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, but the Studio Business segment showed solid growth, offsetting declines in the Media Networks segment. Let’s take a closer look at the performance of each segment.

Studio Business Segment

The Studio Business, which includes the Motion Picture and Television Production divisions, saw revenues increase 3.2% to $713.8 million in the three-month period and 0.9% to $2,125.8 million in the nine-month period, compared to the same periods in the prior year. This growth was driven by strong performance in both divisions.

Motion Picture Division The Motion Picture division saw revenues decrease 30.2% to $309.2 million in the three-month period and 14.6% to $1,063.3 million in the nine-month period. This was primarily due to lower theatrical, home entertainment, and television revenues compared to the prior year, which had benefited from the release of major titles like “The Hunger Games: The Ballad of Songbirds & Snakes”. However, the division’s international and other revenues increased.

Gross contribution (revenues less direct operating and distribution/marketing expenses) for the Motion Picture division decreased 16.9% in the three-month period and 23.2% in the nine-month period, due to the lower revenues. However, the division’s direct operating expenses as a percentage of revenues improved, decreasing from 48.4% to 42.9% in the three-month period, as the mix of titles shifted more towards lower-cost library content.

Television Production Division The Television Production division saw a strong increase in revenues, up 62.9% to $404.6 million in the three-month period and 23.4% to $1,062.5 million in the nine-month period. This was primarily driven by the inclusion of revenues from the recently acquired eOne business, as well as growth in home entertainment, international, and other revenues.

Gross contribution for the Television Production division more than doubled in the three-month period, increasing 249.1%, and rose 2.0% in the nine-month period. This was due to the higher revenues, as well as a decrease in direct operating expenses as a percentage of revenues, from 88.2% to 79.2% in the three-month period. The improved efficiency was driven by a shift in the mix of content, with more revenue coming from library titles and the talent management business, which have lower direct operating costs.

Overall, the Studio Business segment’s total segment profit, a non-GAAP measure that excludes certain corporate and non-operating items, decreased 2.9% in the three-month period but declined 18.9% in the nine-month period, as the growth in the Television Production division was offset by the decline in the Motion Picture division.

Media Networks Segment

The Media Networks segment, which includes the Starz premium subscription video service, saw revenues decrease 17.4% to $344.5 million in the three-month period and 14.3% to $1,041.5 million in the nine-month period. This was primarily due to the continued exit from international markets as part of the segment’s restructuring plan.

Starz Networks revenue, which represents the U.S. and Canadian operations, decreased 1.4% in the three-month period, as higher OTT (over-the-top) revenues were offset by lower traditional linear TV revenues. The international “Other” revenues declined 95.9% in the three-month period due to the market exits.

Gross contribution for the Media Networks segment decreased 58.3% in the three-month period, as the revenue declines were only partially offset by lower direct operating and distribution/marketing expenses related to the international market exits. Segment profit for Media Networks declined 70.9% in the three-month period for the same reasons.

The Media Networks segment has been undergoing a significant restructuring, which included exiting all international territories except Canada and India. This restructuring has resulted in substantial impairment charges, with the Company recording net recoveries of $6.4 million in the three-month period and $8.8 million in the nine-month period, compared to impairment charges of $77.8 million and $317.4 million in the respective prior-year periods.

Looking ahead, the Company may incur additional content impairment and restructuring charges as it continues to evaluate the Media Networks business and its current restructuring plan in relation to the broader economic environment and its planned separation of the Starz business.

Consolidated Financial Performance

At the consolidated level, the Company’s total revenues decreased 0.5% to $970.5 million in the three-month period and 5.0% to $2,753.8 million in the nine-month period, compared to the prior-year periods. This was primarily due to the decline in the Media Networks segment, partially offset by the growth in the Studio Business.

Direct operating expenses increased 11.1% to $567.3 million in the three-month period and 5.8% to $1,639.7 million in the nine-month period, driven by higher costs in the Studio Business, partially offset by lower costs in the Media Networks segment.

Distribution and marketing expenses decreased 20.7% to $174.4 million in the three-month period and 11.7% to $606.0 million in the nine-month period, primarily due to lower theatrical marketing costs in the Motion Picture division and decreased marketing expenses in the Media Networks segment.

General and administrative expenses decreased 12.5% to $105.9 million in the three-month period and 9.0% to $334.9 million in the nine-month period. This was driven by lower share-based compensation expense, as well as decreases in corporate, Media Networks, and Studio Business general and administrative costs.

Restructuring and other costs decreased significantly, from $116.9 million to $43.3 million in the three-month period, and from $371.0 million to $71.9 million in the nine-month period. This was primarily due to lower content impairment charges related to the Media Networks restructuring.

The Company reported an operating income of $35.8 million in the three-month period, compared to an operating loss of $43.5 million in the prior-year period. For the nine-month period, the operating loss decreased from $877.9 million to $34.1 million, as the prior-year period included a $663.9 million goodwill and intangible asset impairment charge related to the Media Networks segment.

Net loss attributable to Lions Gate Entertainment Corp. shareholders was $21.9 million, or $0.09 per share, in the three-month period, compared to a net loss of $106.6 million, or $0.45 per share, in the prior-year period. For the nine-month period, net loss attributable to shareholders decreased from $1,063.5 million, or $4.56 per share, to $244.7 million, or $1.03 per share.

Outlook and Strategic Initiatives

The Company continues to execute on its strategic initiatives, including the ongoing restructuring of its Media Networks segment and the planned separation of the Starz business from the Studio Business. These actions are aimed at improving the Company’s operational efficiency and positioning it for future growth.

The Media Networks restructuring has resulted in significant impairment charges, but the Company expects to see the benefits of these actions going forward as it focuses its resources on the core U.S. and Canadian markets. However, the Company may incur additional charges as it further evaluates the Media Networks business and its content strategy.

The planned separation of the Starz business is also a key strategic priority, as the Company looks to unlock value and provide each business with the flexibility to pursue its own growth opportunities. The separation is expected to be completed in the coming fiscal year.

Overall, the Company’s Studio Business segment continues to demonstrate its strength, with the Television Production division in particular showing impressive growth. The Media Networks segment remains challenged, but the Company’s restructuring efforts are aimed at positioning this business for improved performance.

As the entertainment industry navigates evolving consumer preferences and macroeconomic headwinds, Lions Gate Entertainment Corp. is taking proactive steps to streamline its operations, focus on its core strengths, and position itself for long-term success.