Lionsgate Swings to Fourth Quarter Loss Amid Starz Speculation

Jon Feltheimer - Getty - H 2018
Mike Pont/FilmMagic

The studio, led by CEO Jon Feltheimer, on Thursday unveiled its latest financial results amid reports CBS is eyeing the premium cable channel as a takeover target for $5 billion.

Lionsgate on Thursday unveiled fourth-quarter financial results that swung to a loss on lower overall revenues, even as Starz, the subject of takeover speculation, topped 4 million domestic over-the-top subscribers.

The studio, led by CEO Jon Feltheimer, reported a net income loss of $155.2 million, compared to a year-earlier profit of $91.3 million when it recorded a tax benefit of $259 million following changes to the U.S. corporate tax rate.

The diluted loss per share was 72 cents, against 41 cents a share profit for the three months to March 31 last year. The adjusted earnings per-share was 11 cents, which fell short of a Wall Street forecast of 19 cents.

Overall revenue was $913.7 million, compared to a year-earlier $1.04 billion, which again missed on an analyst estimate of $949.4 million for the latest quarter.

The Hollywood studio unveiled its latest financial results amid recent speculation CBS is eyeing Starz as a takeover target. "Because Lionsgate’s equity is currently being valued by investors at only $3.20 billion ($14.85 per share), it would seem to make sense for Lionsgate's senior management to at least evaluate CBS’ offer as if true, it must be at least a little tempting," Robert Routh, an analyst at FBN Securities, wrote in a May 22 investors note.

When asked during an analyst call about market speculation about a possible bid for Starz, Feltheimer at first said the studio never addressed mergers and acquisitions chatter.

But he did add: "Our responsibility is to our shareholders, so we always have to listen to opportunities to create in any way shareholder value. But we're outlining a plan today and that's all we're going to execute on."

And that strategic plan, which became a focus of the analyst call, outlined what the studio sees as a long-term investment in Starz to eventually turn a profit in fiscal 2023.

Feltheimer said the Starzplay channel, and Starzplay Arabia, are now active in 42 countries and are expected to be available in 51 countries by July 1 — mainly in Europe, including the U.K. and Germany, and Latin America on the back of the Apple and Amazon Prime platforms. Starz is also available on linear TV in Canada.

Lionsgate in 2016 acquired Starz for $4.4 billion in cash and stock to create what the studio has called a global content powerhouse. The deal aimed to allow Lionsgate to focus on growing Starz as a pay TV network, including online and internationally, and to diversify the studio and its motion picture group, led by Joe Drake, from the ups and downs of theatrical box office.

Feltheimer on Thursday said tapping financial markets for new equity to fund new Starz content and distribution as it rolls out globally was required. He also told analysts Lionsgate was "super-confident" in the new strategic plan for Starz.

"We felt that the window of opportunity is now. You can see the results already. We are in 51 markets. Our Starzplay Arabia is really successful. We're positioning our programming to be more global. We're getting some of the best third-party content," the exec asserted.

The Lionsgate boss also signaled that his studio's movies will eventually be available exclusively on the Starz platform, especially after a Sony pact ends, though some Starz product will continue to be carried by Disney.

Deal chatter about a CBS approach for Starz follows the steady integration of the premium cable channel and Lionsgate TV under Feltheimer, which comes after longtime Starz CEO Chris Albrecht stepped down in March.

During its latest quarter, Lionsgate saw media network revenue, which mostly consists of Starz, come to $362 million, just up from a year-earlier $353.4 million. The studio during the latest quarter increased investment in the global rollout of Starz, which hit the bottom line, as did a $44.4 million loss on the studio's sale of a half-stake in the Pop channel.

Overall subscriber growth at Starz grew from 23.5 million last year to 24.7 million this year.

Lionsgate's Motion Picture Group posted segment revenue at $357.6 million, compared to $424.9 million a year ago. Television production revenue was $272.8 million, down from a year-earlier $294.7 million.