Lions Gate Entertainment Corp. (LGF.A) Q3 2023 Earnings Call Transcript

Lions Gate Entertainment Corp. (NYSE:LGF.A) Q3 2023 Earnings Conference Call February 9, 2023 5:00 PM ET

Company Participants

Nilay Shah – IR

Jon Feltheimer – CEO

Jimmy Barge – CFO

Jeffrey Hirsch – President and CEO, STARZ

Joe Drake – Chairman, Motion Picture Group

Kevin Beggs – Chairman, TV Group

Conference Call Participants

Steven Cahall – Wells Fargo

Barton Crockett – Rosenblatt Securities

Kutgun Maral – RBC Capital Markets

Thomas Yeh – Morgan Stanley

Jim Goss – Barrington Research

Matthew Thornton – Truist Securities

Rich Greenfield – LightShed

Operator

Good afternoon, and welcome to the Lionsgate Third Quarter Fiscal 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Nilay Shah, Head of Investor Relations. Please go ahead.

Nilay Shah

Good afternoon. Thank you for joining us for the Lionsgate fiscal 2023 third 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 for STARZ, we have President and CEO, Jeffrey Hirsch; CFO, Scott MacDonald; and President of Domestic Networks, Alison Hoffman.

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 Lionsgate’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, and thank you for joining us. We just reported strong financial results and into our fourth quarter with encouraging trends across all of our businesses. The domestic box office is rebounding and, most importantly, supporting a broader range of films just as our biggest slate in years returns to theaters.

Our television series continue to earn renewals and move into later seasons where their contributions increase exponentially. With six scripted series renewed in the quarter, we now have a total of nine recent shows already renewed for at least their third seasons.

We reported record trailing 12-month library revenue of $845 million in the quarter from a broad mix of film and television properties. We continue to extend and renew our biggest properties.

As you read on Tuesday, we’re adapting six-time Oscar winner La La Land to the Broadway stage, shepherded by a world-class creative and musical team. Finally, though STARZ had a softer domestic subscriber quarter, we’ve already returned to subscriber growth with the strong launch of BMF in the current quarter.

Now, let me drill down in each of our businesses, beginning with our Motion Picture Group. The Gerard Butler action thriller, Plane, got this year’s film slate off to a great start. It outperformed expectations at the domestic box office and in nearly every one of our international territories.

And by pivoting to a PVOD release date three weeks after its theatrical release, we’re creating an outsized contributor that illustrates our ability to create bespoke business models, new and more efficient marketing approaches, and alternative distribution strategies.

Next up is Jesus Revolution from I Can Only Imagine filmmaker, John Erwin and Brent McCorkle. Early sales indicate a big win in the faith-based space. On March 24th, we released John Wick Chapter 4, starring Keanu Reeves in the latest chapter of one of the world’s biggest action franchises.

If you’ve seen the trailer, why we’re so excited. With John Wick 4 releasing in theaters in March and coming to STARZ this fall, the John Wick television event series, The Continental rolling out on Peacock and Amazon later in the year, the action spin-off, Ballerina, starring Ana de Armas in production for release next year and a AAA video game in the works, the John Wick franchise is set to drive outsized value across all of our businesses.

In addition to John Wick, the slate includes new chapters of our Saw, Expendables, and Dirty Dancing franchises. And the Hunger Games: Ballad of Songbirds and Snakes arrives in theaters in time for the holiday season with a November 17th global rollout.

We’re looking forward to the releases of the original new properties on our slate. Are You There God? It’s Me, Margaret; the retelling of Judy Bloom’s classic novel; Crazy Rich Asians [indiscernible], freewheeling and raunchy directorial debut, Joyride, premiering at South by Southwest and Tim Story’s The Blackening, a horror comedy in the vein of Scream slated for the Juneteenth holiday weekend.

And we’re heading into production on Michael, produced by Bohemian Rhapsody’s Graham King, directed by training days Antwan Fuqua and starting 26-year-old Jafar Jackson, who will portray his uncle, Michael Jackson in the never-before-told and in-depth portray of the complicated man who became the King of Pop.

Turning to television. We reported another strong quarter of series renewals, launches and new series pickups. The hit comedy series Ghosts for CBS reached an all-time series high end viewership last week and has become the number one half-hour comedy on television. It has been renewed for a third season and is poised for a long and profitable run.

The Eugenio Derbes’ comedy, Acapulco, has been picked up for a third season on Apple TV+, where our hit series Mythic Quest from Rob McElhenney has already been renewed for a fourth season, with a companion series Mere Mortals heading into production.

Power Book 2 Ghost, P-Valley and BMF were all picked up by STARZ for additional seasons during or immediately after the close of the quarter. We also continue to fill the pipeline with new series. The wildly inventive Palti Goldman made a splashy debut on Peacock.

The critically acclaimed first project from our 1619 partnership with Nicole Hana Jones, Oprah Winfrey, and The New York Times, a six-part docuseries on Hulu. As a reminder, the great content is not only extremely valuable but can also make a thought-provoking contribution to the national conversation.

The HBO True Crime limited series, Love and Death from the Big Little Lies team of David Kelly and Nicole Kidman, will have its world premiere at South by Southwest next month. And Apple TV+ recently ordered half-hour comedy series starring, co-written, directed and produced by Seth Rogen.

Financially driven by three straight years of strong television slates, our TV segment profit is growing 50% this year with similar growth expected next year. Importantly, these contributions are coming from every part of our television business.

Lionsgate Television with one of its most robust slates of premium scripted series ever, 3 Arts, the number one talent management and production company continuing its very strong performance. Pilgrim Media, a nonfiction leader with 21 shows on a dozen networks; and Debmar-Mercury, a top distribution and syndication company that recently renewed two of its biggest syndication properties, the Sherri Shepard Daytime Talk Show and Freemantle-produced game show Family Feud for multiple years.

The value of great intellectual property grows with every prequel, sequel, spin-off, remake, and adaptation. And in that regard, I’m pleased to announce this afternoon that Lionsgate Television will produce an expansion of one of STARZ’ most celebrated and groundbreaking original series, Spartacus. Spartacus writer and creator Steven S. DeKnight will return as showrunner an executive producer. Big, bold and fiercely premium, Spartacus adds another great STARZ franchise along the Power Verse, Outlander, P-Valley and BMF franchises.

Turning to STARZ, the streaming world is transitioning to an environment for which we’ve been preparing, more rational content spend, a focus on profitability instead of chasing subscribers and greater receptivity to bundling and packaging.

The bundling of Paramount+ and Showtime, the evolution of the HBO Max and Discovery+ offerings and the emergence of new retailers are indicative of a landscape that plays to our strengths as a complementary pure-play premium service with a focused content strategy and two valuable and scalable core demos that can sit on top of every platform and be part of every bundling and packaging conversation.

In this regard, we will announce our first major domestic bundling agreement next week. Against this backdrop, we’ll continue to prioritize three things; first, continuing to execute Starz’s focused content strategy. STARZ returned to subscriber growth this quarter with the launch of BMF. With Season 3 of Power Book II: Ghosts and the long-awaited remind a fan favorite Party Down, we expect our subscriber growth trajectory to continue this quarter.

Looking ahead, we have confidence in the slate with over 80% returning series, strategically scheduled with tentpoles every quarter and combined with a lineup of fresh studio movies from its Pay-1 and Pay-2 theatrical output deals from Lionsgate and Universal, respectively.

Second, reducing our exposure to linear headwinds as our transition to digital continues with 73% of STARZ subscribers and 64% of our revenue coming from digital in the quarter.

And finally, continuing to take cost out of every part of STARZ business domestically and internationally as we remain focused on our most important metric, profitability.

In closing, our plan to separate Lionsgate and STARZ by the end of September remains on track. Separation will give our two core businesses the opportunity to pursue strategic and financial paths that make sense foreach of them and unlock greater value by operating as pure-play entities.

We’re exploring a number of financial strategies to leave both companies with strong balance sheets at the time of separation. With our film and television studio businesses operating at full throttle and STARZ establishing itself in the streaming ecosystem as a complementary bundling partner of choice, operating on a stand-alone basis will give both companies a chance to shine.

Now, I’ll turn things over to Jimmy.

Jimmy Barge

Thanks Jon and good afternoon everyone. I’ll briefly discuss our third quarter financial results and update you on the balance sheet. Third quarter adjusted OIBDA was $168 million and total revenue was $1 billion. Revenue was up 13% year-over-year, while adjusted OIBDA was up 83%. The year-over-year revenue increase reflects studio strength across both TV and motion picture, while the adjusted OIBDA increase reflects studio segment profit improvement at television and motion picture as well as Lionsgate+.

Reported fully diluted earnings per share was $0.07 a share and fully diluted adjusted earnings per share was $0.26. Adjusted free cash flow for the quarter was $30 million. These financial results put us in a position to deliver on the fiscal 2023 and fiscal 2024 financial outlook ranges we provided on last quarter’s earnings call.

Now, let me briefly discuss the fiscal third quarter performance of our Studio and Media Networks businesses as well as the underlying segments compared to the previous year quarter.

Media networks’ quarterly revenue was $380 million, and segment profit was $50 million. Revenue was down 2% year-over-year as favorable shifts in subscriber mix that drove continued OTT revenue growth was more than offset by domestic linear pressure. Domestic revenues was down 6% year-over-year, while international revenue was up 46%.

Media Networks’ segment profit was up 74% and primarily reflects lower marketing spend, lower content expense, and foreign exchange. As we had outlined earlier in our fiscal year, content amortization expense peaked in the first quarter and it continues to trend toward a more normalized level.

Our international results reflect the impact of our decision to exit seven territories by the end of fiscal 2023 and the year-on-year improvement in the international segment profit reflects the progress towards our commitment to reach breakeven exiting calendar year 2024.

We ended the quarter with 37.2 million total global subscribers, including STARZ Play Arabia. Excluding the subscribers in the international markets that will be exited in March, our global subscriber count was 28.7 million at the end of the quarter.

Focusing specifically on our OTT subscribers in the remaining markets, we ended the quarter with 18.5 million global media OTT subscribers. This represents year-over-year global OTT subscriber growth of 14%, comprised of domestic OTT growth of 5% and international OTT growth of 33%. A modestly quarter sequential decline in global subscribers reflects a lighter slate of originals and Pay-1 titles. As Jon mentioned earlier, the domestic business has already returned to subscriber growth as we move into the March quarter.

Now, I’d like to talk about the Studio business in aggregate. During the quarter, Studio revenue and segment profit growth was driven by both television and motion picture. Revenue of $894 million was up 25% year-over-year, while segment profit of $148 million was up 71%.

Library revenue for the quarter was a record$277 million, up 55% from the prior year quarter. On a trailing 12 months basis, library revenue at the studio was a record $845 million, up 13% compared to the prior quarter’s trailing 12-month library revenue.

Breaking down the Studio business between motion picture and television, let’s start with motion picture. Motion picture revenue was up 5% year-over-year to $289 million, while segment profit of $77 million is up13% year-over-year on the strength of multi-platform releases such as Fall and Clarks 3 as well as foreign exchange.

Revenue and segment profit trends in the quarter reflect continued strength in our library as well as our multi and direct-to-platform business. In addition, we have been preparing for the return of our larger theatrical titles over the next 18 months. In this regard, we are already seeing success with the recent release of Plane and expect to finish our fiscal year strong with releases of Jesus Revolution and John Wick 4.

And finally, television revenue was up 38% to$605 million, driven by continued growth in output, which included both new and returning series as well as strong library sales, including the licensing of Schitt’s Creek. Segment profit was $72 million and was up over270% year-over-year, reflecting solid performance across scripted, 3 Arts, Pilgrim, and library sales.

Now, let’s talk about our balance sheet. Excluding the restructured Lionsgate+ territories from trailing 12 months adjusted OIBDA, leverage for the quarter improved almost a full turn to 4.7 times. We also continue to retain significant liquidity with $425 million of unrestricted cash on hand and $1.25 billion of an undrawn revolver.

This level of liquidity is particularly strong after having utilized over $100 million of cash in the quarter to reduce the amount of bonds outstanding. In particular, we acted on a highly attractive opportunity to delever our business by purchasing some of our unsecured bonds in the open market at a substantial discount.

As you can see from our disclosures, we purchased $124 million of our bonds for $82 million, representing a $42 million reduction in net debt. Our cash position was further enhanced in the quarter with the receipt of$43 million from the partial sale of our interest in STARZ Play Arabia.

As a reminder, the cash proceeds from the gains on STARZ Play Arabia and bond repurchases were effectively tax-free as we utilized a small portion of our $1.4 billion of NOLs.

In summary, we finished a strong quarter with significant liquidity, and we have no maturities until the fourth quarter of 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.

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

Certainly. We will now begin the question-and-answer session. [Operator Instructions]

Our first question will come from Steven Cahall with Wells Fargo. You may now go ahead.

Steven Cahall

Thanks. Good evening everybody. Maybe you could start by talking about what drove the uptick in the library revenue? You mentioned Schitt’s Creek in there. Was that a big component of that increase? Or was it more broad-based, including things like AVOD rights or just TV deliveries or anything else? So I’d just love to get some context of what drove that.

And then secondly, just on the spin as it relates to that. I’m wondering if you could talk at all about what kind of corporate costs you’re expecting at each of the Studio and STARZ segments? And anything about how you’re thinking about the capital structures and where the NOLs are going to sit? Thank you.

Jimmy Barge

Sure Steven, appreciate the question. First of all in the library, Schitt’s Creek was a benefit in the quarter but it was widespread and AVOD continues to be a growth area for us and library sales is just great demand across the board.

What I would say, too, is to remind you that we also have more and more of our film slate coming online, and we effectively haven’t had so much of our films refreshing our libraries in the last three years.

We really have a lot coming up. Obviously, the John Wick and Hunger Game franchises moving into the into this quarter and fourth quarter for John Wick and Hunger Games next year. So that bodes well for future library licensing revenues as well.

With regards to the structuring, the spin or separation, I’m not going to get into the specifics of the capital structures there. But what I would say is with regards to leverage, we’re in a very good position. You saw we delevered a full turn this last quarter, and we’re in a good position to further delever.

In terms of overall cost and corporate overhead, I would just note that we have quietly reduced our workforce by approximately 150 full-time employees or approximately 10% of our workforce. We’ve done this through restructurings and managing open positions.

So that bodes well as we go into 2024 for continuing to manage cost across the board including programming spend, marketing and G&A. So, that will benefit the companies in separation.

Steven Cahall

Thanks. Maybe just as a quick follow-up, Jimmy. Was wondering if you see any more debt out there that you think you can attractively retire?

Jimmy Barge

Look, I don’t think I’m going to get into what we may do there. I feel very confident though that in separation, Steven, that the bonds will travel with STARZ. If you can see, we’ve already started to take some steps already to right-size that, if you will, for a separation.

And we will then refinance the term loan As and Bs, and we have substantial, as you know, substantial unsold library rights on the studio side, which would facilitate that.

Steven Cahall

Thank you.

Nilay Shah

Operator, can we get the question please? Thanks Steven.

Operator

Our next question will come from Barton Crockett with Rosenblatt Securities. You may now go ahead.

Barton Crockett

Great. Thanks for taking the questions. I guess two really. One on the process. Could you just give us kind of a summary of, to the degree you can, of what’s advanced since last quarter? Since everyone is focused on this and what kind of remains to be done for this to kind of move ahead? That’s one thing.

And then secondarily, you gave us some color around STARZ subs recovery. I was wondering to get a little bit more kind of granular on that, and that would be — you said there’s growth. Is this growth off of what we had before this quarter? Or is this just growth off of where we exited the quarter? Trying to get a sense of how much has already come back with the slate kicking in.

Jimmy Barge

In terms of the timing of separation, we’ve been doing a lot of work here preparing separate financial statements, discussing matters that would relate to a reverse spin of the studio with our auditors and with the SEC. We’re on track to file our initial Form 10 before the end of March. And as Jon has said, we will conclude separation, we’re on track, by the end of September.

Jeffrey Hirsch

Hey Barton, it’s Jeff. How are you? Thanks for the question. We had a very strong financial quarter. You pointed out, we had some softness in subs. We had two shows, new shows that premiered in the quarter that underperformed our expectation, coupled with no Pay-1 movies which resulted in the softness.

We have, as Jon said in his prepared remarks, premiered BMF. We’re into one of our strongest content quarters. We returned to growth. To answer your question, return to growth as we’ve exited the quarter, but we do expect on a full year basis to have a really strong year based on the tentpoles per quarter in the way that we’ve scheduled our content for 2024.

Barton Crockett

Okay, that’s helpful. Thank you.

Nilay Shah

Thanks Barton. Operator, can we get the next question please?

Operator

Our next question will come from Kutgun Maral with RBC Capital Markets. You may now go ahead.

Kutgun Maral

Great. Thanks for taking the questions. Two, if I could. First, can you provide a bit more color on the restructuring charge in the quarter at the domestic Media Networks?

And second, as we approach the spin, it’s interesting because it seems more and more investors are kind of sharpening their pencils around the Studio business. So, I wanted to ask about motion pictures. And if you could maybe flesh out the opportunity you see ahead over there? It’s been quite a few years since you’ve had such a strong lineup. And if I go way, way, way back in my model to maybe a comparable year of late strength, the profit profile of Motion Pictures was quite attractive. So, I know it’s too early to get specific and we still need to see these films actually perform. But if you could just provide any guardrails or color around your expectations, that would be very helpful? Thank you.

Jimmy Barge

Sure. Appreciate the question. With regards to the restructuring charge on STARZ, it’s primarily domestic related to the curation of the domestic programming lineup. And I would just point out that in the quarter, there were no benefits to our adjusted results as a result of the restructuring charge. And the restructuring charge was excluded from the adjusted results to help normalize the trends.

I would also point out that we similarly excluded from the adjusted results amounts that were almost completely offsetting that, which would be below the line gain on the — sale of a partial interest in STARZ Play Arabia as well as the gain on the repurchase of the bonds.

Joe Drake

I can give you a little bit of — this is Joe, thank you for the question. I’ll give you a little on the slate. So, I want to first talk about the multi-platform and streaming business leading into our wide release slate because it’s all lined up in a pretty extraordinary fashion.

We’ve talked in past conference calls about growing our multi-platform business. That business has doubled. We stood up a streaming business. And those two businesses alone combined cover the cost of the Motion Picture group for 2023. And at the same time, we’ve lined that up with — as that growth has happened, we’ve lined that up with the strongest slate we’ve had for many, many, many years.

The interesting thing about what’s happening, Jon in his prepared remarks talked about Plane and what a strong contributor was. And we’ve been talking about this for a few calls. The actual fundamental economics of the Motion Picture business theatrical release have improved.

And they’ve improved for a number of reasons. They’ve improved because you can just be much more prescriptive on every dollar of P&A you spend for a customer that comes in the door. And theatrical films have become scarcer and therefore, they are more valuable.

And so whether it is our digital conversions, which are some of the strongest we’ve ever seen, whether it’s the value of our pay television, whether it’s various television windows, how we window them.

Jon mentioned moving up PVOD. And so without giving you specific numbers, what I can tell you is the greenlights that we ran, the greenlight films three years ago, at similar levels of box office have significantly improved. And so we’re going into this year very bullish on the trajectory of the business.

Jon Feltheimer

Yes, I’d say sort of to finish that thought. If you think about that Joe’s — what we used to call segment too business creates the foundation for the business pays for most of the Motion Picture Group overhead. Then you put on top of that a very robust, wide release slate, I would say that we’ve given you an outlook for 2024 that’s strong. I would say we didn’t put in any huge grand slam home runs in our movies. That’s not to say that you should start thinking they’re going to be.

But I would say when you look at that outlook, I would say that you think — we think that’s certainly an achievable outlook, and I think you could say that with big homeruns, you might have a fair amount of success above that. Is that helpful?

Kutgun Maral

No, that’s great. Thank you all for the color. Really appreciate it.

Nilay Shah

Thanks Kutgun. Operator, can we get the next question please?

Operator

Our next question will come from Thomas Yeh with Morgan Stanley. You may now go ahead.

Thomas Yeh

Thanks very much. One on STARZ for Jeff. Any more color you can share on the domestic bundling agreement? Is that with another complementary streaming service? And how does that work exactly? Is the consumer price point different on a bundled basis? How should we kind of think about the unit economics and maybe the co-marketing approach?

And then great Studio results. I mean, Jon, you mentioned television strength across the unit and mentioned 3 Arts as well. Any color on what you see as strategic options with taking in that minority stake or an update on thoughts about taking the rest of that in? thank you.

Jeffrey Hirsch

Hey, Thomas, this is Jeff. Thanks for the question. We’ve been talking for a long time about how STARZ is a great complementary bundling partner all and I think finally, it’s here. We’re excited about it. The partner, obviously, is another complementary streaming partner that we’re excited to go to market with. And as in any bundle, we will have a joint price point that’s cheaper than the two individual parts to give consumer value.

But in exchange for lower ARPU on that business, you get better churn characteristics, lower SAC and all the benefits that you would see in the bundled linear world from the past. And so we’re excited to kick that off. We’re excited to get — to have more down the pike, and we can’t wait until we get it to market and see how it does.

Jon Feltheimer

And in terms of 3 Arts, here’s what I would say. This has been a great partnership. We’ve created a lot of value together and it’s value for both sides. There are numerous ways we can continue the partnership. But we’re just beginning those conversations. I think it would be inappropriate for me to front-run those conversations.

Thomas Yeh

Thank you.

Nilay Shah

Thanks Thomas. Operator, can we get the next question please?

Operator

Our next question will come from Jim Goss with Barrington Research. You may now go ahead.

Jim Goss

All right. Thanks Another thing on the theatrical business. There’s been somewhat of an uneven return of content to the calendar. I’m wondering if what sort of approach you’re taking to the theatrical calendar in terms of how much of it offers legitimate opportunity. It seemed like there were some holes in the calendar last year and potentially looking forward this year, there might be. Is this an opportunity for you?

Joe Drake

As I had indicated earlier, we see enormous opportunity. We’ve got, I believe, 12 films in this current calendar. What we are seeing to speak to the idea of opportunity is, there aren’t a lot of competitors left playing in that mid-budget space, and the economics, as I said, have improved.

I can’t announce it on this call, but we’ve actually added, just yesterday, an additional film into the lineup that has no risk to it and a ton of upside the way we structured it. And it’s partially being a theatrical distributor at this moment in time when others are focused on other segments of the business, and it gives us a ton of opportunity.

So, where we see openings in the calendar that match with either content that we’re making or content that we acquire, we’ll take advantage of it. I mentioned earlier this, our multi-platform business. We have a title called [Indiscernible] that we acquired at — in Toronto. That is a movie that we acquired, I think it was going to be kind of a multi-platform release. We’ve actually seen the title, and it too offers an opportunity to leverage our infrastructure go theatrically. The economics by doing that will improve. And like any title that goes out, if the audience falls in love with it, we can have a breakout success.

Jim Goss

Okay. Maybe one other — I think we talked about this perhaps in prior calls. But are there some additional films that you intend to go more direct to streaming that might warrant a week or two in a theatrical window just to create greater value for you and the purchaser?

Joe Drake

Look, we always want to maintain flexibility with our partners. We are building movies that are built specifically for streamers. We have those — we have conversations with them all the time about how can we add value, and are there different models that will help them and be good for all of us?

And so we would remain open to that as an opportunity. But whether we do that or not, there is an incremental leg of our business that we intentionally set out to build 2 years ago that’s now a really meaningful contributor.

Jim Goss

All right. Thank you very much.

Nilay Shah

Thanks Jim. Operator, can we get the next question please?

Operator

Sure thing. [Operator Instructions] Our next question will come from Matthew Thornton with Truist Securities. You may now go ahead.

Matthew Thornton

Hey good afternoon. Thanks for taking the question. I just had a couple of housekeeping ones, guys. You mentioned Schitt’s Creek license in the quarter. Just wondering if you’re able to quantify that?

Secondly, in the release, you talked about the OTT subs and international in the remaining markets. I think it was 8.5 million. Is that meant to be the bedrock number that’s the go-forward OTT number that we can then work off of? Or is there still more to kind of come down as you normalize those markets? That’s the second question.

And then the third question was around the John Wick AAA title that you mentioned. Has that — does that have a home? Does that have a studio that has taken on that project or is that still in negotiations? Thanks guys.

Jon Feltheimer

Yes. On the international side of things, excluding the remaining territories, we look to finish the period right around 7 million subscribers, which is what we said in the prior call.

Jeffrey Hirsch

And that would be excluding STARZ PLAY Arabia.

Jon Feltheimer

In regards to Schitt’s Creek, there are no specifics on that. Obviously, it was good in the quarter. But as we’ve had Mad Men in the past and we’ve had Nashville, we always have some lumpiness relative to quarter-to-quarter in library revenues. But we have a lot of library and expect to fill that hole, if you will, as a tough comp going forward. So, really feel good. And as I alluded to earlier, we have a lot of strong film titles that will be replenishing the library.

Nilay Shah

Thanks Matthew. Operator, can we get the next question please?

Operator

Our next question will come from Rich Greenfield with LightShed. You may now go ahead.

Rich Greenfield

Hi, thanks for taking the question. I got a couple. So, just maybe the first one for Jeff. Just when we think about the domestic business, which I think subscribers sort of sitting around 20 million, I know it’s down sequentially. But like as we look out over the next, I don’t know, a few years and I ask this from the context of as the business separates later this year, how should we think about what the trajectory is of that 20 million sub base? And what are the puts and takes as you look out over the next couple of years?

And then I just want to follow up that earlier question on 3 Arts. I know it’s obviously early in the process. But when you think about sort of the revenue and earnings impact of 3 Arts, how big of a business is this and how integrated it is into the rest of Lionsgate, meaning is it — is there — are there obvious like strategic people that this would fit with if you were to sell this? I guess how do we think about sort of the importance of 3 Arts to the overall Lionsgate and how much that business is generating today? Any color would be great.

Jeffrey Hirsch

Hey Rich, thanks for the question. Look, I think I’ll start globally and work my way back into the domestic business. We think in the fiscal 2025, 2026 timeframe, the global business should be in the mid-30s in terms of subscribers.

The domestic business is really continuing to pivot from linear to OTT, so really driving profitability and swapping subs to being more digital than they are linear. As Jon said in his prepared remarks, 64% of our revenue is already digital today and then really pure growth internationally to get to that kind of mid-30s number.

Jon Feltheimer

On 3 Arts, appreciate the question, Rich, but I’m not going to give you that much more color. As I say, we’re just starting discussions which essentially are both a combination of strategic discussion and, I would say, negotiation at the same time. So, I’m not going to show you sort of all the cards in the deck, if you will.

I would say in general though, the color I could give you is 3 Arts is a pretty much stand-alone business in terms of its management company. Again, it’s been great opportunities for us to work with some of their talent, but also to help build them into kind of a mini-studio.

And they’ve done a great job in working really closely together. They’ve got some shows on STARZ, one actually on the air Queen which is great, another 1 that’s in sort of very advanced negotiation that we’re very high on. That business and that relationship will continue no matter what.

And so we’re going to have a lot of business together. Again, there’s a lot of options and different ways can play out. I think in virtually all of them is going to be extremely positive, and we’re going to do it together with them as partners and just figure out how to both extract the value we’ve already created and to continue to create additional value.

Rich Greenfield

And maybe just to follow-up on that, could you just help us understand because everyone may not be totally familiar with 3 Arts. In terms of like its talent representation, but do they actually own — like when works get created, who owns it? Like are those Lionsgate-controlled shows? Are those 3 Arts-controlled shows? Do they have direct ownership? Just like what exactly is inside of 3 Arts catalog or not, would be — just trying to understand it.

Jeffrey Hirsch

Yes. One of the benefits that we had for them is having — rather than sort of participation that they have with their clients as executive producers, we’ve made them more owners. I don’t know, Kevin, if you’d like to expand a little bit on that?

Kevin Beggs

Sure. Just to add to that, we have four or five series together and we’re really essentially co-studios, co-own. Lionsgate continues to do the things we do really well with our talented distribution team, our creative teams that work hand-in-hand with their group. And that really improves the overall economics and kind of long-range participation and upside and back end for everybody in the old, including the talent, clients, 3 Arts and ourselves. So, we have five of those, we’d like to have 10 or 15 and we intend to do so.

Jeffrey Hirsch

I think you could simply say on those shows, Rich, they’re shared economics.

Rich Greenfield

Thank you very much.

Jeffrey Hirsch

You’re welcome.

Nilay Shah

Thanks Rich.

Operator

We have a follow-up from Matthew Thornton with Truist Securities.

Matthew Thornton

Hey guys. Two quick ones, I guess, housekeeping/follow-ups. The sale of Shotgun Wedding, just remind us if that’s fiscal 4Q this year. I just want to make sure we have that right. And then just coming back to the John Wick video game title. I had asked this earlier, but is this — is that something that a studio has already picked up or are you still in negotiations with a studio to build that game? Thanks again.

Joe Drake

Game. We’re not — we are in negotiations for a AAA game. We’re not at a stage that we would announce the game. I believe Shotgun is–

Jon Feltheimer

It’s the third quarter.

Joe Drake

Yes, that’s third quarter for Shotgun Wedding, so that was pulled forward from the fourth quarter.

Matthew Thornton

Got you, so that was in 3Q, not 4Q. Okay, great. Thanks guys. Appreciate it.

Jon Feltheimer

Sure.

Nilay Shah

Thanks Matthew. Operator, are there any more questions?

Operator

It appears there are no further questions. This concludes our question-and-answer session. I would like to turn it back over to Nilay Shah for any closing 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 and see you next quarter.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.