Lionsgate Gives CEO Jon Feltheimer Big Raise as Starz Second-Quarter Earnings Drop

Jon Feltheimer - Getty - H 2016
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Jon Feltheimer - Getty - H 2016

Lionsgate, which is to merge with Starz, in a regulatory filing said Feltheimer's executive pay rose to $10.9 million in the latest fiscal year, up from a $6.7 million package in fiscal 2015.

Lionsgate in an SEC filing Thursday revealed CEO Jon Feltheimer's executive compensation package for the company's most recent fiscal year was $10.9 million, up from a $6.77 million package in fiscal 2015.

The raise came as Starz, which recently agreed to be acquired by Lionsgate in a $4.4 billion deal, reported lower second-quarter earnings and an increase in its Starz-branded subscriptions.

Feltheimer's fiscal 2016 pay package included $1.5 million in base salary, same as the year-earlier salary, another $4.1 million in stock awards, $5.3 million in option awards and other compensation amounting to $95,113. The latest year's pay package of $10.9 million is still well down from a $66.3 million package in fiscal 2014 when the studio, as a one-time item, accounted for stock and stock option awards due to Feltheimer for a five-year contract.

Lionsgate vice chairman Michael Burns also got a raise, from $8.64 million in fiscal 2015 to $11.5 million in the latest period. The raises came despite stock in Lionsgate dropping by 35 percent in value in the 12 months to March 31, 2016. The studio in its regulatory filing conceded that its fiscal 2016 performance "did not reflect the financial performance it expected and that it has consistently delivered in recent years."

Lionsgate in its commentary said lower box office failed to offset rising TV production revenue at the studio. Lionsgate's stock has fallen in the last year after the YA film adaptation The Divergent Series: Allegiant disappointed at the box office by not getting close to the numbers reached by the earlier films in the franchise.

That's left investors wary of Lionsgate when it comes to YA film adaptations after the blockbuster success of the Twilight and The Hunger Games film franchises, with implications for the 2017 and 2018 financial results. "The 2016 fiscal year, however, was a good year in terms of positioning the company for long-term growth," the studio said in the regulatory filing.

Meanwhile, Starz, the premium TV company led by CEO Chris Albrecht, on Thursday posted earnings of $54.4 million, compared with $63.0 million in the year-ago period. Earnings per share reached 54 cents, compared with 59 cents last year. The bottom line was roughly in line with most Wall Street estimates.

In a call with Wall Street analysts, Albrecht was bullish on Starz' merger with Lionsgate, without giving away too much before both companies jointly file the proposed deal's paperwork with the SEC in an S-4 filing. "One of the things that baffles me is how many people don’t get it," he said of the transaction to create a global content powerhouse.

"I could make a long, long list of benefits that accrue to both companies, starting with the fact that there's going to be a great team in the CEO suite, starting with Jon Feltheimer and Michael (Burns). I'm joining them, and I look forward to being there for the long run," Albrecht added.

He told the analysts the Lionsgate merger would offer Starz scale and distribution muscle to exploit its original IP and attract better creative content and talent. "We're going to have the financial wherewithal to do many more things that we did before. The merged company will be able to far more effectively attract content, and honestly the Lionsgate guys, with the library they have, will do a better job monetizing that content than we are able to do as a standalone company," Albrecht said during the call. 

The Starz chief also made light of about a "few million dollars" in ongoing litigation costs surrounding the Lionsgate merger. "Dick Wolf is going to do a new show called Law and Starz. How many unfounded lawsuits can one company get hit with? A lot. Too much. A waste of time," Albrecht said. 

Second-quarter operating income decreased 5 percent to $105.4 million. But adjusted operating income before depreciation and amortization, a key financial metric for the company, increased 3 percent to $127.4 million. Revenue fell 4 percent to $402.6 million as a 3 percent gain at the Starz Networks unit was more than offset by a 23 percent decrease at the Starz Distribution unit, "primarily a result of fewer significant new release titles from The Weinstein Company."

As of the end of the second quarter, total company subscriptions stood at 56.0 million, compared with 56.4 million as of the end of the first quarter and 56.8 million as of the end of the second quarter of 2015.

The company said it ended June with 24.2 million Starz subscriptions, a new company high that compared with 24.0 million as of the end of the first quarter and 23.5 million at the end of the second quarter of 2015.

Starz Encore subscriptions as of the end of June stood at 31.8 million, compared with 32.4 million at the end of the first quarter and 32.2 million at the end of 2015.

"We performed very well in the second quarter," Albrecht said earlier in a statement that accompanied the quarterly results. "Outlander and The Girlfriend Experience grew viewership across multiple platforms demonstrating that our original programming continues to make Starz a ‘must-have’ service for consumers. We are thrilled with the record-setting viewership for the third-season premiere episode telecast of Power and look forward to a strong third season from the critically acclaimed Survivor’s Remorse.”

July 28, 6 p.m. Updated with comments by president and CEO Chris Albrecht made during an analysts call, and regulatory information from Lionsgate on executive compensation for Jon Feltheimer and Michael Burns.