To say that the past year has been a good one for Lionsgate would not be an exaggeration. It completed its acquisition of the premium pay-TV company Starz, its television division increased its revenues and CEO Jon Feltheimer has been diversifying the company’s businesses. Last, but certainly not least, Lionsgate’s film division released La La Land, one of the most talked-about films of the year, winner of seven Golden Globes, including Best Motion Picture—Musical or Comedy. Lionsgate’s films La La Land, Hacksaw Ridge, Hell or High Water and Deepwater Horizon were nominated for 26 Oscars and won eight.
Last December, Lionsgate acquired Starz, which has some 25 million subscribers in the U.S., for nearly $4.4 billion in cash and stock. The combined company boasts a film and TV library of more than 16,000 titles, film and TV production and distribution, and a portfolio of OTT platforms.
The deal offers numerous advantages to both companies. Lionsgate gains a distribution outlet for its product as well as the creative talent of Starz’s team, headed by Chris Albrecht, who will continue to serve as Starz’s president and CEO. Albrecht was behind several hits during his tenure as chairman and CEO of HBO and has shepherded Power, Black Sails and The Girlfriend Experience while at Starz. Starz benefits from Lionsgate’s financial backing and broad international-sales arm. The joint entity pledges to invest $1.8 billion in new film and television content. Together, they are better positioned to attract A-list talent in front of and behind the camera, at a time when top talent is at a premium since there are so many television series in development and production—all clamoring for the best actors, writers, producers and directors.
Lionsgate Television Group continues its platform-agnostic production strategy and is developing series for SVOD services and linear channels while supplying Orange Is the New Black to Netflix, Nashville to CMT, The Royals to E!, Casual to Hulu, Graves to EPIX and Greenleaf to OWN.
Integration between Lionsgate and Starz has taken several months but has not distracted Feltheimer from other initiatives, such as increasing business in the Chinese market, forming partnerships, developing branded film labels that target specific audience segments, and setting up theme parks and Lionsgate-branded leisure centers.
WS: Would you take us back in time and tell us how the idea for the Starz acquisition came about? What made the deal appealing?
FELTHEIMER: The Starz deal checked off all the boxes for us. I’ve known Chris Albrecht for 35 years, and he’s one of the best programmers in the business. He’s been transforming Starz into a modern, consumer-facing platform for the past five years, and we believe that the combination of our two companies will only accelerate the progress he has already made. Starz has been a great network partner for years, dating back to our television series Boss.
Strategically, the Starz deal is consistent with our long-term strategy of building our global content platform through a combination of organic growth and strategic, accretive acquisitions in which the whole is greater than the sum of its parts.
The combination of Lionsgate and Starz also reflects the industry trend toward consolidation that is evident in deals like the AT&T/Time Warner merger, aligning premium content with a world-class distribution pipeline.
WS: What will be the benefits of the deal for Lionsgate, for Starz and for shareholders?
FELTHEIMER: The deal creates a massive intellectual property machine that benefits everyone. Lionsgate and Starz will invest over $1.8 billion in new film and television content this year. Together, this will enable us to scale what is already one of the largest independent television businesses in the world.
It also provides a great opportunity for Kevin Beggs, Sandra Stern and the rest of our television group to collaborate with Starz on the same kind of platform-defining hits we’ve created for AMC (Mad Men), Netflix (Orange Is the New Black), Showtime (Weeds and Nurse Jackie), Hulu (Casual) and OWN (Greenleaf).
In addition to these operational and strategic benefits, we expect this to be an accretive transaction for our shareholders that generates strong free cash flow and a diversified, stable revenue base.
WS: Are there benefits to having greater scale when attracting talent for films and television series?
FELTHEIMER: We expect our merged companies to be a magnet for talent by creating greater opportunities across our film, television and network platforms. As Chris Albrecht has said, “It broadens our shoulders in the creative community.” It also brings us closer to consumers through our combined suite of over-the-top platforms and the STARZ app.
The need to scale up in order to continue competing successfully was one of the catalysts for the deal. Simply put, size matters in the current environment, though we’re mindful of the need to balance the benefits of scale with the importance of remaining agile and disruptive.
WS: How are you integrating the two companies?
FELTHEIMER: We have a track record of integrating assets quickly and efficiently, and the Starz integration is actually progressing ahead of our expectations.
From an executive perspective, we continue to take a “best and brightest” approach to assembling our leadership teams. We’re bringing our employees together to streamline decision-making with a new shared office in New York and plans to co-locate Lionsgate and Starz’s West Coast employees by year-end. We completed our deal financing with better terms than expected, and we’re on track to achieve our target of over $200 million in annual synergies.
Looking at the steps we’ve already taken to make our respective businesses stronger, we’ve integrated our worldwide home entertainment and television distribution operations, creating a home-entertainment powerhouse with a 12-percent market share. We’re distributing six of the nine Academy Award Best Picture nominees this year, including La La Land.
We’re already collaborating on three premium television series in the Starz development pipeline, with more on the way. And at our first NATPE together, only six weeks after closing the deal, we syndicated the subscription streaming rights to the Starz series Black Sails to Hulu—just the tip of the iceberg in terms of what we can do together.
WS: Is it still beneficial for a media company to own its content as well as the “pipes” for distributing it?
FELTHEIMER: Absolutely. With an ever-expanding array of buyers, owning content is more important than ever. Our content partners today include over 100 SVOD platforms, compared to just a handful a few years ago. At the same time, the number of premium, basic and broadcast network partners with whom we’re in business also continues to increase.
Turning to our own distribution, we see Starz as a branded content platform, not a “pipe.” Their addition to our portfolio of businesses not only creates fresh opportunities to monetize our content, but also increases the impetus for developing new properties, like Step Up, Dear White People, Dirty Dancing and the upcoming The Kingkiller Chronicle, that can be leveraged across multiple platforms.
We’re adding to our stockpile of content all the time through the in-house development of crown jewel properties, such as La La Land and the John Wick franchise, as well as the addition of exciting brands, like Power and Outlander through the Starz acquisition. That’s why we view the Starz deal as both an opportunity to scale our platform and continue the vertical integration of our business and as a content play that will strengthen our IP machine for global audiences.
WS: Given consumers’ viewing habits, are the distribution platforms increasingly OTT and mobile, rather than traditional broadcast or pay TV?
FELTHEIMER: We don’t see it as an either-or proposition. The simple fact is that more content is being viewed across more platforms than ever before, whether it’s fat bundles, skinny bundles or no bundles at all. We believe that we’re well positioned to supply premium content to nearly everyone.
Though we’ve emerged as the content supplier of choice for the streaming services, we also continue to strengthen our relationships with traditional partners such as Showtime, which recently acquired its third Lionsgate original series, the Jamie Foxx-produced White Famous.
We’re currently developing new shows for a diverse array of traditional and digital network partners that also includes HBO (American Lion), ABC (Dirty Dancing), Netflix (Dear White People), YouTube Red (Step Up) and Discovery, with whom we’re partnering on two new premium scripted series as they build their presence in long-form scripted programming. We now have a series airing, in production or in fast-track development at every subscription pay platform. The diversity of today’s media ecosystem plays to our strengths as a platform-agnostic supplier of premium content.
We also see opportunities for Starz across the entire media landscape. Driven by the strength of its programming and the sophistication of its technology, Starz is currently offered or about to launch on every new package, from traditional MVPDs and digital platforms alike. As we like to say, every new platform needs Starz.
WS: What are Lionsgate’s plans to increase its suite of OTT services?
FELTHEIMER: We continue to roll out a suite of OTT services distinguished by strong brands, backed by our 16,000-title film and TV library and targeted to affinity audiences that we’ve been serving for years. Tribeca Shortlist builds on our roster of prestige films and world-class talent. Laugh Out Loud features the exclusive online content of one of the biggest urban megastars in the world, Kevin Hart. Our Spanish-language SVOD service leverages the Pantelion film brand, partners us with the leading Hispanic media companies and is designed to be the first premium movie service for Latino audiences in the U.S.
We’ve been growing our SVOD business the Lionsgate way, with great partners and modest capital investment. Now that we’ve made such a large investment in Starz, we see an opportunity to pivot a little and make them the anchor platform of a “federation” of OTT services that would benefit from greater scale and a unified brand. This federation would include not only Lionsgate’s existing and soon-to-be-launched OTT services and Starz’s OTT offering, but also other, unaligned and free-standing SVOD platforms.
WS: What has been driving the success of Lionsgate’s television division?
FELTHEIMER: There’s really no secret sauce; it’s a combination of several factors. First, executive talent: Kevin [Beggs] and Sandra [Stern] have done an incredible job of scaling and diversifying our television business, and we also have great bench strength with rising executives like Laura Kennedy. Second, creative leadership: we continue to create original, noisy, platform-defining hits. Third, financial innovation: we continue to develop game-changing business models that adapt to a changing ecosystem. Fourth, diversification: we’re growing a strong unscripted business through a combination of internal development, with network reality brands Kicking & Screaming and Candy Crush, and our investment in Craig Piligian’s Pilgrim Media Group, a leader in the unscripted space. And finally, globalization: we continue to ramp up our television business in the U.K. with the hiring of creative executive Steve November and investments in production companies such as Primal Media, alongside our premier independent film brand in the territory.
WS: What is Lionsgate/Starz’s relationship with Netflix and Amazon?
FELTHEIMER: We see the streaming services as both partners and competitors. Dear White People, which premieres in April, will be our second original series streaming on Netflix, and Casual leads a roster of our shows on Hulu. We have great properties in development at Amazon (Time Out of Mind, based on the music of the great Bob Dylan) and YouTube Red (Step Up, a series adapted from our hit global film franchise).
Though these services have become aggressive bidders for films on the festival circuit, we’ve already partnered with Amazon Studios on three film-distribution opportunities in the past year: Woody Allen’s Café Society, the Oscar-nominated Manchester by the Sea (through our sister company Roadside Attractions) and the upcoming Sundance acquisition The Big Sick.
We’re all in the content business together, and there are plenty of opportunities to create win-win scenarios for everyone—if we’re flexible enough to think beyond the conventional wisdom.
WS: What opportunities do you see in the film business? What is on Lionsgate’s slate for 2017?
FELTHEIMER: We were fortunate to begin the year with La La Land, one of the most celebrated properties in our company’s history, and John Wick: Chapter 2, continuing a run of successful films that began in 2016 with Hacksaw Ridge, Tyler Perry’s Boo! A Madea Halloween and Hell or High Water with our partners at CBS. These films reflect our strategy of releasing a diverse portfolio and demonstrate our ability to generate hits without swinging for the fences.
Our upcoming slate also includes a number of films in our sweet spot, targeting one or two quadrants of moviegoers with star-driven releases that have breakout potential for success—Wonder and The Glass Castle, based on critically-acclaimed best-selling books; All Eyez On Me, the Tupac Shakur biopic; two more films from the incomparable Tyler Perry; The Hitman’s Bodyguard, with Ryan Reynolds, Samuel L. Jackson and Salma Hayek; and the return of Jigsaw in our Saw reboot.
We also have a number of higher-profile properties that include Otto Bathurst’s Robin Hood: Origins starring Jamie Foxx and Kingsman’s Taron Egerton; Chaos Walking, featuring Star Wars’ Daisy Ridley and Spider-Man’s Tom Holland in the film adaptation of the award-winning young-adult book trilogy; films based on the Hasbro brands Monopoly and My Little Pony; and The Kingkiller Chronicle, shepherded by producer and musical mastermind Lin-Manuel Miranda.
Although our approach to putting together our slate remains fundamentally unchanged, we’re continuing to innovate our film business to address new patterns of content consumption. At a time of massive audience fragmentation, we’ve developed several branded labels that are specifically targeted to affinity audiences—Pantelion Films for Latino moviegoers, Codeblack Films for African Americans, our sister company Roadside Attractions for specialty films and Lionsgate Premiere for multiplatform releases.
We also continue to explore opportunities for early premium VOD windows with our theatrical exhibition partners, and we’re creating new paradigms for next generation moviegoers with Atom Tickets, which is designed to energize the theatrical box office by transforming the way consumers go to the movies with their friends.
WS: What are Lionsgate’s plans for theme parks?
FELTHEIMER: We continue to focus on leveraging our portfolio of brands into ancillary businesses, and in the three years since we launched the initiative we’re pleased with our progress in building a vibrant location-based entertainment infrastructure.
We’ve already announced theme-park attractions and Lionsgate-branded leisure centers in the U.S., U.K., Europe, Dubai and China, and we expect to attract a total of 25 million visitors to our properties by 2020.
In addition to our franchises, including The Hunger Games, Twilight, Saw, Divergent and Now You See Me, the growth of our location-based entertainment business is coming from a broad range of properties. We just opened a live stage event based on recent installments of the Step Up franchise as part of the MOTIONGATE theme park in Dubai, and iconic television properties Orange Is the New Black, Mad Men and Nashville are expected to become centerpieces of the shopping destinations that we’re launching with our partner Parques Reunidos in Europe.
We’re always adding to our pipeline of great IP, and we’re already exploring a stage play and other brand extensions for La La Land.
WS: In which businesses and in which territories do you see the greatest opportunities for growth in the next 12 to 24 months?
FELTHEIMER: China is a major area of focus. Our box office there increased 62 percent last year, and the territory now accounts for more than 20 percent of our total international box office. With a state-of-the-art content licensing deal with online giant iQiyi, investments in co-productions and local theatrical product, a co-financing deal with Hunan TV & Broadcast Intermediary’s TIK Films, the Chinese-language sequel to our worldwide box office franchise Step Up and next year’s planned opening of a Lionsgate indoor entertainment center in Hengqin, our opportunities in China are greater than ever.
In addition to opportunities in individual territories, we formed the Globalgate Entertainment consortium last year to source intellectual property for local-language production around the world. Globalgate now encompasses 11 world-class distributors, including Televisa, Gaumont, Nordisk and Kadokawa. The Globalgate template has already spawned remakes of Pantelion’s Spanish-language hit Instructions Not Included in territories around the world, including Demain tout commence, a French-language version starring Omar Sy, which was a breakout hit in that territory.