Will we see Lionsgate spin off its studio business? That’s the key question from the third quarter financial results the Hollywood giant has brought to the table. While it is still a little early to tell, this could see Starz, their premium cable/streaming platform, or even the studio arm itself become their own entities. Entertainment lawyer Brandon Blake, with Blake & Wang P.A, analyzes what we know to date.
Third Quarter Net Income
Offsetting the $45.6M loss of the comparable quarter of 2021, we see a net income of $16M, with overall revenue hitting $1B. Most of this came on the studio revenue side over the quarter. This gave Lionsgate an adjusted earnings per share of 26c, against the per-share loss of 12c of last year’s quarter. There was also a trailing 12-month revenue from their library of $845M to sweeten the pot, a record for them. However, these results also included a $80.8M content write-down towards restructuring Lionsgate+. This is still considerably smaller than the content write downs we’ve seen from other entities of late. They’ve also managed to unload 150 staff roles without layoffs through restructuring and withdrawing open positions.
We should see one of the biggest slates in years for this studio, just as signs of a rebound in the domestic box office are also taking hold. Starz’s recent international reorganization also seems to have helped grease its wheels. Starz itself saw segment revenue of $380.3M, not far from last year’s $388.9M, and 400,000 new subscribers internationally- though it’s hard not to set that against a loss of 1.1M domestically. Yet they’ve managed to scrape an annual rise of 2.8% year-on-year for subscribers overall despite exiting several strong international markets, so it’s not a bad job.
Potential Separation
Despite a balance sheet more buoyant than some, Lionsgate is still exploring separating their streaming and studio operations. For now, the most likely setup seems to be two standalone companies with separated assets. The deadline on the decision appears to be September. The idea? To “unlock greater value by operating as pure play entities.”
So a separation is coming. We’ve already been warned that separate financial statements for both entities are under way, and expect to see regulatory documents filed by March. Which leaves us with the question of what it will look like. Logically, they want to leave both companies with strong balance sheets that will be attractive to investors in their own right.
We were also teased with an unveiling for Starz’s first domestic bundling with a ‘complementary streaming partner’ and joint price point this week. For now, the future of their stake in 3 Arts Entertainment is also potentially on the table, but there seems to be no solid plans for it as yet.
It’s an interesting reversal of the M&A trend of the last few years. However, opting to focus each side of the split on their respective roles instead of running a joint ship could give Lionsgate an edge in the current marketplace. It seems we will have to wait until that critical last quarter of this year to see.
No comments yet