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Executives

Peter D. Wilkes - Senior Vice President of Investor Relations and Executive Communications

Jon Feltheimer - Chief Executive Officer and Non-Independent Director

Michael R. Burns - Vice Chairman

Steven Beeks - President

James W. Barge - Chief Financial Officer

Robert G. Friedman - Co-Chairman, Chief Executive Officer and Director

Analysts

Alan S. Gould - Evercore Partners Inc., Research Division

Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division

David W. Miller - B. Riley Caris, Research Division

Stan Meyers - Piper Jaffray Companies, Research Division

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

David Bank - RBC Capital Markets, LLC, Research Division

Douglas Creutz - Cowen and Company, LLC, Research Division

Matthew J. Harrigan - Wunderlich Securities Inc., Research Division

James C. Goss - Barrington Research Associates, Inc., Research Division

Marla S. Backer - Ascendiant Capital Markets LLC, Research Division

Tuna N. Amobi - S&P Capital IQ Equity Research

Lions Gate Entertainment (LGF) Q2 2014 Earnings Call November 8, 2013 9:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Lionsgate Fiscal 2014 Second Quarter Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Peter Wilkes. Please go ahead.

Peter D. Wilkes

Good morning. Thank you for joining us for our Q2 analyst call. We'll begin with opening remarks from our CEO, Jon Feltheimer. Following his remarks, we'll open the call to your questions. Joining us on the call today are our Vice Chairman, Michael Burns; Motion Picture Group Co-Chairman, Rob Friedman; Chairman of the Lionsgate Television Group, Kevin Beggs; Steve Beeks, Co-COO and President of the Motion Picture Group; Brian Goldsmith, Co-COO; Jimmy Barge, our CFO; and Rick Prell, our Chief Accounting Officer.

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 in the future 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 10-K filed with the SEC on May 30. 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. Jon?

Jon Feltheimer

Good morning, everybody. I'd like to begin by welcoming Jimmy Barge, our new CFO, who is participating on our call for the first time. Jimmy has many years of major studio experience at Viacom and Time Warner, as well as a 13-year tenure at Ernst & Young. And he's already proving invaluable in charting financial strategies consistent with our company's continuing growth and evolution.

We completed a strong first 6 months of the year with a solid second quarter. As we previously forecast, our fiscal year will be backloaded, and we're on track for another very good year and on target for our 3-year guidance. Last weekend, Ender's Game opened #1 with $27 million at the domestic box office, and it has performed strongly during the week. With 2 financial partners and a business model designed to mitigate risk, it will become our 25th profitable film out of our last 30.

As you know, we're releasing Catching Fire on November 22. And I'm pleased to report that Francis Lawrence and the cast are already well underway in filming Mockingjay I and II back-to-back for release on November 21, 2014 and November 20, 2015, respectively. They will, however, take a break to promote our worldwide rollout of Catching Fire premieres, beginning in London this coming Monday and continuing in Berlin, Madrid, Rome and Paris, culminating in our signature event at the Nokia Theatre back in Los Angeles on November 18. In Paris, where tickets for the premiere went on sale to the public for up to EUR 60 a piece, the event sold out in 1 minute. With 16 million viewers of the final Catching Fire trailer during Game 4 of the World Series, another 20 million online viewers in the past week alone and day and date launches in more than 50 territories around the world, we're confident that we have positioned Catching Fire as a global phenomenon that will continue the growth of the franchise.

And when audiences go see Catching Fire on November 22, they'll also get their first look at the new Divergent trailer on the big screen. We think they'll like what they see, continuing the momentum of the biggest pre-sale order in HarperCollins' history. The third book in the Divergent series, Allegiant, has achieved robust initial sales that have exceeded expectations. Divergent is also tracking ahead of all of their films scheduled for release in the first half of calendar 2014 in social media surveys.

We have great expectations for several other high-profile films that are in production or preproduction, and I'd like to mention a few of them. Gods of Egypt, which we just greenlit for production, has all the financial and creative ingredients of a Lionsgate tent-pole release. Starring Gerard Butler, Geoffrey Rush and newcomer Brenton Thwaites, it was developed in-house from an original idea and will be directed by visionary filmmaker Alex Proyas, Director of I, Robot and Summer -- Summit's film Knowing. In addition, it accesses a substantial subsidy program in Australia and is a very attractive prebuy for our international distribution partners. These elements combine to create a tent-pole opportunity using a financial model consistent with our disciplined approach to domestic gap.

Another film with big upside is the action-comedy Mortdecai, currently in production in London, starring Johnny Depp, Gwyneth Paltrow and Ewan McGregor. We've again created a distinctively Lionsgate business model consisting of strong international presales, a cofinancing partner in Gigi Pritzker's OddLot Entertainment and a film budget that belies its all-star cast.

We expect these films, along with titles like the next installment of The Expendables, Draft Day, starring Kevin Costner and Jennifer Garner, directed by Ivan Reitman; and The Last Witch Hunter, which starts production early next year, starring Vin Diesel, to drive an upcoming slate that's positioned to build upon the box-office success we've achieved over the past 2 years.

Having seen some amazing early footage, I want to single out Expendables 3 for a moment. Adding the magnitude of Mel Gibson, Harrison Ford, Antonio Banderas, Wesley Snipes and Kelsey Grammer, along with several exciting newcomers, including UFC champion Ronda Rousey, to an existing cast of renowned action icons gives us confidence that we've repositioned this franchise in a powerful way.

As we prepare our film slates through fiscal 2016, we're focused on areas with the greatest growth potential and our international theatrical businesses foremost among them. While domestic box office remains relatively steady in the $10 billion range, international box office grew 6% last year to a record $24 billion. Our own global theatrical business has mirrored this trend. With our self distribution operations in the U.K. coming off a record year, our highly successful IDC joint venture in Latin America, our Celestial Tiger partnership serving China and Southeast Asia and output deals covering most other major territories, we believe that we're well positioned to capitalize on these international growth opportunities. While most of you are aware that Now You See Me has grossed more than $230 million in its international run alone, you may be surprised to learn that our recent release Escape Plan will generate enough revenue worldwide through a combination of minimum guarantees and overages to become a very profitable film for us. And as we mentioned a moment ago, we expect Catching Fire to significantly outperform the first Hunger Games film at the international box office.

Reflecting our focus on areas of growth. We continue to operate the largest third-party international distribution business in the industry, and sales of our owned and third-party titles are off to a fast start at AFM this week. It's interesting to note that this business not only enables us to self-proceed [ph] films like 20 years -- 12 Years a Slave internationally but generates enough revenue to cover nearly all of our international overhead.

We're also poised to capitalize on growth in niche markets, where we've already built a leadership position, contributing to the diversity of our portfolio. This year, Lionsgate had 7 of the top 25 independent films through our Pantelion and Roadside Attractions partnerships.

Pantelion's Instructions Not Included is not only the biggest independent film of the year but the highest-grossing Spanish-language film ever released in the United States. It demonstrated the appetite for commercial films with Latino themes and characters among U.S. Latino moviegoers and also elevated the profile of the Pantelion brand. It's worth noting that Pulling Strings, the film released immediately after Instructions Not Included, has become the second highest-grossing film in Pantelion history.

The acclaimed drama Mud is another of this year's top independent films and, along with Robert Redford's All Is Lost, gives our Lionsgate-Roadside partnership 2 important year-end award contenders.

The big news in our television business is that new buyers continue to drive our diversification in the quarter. We added WGN America to our stable of important network relationships, as they ordered the scripted drama series of Manhattan for their first lineup. Created by Sam Shaw and directed by West Wing alumnus Tommy Schlamme, Manhattan is set against the backdrop of the secret mission to build the world's first atomic bomb. Think the Manhattan Project meets The Right Stuff. And it continues our strategy of creating premium, differentiated content for emerging networks.

In that same vein, we and Netflix are very pleased with the performance of Orange Is The New Black, which has become Netflix's most-watched original series to-date. Book sales have skyrocketed to #1 on the New York Times Bestseller list since the series launched. And international sales of the TV series have performed well ahead of our expectations.

We're also pleased with the early second season performance of Nashville. The show premiered to 6.2 million viewers, up from the Season 1 finale. And it's getting a big lift in the C3 and Live-plus-7 ratings, showing the breadth of its viewership in a time-shifted environment. Equally important, it has already generated millions of dollars from its 2 hit soundtracks. And future concert tours and merchandising have the potential to generate significantly more incremental revenue as the show progresses toward syndication.

In her fifth season, Wendy Williams has become an unqualified success story. Two weeks ago, the show reached more than 1.6 million homes, a 40% increase over the same period last year and the highest-performing week in that series' history.

Our momentum in the 10+90 TV business continues to build as well. In addition to completing 55 episodes of Anger Management, we've shot the first 10 episodes of The George Lopez Show, which airs early next year, and we'll start production soon on a new series with Martin Lawrence and Kelsey Grammer. During the quarter, we also continued to grow our roster of A-list TV talents, signing an overall deal with film and TV star Kevin James.

Speaking of growth, TVGN, our partnership with CBS, has been the fastest-growing cable network in the country for the 3-months July through September quarter, with triple-digit ratings growth in both primetime and late night. TVGN has also strengthened its distribution footprint and, as we've previously forecast, is now approaching 90% full-screen penetration among its 80 million-plus Nielsen homes. It has entered into a new long-term carriage agreement for full-screen distribution on Cox's digital tier, launched in HD and full screen in key markets on Comcast, Charter and Time Warner Cable and launched in HD across Verizon's entire footprint.

Even in a quarter with a challenging comp to the prior year's quarter, which included the packaged media and digital release of The Hunger Games, we continue to be pleased with the diversity of content that is performing well in the home entertainment market, with digital overperformance driving margin growth. The home entertainment business has returned to growth and nowhere is more evident than in our managed brands segment.

Managed brands is one of our fastest-growing categories of content, and it's expected to generate more than $350 million in revenue and nearly $60 million in gross contribution this year, profit that is achieved with little or no additional overhead and is entirely incremental to our film and TV business. We're seeing growth across the entire spectrum of specialty theatrical titles, branded fitness content, direct-to-video releases and third-party library product.

Some of our greatest contributions are coming from titles from the A&E distribution deal we signed last year. Duck Dynasty, currently the best-selling TV show on DVD, has performed especially well, generating tens of millions of dollars of revenue.

In closing, you saw the $36 million early extinguishment of debt charge we reported in the quarter associated with the refinancing of our notes. During the past year, we've reduced our overall net debt by nearly $300 million, and we've reduced cash interest expense from $75 million last year to our current running rate of approximately $40 million annually. As I mentioned earlier, we're also on track for our internal financial projections for the year, as well as our 3-year guidance. And as this quarter's results showed, we continue to generate strong free cash flow.

As you can see, we continue to be entrepreneurial and flexible not only in the types of content we produce but in the financial models we build to maximize their profitability and the distribution strategies we employ to reach an expanding array of buyers. In a world of dynamic change, we'll continue to be nimble, with the only constants being the diversity of our portfolio, our commitment to differentiating ourselves from our competitors and our continued rigorous focus on cost discipline.

I'll now open the call to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question is from Alan Gould with Evercore.

Alan S. Gould - Evercore Partners Inc., Research Division

I have actually got 3 questions. First, for Michael, you're paying down the debt pretty quickly, and, hopefully, Catching Fire allows you to accelerate that. Do you have some sort of a target leverage ratio? Would you go to a net cash position? Or do you buy back stock? Or are there any more Summit Entertainment-type deals that you can do? I'll take the answer to that and then come to the next one.

Michael R. Burns

We're going to do those, the best thing for our shareholders, Alan, from an accretive nature. We -- there are no giant Summit-type deals on the horizon. We're often asked about what's the right amount of leverage for us. I would guess somewhere in the $300 million to $500 million range. And again, we're going to be smart about paying attention to what interest rates are doing at the time and making sure that we are -- we have the right amount of leverage to increase shareholder value. As far as the buyback, it's something that we look at. We obviously have a couple big movies on the horizon, so we're going to determine how much cash, maybe excess cash that we'll have and what's the best use of that for it at the time.

Alan S. Gould - Evercore Partners Inc., Research Division

Okay. And, Jon, for you, can you just update us a little more on the SVOD market? I assume revenue will be up this year for you because of Orange Is The New Black. But what are you seeing outside of Netflix, with Amazon, with Hulu? And I believe you just announced the international deal with -- this week.

Jon Feltheimer

I'll let Steve answer that question.

Steven Beeks

Okay. Alan, as you indicated, obviously, Amazon and Hulu, in particular, are both growing in that area. Beyond what you mentioned with new productions that Kevin is working out, with Orange Is The New Black, and working with Amazon on television pilots, they're becoming a much more aggressive buyer of product. And as you mentioned, we just announced an international deal. And I think as Netflix and Amazon expand internationally, I think you're going to see a lot more of our revenue generated by that, particularly in the library segment.

Alan S. Gould - Evercore Partners Inc., Research Division

Okay. And my last question is, the tax rate was down to almost nothing this quarter, should we expect that trend to continue on a book basis? And I assume, Jimmy, that cash taxes are 0 and should stay 0 for a while?

James W. Barge

Yes. Thanks, Alan. I'll tell you, you referenced the kind of 0 effective tax rate. That's on a reported basis. So the way we look at it is on an adjusted basis, where you normalize out, for example, the onetime benefit associated with reversing the Canadian NOL. You'll notice that we adjusted that out of earnings per share when we reflect adjusted earnings per share. Similarly, I adjust that out when looking at the effective tax rate on an adjusted basis. And as you'll see in the 10-Q as well, on an effective tax rate basis adjusted, the effective tax rate for the first 6 months or our year-to-date was 36.5% this year. That compares to 39.5% in the prior year year-to-date. So we've got a downward trend there, and we're going to continue to work hard to continue to reduce that and improve on that rate as we go forward. And I would hope that we can extend that trend in terms of improving rates. With respect to cash, from a cash perspective, as we said before, with the NOLs that we have, we do not expect to be a cash taxpayer until at least fiscal year '15. But in addition, we're working hard to utilize the NOLs in the most efficient manner and to extend those further into the future as well. With regard to the effective tax rate, what I would add is that, ultimately, the rate is going to be dependent upon the levels of pretax income and then our tax planning opportunities that are available to us in the various jurisdictions around the world in which we operate.

Alan S. Gould - Evercore Partners Inc., Research Division

So should we model something in the mid-30% for financial reporting purposes?

James W. Barge

I'm not going to -- at this point, it's too early to provide a specific target to you, but I would say that we expect to continue the downward trend that you've seen in the year-to-date comparisons.

Operator

And our next question is from Ben Mogil with Stifel.

Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division

Jimmy, welcome aboard. On the margins, the margins were a little bit better on the motion picture front than I think we've seen a little while. Is there anything structural going on there or is it just sort of more timing of what the mix was?

James W. Barge

That's really more timing with regards to the mix. As you can see, we had a great quarter with respect to Motion Picture Group, very difficult comps, as you know, against prior year Hunger Games in packaged media, but really came through strong with regards to the gross contributions with the strong performance of Now You See Me, as well as the managed brands performance that Jon mentioned earlier. So really felt good with the ability to mitigate the tough comp at the adjusted EBITDA line.

Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division

And then when you look over to library, so managed brands is clearly one part of the growth. Are you seeing that growth in managed brands being physical, obviously, as well as digital because, obviously, digital should be very strong on library in the quarter and, I think, the highest run rate in a long time?

Steven Beeks

This is Steve. Yes, it's growing in all areas. Obviously, digital is a big component of that, but, and you know this, with strong sales kind of across all the brands, A&E, we've got some. A&E is doing incredibly well. Dirty -- Duck Dynasty was the #1 television series on DVD this year-to-date, and it's just knocking it down. But Miramax library is doing great, the HiT library is doing really well, family, fitness, so I think we're seeing it kind of across the board, both packaged media and digital, but digital leading the way.

Jon Feltheimer

Yes. And, Ben, to remind you, when we -- you talk about library, the managed brands segment is essentially distributing third-party library, not our sort of core library.

Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division

Sure, sure. And then just lastly, on TV Guide, so it looks like the last couple quarters are more towards the breakeven. I'm not looking so much for guidance, but do you think that's sort of a reasonable run rate for us to be thinking about things going forward?

Jon Feltheimer

Yes, I think that if our ratings growth continues, ad revenues should follow, and I think, certainly, within our fiscal year, a run rate of at least breakeven, if not positive contribution, should be in the cards.

Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division

And did FX return any capital to you guys in the quarter?

James W. Barge

No.

Jon Feltheimer

FX will be returning any capital to us this year but not in the quarter.

Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And is FX kind of generally going to be returning the bulk of its EBITDA back to shareholders? Is that, at least right now, the general game plan?

Jon Feltheimer

I think, basically, we're going to continue to throw off cash with no reason to really hold on to it. We are going to start looking at some original series. I think that between Lionsgate, Paramount, and MGM, we're pretty capable of creating some pretty cool original content. But that shouldn't cut too much into, at this point, our distribution or dividending out of the excess cash.

Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division

Has the lack of originals come up in conversation with MSOs on carriage?

Jon Feltheimer

We're having, actually, I would say, right now some pretty positive and significant conversations with MSOs, who look at just the overall Epix channel is something that they can use in a smart way in the world where they're changing a lot of their models, they're looking at various digital kinds of offering, authentication, obviously. I think we've got a fantastic theatrical lineup as good as any other pay channel, we have a lot of original stuff, but not scripted at this point. So I think it's pretty clear, as you look across the board, that 1 or 2 great scripted shows can actually drive an entire channel or network. And so I think they would consider it a plus for us.

Operator

The next question is from David Miller with B. Riley.

David W. Miller - B. Riley Caris, Research Division

I just wanted to drill down on this -- on sort of delta in TV production revenue. I think a lot of us on the sell side were looking for kind of an $81 million -- sort of $85 million revenue number in TV production. It was $64 million. You guys talked about some timing issues. Maybe, Kevin, if you're on the call, if you could just extrapolate on that. Would that imply a stronger December quarter in TV? And then, Jimmy, what was going on with the share count? The share count declined by looks like 9 million or so. Any detail on that would be helpful. And then I have a follow-up.

Jon Feltheimer

Jimmy, why don't you talk about TV deliveries?

James W. Barge

Yes, with regard to television, there's some timing going on there, as you alluded to, but we've actually had a very good first half, as John has mentioned. And we're actually running a little bit ahead of our internal projections there as well. But to give you some perspective on it, for the year, in television, if you look at it from our top 6 television programs, we're delivering this year about 113 episodes on full year basis for fiscal year '14. Only 11 of those occurred in second quarter. So there's some timing there on the delivery of episodes, but we feel very good as to how we paced in our year-to-date. And versus our own internal projections, we feel very well poised for a strong second half.

Michael R. Burns

And, David, actually, the share count went up about 1 million -- or almost 2 million shares because of the exercise of options. It went up from 135.8 million to about 137.8 million, so I'm not sure what you're looking at.

David W. Miller - B. Riley Caris, Research Division

Well, I've got 149.4 million versus last quarter 140.6 million, but I hear what you're saying. The next question is, Jimmy, the DreamWorks Animation had some nice afterglow on their stock price last Monday, when they announced that they're going to regroup and reclassify their financials to include a breakout on revenues and operating income with film, TV, classic media, consumer products, et cetera. Would you guys ever consider doing it -- that? Now that you're CFO, would you ever consider, I don't know, maybe just a little bit more transparency or a little bit more detail in the Qs and in the financial releases, on maybe, say, breaking out the financials between theatrical, I don't know, home entertainment, international, TV production? Any thoughts there would be helpful.

James W. Barge

Yes, sure, David. We're always looking at our financial statements and communications and improving where we can. So this is an initiative the company has had on an ongoing basis, so it's not just my arrival. So we'll continue to do that and see how we can break out information for you. I think there's quite a bit, actually, that's already there with regards to our communications and a lot of breakouts and certainly, as Jon and Steve already alluded to, got a very strong managed brands business, and we'll contain to provide you some highlights there and information that helps you have a better understanding and visibility into those businesses, whether or not that translates into changing our segments or, otherwise, specific breakouts in our financial statements is another matter that we consider on an ongoing basis.

Operator

The next question is from James Marsh with Piper Jaffray.

Stan Meyers - Piper Jaffray Companies, Research Division

It's Stan Meyers on behalf of James. I guess my question here is a follow-up on Catching Fire. Given virtually day and date global release of the film and international box is becoming a bigger story for the second film, can you share any tracking internationally or any other measures that you use to gauge interest internationally? I'm just trying to get comfortable around the estimates with international opening weekends.

Robert G. Friedman

It's Rob. Thanks for the question. Yes, we've been monitoring tracking around the globe really. And in addition to the very, very strong tracking domestically, we're seeing those same sort of results in the U.K., Germany. Our Italian distributor is very excited about what's going on there. So we're very, very excited about everything we're seeing internationally. And the London premiere is Monday, so there's a lot of excitement around that. And as Jon indicated, our creative team, our director, producers and actors are starting a world tour on Saturday, heading to London and then Spain, Berlin, Paris, Madrid -- I did say Spain -- Madrid, so -- and Rome. So it's going to be a very exciting launch period.

Stan Meyers - Piper Jaffray Companies, Research Division

And just a quick one on Divergent, the third book in the series, obviously, breaking records in sales but did get some weaker-than-expected reviews. Does that concern you at all or that's just kind of a natural falloff in the -- at the end of the series?

Robert G. Friedman

Well, the reviews that we saw were quite strong. I mean, there was the debate over the ending, but we're seeing a lot of a very, very positive trending amongst the fan base that's building an excitement and enthusiasm. So we're very, very happy with the results.

Jon Feltheimer

Yes, I'd add on that. A little controversy in terms of publicity never really hurts.

Operator

Next, we have the line of Alexia Quadrani with JPMorgan.

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

Just a follow-up question on some of your comments on Ender's Game. Can you just give us some color where it came in versus your internal expectations? I guess, what would it take -- or I mean, at this point, are you considering a second film, a sequel? Or I guess, what would it take to put that in consideration?

Jon Feltheimer

Yes, I'll answer that question. It came in virtually exactly on our base case. The -- we're going to wait for a week or 2 to see how it finishes out, but we think it's a great piece of IP, and we'll talk to our partners about what the future plans are, whether it's for sequels or television or other ancillary possibilities we have. But again, this is consistent with the kind of modeling that we do on all of our movies, and, as I say, it came in basically right at our base case.

Robert G. Friedman

And we're just out now for 7 days, and our performance has been very, very good, as you know, #1 on the weekend, and our daily numbers have been very strong, so we're excited about it.

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

Okay, great. And just one follow-up. When you look at the success you've had in some of these -- in selling Orange Is The New Black to Netflix, could you talk about the possibility of -- I guess, could you explain to us, is there a back-end opportunity at all there when you sell direct to digital, I would assume less so the case? I guess, any color on that front would be helpful.

Jon Feltheimer

Yes, sure. There absolutely is. And each show is different in every studio that's now negotiating with Netflix, is coming up with slightly different model. But there is no question in that particularly linear syndication, packaged media, international syndication, those are all part of the back-end revenue stream that we expect. So we think Orange is going to be a very, very, nice annuity for us.

James W. Barge

And, operator -- with respect to David's earlier question with regards to a decline in shares, I would just note that that's on a fully diluted basis, David, and the reason for that decline is because of the convertible securities. We're not dilutive in the period. That's more because of the level of pretax income during the period, which was fairly close to breakeven on a reported basis. I'd expect that probably to turn around next period. So there's nothing fundamental there with regards to that change.

Operator

And next question, we have David Bank with RBC Capital Markets.

David Bank - RBC Capital Markets, LLC, Research Division

If I go back to something Jon kind of glossed over in the introduction, which is I think you said something like you're comfortable with your long-term guidance. And I sort of go back, and I think about when you gave that guidance, if you'd said to me that Now You See Me is going to be a $350 million global box office and that, basically, very little would go wrong. There've been almost no meaning -- I think no meaningful sort of misses, really, and you've had some real upside, the Pantelion, that partnership is starting to pay off, you have movies like Now You See Me, you've got all these franchises in the hopper, what -- but what else do you need to see before you would take guidance up?

Jon Feltheimer

Well, I think about 2, 3 quarters ago, we took guidance up a little from the original $900 million to $1 billion. And as Michael says often and we've said is we want to overperform, not underperform. Obviously, the results of Catching Fire are going to be really important. And obviously, and we've budgeted Divergent very, very modestly, but that's in this fiscal year as well, and that's at the end of the year, and the results of Catching Fire, the financial contributions from Catching Fire and Divergent will significantly impact '15, which is the third year of our 3-year guidance. So I think that we're being appropriately conservative. We're going to continue to be. Some of our results, obviously, also will reflect the effect of our -- effectiveness of our television business. And again, we have 2, maybe 3, new 10+90 series that are going to come in the next year. So again, we'd like to think that we're going to overperform.

David Bank - RBC Capital Markets, LLC, Research Division

So -- I'm sorry, just one follow-up -- it would be. So it's really -- I guess, at the end of the day, Divergent is the -- is kind of a toggle. And is that like -- that's kind of how we should think about it?

Jon Feltheimer

I think we -- listen, I think that we have modeled Catching Fire reasonably conservatively as well and, specifically, in terms of the international performance. And so, yes, clearly, clearly Catching Fire and Divergent will strongly impact the results of '15 and, again, the final year of our 3-year guidance. But I think I would, again, remind everybody, we've got about $1.1 billion of backlog right now, and that backlog is made up of a whole lot of movies and television shows not having anything to do with Hunger Games and certainly not Divergent. So those will roll in, as is typical, over the next 18 months. Again, we feel really good about -- or the majority, call it 60% to 70% of that rolls in over the next 18 months. So we're- -- again, we're confident about the numbers that we've given the Street, but we're not prepared to change guidance at this time.

Operator

[Operator Instructions] We have a question from Doug Creutz with Cowen and Company.

Douglas Creutz - Cowen and Company, LLC, Research Division

Instructions Not Included, obviously, it's done an order of magnitude better than any of the other Pantelion's films. I just wondered if you think that's due to success entirely within the target demo or do you think it broke out beyond Spanish-speaking audience? And is there any other kind of lessons you draw from that film's success?

Jon Feltheimer

Yes. It was actually mostly core, so much so that, actually, we are looking at remakes in about 4 territories right now, including domestically with a potential star. We think, obviously, that that's significantly more than any of our other movies. By the way, the movie released right after that, as I mentioned, doing about $6 million, maybe $7 million at the box, actually, a very profitable movie for us. You have to remember, these models are very, very different. Instructions was made for less than $5 million. So we're just particularly pleased. Obviously, a movie made for $5 million does $40 million at the box with strong sales, particularly in Latin America, you've got to understand how profitable that can be. And again, we think we're just starting to tap into this Latino audience. But of course, we do believe as well movies like that could cross over as we continue to educate the audience and do movies that have kind of a universal appeal, if you will. So very encouraged by that.

Operator

Next question is from the line of Matthew Harrigan with Wunderlich Securities.

Matthew J. Harrigan - Wunderlich Securities Inc., Research Division

Your friends at Netflix really put a big stick in the hive in their comments on the theatrical industry. Obviously, that's the most important growth factor internationally for the studios. But you've done phenomenal conversion ratios on a lot of smaller budget films. I mean, how do you feel about, even taking example of Pantelion and Instructions Not Included, marketing that more into almost a simultaneous release date? I'm sure you wouldn't do that for a big franchise like Divergent or Gods of Egypt or Hunger Games. But selectively, as you pointed out, I mean, you do a lot of fine-tuning on the economics of individual projects, and it looks like there is some -- something like for the some-$5 million project like Instructions Not Included, it looks like it could really have some nice economics.

Jon Feltheimer

Yes. I think our calculus on these kinds of decisions is pretty simple. It's based upon 2 different things. One is there is kind of a smart or smarter economic model that we can put together that utilizes all of the revenue streams, doesn't cannibalize one more than it improves another, and that makes a better financial model than we would have if we did a traditional release. The second thing is how can we make something that all of our partners benefit from as opposed to one of them, and we're very cognizant of that and work very closely with the exhibitors, work very closely with our VOD partners and potentially our SVOD partners to create something that makes it better for us but also makes it better for them. And so these will be sort of what I would call game-time decisions.

Matthew J. Harrigan - Wunderlich Securities Inc., Research Division

And then secondly, when you -- this is a real big picture question. Obviously, you brought in a lot of international expertise with the Summit deal, with Rob and all that. When you look at Latin America and you got a good feel for that market with your friends at Televisa as well, what do you think the appropriate indigenous product market share is long term? Right now, it bobs around ridiculously quarter-to-quarter if a particular movie works in a given market. But do you think that, that just collaborates [ph] much more toward local product? If you got out 5 to 10 years, and that's a big angle for you as well, particularly in that territory?

Jon Feltheimer

Well, look, look, Latin America and Brazil are tremendous markets. We are -- actually, Brazil is one of the territories we're looking at remaking Instructions Not Included. I think our very close relationship with Televisa gives us a leg up, our partnership in IDC gives us a leg up because we're on the ground in Latin America in a very, very positive way. I think, frankly, having Pantelion here, where we're making product, where we can take product that is created and built in Latin America, make it work here, we can create product here for the indigenous population that we can actually exploit there is also a benefit. So this is an incredible, strong, growing population. From an advertising point of view, they're starting, certainly, to recognize the CPMs for Spanish language television improving. So we think this is a great market. We made the commitment in terms of Pantelion years ago, 3 years ago, to take our time and build up our relationship with the Spanish-speaking or the Latino bilingual audience here, and I think it's starting to pay off. So the answer is bullish, bullish on the market and bullish on our opportunity there.

Matthew J. Harrigan - Wunderlich Securities Inc., Research Division

I saw Ender's Game, I bet it has a great detail in your library. Hope you do something on the TV side with it.

Jon Feltheimer

I appreciate that, Matthew.

Operator

Next question is from the line of Jim Goss with Barrington Research.

James C. Goss - Barrington Research Associates, Inc., Research Division

A couple of them. First, on the television side, once you get to some sort of critical mass as you develop the various paths you're taking between cable and the 10+90 arrangement and, potentially, some additional network show, is there some seasonality or patterns we might expect in the revenue base from the television side of your business?

Jon Feltheimer

That's a good question. If I could sort of give you a sense of things, if you figure 1 or 2 of these new 10+90 shows go and if you assume Nashville in syndication, I would say from a contribution point of view, if you look out starting at, say, fiscal '17, I know a couple of the analysts have been sort of looking at sort of post the initial guidance that we've given -- and if you start looking at '17 and beyond, I think you're probably talking about a lot of syndication revenue coming in on a pretty consistent basis going out for least 3 or 4 years just from sort of the stuff that we've got in the hopper right now. And I would say, to give you a little sense of it in terms of timing, you probably are looking at about a $50 million incremental contribution from that syndication from our current television business.

James C. Goss - Barrington Research Associates, Inc., Research Division

Okay. And are you thinking -- are you inspired with Nashville to develop more broadcast partnerships programs or...?

Jon Feltheimer

Let me by the way make sure it was clear, that was on an annual basis.

James C. Goss - Barrington Research Associates, Inc., Research Division

Annual basis, $50 million, okay.

Jon Feltheimer

So on an incremental -- incremental to sort of the base case of kind of where our run rate is right now in our television business. The thing about the broadcast business is it's certainly a higher-risk business. One of the reasons that we liked Nashville was that we saw the ancillary revenue benefits that we thought we would get and are getting from soundtracks. And we're hoping, going forward, we can put together a tour that not only cross-promotes the show, but also these tours are quite profitable. So I think the answer, in general, is we've really enjoyed our opportunity to grow our business in basic cable and pay television and now in what you would call sort of the SVOD space, I guess. We've got a new show that we're doing. We're really excited about the new show that we're doing with Hulu as well. We figured out a way to do something that worked for them and for us. But there's no question on a specific show-by-show basis that we look at the broadcast business as a way to have a larger back end -- higher risk upfront, bigger back end in the back. Certainly, on a case-by-case basis, we will try to exploit those opportunities.

James C. Goss - Barrington Research Associates, Inc., Research Division

Okay. A couple of others. Can I assume, given the optimism you have for Catching Fire, that the deal -- the international distribution deal was structured so that at certain levels you may or may not be willing to develop, you'll have some additional upside beyond which -- beyond the cost mitigation side that you usually approach the international deals with?

Jon Feltheimer

Overages are a constant component of our output deals and our -- and any deals that are not with outfit territories, so absolutely.

James C. Goss - Barrington Research Associates, Inc., Research Division

Okay. And lastly, I was wondering if, as you've blended Summit with Lionsgate, that you've had any change in attitude about what the best level of annual film slate should be. Or -- and will this be continually evaluated?

Jon Feltheimer

No. Our main labels will still consistently deliver 13 to 15 titles annually. We think that's a good rate for our business and all of our internal machinery. But we're enjoying a lot of opportunity with our other labels, Pantelion, Roadside, et cetera. So we're very comfortable with the way it's looking these days.

Operator

Next question is from Marla Backer with Ascendiant.

Marla S. Backer - Ascendiant Capital Markets LLC, Research Division

I jumped on the call a little late, so if you've already addressed this, I apologize. Can you talk a little bit about the merchandising platform for Hungers Game -- Hunger Games, if there is any particular category where you're seeing strength that was a little surprising to you?

Jon Feltheimer

Well, the merchandising on The Hunger Games franchise has been very, very robust. We're particularly excited about our Capitol Couture portion of the licensing and merchandising, so it's -- it's been very opportunistic, continues to be, and the excitement amongst the fan base is growing so.

Robert G. Friedman

I would just add that we have been approached in 2 different territories by potential theme park opportunity, which sort of gives you a sense of the cultural impact of this franchise, and we are excited about those opportunities and pursuing them.

Marla S. Backer - Ascendiant Capital Markets LLC, Research Division

But that could be a really strong opportunity.

Robert G. Friedman

Yes, it could.

Marla S. Backer - Ascendiant Capital Markets LLC, Research Division

And then one other question, which is you just mentioned a few moments ago on Roadside. So they have that Robert Redford movie out now, and if that ends up in the mix for awards nominations, what kind of increased spending would that imply and what would that mean for you in terms of economics?

Jon Feltheimer

We've already built in an Oscar approach into our thinking as it relates to our spend, but our spend is very, very modest. We're actually expanding again this weekend. And the rollout has been very, very calculated and has been -- the movie has been responding very well to audiences. So we're very conservative in the way we're going to spend. And this title is being driven to a great extent by the critical response to the performances and to the film itself. So not a lot of increase in spend.

Operator

And our last question in queue is from the line of Tuna Amobi with S&P Capital.

Tuna N. Amobi - S&P Capital IQ Equity Research

I have a few. Can you talk about EST window and how you view that and kind of any specific impact that is having on your digital category in home video as a whole? And then separately on social media, I think you guys are quickly developing a very good template on how to pull off social media marketing. I think you did that pretty nicely on Hunger Games, Catching Fire. And I think Jon alluded to Divergent as well. So I was trying to get a sense on how you kind of view that as -- what's your philosophy? And any specifics on how you guys can use that as a platform and what impact, if any, that you've been able to track using social media on your films? And then lastly, we haven't heard a lot lately about FEARnet joint venture, and I think you've seen some horror films make a big splash on broadcast television this year. And I was wondering if you can update us on how you kind of view the opportunities of horror on television, perhaps, using the FEARnet platform or any other vehicle. And specifically on FEARnet, if you can provide an update on the distribution and programming plans for that, that would be helpful.

Steven Beeks

Tuna, this is Steve. I'll take the -- your question on the EST window first. And as you've probably seen within the home entertainment growth through the year up, EST has been the top performer, growing almost 50% year-on-year, and part of that growth is being driven by the early windows. A lot of the studios have adapted early EST windows, meaning that EST goes before DVD. And we've done some of that as well. We've done a lot of that. The one thing we've done differently than the studios is we do it on an opportunistic basis. We look at every single film differently and make a judgment call on what kind of film we think is going to benefit from that, and that's definitely driving it. Part of that growth is obviously driven by the growth in the UV marketplace. I believe we've gotten to over 14 million installed accounts. The average number of films in each account is now, I think, approaching -- especially the new accounts, it's approaching 1.5, which means there are transactions occurring. So that's all good news. And we think that's a trend that's going to continue. We've got, I believe, 13 retailers that are supporting UV, and we've got a couple of other very large retailers that we expect in the coming months to announce support of the UV marketplace. I think that's going to grow -- that's going to accelerate growth in the EST marketplace even further.

Jon Feltheimer

Yes, and I'd add I think you're going to see in the next couple of weeks at least one major MSO announce EST. And I think when that happens, it's really going to open up amazing opportunities. We've been talking about this future of digital electronic sell-through, and I think you're going to see it in a very short period of time.

Robert G. Friedman

On the social media question, we -- very, very high on our agenda daily is the activation of our tens of millions of social media fans that we have with our product. So social media is a constant with us. We think it's an extraordinary platform for communicating with our fans, for messaging to the social media landscape in general. So it's a high priority for us on a daily basis.

Michael R. Burns

I just want to add one thing to that. It's 300 million fans, Facebook fans, at our IP alone, and Rob and his team are doing a great job cross-promoting our pictures and whether it's Facebook, Twitter, YouTube, the efficiency is finally coming into focus, which is terrific. We're also very excited on the Internet front about the merger between Break and Alloy, and particularly on the Break side, us being able to get to young men in an efficient manner and have an equity stake, we think that's exciting.

Jon Feltheimer

But let me add, really, a final note, which is what our agenda is and what everybody in -- here at Lionsgate is tasked with is how do we utilize the benefits of social media and drive down our costs of marketing these pictures, and we really think that's possible. We think we have been more efficient this year on our film slate, and we think, frankly, we will be more efficient again next year with our film slate with the benefits we've gotten from our new consolidated agency deal, from our more efficient use of social media and digital media in general. So I think, I would say, we don't just want to pat ourselves on the back and say we're doing a pretty good job in social media, we want to actually convert that to dollars.

Tuna N. Amobi - S&P Capital IQ Equity Research

Are you able to quantify the impact on marketing at this point? That's what I was actually getting at.

Jon Feltheimer

I don't think we're prepared to give you a specific number, but I can tell you, again, we are seeing some impact on the slate this year. I believe there will be more next year, and maybe we can talk about it then.

Tuna N. Amobi - S&P Capital IQ Equity Research

Okay. And there's the last question on FEARnet and horror?

Jon Feltheimer

I would say, I, like you, continue to be mystified about the fact that FEARnet is not being picked up by more MSOs because horror is great. Now as you recall, we have -- in our partnership with Celestial Tiger, we have Thrill. I think Thrill is doing very well in the 6 or 7 Asian markets that we're in. And I think it's pretty good model, frankly, for FEARnet. We've got great content on it. We're putting, obviously, our content and Sony's content on it. We are the largest contributors of horror content in the business together. So we're trying to figure out how to make FEARnet a more important part of our business or some other way to deliver value through FEARnet, so stay tuned.

Tuna N. Amobi - S&P Capital IQ Equity Research

I mean, there's certainly been an appetite for -- on broadcast television this year for that kind of programming, wouldn't you say?

Jon Feltheimer

No question about it.

Operator

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