There was plenty of good news when Lions Gate Entertainment (LGF-A -3.31%) (LGF-B -4.54%) reported its fourth-quarter financial results. Even in a tough environment for many traditional media companies, Lions Gate was able to deliver numbers that were significantly better than investors had expected.
Revenue of $1.04 billion was down 17% compared to the prior-year quarter, but better than analysts' consensus estimate of $1.03 billion. Other metrics were also surprisingly good, with adjusted operating income of $136 million coming in higher than the $121.5 million analysts anticipated, and adjusted earnings per share of $0.25, when investors were expecting a per-share loss of $0.01.
With all the standard reporting metrics accounted for, Lions Gate's management provided investors with a much more detailed snapshot of the company's performance in the investor conference call. Lions Gate executives talked about international expansion, its over-the-top strategy, and partnerships.
Priming the pump for greater growth
Lions Gate revealed the company had expanded its existing agreement with Amazon (AMZN -0.16%) Prime Video, which will launch StarzPlay on Amazon's service platforms in Germany and the U.K. U.S. Prime members can already subscribe to Starz as a stand-alone cable subscription for a low additional monthly fee. Subscribers in Germany can add the channel for 4.99 euros, while U.K. customers will pay 4.99 pounds, which amounts to about $5.82 and $6.64, respectively, at current exchange rates.
This is just the beginning of the company's international expansion, and Lions Gate CEO Jon Feltheimer said, "The Amazon relationship is an important part of our plan to create significant market share worldwide by rolling out the Starz brand in 15 territories over the next three years." This international expansion is a key part of the company's strategy to expand its brand, while also improving margins.
The over-the-top strategy
The expansion of its agreement with Prime Video not only serves the company's international ambitions, it's also a central part of Lions Gate's plan to capitalize on the direct-to-consumer market. The company's slate of original programming is drawing new viewers to the platform, while driving ad revenue to its best level since last October. Feltheimer said the number of Starz over-the-top subscribers has doubled year over year, while its rate of churn fell "to its lowest level ever."
The other, perhaps underappreciated benefit from its over-the-top service is data, as the information gathered by the company's "direct to consumer business continues to enhance our ability to target our audiences." The leveraging of data to better connect with audiences has been one of the keys to success in the streaming segment. Feltheimer also said that Lions Gate would be working toward "retaining more rights" to the company's original content going forward.
If any of this sounds vaguely familiar, it should. Lions Gate is following the successful template laid out by Netflix for increasing subscribers: leveraging data and building a library of original content.
Amazon is just one of many partnerships Lions Gate has embarked on in order to achieve its goals.
Feltheimer said, "We're incredibly well positioned for all kinds of partnerships," and pointed to deals with Verizon, Amazon, Altice, and Sprint, saying that these alliances reflected "the compelling value proposition" of the company's content. He called out six series with Netflix, a growing list of premium shows for YouTube, the company's first original series for Facebook Watch, and an ongoing deal with Hulu as evidence of the strategy's success.
Feltheimer said, "[W]e expect meaningful subscriber increases from all of these new deals," and singled out the Amazon deal as "an incredibly important strategic alliance."
Why it matters
Lions Gate finds itself in the unique position of having to decide where to place each piece of original programming from its movie and television studios in order to maximize its value. By looking to retain the rights to more of its programming, the company can determine which of the many available avenues result in the highest profitability.
In some cases that will be achieved by shopping the rights for a program to a multitude of domestic and regional markets, where in other cases the best return on its investment might be achieved by retaining a program for its growing library of original content.
This reveals that by not being beholden to a specific geography, distribution channel, or partner, Lions Gate is well on its way to realizing the return to growth investors are so eager to see.