8-K: Lionsgate and Lionsgate Studios Report Disappointing Second Quarter Fiscal 2025 Results Amidst Industry Challenges

Lionsgate and Lionsgate Studios reported disappointing financial results for the second quarter of fiscal year 2025, with a net loss of $163.3 million for Lionsgate and a $34.8 million operating loss for the Studio Business.

Summary

• Lionsgate reported second quarter revenue of $948.6 million, an operating loss of $88.6 million, and a net loss attributable to Lionsgate shareholders of $163.3 million, or $0.68 diluted net loss per share.
• Adjusted net loss attributable to Lionsgate shareholders was $102.5 million, or $0.43 adjusted diluted net loss per share.
• Adjusted OIBDA loss was $17.7 million for the quarter.
• The Studio Business, which includes Motion Picture and Television Production, reported revenue of $823.7 million, a 4% increase from the prior year quarter.
• The Studio Business operating loss was $34.8 million, and Adjusted OIBDA loss was $6.3 million, a significant decrease compared to the prior year's $76.0 million operating income and $97.9 million Adjusted OIBDA.
• Motion Picture segment revenue increased by 3% to $407.1 million, but segment profit decreased to $2.6 million due to underperforming theatrical releases.
• Television Production segment revenue increased 6% to $416.6 million, while segment profit decreased to $24.4 million due to the impact of past strikes.
• Media Networks North American revenue was $343.0 million, comparable to the prior year, but segment profit decreased to $26.9 million.
• North American OTT subscribers declined by 2.6% year-over-year to 12.4 million and sequentially by 800,000 due to a price increase in September.
• Trailing 12-month library revenue grew to $892 million, up 3% from the previous year's second quarter.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the disappointing financial results, including significant losses and decreased profitability. While there are some positive aspects, such as library revenue growth and the separation plan, the overall tone is one of concern and the need for improvement.

Positives

• Studio Business revenue increased by 4% year-over-year.
• Television Production segment revenue increased by 6% year-over-year.
• Trailing 12-month library revenue grew by 3% year-over-year to $892 million.
• Lionsgate remains on track to separate its Studio and STARZ businesses by the end of the calendar year.
• STARZ is on track to reach its full year target of $200 million Adjusted OIBDA.

Negatives

• Lionsgate reported a net loss of $163.3 million, or $0.68 diluted net loss per share.
• The Studio Business reported an operating loss of $34.8 million and an Adjusted OIBDA loss of $6.3 million.
• Motion Picture segment profit decreased to $2.6 million.
• Television Production segment profit decreased to $24.4 million.
• North American OTT subscribers declined by 800,000 sequentially.
• Lionsgate experienced an operating loss of $88.6 million.
• Adjusted OIBDA loss was $17.7 million for the quarter.

Risks

• The company faces risks related to the separation of Lionsgate Studios and the STARZ business.
• There are risks associated with the substantial investment required to produce and market films and television series.
• The company is exposed to the unpredictability of the commercial success of its motion pictures and television programming.
• The company faces risks related to the acquisition and integration of acquired businesses.
• The company is exposed to technological changes and other trends affecting the entertainment industry.
• The company is exposed to potential adverse reactions or changes to business or employee relationships.
• The company is exposed to the impact of global pandemics on its business.
• The company is exposed to weakness in the global economy and financial markets, including a recession.
• The company is exposed to wars, terrorism, and multiple international conflicts.
• The company is exposed to labor disruptions and strikes.

Future Outlook

Lionsgate expects to return to sequential OTT subscriber growth in North America in the December quarter and remains on track for the full separation of its Studio and STARZ businesses by the end of the calendar year, subject to regulatory approvals. STARZ remains on track to reach its full year target of $200 million Adjusted OIBDA.

Management Comments

• Lionsgate and Lionsgate Studios CEO Jon Feltheimer stated that the company reported disappointing financial results in the quarter.
• He emphasized the need to adhere more rigorously to risk-mitigated business models, slate diversification, and strict financial discipline.
• He believes that a return to strong content slates, the continued performance of the library, and sure-handed execution will put the company back on the path to solid growth and shareholder value creation.

Industry Context

The results reflect a challenging period for the entertainment industry, with the company citing a 'transitional, disrupted and difficult year'. The underperformance of theatrical releases and the impact of past strikes on television production highlight the volatility and challenges in the content creation and distribution business. The decline in OTT subscribers also reflects the competitive landscape in streaming services.

Comparison to Industry Standards

• Lionsgate's performance is being compared to other major studios and media companies, many of whom are also facing challenges in the current economic environment.
• The decline in theatrical revenue is consistent with trends seen across the industry, where box office performance has been inconsistent.
• The decrease in OTT subscribers is a concern, as many streaming services are experiencing slower growth or subscriber losses.
• The company's library revenue growth is a positive sign, as it demonstrates the value of its content assets, similar to other companies with large content libraries such as Disney and Warner Bros. Discovery.
• The planned separation of the Studio and STARZ businesses is a strategic move similar to other media companies that have been restructuring to focus on core businesses.

Stakeholder Impact

• Shareholders are negatively impacted by the reported losses and decreased profitability.
• Employees are impacted by the voluntary severance and early retirement packages.
• Customers may be impacted by the price increase for OTT subscriptions.
• Suppliers and creditors may be impacted by the company's financial performance.

Next Steps

• Lionsgate and Lionsgate Studios will hold an analyst and investor conference call to discuss the results.
• The company will continue to streamline its business and adjust to the economic realities of the marketplace.
• The company will continue to work towards the separation of its Studio and STARZ businesses by the end of the calendar year.
• Management believes it will return to sequential OTT subscriber growth in North America in the December quarter.

Key Dates

Keywords

Lionsgate, Lionsgate Studios, Studio Business, Motion Picture, Television Production, Media Networks, STARZ, OTT, Revenue, Operating Loss, Net Loss, Adjusted OIBDA, Library Revenue, Subscriber, Film, Television, Content