Studio Business Continues Strong Performance

The entertainment company Lions Gate Entertainment Corp. (the “Company”) has reported its financial results for the three and nine months ended December 31, 2024. The Company’s operations are divided into two main segments - the Studio Business, which includes the Motion Picture and Television Production divisions, and the Media Networks segment.

Overall, the Company’s consolidated revenues decreased slightly in the three and nine month periods compared to the prior year, but the Studio Business segment continued to perform well, offsetting declines in the Media Networks segment.

Studio Business Segment Highlights

The Studio Business, which includes the Motion Picture and Television Production divisions, saw revenues increase 3.2% to $713.8 million in the three months ended December 31, 2024, and increase 0.9% to $2,125.8 million in the nine months ended December 31, 2024 compared to the prior year periods.

The Motion Picture division reported a 30.2% decrease in revenues in the three months ended December 31, 2024 to $309.2 million, and a 14.6% decrease to $1,063.3 million in the nine months ended December 31, 2024. This was primarily due to lower theatrical, home entertainment, and television revenues compared to the prior year, which benefited from the strong performance of films like “The Hunger Games: The Ballad of Songbirds & Snakes” and “John Wick: Chapter 4”. However, the Motion Picture division’s gross contribution margin improved due to a lower amortization rate and greater revenue from library titles.

In contrast, the Television Production division saw a 62.9% increase in revenues in the three months ended December 31, 2024 to $404.6 million, and a 23.4% increase to $1,062.5 million in the nine months ended December 31, 2024. This was driven by the inclusion of revenues from the recently acquired Entertainment One (eOne) business, as well as increases in home entertainment, international, and other revenues. The Television Production division’s gross contribution margin also improved due to the mix of titles generating revenue, including more library and talent management content.

Overall, the Studio Business segment profit decreased 18.9% to $268.5 million in the nine months ended December 31, 2024, but this was still a strong performance compared to the prior year.

Media Networks Segment Challenges

The Media Networks segment, which includes the Starz premium subscription video service, saw revenues decrease 17.4% to $344.5 million in the three months ended December 31, 2024, and decrease 14.3% to $1,041.5 million in the nine months ended December 31, 2024 compared to the prior year periods.

This decline was primarily due to the Company’s ongoing restructuring of its international Media Networks business, which involved exiting all international territories except Canada and India. Revenues from these exited international territories decreased by $67.7 million in the three months and $170.9 million in the nine months ended December 31, 2024.

Revenues from the core Starz Networks business in North America also declined slightly, down 5.0% in the three months and 2.5% in the nine months ended December 31, 2024. This was due to a continued decline in traditional linear TV subscribers, partially offset by growth in direct-to-consumer OTT subscribers and price increases.

The Media Networks segment profit decreased 70.9% to $24.9 million in the three months and 40.5% to $109.5 million in the nine months ended December 31, 2024. This was driven by the revenue declines as well as higher programming and distribution costs.

Restructuring and Impairment Charges

The Company continued to execute its restructuring plan for the Media Networks segment, which included exiting international territories. This resulted in net recoveries of content impairment charges of $6.4 million in the three months and $8.8 million in the nine months ended December 31, 2024, compared to impairment charges of $77.8 million and $317.4 million in the respective prior year periods.

However, the Company subsequently removed programming from its domestic Starz platform that had a carrying value of approximately $77.4 million, which will result in an additional impairment charge to be recorded in the fourth quarter of fiscal 2025.

In addition, the Company incurred other restructuring and severance costs of $43.3 million in the three months and $71.9 million in the nine months ended December 31, 2024, related to its ongoing restructuring efforts.

Goodwill and Intangible Asset Impairment

In the prior year period, the Company recorded a $663.9 million impairment charge related to goodwill and indefinite-lived intangible assets in the Media Networks reporting unit. No such impairment was recorded in the current year periods.

Financial Position and Outlook

The Company ended the quarter with $808.5 million in goodwill on its balance sheet, which it continues to monitor for potential future impairment. Its finite-lived intangible assets, primarily related to customer relationships, totaled $880.9 million.

Looking ahead, the Company stated it will continue to monitor its reporting units and intangible assets for changes that could impact their recoverability, such as further declines in the Media Networks business, macroeconomic conditions, and changes in consumer behavior.

The Company also noted that it may incur additional content impairment and restructuring charges related to its ongoing evaluation of the Media Networks business and its current restructuring plan.

Conclusion

Overall, the Company’s Studio Business segment continued to perform well, offsetting challenges in the Media Networks segment. The Motion Picture division faced revenue declines, but improved profitability, while the Television Production division saw strong growth.

The Media Networks segment remained under pressure, with revenues and profits declining significantly due to the international restructuring. The Company will need to closely monitor this business and may face further impairment and restructuring costs as it continues to evaluate its strategy.

The Company’s financial position remains solid, with significant goodwill and intangible assets on the balance sheet. However, the recoverability of these assets will depend on the future performance of the business, particularly the Media Networks segment. Investors will be watching closely to see if the Company can successfully navigate the ongoing industry shifts and return the overall business to consistent profitability.