Specialist
Former SVP, Strategic Planning & Business Development at Lions Gate Entertainment Corp
Agenda
- Lions Gate's (NYSE: LGF.A) operating environment – evolution of demand across distribution channels for key episodic and film content IP
- Outlook for value of library content relative to new originals
- Starz update – domestic and international
- Outlook for H2 2021 and beyond – implications of MGM-Amazon (NASDAQ: AMZN) deal and viability of Lions Gate's standalone model
Questions
1.
Could you provide an overview of Lions Gate’s operating environment, including the important trends or drivers?
2.
How are you pacing box office recovery? How much of the USD 11bn pre-coronavirus domestic box office market is susceptible to streaming trends? What do you expect for a normalised, post-coronavirus domestic box office?
3.
The movie-goers that stay around will presumably be the more loyal ones. AMC Stubs claims the majority of its own ticket sales come through its Stubs members. Do you think there’s much pricing power that could be used to offset attendance declines? If attendance does decline by 50% you could make a lot back with pricing the tickets up.
4.
Do you have much confidence in the higher-revenue density theatrical experiences, where it’s more luxurious and which generate higher merchandise and luxury food sales?
5.
Content spend has been increasing across all studios, due to the need for new content on their own platforms. How might content spend evolve across buyers such as Netflix, ViacomCBS, Disney and others over the next 3-4 years? To what extent can they spend more than they already are?
6.
Where might the highest demand be for spending allocation if we break down content types into original vs licensed and film vs episodic? Are we close to a licensed-content renaissance, or could that only occur post- consolidation?
7.
You could tack a 16x or 17x multiple on the guided EBITDA for the MGM-Amazon deal. What do you think is the best way to approach a catalogue valuation? Is that the right way to think about it? Might subsequent consolidation value libraries similarly? Is there an Amazon premium attached to that deal?
8.
You mentioned Lions Gate has been floated as a hypothetical take-out target for decades. Who do you think could be a good partner for Lions Gate to merge with or be acquired by? Do you think the amount that Amazon spent on the MGM deal is unrealistic for a company such as Lions Gate? Do you think its assets would garner a lower valuation?
9.
What are your thoughts on the pacing of linear cord-cutting? Do you think the declines will exacerbate over the next few years? How might this impact how Lions Gate approaches its network business?
10.
What was your opinion of the WarnerMedia-Discovery merger? How do you think the companies match up together, given there was some doubt around this? What might it mean for future transactions? Does the merger take the combined company off the table from doing another take-out?
11.
Do you think that it will be difficult for Paramount and NBCUniversal to come together, given they both own their own broadcast stations? Could the US DoJ [Department of Justice] and regulation aspects be problematic? Do you think NBC or Paramount could become more interested in Lions Gate than each other for consolidation?
12.
How difficult is it for Lions Gate to remain competitive in its production and output vs major studios such as Disney, Warner Bros and Universal?
13.
Are Disney, Universal and Warner Brothers able to garner more attractive economics around the theatrical window and exhibition rental costs for PVOD [premium video-on-demand] vs mini-majors such as a Lions Gate? Does the maths work similarly or even attractively for Lions Gate to do something like that with a company such as AMC?
14.
In assessing exhibition costs we could use 55% in the studio’s pocket of ticket sales as an estimate for the broader industry. How are you expecting revshare percentages to evolve over the next few years, given the waning importance of the box office but also exhibitors’ reliance on it? Do you think exhibitors can claw it back because it’s so important to them? Could it be only box office blockbuster films and so the studios could actually get more?
15.
Starz CEO Jeff Hirsch suggested an ad-supported global TAM for streaming services of 250 million to 300 million global subscribers. Where do you think Starz’ streaming TAM could end up, considering it is not yet ad-supported? Could the company eventually become more broad-based ad-supported where that ends up being the TAM, or will it be more targeted than that?
16.
Starz is targeting 50 million to 60 million subscribers by 2025. Where do you think content spend needs to be to resonate globally to that scale of subscribers? Is that difficult? It lost the Sony output deal. Can it do that on its own or does it need another output deal to achieve those content levels?
17.
How would you compare the ROI of producing content to filter into Starz vs emulating Sony’s activeness in the pay 1 window? Could some SVOD [subscription video-on-demand] licensing deals start to evolve towards cost-plus margins, where all the waterfall effects are cut off from the studios themselves? Could that be why Lions Gate is considering its Starz asset much more than replicating Sony, and not really focusing on distribution?
18.
Do you think studios are past peak earnings power from a margin profile standpoint? Is there a subscriber scale at which you can emulate or even surpass what existed for more linear distribution channels? Do these studios make more money per content dollar spent when filtering it purely through OTT [over-the-top] means, even if you get in the hundreds of millions of subscribers?
19.
Is the cost of scaling subscriber rates internationally offset by the low ARPU ex-US around the propensity to pay? Will international success be driven by being ad-supported? How might that play into Starz’ strategy? Could ad-supported models be the only path forward when profitability becomes more important?
20.
Who do you think will be the big winners and losers in distribution in the next 5-10 years? Could it be Roku or Amazon Fire? Could the TV OEMs [original equipment manufacturers] consider rolling out their own operating systems?
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