballerina, with Knives Out and No Time to Die Star Ana de Armas in the title role.
Behind these tent poles, Expendables 4 will bring back a world-class cast of action Starz next year. Dirty Dancing starring Jennifer Gray and our reimagining of the Romantic Classic arrives in theaters in time for Valentine’s Day 2024. We expect to have a major announcement in the coming weeks on Now You See Me 3. And with titles, including Naruto, Highlander and the Michael Jackson event film lined up as well, we’re growing a pipeline that can compete at any level theatrically.
Our tent pole business is complemented financially and strategically by a consistently profitable low-risk multi-platform business for the 30 to 40 smaller and midsized films we release each year. Especially in this current environment, our proficiency at delivering targeted films for a wide range of platforms is a profitable and repeatable strategy. This includes a direct to streaming component that continues to gain traction as it transitions from a largely opportunistic response to the pandemic to a planned strategically focused business with production deals in place with a growing number of platforms.
Turning to television. Our status as one of the few independent suppliers of premium series at scale is our best defense against economic uncertainty and other headwinds. We have strong relationships across more than 2 dozen platforms with multiple hit series at the broadcast networks, streamers and a growing roster of AVOD platforms, along with a strong slate to drive the growth of sister company Starz. This diverse group of buyers helps mitigate a pullback in content spending by any one platform and has been our consistent strategy in both up and down markets. We’re also coming off one of the most active periods of content creation in our television group’s history, with more than 30 new shows picked up to series in the past 3 years, 90% of them renewed for additional seasons and valuable new properties, Ghost, Home Economics, Minx, Julia, P-Valley and a host of others. We will begin to generate increasing returns as they move into later seasons and create value in our library.
For the past two years, our growth in Television revenues hasn’t been matched by growth in contribution and margin due to the investment in new series. This year, the Television Group segment profit is on track to increase by over 50% on improving margins with even stronger gains next year as our series continue to mature. At Starz, we had a strong subscriber growth quarter, adding 1.8 million global streaming subscribers, including 700,000 domestic subscribers. We’re able to continue delivering these gains despite industry headwinds, given our differentiated offering of focused original programming, coupled with a robust slate of Pay 1 output and library titles all at a complementary price that provides great value to the consumer.
The fiscal ’23 slate has a consistent cadence of juggernaut performers, including Outlander, P-Valley, BMF and the Power Universe, combined with tent pole movies like Spider-Man No Way Home. With the majority of the slate underpinned by series returning for second and third seasons, we’re confident in our ability to continue our subscriber momentum acquiring new customers and extending the lifetime value of our existing subscriber base. In the quarter, we continued to execute our commitment to engage both of our major cohorts with a new show every week.
With the successful debut of Power Book IV: Force, all three of our power spinoffs have become hits. The drama P-Valley achieved record ratings in its breakout second season, becoming 1 of Starz’s most widely viewed series ever. Fan favorite Outlander return for its sixth hit season and earlier today, we announced the highly anticipated Outlander prequel, Blood of My Blood, to be written and executive produced by Outlander showrunner, Matthew B. Roberts. The Watergate series Gaslit staring Julia Roberts and Sean Penn debuted strongly in the quarter, strengthening the Starz brand and showcasing our ability to offer high-end programming comparable to anything on premium paid television.
We continue to expand Starz distribution successfully around the world. We announced a bundling deal with Disney in Lat Am in the quarter, following on the heels of recent partnerships with Canal Plus in France and Viaplay in the Nordic territories. This afternoon, I’m pleased to report that we’ve launched a deal with VIZIO in the U.S., making Starz available to millions of VIZIO Smart TV users. As we’ve been saying, this is just the tip of the iceberg in terms of where the industry is heading, and Starz will be a critical and desirable part of bundles and packages with a growing number of platforms and devices. Again, we’re cognizant of the headwinds in today’s business environment. The economic uncertainty does make it harder to forecast our business. The pandemic has gone on longer than expected and continues to add cost.
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.
In closing, 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.
Now I’ll turn things over to Jimmy.
James Barge
Thanks, John, and good afternoon, everyone. I’ll briefly discuss our first quarter financial results and update you on the balance sheet. Q1 adjusted OIBDA was $5 million, and total revenue was $894 million. The year-over-year adjusted OIBDA variance reflects the expected timing of Starz programming as Media Networks had an elevated level of content amortization associated with the build of its fiscal year ’22 slate as well as more expensive programming that launched in the quarter.
Reported fully diluted earnings per share was a loss of $0.53 a share and fully diluted adjusted earnings per share came in at a loss of $0.23 a share. Adjusted free cash flow for the quarter was a $62 million use of cash. Now let me briefly discuss the fiscal first quarter performance of the underlying segments compared to the previous year quarter. Media Networks’ quarterly revenue was $381 million, and segment profit was a loss of $37 million. Revenue was down slightly year-over-year as we continue to see favorable shifts and subscriber mix with OTT revenue growth accompanied by linear declines.
Year-over-year domestic revenue declined 2.4%, while year-over-year international revenue was up 31%. The year-over-year decline in Media Networks segment profit primarily reflects the timing of content amortization and marketing costs with some foreign currency headwinds at STARZPLAY International. We ended the quarter with $37.3 million total global subscribers, including STARZPLAY Arabia. Total Global Media Networks OTT subscribers grew $1.8 million sequentially to $26.3 million. This represents a year-over-year global OTT subscriber growth of 57%, comprised of domestic OTT growth of 26% and international OTT growth exceeding 100%.
Now I’d like to talk about the Studio Business in aggregate. Revenue of $711 million was up 5% year-over-year driven by the Television group. Segment profit of $70 million was up 48% year-over-year driven by growth at both Television and Motion Picture. Our total library revenue at Studio was $749 million on a trailing 12-month basis, up 1.4% over the $739 million of revenue reported in the first quarter last year. Breaking down the Studio Business between Motion Picture and Television, let’s start with the Motion Picture Group.
Motion Picture revenue was down 4.3% to $279 million, while segment profit of $51 million was up 14% on increased margins. Revenue and segment profit trends reflect continued strength in our library and an increased mix of direct-to-platform titles in the quarter. And finally, Television revenue was up 12% to $432 million, driven by continued growth in output, which included both new and returning series. Segment profit came in at $20 million up 500% year-over-year reflect the new and returning series deliveries, continued strength at 3 Arts and favorable comparisons relative to last year’s first quarter. On the balance sheet, we ended the quarter with leverage at 6.6x or 4.1x excluding our investment in STARZPLAY International. We continue to retain significant liquidity with $379 million of cash on hand and $1.25 billion of an undrawn revolver.
At the beginning of the quarter, we used some of our excess cash to prepay the $194 million of term loan A notes that would have otherwise been due in the fourth quarter of this fiscal year. Currently, we have no maturities until the fourth quarter of our fiscal 2025. We remain committed to strengthening our balance sheet and continuing to pay down debt, while funding our investment in content and marketing from adjusted free cash flow. We continue to see adjusted OIBDA for fiscal ’23 at similar levels as fiscal ’22. And as previously noted, we see the year being back half weighted.
Given the magnitude of adjusted OIBDA for the next 3 quarters is implied from our outlook, I want to give you some more color how this increasing cadence falls out over the next 3 quarters in the second half, in particular. As expected, the biggest driver is the timing of Media Networks content amortization and marketing costs, which naturally peaked in the first quarter and is expected to decline in each successive quarter of fiscal ’23. The level of first quarter content and marketing costs reflects both the carryover amortization following the step-up in the number of Starz originals in fiscal ’22 particularly the late fourth quarter premieres of Outlander and Shining Vale, and the full complement of marketing and content expenses related to higher cost programming launched in Q1, including Gaslit and P-Valley. This amortization curve will cycle through in declining amounts as the year progresses.
Finally, at STARZPLAY International, following strong subscriber trends in the first quarter, and bundling opportunities with Disney in Lat Am, we expect revenue performance will improve sequentially for the remainder of the year. At the TV studio, we expect steady revenue growth and an improvement in margins in fiscal year ’23, particularly as episodic deliveries scale in the second half. Additionally, we expect TV and Motion Picture will benefit from high-margin licensing revenue of key library titles in the second half as Schitt’s Creek and earlier film franchise releases become available.
Finally, while we’ll have elevated P&A in the fourth quarter tied to the release of John Wick 4, we expect our alternative distribution strategy with the March quarter platform available Shotgun Wedding will facilitate a strong close to the year for Motion Picture.
Now I’d like to turn the call over to Nilay for Q&A.
Nilay Shah
Thanks, Jimmy. Operator, can we open the call up for Q&A?
Question-and-Answer Session
Operator
[Operator Instructions] Today’s first question comes from Phil Cusick with JPMorgan.
Philip Cusick
I guess, number one, can you give us an update on strategic changes? Anything you can share there would be helpful. And then second, I wonder if you could talk about churn of Starz, the rough level of that? And it looks like you’ve expanded the content offering in the last year?
Jon Feltheimer
I’ll have Jeff go first with the Starz issue.
Jeffrey Hirsch
So as we talked about over the last probably two to three years, our content strategy has been really about driving churn down to low single digits by lining up content to our core demos every week, 52 weeks a year. So we’re just in the ending of P-Valley, we premiere into Kanan on the 14th, and so we’ll move that base from P-Valley into Kanan. And what we’ve seen in post season’s churn before we were in the strategy post Power churn was somewhere north of 40%. It’s now below 15% as we line the content up.
So we continue to see churn come down. We think we’ve seen single digits. We continue to see it come down to all-time lows. And we think as we continue to roll through this content slate, lining up the content every week for the 2 core demos, we’ll continue to see it get down to the low single digits.
Jon Feltheimer
And Phil, in terms of our strategic planning, I would say the ultimate plan to value both Starz and Studio sides of our business separately remains the same. I think I’d add that, 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 2 parts when they are valued separately is significantly more than they’re currently valued together. In terms of timing, I’d say my comments today reflect what we’ve said before on the subject.
Operator
Our next question today comes from Matt Thornton at Truist Securities.
Matthew Thornton
Maybe one for Jon, one for Jimmy. Jon, just a follow-up to the prior question. It sounds like getting an announcement by the end of the summer is still the way we should think about that? I guess my incremental question there is I know a couple of years ago, you guys had done an independent third-party valuation of the library. I think the valuation at the time was, correct me if I’m wrong, but $3 billion to $4 billion. And my question there is, do you think that’s still pertinent one or two years later in the current environment?
And then just secondly, for Jimmy, two housekeeping. I know you talked about currency, which is not something we talk about, but obviously, the international business is getting a little bit bigger. So if you can quantify what that what that currency headwind was? And do you still expect to be about free cash flow breakeven to positive for the full year?
Jon Feltheimer
If I got you right, you’re asking — I’m not sure you started with a timing issue and then run it into library value. I’m not sure you’re connecting those two. In terms of library value, frankly, if anything, the library is well more valuable than it was in that time period and continues to grow — it grows for two reasons. One, obviously, we’re filling the pipeline with a lot of content. And the more renewals we get, particularly in the television business, the more valuable that content is. And the second thing is, and we’ll see in a recessionary environment, if it’s quite the same, but we are finding huge increases in demand with so many new buyers for our content.
And frankly, again, such a significant portion of our content is scripted and premium. And frankly, that’s what has the longest lifetime value and the most demand right now. That’s what moves people’s needles. And when you see a lot of the big streamers, obviously, moving into new territories, they need a lot of content. And frankly, it’s expensive to make new content. So our library continues to grow significantly in value. It’s an amazing library. And again, we keep growing it. Did you have a question about timing?
Matthew Thornton
Yes. Sorry for the confusion, Jon, just to follow up on the prior question, it sounded like the way we were thinking about timing getting resolution by the end of the summer and a deal closed by the end of the fiscal year is still the way we should think about it. I want to make sure I heard that right?
Jon Feltheimer
Mike, why don’t you jump in?
Michael Burns
Great — as Jon said, we’re on track. The key is to do the transaction or the initiative right, not fast. It’s fairly complex. 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 of those. The structure that we’re considering has become broader. And even in the 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.
James Barge
And Matt, for your question on FX and free cash flow. Yes, we did see some foreign currency headwinds in the quarter. I think of it more as timing, but we’ll have to wait and see. It was about $12 million for the quarter, about half of that would be STARZPLAY International, as you might expect. And we saw effectively what I think of as a full year effect in foreign currency occur in the first quarter. So we’ll see where rates go from here. But generally speaking, we don’t have a significant exposure to foreign currency, as you know, but relative to this quarter, relatively just the size of the first quarter profitability, it was kind of an outsized percentage relative to all things being considered.
From a free cash flow standpoint, absolutely. We still feel good that we can continue to finance our increased investment in content and marketing cycle, including SPI or STARZPLAY International, from our positive free cash flow. It’s not a quarter-to-quarter thing. It’s the trailing 12 months for a full year cycle because, as you know, content spend and cash flows move quarter-to-quarter. So we had a use of $62 million this quarter. I expect another use of cash in the second quarter as well. That is some tough comps as well on the trailing 12 months, so probably peak leverage in Q2 and then reduce that into the levels of 5x by the end of the year. And again, on positive free cash flow.
Operator
Our next question comes from Steven Cahall with Wells Fargo.
Steven Cahall
Maybe first for Michael or for Jon on the strategic alternatives. It sounds like you’re having some discussions around both assets, maybe with multiple partners. I think the timing has maybe taken longer than some of us might have thought. I guess, unless you have surety on the transaction coming together, would you consider going ahead and separating the companies in order to generate some of the value that you’re looking to get maybe provide some valuation discovery as to what the market thinks those worth? Or maybe you can talk to us about why it’s better to not do that while you’re pursuing the process that you currently are?
And then, Jon, at the beginning, you talked about the TV segment profit increasing. It sounds like you’re getting to some shows that are in later seasons. Could you maybe just talk us through what kind of profit growth we might expect over the last — sorry, over the next few years?
Jeffrey Hirsch
I’ll let Michael take the first and I’ll take the [indiscernible].
Michael Burns
Yes, Steven, we’re not going to give too many more details. But obviously, this initiative is all about creating shareholder value but it’s important to note that we are still on track to announce our intention in September.
Jon Feltheimer
And in terms of television, I actually think I had it in my remarks. Again, we had virtually all of our shows renewed. Obviously, we’re a little disappointed with First Lady not going into second season, but we actually are exploring another potential buy for that. Other than that, everything we had was picked up, and we’re moving into the second, third, fourth season of a number of shows. As I said, I believe our contribution could go up something like 50%, I believe, is in my remarks and frankly, more the following year, which would be fiscal 2025 — so — I’m sorry, fiscal ’24.
So yes, I think it’s all working according to plan. And again, when you think in a recessionary period, frankly, it’s a lot less expensive for networks and platforms to renew shows than actually to spend the $15 million or $20 million or more to launch new ones. And so we think, again, in that sense, we’re a little bit insulated from recessionary pressure.
Operator
Our next question comes from Peter Supino with Wolfe Research.
Peter Supino
My question relates to the eventual harvest of the investments that we see in your financials. Over the last five quarters, your programming investment has gone up by about $1 billion. Your TV margins have fallen from 10% to almost zero on growing revenues. And we’ve heard a lot of talk about deficit financing. And I wonder if you can talk about the importance of that and any other factors that would get you from your current run rate to much higher margins on higher revenues?
Jon Feltheimer
[indiscernible] .
James Barge
Yes. I mean we’ve got a lot of visibility in terms of what we’re doing on the content side. As Jon has noted, we’ve had some great content generation and continue to do that. But yes, it ultimately needs to pay back, right? And it does. And television I often say a lower margin at the time is a good thing because that means that what Kevin and the team is doing are killing it on building the future and all rights. So in the first quarter, for example, we had a higher mix of deficit financing, which will be long-term benefits than we expect in the second half of the year. So as we move through the year, that mix will change.
And then that margin will start to increase and as Jon mentioned earlier, we feel really strong about that going into not only the rest of ’23, but ’24 and beyond. And I’ll just remind you that Kevin has a mix of business there and the team with about at least half, if not more than half to third parties as well and obviously, a great supply relationship in programming with Starz. So a strong business and a return to follow.
Operator
Our next question comes from Thomas Yeh with Morgan Stanley.
Thomas Yeh
As we think about the potential stand-alone value of the Studio business approaching the other end of this upcoming transaction, I was wondering if you can just talk a bit more about the content monetization engine. I know there’s a variety of ways, for example, some of the library TV deals are structured. Some of them may even include advertising revenue share and ad exposure. Maybe just give us an update on the structure of these deals, how they’ve evolved, especially given kind of the diversity of players that you mentioned that you work with in the space?
And then as part of that, I also saw the recent announcement about a partnership with IMG on Consumer Products, given your deep portfolio of IP on the studio side, I was wondering if you can put some dimensions around that opportunity for you, where you sit now on that front versus where you hope to go?
Jon Feltheimer
Yes. I’m going to have Kevin Beggs answer that first part of the question.
Kevin Beggs
Thanks, Jon. I mean generally, our television and Jimmy was alluding to it just now, we take a portfolio approach,a mix of deficit license fee, controlling our own destiny with global distribution and downstream domestic distribution and the emerging model of a cost plus that you would see at Netflix and Apple and Amazon and a few of the other players, which is upfront, but a longer return to your library. Something like Ghosts on CBS is a clear winner for us, 22 episodes a year, a hit comedy, the #1 new comedy of the year. And we have the downstream domestic distribution, which we’ve already set up at Paramount+, which is exciting and just going to continue to throw off.
But even deep library, something like Nashville continues to perform, overperform and continues to be relicensed to 132 episodes. That’s — those are the big wins that we look for, and we kind of leaven those near-term profitability shows with cost-plus buyers in between, but ultimately holding on to rights is what we’re all about and why we’ve always been in the deficit game and are going to continue to be in that in every way that we can.
Jon Feltheimer
Yes. I think I should point out, I think most of you know this, that the multiples paid for businesses that are in the Studio business where they control rights. You’ve seen before multiples 15x to 17x and above as opposed to some of the multiples you see for the diversified businesses and the legacy businesses. So we believe strongly in deficit financing, we believe strongly investing in content where we will own the copyright, we will own it for life, where we will be able to explore multiple distribution revenue streams forever and ever. And in terms of both your question and the last one. There’s no question in my mind that this value creation is going to be significant and monetization will be a multiple of what we’re putting into the business.
Operator
Our next question comes from Kutgun Maral with RBC Capital Markets.
Kutgun Maral
Great. It’s great to hear the profit outlook of the TV segment. I know that dynamics at Motion Picture are a bit different than TV and that for motion Pictures 2023 will presumably be maybe down a little bit year-over-year. But given the slate that you have ahead, you talked about your distribution strategy, you’ve talked a lot about your very successful approach to monetizing the library. Are we getting closer to a point where Motion Pictures can also really ramp the segment profit profile?
Joseph Drake
Yes, this is Joe. It’s a great question. We very much are. Jon talked about the robust slate that we’re driving into ’23 with. We’ve been very intentional as we tested a few films this last year, and we got a couple at the end of the year to really position ourselves for coming back into the market with a really robust slate. And yet, he mentioned about how that streaming business and our multi-platform business has really been a deliberate business from what was opportunistic. And so what we’ve been able to do leading into ’23 is stand up another leg of the business, faster return on cash, high margins.
Our margins have been very strong for the last 3 years. We now go back — now we go into ’23 with really, probably the best slate we’ve had in years, you’ve got some giant brands in there like Wick and the Hunger Games. We’ve got some super targeted stuff. One of the things that we obviously want to be able to compete at the box office, but we’re equally focused on profit.
When you look at the box office, everybody is focused on these big tent poles. We have our share of those. But if you also look, you’ll see things like Scream, which we happen to be a participant in, Jackass, Dog, Black [indiscernible], these middle movies are really some of the most profitable movies that are out there in the marketplace. And when you look at our slate in addition to those big drivers, we’ve got a number of action movies, Expendables, a little franchise for us, Shadow Force, where Jon mentioned, we’re launching a spin-off of the Wick franchise in Ballerina. Really compelling economics, smart price point with an opportunity to kind of extend that brand. So the answer to your question is a resounding yes.
Kutgun Maral
That’s very helpful. And if I could actually just maybe follow up related to the transaction and the studio, you teased us with a common structure that has become broader and that there’s unsurprisingly interest in the studio as well. We just talk about how motion pictures, at least the results and profitability over there, is probably very subdued given all the investments. And in a multiyear period, if you have the patience, you should probably see that inflect quite nicely. When you talk with interested parties about valuation, what kind of the framework that you look at to make sure that you’d be getting potentially fair value for this asset that, at least from the Street’s perspective, has been arguably undervalued?
Jon Feltheimer
I would answer that a little differently. I think the whole reason that we’ve entered into these discussions to separate the values of these businesses. We found that there’s interestingly enough two very different sets of investors. And some investors really like the fact that we’ve got this targeted platform, very specific, I would say, again, even in this recessionary period, we’re sort of in the fourth or fifth inning. And sometimes it’s better to be smaller, and we — our expectations are a little bit different. We’re already making money in our domestic streaming business. And honestly, we’re like in the fourth inning internationally in that business. And so instead of adding new territories, which everybody is doing, we’re actually going the other way. We’re kind of scrubbing each territory to make sure it’s a territory we need to be in.
And as we’ve said before, we’re sort of within two years of a run rate of cash positive in our international business. So we have a different way of looking at those businesses. But certainly, there seems to be a group of investors that really like the streaming side and the platform side. And there’s another that understands the immense value that we have is really after the MGM sale to Amazon, but really the only real actionable investable studio. And again, MGM, if that’s a comparable, there you go, use that. Our library honestly, is better than the MGM library. It’s newer, it’s fresher. We’ve been investing in it for five or six or seven years.
So if you want, use that as a comp. But again, at the end of the day, it is 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. That’s what we’re doing. As Michael said, there are good complexities, the complexities of having a really smart financing structure, NOLs and things that we want to preserve in this structure. And so we’re taking our time, and we think we’re on track in terms of our timing, as I said, to potentially be able to close the transaction as early as the end of our fiscal year. But we’re going to do this right, we’re going to create the value for our shareholders. And again, we’re advancing just really pretty much at the speed we expected to.
Operator
Our next question comes from Bryan Kraft of Deutsche Bank.
Bryan Kraft
I want to ask you, I guess, two questions. First, on international sub growth at Starz, can you just talk about sustainability of that and your confidence in the next few quarters being able to continue to grow the way you did this quarter or even better the way it did last quarter?
And then separately, I guess for Kevin, what are you seeing generally as far as third-party demand for newly produced content? I know that the studio is doing well and growing. But with some of the streamers like Netflix and Warner trying to become more disciplined around content spending, are you seeing any changes in demand for new projects or any renewed discipline around cost of those projects, maybe on the leading edge of the conversations at this point?
Jon Feltheimer
Start with Jeff.
Jeffrey Hirsch
It’s Jeff. Thanks for the question. I think there’s really two things that are giving us great confidence in continued subscriber growth in the international business. We’re seeing a lot of great momentum in distribution deals. We’ve got a lot of distribution deals that are about to be signed and about to be launched. So we’re bringing, as Jon said, instead of launching new markets, we’re going deeper in existing markets where there’s more consumers. And so we’re seeing a lot of consumer uptake. We’re seeing a lot of momentum in the distribution side of the business. You talked about in Jon’s prepared remarks, we launched a bundle with Disney. You’ve got some bundles in Benelux that we launched. And I think on top of that, if you take a step back, the content from the U.S. is really driving into the international business, much like we talked about on the domestic side, now that we’ve lined up the content in international, that content is really starting to come online and drive the subscriber business.
And then in territories like Lat Am and Mexico, we’ve got these great originals that we knew we had a programming gap from the U.S., and we’ve built in these great originals and Señorita 89 has performed really, really well. We’re excited about Nacho coming out of Spain to come on to the platform very soon. So we feel really good about that we’re on track to hit that 50 million to 60 million subscriber target for the world in 2025, and that will come out of that and the run rate breakeven coming out of the end of calendar ’24.
Kevin Beggs
And on the TV side in the demand. It’s always been the way that some platforms are a little more aggressive than others. The challenger brands, which is where we’ve really always built our business with new players that are emerging that have bigger needs that are not only programming but marketing with their programming. When you go back to Mad Men, it built the AMC brand along with being a great show and opened the door for a lot of other great shows. That’s where we always want to be.
So while there is some discipline being displayed, within some of the legacy streamers if you can call them that now. The challenger brands are eager to take market share. I mean, it’s a high bar because the gray area between feature film and television talent has been blending over the last many years and big stars and big auspices drive television events and television series. As a challenger independent, we have to be better than everybody else, certainly, the internal studios, but that’s what drives us. We’re super competitive. We want to win. And most of the shows we bring to the market these days have multiple bidders. We’re feeling really good about that. But development is just development. It’s converting to production and making those shows for a disciplined price, which continues to renew our business.
Operator
Our next question comes from Jim Goss with Barrington Research.
James Goss
Some of these things have been addressed, but what I’m sort of interested in knowing is post separation, I was wondering if you frame out the studio strategy as a renewed stand-alone business. Long ago, you had smaller TV productions and sort of mostly singles in the film side, then you moved more aggressively with Hunger Games and Twilight and recently, you’ve been focusing on working with Starz. With this new lease on life, how do you think you’d characterize your approach on the TV side and the film side. I think you just were talking a bit of the TV — but is there a way investors should perceive the overall approach to the business in terms of getting that 15x to 17x multiple you’ve referred to earlier.
Jeffrey Hirsch
Yes. I honestly doing — continue to do exactly what we do right now, continue to build great, particularly scripted television shows and big feature films, take our franchises. There’s more announcements coming on John Wick. Look what we’re doing in television with the Continental. I’m not going to give all of Joe’s fun away, but you’ll see some interesting announcements coming down the pipe. We’re not going to separate these businesses without maintaining a lot of the synergies between Starz and Lions Gate Television business. I can promise you that. So I would say, actually, both sides would be free ultimately to consolidate potentially some other businesses. But at the end of the day, both are strong in and of their right. They will maintain a tremendous amount of synergy, as I just said. And I like our mix of products in television.
As Kevin said, he mixes in the portfolio, some things with less deficit, but of course, less rights. Joe, I like the fact that he’s now got a diversified portfolio as well with big brands, bigger movies, our core sort of midrange action pictures, as well as — as he and I both have said a deliberate strategy around streamers and multi-platform properly areas where all of the other studios really won’t spend much time, but where we make $50 million, $60 million a year. So I like our businesses on both sides. I like that Starz on the international side is going to be in a much shorter time frame than most of the other big streamers cash flow, operating cash flow positive.
So yes, I don’t foresee huge changes other than, as I say, it is possible that they will scale up each of their businesses, but much more specific to their business.
James Goss
Do you think you’d have one or two bigger franchise films every year or two or something like that to keep that interest going along? And on the distribution strategy side, I know internationally, you don’t have your own distribution network. I wonder how that will work as well?
Jeffrey Hirsch
Okay. Well, Jim, again, when you say that what all you’re really talking about in that is the international exhibition business, which I don’t consider a distribution business. And frankly, the discipline that we have of being able to go to a market internationally and cover so much of our budget in terms of our movies from taking both third-party international distributors as well as going to streamers and putting those pieces together. I think it gives us tremendous flexibility, particularly in a period where you don’t know are we inflationary and recessionary. We do self-distribute in the U.K. We like that market. But we retain, don’t forget, as much as we can in Lat Am, for example. We retain all of our other rights other than the exhibition rights. So I like the fact that we are scrappy and entrepreneurial, and we don’t have any legacy mores that we have to follow. We build these business models as the business changes. That’s what we’re going to keep doing.
But again, I like the business that we do. And again, the multiples I referred to, if you look at some of the purchases of some businesses recently that actually don’t even retain rights and you look at the prices that are paid, you would say that this library and that this studio is immensely valuable.
Operator
Our next question comes from Alan Gould at Loop Capital.
Alan Gould
I’ve got two for Jeff and one for Joe. Jeff, we’re starting to see a lot of advertising coming into the streaming business. Just wondering how you — that’s going to affect Starz? You’ll be differentiated as one of the few that doesn’t offer an ad business, but it may keep prices lower. Also, if you could just address what’s happening with the ARPU both domestically and internationally at Starz?
And for Joe, so pre-pandemic Lions Gate was averaging about 14 wide releases per year. Given the changes in the box office environment, does it make sense for you to just be doing half that amount or a fewer number of films, but just bigger such as Hunger Games or John Wick?
Jeffrey Hirsch
Alan, it’s Jeff. Look, I think as the other streamers start to replicate what we used to see in the linear business with advertising, it actually really — I’d like to say the more things change, the more they look the same. It really then recreates what we used to be in terms of being that cherry on top of an advertising broad-based service. And so we think it lowers price points that makes Starz more accessible, it makes us a better bundling partner where we have non-ad-supported very adult, very premium content as a great complement to all of the broader services that can have advertiser around it. So we are actually excited for that to happen.
We look forward to those services getting launched and seeing where we can create some kind of commercial synergies through bundles of each of those services. In terms of the ARPU on the domestic side, relatively flat sequentially. We had a lot of big growth in the back third of the quarter. And so you’ll see that, but I expect that to set us up pretty well for the rest of the year. So P-Valley came in, in the back third and that’s what you saw there. On the international side, we had a big bundling deal come in the quarter that drove ARPU down a bit. I do think long term, there’s still somewhere between — nonbundled somewhere between EUR 2 and EUR 3 or $2 or $3. And so I would expect that number to start to accelerate as well in the coming quarters.
Jon Feltheimer
Joe?
Joseph Drake
Yes. Thanks, Alan. So we’re — the way we’ve geared the business is around 8 to 12 films in terms of really driving the flywheel. We — because of these other areas of growth, our international business is stronger than ever in terms of the value of our rights. Our multi-platform business, our streaming business have added growth overall. So we don’t require as many films. We’re geared so that if we have 12 great offerings and in fact, the F ’23 slate right now is 12 films, we’re certainly capable of still driving that output, but we don’t need as many to hit our numbers.
Operator
Our next question comes from Matthew Harrigan with Benchmark.
Matthew Harrigan
Actually, honing in again on Jon’s very favorable comments on TV. Firstly, if you do the math, and you’re up 50% this year and you’re up a good hop again next year, it feels like you probably have about a $75 million increment or so where the Street is on the TV profit in ’24. Should we probably just regard that as a buffer to the economic macro uncertainty and creative execution and all that? Or are you feeling more optimistic about your overall outlook for the next couple of years? And then I guess, as a corollary to that, listening to the Warner Bros Discovery call, I mean, it feels like they’re trying to rectify the effort to start tearing apart their business at 1 point and taking a more balanced approach. I know you’ve got a good relationship with HBO. I think it’s like five pilots and [Casey Floyd] just renewed his contract.
Is some of the — you’re admission that things are looking better for the TV business, just kind of a sense that things are rebalancing at some of the larger legacy streamers, as you alluded to, and it’s helping you? I mean is the TV increment kind of a surprise from where you are a couple of months ago or are you just being a little bit more open kimono about it?
Jon Feltheimer
Go ahead, Kevin, you start.
Kevin Beggs
Yes. I mean we — I think there’s a lot of positive momentum in television because there’s just so many buyers. So many new buyers. And as Jeff alluded to, kind of the realignment of the linear bundle moving into the digital bundle, AVOD players are pressuring legacy SVOD streamers and legacy television in the same way that basic cable was pressuring the networks 15 to 18 years ago. That’s just great from a selling perspective, a lot of optionality in places where we can sell and make different price points based on customer and client needs. We have a great relationship with all parts of the HBO, Warner, Discovery family. We have several shows. We don’t have any pilots there right now. We have shows that are being made or renewed and limited series.
We expect and hope that those will continue to go on and be successful. If anyone falls out, there’s others to replace them elsewhere. And we just look at the business holistically, and it’s a very different business than even five years ago with all the entrants. They’re competing with each other, and that’s a great business for us. We’ve also had the amazing partnership and good fortune of partnering with Jeff and his entire team at Starz has built our business. We’re going to continue that relationship in any iteration of the structure that’s being alluded to before because we have so much shared in common and know each other so well and speak so frequently and have had a great partnership and relationship.
So those have all been reasons that, that revenue is driven. And as we’ve gotten older and age, we’re kind of like preteen in the television business. Most of our competitors have been doing this for 60 or 70 years. We’ve been doing it for 20. Some of those libraries are now really turning into ongoing revenue. Many of our competitors have massive libraries that have been going for — since the 1950s. The other big component that we should just not fail to mention is that 3 Arts is an amazing engine. The transaction was accretive on day 1. All the partners have a huge business in the management and production side. And now we have 4 shared series together.
We expect to have more Serpent Queen is coming up on Starz. We’re excited about that. Julia has been a big success for HBO Max and Warner. And we have a great model together, and we expect more down the line. Mythic Quest just got renewed for two more seasons and season 3 is in the can. So those kind of things just didn’t exist before, and it really goes back to Jon and Michael’s overall strategy of getting closer to content and content creators. And it’s a smart strategy in a world that continues to shift every day as we’re seeing today on the other earnings calls.
Jon Feltheimer
Yes. I’ll try to drill down even a little bit more for you. But again, the good news about television at this point in time, and it includes with 3 Arts and the shows they know are being picked up and the visibility Kevin has, including having the shows that are ours. Again, we have a great visibility and I don’t know how you extrapolated your number. But I would say the television margin and contribution for fiscal ’23 is significantly higher. I don’t know that your number is that far off. And I could see a similar kind of a jump into fiscal ’24. So I hope that’s helpful.
Operator
That concludes the question-and-answer session. I’d like to turn it back to the management team for any final remarks.
Nilay Shah
Thanks, everyone. Please refer to the Press Releases and Events tab under the Investor Relations section of the company’s website for a discussion of certain non-GAAP forward-looking measures discussed on this call. Thank you, everyone, and have a good evening.
Operator
Thank you. This concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines, and have a wonderful evening.
Be the first to comment