Lions Gate Entertainment Corporation Class A (LGF.A) Q3 2022 Earnings Call Transcript

Lions Gate Entertainment Corporation Class A (NYSE: LGF.A)
Q3 2022 Earnings Call
Feb 03, 2022, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Lions Gate third quarter 2022 earnings conference call. All participants will be in a listen-only mode. [Operator instructions] After today's presentation, there will be an opportunity to ask questions. [Operator instructions] Please note this event is being recorded.

I would now like to turn the conference over to Nilay Shah with investor relations. Please go ahead.

Nilay Shah -- Executive Vice President & Head of Investor Relations

Good afternoon. Thank you for joining us for the Lions Gate fiscal 2022 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 questions.

Also joining us on the call today are Vice Chairman Michael Burns; COO Brian Goldsmith; chairman of the TV Group, Kevin Beggs; and chairman of the Motion Picture Group, Joe Drake. And from STARZ, we have President and CEO Jeffrey Hirsch; CFO Scott MacDonald; president of Domestic Networks, Alison Hoffman; and president of International Network, Superna Kalle. The matters discussed on this call include forward-looking statements, including those regarding the performance of 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. This includes the risk factors set forth in Lions Gate's most recent Annual Report on Form 10-K as amended in our 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. I'll now turn the call over to Jon.

Jon Feltheimer -- Chief Executive Officer

Thank you, Nilay, and good afternoon, everyone. Thank you for joining us. Although pandemic-related costs and production delays impacted our financial results, we've had a very busy and productive quarter. Let me talk about some of the highlights.

Our television group is coming off a record-breaking week with four series renewed for additional seasons at four different platforms. Ghosts has been the breakout comedy of the season and has been ordered for 22 new episodes, with the potential to become a true hit in syndication. In a very competitive environment, Starz continue to deliver solid domestic and international streaming subscriber gains, sequentially adding 1.7 million streaming subscribers, 600,000 domestic, and 1.1 million international. In the quarter, our Motion Picture Group greenlit five films, continued production or post-production on 10 others, and wrapped three wide-release tentpoles as we continue to assemble one of the strongest pipelines of big branded IP in the company's history.

Next week, we will announce a very special, high-profile addition to this slate. And finally, we're pleased to report that our library continued its robust performance with $771 million in trailing 12-month high-margin revenue. Drilling down on each of our businesses, we have significantly ramped our investment in Starz programming, coming into the year with our best slate ever. However, COVID-driven and other production delays on multiple series, including an 11-month delay on fan-favorite Outlander, have pushed back the full benefit of that investment.

This resulted in diminished subscriber growth in the first half of the year relative to our expectations. And we're seeing that pressure coming through in our revenue and segment profit in our current quarter. Starz programming schedule is back on track and positioned to translate into strong subscriber growth. In the quarter, the second season launch of Power Book II: Ghost and the first season finale of the crime family drama, BMF, combined for record single-day viewership on the Starz app, with Ghost actually beating the season one launch.

Ghost and BMF have both firmly established themselves as tentpoles, with 10 million multiplatform views a piece, a number that compares favorably with many of the high-profile streaming series, which have garnered much recent attention. In fact, Starz has four series that have global multiplatform season average views over nine million. Looking ahead, Starz will launch seven series in the next two quarters. This weekend, the Power universe continues to expand with the launch of one of its most iconic characters, Tommy Egan in Power Book IV: Force, which premieres on the heels of the Power Book II: Ghost series finale, followed in March by the debut of the Courteney Cox-starring horror comedy Shining Vale, and the return of Outlander for its sixth season.

The provocative hit drama, P-Valley, returns in the following quarter, along with the period drama Becoming Elizabeth, and the debut of the eagerly anticipated Gaslit starring Julia Roberts and Sean Penn. While we've significantly ramped up our spending on premium content for Starz this year, as you can see in our numbers, we're following the playbook we laid out previously, airing a new episode every week to create buzz, launching at least one new series every month to engage with our African American and women core demos throughout the year, and complementing our original series with a robust slate of first-run studio movies. These will be the key elements in continuing to lower our acquisition costs, improve retention, and grow our subscriber base. This content strategy has enabled us to transform Starz from a legacy linear bundle business into a stronger, streaming-driven platform with over 80% of its subscribers, digital and a la carte, all without the benefit of a major bundle deal.

As part of the next frontier in our domestic growth, our strong and focused content and loyal core demos make us a compelling value proposition for bundling opportunities as the broader platforms start to compete with each other's offerings. Internationally, we're concentrating our investment in the U.K., Canada, Mexico, Brazil, and Spain, using bundled deals elsewhere to create beachheads in new markets and rolling out our original local language slate. We launched a slate last month with the Spanish-language action thriller, Express, debuting well in Spain, Mexico, and Brazil. The beauty queen saga Senorita 89 debuts this month with two more local language series slated in the following quarter and three shows heading into production.

Building off the success of our premium strategy domestically, we're relying on a combination of hyper-focused programming, early mover advantage, and our ability to complement, as well as compete with other platforms. Despite intense competition, we've nearly doubled our international subscribers in the past 12 months, and together with our domestic business, remains solidly on track to reach our target of 50 million to 60 million global subscribers by 2025. Turning to television. Demand for content across AVOD, SVOD, broadcast and premium, is at an all-time high, making it a great time to be the premier independent content supplier at scale.

This quarter puts a major exclamation mark on that, with six new Lions Gate television shows picked up to series and seven series renewed for new seasons. Our ability to deliver high-end premium hits series continues to generate repeat business. We have five series at HBO Max; new series at ABC and Fox; the recent pick up of the Lincoln assassination series, Manhunt, following the two-season renewal of Mythic Quest at Apple Plus; and a series order for Swimming with Sharks at Roku after a successful airing of Zoey's Extraordinary Christmas. Looking ahead, we expect our strong performance to continue with new series such as The First Lady at Showtime, starring Viola Davis, Michelle Pfeiffer, and Gillian Anderson; Minx for HBO Max; and the John Wick spin-off, The Continental, for Starz to name a few, with yet another strong slate in the pipeline.

To support all this production, we opened the state-of-the-art Lions Gate Studios in Yonkers, New York last month. Not only does it give us an East Coast production hub, but it creates greater predictability in our supply chain by securing dedicated production sound stages and facilities, giving us an insurance policy in terms of delivering our Starz series on time. I'd like to mention our collaboration with 3 Arts, with whom we joined forces four years ago in order to create an anchor for our talent strategy. This partnership has exceeded even our greatest expectations.

They have become a valued studio partner, filling our pipeline with shows such as Mythic Quest, Manhunt, the upcoming Serpent Queen for Starz, and Julia for HBO Max. And as they continue to grow and expand their business, they just turned in their best quarter ever. As I mentioned at the outset of my remarks, the Motion Picture Group had a great quarter in terms of filling out one of the best pipelines of intellectual property in our company's history, greenlighting new movies, moving films through production, and getting our upcoming releases ready to go. Tomorrow, we open Roland Emmerich's sci-fi action epic, Moonfall, starring Halle Berry; followed by the Nicolas Cage starring Unbearable Weight of Massive Talent; White Bird, the follow-up to the breakout hit Wonder; Are You There God? It's Me, Margaret, the adaptation of the Judy Blume classic directed by Kelly Fremon Craig and produced by Academy Award winner, James L.

Brooks; and Expendables 4, the next installment of an action franchise that has grossed nearly $1 billion worldwide. In the quarter, we also completed principal photography on two of our biggest titles, John Wick: Chapter 4 and Borderlands for wide release in theaters next year. In the coming months, we'll begin production on the Ballad of Songbirds and Snakes, the brilliant prequel to our Hunger Games megafranchise; Dirty Dancing starring Jennifer Grey; and the John Wick spin-off, Ballerina, starring Ana de Armas. Behind these tentpoles, we have the third installment of Now You See Me, Highlander, and Naruto, franchise properties that continue to grow a massive portfolio of intellectual property that allows us to compete at every level and deliver to Starz a reliable slate of blockbuster first-run movies.

At the same time, we've shown that we can make profitable films that live comfortably in both the theatrical and SVOD worlds, from day and date multiplatform releases with a 92% profitability rate to larger movies that will benefit from hybrid releases. As a studio whose signature has always been diversified slates, allowing us to play in every space, our ability to tackle the challenges of a shifting and uncertain box office is more of a natural evolution than a pivot. In closing, while everyone is operating in an intensely competitive, disruptive, and unpredictable environment, each of us is dealing with it differently. Our strategy is simple, continuing to execute a focused content approach at Starz, supplying profitable premium television series to an expanding universe of buyers, leaning into our portfolio of movie brands and franchises, and benefiting from an entrepreneurial culture and a business model built around optionality.

Now I'd like to turn things over to Jimmy.

Jimmy Barge -- Chief Financial Officer

Thanks, Jon, and good afternoon, everyone. I'll briefly discuss our third quarter financial results and update you on our balance sheet. Third quarter adjusted OIBDA was $92 million, and total revenue was $885 million. Revenue growth was driven by deliveries of new and returning TV series, as well as library strength within motion picture.

Reported fully diluted earnings per share was a loss of $0.20 a share, and fully diluted adjusted earnings per share came in at a positive $0.02. Adjusted use of free cash flow for the quarter was $23 million. Now let me briefly discuss the fiscal third quarter performance of the underlying segments compared to the previous year quarter. Media Networks' quarterly revenue was $389 million, and segment profit was $29 million.

Excluding Pantaya in last year's third quarter, revenue was down 1%. While domestic revenue grew sequentially, year-over-year domestic revenue declined 3.4% as positive OTT revenue growth was offset by a decline in linear revenue. Segment profit was down year over year, primarily on higher content and marketing spend associated with Starz Originals. We ended the quarter with over 31 million total global subscribers, including STARZPLAY Arabia.

Total global Media Networks OTT subscribers grew 1.7 million sequentially to 19.7 million. This represents year-over-year global OTT subscriber growth of 44%. Turning to motion pictures. Revenue was up 10% to $275 million, while segment profit of $68 million was up 35%.

This reflects continued strength in our library, as well as strong results from alternative multiplatform releases, partially offset by the timing of P&A spend on the Christmas Day release of American Underdog. And finally, television. Revenue was up over 92% to $439 million driven by new and returning series deliveries, including Ghost, Force, Love Life, Home Economics, and Swimming with Sharks. Segment profit came in at 19 million, down year over year due to the timing of series amortization and the prior-year quarter's tough comp against second-run Mad Men licensing revenue.

Our total library revenue across our motion picture and TV businesses was $771 million on a trailing 12-month basis, up slightly over the $765 million of trailing 12-month library revenue reported in the third quarter last year. As noted, last year's trailing 12-month library revenue number include a significant contribution from the licensing of Mad Men. On the balance sheet, we ended the quarter with leverage at 5.5 times or 3.9 times, excluding our investment in STARZPLAY International, reflecting the impact of trailing 12-month adjusted OIBDA. We continue to retain significant liquidity with $314 million of cash on hand and $1.25 billion of an undrawn revolver.

We remain committed to strengthening our balance sheet and paying down debt while continuing to fund our increased investment in content and marketing from adjusted free cash flow as we refresh our library and drive value through content creation and subscriber growth. Now I'd like to turn the call over to Nilay for Q&A.

Nilay Shah -- Executive Vice President & Head of Investor Relations

Thanks, Jimmy. Operator, can we open the call for Q&A?

Questions & Answers:

Operator

Thank you. We will now begin our question-and-answer session. [Operator instructions] At this time, we will pause momentarily to assemble our roster. And the first question will come from Alexia Quadrani from J.P.

Morgan. Please go ahead.

Anna Lizzul -- J.P. Morgan -- Analyst

Hi, this is Anna Lizzul on for Alexia. Thank you so much for the question. First, I was wondering if you could elaborate on what drove the lower margins on newer shows at television production, just given the heightened demand for content? And secondly, I was wondering if you can also provide an update on the potential Starz sale? Thank you.

Jimmy Barge -- Chief Financial Officer

Thank you for your question. I'll take the TV margins and just comment that, you know, this is primarily because of a high mix, the lower margin that is, primarily because of the higher mix of freshmen and sophomore series, which, you know, have lower margins early on and then build later in their life and over maturity. But, you know, you can expect to see increasing margins, you know, moving into Q4 and into fiscal '23, as well in TV. TV is just doing great.

We got a great lineup and sold a lot in and expect really good things.

Jon Feltheimer -- Chief Executive Officer

Michael?

Michael Burns -- Vice Chairman

Sure. Congratulations to Alexia, by the way, on her new job. You asked a question about the sale. I just want to say, just sort of straighten that out a little bit, we are working with a terrific team of advisors with complementary strength and expertise as we continue the process of unlocking the shareholder value within our two-core businesses.

So it's important to note that we will be providing additional updates on our progress at the appropriate time.

Anna Lizzul -- J.P. Morgan -- Analyst

Great. Thank you so much.

Operator

And next question will be from Matt Thornton with SunTrust. Please go ahead.

Matt Thornton -- Truist Securities -- Analyst

Hey, good afternoon, guys. I guess two maybe. I think you've talked about trying to increase the subscriber net adds this year versus last year. I think last year, you did something in the ballpark of 5.6 million.

Just kind of curious if that's how you're still thinking for fiscal '22. And then similarly, free cash flow for the year, I think, Jimmy, last quarter, you talked about being -- I can't remember if it was breakeven or better. But I guess, any update there would be helpful as well. Thanks, guys.

Jeff Hirsch -- President and Chief Executive Officer, STARZ

Yeah. Hi, it's Jeff. So thanks for the question, Matt. As we said and we reiterate today, we do believe that fiscal '22 will have, on a global basis, higher gross adds than we had in '21.

You know, obviously, if you look at the quarters, next quarter will be a big quarter on a global basis. We have really strong growth in terms of our programming slate coming into the fourth quarter, and so we feel very good about that guide.

Jimmy Barge -- Chief Financial Officer

Yeah. Thanks, Matt. Yes, you know, we have a small use of cash in the current quarter. As you know, in the content business, in particular, that moves up and down, particularly quarter to quarter.

But absolutely, we expect generally to continue to fund all of our businesses, our investment in STARZPLAY International content and marketing from our free cash flow, and to produce positive free cash flow. And I would just comment that we'll have, in fiscal '22, funded over $3 billion of content and marketing spend.

Matt Thornton -- Truist Securities -- Analyst

That's helpful. Maybe I can slip one more in, guys. You -- last quarter, you talked about some of the data privacy headwinds and, you know, kind of upward pressure on subscriber acquisition costs. I'm just kind of curious, any status there, whether that's abating or improving? Thanks again.

Ali Hoffman -- President, Domestic Networks

Yeah. We have seen, you know, those privacy changes affecting us this past year as they affected the rest of the industry. We've been working with our partners on mitigation strategies, and we've seen those costs start to come down. On top of that, we've seen costs come down based on the strength of our content.

So as we commented last quarter, we feel the worst is behind us, and we've seen those costs come down, and we think they'll continue to improve as we go forward.

Operator

Thank you. The next question will come from Steven Cahall with Wells Fargo. Please go ahead. Steven, your line is open, perhaps you're muted on your end. 

Steven Cahall -- Wells Fargo Securities -- Analyst

Oh, yes, thank you. Going to figure out button now one of these days. Maybe, Michael, first, to expand on the answer you just gave, I was wondering if you could speak to maybe the progress that you've made thus far on the strategic alternatives. Anything that you've been able to uncover that you might not have expected? And kind of drilling down on that a bit, do you think that Starz can be a stand-alone public company? And if so, you know, is there a potential for recapitalization there since it probably handles the debt a little bit better? And then on the Starz side of things, I think there was a little bit heavier decline in linear subs.

I was just wondering if there was anything notable on the MVPD universe, or was that just cord-cutting more broadly? And related to that, international subs were kind of stronger than we expected. So anything you'd call out in regions or content that drive that growth? Thank you.

Jon Feltheimer -- Chief Executive Officer

Hey, Jeff and Superna, maybe you work on the last part first.

Jeff Hirsch -- President and Chief Executive Officer, STARZ

OK. Do you want to start?

Superna Kalle -- President, International Networks, STARZ

Sure. Hi, this is Superna. And we're very pleased with our performance this past quarter. We had some pretty strong content come onboard with Ghost and The Great and our very first STARZPLAY original with MalaYerba as well.

So that contributed to the growth in multiple territories.

Michael Burns -- Vice Chairman

Steven, what I said before, we are going to report progress as it develops at the appropriate time. So we have a great set of advisors. And as things progress, you guys will certainly hear where we are.

Jeff Hirsch -- President and Chief Executive Officer, STARZ

And Steven, to your linear question, you know, what we saw, and I think Jon alluded to this in his prepared remarks, as we saw the COVID headwinds in the first half of the year, as you know, the premium services are really sold through the call centers of our MVPD partners. And as those call centers were sent home, it became increasingly difficult for us to continue to drive the subscriber growth that we had pre-pandemic. And we had some headwinds there, so there's some pressure on the linear business there.

Steven Cahall -- Wells Fargo Securities -- Analyst

Great. Thank you.

Operator

The next question will come from Kutgun Maral from RBC Capital Markets. Please go ahead.

Kutgun Maral -- RBC Capital Markets -- Analyst

Great. Thank you for taking the questions. One on Starz net adds and one on Starz domestic networks profitability, please. So first, maybe thinking longer term for Starz OTT net adds, some of your larger peers have seen decelerating subscriber growth recently, which has raised investor concerns over the streaming market overall, whether it's the TAM or cost to succeed.

I know you just reiterated your targets for 50 million to 60 million global subscribers by 2025. So maybe you could provide some color on your conviction in executing against that growth and the path to get there, whether it's with further incremental investments in programming or other drivers like continued traction with distribution partnerships and the bundling you called out earlier, or something else. And just maybe second on Starz domestic networks profitability. I know recent results in this quarter specifically was pressured by the programming disruption earlier in the fiscal year combined with continued investments in programming and marketing.

I guess maybe if we could just look out further beyond this quarter and next quarter, are we getting closer to having annual segment profit be stable or perhaps growing year over year? Or is it too early to tell given the ongoing pivot to OTT and investments? Thanks.

Jeff Hirsch -- President and Chief Executive Officer, STARZ

It's Jeff. Thanks for the question. If we take a step back, as we talked about historically, if you think about the way the industry is shaping up, I think there's, you know, heavily competitive set right now in that kind of broad-based streaming services, where everybody is really competing to be that first SVOD in the home. And you couple that with the fact that we believe that there's going to be four to six SVODs per home.

It sets Starz up to be this really great premium add-on tier as a way for those broad-based services to compete. We have done -- I think, as we talked also about building a data set, we've used our data to really drive the business. You know, over -- as Jon said in his prepared remarks, over 80% of our subscribers are a la carte. We've converted the linear business to a la carte as well.

And so we think there's a lot of opportunity for us to continue to grow as a stand-alone business. But we're -- and again, as Jon said in his prepared remarks, I think the next kind of phase of our growth is becoming that great premium bundling partner with all of these broad-based streaming services. And as they start to compete and they start to see how difficult it is, adding value to the consumer with bundles is really, I think, where the business goes. It looks a lot like the linear business did 15 years ago.

And so we feel really good about our position as that great premium add-on tier. Our programming continues to work. We feel great about the, you know, the beachhead that we have and the two-core demos that we have, which we believe are, again, really complementary to all these broad-based services. So we feel really good about our fundamentals, we feel really good about our position in the marketplace, and we really feel good about that trajectory of that 50 million to 60 million subs.

In terms of your question around margin and profitability, you know, this is a heavy investment year. I think part of the COVID-related disruption has put that investment a bit into '23. We continue to invest heavily in international. But as we said on previous calls and we continue to believe this based on the trajectory of the business, we think we get to that range of 50 million to 60 million subscribers by fiscal '25.

And we think steady-state margin gets somewhere in the 20s long term for the global business.

Michael Burns -- Vice Chairman

Yeah. I think I'd add, I'm not sure what your question about getting to profitability. The Starz domestic business is a very profitable business. As Jeff said, we ramped programming, you know, pretty extensively this year to get to exactly where Jeff has said before and Ali has said, which is having a new show every month and something pretty much every day for our two-core demos.

And so I think that sort of as we cycle through the heavily increased amort for this year going into somewhat next year, I think you can see a continued profitability, free cash flow, and then significant growth in all of the out years in that domestic business. Does that answer your question?

Kutgun Maral -- RBC Capital Markets -- Analyst

Thank you.

Michael Burns -- Vice Chairman

Does that answer your question?

Kutgun Maral -- RBC Capital Markets -- Analyst

Yeah, no, it does. That's incredibly helpful. And I think we're all kind of appreciative of, you know, whether it be Media Networks or motion pictures or even TV production, you know, the current fiscal 2022 or even '23 doesn't necessarily reflect your broader earnings power. And I think presumably, there's a big inflection as we kind of continue to move forward.

And I think I was just trying to get a better sense of Starz domestic segment profits, you know, currently probably approaching low 300s for this year -- low to mid-300s, you know, trying to get a better sense of when we get back to, you know, high 300s, 400-level annual segment profitability. You know, is that achievable, or is that -- you know, I think we're just going to have to see the dynamics play out between the subscriber growth and the investments that you're making?

Michael Burns -- Vice Chairman

I shouldn't say it's inexorable, but I would say it's most certainly achievable.

Kutgun Maral -- RBC Capital Markets -- Analyst

I'll take that. Thank you.

Operator

And thank you. The next question comes from Thomas Yeh from Morgan Stanley. Please go ahead.

Thomas Yeh -- Morgan Stanley -- Analyst

Thanks. I had two on the Starz side as well. Maybe one on content cadence. I was hoping you could elaborate a little bit on the pipeline delays that were referenced.

I think the initial plan at the beginning of the year was seven series going to 12 this year. Did any of those slip out beyond the fiscal year? And then 12 to 15 series annually, is that still kind of the right target to think about a more normalized original release schedule? And then on the ARPU, just any help characterizing the level of promotional activity that was happening in the quarter versus prior ones? I know it bumps around a bit quarter to quarter. But any color on how that might look into 4Q and the next year would be really helpful. Thank you.

Jeff Hirsch -- President and Chief Executive Officer, STARZ

Yeah. So, you know, when we looked at the original plan coming into our robust content slate in the history of the business this year, you know, subscriber acquisition months are really key in terms of driving the business. When you look at the original plan versus where we are today, it's about a total of 50 months of subscriber acquisition opportunity that we lost by moving content around. Jon referenced the Outlander, which is one of our big tentpoles, which is now and will be into -- coming into its 18 months of Droughtlander, which is a huge fan favorite.

There's about 7 million multiplatform views a week, which is one of the bigger shows on television. It's a very passionate fan base. And missing a year of that content, it really hurts the subscriber growth that we -- and you saw that in the first half of the year. But we are coming into that slate now.

Outlander comes -- Force premiers this weekend on the tail of Ghost, which I believe will be the biggest Power franchise yet, bringing back Tommy Egan, who is one of the biggest characters in the show. He has not been on the show in about 18 months to two years in terms of his last appearance in Season 6 of Ghost, of Power, the original Power. Outlander comes on. Shining Vale with Courteney Cox comes on, which has tested off the charts in a great genre-bending half-hour.

And then Gaslit comes on in April 24. We just finished shooting P-Valley Season 2 today, so we're excited to get that megahit back on the network. And so, you know, as Jon talked about, we have great shows for these two-core demos that really sets us apart. We are the destination network for those two-core demos, which makes us really, really valuable.

And I'll let Ali talk about the promotional in the quarter.

Ali Hoffman -- President, Domestic Networks

Yeah, we're continuing to promote, you know, both on the upper funnel in terms of building awareness, intent, and excitement for the content and then in the lower funnel and driving subscription. So that is going to be ramped up a little bit this quarter as we have those three big releases that Jeff mentioned. But again, that will also pay off in the business as we see the subscribers come with it.

Thomas Yeh -- Morgan Stanley -- Analyst

Great. Thank you so much.

Operator

Your next question will be from Jim Goss from Barrington Research. Please go ahead.

Jim Goss -- Barrington Research Associates, Inc. -- Analyst

Thanks. I think you started to allude to something I was trying to ask about and then maybe you can embellish. But the notion of being the primary vehicle for the African American and women demo, I was wondering if you could talk about the mix of the programming on Starz right now that is coming from Lions Gate and from outsiders. And if -- as you've been able to establish that, those demos, you're getting a lot more content pushed to you and how that might affect the terms you're able to command.

So sort of on the opposite side of, say, when you dealt with Netflix earlier on with some of the original things, maybe you now have more of an ability to command the aftermarket, those new content elements.

Jeff Hirsch -- President and Chief Executive Officer, STARZ

Kevin, on the other side of that. Look, I think the relationship between Lions Gate Television and Starz has only improved, you know, every day that Kevin and I sit in a room and talk about what's interesting for Starz and what we're looking for. And I think it's benefited both sides of the business in a big way. I would say, you know, 12 of the -- or 10 of the 12 shows that we'll have on the air in the next 18 to 24 months come from Lions Gate TV, and we work very closely, it's been a huge benefit.

As much as we've pointed to the COVID costs and the headwinds that we had in the first half of the year, having Kevin team part of the company, I think, has mitigated that as much as we could and allowed us to try to maintain the schedule as much as possible. And so it's really been a real big benefit. I think having -- you know, the point of view that we have as a network has been able to bring great creators and great talent to the network. You see, obviously, our lead in Outlander just got nominated for BAFTA for Belfast and I think she's becoming a huge star -- or she is a huge star both on TV and movies. We've got Courteney Cox and Greg Kinnear and Mira Sorvino on the network for the first time.

We've got Julia Roberts and Sean Penn and Dan Stevens, Betty Gilpin on the network for the first time. We just announced Jennifer Garner in Party Down. And so I think the relationship -- having that point of view, know who we are, and what we stand for has brought great writers, great directors, and great talent in the network but also being tied to Kevin, who has obviously had big shows on other networks, gives us, you know, a better breadth in terms of attracting that talent and those -- that directors and writers. Kevin?

Kevin Beggs -- Chairman of the TV Group

Yeah, absolutely. I completely concur with what Jeff is saying. I mean from a studio perspective, really great to have certainty around a production flow, and the close communication between our creative groups lets us know exactly what Jeff and the team are looking for. And we can tailor our own production deals and overall deals and projects accordingly.

Not everything is going to be right for Starz, and we learned that quickly when we just talk in an early stage of our projects and then take them to the larger market, which is why we have a fairly diversified slate. But to the COVID point, you know, we were back in production three months ahead of most of our scripted competitors to help keep the pipeline flowing, even though there obviously was some delays, and that kind of optionality and, I think, focus on our partnership is a positive for both sides. And the mix of talent going into Starz is a great calling card for us when we're pitching writers and producers about working at Starz as well. The lineup that Jeff just rattled off is super impressive.

And I think it makes everybody very interested in learning more and pitching and getting in front of Jeff and his team.

Jim Goss -- Barrington Research Associates, Inc. -- Analyst

OK. And you are finding other studios coming up with ideas that they think, "Well, this is actually more appropriate for Starz than for our own output and they might compete for some of those spots," that is happening more and more?

Kevin Beggs -- Chairman of the TV Group

Yeah. Just to finish that thought, Jeff and the Starz team are getting pitched by other studios all the time. They're in business with other studios. We co-produce with other studios in many instances but not all.

It's a wide-open market, and the best shows win.

Jim Goss -- Barrington Research Associates, Inc. -- Analyst

OK. And the other question I had involved the library. You've been highlighting the value of the library, which I think is appropriate. I'm wondering about the relative value creation among the titles in the library.

Is it very concentrated in certain key titles or certain, you know, time frames like the more recent titles? And what is necessary to replenish the library in terms of the new content to keep the revenue steady and hopefully growing?

Jeff Hirsch -- President and Chief Executive Officer, STARZ

Jimmy, go ahead. Why don't you take the beginning?

Jimmy Barge -- Chief Financial Officer

Yeah. You know, look, it's 17,000 titles, and so, you know, we got a lot of significant contributors there and some more major franchises, but they pull their weight and a lot of other products with them. So, you know, there's just such demand for library whether the AVOD, SVOD across the board and increasing buyers in almost every window, you know, and every territory that we're able to break it down and sell it with great demand. I mean it certainly helps to refresh it, but our overall library is a very youthful library if you look at it, you know, in terms of how it's been created over time.

And we'll continue to replenish that as well, see very good profitability out of this continuing.

Michael Burns -- Vice Chairman

Yeah. I'll add a little something to that. And I backed off on using the word inexorably before, but I'll use it in this case. Our library revenue and profitability, free cash flow will inexorably grow and that's because, very specifically, we continue to invest in the long term, not the short term.

That involves a lot of different facets of our building. As you noticed, we have ownership in the majority of projects in television that we produce. We have far less, if you will, cost-plus shows. Why are we doing that? Why are we taking a deficit in the first year or second year of a show? And by the way, in a sense, the way we account for it, we do that in -- at Starz as well.

And the reason is because we believe our job is to create long-term value, and that long-term value is evidenced in a library. If you look at all of the headlines today about Ghost then, you know, the headline of Variety, Ghost has become such a big hit that even CBS execs are surprised. I said in my remarks, we think this is a true -- one of the first true big syndication potential, syndication hits in a long time in the broadcast business, and we are taking a deficit going into these -- going into that show. And so, again, you take a deficit so you can control rights, control international rights, control downstream rights.

We're making big motion pictures. We don't typically make money in the first year of a slate, but we are controlling most of our rights. We are less and less auctioning off long-term rights to international or domestic buyers. And so our whole game is to, again, continue to throw off free cash flow in the short run, continue to have profitability in the short run.

But we are focused every single day on long-term value creation, and you will see that in the growth of our library.

Jim Goss -- Barrington Research Associates, Inc. -- Analyst

All right. Thank you very much. Great answers.

Operator

The next question will be from Doug Creutz from Cowen. Please go ahead.

Doug Creutz -- Cowen and Company -- Analyst

Hey, thanks. I was wondering if you could just share your current thoughts on the theatrical exhibition window. It's been open for business now for about six months. And aside from Marvel's films, it still seems to be a pretty big struggle for a lot of movies.

Have you adjusted your plans to invest in future films over the next couple of years as a result of what you're seeing? Thanks.

Michael Burns -- Vice Chairman

Sure. Thank you, Doug. The -- when you say adjusted our plans, we've adjusted, but we continue to lean in because we're seeing, you know, extraordinary opportunity. And the way to look at it is you got to kind of break the business down into pieces.

You know, if you start -- clearly, the big brands, the big franchises are working and it's been an initiative of ours to really make sure that we had a cadence of film and a supply that was going to continue to drive that business because that theatrical business still drives the kind of the flywheel of our overall library. So when you look at we've got John Wick in the can, we're starting a universe expansion in Ballerina that will start in the fall, Borderlands in the can. Hunger Games is going to start this summer. We're really excited about that.

And Jon mentioned things like Highlander, Dirty Dancing, Now You See Me, and Naruto. So on the big brand side, that part of the pump is really primed to deliver on a cadence that's going to really work for us. We've got our segment two business. We've talked about it before, and we continue to invest more there because it's a low-risk, high-return business.

We acquire, make and release 30 to 40 films a year there, and that business continues to show growth. It's a real winner for us. On the library side, the library value and the monetization opportunities continue to grow and expand with AVOD and the like. And so then you talk about that -- I think the area you're really talking about is what I would kind of call that mid-budget content where we just see optionality.

When we're -- when you understand that Lions Gate is uniquely positioned because we license a lot of our films internationally, those values have gone up. So the way that we -- the way that the economics work with those increased international values with the increased downstream post the actual values here in the states but also with the opportunity for other distribution structures, which you've seen us do in the past two years, and you'll continue to see us do, what you actually have is a model that with that optionality we're actually able to have quicker cash flows when we shift to an alternative distribution model. Those risk offsets are more reliable, those international values and the like. So you take some of the risk out of the business.

And when we elect to use those alternative distribution platforms, we're also seeing our ROIs go up. And yet when we see a movie that still deserves in that segment of the business a theatrical release, we're going to continue to lean in there because that's where those next franchises come from. So we've adjusted to meet those changes, but we feel really good about where we sit in the ecosystem.

Doug Creutz -- Cowen and Company -- Analyst

Great. Thanks. 

Operator

The next question will be from Matthew Harrigan from Benchmark. Please go ahead.

Matthew Harrigan -- The Benchmark Company -- Analyst

Thank you. Two questions. Firstly, I guess I should make an express disclaimer. This is not another Starz question.

So when you look at the deal market, I mean, the library market has been pretty active and inflated for a number of years for various reasons, and yet you've been really agile in making accretive deals. I know you're mostly focused on Starz, but you still must see things coming in over the transom. Is there still some scope for doing some smaller Pac-Man deals as you've been willing to do in the past? And then secondly, when you look at the movie SVOD, the direct-to-SVOD business, it feels like brands or movies are having trouble really getting a lot of staying power, even something like Red Notice, people were skeptical it creates that much value relative to series. Do you think there's really -- and I know you're taking kind of a bicameral approach on theatrical and SVOD with your own movies.

But do you think there's a real pivot that's eventually going to happen on the SVOD business that just increasingly favors series, even if they're quite expensive series, relative to these one-off movies that just kind of seem like a go poof? Thanks.

Jeff Hirsch -- President and Chief Executive Officer, STARZ

Hey, it's Jeff. You know, I think we've said quarter to quarter that, obviously, the big series drives our acquisition, but they also drive our retention. Our game is a retention game, not an acquisition game. And so part of the reason why we've increased our content spend is to kind of line content up like Jon said, week to week, 52 weeks a year so that we can move our core demo from one show to the next, to the next.

We're seeing that really significantly with the Power universe and moving from one to the next, to the next. Movies out there are playing on platform, you know, on our app, I think it's really more of the originals because it's much more of a people go to the app to find the original to watch it. Whereas on a linear side, where there's a channel scroll, people are watching or going and scrolling the channels, and obviously, when you have one or two originals a week and a lot of movies, there's a lot more movies there. And so movies play a very significant role depending on certain platforms.

Big movies play tremendous roles, Spider-Man coming for us exclusively in the next couple of months or six months, will be a big acquisition driver. And the key, obviously, is to put stuff -- put shows around it and content around it that you can then move customers who want to watch Spider-Man into one of your originals so you can extend that lifetime value and not create a lot of acquisitions, a lot of viewership, and a lot of churns. So you have to be very thoughtful of how you place those big movies against your original base so that you can maximize customer lifetime value and maximize your growth.

Michael Burns -- Vice Chairman

If I understand your first question, Matthew, are we still open for business when it comes to attack on acquisitions. I think that you know we've been very successful in making those kinds of deals. We think nobody sells library and packages library better than our team at the right price. As entrepreneurs, we have to look at every opportunity.

We don't overpay. But we think nobody is better equipped to actually do that. If there's the right ROI for that acquisition, we'll certainly look at it.

Matthew Harrigan -- The Benchmark Company -- Analyst

Great. Thank you.

Operator

[Operator instructions]. Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Nilay Shah -- Executive Vice President & Head of Investor Relations

Thanks, everyone. Please refer to the Press Releases and Events tab under the Investor Relations section of the company's website for discussion of certain non-GAAP forward-looking measures discussed on this call. Thank you, and have a good evening.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Nilay Shah -- Executive Vice President & Head of Investor Relations

Jon Feltheimer -- Chief Executive Officer

Jimmy Barge -- Chief Financial Officer

Anna Lizzul -- J.P. Morgan -- Analyst

Michael Burns -- Vice Chairman

Matt Thornton -- Truist Securities -- Analyst

Jeff Hirsch -- President and Chief Executive Officer, STARZ

Ali Hoffman -- President, Domestic Networks

Steven Cahall -- Wells Fargo Securities -- Analyst

Superna Kalle -- President, International Networks, STARZ

Kutgun Maral -- RBC Capital Markets -- Analyst

Thomas Yeh -- Morgan Stanley -- Analyst

Jim Goss -- Barrington Research Associates, Inc. -- Analyst

Kevin Beggs -- Chairman of the TV Group

Doug Creutz -- Cowen and Company -- Analyst

Matthew Harrigan -- The Benchmark Company -- Analyst

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