Starz Entertainment Corp. Q3 FY2026 earnings call

• Financial Execution: The company is executing against four key priorities: growing OTT revenue, expanding adjusted OIBDA, generating free cash flow, and reducing leverage. The business is performing ahead of plan despite industry headwinds.
• Content Strategy & Ownership: A shift toward owning content is driving new revenue streams. 'Fightland' generated international revenue via Skyco and improved series economics. 'Michael' became the best-performing pay-one title in Starz history. The company is bullish on owning its slate to control costs and retain long-term IP value.
• Subscriber Engagement: Long-tenured subscribers (one year or more) reached all-time highs in both number and share. Churn is at historic lows, driven by a consistent weekly content slate that reduces gaps between seasons.
• Distribution & Bundling: New distribution agreements were secured, including with Verizon Fios. Bundling strategies (e.g., Peacock, Crunchyroll, Super Bundle) are accretive to revenue and improve retention compared to a la carte sales.
• Operational Efficiency: Cash content spend was $174 million in Q3. The company expects full-year cash content spend to remain below $600 million. Cost efficiencies are evident in owned productions, with 'Fightland' costing approximately $3 million per hour less than prior parent-company benchmarks.

Total revenue for the third quarter was $322 million, marking the strongest quarter of 2026. OTT revenue reached $227 million, contributing approximately 70.4% of total revenue, with year-over-year growth of 1.7% and sequential growth of 2.4%. On a pro forma basis (adjusting for Canadian operational changes), OTT revenue growth was 3.2%. Linear and other revenue was $96 million, accounting for roughly 29.6% of total revenue. Adjusted OIBDA was $44 million, significantly up year-over-year and ahead of expectations.

• Adjusted OIBDA Growth: Reaffirmed full-year 2026 guidance for mid-single-digit adjusted OIBDA growth. Confident in achieving a 20% adjusted OIBDA margin target in the back half of 2027.
• Free Cash Flow: Unlevered free cash flow guidance remains unchanged; confident in achieving a 2026 target of $100 million to $120 million. Equity-free cash flow was positive $13 million in Q3 ($48 million YTD).
• Leverage: Net debt was $601 million with an adjusted OIBDA leverage ratio of 2.8x as of September 30, 2026. Expect to end 2026 with leverage of approximately 2.7x and achieve a target of 2.5x or lower in the back half of 2027.
• Cash Content Spend: Full-year 2026 cash content spend expected to be below $600 million, with continued convergence of cash spend and amortization.

• Industry Consolidation & Competition: While positioned to benefit from bundling, the company faces risks from broader industry consolidation and competition for audience attention.
• Strategic Transactions: Any M&A activity must strictly accelerate strategy and create greater value than organic execution; failure to meet this high bar could distract from core operations.
• AI Disruption: Potential impact of agentic AI tools on subscription management and churn, though management believes strong content mitigates this risk.
• Content Performance: Heavy reliance on specific franchises (e.g., Power Universe, Outlander, P-Valley); underperformance of key titles could negatively impact subscriber retention and acquisition.
• Wholesale Dependency: Approximately 70% of revenue is wholesale/distribution-dependent, exposing the company to partner performance and contract renewal risks.

Q: Analyst asked about the performance of 'Fightland' versus expectations and its impact on the value of fully owned programming, as well as observations on recent bundling deals like Peacock and Crunchyroll. / A: CEO stated 'Fightland' performed strongly, boosting confidence in owning content due to cost efficiency, quality, and new international revenue streams from partners like Sky. President noted that bundling is accretive to revenue and improves retention; early results from Peacock are promising, while Crunchyroll is off to a good start, reinforcing the strategy to lean into bundled offerings.

Q: Analyst asked for the outlook on 'P-Valley' returning in Q4 and clarification on why Q4 adjusted OIBDA might appear flat/down relative to Q3 given the mid-single-digit annual guidance. / A: President highlighted 'P-Valley' as critically acclaimed and commercially successful, with its teaser being the best in 2.5 years, expecting it to drive strong subscriber acquisition and engagement into 2027. CFO explained that Q3 outperformance allowed them to shift marketing spend to Q4 to support 'P-Valley,' but Q4 is still expected to be strong, keeping the annual mid-single-digit growth trajectory intact.

Q: Analyst inquired how the shift away from quarterly subscriber reporting to a focus on revenue and OIBDA has affected the business, specifically regarding subscriber quality, ARPU, and retention. / A: CEO emphasized that focusing on long-term (24-month) revenue growth and lifetime value has been healthy, resulting in accelerated OTT revenue growth, all-time highs in long-tenured subscribers, historic lows in churn, and climbing ARPU. This approach prioritizes durable, slow-and-steady revenue growth over short-term subscriber chasing.

Q: Analyst asked about the company's positioning regarding Muse and agentic AI managing subscriptions, and whether there are opportunities for similar acquisitions like the recently traded All Black Streaming Service. / A: CEO stated that the best defense against AI-driven churn is a compelling, consistently programmed content portfolio that keeps users engaged. He noted that 70% of their business is wholesale, insulating them somewhat. Regarding M&A, he clarified they are looking to diversify into AVOD rather than acquiring pure SVOD assets like All Black, which doesn't fit their strategic goal of building an ad-supported tier alongside their SVOD business.

Q: Analyst asked about learnings from moving away from Lionsgate production capabilities, cost efficiencies, and the potential for building an AVOD business. / A: CEO explained that owning production allows for significant cost savings, citing 'Fightland' as ~$3M/hour cheaper than previous benchmarks. They have rebuilt internal production teams. Regarding AVOD, they see an opportunity to build an ad-supported tier around their core demographics to increase pricing power and reduce churn, though any transaction must create clear shareholder value without risking core execution.