We are witnessing a pivotal moment as Lionsgate prepares to separate its studio operations from Starz. CEO Jon Feltheimer’s strategic vision, bolstered by robust financial performance in television production, sets the stage for two distinct entities poised to redefine entertainment landscapes. The anticipated spring separation is shaping up to be a significant milestone in the industry.

Embrace the Transformation: A New Era for Entertainment Giants

A New Dawn for Two Powerhouses

The planned division of Lionsgate into two independent companies marks a critical juncture in the entertainment sector. This strategic move, while delayed due to regulatory reviews, is now expected to culminate in April. Regulatory hurdles have extended timelines, but this meticulous process ensures compliance and transparency. Feltheimer highlighted that the company must update financials to December 31, 2024, adding a few more weeks to the timeline. Once the SEC approves the joint proxy/registration statement, shareholders will convene for a mid-to-late April meeting, paving the way for immediate separation.The industry stands at an inflection point, where streaming services are evolving rapidly. Bundles, digital service integration with linear platforms, and capitalizing on market disruptions are becoming crucial. Starz, with its unique strengths, is well-positioned to thrive in this new era. By leveraging these opportunities, Starz can scale its business effectively and maintain its competitive edge.

Financial Performance: A Beacon of Strength

Despite challenges, Lionsgate has demonstrated remarkable resilience in its financial performance. Television production revenue surged by 63% to $405 million in the last quarter of 2024, reflecting a robust recovery from previous strikes. Segment profit soared to $60.9 million, up from $9.1 million. This surge was driven by increased episodic deliveries and licensing of library content. The trailing 12-month library revenue reached a record $954 million, growing by 22%.In contrast, the motion picture business experienced softer revenues initially but showed signs of improvement in the current quarter. Revenue dipped to $309 million from $443 million, with segment profit falling to $83.6 million from $100.4 million. However, the studio rebounded with successful January releases like "Den of Thieves: Pantera" and "Flight Risk," reversing earlier trends. Overall, studio revenue increased slightly by 3%, reaching $713.8 million, while operating income jumped by 45% to $112 million.

Starz: Navigating Challenges and Opportunities

While Starz faced revenue and profit declines, it achieved notable subscriber growth. North American OTT subscribers increased by 170,000 sequentially, despite revenue dropping to $344 million from $417 million and profit falling to $25 million from $85 million. This decline underscores the challenges in maintaining profitability amidst a competitive streaming landscape. However, Starz remains committed to expanding its digital footprint and enhancing user experiences.Feltheimer emphasized the company’s strong quarter, highlighting the success of its library performance, profitable mid-budget films, extensive premium TV properties, and sequential domestic OTT subscriber growth. These achievements underscore Lionsgate’s ability to navigate a challenging environment and position both entities for future success.

Capital Structures and Financial Commitments

To support the transition, Lionsgate has secured stand-alone capital structures for the new entities. Lionsgate Studios will activate an $800 million revolving credit facility upon separation, ensuring financial stability. CFO James Barge noted that the company is diligently responding to SEC requests and preparing year-end financials. Immediate implementation of the split will follow final approval and the shareholder meeting, solidifying the independence of both companies.This strategic restructuring aims to unlock value and enhance operational focus, enabling each entity to pursue tailored growth strategies. As the entertainment industry continues to evolve, Lionsgate’s separation positions both companies to capitalize on emerging trends and opportunities.