Lionsgate Is Winning By Not Playing The Streaming Game

Lionsgate is by no means the biggest studio in Hollywood. The house of the "John Wick," "Saw" and "Hunger Games" franchises is what is known in the industry is a mini-major, meaning it's not as big as Disney or Warner Bros., but not as small as NEON or STX. It's somewhere in the middle. Be that as it may, as the industry continues to emerge from the pandemic, Lionsgate is putting together a winning strategy, as evidenced by the company's most recent quarterly earnings report. In short, it's because they're not playing the same, big streaming game that everyone else is playing.

For the company's third quarter of its current fiscal year, revenue hit $1 billion, absolutely smashing Wall Street expectations. Part of that has to do with Starz, which Lionsgate owns (we'll get to that), but what's most interesting is what wasn't on the sheet driving that revenue. For one, the studio hardly had any theatrical presence during the quarter, with only "Prey for the Devil" and "Alice, Darling" doing anything at the box office. And frankly, it wasn't much of anything for the bottom line.

The genuinely shocking part, per a press release, is that Lionsgate's 17,000-title movie and TV library generated a record $845 million for the company in the past 12 months. That is what, primarily, helped the company to see revenues rise 13% compared to the same period last year. In more good news, income hit $16.6 million during the quarter, a huge improvement when compared to the loss of $45.6 million that was reported in the same quarter last year. And it's mostly thanks to a gigantic library of titles that continue to generate money, along with being a middle player in the premium cable/streaming space.

No doubt, Lionsgate suffered some big losses last year, with the big budget "Moonfall" bombing badly, for example. But then we have stuff like "Clerks III" which, under the radar, performed well for the studio. And more to the point, the only reason that movie got made is because "Jay and Silent Bob Reboot" sold so many Blu-rays – a market much of the industry is almost ignoring at this point. Plus, "Shotgun Wedding" was sold to Amazon for a premium. Lionsgate is taking smaller bets that are paying off. That, in turn, adds value to its ever-growing library, which has become incredibly valuable. Lionsgate CEO Jon Feltheimer had this to say in a statement:

"We reported a strong financial quarter with record trailing 12-month library revenues affirming the value of our intellectual properties. We enter our fourth quarter with encouraging signs across all of our businesses: a rebounding domestic box office just as we bring our biggest slate in years to theatres; renewals of six key Lionsgate Television series during or immediately after the close of the quarter; and improved STARZ economics due to its international reorganization."

The outlook also looks quite good for 2023, with "John Wick: Chapter 4," "Are You There God? It's Me, Margaret," "The Expendables 4," "Saw 10," and "The Hunger Games: The Ballad of Songbirds and Snakes" headed to theaters, not to mention the "Dirty Dancing" sequel that Lionsgate has in the works. Most, if not all of these, are sure bets in some capacity, and should give the studio a steady presence at the box office this year, which is what was missing in 2022. 

But what about Lionsgate's streaming business? What about Starz?

Lionsgate bought Starz in 2016 for $4.4 billion, before the streaming wars really started to heat up. Currently, the brand has 37 million subscribers worldwide (26 million not counting STARZPLAY Arabia). That's a solid number, but not one that is going to make Starz a real player against titans like Netflix, Disney+, or Prime Video as competition becomes more fierce in the coming years. That's very likely why Lionsgate is looking to sell Starz and separate these businesses entirely. To that end, the company sold a partial interest in STARZPLAY Arabia during the quarter, which allowed them to gain $43 million in cash.

By selling Starz, Lionsgate would effectively be getting out of the streaming game altogether. It would be a big influx of cash at a time when media libraries are coming at a premium. That would allow the company to invest in its studio, Lionsgate Films, which, as the numbers tell us, is performing well. And more to the point, it would force a valuation of Lionsgate that could become very important in the not-too-distant future.

Lionsgate has long been viewed as an acquisition target, given that 17,000 title library. That could serve a company like Apple, for example, if it wanted all of that Lionsgate stuff on Apple TV+. Given that MGM sold to Amazon last year for $8.5 billion, one can only imagine what a library of this size could be worth. 

For now though, Lionsgate is playing a different game than just about everyone else out there by leaning into that film library, not ignoring what small-to-mid-budget movies can do in the long run, and not getting caught up in the arms race of streaming. For now, at least, it's working.