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(NYSE:LGF.B)
Q3 2019 Earnings Conference Call
Feb. 7, 2019 5:00 p.m. ET

Contents:

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Lionsgate fiscal 2019 third-quarter earnings call. [Operator instructions] As a reminder, the conference is being recorded. And I'll now turn the meeting over to our host, head of investor relations, Mr. James Marsh.

Please go ahead, sir.

James Marsh -- Head of Investor Relations

Great. Thanks, Lori, and good afternoon, everyone. Thanks for joining us today for the Lionsgate fiscal 2019 third-quarter conference call. We'll begin with opening remarks from our CEO Jon Feltheimer; followed by remarks from our CFO Jimmy Barge.

After their remarks, we'll open the call for your questions. Also joining us on the call today are: Vice Chairman Michael Burns, Starz COO Jeff Hirsch, Starz CFO Scott MacDonald, Lionsgate COO Brian Goldsmith, Chairman of the Motion Picture Group Joe Drake, Chairman of the TV Group Kevin Beggs, COO of the TV Group Laura Kennedy, and Chief Accounting Officer Rick Prell. The matters discussed on this call today include forward-looking statements, including those regarding the performance of our future fiscal years. Such statements are subject to a number of risks and uncertainties.

Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors, including the risk factors set forth in Lionsgate's most recent annual report on Form 10-K as amended and Lionsgate's most recent quarterly report on Form 10-Q filed with the SEC. The company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. With that, I'll turn the call over to Jon. Jon?

Jon Feltheimer -- Chief Executive Officer

Thank you, James, and good afternoon, everyone. We just reported a strong quarter with significant free cash flow and a solid earnings performance. Jimmy will drill down on those metrics in his remarks when he talks about our capital structure and lays out our timetable for deleveraging. As we approach the start of the new fiscal year, all signs are pointing toward strong growth across all of our businesses.

And as I go through my remarks this afternoon, I'll highlight four key elements of our performance in the quarter. First, the rapid pace at which we are refilling our feature film and television pipeline. Second, our targeted premium programming at Starz. Combined with the flow of data from our direct-to-consumer business, the strength of our slate continues to reduce churn and drive robust domestic over-the-top subscriber growth and our disciplined international expansion.

Third, our recent momentum in bringing our Lionsgate and Starz assets together and taking our company to the next level as we begin to achieve the multiplier effect we've always envisioned for our content, talent and partners. And finally, the steps we've taken to rightsize our business, simplify our organization and streamline our infrastructure as part of our commitment to invest more money in content, not overhead. Today, I'll take you through some examples of how all the pieces are fitting together as we continue to combine our best-in-class content engine with a fast-growing global streaming platform to create a compelling value proposition for our partners and our consumers. For our film group, the fiscal year gets off to a fast start with fan favorite, Hellboy; the reverent comedy, Long Shot; and the latest installment of our John Wick action franchise.

Footage from Hellboy, starring Stranger Things' David Harbour in the title role was a sensation at New York Comic Con and its legions of fans worldwide are eagerly anticipating its April 12 release. Long Shot, teaming the incomparable Seth Rogen with superstar Charlize Theron and directed by Jonathan Levine, will premiere at the South by Southwest Film Festival next month and tested so well that we moved its release date up to a pole position in May. And with the highly successful launch of its marketing campaign last month, everything points to John Wick becoming one of those rare franchises that continues to build from movie-to-movie. With a lineup that also includes Charlize, Nicole Kidman and Margot Robbie starring in director Jay Roach's film written by The Big Short screenwriter, Charles Randolph; Roland Emmerich's epic action film midway in November; and Star Wars director Rian Johnson's murder mystery, Knives Out, featuring an all-star cast to Thanksgiving, our motion picture business is poised to return to form in fiscal '20.

During the quarter, we also added exciting new projects with key talent, including Ryan Reynolds in Shotgun Wedding, following up our partnership on The Hitman's Bodyguard series; and Kevin Hart, starring in and producing Monopoly to be directed by Tim Story with our partners at Hasbro. And today, I'm pleased to announce the next film in our collaboration with the iconic faith-based producing team, the Erwin Brothers. I Still Believe, which begins shooting this spring, follows in the footsteps of their breakout hit, I Can Only Imagine. At Starz, we've developed a programming slate deep in areas of proven strength that will drive subscriber growth year-round, from Power to Outlander; the highly anticipated return of American Gods; the debut of surreal comedy series, Now Apocalypse from iconic indie filmmaker Gregg Araki; and the upcoming new drama, The Rook.

The strength of this programming lineup, highlighted by season-over-season growth for Outlander in the quarter, coupled with everything we are learning from our over-the-top business about reducing churn and targeting our audience with laser precision, resulted in overall domestic subs holding steady at 25.1 million, with post-Power churn down 27% compared to last year. Even more significantly, Starz continued to achieve robust sequential quarter-over-quarter growth of over-the-top subs. While we're very pleased with how quickly our direct-to-consumer offering has grown into a substantial and valuable service, we're also mindful of the industry headwinds in the traditional domestic MVPD space. In response, we continue to innovate, presenting our long-standing linear partners with packaging select-ability, new and engaging premium programming and a compelling value proposition that we believe will continue to attract and retain subscribers.

On the Starz international front, we've already accomplished a great deal. In addition to a successful roll-out with Amazon Prime in the U.K. and Germany and last month, the launch on Liberty Global's Virgin Media, also in the U.K., we'll debut Starz in Canada on Bell Media's linear and over-the-top platforms in March. I should note that our Starz Play Arabia adventure, with over one million subscribers, continues to grow its SVOD leadership position in the Middle East and North Africa.

But we've only begun to scratch the surface. As we continue our global expansion, we intend to utilize every competitive advantage we have as a fully integrated global media company to maximize our impact in every territory we enter. We're doing this by leveraging our new releases and deep catalog of Lionsgate and Starz content, augmenting our content offering in the U.K. and other territories with locally produced film and TV content and capitalizing on our ability to quickly deploy our proprietary streaming platform across the globe, all positioning Starz to scale effectively across multiple territories with our existing partner we've already launched and with new global players preparing to enter the marketplace.

Turning to our television group. We're focused on three objectives, becoming a supplier of choice to the streaming platforms that have become aggressive buyers in the marketplace, replenishing our slate with exciting new properties and using our content engine to drive growth at Starz. We made progress on all thee fronts during the quarter. After receiving a series order from Apple, production is under way on a workplace comedy set in the video game world from It's Always Sunny in Philadelphia creators, Rob McElhenney and Charlie Day.

Produced by 3 Arts Studios, Lionsgate and Ubisoft, this represents the first of several production commitments we received in the months following the formation of our partnership with 3 Arts. Another high-profile series with a top premium platform will be announced in the coming weeks as our 3 Arts relationship continues to become one of our most important and prolific content partnerships. Our TV group continues to move to a decentralized POD strategy, partnerships with production companies and other platforms that is a little more nimble, less reliant on infrastructure and a major source of new Lionsgate TV content moving forward. In fact, 44 of our last 50 projects set up at networks have come from these content partnerships.

Just last month, NBC announced the pilot order of our musical dramedy, Zoey's Extraordinary Playlist, a unique collaboration among three of these production partners, Universal Music Group's Polygram Entertainment, A Simple Favor director Paul Feig and the prolific Tannenbaum Company and a perfect example of Lionsgate 360. And finally, we're looking forward to the upcoming launch of The Rook on Starz this summer, with the John Wick TV spin-off with Continental and a number of other Lionsgate Studio projects right behind it in fast-track development. This is just the tip of the iceberg in terms of the vision we had when we merged our two companies, investing in and nurturing talent relationships together, retaining rights to our intellectual property, cross-promoting our content and utilizing all of our global relationships to maximize our biggest competitive advantage. In closing, I'd like to acknowledge Chris Albrecht's contributions in transforming Starz from a legacy media network to a forward-looking streaming platform. He worked closely with me to position Starz to the next phase of its growth, and he leaves behind a strong programming slate and a talented leadership team.

I'm confident that we will maintain our momentum without missing a beat. We also remain confident that our response to the challenges of our operating environment is the right one, relying on our agility and innovation and continuing the exciting work of bringing a network and a studio together to form a content-rich global streaming platform that creates significant incremental value for its partners, consumers and shareholders. Now I'd like to turn the call over to Jimmy.

Jimmy Barge -- Chief Financial Officer

Thanks, Jon, and good afternoon, everyone. As we discuss the quarterly financial results, I'll also update you on our outlook as well as the balance sheet. For the fiscal third quarter, adjusted OIBDA came in at $171 million on revenue of 933 million. In the quarter, reported fully diluted earnings per share was $0.10 per share, while fully diluted adjusted earnings per share was $0.35.

Just a reminder, when you're comparing to the prior-year quarter, recall last year's reported fully diluted earnings per share was positively impacted by the $165 million tax benefit related to U.S. tax reform. Now turning to free cash flow. Free cash flow for the quarter came in at $274 million as cash flow from operations benefited from timing of working capital improvements and monetization of receivables.

Now I'd like to cover some of the performance highlights across our businesses and it's helpful you can follow along the updated trending schedules that we've now posted to our website. In media networks segment revenue of $367 million was up 4% from the prior-year quarter and was primarily driven by strong over-the-top subscriber growth. Segment profits of $134 million were up nearly 10%, driven by over-the-top revenue growth and cost savings initiatives. Starz ended the quarter with 25.1 million subs, which was sequentially flat and up 1.1 million year over year.

Once again, we saw growth in over-the-top subscribers, reflecting solid retention following the second-quarter premiere of Power. Now I'll remind you that sub numbers only include our domestic business at this stage. And as we mentioned in our year-end fiscal '18 call, we are well-positioned to deliver full year-over-year fiscal '19 growth on Starz domestic subs. In our motion picture segment, revenue was $363 million and segment profits were $44 million compared to 54 million in the prior-year quarter.

This was largely driven by the underperformance of certain titles in our fiscal '19 slate versus difficult comparison with the exceptionally strong performance of Wonder in the prior-year quarter. In our TV production segment, revenues was $217 million in the quarter and $21 million segment profits compared to 28 million in the prior-year quarter, which, you will recall, included a difficult comparison against SVOD sales. Revenue was negatively impacted by the timing of certain episodic deliveries, which have moved out of fiscal '19. Now looking ahead.

We continue to feel comfortable with our guidance for a three-year adjusted OIBDA CAGR of mid to high-single digits, which includes the absorption of annual start-up losses of 30 to $40 million in the three international territories, Canada, Germany and the U.K., where we have already launched. As for cadence on the balance of fiscal '19 and going into early fiscal '20, I will remind you that once again, that we expect our fiscal fourth quarter to absorb a substantial amount of P&A spend in anticipation of the fiscal '20 first-quarter releases of Hellboy, John Wick Chapter 3 and Long Shot. As you may have noticed, the release date for Long Shot recently moved up from early June to May 3. Accordingly, we start fiscal '20 with three films we're really excited about, and that will obviously put some pressure on the motion picture group profitability in our upcoming quarter.

Now for a quick update on the balance sheet and our plan to delever while still investing in our core businesses. As we noted last quarter, we agreed to pay the final $800 million installment of Starz merger consideration to the dissenters and just over $100 million in accrued interest for Delaware statute. Additionally, we agreed to an incremental $59 million to conclude this matter. As mentioned on our last call, we fully funded these payments with cash on hand and by drawing down $840 million on our revolver.

By the end of the quarter, we had paid down the revolver to $520 million using free cash flow and cash on the balance sheet. This reduced our peak leverage by almost a half turn. We ended the quarter with five times leverage, and we will continue to prioritize deleveraging going forward. Under our current plan, we expect to get leverage down to three and a half to four times by the end of fiscal '20.

As you have seen subsequent to quarter end, we issued $550 million of unsecured bonds and completely paid off the revolver. This leaves us with $1.5 billion of unused capacity on the revolver. In addition, we have substantially limited our interest rate risk by entering into long-term swaps that have effectively fixed our interest rate for just over 90% of our total debt. On average, interest rates are expected to be around five and three eighths percent for the balance of fiscal '19 and '20.

Now I'd like to turn the call over to James for Q&A.

James Marsh -- Head of Investor Relations

All right. Hey, Lori, we can open up to questions at this stage. 

Questions and Answers:

Operator

[Operator instructions] Our first question, from the line of Ben Swinburne with Morgan Stanley. Please go ahead.

Ben Swinburne -- Morgan Stanley -- Analyst

Thank you. Good afternoon everybody. I have a couple of questions on Starz. Can you guys talk a little bit more about the international outlook as you see it today, particularly in Europe, and when you might think about -- I know you've talked about this before, but consolidating the Arabia business back in? That business globally seems to be really taking off, but it's not necessarily evident in the numbers yet.

And then I'm wondering if -- I think Jeff is on the call, if you could talk a little bit about your Amazon relationship. I know it's something that's been a positive contributor to growth in the U.S. and probably outside the U.S. as well, but there has been some really press speculation that they've become -- either asking for more economics in terms of distribution fees or become more challenging to work with.

Any comments from your perspective on Amazon as a distributor would be great.

Jeff Hirsch -- Starz Chief Operating Officer

So it's early days in international, but we're off to a great start. We feel really good about what we're seeing in U.K. and Germany. The Starz original content, coupled with the Lionsgate library, is really being consumed in those markets, and so it gives us great confidence that we can expand around the world with what we have today.

In terms of Starz Play Arabia, we think it's a great management team, great product, great tech platform that we can expand all over the world as well. And so we have a lot of flexibility in terms of which tech platform we use, whether we expand it into India or to South Africa or we use our domestic product in Europe. And so we feel really good about what Maaz has built there. As a management team, we will continue to look at opportunities to consolidate that business over time, but right now, we feel pretty good about what Maaz has built.

In terms of our Amazon relationship, they're a great partner both domestically and internationally. We continue to have -- based on the quarter that we just had, we had great performance on Amazon domestically. We continue to launch -- we continue to look at markets in U.K. and Germany and the countries around there, and they're thrilled with the progress that we've had to date and the growth of our products.

Ben Swinburne -- Morgan Stanley -- Analyst

Great. If I could just ask a quick follow-up to Jimmy on the deleveraging plans. I assume that's just normal free cash flow generation paying down debt as the business performs. There's nothing else to contemplate like asset sales or anything else in that 2020 target you gave us.

Jimmy Barge -- Chief Financial Officer

Well, what we think on the -- well, that's for sure, it is coming out of free cash flow and it's operating free cash flow. But also, in terms of our monetization program, we think that we can significantly reduce our future working capital needs here in a very sustainable way. And we will also use that cash to de-lever.

Operator

We'll go next to Bryan Kraft with Deutsche Bank. Please go ahead.

Bryan Kraft -- Deutsche Bank -- Analyst

Good afternoon. Wanted to ask you just on Starz. The revenue looks like it declined sequentially despite subscribers being flat, and just want to understand that better. Is that because OTT subs were down during most of the quarter post Power and returned to growth later in the quarter? Or was it more on the MVPD side? Was there anything onetime in there like MVPD revenue true-ups or anything like that? And then was also -- wanted to know if you could talk a little more about what you're seeing on the virtual MVPD side.

It sounded like you -- or on the MVPD side, excuse me, it sounded like you were referring to some weakness there. And maybe if you could just comment on how the Hulu relationship is going.

Jeff Hirsch -- Starz Chief Operating Officer

So the first part of your question, in the post-Power quarter, we did see subscribers leave the business earlier in the quarter but then came back later in the quarter, so you'll see a move in revenue that way because of the timing of the subs coming on to the footprint. In terms of the MVPD business, we continue to be a strong partner to all of our traditional cable operators, telco and satellite partners. And we feel really good about the value proposition that we provided them with the strong slate of programming that we have. Additionally, over the last couple of months, we have renegotiated our supplier -- our movie supplier deals to allow us to be much more creative and much more flexible on how our traditional partners package us, which allows us to actually adapt to their business changes and help them grow their sub base as well.

Jon Feltheimer -- Chief Executive Officer

And the Amazon question?

Jeff Hirsch -- Starz Chief Operating Officer

Can you repeat the Amazon question, I'm sorry?

Bryan Kraft -- Deutsche Bank -- Analyst

Yeah. But actually, Jeff, if I could ask a follow-up on that. I guess my interpretation of what you just said about the movie deals is that maybe you don't have to be sold through the basic package and maybe you could be sold as -- on a stand-alone basis or attached to broadband. Was that what you are getting to?

Jeff Hirsch -- Starz Chief Operating Officer

No. So the two major studios where we did those deals still allow us to be packaged as lowest basic, on broadband-only, on wireless, and it gives us great flexibility, as their business changes, to change with them. And I think it puts us in a very unique position for the traditional setting. Hulu, yes.

So we launched Hulu in the quarter. We're off to a great start with Hulu. I would say Hulu has told us it's probably the best premium launch to date, and so we're thrilled with the numbers that have come in late in the quarter and we hope that will -- and we expect that to continue this year.

Bryan Kraft -- Deutsche Bank -- Analyst

Thank you. Very helpful.

Operator

And we'll go next to Vasily Karasyov with Cannonball Research. Please go ahead.

Vasily Karasyov -- Cannonball Research -- Analyst

Thank you. Good afternoon. Jimmy, I was wondering if you could give us a little more detail around the drivers to get to the guidance. I think, qualitatively, you gave us a lot to think about.

But let's say, assuming you get to the midpoint of your guidance, can you tell us how much of contribution from each segment should you expect and what drivers are? And what gives you confidence that we'll get there after the years is not that inspiring so far. We knew it wouldn't be, but still.

Jimmy Barge -- Chief Financial Officer

Well, thanks, Vasily. Listen, yes, as we previously said, fiscal '19 was always anticipated to be a year of increased investment and reposition our motion picture group. And as we look forward, I think, with regards to the cadence of what we're expecting for the remainder of this year before moving into '20, as I've mentioned, our P&A spend on early fiscal '20 releases, which is more front-end loaded than generally with regards to '20 slate, which we're very excited about, but it does put P&A spend into Q4. As I mentioned, TV episodic deliveries, we had some that moved out of fiscal '19.

We have -- on the TV side also, it's our first -- we have the first full year moving into '20, our first full year of 3 Arts integration. So we come out of '19 with episodic deliveries moving into '20, as well as '20 in TV with our first full year of 3 Arts integration moving there. On the -- moving into '20 in terms of Q4, on media networks, we continue to invest in our successful international launches and drive over-the-top subscriber growth, both in current and programming and marketing costs with the -- I'll remind you, the Q4 premiers of both American Gods and Now Apocalypse. So given these changes, I would now expect Q4 to look more like Q1 in fiscal '19.

And then moving into '20, we're very well positioned again with a strong slate moving into the motion picture group with the first-quarter releases of Hellboy, Long Shot, John Wick 3. We covered TV and media networks. Obviously, the continued over-the-top revenue and subscriber growth continues into fiscal '20. The other thing, lastly, I would add is that, as Jon referenced in his remarks, we're going to see cost containment and G&A savings across all of our businesses, as well as corporate.

Operator

And we'll go to Alexia Quadrani with JP Morgan. Please go ahead.

Alexia Quadrani -- JP Morgan. Analyst

Thank you. Just a follow-up on the Starz commentary about the -- we've seen the strong growth in the over-the-top subscribers. Is there any -- did the $5 holiday promotion I think you had over the December quarter, did that help at all in terms of expanding your user base? I mean, do you tend to do those promotions from time to time? And I guess, how successful are they in terms of getting the initial subscribers and sort of keeping them in terms of what the churn looks like after it's over? And then just a second question, really, on the television -- on the TV Production side. Is it a much more competitive marketplace now for the production? And does your partnership that you'd referenced in your earlier -- the remarks, does that really make a competitive advantage in terms of -- or has that become more the industry standard?

Jeff Hirsch -- Starz Chief Operating Officer

So on the Starz question, we did do a holiday sale in December. We have found from the data that movies like Home Alone, Home Alone 2, Home Alone 3, if they make 5, 6 and 7 would be amazing as well, drive a ton of subscribers during the holiday family period. And so we decided to try retail sales this year. It was three months for $5.

So we haven't seen the back end of the churn yet, but we're watching it very closely.

Kevin Beggs -- Chairman of the TV Group

It's Kevin, speaking on the TV side. Yes, the environment is as competitive as ever. The good news is there's many more platforms to sell to. But the key is -- really for us is partnership, strong partnerships within the group and outside of the group.

So starting with our Starz partnership. Knowing that we have a premium platform and a family that for the right product is going to be a good home and expanding into its global market is really important. The Rook is case No.1 and the John Wick spin-off with Continental, which is coming on great, is a really great example of that. And then -- and a larger kind of talent partnership family, the 3 Arts relationship has just really benefited everyone.

The -- Jon referred to the comedy that we're doing together with 3 Arts Studios and Rob and Charlie from the Sunny in Philadelphia team at Apple. There's another one brewing with another high-profile talent from 3 Arts. It's going to turn into a series order. Courtney Kemp, who is the creator of Power, with her we've done now two overall deals in successive years, is really hitting it on all cylinders.

Dirty Thirty was announced by HBO earlier in the week. That's a property that wasn't exactly right for Starz but had multiple bidders and was -- is perfect for HBO. And we're seeing that again and again from all the partnerships. We're focusing in on the ones that are the most prolific.

Paul Feig is hitting it out of the park. Eric and Kim Tannenbaum have sold 12 projects since August. Universal, which is our newest partnership, is part of two new series that we're doing. And on and on.

And so you got to come in with your A-game, but we really have it and it's been exciting time to be a seller of the business.

Alexia Quadrani -- JP Morgan. Analyst

Thank you very much.

Operator

And we'll go next to Steve Cahall with RBC Capital Markets. Please go ahead.

Steve Cahall -- RBC Capital Markets -- Analyst

Thank you. Maybe first question for Joe. I know there's a lot of exciting releases coming up in the fiscal first quarter of the year, but just let me look at the way the guidance works. It's really about '20 over '17, and there was a pretty good slate in '17, including a John Wick film and La La Land.

So I was just wondering if you could let us know what you're thinking about the ability to drive profit growth in '20 off of that tougher '17 base. And then, Jimmy, appreciate the comment on improving working capital. I was wondering if you'd be able to maybe size what you think the cash contribution of that improvement to working capital might be as you move forward so we can factor that into our free cash flow and deleveraging.

Jimmy Barge -- Chief Financial Officer

Thanks, Steve. Just to clarify there, you mean '19 into '20, the build on motion picture?

Steve Cahall -- RBC Capital Markets -- Analyst

Well, so the thinking in '19 into '20, you know, is kind of an easy comp, but the way your guidance works it's fiscal '17 to '20 CAGR. So I think a lot of the streets going to be focused on how '20 compares to '17 because that's just how the math works. So just trying to think about how '20 kind of looks. I know it's up on '19, but how does it look versus that tougher historical comparison that drives the guidance?

Jimmy Barge -- Chief Financial Officer

Relative to -- Steven, great question, and I can understand why you're comping back to that. But in terms of just guidance and comparative financially, we're not going to be comping back in '17. But clearly, Joe can talk about the excitement to '20 slate and how that looks a lot like earlier slates in earlier years versus '19, for example.

Joe Drake -- Chairman of the Motion Picture Group

Yes, but what I would say to you is that '17 is actually an interesting context because when you look at the slate that we put together, you've got a very balanced slate, both in terms of big brands that can perform, a mix of genres we've been very focused on, theatrical appetite and those audiences that have appetite for this kind of content. We've got a variety of financial metrics on our movies with different risk profiles, all mitigated in different ways. And that all adds up to great downside protection and a ton of upside. And so what's interesting about '17, no big franchises and -- no obvious big franchises in that year and yet still delivered a lot of performance.

What you're seeing in '20 is a really exciting slate that absolutely reflects the content strategy that we put in place. We've turned the corner. Some interesting metrics about '20 is that we're a front-loaded year, which will both help our ultimate contribution in year but also drive more profit into this year coming out of a weaker year. And yet, when we -- the other thing that has happened, we talked a little bit how we've really focused our development in the company, while yet bringing those development costs actually down, we've got a robust slate of development that's really geared up to green light in the near term, so we're not reliant on all acquisitions.

We're in control of our own content. And that is set up to deliver even further growth into subsequent years. So I'm very excited about '20. It does represent our content strategy, but we're set up actually for growth beyond that.

Jimmy Barge -- Chief Financial Officer

And Steven, regarding your question about sizing the monetization. As we disclosed in the 10-Q, we monetized $130 million of various short and long-term receivables at very attractive rates during the quarter. We're in a great position and actually confident that we can continue to accelerate cash receipts at discounted rates that are lower than we could otherwise borrow on the revolver. We also think that we can significantly limit our working capital needs going forward and provide additional sources of funds to de-lever.

I would say this is particularly effective in supporting our operating cash flows. As you know, industry payment terms have lengthened over the past few years. So I'm not going to size a program in total, but I would say that if you look at the historical pattern of our receivable balances and look at the quality of the underlying credits within those balances, that we would expect this receivable monetization to be sustainable at meaningful levels. And relative to de-levering, I would suggest and tell you that that's been factored into our plan in terms of de-levering to three and a half to four times range by the end of fiscal '20.

Steve Cahall -- RBC Capital Markets -- Analyst

That's great color. Thank you.

Operator

And next, we'll go to Amy Yong with Macquarie Securities. Please go ahead.

Rachel Arrowood -- Macquarie Securities -- Analyst

Hi, this is Rachel for Amy. You mentioned de-levering, but can you discuss your priorities with cash now that the liability is over? Is M&A on the table?

Jimmy Barge -- Chief Financial Officer

Well, in terms of use of cash, obviously, we're going to, first and foremost, be investing in our core businesses. There's a lot of exciting opportunities. We've touched on a lot of them, including international opportunities and driving the subscriber base at Starz. Then we're focused on de-levering.

But M&A is never off the table for the right opportunities. But I would say it's in that order.

Rachel Arrowood -- Macquarie Securities -- Analyst

Thank you.

Operator

We have a question from Matt Thornton with SunTrust. Pleasego ahead.

Matt Thornton -- SunTrust Robinson Humphrey -- Analyst

Hey, good afternoon, everyone. Maybe two, if I could. First, on the TV production pushouts, just maybe give us a little more color on what that was. Is 100% just moved from '19 into '20 so no risk of loss of revenue? And maybe even any sizing you can offer would be helpful.

And then just secondly, you talked a little bit about the spend on Starz International. When might you think about breaking out international contribution -- international revenue, subs, profit, because, obviously, right now, I think when you look at the stock, apply a multiple and thus, by default, they're actually applying a fairly negative value to international business, whereas if you kind of break that out, people can kind of do a little more sum-of-parts type of work. So just any thoughts on when you might think about breaking it out would be helpful. Thanks.

Jimmy Barge -- Chief Financial Officer

Great. Great question with regards to the international investment. Look, we're really excited about this opportunity, as you know. We're currently not breaking out the entire international business at this time.

But as I mentioned in my remarks, the investment in the current launches in Canada, Germany and U.K., right around 30 to $40 million in terms of an annual impact, that investment, that shows up as annual start-up losses. We think this, just like Starz Play Arabia, really represents a hit in asset. As our international footprint grows, we will absolutely provide more information, including subscriber information, and likely break this out as a separate business line, so you'll have -- you'll see more. Clearly, the investment that we're making, as well as have more information and visibility in order to determine the value that we're creating there.

I would just say any additional launches would be very financially efficient in the context of -- including various launch partners, as well as use of our own content, which Jeff can elaborate on more.

Jeff Hirsch -- Starz Chief Operating Officer

OK. Why don't we go to Kevin just to explain the pushout on some of the TV shows.

Kevin Beggs -- Chairman of the TV Group

Yes. Just specifically, we're talking about The Rook, Dear White People, a couple -- a few episodes of Orange is the New Black. And some of this is, again, an incredibly competitive content explosion. The artists or showrunners have a variety of options in front of them when you're not in a 22-episode broadcast environment.

Someone like Justin Simien, the creator or showrunner -- co-showrunner of Dear White People, had an opportunity to make a movie this summer before he jumped back into Dear White People. That pushed the production start, movie went along, in essence, pushing out of the fiscal, so no revenue change there. Timing change, for sure. It's a great show.

His star is on the rise, a successful second movie. A follow-up to his original movie, Dear White People, is good for us, good for Netflix, good for everybody involved in the franchise, and you make those audibles on the day and you say, we're going to take a little pain short term for a long-term gain. The Rook, the air date was always a little bit of a movable chess piece on the Starz lineup. They moved it into -- later this summer.

That gave us more time to work on the special effects and on effects, have this special sci-fi paranormal thriller kind of show. And when you get time, you take it because you want it to be great. And Orange, we're going into our victory lap on this amazing show. It's been on -- it's been one of Netflix's biggest drivers domestically and internationally and a huge revenue and earnings driver for us.

The last few episodes are going to be special and big and longer than normal, and those are going to slide because they're shooting over a longer time frame. And those are the three that really made the difference.

Matt Thornton -- SunTrust Robinson Humphrey -- Analyst

That's very helpful. And I like that you referred to the chess piece -- the chess board when you were talking about The Rook. And then maybe just one quick follow-up, if I could, on -- when we think about fiscal '20, can we expect more international markets and any other -- obviously, you've done a lot of work with Amazon. Any other significant partners that you might be working with in fiscal '20? Even you can't give name, just curious if any other partners we can kind of look forward to.

Jeff Hirsch -- Starz Chief Operating Officer

So we talked on prior calls about launching in markets of France, Spain and Italy. We have not revealed who the partners yet, but we're continuing to look into that -- into those markets to have more distribution partners, so I'd expect those to come in the coming year.

Operator

We'll go next to David Miller with Imperial Capital. Your line is open.

David Miller -- Imperial Capital -- Analyst

Yeah. Hey, guys. Jimmy, two questions for you, if I might. First of all, is there anything we need to do unique to the current quarter given Chris Albrecht's departure? Is there any kind of like acceleration of his contract or any kind of special entry we need to be aware of in the March quarter? And then also, this is for Jimmy as well, is there anything in the quarter that you just reported that accounts for any kind of impairment on Defy Media, which I believe shut its stores in the third week of November? And then I have a follow-up for Jon.

Jimmy Barge -- Chief Financial Officer

Nothing in the quarter relative -- of any significance relative to Chris' departure. And nothing in the quarter relative to Defy that was previously taken care of in Q2.

David Miller -- Imperial Capital -- Analyst

OK, great. And then, Jon, as you know, there was a significant price raise with both Hulu and Netflix of late. I love the quality of the product of the Starz app. I just think it's absolutely outstanding.

Any kind of thoughts on price elasticity or perhaps raising the price once you get a little bit more traction internationally? Appreciate your thoughts.

Jon Feltheimer -- Chief Executive Officer

I think that's a great question, and I'm going to let Jeff first answer.

Jeff Hirsch -- Starz Chief Operating Officer

On the domestic front, we feel, based on the amount of content we have today and how we wanted to position the product, that the price point is the right product. We want to be viewed as an addition to the Netflixs, the Hulus, the Amazons versus the replacement of, and so we feel pretty good that in year three that we're at the right price point to continue to grow. When -- turning to international, again, in the markets that we've launched, based on the amount of content we have, again, we feel like we're priced correctly to grow our subscriber base, and so we will continue to stay where we are today.

David Miller -- Imperial Capital -- Analyst

Thank you very much.

Operator

And our next question, from the line of Aravinda Galappatthige with Canaccord Genuity. Please go ahead.

Aravinda Galappatthige -- Canaccord Genuity -- Analyst

Thanks for taking my questions. Two for me. First of all, just stepping back to the free cash flow discussion. Thanks for all the color, it's definitely helpful.

I just wanted to -- the cash programming spend. That, sort of the expectation that was set in the past, is sort of unchanged. I know that we're looking at about $1.5 billion in 2018 going toward $2 billion in cash spend on a consolidated basis in '20. I just wanted to make sure that, that's still relatively in place.

And then secondly, can you just help us in terms of generally P&A spend beyond fiscal '19? I mean, when you look at '20 versus '19, is there any material timing matters we should consider? And if there's an update on Chaos Walking, the release date.

Jimmy Barge -- Chief Financial Officer

I think you're in the ballpark in terms of this cash production spend without hitting into the specifics there. And certainly, from a P&A timing standpoint, recognize that we have more pre-spend -- what we call pre-spend, which is spend on '20 titles occurring in '19 and is likely to occur in '20 on our '21 titles. And I would also add that we have two larger films in the '20 slate with regards to Long Shot and John Wick 3, and they're early in the period, which allows us, obviously, to recoup the P&A more quickly in year.

Jon Feltheimer -- Chief Executive Officer

Just to kind of add onto that, we had a slight increase in the P&A spend in the year to accommodate the things we talked about. I will -- I want to remind everybody we, at the same time, really brought a very -- a data initiative into the group to create efficiencies, and we think we're going to start seeing real efficiency in our spend at the same time, which will allow us to save dollars on a per movie basis in our P&A spend while hitting the same results. That should really start to impact our movies summer and beyond. As it relates to Chaos Walking, we're looking at dates now.

The actors are finally back and available to finish the photography on that, so we're going to pick up the remainder of photography in April and then look for a date. I don't want to telegraph a date yet because -- whether it makes it into late '20 or early '21 is still to be determined.

Aravinda Galappatthige -- Canaccord Genuity -- Analyst

Thank you very much.

Operator

And we'll go to David Joyce with Evercore ISI. Please go ahead.

David Joyce -- Evercore ISI -- Analyst

Thank you. Two questions, if I could. First, thinking about Starz and the traditional distributor relationships, can you talk about the cadence of renewals that are on the horizon and how your over-the-top success is playing into that? And then secondly, on TV production, given that more of the programmers are seeking some ongoing equity stake in those productions, is that something you're seeing? And how would that be impactful on your revenue and margin stream going forward? Thanks.

Jeff Hirsch -- Starz Chief Operating Officer

In terms of the cadence of the renewals on the traditional business, we don't comment on the renewal cadence. But we do need to say that we have two or three every year that we're always consistently renewals with. In terms of the impact of the direct-to-consumer business on those renewals, I think the data that we've been pulling from the product has really helped us going and show the value of the Starz original programming and how it can be really helpful for them to actually drive subscribers and retain customers. So that's really been a great addition into the conversation.

Kevin Beggs -- Chairman of the TV Group

On the TV side, there's really been, in the last few years, the emergence of a couple of different models. Traditional model has been on a license fee basis in which studio controls all distribution after the first cycle on the U.S. platform. That gave way over time to co-productions and which is generally kind of a split right situation and then the emergence of the streamers who are on a cost-plus basis.

And there's many variations within that. As a challenge of brand from the get-go, we've always been willing to coproduce and have done that a great deal, so that's not a surprise or a change for us. What is interesting is holding on to international rights with partners who are taking domestic, let's say, a Hulu or others that gives us optionality internationally, not only for our own distribution and traditional legacy clients but also in the emerging Starz Play world. So they have a high-profile premium show coming off of a premium competitor that Jeff and his team can access.

It's really, really great and really rare, and we look for those. And of course, there's a mix of shows, and cost plus are near-term successes because that's immediate profitability and you mix that with long-range hit that you think will pay off for years to come. So it really isn't changing revenues or margin. It's really about changing the portfolio, and we are deep in the middle of that.

And of course, everything viral into the market, whether it's Apple, Facebook or YouTube, gives us more flexibility.

David Joyce -- Evercore ISI -- Analyst

Great. Thank you very much.

Operator

Our next question, from Doug Creutz with Cowen and Company. Please go ahead.

Doug Creutz -- Cowen and Company -- Analyst

Thank you. Could you just give an update on Kingkiller Chronicles, where that stands as regards to both the movie and the television portion of that?

Jon Feltheimer -- Chief Executive Officer

On the film side, we're taking another pass at the script. We're making good progress but still in the development phase.

Kevin Beggs -- Chairman of the TV Group

On TV, we're in the middle of the writers room getting additional scripts and material. We're kind of in lockstep with Showtime, who is liking what they're reading. And this is a show that you have to have all the 10 first series -- first season episode scripts completed based on the scale and size of what you're doing. We're budgeting, scouting locations in every possible location in the world.

And as we get closer to having all 10 completed, we'll move into a timetable firmly with Showtime. But going great, we're really excited about it.

Doug Creutz -- Cowen and Company -- Analyst

Thank you.

Operator

[Operator instructions] And we'll go next to Rich Greenfield with BTIG. Please go ahead.

Rich Greenfield -- BTIG -- Analyst

Hi, thanks for taking the questions. A couple. First, when you think about a piece of content, given the strategy from trying to use Lionsgate content to drive Starz, you've got -- I think as you talked about, you've got more buyers. You've got Apple coming in strong.

You've got Disney starting to buy from the outset. They've just announced a CBS content licensing the other day. How do you figure out from a management level whether a piece of content should be sold externally or put on to Starz? And then just a follow-up, you've got companies like Comcast that are putting more and more stuff, I want to say, on a set-top box, whether it's Netflix or Amazon Prime or Hulu or -- not Hulu, 2BE TV or even YouTube. How is that affecting their interest in premium? Like are they deemphasizing premium relative to other distributors? Or have you not really seen any impact from what Comcast has been doing with third-party applications, nontraditional pay-TV applications on the set-top box?

Jeff Hirsch -- Starz Chief Operating Officer

Great. It's Jeff. I'll take the second one, and I'll hand the first part back to Jon. I think we're -- in Comcast specifically, we perform very well based on their DMAs and their customer base.

We're heavily packaged in a very low tier with them, and so they continue to use us as a valuable partner and content service.

Jon Feltheimer -- Chief Executive Officer

Your first question is a great question. And I would say it's a super high-class problem, high-class question because for us, the magic of what we've done is this collaboration between studio and the platform. And some of the things and some of the considerations that we think about are some of the content potentially that we'll want for the international is going to be a little different than some of the more narrowcast that we've been doing for the domestic. And so every time we have a piece of content, the key thing for me is that the studio and the platform work hand-in-hand.

That's what's happening right now. Kevin and Jeff are already planning and building out a community basically saying, we're in this together. We want to open the creative aperture just a little bit wider. We want to attract talent that we haven't attracted before.

And again, we can do that because we have -- we're serving on Starz two different needs, one is domestic and one is the international. Now you would think maybe it's bad news and we take a great piece of property like Kingkiller or something else to another network, but we've been very much involved with creating a model where we retain most usually the international right. So back to the question that was asked a little while ago, we don't mind if it's a deficit show that somebody else comes in and helps pay for the deficit. That's great in terms of sort of present value, earnings or lowering really our ultimate investment in that product as long as we get the kind of rights retention that we want.

So again, I think the key thing is we look at our budgets on Starz. We look at what we want to accomplish both domestically and internationally. But the key thing, the key thing, the magic, what we are trying to create here is this integration, this sort of huge content engine with a huge library, with huge creation of new IP, working hand-in-hand with the platform to really build value. We don't believe that, that value is being recognized right now, both in terms of the growth rate right now, the domestic over-the-top subs, as well as the international, as well as what Jimmy mentioned before, Starz Play Arabia.

But we do think when people actually understand the value of these companies together, we will get that value recognition.

Rich Greenfield -- BTIG -- Analyst

Thank you very much.

Operator

And I'll turn it back to our speakers for any closing comments.

James Marsh -- Head of Investor Relations

Great. Thank you, Lori. I just want to remind listeners to please refer to our Press Releases & Events tab under our Investor Relations section of the companies website at investors.lionsgate.com for a discussion of certain non-GAAP forward-looking measures discussed on this call. Thank you very much.

Operator

[Operator signoff]

Duration: 53 minutes

Call Participants:

James Marsh -- Head of Investor Relations

Jon Feltheimer -- Chief Executive Officer

Jimmy Barge -- Chief Financial Officer

Ben Swinburne -- Morgan Stanley -- Analyst

Jeff Hirsch -- Starz Chief Operating Officer

Bryan Kraft -- Deutsche Bank -- Analyst

Vasily Karasyov -- Cannonball Research -- Analyst

Alexia Quadrani -- JP Morgan. Analyst

Kevin Beggs -- Chairman of the TV Group

Steve Cahall -- RBC Capital Markets -- Analyst

Joe Drake -- Chairman of the Motion Picture Group

Rachel Arrowood -- Macquarie Securities -- Analyst

Matt Thornton -- SunTrust Robinson Humphrey -- Analyst

David Miller -- Imperial Capital -- Analyst

Aravinda Galappatthige -- Canaccord Genuity -- Analyst

David Joyce -- Evercore ISI -- Analyst

Doug Creutz -- Cowen and Company -- Analyst

Rich Greenfield -- BTIG -- Analyst

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