Starz Entertainment Corp. Q3 FY2025 earnings call

• Post-separation plan: Focus on growing core business to 20% margins by 2028, convert 70% adjusted OIBDA to unlevered free cash flow, and delever to 2.5x. Rebuilding content library through ownership is key.
• Canadian business change: Moved from joint venture to content licensing agreement with Bell Canada, Starz to generate international licensing revenue while Bell takes operational responsibility in Canada.
• Content ownership progress: Opened writers' rooms, greenlit first Starz-owned original 'Fightland', in late stages of bringing co-commission partner for 'Fightland', which will improve economics.
• Q3 operational goals met: Return to positive revenue and U.S. OTT subscriber growth; OTT engagement at 12-month high due to 'Outlander' and 'Ballerina' performances.
• Upcoming content: Key tentpoles in Q4 include 'Force' Season 3 and 'House of Ashur'; strong slate for 2026 with returns of 'Outlander', 'Power Book III: Raising Kanan', and new seasons of 'P-Valley' and 'Fightland'.

Total revenue for the quarter was $321 million, up $1.2 million sequentially. OTT revenue was $223 million, up $1.7 million, while linear and other revenue was $98 million. U.S. OTT subscribers added 110,000 in the period, ending the quarter with 12.3 million. Total North American subscribers ended at 19.2 million, with a sequential increase of 120,000. North American linear subscriber base was 6.2 million, flat sequentially. Canadian business structure changed, with content licensing revenue to be a component of linear and other revenue moving forward.

• Expect continued revenue and U.S. OTT subscriber growth in Q4, aiming for ~$200 million adjusted OIBDA for the year.
• Confident in reaching $200 million adjusted OIBDA, with Q4 needing ~$52 million. Confident in growing EBITDA from 2028 onwards as content costs decrease and ownership of slate increases.
• Content cost spend expected to decrease in 2026, further decreasing as more Starz-owned shows air in 2027, moving towards 20% margins by 2028.

Q: Brent Penter asks about cost savings from producing own IP and update on other shows.

A: Jeffrey Hirsch says cost savings come from de-aging shows (moving to newer, cheaper shows) and controlling economics; other shows like '[indiscernible]', 'Kingmaker' are progressing with production partners.

Q: Brent Penter asks about EBITDA guide to $200 million.

A: Scott MacDonald says Q4 needs ~$52 million, confident in reaching $200 million as timing of content and programming amortization are known.

Q: David Joyce asks about programming viewership trends.

A: Alison Hoffman mentions improved monthly active viewers due to 'Outlander Blood of My Blood' and 'Ballerina', strong gross additions for 'Force', and excitement for upcoming content like 'Spartacus'.

Q: David Joyce asks about viewership split between theatrical content and originals.

A: Alison Hoffman says it's about 50-50, varying by platform; Jeffrey Hirsch adds lifetime value of customers is longer with a mix of originals and movies.

Q: David Karnovsky asks about streaming landscape and Starz' confidence in subscriber growth.

A: Jeffrey Hirsch says Starz has strong content slate, can grow subscribers organically without rate increases currently, and can raise rates if needed due to complementary service gap.

Q: David Karnovsky asks about M&A interest.

A: Jeffrey Hirsch says interested in diversifying to AVOD by repositioning complementary linear networks into digital, leveraging Starz' tech and subscriber acquisition expertise, and will do deals within leverage range.

Q: Thomas Yeh asks about subscriber momentum and Canadian business model shift.

A: Jeffrey Hirsch talks about churn reduction through back-to-back shows and longer series, and Canadian licensing revenue covers more than existing subscription revenue and is stable.

Q: Thomas Yeh asks about cash spend outlook.

A: Scott MacDonald says 2026 cash spend expected under $700 million, will provide more guidance on next call, and will decrease further as content slate ages and ownership increases.

Q: Matthew Harrigan asks about development costs and marketing.

A: Jeffrey Hirsch talks about control over development timing and cash spend alignment; Scott MacDonald talks about aligning cash flow with industry norms; Jeffrey Hirsch says bundling doesn't hamper marketing, as it drives lifetime value across partners.