All right, we'll get started here. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosure. If you have any questions, please reach out to your Morgan Stanley sales representative. With that, I'm very happy to welcome back Jimmy Barge, CFO of Lionsgate Studios.
Thanks, Thomas. It's great to be back again.
Thank you so much. I thought I'd just kick us off with a high-level question about the year in review. I think it's been coming up on a year now where Lionsgate separated its Studio and Starz businesses. Part of that rationale, I think you had suggested, was to unlock greater strategic optionality as a pure-play Studio. Can you maybe just give us an update on how that opportunity has evolved and what path you might be seeing the strategic optionality kind of take?
Well, sure. I think our timing's great. I mean, it took a while, right? You're right, we're coming up in May, it'll be a year. You know, we accomplished what we wanted to accomplish. It's better strategically for both Starz as well as the Studio. The objective was get back to a pure-play Studio. I think you're seeing what others in the industry have done. They're kind of following suit. We started this really three years ago, ultimately to the separation, you've seen it play out nicely. Our Studio is well poised. You know, we'll talk about it later, but we're at an inflection point for our business where we're coming off of a great year creatively heading into fiscal 2027 as a March 31 year-end company and, you know, really well-positioned.
To be an agnostic pure-play content company has major advantages, and we've seen that. You're seeing us hit all strides in motion picture as well as in TV. Our library sales, we're setting continuous records. We got major record-setting backlog, which is future contractual revenues and cash flows. You know, very well-positioned. We see what's happening in the world of consolidation and, you know, everybody wanting studios. We've got a scarce asset here already completely separated. We collapsed the A and B shares, as you know, at the time of the spin. We announced on the last earnings that we're letting the poison pill expire in May. You know, I think we're just extremely well-positioned with our business hitting on all cylinders.
At the same time, we're a pure-play Studio, which has got great scarcity value.
Great. On that industry consolidation point, I did wanna ask your thoughts on the impact of potential consolidation on the industry as it relates to your business. I think, you know, it looks like this continued trend might be ultimate impact to the buyer pool of your content, but also to some extent, also potentially an impact to the sellers and the number of sellers that are supplying third-party content. Can you maybe just level set for us the value that you bring as a third-party content arms dealer, as you've said in the past, and particularly just in a world of scaled, vertically integrated studios where your value and your Library really presents value?
I think, again, it just underscores the scarcity value of Library, and we can come back to that. In terms of being an arms dealer or seller to third parties, there's plenty of demand out there. We are literally one of the few that can really provide that content. Everybody needs content. Content's king. I think in terms of us being able to sell, I think the combination of their libraries, quite frankly, is to our benefit. I think, you know, there's been quite a bit of disruption, you know, during, as you would expect, right, during mergers and acquisitions. They've not been big buyers from us. I don't see that as being an issue. I think there'll be opportunities there to sell to them.
I think the ability to really sell to everybody else, and particularly during this maybe next year of kind of continuing, you know, integration, et cetera, I think we do quite well. When we get to TV, we'll talk about it. We've already got, you know, significant number of series renewed, so. In our library, we've got a new Pay- 1 deal coming up, right, that's split between Starz and Amazon. We're set well there. We've got a great pipeline coming in TV. I sit there and, you know, you ask about the Library value. I look at it and, you know, what was critical is the franchises. We have over 20,000 titles in Library. I mean, John and Michael have been building this for 20+ years, right? Always retaining rights.
It's such a scarce asset, and it's so unique in the industry, that we have this. I think what you've seen in the world of consolidation is that that's what everybody wants and the value of that. If you just look at it and you look at Paramount's, you know, acquisition of Warner Bros., and you look at Netflix's bid and you kind of sort through, you see underlying multiples for the studio of, you know, 25+ times, so mid-20s to high-20s multiples. You know, we've seen that before. We saw that when Amazon acquired MGM. Okay. You saw it not too recently, or pretty recently for a minority interest where Apollo, very smart money, okay, took out Wanda for minority interest in Legendary, 2025, 2026, mid, same level.
For us, we see that as a huge opportunity for us, one, continue to exploit our Library and drive value for our company. Also, we're very cognizant of those values and the ability to create outsized valuation for our shareholders in the world of consolidation. I think the Library just becomes more scarce than ever and our production capabilities on top of that to replenish our Library. you know, we're coming off of five consecutive records-of Library and no expectation that that would not continue.
Do you think the takeaway, I guess, in terms of the impact of potential M&A across your peer set is that there's potentially a little bit of disruption from a near-term perspective of pencils being down as they integrate, but the diverse set of buyers that you're still interacting with is still a healthy backdrop to continue to be able to monetize the content that you have?
Yeah, I'd say that. I'd say that, you know, in terms of buying content, which is easier than producing.
Yeah
Right? That we've had a little disruption during the entire process as buyers. I think some of that will open up even though those two studios haven't been big buyers of our product recently. I think some of that will open up quicker. I think some of the disruption may be in the production and everything else in development along the lines. It takes time to integrate. You know, we're off and running, and we've had great development. We've just finished some really strong content creation cycles, and, you know, we're poised very well for fiscal 2027, and I'd quite frankly say the next two to three years.
Gotcha. Okay. Let's move on to the motion picture a little bit more in-depth there. Coming off of the success of some of the more recent films, most notably The Housemaid, can you just talk about your ability as a smaller player in that studio world to source and generate franchises that, you know, relative to your larger peers, how that works?
Well, sure. Adam Fogelson and his team done a fantastic job, you're starting to see their slate come to the forefront. We've just come off of this in our fourth quarter or The Housemaid was in December, late December. The Housemaid, as you noted, been fantastic. It's a, let's call it a rumored to be $35 million, $30 million dollar film that's done $380 million, maybe closing in on $400 million of global box office. Just a fantastic. That team puts that together, that team has also hit it on The Long Walk, okay? Don't forget, Now You See Me: Now You Don't.
You know, kind of a third installment of that franchise, refreshing that franchise, created a whole new franchise with The Housemaid. By the way, there's three books there, so there's a lot more to come. We've already greenlit the second film. You know, we finished the year with a really nice film and nice price points and a faith-based film called I Can Only Imagine 2. Nice to have a sequel to the original film in that space. We're just very well poised there. I'd say, you know, they're focusing on a lot of things. I mean, first of all, I think they would tell you, "Look, you gotta have the right filmmaker, okay? For the right genre, who's proven in that genre." I would just say Paul Feig was a fantastic selection in The Housemaid.
They bought the books thinking, "Hey, this could be straight to video," realized, you know, there's something bigger here. Put the right talent around that. Paul Feig as director. Likewise, you look for something with a marketing hook. This was sexy, edgy, different, not a rom-com. If you haven't seen it, you've gotta go see it. I guarantee you're gonna love it, and it's gonna The twists and turns, you know, it's a killer, and there's no pun intended there. It's a great film. It has great international appeal, right? With the underlying IP, the book sold well around the world. Actually, my wife picked up her book when we were traveling in Europe.
She picked it up, finished her book, picked up another one and said, "Wow, this is great." She didn't even know we were doing the movie. Said the second one, by the way, was her favorite book, so there's clearly that one's already been greenlit called The Housemaid's Secret. I think you look at that, you got the international appeal, the marketing hook, you got a director, a filmmaker that knows how to do it, proven in the genre, and then you add known cast, recognizable cast. Sydney Sweeney and Amanda Seyfried, who just, they killed it again, no pun intended. It was, you know, really great. All of a sudden, there you are with a new franchise. We're pretty good at doing that.
I'd say Adam and his team has shown just excellent skill set. I expect more to come out of this franchise, and we're always every year looking for, you know, creating more franchises.
There always does seem to be a little bit of an ebb and flow in sentiment around the health of the box office more broadly, and maybe also more specifically on the mid-sized film budget side. Do you feel like operating in that space as one of the bigger suppliers of content into that theatrical window, that you have any insight into whether there's a broader consumer trend and appetite for any particular film?
Well, I think you have to be more selective, right? You gotta know what audience is there, and we've always done that, and particularly, I think our team's good at it. Look, we see eight to 12 broad theatrical releases a year, right? That's just fine. Nice to have three tentpoles. We've got three tentpoles coming up next year. That's kind of a nice, you know, franchise/tentpole that supports underlying your slate every year. It's always a slate approach. We stay focused on genres where we can win. We do a lot of action, do faith-based, do horror. We'll do edgy stuff, again, that has the right kind of marketing hook and edge to it, you know, just new originals, mid-budget, like mid to small budget, such as The Housemaid.
For a success like The Housemaid, how should we think about how that translates from the upside that we're seeing on the box office performance into, you know, potentially further upside in the downstream windows thereafter? Maybe just walk us through how you're monetizing that, and if there's continued evolution in the opportunities that you see downstream post-theatrical?
Yeah. Well, the nice thing about a late, you know, December release is it just keeps giving. We got great rollover coming out of that. Now You See Me: Now You Don't as well, the other two theatrical releases I talked about earlier. We got great carryover coming into 2027, and The Housemaid will be clearly part of that. Again, I would fully expect three films out of that, if not more, even though there's only three books. It's the type thing, story you could keep telling, right? I see that, you know, extremely strong, and it's gonna play on in our Library forever.
Great. On the film slate, more broadly, you've announced some big tentpoles that are anchoring fiscal 2027. Michael's coming up-
Right
The Hunger Games prequel. As we think about how to really consider the sustainability of motion picture momentum from an earnings generation perspective into the following fiscal years, how do you think about the appropriate run rate for your slate in terms of managing that tentpole versus mid-size kind of film release-
Yeah
... schedule?
I think it's, you know, that eight to 12 and the tentpoles, you know, you don't wanna rush something when it's not ready, but we're set up for three tentpoles for the next two years, right? You've mentioned one. We got great carryover again coming out of 2026 into 2027, right? That's great to have. Then we start the year with Michael, April 24th. By the way, I've screened it. It is just, it's fantastic. You can't stop moving your feet. It's just spectacular. The way it ends, I can't give it away, but it's clearly a part one. I mean, it ends, you want so much more, you know. Just really, really great and so well done. You've got Michael, April 24th. You got The Hunger Games: Sunrise on the Reaping in November. This is a story everybody's really been waiting for.
This is the Haymitch character, Woody Harrelson character, that actually won I think it was the 25th quartile. You know we won. You're recasting, younger recasting, you know, new people playing the roles, by the way, which makes it nicely cost-effective, something the CFO always loves to see. You know, the fan base is just going crazy over this. We set trailer records all time with Michael when it dropped. The Hunger Games: Sunrise on the Reaping trailers have been so well-received and just the online presence every time. They did a masterful job of just rolling out the casting character after character. Every time, it was just complete online buzz. There's just, you know, so much demand to watch this. By the way, that book was the fastest-selling book out of the entire series.
You know the audience is there and the fan base, and we're ready to reengage with them. We finish the year on Good Friday. I suspect it'll come out on Thursday, given the industry standards. This is the long-awaited, probably the most awaited sequel ever. 20 years later, it's a sequel to Mel Gibson's The Passion of the Christ. The Resurrection Part One, we're doing it in two parts. It's filming in Italy now. Production finishes in May and principal photography finishes in May. We're just so excited about that. The second one will follow in the following year. You fast-forward in the following year. I really do believe, we've not announced, but that we're gonna have a Michael Jackson 2.
I just told you when you finish the film, you're so set up for the rest of, you know, you just can't wait. There's so much more story to be told. We publicly said we had three and a half hours of footage with Jaafar, his nephew, playing the scene that people there just says, "This is not a kid playing Michael Jackson. This is Michael Jackson." I mean, when you hear people talk about it, and you see him, as I have in the first part, in Part One, it's just magical. We're excited about that. Then you have a The Resurrection Part Two, Michael Two, and then you have The Housemaid's Secret. You know, right there you've got three tentpoles moving into 2028, and so fiscal 2028.
You got great carryover coming out of 2026 into 2027, more great carryover from 2027 to 2028, more great carryover from 2028 to 2029. We've got a lot of other franchises, Naruto as well. You and I were talking about that earlier. It could be Monopoly. There's a lot of opportunities there. Could be more John Wicks as well in some of those years. Just excited about having the tentpoles. That feels about right, three a year, maybe four. I don't. You know, it's always nice to have more.
You know, plan those out and then go with the mid-budget films as we do and the genres that we're known for to have very high probability with, modest budgets, disciplined P&A spend, international presales to really drive the slate, and the profitability like we've done.
Great. Yeah. It sounds like the visibility on the slate's really building in terms of some of the-
It's nice to see.
...yeah. On that international presales front, you did mention The Housemaid has a lot of international appeal. One area that I think you've spoken about before is also pretty healthy demand from an international presales perspective, particularly for Michael, that's also coming up. What lessons can you take from that experience? Again, is it so specific to the resonance of any particular film subject that you're seeing that strength? How do you really try to replicate that level of enthusiasm in that market?
Well, Michael's a global sensation in his music, so it's, you know, you can just imagine demand. We've got a very disciplined model there. We brought Universal in on the international distribution. We did keep Japan as a territory because we had very high level of interest that we knew existed there. Helen Lee and her team just did a great job, as they always do of the international presale. We've got a fantastic model there. We distribute the U.S., and by the way, on Housemaid, as with any presales, you know, we're set up to earn overages. In success, after our international partners recoup and make a really nice profit, then we start to share the back end.
Our international distributors are just super excited and over themselves right now in terms of how well The Housemaid has performed. Clearly they're gonna be looking forward to new ones. Then we're the only people out there, really the only distributor out there with these kind of broad projects, whether it be Michael or whether it be The Resurrection, that's almost have to participate. We've got a proven track record with our partners of delivering, okay? Also earning some back end ourselves, but being a great partner. They're super excited right now for our entire slate, right? Michael in particular and, The Resurrection I would add as well.
Oh, okay. That's good to know. Interesting. All right. Yeah. I mean, also I think on the downstream window front, you've entered into a new calendar year where the subsequent films that you're releasing will be delivered into a new Pay- 1 agreement. I wanted to ask about that evolution of the Pay- 1 monetization opportunity and how we should think about how the aggregate value of that window looks now relative to your prior deal under Starz.
Exactly. By the way, on the last question, I'd be remiss if I didn't back up and talk about how excited the international markets are with regards to The Hunger Games as well.
Sure.
You know, you can just see the demand there. You know, with regards to the Pay- 1 window, you know, this is great. This is where one plus one equals more than two, you know, high margin. We split the window, the Pay- 1, traditional Pay- 1 window. We split that with Starz taking, you know, the first part of the window and then Amazon, taking the second part of the window. That's, one, just reaffirmation of the strength of our slate. The Amazon's interest, it's high margin. It creates more opportunities. Again, like I said, one plus one is more than two. You know, that starts with the calendar year 2026 releases, right, which really start soon. We see that benefit, it'll start in fiscal 2027. That's, again, that's driving Library sales.
It's driving, you know, downstream ancillary revenues. It's great visibility because you know it's all priced off of the box office, and, you know, we've done very well. That's gonna be nicely profitable and incremental to us in fiscal 2027 and beyond.
Okay. Gotcha. Let's move on to the television segment. You mentioned in the past doubling the number of TV series delivered next year relative to the prior year. What do you attribute to the catalyst that's really driving that strength and the rebound in terms of pickups and renewals? How sustainable should we think about that level of delivery as we get into fiscal 2028 and beyond?
Well, a lot of this is the same as on the film side of the slate. You know, we spent our fiscal 2026 kind of rebuilding franchises and rebuilding our slate because we didn't get the carryover coming out of 2025 into fiscal 2026 that we would have wanted, okay? Now we have what we want. We've rebuilt that. If you think about it, we've created, you know, three major franchises in fiscal year 2026 that really doesn't show up in the numbers to speak of, okay?
Okay.
The Housemaid we've talked about. Let's talk about on the TV side, The Studio, okay? Coming out of season 1, already renewed for season 2, okay? The Hunting Wives on Netflix coming out of season one, going into season two. Okay. Both of those are renewed. What we've seen in TV is of their 13, you know, scripted series, we've had 12 of 13 already renewed, okay? The 13th I expect to be renewed too. Can't announce anything, but it is Spartacus. It is on Starz, and it's 98% fresh Rotten Tomatoes. You know, they have an option to pick that up, and people generally don't exercise options earlier. Even 12 of 13 is unprecedented, okay? Included in there is Ghosts going to season 5 and 6.
We had a two-season order and pickup of that, which we haven't seen for a long time. That's going in season five delivered, going into season six. The Rookie, season eight, that came out of the eOne acquisition. We were at season seven when we did six when we did that acquisition. We've had two more seasons picked up. Included in that also is we have Origins that we're looking forward to, 18-episode order as part of the Power franchise. That's in addition to the renewals I mentioned. We've got a really strong TV creative carryover, you look at that as being sustainable because you know what you've got, right? You'll see it in the $1.5 billion, $1.6 billion of backlog, which I referenced earlier.
That is co-contractual revenues and future revenues and cash flow, okay? That's part of that. Those are at near all-time records, the backlog is. You're just seeing that benefit there, so you have that visibility. There's no reason to think it's not particularly sustainable into 2018 and 2019 because the tougher season to get renewal on is season one and going into two, right? Once you've got the fan base and you're in season two, and of course, the margins go up and your leverage goes up as you go into seasons three, four, and five. There's good reason to believe with that creativity of both a lot of junior programs carrying over, as I just mentioned, as well as seasons programs, and particularly something like a procedural, The Rookie, could run forever. Ghosts has got huge fan base behind it.
We're actually with BBC, doing a film version of Ghosts. There's all kind of spin-off opportunities and other ways to serve that fan base, and the team's great at doing it. I really like seeing that, and it's nice coming off of, again, we had a rebuilding year in fiscal 2026.
Last quarter, you did mention that 33% of your Library revenue now comes from TV, which I think historically has been a much lower number relative to the motion picture contribution. I mean, recognizing that TV licensing deals can be lumpy, can you talk about the industry demand for film versus TV catalog and how you see that changing? The film always, to me at least, feels a little bit more evergreen in terms of the demand, that these streaming services...
Yeah. You know you need both.
Yeah.
Just to lay out, in the last 10 years, we've gone from 15% of the library being TV to 33%. Okay? Over that same period, we've had a 10% growth CAGR on trailing 12 months library. Jim Packer and his team, they do such a great job there. We've set our fifth record, which I mentioned earlier. We've had two quarters now with trailing 12 months over $1 billion. Okay? Very high margin, 50% plus cash margins, you know, 40%-45%, you know, segment profit margins. Just a great business. TV's become more and more of that, and I think that's really indicative. It's indicative of demand, but it's also indicative of success of our TV program, and we've been at this a lot, right?
You gotta create the franchises to kinda stoke the library, and then you've got more to sell and execute. We're doing a lot there. We're also mining our deep catalog. We're actually using AI to help mine the deep catalog or the longer tail catalog, creating incremental revenues, very high margin. These are usually unrecouped projects, okay, and doing rev share, whether it be subscription or advertising models, without cannibalizing at all the licensing, the traditional licensing model. Feel very strong about library and its success, and TV in particular being a major part of that.
Great. Great. Let's talk about AI. I mean, it's obviously a big topic that's been affecting everybody in, across industries and a big topic at this conference. You appointed a chief AI officer pretty recently and have done multiple partnerships, I think most prominently with Runway that you announced, and spoke about some internal initiatives there. Can we talk about how AI is delivering a tangible benefit to Lionsgate today, and how you see that evolution of that technology really changing the ability for you to monetize your content?
I think this, by the way, is just very positive for the industry, very positive for us. First and foremost, we're gonna be talent first. We hired Kathleen Grace from Vermillio, very focused on artists-talent relationships. The opportunities here are fantastic. Kathleen reports directly to John, our CEO. You know, we're taking that approach. We were early movers with Runway, as you mentioned, in a partnership there, allowing them to use part of our library to actually build tools. Not to replicate the library or do something else, you know, in terms of distribution, but to build tools. We're using those tools. We're using other AI platform tools as well, right? We're already using it.
We're doing this in many areas, as you would imagine, Previz, which is the pre-visualization of film and TV. I think we saved two weeks on The Hunger Games, where, you know, you're just setting camera angles, all the other things, storyboarding, the things you would do, sequencing of scenes, et cetera. You know, utilizing it there. Utilized it in Spartacus to amplify a lot of the fight scenes. Used it on another television episode to actually change the lines using the voice of a course at their artist agreement, without having to bring people back in and reshoot or do something to change a line for a better line. We're already using it. That's on the cost side. I mentioned on the revenue side, I think is really probably the, some of the greatest opportunity, right?
I mentioned already what we're doing on our longer tail deep library. You know, there's just incredible opportunity, I think, there, to do more.
What about at the consumer level? Is there a broader existential threat about the value that consumers place on premium scripted content? There's, I think, a lot of increased focus on a shift in at least consumption towards user-generated content. Is there any view from Lionsgate about how to potentially participate in that, or if you feel like there's a differentiation factor that becomes more prominent over time?
Oh, sure. I think the first thing to say is that historically, when you've seen technologies, which has almost always been really a friend of content, okay, and IP. When you see technology lowering the cost and maybe more productions feasible because of lower cost. What you see with more supply is an increase in demand and value for the higher end of known IP and fan bases, and it's something that's already been created. Our franchises actually go up in value. You could see that actually with Sora 2, right? As soon as you know it was gonna happen, all the industry writes letters, including ourselves, say, "You can't use our IP, you're gonna get sued." Okay. All of a sudden, the downloads and the interest in usage of that just went down significantly, okay?
That doesn't mean there's a world where we might not extract a fee in licensing and share with talent and the guilds in an appropriate format, as we always do with the revenue streams coming out of our creative process, and then allow people or the fan base to more interact. There's definite fee opportunities there. It could be short form or long, but I don't think it's ever gonna replace long form, okay? If you think about it, the creative community, just using The Housemaid as an example, just talking about what went into creating that, no one person creates it on their own, okay? And the creative people, the future Paul Feigs and even now, or Steven Spielbergs or James Camerons or Michael Jacksons, they're gonna work in a creative community that's collaborative, okay?
That's the nature of this business. You're gonna wanna be working in that collaborative environment. Are you gonna be using AI tools? Sure. Your ability to kind of emerge, and maybe you do emerge through short form or other, even then, you're gonna wanna change the world. You're gonna wanna own the big screen. You're going to be everywhere. You're not just gonna wanna be on YouTube and TikTok. You're not gonna be happy with 100 million TikTok, YouTube followers. You're gonna wanna be, you know, much more broadly distributed, disseminated, and work with people that actually create with you more, and to be the best you can be. I see that as being, you know, very beneficial to what we do already, okay?
In terms of working with talent, it's consistent with being talent-first driven, and it's consistent with driving future revenue streams for everybody to share and participate in.
Gotcha. On that value of IP point, it certainly feels like there's more momentum in your desire to expand your monetization potential into other ancillary formats, like live events or video games. Can you just give us an update on the traction you're seeing there, and how we should think about how meaningful this might be in terms of a contribution to your earnings?
It's all incremental. It's global experiences from gaming, stage plays, you know, experiences, the John Wick experience, the Saw franchise. All of these franchise, the fans wanna interact in so many ways, you can actually create those environments. I think AI will actually even help further in that context. What you have to have is you have to have the known content, it makes the library even more valuable. The more library, the more franchises, the more opportunities. We're doing that already, I think there's just gonna be more opportunities to do it. You probably saw, you know, Meta entered into an agreement with Fox for I think $50 million a year for three to five years, you know, to have access.
The future revenue streams is not the same industry, but the concept that you'll participate in future revenue streams, et cetera, and be able to interact more with your fan base, I think is enhanced here.
Gotcha. I'd be remiss to not ask you a little bit more about free cash flow, given your position as a CFO. In our last few seconds, maybe just tell us a little bit about how you think about the cash needs of the studio. I think there was an initial ramp as you got back to more of a steady state production on the investment level, maybe just talk a little bit high level about what you see as free cash flow conversion over a more steady state and the leverage situation.
Sure. We got strong free cash flow coming. We, as we said, we're back-end loaded in fiscal 2026. It was a replenishment year, if you will. You were spending more cash than you were amortizing cost off through P&L, so less of a conversion of EBITDA into free cash flow. It's a use of free cash flow very judiciously. We've talked about the franchises that we've created, and so you'll start to see those cash flows coming in the future. You'll also see future cash lower than amortization. Actually it'll be additive. It turns around.
Mm.
That's a working capital benefit going into the future. You know, we see very strong free cash flows coming out of the trailing twelve months and also the trailing twelve months, you know, driving, delevering as we go into, mid-fiscal 2027.
Thank you so much. That's all the time we have.
Okay.
Appreciate your time.
Thanks, Thomas. Appreciate it.