Lions Gate Entertainment Corp. (NYSE:LGF)
Q4 2016 Earnings Conference Call
May 26, 2016, 09:00 AM ET
James Marsh - Senior Vice President of Investor Relations
Jon Feltheimer - Chief Executive Officer
James Barge - Chief Financial Officer
Michael Burns - Vice Chairman
Robert Friedman - Co-Chairs Motion Picture Group
Steve Beeks - Co-Chief Operating Officer and President Motion Picture Group
Kevin Beggs - Chairman Lionsgate TV Group
Brian Goldsmith - Co-Chief Operating Officer
Rick Prell - Accounting Officer
Laura Kennedy - EVP of Corporate Development
Alexia Quadrani - JPMorgan
Todd Juenger - Sanford C. Bernstein & Company
Stan Meyers - Piper Jaffray & Co.
Benjamin Mogil - Stifel, Nicolaus & Co., Inc.
Barton Crockett - FBR Capital Markets
John Janedis - Jefferies & Co.
David Miller - Topeka Capital Markets
David Joyce - Evercore ISI
Stephen Kajal - Royal Bank of Canada
Matthew Harrigan - Wunderlich Securities, Inc.
Doug Creutz - Cowen and Company
Evan Wingren - Pacific Crest Securities
Tuna Amobi - S&P Capital IQ
Ladies and gentlemen, thank you for standing by. Welcome to the Lionsgate Fiscal 2016 Fourth Quarter and Full-Year Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Later, there we be an opportunity for your questions, instructions will be given at that time. As a reminder, today’s conference call is being recorded.
And I would now like to turn the conference over to the Senior Vice President of Investor Relations, James Marsh. Please go ahead.
Thanks [Leia] (Ph) and good morning to everyone. Thanks for joining us today on our fiscal 2016 fourth quarter and full-year earnings conference call. We are going to begin with opening remarks from our CEO, Jon Feltheimer followed by remarks from our CFO, Jimmy Barge. We’ll open the call to your questions after those remarks.
And joining us on the call today are Vice Chairman, Michael Burns who is dialing in from the East Coast, Motion Picture Group Co-Chairs Rob Friedman; Chairman of the Lionsgate TV Group, Kevin Beggs; Steve Beeks, Co-COO and President of the Motion Picture Group; Brian Goldsmith, Co-COO; Rick Prell, our Accounting Officer; and Laura Kennedy, EVP of Corporate Development.
I just want to point out that 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 our forward-looking statements, and as a result of various factors, including the risk factors set forth in our 10-K filed with the SEC on May 25. The Company undertakes no obligations to publicly release the results of any revisions to these forward-looking statements that may reflect future events or circumstances.
With that, let me turn it over to Jon. Jon.
Thanks James and thank you all for joining us this morning. Though we had a solid fourth quarter, our year-end numbers don’t reflect the financial performance we expect that’s consistently delivered in recent years. Jimmy will take you through the specifics in a few minutes.
However, it was a great year in terms of value creation. We achieved a record year in our television business with strong growth across our scripted reality and syndication operations; built a film slate for 2017 that is bigger, more balanced and more cost efficient than last year’s and move the ball forward on franchise development for the future. Add nearly 600 titles to a 16,000 titles film and television library that is already one of the biggest content libraries in the world. Solidified our status as a partner of choice for owners of great IP, as we continue to amass the portfolio of brands driving our film and television businesses.
We showed the ability to move quickly informing partnerships with all the major digital platforms; establish ourselves as a preferred global distribution partner through alliances with new agency Sky Dance, Laco in China and the creation of our Global Gate consortium for local language film production. And we leveraged our intellectual property into additional revenue streams including current projected licensing opportunities to seven theme parks and more than 20 mobile and VR games market categories that we expect to represent an increasing share of consumer entertainment spend.
Nowhere is the scope of our value creation more evident than our television business. I would like to lead with our unscripted division this morning, because it shows how businesses that we have been cultivating are now beginning to hit their stride. Our non-fiction slate has grown to nearly 50 series including our new show Douglas Family Gold, which debut last night on Oxygen and was featured in Washington Post last week.
Kicking and screening the Survival competition series executive produced by Fear Factor creator Matt Kunitz and hosted by New Girls, Hannah Simone is current shooting in Fiji for January 2017 premier on Fox. We retrain all international format and distribution rights to what we view as the first in a series of major reality brands.
As you will recall, just six-months ago, we made a deal with major reality company Pilgrim Studios headed by one of the best television executives in the business, CEO Craig Piligian. We are already collaborating with Craig and his team on several new shows achieving synergies in international distribution and exploring several strategic opportunities together. We recently brokered a deal between Pilgrim and e-sports leader ESL to create and distribution original content for television and digital platforms.
Hundreds of millions of viewers for e-sports around the world. This represents an enormous cross platform opportunity. Pilgrim is also team with Matt Damon, Ben Affleck and Adaptive Studios that produced the Runner for Verizon’s go90, representing yet another new and powerful customer for Lionsgate programming. The Runner is the first broadcast quality reality competition series form mobile platform.
Our scripted business is coming off one of its best years, deepening its content pipeline with another 15 new series this year including series for Netflix, Hulu, Amazon, Freeform, Own and EPIX. As I noted, our ability to move quickly and customize deals for each network is making us a preferred partner for many of these fast growing digital platforms and in nearly every case we are engaging with these platforms on multiple business opportunities.
In addition to collaborating with Amazon development of Time out of Mind, the drama series based on the characters and music of Bob Dylan. We have also partnered with them on distribution of the film Chi-Raq and the upcoming July 29 release of Woody Allen’s, Café Society.
We are teaming with Hulu on three original series and a new pilot we just finish shooting Crushed as well as licensing again number of titles including Nashville to their platform. Last year, they also became one of our content distribution partners in EPIX and we now have two original series on Netflix Orange is the New Black and the upcoming Dear White People adapted from the critically acclaimed film on which we collaborated with sister company, Roadside Attractions.
We are also continuing to deepen our relationships with our traditional partners, Clyde Phillips' drama series Feed the Beast, starting David Schwimmer and Jim Sturgess debuts on AMC on June 5. Our Dirty Dancing three-hour film to musical event for ABC based on one of the most iconic properties in our library wraps production this week. And a new drama series Guilt, starring Billy Zane and Daisy Head premieres on Freeform next month, becoming the fourth show on which we have collaborated with the network.
With the booming unscripted business, one of our strongest scripted slates ever, key series moving towards syndication and our game and talk shows continuing to achieve near record rating. Our television group now accounts for one-third of our revenue and is poised for continued strong growth.
Turning to our film slate, it remains a key driver of our new platforms international output deals the growth of EPIX and our ancillary businesses. So I’m pleased to report that we have assembled a great fiscal 2017 line up that will built momentum during the year. This year's slate is deeper and more diversified than last year's with Now You See Me 2 and Saban's Power Rangers surrounded by a powerful supporting cast in areas of proved strength. In two-weeks, we’ll release Now You See Me 2 which brings back nearly the entire cast from the original film.
While there is significant competition in the market place, it’s tracking ahead of the first film and has generated three times the number of trailer views at a comparable stage. Reflecting the ability of our tent pole to drive our ancillary and emerging business, it is also generated two mobile games collaboration with our friend at StarBreeze.
We moved the edgy thriller Nerve up to the summer, when it tested through the roof with the young audience. The story of an online game of Truth or Dare gone awry, Nerve stars Emma Roberts and Dave Franco and opens July 27. I should note that as of today the trailers been viewed over 20 million times since its debut May 11.
The high thriller Hell or High Water opening in August from our partners at CBS films was a sensation at this year's Cannes Film Festival earning rave reviews for its cast of Jeff Bridges, Chris Pine and Ben Foster. Excitement is also building for the September 16 release of The Woods, which returns us to our horror roots and is already being called one of the scariest movies ever.
On September 30, we’ll release the actions drama Deepwater Horizon, with an all-star cast in the heroic story of man and women facing one of the biggest manmade disasters in history. It wrapped production in Louisiana and its new trailer debuts today on Good Morning America and there is no better way to return to the Tyler Perry business than with Madea at Halloween.
We enter the holiday season with a number of critically acclaimed releases. Academy award-winning director Mel Gibson's war drama, Hacksaw Ridge, which had a phenomenal first test screening, opens in November. Lala Land, Oscar-nominated writer-director Damien Chazelle Lyrical to Love Letter to Hollywood starring Emma Stone and Ryan Gosling debuts December 2016. And in January 2017 the actions thriller Patriot's Day, in partnership with CBS films reunites director Pete Berg with Academy Award nominee Mark Wahlberg in the story of the manhunt for the Boston Marathon Bombers.
In February, Keanu Reeves reprises his role as the former hitman bent on revenge in another of our big action brands Jon Wick chapter 2, accompanied by an exciting virtual reality game. About three weeks ago, our first costume reveal on Saban's Power Rangers took the internet by storm trending worldwide on Twitter, Facebook and Reddit.
One of the biggest and most exciting brands in our family the film opens on March 24, 2017 in theaters all over the world. We are teaming with Black Label Media, on Granite Mountain, an action thriller starring Josh Brolin, Jeff Bridges, Miles Teller and Taylor Kitsch. The film tells the tragic and heroic real-life story of the Granite Mountain hotshot firefighters who battled one of the deadliest wildfires in history to save a small town in Arizona, it opens in September 2017.
The momentum of our slate continues building to fiscal 2018 and 2019 driven by a portfolio of top properties and leading IP owners that includes Monopoly and My Little Pony from Hasbro, Robin Hood, MacGyver, the Kingkiller Chronicles, Highlander, Borderland, Chaos Walking and the Magic Tree House. Whether the underlying is IP is a board game, an iconic television show or our best selling series. We are developing our brands not within silos, but across our film, television and game division as part of our integrated content machine serving all platforms.
The depth of our content pipeline is driving our ability to collaborate with the new generation of buyers, the digital platforms in besting in content to fuel their growth. As the platforms grow in scale and stature our first mover relationships are positioned to grow with them, a number of these are platforms that people aren't thinking about as content partners. We recently begin the first studio to offer hundreds of films titles for EST and VOD on the steam platform, which reached the 125 million users around the world.
Last week also we also began the first studio to collaborate with Google on its new Daydream VR initiative. And a few days ago we announced our collaboration with StarBreeze and IMAX to deliver location based VR content to multiplexes. We are also continuing to introduce new digital platforms of our own. Our Adam tickets app, with partners Disney and Fox, continues to gain traction. We bought our two innovations biggest theater chains, Regal Cinemas and AMC theaters, along with Landmark Theaters in Canada.
Adam expects to reach 15,000 screens by the end of the year and will soon begin its North American rollout. In July, we will officially begin the global rollout of our ComicCon HQ over-the-top channel with a slate of original scripted and unscripted series daily and weekly entertainment commentary and unique access to a library of live and archived programming.
We are developing several original series in preparation for the launch of superstar Kevin Hart's Laugh Out Loud comedy platform including series featuring Kevin himself. Our multifaceted relationship with Kevin also includes a social adventure game in partnership with leading game developer Fifth journey. Our third over-the-top platform Tribeca shortlist continues to gain subscribers along with celebrity who provide expert online commentary for movie lovers.
In closing, we believe that the environment for content owners has never been stronger and recent valuations within our industry support this view. We bring to this environment a diverse portfolio of content driven by our brands and franchises, relationships with leading IP owners and management digital platforms, and the ability to move quickly to capitalize on market development.
Looking at fiscal 2017, we expect this combination of factors to fuel a continued strong growth of our television business, generate strong and sustainable profitability from our film slate and create exciting opportunities and our ancillary and emerging businesses.
And Jimmy will discuss our financial results before we open the call to your questions.
Thanks, John, and good morning everyone. I'll briefly discuss our fiscal 2016 financial results and then move onto fiscal 2017. We reported fiscal 2016 net revenues of $2.3 billion, which were down slightly from the prior year. Adjusted EBITDA was $162 billion as the decline in motion picture performance more than offset growth in TV. TV continue to deliver strong results in fiscal 2016 as revenue grew 16% to $670 million while contributions grew 89% to $104 million. Adjusted earnings per share came in at $0.86 a share for 2016 and we finished the year with $1.5 billion in backlog.
Looking forward to fiscal 2017, we believe we are poised for a rebound in performance for our Motion Picture Group and continued strong growth in TV. For fiscal 2017, we are estimating adjusted EBITDA in the range of $200 million to $300 million. We are providing this range of adjusted EBITDA to better accommodate different of levels Box Office performance as well as to provide for other risk and opportunities.
With regard to the timing of fiscal 2017 adjusted EBITDA, we see the third and fourth quarters as the largest contributors with the first quarter being the smallest contributor. Included in our range are expectations for gains of $20 to $30 million as we harvest a number of non-core assets that have grown in value. These gains are expected to offset a decline in our share of fiscal year profits attributable to EPIX as the pay channel investment the new original programming ahead of an anticipated uplift in the subscriber revenues.
Now, I'll turn the call back over to James for Q&A.
Leia if you could open up the question for questions now. Thank you.
[Operator Instructions] We have a question from the line of Alexia Quadrani with JPMorgan. Please go ahead.
Thank you, just two questions please, first I guess on your updated guidance, it seems like a quite wide range there in terms of what you are looking for EBITDA. I assume the biggest variability just the unpredictability of the film business, but any other factors we should be considering that may cause you guys to kind of come in at one end or other end of that guidance and then I have a follow-up?
Sure Alexia, thanks. Look with 15 new TV series launching during the year Nashville in search for new home and 16 films still schedule to release throughout the year, we thought it was appropriate provider of wider range of guidance. Obviously strong performance from our theatrical releases will continue with better performance within that range particularly with production titles released earlier in the year or more the upside fall into fiscal 2017.
And then just a thought on the TV side, the TV margins came in actually ahead of our expectations, kind of any update on how we should continue to see sort of profitability trending on the TV side. And specifically I guess are there big swing factors in terms of I guess how much is any one title with the Nashville does find another home or not, ultimately impact your TV profitability or change the outlook for your TV profitability for the year.
We certainly had a strong quarter and a strong year in TV. Look, we are still tracking close to our previous fiscal 2017 television forecast and with regards to the TV margins the ultimate outcome will be determined by the mix of programming including returning series, syndicated programming and of course the new series. As I noted, we anticipate launching 15 new scripted series in fiscal 2017 which suppresses near term margins as we build value for the future. However, even with the significant watch of new series, I would expect that our margins would be double-digits mid-teen in fiscal 2017. And I’ll turn it over to Kevin to tell you more about our programming line-up.
Thanks Jimmy. Just further to that on the TV side. It is a really diverse portfolio this year, a lot of new scripted series launching, several four or five launching over the next five-weeks. Show is getting closer with multiple seasons of Royals is heading into its third season, obviously we are hoping that goes four, five and six, Casual on Hulu which has been picked up for a second season and its quickly becoming a Darwin of the awards and critic circles for Hulu. Things like that we see having lot of backend value as they continue to mature and grow and we are quite positive and confident about finding a new home for Nashville as well.
Thank you very much.
Can we go to next question Leia?
We will move to the line of Todd Juenger with Sanford Bernstein. Please go ahead.
Hello, hi good morning. Like Alexia, I have two questions, I’ll go with my TV question first. So among all the diverse line-up that you mentioned, particularly in some of the new series you announced with SVOD partners like Netflix and Amazon. And just wondering if you might comment on what those deals look like generally. Are they international in scope? What sorts of syndications or backend rights do you retain and any other parameters of the deals of different buyers like that from the traditional TV deals that we are accustom to that you might share?
I mean the key thing with all these platforms and really the emerging cable platforms as well as every deal is different. Each model is kind of crafted over many months. Usually we sell a show and then spend several months figuring out the template of how we are going to work together. So a Hulu deal is very different than a Netflix deal or an Amazon deal and so on. So some are more right than others. We balance and weigh the long-term value of the show itself based on what we think it will do and perform and make a determination on what kind of deals we would like to make.
Obviously as a studio we are focused on rights retention and library growth, but in some instances there are pretty compelling financial opportunities on an all rights basis and much the same way that sometimes you look at film titles and if it makes more sense to monetize it upfront then we will do that. But within our wide range of shows, these are one or two in the portfolio that we might take a chance on in that regard and others that we hold on to the rights and look for long-term value.
I would add Todd that it's very, very rare if ever that we don’t retail some rights long-term to add to our library.
Do you have a follow-up Todd?
Thank you, very helpful. Turning to theatrical side, I just wondered if you might comment given the way the slate performed as sort of we ended out of last year just on health of your international distribution relationships and the output deals you have there, especially if some of the films maybe underperformed versus what we all had hoped. And any comment you make on just the piecing of how those deals tend to get renewed over time and whether the terms you think you should be able to get similar to what you have been getting in recent years? Thanks.
Hey Todd its Rob. Listen, at the end of the day our international partners and the co-finance years are happier when the movies are over performing as are we. We felt the pain recently and obviously so did they, but we are the only supplier of studio. The only studio that can supply them a portfolio of big production value pictures on a consistent basis. We are work in constant conversations with them we had a good can where we spend a lot of time together. Our deals still have a long way to run and obviously we are looking forward to renewals at similar levels.
Excellent. Leia, next question please.
Thank you. That’s the line of Stan Meyers with Piper Jaffray. Please go ahead.
Good morning. Thank you for taking my questions. I have one for Jon and one for Jim. So Jon I guess going back to TV, business continues to deliver and now we are going to see Pilgrim’s meaningfully contribute. Maybe you can talk a bit about the integration and what you guys learnt here over the past six months into the acquisition? And then for Jimmy a little more color on the guidance if you can provide maybe some thesis of that 200 to 300 TV versus Studio versus few other pieces that are baked in there? Thanks.
Stan, thanks for your question. I’m going to actually ask Kevin Beggs answer the Pilgrim question.
Hey Stan, with regard to Pilgrim, it's really working out great, I think better than even we all expected. They have an amazing stand-alone business, our role as an investor, collaborator to see if we can be additive. Where we are finding a lot of common ground is distribution and business expertise. Traditionally, the nonfiction standalone production companies are on a service basis and a work for hire basis hoping that they can retain more rights and get more distribution, they get jammed a little bit, if they are not a distribution company by networks that want to hold onto those rates because we a really robust in distribution infrastructure.
We give them the ability to hold on to those rights and in many cases we are working hand-in-hand with them to negotiate those deals. But in addition to that, they hold on to certain domestic rights, which they don’t have the infrastructure to exploit. So Jim Packer and his group have met weekly with Craig and his team about SVOD and OTT and EST opportunities on things that they do control. And they are actually jumping into business with us on the film side on one of their more successful series titles as a presented to Rob and Eric and the team that we are developing. So it is really quite collaborative.
And one other partnership that we are excited about is in the e-sports area. We have been working closely with ESL, which is the largest e-sports sanctioning body and organizing entity in the world owned by MTG and we partnered them with Craig or introduced them to Craig. And they developing a series built around the e-sports business and Craig has really had huge success with Ultimate Fighter in the mix martial arts arena with USC. So we hope to replicate that kind of success, those kind of things are happening all the time and we are quite excited about.
One other which is Craig believes in very much like us is an entrepreneur. And don’t be surprise, if you see him joining us and actually doing some M&A activity acquisitions in terms of some companies that could be kind of ticked into is a company where we can get the benefit of scale the and of his management expertise.
And stand to your question in terms of guidance. Look, we expect strong contribution from both Motion Picture Group and TV Group. As I mentioned, TV is tracking close to 17 forecasts that we previously talked about, we feel good about that, a lot of contributions. I would also add that we have got a number of non-core assets that are actually creating a lot of hit in asset valuing.
Six to seven investments, if you exclude EPIX, we have six to seven investments that are not currently contributing to EBITDA at all. So over the next 12 to 24-months, several of these assets will either be monetized or will be contributing to adjusted EBITDA. And interestingly, we think these assets have significant value that’s not reflected in our share price and coincidently I think it approximates our corporate debt.
Okay, great. Thanks guys.
And next we will go to the line of Ben Mogil with Stifel Nicolaus. Please go ahead.
Hi, good morning and thank you for taking my question. So from a balance sheet perspective, Jimmy where do you sort of think cash programming and sort of production cash outflow sort of looks like in 2017 against the 2016 number?
Sure Ben. Look we very, the free cash flow is going to be ultimately be an impact of our trailing 12-months EBITDA as well as working capital changes. So go through ramp up our film and TV investment going into a slate of 17 films that certainly has an impacted. We feel very good about free cash flow generation capability.
Sure, no, I apologize, I don’t mean free cash. Just the actual cash for programming investment, do you think it’s up from 2016 number?
Yes. There is probably an increase going from 2016 to 2017. Yes, we have ramped up, we have 17 films in this year’s slate. Actually from an investment, if you are asking investment and film for our Motion Pictures.
It can be both, I mean it can be the combined consolidated numbers, if you want to break it out, sort of roughly where you think TV and roughly you think film will be, that will be great too?
I think, I don’t have the TV numbers in front of me, but we, I think we have been out there saying that our investment and film is about $100 million less in 2017 than in 2016 from a larger slate.
Yes. The slate itself, the overall cost is down about $100 million.
Okay. And then just pass the guidance, and I certainly appreciate the need to have to give a wide range, just given the underlying business and the volatility around that. The $20 million to $30 million - so you have got probably $20 million or $30 million less of EPIX contribution and then offset by these $20 million to $30 million of gains. Are these gains of combination in your mind at both companies that are losing money turn to positive and actual asset sales?
Look, we are not going to get specific only assets, but again they are not currently contributing to EBITDA in some cases it might be small negative to EBITDA. And but they clearly have significant value that’s been created over the years.
Okay. That’s great. Thank you very much.
Next, we go to line of Barton Crockett with FBR Capital Markets. Please go ahead.
Okay, great. Thank you. I guess, I was curious about one of the comments I think that you made earlier about the value of your investments and if I heard you correctly. Were you saying that you see the value of your investment that approximating your corporate debt, was that correct? Did I heard that?
Yes, if you are excluding EPIX.
Okay, alright. And you are saying that six to seven of them will either turn into contributors to EBITDA or be sold, is that correct is that what I’m hearing?
That's a several of those six of seven during the next 12 to 24-months, we would expect to be either monetized or they will be contributing to adjusted EBITDA.
Now, one of the things that you guys have mentioned and it’s clear that there is a lot of consolidation going on. Just wondered if you could give us a sense of your appetite to make acquisitions in the context of your stock is now at a lower price than it was perhaps a year ago. Does that impact to your appetite to make acquisitions at this point?
Hi, Barton, I would say that obviously we have a very strong balance sheet, so any acquisition that we decided to pursue could be a combination of stock in cash. Obviously, if we are going to use a stock component in that it has to be accretive to all of the shareholders. So we have plenty of capacity to do a lot of deals. Our stock has come down as you have said and so that means that we are less likely to use a tremendous amount of stock on any deal, but again if its accretive, we will look at any transaction.
Okay great and then just one final thing here. Could you just update us the government put out some new kind of thoughts about tax, international tax in terms of sweeps and inversions, and just give us a statement about what impact you see that having on your effective tax rate and your ability to potentially be party to doing acquisitions are being part of an inversion in the future?
We don't expect the treasury announcements as currently written to impact our current effective tax rate or how we view our M&A initiatives.
Okay, clear enough. Thank you very much.
Leia next question please.
Next question is from the line of John Janedis with Jefferies. Please go ahead.
Hi thank you. Two questions as well, one is I think as you know there has been a lot of talk in the market about franchise films taking an increasingly large share of the domestic Box Office at the expense of the rest of the market. So given what you are seeing for your slate, can you share your views on the marketplace and to what extent you reject that narrative?
Hey John, it's Rob. If you look at the box office history for the last four years, domestic I’m referring to right now. For the last four years and projecting for the fifth year, the top 10 movies have historically taken anywhere from 26% to 36% of the overall Box Office pie. That leave close to $7 billion or $8 billion of Box Office annually and we plan to take a pretty healthy piece of that.
We believe very much in our strategy of offering more products for wider audiences and clearly at a more efficient price. We like the doubles - interestingly enough, if you look at the first Twilight and the first Hunger Games and then you compare it similarly to Deadpool from a price perspective, we were all shooting for doubles at that point and ended up with Grand Slam. So we think there is plenty of those still available and we are going to share a bunch of those.
Okay. Thanks for that and maybe separately, I think investors sometimes think about your business in terms of contributions from the various revenue streams, the library being one of them. So are you seeing any change in the level of cash flow contributed by the library as you contemplated the guidance for this year, because I think in the past you have talked about a $200 million contribution?
Hey John, interestingly our library continues to grow, as a matter of fact in fiscal 2016, we generated $520 million of revenue in library and the contribution approaching to $200 million still actually growing as a largest year of contribution over the last 10-years, and cash flow was approaching $300 million. So the truth is library business is still very robust for us.
And so there is no change for the outlook?
No, as a matter of fact, we continue to add libraries. Jon mentioned in his comments that we added 600 titles to the library in the past year and third-party companies continue to come to us to help them have us manage their libraries for them just because of our success in that area.
Okay thanks. Let’s move to next question Leia.
Next question is from the line of David Miller with Topeka Capital Markets. Please go ahead.
Hey guys. I have two questions. Steve Beeks, can you just update us on the 4K opportunity, I think I have asked you this question maybe a year ago and at that point sort of 4K was in its infancy. Is the market expanding at the rate that you had thought would be the case roughly year ago and how you guys are doing just in general with the 4K opportunity. It seems like kind of a hidden opportunity that the street just doesn’t really talk about all that much?
And then Jimmy, there is balance sheet item in the liability column, participation as residuals, is up fairly substantially year-over-year roughly 30%, is that because you are producing more products or is that because above the line talent is asking for more backend economics just curious your thoughts? Thanks a lot.
Well I'll just take that one quickly, it's really timing and clearly producing lot of product and great success with that.
Your 4K comment is appropriate, I would say the launch of 4K Ultrahigh Def is still in its infancy, but we are continuing on our course of re-mastering all of our products and releasing it. I think that it is ahead of the industry's projections as you see other studious jump in and it is an
opportunity for us to continue to release not only new product but to go back to the library release key titles once again. But I think you are going to see that determine its course over the next several months definitely in the holiday season we expect to be pretty big for 4K.
Okay. Thank you very much.
Next question is the line of David Joyce with Evercore ISI. Please go ahead.
Thank you. A couple of questions, I was wondering if related to the EBITDA guidance, is there any change in your ownership stakes of the films that have any impact on that? And then secondarily the international revenue growth was strong, you had some regional specific releases. I was just wondering if that is the trend that might be continuing. Thank you.
Nothing with regards to our guidance really significant affected by the change in deals in international deals. I would say as you have seen we had very strong performance from international across all of our businesses, our international revenues very strong and that’s really reflective of the growing number of platforms and the strength of globalization.
Alright. Thank you.
Next is the line of Stephen Kajal with Royal Bank of Canada. Please go ahead.
Thank you very much. Maybe two questions. First on your four biggest movies of the year, Now You See Me, Deepwater, Patriot's Day, Power Rangers. May be first, can you give us a sense of what your expectations are, even if that's a big range in the domestic box office? And also give us a sense of how much those four are a contributor to your EBITDA guidance. And then I've got a follow-up, if that's all right.
Yes. I don’t think we are going to drill down that way for you for a lot of reasons including contribution to the year, very dependent as Jimmy said before on when in the year they come in. And again when you say the biggest films I don’t know if you are talking about budget, or the name is longer or I’m not exactly sure what. I think that our history has been and I would say this is to Rob’s point before Deadpool - swing for a double it's about $67 million and it's one of the biggest movies of the year.
We have had tremendous profitability revenue but particularly profitability and lower price movies that we have ever had you can break out. As I said Nerve is really hitting the nerve of the young audience with over 20 million trailer views right now that was not an expensive picture, it is early in the year, could be very profitable, Lolaland could be breakout that is a little bit later in the year.
So, I think I don’t necessarily set that characterization but obviously for Now You See Me it's a sequel we see it as a franchise but obviously like this one to perform and Power Rangers we are really, really excited about. It's looking great. We will be releasing materials too, you will be seeing them shortly the reveal of the costumes as I mentioned really came out great. And obviously that’s a movie that we are really concentrated and because we could see doing five, or six, or seven of them. So that’s about all I can say specific to the numbers.
Okay, fair enough. And then, as a follow-up on the TV side of things, first can you talk about for your revenue expectation for the television segment, how much of that revenue today is already contracted and what is out there still to be contracted? And also on Nashville, it seems very likely that you will get that picked up somewhere else; how many seasons do you think that, that series can ultimately run? Thank you very much.
Steve I will speak to the Nashville part and Jimmy will talk about the visibility. Although the visibility is really quite good on all of our TV product. But on Nashville the [indiscernible] and everyone else is clamoring for many more seasons. We kind of go one season at a time in our thinking, so our near-term plan is to get another full season. We are in discussions with four or five platforms, most of those have been in bound inquiries coming directly to us, asking about the possibility of moving the show.
Bringing on Ed Zwick and Marshall Herskovitz to be the show owners and in 50s and which was already something we were planning with ABC suggest a long-term viability for the show when we have long-term deals with the cast. These kind of shows can go forever and ever obviously that’s our hope and expectation but we have got to do one season at a time. So right now we are all about season five but we hope to a land season five and keep talking about this show for years to come.
And I think the simple answer to visibility is we have a tremendous amount of it, most of the shows that we expect to generate revenue for the year are already contracted.
And I would also add that with the regard to our backlog albeit over 40% of that’s represented by TV.
Leia next question please.
Next question is line of Matthew Harrigan with Wunderlich Securities. Please go ahead.
Thank you for taking my question. I think in the past you have said that normalized ultimate profit on a new show could be $200 billion to $300 billion. Do you have some issues with timing in terms of realization? Even apart from the absolute level of performance which you probably have said, in terms of the number of...
Matt, we missed the beginning of it. So if you could repeat it again I would appreciate it.
Sure. I think you said in the past that you expected ultimate profitability on new releases of $200 billion to $300 million normalized. Even apart from the absolute level of performance this year, are you having some timing issues because you are recranking the production pipeline and then some of the issues with the product last year? And then secondarily, Jon, you are on the Board of Televisa, I think you just announced another venture the other day with a number of European and Asian companies for more local production, which is clearly unmet need. I know that's not going to be a big financial number for a while, but still seems interesting, strategically, in terms of how you think about the world. Thank you.
Let's - first off I'm not really sure what you're referring to, I don't believe [indiscernible] any of that range for profitability.
I'll take the second question and why doesn't John the Global Gate question. I think with regards to the slate, it's a very well balanced slate for fiscal 2017 right and we have noted approximately a $100 million resident cost you got 17 films versus 14 in prior year. So you know we feel good about that likewise remember from the timings standpoint that we had five major releases, wide releases in the fourth quarter of 2016, okay. So the P&A has been put behind us with regards to those films and there's really strong carry over coming into fiscal 2017 from a timing standpoint. So we feel good about our bounce back into our film business in 2017.
So you know clearly we are paying attention in terms of your question about the Global Gate, we are paying attention to the growth of the international market obviously we have our specific approach. It's a little different than most of the studios to a number of the countries in terms of our output deal. And we are thinking about the local language piece of this a little bit differently as well, it's quite expensive to set up as some studios have in certain territories to set up local production units and distribution units and our approach was a little bit different.
You know we have Instructions Not Included which was a Pantelion title our partnership with Televisa and we watched how when it was the right time of the title it's being reproduced local and local language in France, in India, in China, potentially in Brazil. And so we thought an interesting way for us to play in this market was to bring in some of the best producers and distributors in the world make them our partners in a venture, so that we are all out looking for these great film formats that could be remade.
And so we created Global Gate, we are better for 30% partner in it, we have the first right to distribute in our territories and you know we got to build a production fund around it but you know have again Televisa is a partner Latte in Korean, by the way that's South Korea not North Korea, Gomon in France, Tobitz in Germany. Some of the best partners in the world and we thought this was a great Lionsgate way to look at local production on a global basis.
Some of those Hunger Games sets would look really good in a North Korean propaganda film so North Korea as well, anyway thank you.
Thank you for that comment.
Next question please Leia.
Next is the line of Doug Creutz with Cowen, please go ahead.
Yes, just quick question on the guide, I think you guys exclude new business initiative investments from your adjusted EBITDA guide, I was just wondering, how much do you have budget for that in 2017.
We are not going to give specific numbers on the direct to consumer initiatives, but clearly it includes our SVOD initiatives that we are excited about also Adam Films which I know you have heard a lot about which is direct to consumer. So we really feel good about those and expect them to be contributing to our adjusted EBITDA in future years.
Can you at least give a sense of its if you think it’s going to be up or down.
Well look you would expect it to be up because we are launching and we are rolling into those. But also that's absent bringing in other partners and things like that with regards to the this. These are highly sought after assets, we have got great partners, we have got a great start and so there is a lot of flexibility there and optionality on our part. So I wouldn't get locked in on any one particular number which is one reason we carved it out, see the amount of spend as we roll out through the year.
Hey Doug, it's Michael, maybe just add one thing. As far as Adam is concerned, Adam is in the process of closing a fairly significant round, so as far as us or our other partners writing other cheques over the course of the year, I think that's highly unlikely, because they have money in the bank. Jim is really referring for the most part to the SVOD vendors.
Okay, thank you.
Leia, next question please.
Next is the line of Evan Wingren with Pacific Crest Securities, please go ahead.
Thanks, how big is TV production right now, is it a part of your library revenues, and I guess I'm curious how quickly is that growing and where do see that going over time.
The TV piece of our library is a smaller portion of that because we don't put it in the library until the shows are no longer airing, so a lot of the TV programs that are currently airing prior seasons that’s not factored into library so I'd say 10% TV, 90% motion picture.
Okay, and just in terms of the TV landscape, how sustainable do you believe the current growth rate is scripted original shows on TV is and I guess the follow-up question to that is, is where the incremental buyer coming from right now for you, is it linear or SVOD?
Well it's a mix and we talked a lot before 15-years ago cable started with applying pressure broadcast by proliferating. The streamers area applying pressure to cable, everybody is in search of their defining hit series, we have been fortunate enough to be the supplier to the several platforms for their defining hit series. So while we are doing a lot of business at places like Hulu with Netflix and Amazon.
We also have some very high profile business with emerging cable outlet that are jumping into higher profile scripted program and Greenleaf is an example that we do for own which are premier later in end of June, is a really substantial one hour drama, opera. Winfrey is not only executive producer she is the recurring role on this series. This was the high budget drama, a big soap opera set in a mega church in the South and that's an exciting place. We did Manhattan for two seasons with WGN America who is a big new player in cable and there is a new streaming partner kind of topping up all the time.
YouTube Red is obviously announced a lot of initiatives their significant player on the scene. And I expect others to follow suit and as they do, the cable networks are going to jump in as well. The Royals has been a big defining series on the scripted side for [E&E] (Ph) has announced other series and we are very excited about pitching them new materials as well and we even Pop our investments our network was CBS is jumping into scripted.
Up until now they've done non-fiction or acquired lower-cost comedies like Schitt's Creek from Canada. But we are really excited about Nightcap which is a show we are financing and their licensing which our international buyers have really jumped out, that's coming on in November. And that's a lower-cost model so we are on the high end you got Orange Is the New Black which is a very high drama. And on the lower end, you have got Nightcap, but both I think are going to be, but one is already a breakout for Netflix and we think Nightcap at least same for Pop.
Next question Leia.
And our last question is from the line of Tuna Amobi with S&P Global. Please go ahead.
Hi, thank you very much. Jon, in your prepared remarks, I'm trying to understand as you went through the film slate whether there has been a major change in your philosophy. So you alluded to bigger balance that is cost-efficient. Clearly, you guys have been always cost-efficient, but as I think about your upcoming slate, has there been any underlying major change in terms of your film releases?
Perhaps any lesson from some of the films that you released that maybe didn't do so well and this year could actually have resulted in some type of major change in how you view the green lighting process? And also, Jon, you alluded to separately the value of content. You didn't specifically mention the DreamWorks Animation deal, but I'm wondering how that deal has influenced your perception of the M&A landscape perhaps on both sides of the table as a potential buyer or seller. And then I have a follow-up.
Okay, that was a mouthful Tuna, but I'll even let have your follow-up. The things that I would certainly say, it's pretty obvious whether it's legendary or whether it's DreamWorks animation. I think it's pretty obvious that content is critically important right now for all of the existing and new platforms in terms of getting their market share of attracting consumers, of retaining consumers and differentiating their platform and package.
So I think certainly, there is an affirmation of the thesis that we have been saying for 16-years which is content is really important, getting great content, building libraries that can be sold and at least sold to every emerging revenue stream that’s created by the technology. I think animation is something that we played with a little bit, I think it falls into the category if we are not going to do it unless we can figure out a way, but it makes sense for us with our model.
But I think interestingly what at the DreamWorks deal really speak to and I think legendary as well is that the value of those companies was not necessarily sort of revenue stream or the profitability from those businesses but the development of franchises brand that can play across multiple platforms and revenue streams. And I think that's kind of what we are concentrating on and if you go back to my remarks today and there are some frankly very important titles that we didn't mention I hope to in the near future.
I think that you could see that we continue and perhaps are doing even better job of developing, acquiring and mining great of franchises and great brands. And I think you could also note that the IP owners of important properties continue to come to us, so we did take a couple of big swings accordingly got easy approvals, one of those did a lot better internationally than it did here. I think we have always learned lessons when the misfire in any of business and I think one is particularly in the Divergent franchise maybe we rushed the third movie a little bit instead of taking our time whether we wanted to hit a date.
But we are always learning things I think that it's been made clear in the last call and this call that we continue to focus on the verticals where we have had great success. Young adult nerve, great opportunity to reach a young audience either Perry obviously delighted to be back in business with him and [Boo] (Ph) as we are calling it the Madea movie for Halloween, we think is I don’t know Jake Smith kind of a slam dunk.
We have a great horror picture that I think everyone is going to be very excited about when they see and then we have another one right behind it that we are not ready to announce yet but I think everyone is also going to be excited about it. So going a little bit back to our roots, continuing to mine franchises, doing it with our model, being a little edgier, a little more innovative I think those are the things that made it work for us and I think that you will certainly see that in 2017 and 2018.
Tuna, did you have a quick follow-up?
Just housekeeping with regard to your China initiatives. Whether it's the Ali Baba streaming or the Hunan TV, I'm wondering if we should expect any type of milestones this year and whether there might be any result in cash flow ramifications as a result of those. If you can update us on the milestones from those partnerships that you expect to hit this year and any cash flow implications. That would be helpful. Thank you.
Brian Goldsmith has spent a lot of time this year in China and I’ll let him answer that question.
Our China business continues to be very robust, a great year last year getting five films at least there. And we have had great success with licensing both our cash flow as well as our television episodic content, digital top ones there, thoughts of that keeps growing nicely and digital platforms keep growing, so I would say both at support and subscription. So we think that our business in China continue to grow at a nice pace over the course of the year we are not prepared to announce on this call any partnerships that are obviously our existing deals that you mentioned continue to do nicely for us.
Thank you, Tuna. And Leia, while we wrap it up at this stage, I’ll just read one final remark here. Everyone should refer to the reports and presentations tab under the corporate section of the Company website which is www.lionsgate.com for a discussion of certain non-GAAP forward-looking measures that we have discussed in this call. With that, we’ll wrap it up. Thank you.
Thank you. Ladies and gentlemen, this conference is available for digitized replay after 8AM Pacific Time today through June 2nd at midnight. You may access the replay service at any time by dialing 1-800-475-6701 and enter the access code of 392523. International participants dial 320-365-3844. Those numbers once again are 1-800-475-6701 or 320-365-3844 with the access code 392523 and it is available after 8:00 AM Pacific Time today through June 2nd at midnight. That does conclude your conference for today. Thank you for using AT&T Teleconference service. You may now disconnect.
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