lgfa-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
For the fiscal year ended March 31, 2022
OR
For the transition period from ____________ to ____________
Commission File No.: 1-14880
LIONS GATE ENTERTAINMENT CORP.
(Exact name of registrant as specified in its charter)
British Columbia, Canada N/A
250 Howe Street, 20th Floor 2700 Colorado Avenue
Vancouver, British Columbia V6C 3R8 Santa Monica, California 90404
(Address of Principal Executive Offices, Zip Code)
Registrant’s telephone number, including area code:
(877) 848-3866
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered
Securities registered pursuant to Section 12(g) of the Act: None
___________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yes ☐No☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☑ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant as of September 30, 2021 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $2,474,675,945, based on the closing sale price of such shares as reported on the New York Stock Exchange.
As of May 20, 2022, 83,272,113 shares of the registrant’s no par value Class A voting common shares were outstanding, and 142,462,033 shares of the registrant's no par value Class B non-voting common shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement relating to its 2022 annual meeting of shareholders (the “ 2022 Proxy Statement”) are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. The 2022 Proxy Statement will be filed with the U.S. Securities and Exchange Commission (the "SEC") within 120 days after the end of the fiscal year to which this report relates. Portions of the Registrant's Annual Report on Form 10-K for Fiscal 2021, filed with the SEC on May 28, 2021, are incorporated by reference into Part II of this Annual Report on Form 10-K.
Table of Contents
Page
PART I
Item 1. Business 4
Item 1A. Risk Factors 24
Item 1B. Unresolved Staff Comments 39
Item 2. Properties 39
Item 3. Legal Proceedings 39
Item 4. Mine Safety Disclosures 39
PART II
Item 6. Selected Financial Data 44
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 75
Item 8. Financial Statements and Supplementary Data 78
Item 9A. Controls and Procedures 78
Item 9B. Other Information 81
PART III
Item 10. Directors, Executive Officers and Corporate Governance 81
Item 11. Executive Compensation 81
Item 14. Principal Accounting Fees and Services 81
PART IV
Item 15. Exhibits, Financial Statement Schedules 81
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FORWARD-LOOKING STATEMENTS
This report includes statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “potential,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “forecasts,” “may,” “will,” “could,” “would” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those discussed under Part I, Item 1A. “Risk Factors.” These risk factors should not be construed as exhaustive and should be read with the other cautionary statements and information in this report. These factors may also be increased or intensified as a result of (i) continuing events related to the coronavirus (COVID-19) global pandemic (including as a result of potential resurgences of COVID-19 in certain parts of the world), and the spread of new variants of the virus which could result in the re-imposition of restrictions to reduce its spread and (ii) Russia's invasion of Ukraine, including indirect impacts as a result of sanctions and economic disruptions. The extent to which the COVID-19 global pandemic or Russia's invasion of Ukraine ultimately impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.
We caution you that forward-looking statements made in this report or anywhere else are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially and adversely from those made in or suggested by the forward-looking statements contained in this report as a result of various important factors, including, but not limited to: the potential effects of the COVID-19 global pandemic on the Company, and economic and business conditions; the potential effects of Russia's invasion of Ukraine on the Company, and economic and business conditions; the substantial investment of capital required to produce and market films and television series; budget overruns; limitations imposed by our credit facilities and notes; unpredictability of the commercial success of our motion pictures and television programming; risks related to acquisition and integration of acquired businesses; the effects of dispositions of businesses or assets, including individual films or libraries; the cost of defending our intellectual property; technological changes and other trends affecting the entertainment industry; potential adverse reactions or changes to business or employee relationships; and the other risks and uncertainties discussed under Part I, Item 1A. Risk Factors herein.
Any forward-looking statements which we make in this report speak only as of the date of such statement, and we undertake no obligation to update such statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.
This Annual Report on Form 10-K contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Annual Report on Form 10-K, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other company.
Unless otherwise indicated or the context requires, all references to the “Company,” “Lionsgate,” “we,” “us,” and “our” refer to Lions Gate Entertainment Corp., a corporation organized under the laws of the province of British Columbia, Canada, and its direct and indirect subsidiaries.
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PART I
ITEM 1.BUSINESS.
Overview
Lionsgate (NYSE: LGF.A, LGF.B) encompasses world-class motion picture and television studio operations aligned with the STARZ premium global subscription platform to bring a unique and varied portfolio of entertainment to consumers around the world.Our film, television, subscription and location-based entertainment businesses are backed by a 17,000-title library and a valuable collection of iconic film and television franchises.
We manage and report our operating results through three reportable business segments: Motion Picture, Television Production and Media Networks. We refer to our Motion Picture and Television Production segments collectively as our Studio Business. Financial information for our segments is set forth in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in this Annual Report.
COVID-19 Global Pandemic
Since fiscal 2020, the economic, social and regulatory impacts associated with the ongoing COVID-19 global pandemic (including its variants), continued measures to prevent its spread, and the resulting economic uncertainty, have affected our business in a number of ways.
We experienced delays in theatrical distribution of our films, both domestically and internationally, as well as delays in the production of film and television content (resulting in continued changes in future release dates for some titles and series). Although film and television production have generally resumed, we continue to see disruption of production activities depending on local circumstances. We also cannot predict whether productions that have resumed will be paused again, or the impact of incremental costs required to adhere to health and safety protocols. Additionally, although the lifting of quarantines have enabled many theaters to reopen, we are unable to predict how shifting government mandates or guidance regarding COVID-19 restrictions will impact patronage and theater capacity. In turn, production delays (and fewer theatrical releases) have limited the availability of film content to be sold in distribution windows subsequent to the theatrical release, and have resulted in delays of release of new television content, including on our STARZ platform.
The impact of these disruptions and the extent of their adverse impact on our financial and operating results will be dictated by the length of time that such disruptions continue, which will, in turn, depend on the currently unknowable duration and severity of the impacts of COVID-19 and its variants, and among other things, the impact of governmental actions imposed in response to COVID-19 and individuals’ and companies’ responses regarding health matters going forward. We have incurred and will continue to incur additional costs to address government regulations and the safety of our employees and talent.
For additional information regarding the impact of COVID-19 on our operating results, cash flows and financial position, and the other risks and uncertainties see Part I, Item 1A. Risk Factors and Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Annual Report.
Studio Business
Motion Picture: Our Motion Picture segment includes revenues derived from the following:
•Theatrical. Theatrical revenues are derived from the domestic theatrical release of motion pictures licensed to theatrical exhibitors on a picture-by-picture basis (distributed by us directly in the United States and through a sub-distributor in Canada).
•Home Entertainment. Home entertainment revenues are derived from the sale or rental of our film productions and acquired or licensed films and certain television programs (including theatrical and direct-to-video releases) on packaged media and through digital media platforms (including pay-per-view and video-on-demand platforms, electronic sell through, and digital rental). In addition, we have revenue sharing arrangements with certain digital media platforms which generally provide that, in exchange for a nominal or no upfront sales price, we share in the rental or sales revenues generated by the platform on a title-by-title basis.
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•Television. Television revenues are primarily derived from the licensing of our theatrical productions and acquired films to the linear pay, basic cable and free television markets. In addition, when a license in our traditional pay television window is made to a subscription video-on-demand ("SVOD") or other digital platform, the revenues are included here.
•International. International revenues are derived from (i) licensing of our productions, acquired films, our catalog product and libraries of acquired titles to international distributors, on a territory-by-territory basis, and (ii) the direct distribution of our productions, acquired films, and our catalog product and libraries of acquired titles in the United Kingdom.
•Other. Other revenues are derived from, among others, the licensing of our film and television and related content (e.g., games, music, location-based entertainment royalties, etc.) to other ancillary markets.
Television Production: Our Television Production segment includes revenues derived from the following:
•Television. Television revenues are derived from the licensing to domestic markets (linear pay, basic cable, free television and syndication) of scripted and unscripted series, television movies, mini-series and non-fiction programming. Television revenues include fixed fee arrangements as well as arrangements in which we earn advertising revenue from the exploitation of certain content on television networks. Television revenues also include revenue from licenses to SVOD platforms in which the initial license of a television series is to an SVOD platform.
•International. International revenues are derived from the licensing and syndication to international markets of scripted and unscripted series, television movies, mini-series and non-fiction programming.
•Home Entertainment. Home Entertainment revenues are derived from the sale or rental of television production movies or series on packaged media and through digital media platforms.
•Other. Other revenues are derived from, among others, the licensing of our television programs to other ancillary markets, the sales and licensing of music from the television broadcasts of our productions, and from commissions and executive producer fees earned related to talent management.
Media Networks
Our Media Networks segment includes revenues derived from the following:
•Starz Networks. Starz Networks’ revenues are derived from the domestic distribution of our STARZ branded premium subscription video services through over-the-top ("OTT") platforms and U.S. multichannel video programming distributors (“MVPDs”) including cable operators, satellite television providers and telecommunications companies (collectively, “Distributors”) on a direct-to-consumer basis through the Starz App.
•STARZPLAY International. STARZPLAY International revenues are primarily derived from OTT distribution of the Company's STARZ branded premium subscription video services outside of the U.S.
Segment Revenue
For the year ended March 31, 2022, contributions to the Company’s consolidated revenues from its reporting segments included Motion Picture 32.9%, Television Production 42.5% and Media Networks 42.6%, and intersegment revenue eliminations represented (18.0)% of consolidated revenues.
Within the Motion Picture segment, revenues were generated from the following:
•Theatrical, 5.5%;
•Home Entertainment, 51.6%;
•Television, 21.8%;
•International, 19.8%; and
•Motion Picture-Other, 1.3%.
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Within the Television Production segment, revenues were generated from the following:
•Television, 71.5%;
•International,16.8%;
•Home Entertainment, 6.0%; and
•Television Production-Other, 5.6%.
Within the Media Networks segment, revenues were generated from the following:
•Starz Networks, 93.0%;
•STARZPLAY International, 7.0%
Corporate Strategy
We grow and diversify our portfolio of content to capitalize on demand from streaming and traditional platforms throughout the world. We maintain a disciplined approach to acquisition, production and distribution of content by balancing our financial risks against the probability of commercial success for each project. We also continue to invest in new programming and support the growth of STARZ’s direct-to-consumer offering and expansion of STARZPLAY, our international premium branded SVOD service. We believe that our strategic focus on content, alignment of our content creation and distribution platforms, and creation of other innovative content distribution strategies will enhance our competitive position in the industry, ensure optimal use of our capital, build a diversified foundation for future growth and create significant incremental long-term value for our shareholders.
STUDIO BUSINESS: MOTION PICTURE
Motion Picture - Theatrical
Production and Acquisition
We take a disciplined approach to theatrical production, with the goal of producing content that can be distributed through various domestic and international platforms. In doing so, we may mitigate the financial risk associated with production by, among other things:
•Negotiating co-financing development and co-production agreements which may provide for cost-sharing with one or more third-party companies;
•Pre-licensing international distribution rights on a selective basis, including through international output agreements (which license rights to distribute a film in one or more media generally for a limited term, and in one or more specific territories prior to completion of the film);
•Structuring agreements that provide for talent participation in the financial success of the film in exchange for reduced guaranteed “up-front payments” that would be paid regardless of the film's success; and
•Utilizing governmental incentives, programs and other structures from state and foreign countries (e.g., sales tax refunds, transferable tax credits, refundable tax credits, low interest loans, direct subsidies or cash rebates, calculated based on the amount of money spent in the particular jurisdiction in connection with the production).
Our approach to acquiring films complements our theatrical production strategy - we typically seek to limit our financial exposure while adding films with high potential for commercial box office success, critical recognition and successful monetization across a broad array of platforms.
Distribution
The economic life of a motion picture may consist of its exploitation in theaters, on packaged media and on various digital and television platforms in territories around the world. We generally distribute motion pictures directly to movie theaters in the U.S. whereby the exhibitor retains a portion of the gross box office receipts and the balance is remitted to the distributor. Concurrent with their release in the U.S., films are generally released in Canada and may also be released in one or more other foreign markets. We construct release schedules taking into account moviegoer attendance patterns and competition from other studios' scheduled theatrical releases. After the initial theatrical release, distributors seek to maximize revenues by releasing films in sequential release date windows, which may be exclusive against other non-theatrical distribution platforms. As a result of the COVID-19 global pandemic, in certain circumstances, our distribution strategy has and may continue to change, and certain films intended for theatrical release may be licensed to other platforms.
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Producing, marketing and distributing films can involve significant risks and costs, and can cause our financial results to vary depending on the timing of a film’s release. For instance, marketing costs are generally incurred before and throughout the theatrical release of a film and, to a lesser extent, other distribution windows, and are expensed as incurred. Therefore, we typically incur losses with respect to a particular film prior to and during the film’s theatrical exhibition, and profitability for the film may not be realized until after its theatrical release window. Further, we may revise the release date of a film as the production schedule changes or in such a manner as we believe is likely to maximize revenues or for other business reasons. Additionally, there can be no assurance that any of the films scheduled for release will be completed and/or in accordance with the anticipated schedule or budget, or that the film will ever be released.
Theatrical Releases
In fiscal 2022 (i.e., the twelve-month period ended March 31, 2022), with continued closures and limited re-opening of theaters resulting from the COVID-19 global pandemic, we released sixteen (16) films theatrically in the U.S. across our labels (which include Lionsgate, Summit Entertainment, Good Universe and our partnership with Roadside Attractions). We also made changes to release dates as well as release strategies of several of our films by releasing solely and/or earlier on streaming platforms, initially releasing on premium video-on-demand ("PVOD"), premium electronic sell-through (“PEST”), or by licensing directly to streaming platforms. In fiscal 2022, such titles and their release patterns included the following:
Film Releases via Lionsgate/Summit
Title Release Date Release Pattern Label/Partnership
Chaos Walking† March 5, 2021 Theatrical and PVOD Lionsgate
Voyagers†† April, 9, 2021 Theatrical and PVOD Summit
Spiral ††† May 14, 2021 Theatrical and PVOD Lionsgate
Ghost in the Shell (1995) September 17, 2021 Theatrical Re-release Lionsgate
The Jesus Music October 1, 2021 Theatrical Lionsgate
Moonfall February 4, 2022 Theatrical and Accelerated Home Entertainment Summit
† PVOD release on April 2, 2021
†† PVOD release on April 30, 2021
††† PVOD release on June 1, 2021
Film Releases via Roadside Attractions
Title Release Date Release Pattern Label/Partnership
The Courier* March 19, 2021 Theatrical and PVOD Roadside Attractions
Finding You May 14, 2021 Theatrical Roadside Attractions
Joe Bell** July 23, 2021 Theatrical, PVOD and PEST Roadside Attractions
The Alpinist September 10, 2021 Theatrical Roadside Attractions
Hard Luck Love Song*** October 15, 2021 Theatrical and PVOD Roadside Attractions
Alice March 18, 2022 Theatrical Roadside Attractions
*PVOD release on April 16, 2021
** PVOD and PEST release on August 13, 2021
*** PVOD release on November 11, 2021
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With the continuation of theatrical production in fiscal 2022, we are capitalizing on increased optionality in distribution and maintain a platform agnostic approach to distribution to take full advantage of new windowing opportunities and alternative distribution strategies (while also continuing to work closely with our theatrical exhibition partners).
Nominations and Awards
Lionsgate and affiliated companies have distributed films that have earned 129 Academy Award® nominations and 32 wins, as well as numerous Golden Globe Awards®, Producers Guild Awards®, Screen Actors Guild Awards®, Directors Guild Awards®, BAFTA Awards and Independent Spirit Awards nominations and wins.
Motion Picture - Home Entertainment
Our U.S. home entertainment distribution operation exploits our film and television content library of nearly 17,000 motion picture titles and television episodes and programs, consisting of titles from, among others, Lionsgate, our subsidiaries, affiliates and joint ventures (such as STARZ, Summit Entertainment, Anchor Bay Entertainment, Artisan Entertainment, Grindstone Entertainment Group, Trimark and Roadside Attractions), as well as titles from third parties such as A24, A&E, AMC, Entertainment Studios, Saban Entertainment, StudioCanal, and Tyler Perry Studios. Home entertainment revenue consists of packaged media and digital revenue.
Packaged Media
Packaged media distribution involves the marketing, promotion, sale and/or lease of DVDs/Blu-ray discs to wholesalers and retailers who then sell or rent the DVDs/Blu-ray discs to consumers for private viewing. Fulfillment of physical distribution services are substantially licensed to Twentieth Century Fox Home Entertainment. We distribute or sell content directly to retailers such as Wal-Mart, Best Buy, Target, Amazon and others who buy large volumes of our DVDs/Blu-ray discs to sell directly to consumers. We also directly distribute content to the rental market through Redbox, Netflix and others.
Digital Media
Lionsgate directly distributes content (including certain titles not distributed theatrically or on physical media) across a wide range of global distribution platforms and networks on an on-demand basis (whereby the viewer controls the timing of playback) through dozens of transactional (transactional video-on-demand and electronic-sell-through), subscription, ad-supported and free video-on-demand platforms. We also directly distribute content on a linear distribution basis (i.e., whereby the programmer controls the timing of playback) through various linear pay, basic cable, and free, over-the-air television platforms worldwide. Subscription video-on demand services to which we license our content include, among others, Netflix, Hulu, Amazon Prime, Peacock, Paramount+ and HBO Max; ad-supported video-on-demand services to which we license our content include, among others, The Roku Channel, Tubi TV, YouTube, IMDb, and Pluto; and linear networks to which we distribute our content include, among others, pay television networks such as STARZ, EPIX, HBO and Showtime, and basic cable network groups such as NBCUniversal Cable Entertainment, Paramount Global Domestic Media Networks, Disney Media & Entertainment Distribution Networks, Turner Entertainment Networks, A+E Networks and AMC Networks, as well as Bounce, Telemundo and UniMás.
Fiscal 2022, like fiscal 2021, saw a continued shift in our release strategies due to a combination of the COVID-19 global pandemic and acceleration of secular trends already underway in the windowing of our motion picture product. With many theatres operating at limited capacity due to various state-by-state health restrictions, we leaned into hybrid theatrical/streaming, early PVOD models for some of our films and other dynamic windowing distribution models. Coupled with the surge in content demand across all home entertainment platforms, digital media consumption increased with three (3) of our titles, The Hitman’s Wife’s Bodyguard, The Courier and City of Lies, all reaching number one (1) on the iTunes movie charts, and three (3) of our titles, The Hitman’s Wife’s Bodyguard, City of Lies and Midnight on the Switchgrass, all debuting at number one (1) on the Comscore On-Demand Chart.
Motion Picture - Television
We license our theatrical productions and acquired films to the domestic linear pay, basic cable and free television markets. For additional information regarding such distribution, see Motion Picture-Home Entertainment - Digital Media above.
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Motion Picture - International
Our international sales operations are headquartered at our offices in London, England. The primary components of our international business are, on a territory-by-territory basis through third parties or directly through our international divisions:
•The licensing of rights in all media of our in-house feature film product and third party acquisitions on an output basis;
•The licensing of rights in all media of our in-house product and third party acquisitions on a sales basis for non-output territories;
•The licensing of third party feature films on an agency basis; and
•Direct distribution of theatrical and/or ancillary rights licensing.
We license rights in all media on a territory-by-territory basis (other than the territories where we self-distribute) of (i) our in-house Lionsgate and Summit Entertainment feature film product, and (ii) films produced by third parties such as Silver Reel, Buzzfeed, Gold Circle Films, Ace Entertainment and other independent producers. Films licensed and/or released by us internationally in fiscal 2022 included such in-house productions as About My Father, American Underdog, Barb and Star Go to Vista Del Mar, Borderlands, Christmas is Canceled, John Wick: Chapter 4, Shotgun Wedding, Spiral, and Unbearable Weight of Massive Talent. Third party films for which we were engaged as exclusive sales agent and/or released by us internationally in fiscal 2022 included Paradise Highway.
Through our territory-by-territory sales and output arrangements, we generally cover a substantial portion of the production budget or acquisition cost of new theatrical releases which we license and distribute internationally. Our output agreements for Lionsgate and Summit feature films currently cover Scandinavia and France. These output agreements generally include all rights for all media (including home entertainment and television rights). We also distribute theatrical titles in Latin America through our partnership with International Distribution Company, as well as theatrical rights in Canada through our partnership with Mongrel Media and Cineplex.
We also self-distribute motion pictures in the United Kingdom and Ireland through Lions Gate International UK (“Lionsgate UK”). Lionsgate UK has established a reputation in the United Kingdom as a leading producer, distributor and acquirer of commercially successful and critically acclaimed product. After a limited theatrical slate in fiscal 2021 due to the closure and limited re-opening of cinemas as a result of the COVID-19 pandemic, we were able to release more titles theatrically in fiscal 2022, as the industry began to recover and cinemas began to re-open in May 2021. We also, however, continued with our revised strategies for our titles, releasing on PVOD streaming platforms or by licensing directly to streaming services. Such titles and their release patterns included the following:
Fiscal 2022 ReleasesLionsgate UK
Title Release Date
Wild Mountain Thyme** April 30, 2021
Spiral: From the Book of Saw May 17, 2021
The Hitman’s Wife’s Bodyguard June 18, 2021
Mothering Sunday November 12, 2021
Wrath of Man* December 10, 2021
* Released on PVOD.
** Sold to streaming service.
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Additionally, our office in India manages operations and growth opportunities in the South Asian/Indian sub-continent. Through our local office in Mumbai, we manage the following activities:
•License our feature films, television series, library content to local linear and digital platforms;
•Appoint and work closely with theatrical distribution partners to maximize box office for our films;
•Partner with local production companies, as well as develop in-house, Indian local language television series and feature films for distribution across other media platforms;
•Continue to expand our STARZ’s offering in the region and across emerging Asian markets (branded as Lionsgate Play), through our direct-to-consumer launch and in collaboration with telco partners, Amazon and Apple TV; and
•Explore investment opportunities throughout the South Asian and South East Asian media market.
Motion Picture - Other
Global Live, Interactive and Location Based Entertainment
Our Global Live, Interactive and Location Based Entertainment division drives incremental revenue and builds consumer engagement across our entire portfolio of properties via licensing and launching live shows and experiences, location-based entertainment destinations, games, physical and digital merchandise, and through select strategic partnerships and investments.
Our Global Live Entertainment business focuses on licensing, developing, and producing live stage shows, concerts, and live immersive experiences and events based on our theatrical and television content. We have announced multiple live entertainment projects, including Wonder and Nashville for Broadway, as well as a live dance show inspired by our Step Up film franchise in partnership with Channing Tatum and Free Association.
Our Interactive Entertainment business focuses on growing a slate that includes games across PC/console, mobile, virtual reality and more, integration of our properties into with marquee games such as Call of Duty, Dead By Daylight and the upcoming Evil Dead:The Game, as well as NFT projects, including as part of a first look deal with Autograph.
Our Location Based Entertainment business licenses and produces our Lionsgate, theatrical, and television brands for theme parks, destinations, and stand-alone attractions and experiences. In January 2022, we opened an expansion of the Lionsgate zone at Motiongate Dubai which features two new roller coasters themed to our John Wick and Now You See Me franchises. Additionally, Escape Blair Witch opened in Las Vegas in August of 2021, and serves as an additional companion attraction to The Official Saw Escape, now in its fourth year of operation.
Music
Our music department creatively manages music for our theatrical and television slates, including overseeing songs, scores and soundtracks for all of our theatrical productions, co-productions and acquisitions, as well as music staffing, scores and soundtracks for all of our television productions. Music revenues are derived from the sales and licensing of music from our films, television, and other productions, and the theatrical exhibition of our films and the broadcast and webcast of our productions.
Ancillary Revenues
Ancillary revenues are derived from the licensing of films and television content at non-theatrical venues including educational and institutional facilities, U.S. military bases, oil rigs, hospitals, hotels, prisons, and on all forms of common carrier transportation, including airlines and ships.
STUDIO BUSINESS: TELEVISION PRODUCTION
Our television business consists of the development, production, syndication and distribution of television programming. We principally generate revenue from the licensing and distribution of such programming to broadcast television networks, pay and basic cable networks, digital platforms and syndicators of first-run programming, which license programs on a station-by-station basis and pay in cash or via barter (i.e., trade of programming for airtime). Each of these platforms may acquire a mix of original and library programming.
After initial exhibition, we distribute programming to subsequent buyers, both domestically and internationally, including basic cable network, premium subscription services or digital platforms (known as “off-network syndicated programming”).
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Off-network syndicated programming can be sold in successive cycles of sales which may occur on an exclusive or non-exclusive basis. In addition, television programming is sold on home entertainment (packaged media and via digital delivery) and across all other applicable ancillary revenue streams including music publishing, touring and integration.
As with film production, we use tax credits, subsidies, and other incentive programs for television production in order to maximize our returns and ensure fiscally responsible production models.
Television Production - Television
Lionsgate Television
Despite initial production delays and changes to future network release dates as a result of the ongoing COVID-19 global pandemic, we completed production on a number of television series. We currently produce, syndicate and distribute nearly 80 television shows on more than 35 networks (including programming produced by Pilgrim Media Group, of which we own a majority interest).
In fiscal 2022, scripted and unscripted programming produced, co-produced or distributed by us and our affiliated entities (see Starz Original Programming below for original programming that appears on our STARZ services), as well as programming syndicated by our wholly-owned subsidiary, Debmar-Mercury, included the following:
Scripted - Lionsgate
Title Network
Acapulco Apple
Black Mafia Family Starz
Blindspotting Starz
Dear White People Netflix
Ghosts CBS
Heels Starz
Hightown Starz
Home Economics ABC
Julia Child HBO Max
Love Life HBO Max
Macgyver CBS
Minx HBO Max
Mythic Quest Apple
Power Book II: Ghost Starz
Power Book III: Raising Kanan Starz
Power Book IV: Force Starz
P-Valley Starz
Run the World Starz
Santa Inc. HBO Max
Serpent Queen Starz
Step Up Starz
Swimming with Sharks Roku
The First Lady Showtime
Welcome to Flatch Fox
Zoey's Extraordinary Playlist NBC
Zoey's Extraordinary Christmas Roku
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Unscripted - Lionsgate
Title Network
De Viaje con los Derbez Pantaya
Selling Sunset Netflix
The Real Dirty Dancing Fox
Unscripted - Pilgrim Media Group
Title Network
Ghost Hunters Discovery
Hoffman Family Gold Discovery
Horse for Dogs Animal Planet
My Big Fat Fabulous Life TLC
Renovation Impossible Discovery
Street Outlaws Discovery
Street Outlaws: America's List Discovery
Street Outlaws: Farm Truck & AZN Discovery
Street Outlaws: Fastest in America Discovery
Street Outlaws: Gone Girl Discovery
Street Outlaws: Memphis Discovery
Street Outlaws: No Prep Kings Grudge Night Discovery
The Ultimate Fighter ESPN+
UFO Live Discovery
Wicked Tuna Nat Geo
Wicked Tuna Outer Banks Nat Geo
Zombie Flippers A&E
Syndication - Debmar-Mercury
Title
Central Ave
Family Feud
Nick Cannon
Schitt's Creek
Wendy Williams
Starz Original Programming
For information regarding production of Starz original programming, see Media Networks - Starz Networks - Starz Original Programming.
Television Production- International
We continue to expand our television business through international sales and distribution of original Lionsgate television series, Starz original programming, third party television programming and format acquisitions via packaged media and various digital platforms. Lionsgate UK also continues to build a robust television business alongside its premier film brand through its various joint ventures and investments.
After the pause in television production in fiscal 2021 due to the COVID-19 global pandemic, Lionsgate UK television programming (developed in-house and through Lionsgate UK’s interest and partnerships) that continued, began production, was produced or was broadcast in fiscal 2022, included the following:
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Fiscal 2022Television - Lionsgate UK
Title Network Partner(s)
The Pact BBC Wales Little Door
Motherland Series 3 BBC BBC, Merman
The Goes Wrong Show Series 2 BBC Mischief Screen, Big Talk, BBC
Son of a Critch CBC Project 10, CBC
The Pact Series 2 BBC Little Door
Television Production-Home Entertainment
For information regarding television production home entertainment revenue, see Motion Picture - Home Entertainment above.
Television Production-Other
Other revenues are derived from, among others, the licensing of our television programs to other ancillary markets, the sales and licensing of music from the television broadcasts of our productions, and from our interest in 3 Arts Entertainment, a talent management company. 3 Arts Entertainment receives commission revenue from talent representation and are producers on a number of television shows and films where they receive an executive producer fee and back-end participations.
MEDIA NETWORKS
Media Networks - Starz Networks - United States
Starz Networks is a leading provider of premium subscription video programming to consumers in the U.S. We sell our services on a direct-to-consumer basis and through various other platforms, including OTT providers (such as Amazon, Apple, Google and Hulu), MVPDs, including cable operators (such as Comcast and Charter), satellite television providers (such as DIRECTV and DISH Network), and telecommunications companies (such as AT&T and Verizon).
Our flagship premium service STARZ had 21.0 million subscribers as of March 31, 2022 (not including subscribers who receive programming free as part of a promotional offer). STARZ offers premium original series and recently released and library movies without advertisements. Our other services, STARZ ENCORE and MOVIEPLEX, offer theatrical and independent library movies as well as original and classic television series also without advertisements. Our services include a stand-alone, direct-to-consumer app, 17 linear networks, and on-demand and online viewing platforms. Our app and online viewing platforms offer thousands of monthly movies and series episodes from studio partners, including first-run content, along with a growing line-up of successful original programming. Our services are offered directly to consumers via the STARZ app at www.starz.com or through our retail partners (such as Apple and Google) for a monthly fee, or by our distributors to their subscribers either at a fixed monthly price as part of a programming tier, package or bundle with other products or services, or on an a la carte basis.
The table below depicts our 17 existing linear services, their respective on-demand services, and the STARZ app, and highlights some of their key attributes.
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Demographics and Strategy
Designed to complement any basic television offering across both wholesale and retail OTT, as well as traditional MVPD distribution platforms, STARZ is a best-in-class subscription service delivering premium original series and hit movies with appeal to women and diverse audiences worldwide.
We are focused on developing and distributing authentic and engaging programming that resonates with women, African American, Latinx and LGBTQIA audiences, all of which have been traditionally underserved in the premium television space. Driven primarily by growing multiplatform viewership amongst these target audiences, Starz is positioned to continue to capture the digital television transition.
Across our digital platforms, the STARZ app provides an alternative for subscribers looking for a competitively priced option. Subscribers have access to a vast library of quality content and a top-rated user experience, along with the ability to download and watch STARZ original series, blockbuster theatricals and favorite classic TV series and movies without an internet connection.
This strategy, combined with a proven management team, will ensure Starz Networks’ services remain a “must have” for subscribers and a meaningful profit center for our distributors.
Affiliation agreements
Our services are distributed pursuant to affiliation agreements with our distributors. We earn revenue under these agreements either (i) based on amounts or rates tied to the total number of subscribers who receive our services or (ii) based on amounts or rates which are not tied solely to the total number of subscribers who receive our services. Our affiliation agreements expire at various dates through 2026.
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We work with our distributors to increase the number of subscribers to our services. To accomplish this, we may help fund the distributors’ efforts to market our services or may permit distributors to offer limited promotional periods with discounted or no payment of subscriber fees. We believe these efforts enhance our relationship with distributors, improve the awareness of our services and maximize subscribers and revenue over the term of these affiliation agreements.
Distributors report the number of subscribers to our services and pay for services, generally, on a monthly basis. The agreements are generally structured to be multi-year agreements with staggered expiration dates and certain of the agreements provide for annual contractual rate increases.
STARZ App
The STARZ app is the single destination for both direct OTT subscribers and distributor authenticated subscribers to stream or download our original series and movie content. The STARZ app:
•Is available for purchase as a standalone OTT service for $8.99/month;
•Is available on a wide array of platforms and devices including Amazon Fire, iOS, Android and Roku, among others;
•Includes on-demand streaming and downloadable access for internet-free viewing;
•Offers instant access to thousands of selections each month (including STARZ original series and commercial free movies); and
•Is available as an additional benefit to paying MVPD subscribers of the Starz Networks’ linear premium services.
Starz Original Programming
Starz Networks contracts with our Television Production segment and other independent production companies to produce original programming that appears on our Starz services.
Starz’s currently announced fiscal 2023 STARZ Originals line-up is as follows:
Title
Gaslit Season 1
Who Is Ghislaine Maxwell (limited series)
Becoming Elizabeth Season 1
P-Valley Season 2
Power Book III: Raising Kanan Season 2
Dangerous Liaisons Season 1
Serpent Queen Season 1
The BMF Documentary: Blowing Money Fast
Step Up Season 3
BMF Season 2
Party Down Season 3
Power Book II: Ghost Season 3
Total Episodes: 99
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Starz’s fiscal 2022 STARZ Originals line-up was as follows:
Title
Confronting a Serial Killer Season 1
The Girlfriend Experience Season 3
Run the World Season 1
Little Birds (limited series)
Blindspotting Season 1
Power Book III: Raising Kanan Season 1
Heels Season 1
BMF Season 1
Hightown Season 2
Power Book II: Ghost Season 2
Power Book IV: Force Season 1
Shining Vale Season 1
Outlander Season 6
Total Episodes: 109
Lionsgate and Starz television programming have earned 241 Emmy® Award nominations including 38 wins, as well as numerous Golden Globe ® Awards, NAACP Awards, GLAAD Awards, Screen Actors Guild Awards nomination and wins.
Output and Content License Agreements
The majority of content on our services consists of movies that have been released theatrically. Starz has an exclusive multiyear output licensing agreement with Lionsgate for Lionsgate label titles theatrically released in the U.S. starting January 1, 2022, and for Summit label titles theatrically released in the U.S. starting January 1, 2023. Starz also has an exclusive multiyear post pay-one output licensing agreement with Universal for live-action films theatrically released in the U.S. starting January 1, 2022. The Universal agreement provides Starz with rights to exhibit these films immediately following their pay-one windows. In addition, we continue to exhibit films under our exclusive Sony output agreement, which covers qualifying movies released theatrically in the U.S. by certain Sony labels through December 31, 2021.
Under these agreements, Starz has valuable exclusive rights to air these new movies on linear television services, on-demand or online during two separate windows, with at least one year between the first and second windows. Generally, except on a VOD or pay-per-view basis, no other linear service, online streaming or other video service may air or stream these recent releases during Starz’s windows.
Starz also licenses first-run independent feature films acquired through U.S. and international film festivals and other sources as well as library content comprised of older, previously released theatrical movies from many of Hollywood’s major studios. In addition to theatrical movies, Starz licenses television series and other content from studios, production companies or other rights holders. The rights agreements for library content are of varying duration and generally permit Starz’s services to exhibit these movies, series and other programming during certain window periods.
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A summary of significant output and library programming agreements (including a library agreement with Lionsgate) are as follows:
Studio Studio
Lionsgate Paramount
Sony Warner Bros
Universal Twentieth Century Fox
MGM
Sony Pictures
Lionsgate
Universal
Our output agreements generally require us to pay for movies at rates calculated on a pricing grid that is based on each film’s domestic box office performance (subject to maximum amounts payable per movie and a cap on the number of movies that can be put to Starz each year). The amounts Starz pays for library content vary based on each specific agreement, but generally reflect an amount per movie, series or other programming commensurate with the quality (e.g., utility and perceived popularity) of the content being licensed.
Transmission
We currently uplink our programming for our linear services to non-pre-emptible, protected transponders on two satellites positioned in geo-synchronous orbit. These satellites feed our signals to various swaths of the Americas. We lease these transponders under agreements that have termination dates in 2023. We currently are evaluating our options regarding transponder leasing arrangements following the expiration of the current agreements. We transmit to these satellites from our uplink center in Englewood, Colorado. We have made arrangements at a vendor’s facility to uplink our linear channels to these satellites in the event we are unable to do so from our uplink center.
Regulatory Matters
In the U.S., the Federal Communications Commission (the “FCC”) regulates several aspects of our and our distribution ecosystem’s operations and programming. This includes FCC oversight in connection with communications satellites and related uplink/downlink equipment and transmissions, content-specific requirements such as closed captioning, messaging during children’s programming, loudness of commercials, and program access requirements in connection with certain distributors and programmer services with shared attributable interests.
Regulation
The regulation of programming services, cable television systems, direct broadcast satellite providers, broadcast television licensees and online services is subject to the political process and has been in constant flux historically. To the extent that our programming services are distributed through online platforms, we must comply with various federal and state laws and regulations applicable to online communications and commerce. Further material changes in the law and regulatory requirements that affect our business must be anticipated and there can be no assurance that we will not be materially adversely affected by future legislation, new regulation or deregulation.
Media Networks - Starz - International
Starz is available in 60+ countries outside the U.S. through our four (4) international branded services: STARZPLAY in Western Europe, Latin America and Japan; STARZ in Canada; LIONSGATE PLAY in India; and through our STARZPLAY Arabia joint venture in the Middle East and North Africa. These branded services are made available through OTT providers (such as Amazon and Apple), internet protocol television ("IPTV") providers (such as Airtel), PayTV companies (such as Izzi), on a direct-to-consumer basis, and cable and satellite providers in Canada only as a linear service. Across these services, Starz had 12.8 million subscribers as of March 31, 2022. The remainder of this section addresses the offerings operated by STARZPLAY in the 35-country footprint across Western Europe, Latin America and Japan.
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International Strategy
STARPLAY is quickly growing its distribution by strategically positioning itself as a complementary pure-play premium content service offered at a competitive subscription price, made available through a diverse ecosystem of wholesale and retail distribution partners. Premium content that targets all adults is the foundation of our international content strategy. We believe this allows us to operate as a complementary service, not a direct competitor, with other higher priced, broad-based video services. STARZPLAY provides subscribers with access to STARZ original series, often airing day-and-date with the U.S., a rich and diverse library of television series, feature films and documentaries from Lionsgate and other Studios, and first-run, exclusive third-party programming, including locally produced television shows that align with the STARZ brand – STARZPLAY Originals. All content available on STARZPLAY is available with sub-titles and/or local language dubbing for each country.
Our distribution strategy is led with a wholesale model and supplemented through direct OTT retail sales. We expect to launch with additional wholesale partners and potentially deploy the STARZPLAY app in additional countries in the coming years.
Affiliation agreements
Our services are distributed pursuant to affiliation agreements with our distributors under a wholesale license, where STARZPLAY is sold as an a la carte channel or bundled within our distributors’ platforms, including Amazon and Apple, as well as local IPTV and Telco partners. Our wholesale distributors manage the technology and infrastructure associated with the exhibition of STARZPLAY in exchange for recurring license fees.Our affiliation agreements expire at various dates through 2026.
We work with distributors to increase the number of subscribers to our services. To accomplish this, we may help fund the distributors’ efforts to market these services or may permit distributors to offer limited promotional periods with discounted or no payment of subscriber fees. We believe these efforts enhance our relationship with distributors, improve the awareness of our services and ultimately increase subscribers and revenue over the term of these affiliation agreements.
Distributors report the number of subscribers to our services and pay for services, generally, on a monthly basis. The agreements are structured on a country-by-country basis, to be multi-year agreements with staggered expiration dates by distributor.
STARZPLAY App
To enhance our subscriber reach, we modified our domestic (U.S.) STARZ retail app for deployment internationally to include, among other new features, full European Union General Data Protection Regulation compliance, support for fourteen (14) languages, multiple audio/closed captioning options and a variety of potential carrier/billing integrations.
The STARZPLAY app is the single destination for direct OTT subscribers to stream on-demand or download our original series and movie content. The STARZPLAY app:
•Is currently available in eighteen (18) countries across Europe and Latin America, including France, Germany, Spain, the UK, Netherlands, Mexico, and Brazil, Argentina, etc.;
•Is offered directly via the STARZPLAY website or via retail storefronts such as the Apple Store, Play Store, Roku Channels, LG, and Amazon Fire;
•Includes a language toggle allowing users to select their preferred language for viewing;
•Offers instant access to approximately 1,000 selections each month (including original series and commercial free movies); and
•Is available for purchase as a standalone OTT service for £5.99 in the UK, €4.99 in Europe and ~$4.50 in Latin America.
STARZPLAY Programming
STARZPLAY contracts with our Television Production segment and other major content licensors to acquire first-run original scripted series and library films that appear on STARZPLAY.
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STARZPLAY’s currently expected fiscal 2023 first-run STARZ Originals programming, which will be available to STARZPLAY across its footprint in Canada, Western Europe, Latin America and Japan, is as follows:
Title
Gaslit Season 1
Becoming Elizabeth Season 1
P-Valley Season 2
Power Book III: Raising Kanan Season 2
Dangerous Liaisons Season 1
Serpent Queen Season 1
BMF Documentary: Blowing Money Fast
Step Up Season 3
BMF Season 2
Party Down Season 3
Power Book II: Ghost Season 3
Total Episodes: 96
STARZPLAY’s currently expected fiscal 2023 first-run third-party programming and country availability is as follows:
Title Countries Available Distributor
Tokyo Vice Season 1 UK, Germany ("DE") Endeavor
The Girl from Plainville All markets ex. Canada ("CA") NBCU
Sisi Season 1 Latin America ("LatAm") Betafilm
Evil by Design UK, DE, LatAm, Spain ("ES") Blue Ant
Das Boot Season 3 France ("FR"), LatAm NBCU
Faking Hitler ES, Nordics Fremantle
Euer Ehren Nordics SquareOne
Ramy Season 3 All markets ex. LatAm, Nordics Lionsgate
Queer as Folk Season 1 All markets ex. Japan ("JP"), CA NBCU
Doom Patrol Season 4 UK WB
The Capture Season 2 DE, FR, Benelux, LatAm, Italy ("IT"), ES NBCU
Gangs of London Season 2 FR, Benelux, LatAm, ES, JP Pulse
The Head Season 2 UK, DE MediaPro
Pennyworth Season 3 UK, DE, IT WB
The Great Season 3 All markets ex. JP, Nordics, CA Paramount
Total Episodes: 131
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STARZPLAY’s currently expected fiscal 2023 first-run STARZPLAY Originals programming and country availability is as follows:
Title Countries Available Distributor
El Refugio Season 1 LatAm, ES Fremantle
Toda la Sangre Season 1 LatAm Spiral
All Those Things We Never Said All markets ex. FR, JP, Nordics StudioCanal
Nacho Season 1 LatAm, ES Bambu
Yellow LatAm, ES The Immigrant
Total Episodes: 39
STARZPLAY’s fiscal 2022 first-run STARZ Originals programming was as follows:
Title
Confronting a Serial Killer Season 1
The Girlfriend Experience Season 3
Run the World Season 1
Blindspotting Season 1
Power Book III: Raising Kanan Season 1
Heels Season 1
BMF Season 1
Hightown Season 2
Power Book II: Ghost Season 2
Power Book IV: Force Season 1
Shining Vale Season 1
Total Episodes: 95
STARZPLAY’s fiscal 2022 first-run STARZPLAY Originals programming and country availability was as follows:
Title Countries Available Distributor
Mala Yerba LatAm, ES Sony
Express Season 1 LatAm, ES, FR, IT MediaPro
Senorita ’89 Season 1 LatAm, ES Fremantle
Total Episodes: 26
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STARZPLAY’s fiscal 2022 first-run third-party programming and country availability was as follows:
Title Countries Available Distributor
Godfather of Harlem Season 2 UK, FR Disney
It’s A Sin DE, IT All3Media
Love Life Season 1 DE Lionsgate
Dr. Death Season 1 All markets ex. DE, CA NBCU
Gigantes Season 1 Brazil About Premium Content
Gigantes Season 2 Brazil About Premium Content
Dr. Death: The Undoctored Story UK, FR, Benelux, LatAm, ES NBCU
Une Affaire Francaise DE, ES Federation
Vigil Season 1 CA ITV
Doom Patrol Season 3 UK WB
The Great Season 2 All markets ex. JP, CA Paramount
Station Eleven UK, DE Paramount
Baptiste Season 2 DE, FR, LatAm All3Media
Outlander Season 6 UK Sony
Love Life Season 2 DE Lionsgate
Killing Eve Season 4 DE Endeavor
Total Episodes: 123
Significant multi-country library programming agreements include those with Studio Canal, Tele München Group, Sony, Universal and Lionsgate.
Regulatory Matters
Distribution of our programming services in non-U.S. jurisdictions may be subject to the laws of the jurisdictions in which they operate. The applicability and enforcement of laws in some non-U.S. jurisdictions can be inconsistent and unpredictable. As a result, our ability to generate revenue and our expenses in non-U.S. jurisdictions could be impacted. There may be further material changes in the law and regulatory requirements.
JOINT VENTURES, PARTNERSHIPS AND OWNERSHIP INTERESTS
Our joint ventures, partnerships and ownership interests support our strategy of being a multiplatform global industry leader in entertainment. We regularly evaluate our existing properties, libraries and other assets and businesses in order to determine whether they continue to enhance our competitive position in the industry, have the potential to generate significant long-term returns, represent an optimal use of our capital, and are aligned with our goals. When appropriate, we discuss potential strategic transactions with third parties for purchase of our properties, libraries or other assets or businesses that factor into these evaluations. As a result, we may, from time to time, determine to sell individual properties, libraries or other assets or businesses or enter into additional joint ventures, strategic transactions and similar arrangements for individual properties, libraries or other assets or businesses. Our more significant joint ventures, partnerships and ownership interests include the following:
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Intellectual Property
We currently use and own or license a number of trademarks, service marks, copyrights, domain names and similar intellectual property in connection with our businesses and own registrations and applications to register them both domestically and internationally. We believe that ownership of, and/or the right to use, such trademarks, service marks, copyrights, domain names and similar intellectual property is an important factor in our businesses and that our success depends, in part, on such ownership.
Motion picture and television piracy is extensive in many parts of the world, including South America, Asia and certain Eastern European countries, and is made easier by technological advances and the conversion of content into digital formats. This trend facilitates the creation, transmission and sharing of high quality unauthorized copies of content on packaged media and through digital formats. The proliferation of unauthorized copies of these products has had and will likely continue to have an adverse effect on our business, because these products may reduce the revenue we receive from our products. Our ability to protect and enforce our intellectual property rights is subject to certain risks and, from time to time, we encounter disputes over rights and obligations concerning intellectual property. We cannot provide assurance that we will prevail in any intellectual property disputes.
Competitive Conditions
Our businesses operate in highly competitive markets. We compete with companies within the entertainment and media business and from alternative forms of leisure entertainment, such as travel, sporting events, outdoor recreation and other cultural related activities. We compete with the major studios, numerous independent motion picture and television production companies, television networks, pay television services and digital media platforms for the acquisition of literary, film and television properties, the services of performing artists, directors, producers and other creative and technical personnel and production financing, all of which are essential to the success of our businesses. In addition, our motion pictures compete for audience acceptance and exhibition outlets with motion pictures produced and distributed by other companies. Likewise, our television product faces significant competition from independent distributors as well as major studios. Moreover, our networks compete with other programming networks for viewing and subscribership by each distributor’s customer base, as well as for carriage by such distributors. As a result, the success of any of our motion picture, television or media networks business is dependent not only on the quality and acceptance of a particular film or program, but also on the quality and acceptance of other competing content released into the marketplace at or near the same time as well as on the ability to license and produce content for the networks that is adequate in quantity and quality and will generate satisfactory subscriber levels.
Human Capital Management
Employees
As of May 20, 2022, we had 1,448 full-time employees in our worldwide operations. We also utilize many consultants in the ordinary courseof our business and hire additional employees on a project-by-project basis in connection with the production of our motion pictures and television programming.
Diversity Equity & Inclusion
We believe that embracing diversity, promoting a culture of inclusivity and accelerating the representation of women and historically excluded groups in our workforce is crucial to our success. Our Chief Diversity Officer partners with our leadership team across all of our businesses to effect changes in recruitment, hiring, promotions, policies and culture, and to orchestrate our Company-wide response to issues of inequality and workforce disparity.
We also maintain the following recruitment and hiring initiatives:
•Internship Programs: We maintain an internship program designed to increase inclusion across the entertainment industry by placing qualifying students in positions at Lionsgate and various other studios.
•Targeted Recruitment: We continue recruitment efforts that include collaborating with diverse partner organizations,college campus diversity organizations for underrepresented groups, as well as historically black colleges in our search for new employees and interns.
•Inclusive Hiring Process: We implement inclusive hiring practices to ensure that we are attracting the best talent in the industry through a more equitable, inclusive, and accessible approach. Key components of the framework
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include bias free job descriptions, inclusive hiring training, external diversity partners, diverse candidate slates, and diverse, cross-functional interview panels.
•Supplier Diversity Program: The mission of our Supplier Diversity Program is to actively establish relationships with diverse businesses and to continuously strive to increase spend with diverse suppliers, while delivering more competitive pricing, quality, service, innovation and creativity in procurement of services. We believe that this initiative increases the breadth of our vendor pool, while also encouraging the growth of diverse businesses.
Employee Resource Groups
We are proud to provide our employees with an array of Employee Resource Groups (“ERGs”) which offer them the chance to establish a greater presence at Lionsgate and an opportunity to enhance cross-cultural awareness, develop leadership skills and network across the Company’s various business units and levels. The ERGs are voluntary, employee-led groups that foster a diverse, engaging, and inclusive workplace.
•Lionsgate Early Career Group aims to inspire curiosity and networking to foster growth for professionals in early stages of their careers.
•Lionsgate Multicultural Employee Resource Group advocates for a more inclusive workplace and entertainment landscape through programs that educate, activate and celebrate multicultural diversity and its global impact.
•Lionsgate Parents Group aims to bring together parents, expecting parents, caregivers, and allies to ensure our community fosters an environment that supports all families.
•Lionsgate Pride supports, develops and inspires future LGBTQIA leaders within the Company and the industry.
•Lionsgate Vets creates a community of veterans and their supporters working together to enhance veteran presence and engage the industry from the unique perspective of a military background.
•Lionsgate Women’s Empowerment Group creates a community that improves the prominence of female leaders and empowers women at all levels within the Company and the industry.
Lionshares
We are committed to acting responsibly and making a positive difference in the local and global community through Lionshares, the umbrella for our companywide commitment to our communities. Lionshares is a volunteer program that seeks to provide opportunities for employees within the Lionsgate family to partner with a diverse range of charitable organizations. The program not only enriches the Lionsgate work experience through cultural and educational outreach, but also positively interacts and invests in the local and global community.
Other Employee Benefits and Programs
We understand the importance of well-rounded and inclusive benefits and programs and are dedicated to providing our employees with unique offerings that meet their individual needs. With respect to benefits, we offer a comprehensive benefits package which includes family forming benefits, mental health support, resources for caregiving (children and adult family), online fitness and meditation classes, and new parent coaching. With respect to learning and engagement, we offer programs to develop and enrich the employee experience with offerings such as tuition reimbursement, leadership development program, mentorship, and additional programs to help support specific populations (e.g., minorities, women, parents, LGBTQ+) such as frequently hosting internal forums and expert panels in order to foster meaningful conversations and highlight diverse voices at Lionsgate and in the industry. We received the designation as a “Best Place to Work for LGBTQ Equality” for 2022.
Corporate History
We are a corporation organized under the laws of the Province of British Columbia, resulting from the merger of Lions Gate Entertainment Corp. and Beringer Gold Corp. on November 13, 1997. Beringer Gold Corp. was incorporated under the Business Corporation Act (British Columbia) on May 26, 1986 as IMI Computer Corp. Lions Gate Entertainment Corp. was incorporated under the Canada Business Corporations Act using the name 3369382 Canada Limited on April 28, 1997, amended its articles on July 3, 1997 to change its name to Lions Gate Entertainment Corp., and on September 24, 1997, continued under the Business Corporations Act (British Columbia).
Available Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Exchange Act, are available, free of charge, on our website at investors.lionsgate.com as soon as reasonably practicable after we electronically file such material
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with, or furnish it to, the Securities and Exchange Commission (the “SEC”). The Company's Disclosure Policy, Corporate Governance Guidelines, Standards for Director Independence, Code of Business Conduct and Ethics for Directors, Officers and Employees, Policy on Shareholder Communications, Related Person Transaction Policy, Charter of the Audit & Risk Committee, Charter of the Compensation Committee and Charter of the Nominating and Corporate Governance Committee and any amendments thereto are also available on the Company's website, as well as in print to any shareholder who requests them. The information posted on our website is not incorporated into this Annual Report on Form 10-K. We will disclose on our website waivers of, or amendments to, our Code of Business Conduct and Ethics that applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer or persons performing similar functions.
The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov.
ITEM 1A.RISK FACTORS.
You should carefully consider the following risks as well as other information included in, or incorporated by reference into this Form 10-K. The risk and uncertainties described below are not the only ones facing the Company; additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business. If any of these risks and uncertainties occur, they could adversely affect our business, financial condition, operating results, liquidity and prospects.
Risks Related to Our Business
The impact of the COVID-19 global pandemic could continue to materially and adversely affect our business, financial condition, and results of operations.
Since fiscal 2020, the impacts associated with the ongoing COVID-19 global pandemic (including its variants), measures to prevent its spread, and the resulting economic uncertainty, affected our business in a number of ways. We experienced delays in theatrical distribution of our films, both domestically and internationally, as well as delays in the production of film and television content (resulting in continued changes in future release dates for some titles and series).Although film and television production have generally resumed, we continue to see disruption of production activities depending on local circumstances. We also cannot predict whether productions that have resumed will be paused again, the impact of incremental costs required to adhere to health and safety protocols, or if and when certain of our content will be released. Additionally, although theaters have reopened in certain locations subject to capacity limitations and shifting government mandates or guidance regarding COVID-19 restrictions. With reduced capacity, we are not able to accurately predict when theaters will re-open at scale, at what level consumers will return to movie theaters and the impact of a potentially crowded marketplace from movies which are awaiting theatrical release in the market. Fewer theatrical releases and production delays have limited the availability of film content to be sold in distribution windows subsequent to the theatrical release. The impact of these disruptions and the extent of their adverse impact on our financial and operating results will be dictated by the length of time that such disruptions continue, which will, in turn, depend on the currently unknowable duration and severity of the impacts of COVID-19 and its variants, and among other things, the impact of governmental actions imposed in response to COVID-19 and individuals’ and companies’ risk tolerance regarding health matters going forward. We have incurred and will continue to incur additional costs to address government regulations and the safety of our employees and talent. All of these impacts could place limitations on our ability to execute our business plan and materially and adversely affect our business, financial condition and results of operations. Due to the continued evolving and uncertain nature of this situation, we are not able to estimate the full extent of the impact on our operating results, cash flows and financial position, particularly over the near to medium term.
We face substantial capital requirements and financial risks.
The production, acquisition and distribution of motion picture and television content requires substantial capital. A significant amount of time may elapse between our expenditure of funds and the receipt of revenues after release or distribution of such content. Although we reduce the risks of production exposure through tax credit programs, government and industry programs, co-financiers and other sources, we cannot assure you that we will continue to successfully implement these arrangements or that we will not be subject to substantial financial risks relating to the production, acquisition and distribution of future motion picture and television content. Additionally, the production, completion and distribution of motion picture and television content can be subject to a number of uncertainties, including delays and increased expenditures due to disruptions or events beyond our control. As a result, if production incurs substantial budget overruns, we may have to seek additional financing or fund the overrun ourselves. We cannot make assurances regarding the availability of such additional financing on terms
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acceptable to us, or that we will recoup these costs. For instance, increased costs or budget overruns incurred with respect to a particular film may prevent a picture from being completed or released or may result in a delayed release and the postponement to a potentially less favorable date, all of which could cause a decline in box office performance, and, thus, the overall financial success of such film. Any of the foregoing could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.
We may incur significant write-offs if our projects do not perform well enough to recoup costs.
We are required to amortize capitalized production costs over the expected revenue streams as we recognize revenue from films or other projects. The amount of production costs that will be amortized each quarter depends on, among other things, how much future revenue we expect to receive from each project. Unamortized production costs are evaluated for impairment each reporting period on a project-by-project basis. If estimated remaining revenue is not sufficient to recover the unamortized production costs, including, for instance, because of delayed theatrical distribution of films as a result of the COVID-19 global pandemic and its effects, those costs will be written down to fair value. In any given quarter, if we lower our previous forecast with respect to total anticipated revenue from any film or other project, we may be required to accelerate amortization or record impairment charges with respect to the unamortized costs, even if we previously recorded impairment charges for such film or other project. Such impairment charges could adversely impact our business, operating results and financial condition.
Changes in our business strategy, plans for growth or restructuring may increase our costs or otherwise affect our profitability.
As changes in our business environment occur, we may adjust our business strategies to meet these changes, which may include growing a particular area of business or restructuring a particular business or asset. In addition, external events including changing technology, changing consumer patterns, acceptance of our theatrical and television offerings and changes in macroeconomic condition, including the volatility and uncertainty in financial markets as a result of the COVID-19 global pandemic and Russia’s invasion of Ukraine, may impair the value of our assets. When these occur, we may incur costs to change our business strategy and may need to write down the value of assets. We may also make investments in existing or new businesses, including investments in the international expansion of our business and in new business lines (e.g., our direct-to-consumer and licensed offerings). Some of these investments may have negative or low short-term returns and the ultimate prospects of the businesses may be uncertain or, in international markets, may not develop at a rate that supports our level of investment. In any of these events, our costs may increase, we may have significant charges associated with the write-down of assets, or returns on new investments may be lower than prior to the change in strategy, plans for growth or restructuring.
Our revenues and results of operations may fluctuate significantly.
Our results of operations depend significantly upon the commercial success of the motion picture, television and other content that we sell, license or distribute, which cannot be predicted with certainty. In particular, the underperformance at the box office of one or more motion pictures in any period may cause our revenue and earnings results for that period (and potentially, subsequent periods) to be less than anticipated, in some instances, to a significant extent. Accordingly, our results of operations may fluctuate significantly from period to period, and the results of any one period may not be indicative of the results for any future periods. Our results of operations also fluctuate due to the timing, mix, number and availability of our theatrical motion picture and home entertainment releases, as well as license periods for content. Our operating results may increase or decrease during a particular period or fiscal year due to differences in the number and/or mix of films released compared to the corresponding period in the prior fiscal year. Moreover, low ratings for television programming produced by us may lead to the cancellation of a program and can negatively affect future license fees for the cancelled program. If we decide to no longer air programming due to low ratings or other factors, we could incur significant programming impairments, which could have a material adverse effect on our results of operations in a given period. In addition, the comparability of our results may be affected by changes in accounting guidance or changes in our ownership of certain assets and businesses. Accordingly, our results of operations from year to year may not be directly comparable to prior reporting periods.
We do not have long-term arrangements with many of our production or co-financing partners.
We typically do not enter into long term production contracts with the creative producers of motion picture and television content that we produce, acquire or distribute. Moreover, we generally have certain derivative rights that provide us with distribution rights to, for example, prequels, sequels and remakes of certain content we produce, acquire or distribute. There is no guarantee that we will produce, acquire or distribute future content by any creative producer or co-financing partner, and a failure to do so could adversely affect our business, financial condition, operating results, liquidity and prospects.
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We rely on a few major retailers and distributors to sell our packaged media and the loss of any of those could reduce our revenues and operating results.
A small number of other retailers and distributors account for a material percentage of our revenues in Home Entertainment for our Motion Picture segment. We do not have long-term agreements with retailers. We cannot assure you that we will continue to maintain favorable relationships with our retailers and distributors or that they will not be adversely affected by economic conditions, including, as a result of the COVID-19 global pandemic and its effects.
We depend on distributors that carry our STARZ programming, and no assurance can be given that we will be able to maintain and renew these affiliation agreements on favorable terms or at all.
STARZ currently distributes programming through affiliation agreements with many distributors, including Altice, Amazon, Charter, Comcast, Cox, DIRECTV, DISH Network, Hulu and Verizon. These agreements are scheduled to expire at various dates through 2026. The largest distributors can have significant leverage in their relationship with certain programmers, including STARZ. Furthermore, STARZ depends on a limited number of major global partners to distribute its content internationally.The renewal negotiation process for affiliation agreements is typically lengthy. In certain cases, renewals are not agreed upon prior to the expiration of a given agreement, while the programming typically continues to be carried by the relevant distributor pursuant to the other terms and conditions in the affiliation agreement. STARZ may be unable to obtain renewals with our current distributors on acceptable terms, if at all. STARZ may also be unable to successfully negotiate affiliation agreements with new distributors to carry our programming. The failure to renew affiliation agreements on acceptable terms, or the failure to negotiate new affiliation agreements at all, in each case covering a material portion of households, could result in a discontinuation of carriage, or could otherwise materially adversely affect our subscriber growth, revenue and earnings which could materially adversely affect our business, financial condition, operating results, liquidity and prospects. Moreover, given the limited number of global partners, the loss of one more of STARZ global partners could materially adversely affect our international business, operating results, and growth prospects.
Increasing rates paid by distributors to other programmers may result in increased rates charged to their subscribers for their services, making it more costly for subscribers to purchase our STARZ services.
The amounts paid by distributors to certain programming networks for the rights to carry broadcast networks and sports networks have increased in recent years. As a result, distributors have passed on some of these increases to their subscribers. The rates that subscribers pay for programming from distributors continue to increase each year and these increases may impact our ability, as a premium subscription video provider, to increase or even maintain our subscriber levels and may adversely impact our revenue and earnings which could have a materially adverse effect on our business, financial condition, operating results, liquidity and prospects.
A significant portion of our library revenues comes from a small number of titles.
We depend on a limited number of titles in any given fiscal quarter for the majority of the revenues generated by our library. In addition, many of the titles in our library are not presently distributed and generate substantially no revenue. Moreover, our rights to the titles in our library vary; in some cases, we only hold the right to distribute titles in certain media and territories for a limited term. If we cannot acquire new product and the rights to popular titles through production, distribution agreements, acquisitions, mergers, joint ventures or other strategic alliances, or renew expiring rights to titles generating a significant portion of our revenue on acceptable terms, any such failure could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.
We are subject to risks associated with possible acquisitions, dispositions, business combinations, or joint ventures.
From time to time, we engage in discussions and activities with respect to possible acquisitions, sale of assets, business combinations, or joint ventures intended to complement or expand our business. However, we may not realize the anticipated benefit from the transactions we pursue; there may be liabilities assumed that we did not discover or that we underestimated in the course of performing our due diligence; the negotiation of the transaction and the integration of the acquired business could require us to incur significant costs and cause diversion of management's time and resources; the transaction could result in impairment of goodwill and other intangibles, development write-offs and other related expenses; the transaction may pose challenges in the consolidation and integration of information technology, accounting systems, personnel and operations; and
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we may have difficulty managing the combined entity in the short term if we experience a significant loss of management personnel during the transition period after a significant acquisition. No assurance can be given that expansion or acquisition opportunities will be successful, completed on time, or that we will realize expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits. Any of the foregoing could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.If we determine to sell individual properties, libraries or other assets or businesses, we will benefit from the net proceeds realized from such sales. However, our revenues may suffer in the long term due to the disposition of a revenue generating asset, or the timing of such dispositions may be poor, causing us to fail to realize the full value of the disposed asset, all of which may diminish our ability to service our indebtedness and repay our notes and our other indebtedness at maturity. Furthermore, our future growth may be inhibited if the disposed asset contributed in a significant way to the diversification of our business platform.
Our success depends on attracting and retaining key personnel.
Our success depends upon the continued efforts, abilities and expertise of our executive teams and other key employees, including production, creative and technical personnel, including, in turn, on our ability to identify, attract, hire, train and retain such personnel. We have entered into employment agreements with top executive officers and production executives but do not currently have significant “key person” life insurance policies for any employee. Although it is standard in the industry to rely on employment agreements as a method of retaining the services of key employees, these agreements cannot assure us of the continued services of such employees. We cannot assure you that we will be successful in identifying, attracting, hiring, training and retaining such personnel in the future, and our inability to do so could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.
Our success depends on external factors in the motion picture and television industry.
Generally, the popularity of our programs depends on many factors, including the critical acclaim they receive, the format of their initial release, their talent, their genre and their specific subject matter, audience reaction, the quality and acceptance of content that our competitors release into the marketplace at or near the same time, critical reviews, the availability of alternative forms of entertainment and leisure activities, general economic conditions and other tangible and intangible factors, many of which we do not control and all of which may change. In addition, because a title’s performance in ancillary markets, such as home video and pay and free television, is often directly related to its box office performance or television ratings, poor box office results or poor television ratings may negatively affect future revenue streams. Our success will depend on the experience and judgment of our management to select and develop new investment and production opportunities.
Our business also depends in part upon viewer preferences and audience acceptance of STARZ’s network programming. These factors are difficult to predict and are subject to influences beyond our control, such as the quality and appeal of competing programming, general economic conditions and the availability of other entertainment activities. We may not be able to anticipate and react effectively to shifts in tastes and interests in markets. A change in viewer preferences could cause STARZ’s programming to decline in popularity, which could jeopardize renewal of affiliation agreements with distributors. In addition, our competitors may have more flexible programming arrangements, as well as greater amounts of available content, distribution and capital resources and may be able to react more quickly than we can to shifts in tastes and interests.To an increasing extent, the success of our business, including STARZ, depends on exclusive original programming and our ability to accurately predict how audiences will respond to our original programming. We must invest substantial amounts in the production and marketing of our original programming before we learn whether such content will reach anticipated audience acceptance levels. Because original programming often involves a greater degree of financial commitment, as compared to acquired programming that we license from third parties, and because our branding strategies depend significantly on a relatively small number of original series, a failure to anticipate viewer preferences for such series could be especially detrimental to our business.
We compete with other programming services, including cable programming, national broadcast television, local broadcast television stations and digital services to secure desired programming, the competition for which has increased as the number of programming services has increased. Increased competition may drive up talent and production costs and may force some programming services to commit to straight-to-series orders for programming instead of a pilot order. If we commit to straight-to-series orders and those series do not meet anticipated production or quality standards or are otherwise not accepted by audiences, revisions to the programming may be necessary, which could increase production costs. The increased financial commitment for a straight-to-series order also could increase the risks associated with such an order. Other programming services that are affiliated with programming sources such as movie or television studios or film libraries may have a
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competitive advantage over us in this area. Some of these competitors have exclusive contracts with motion picture studios or independent motion picture distributors or own film libraries.
Global economic turmoil and regional economic conditions could adversely affect our business.
Global economic turmoil, such as that created by the COVID-19 global pandemic and its effects, and Russia’s invasion of Ukraine, including the indirect impacts as a result of sanctions and economic disruptions, may cause a general tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, levels of intervention from the U.S. federal government and other foreign governments, decreased consumer confidence, overall slower economic activity and extreme volatility in credit, equity and fixed income markets. A decrease in economic activity in the U.S. or in other regions of the world in which we do business could adversely affect demand for our content, thus reducing our revenues and earnings. A decline in economic conditions could reduce performance of our theatrical, television and home entertainment releases. In addition, an increase in price levels generally could result in a shift in consumer demand away from the entertainment we offer, which could also adversely affect our revenues and, at the same time, increase our costs. For instance, lower household income and decreases in U.S. consumer discretionary spending, which is sensitive to general economic conditions, may affect cable television and other video service subscriptions, in particular with respect to digital programming packages, premium video programming packages and premium a la carte services on which our networks are typically carried. A reduction in spending may cause a decrease in subscribers to our networks, which could have a materially adverse impact on our business, financial condition, operating results, liquidity and prospects. Moreover, financial institution failures may cause us to incur increased expenses or make it more difficult to finance any future acquisitions, or engage in other financing activities.
We could be adversely affected by strikes or other union job actions.
We are directly or indirectly dependent upon highly specialized union members who are essential to the production of motion pictures and television content. A strike by, or a lockout of, one or more of the unions that provide personnel essential to the production of motion pictures or television content could delay or halt our ongoing production activities, or could cause a delay or interruption in our release of new motion pictures and television content. A strike may result in increased costs and decreased revenue, which could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.
Unforeseen business interruptions from circumstances or events out of our control could adversely affect our operations.
Our operations are vulnerable to outages and interruptions due to fire, floods, power loss, telecommunications failures, pandemics such as the COVID-19 global pandemic, and similar events beyond our control. Our headquarters are located in Southern California, which is subject to natural disasters such as earthquakes and wildfires. Delays caused by such natural disaster or weather impacts could adversely affect our ability to meet deadlines, could suspend production and may increase our costs. Although we have developed certain plans to respond in the event of a disaster, there can be no assurance that they will be effective in the event of a specific disaster. In the event of a short-term power outage, we have installed uninterrupted power source equipment designed to protect our equipment. A long-term power outage, however, could disrupt our operations.
We also experienced a disruption to our business as a result of the COVID-19 global pandemic, which, in certain instances, increased our costs and delayed or suspended production of our programming. We will continue to actively monitor the issues raised by the COVID-19 pandemic and may take further actions that alter our business operations, including content production, as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, members, partners and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our members, suppliers or vendors, or on our financial results. In addition to the potential direct impacts to our business, the global economy may continue to be impacted as a result of the actions taken in response to COVID-19. To the extent that such a weakened global economy impacts consumers’ ability or willingness to pay for our service or vendors’ ability to provide services to us, especially those related to our content productions, we could see our business and results of operations negatively impacted.
Although we currently carry business interruption insurance for potential losses (including earthquake-related losses), there can be no assurance that such insurance will be sufficient to compensate us for losses that may occur or that such insurance may continue to be available on affordable terms. Any losses or damages incurred by us could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.
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STARZ’s programming is transmitted from STARZ’s uplink center in Englewood, Colorado. STARZ uses this center for a variety of purposes, including signal processing, satellite uplinking, program editing, on-air promotions, creation of programming segments (i.e., interstitials) to fill short gaps between featured programs, quality control and live and recorded playback. STARZ’s uplink center is equipped with backup generator power and other redundancies. However, like other facilities, this facility is subject to interruption from fire, lightning, adverse weather conditions and other natural causes. Equipment failure, employee misconduct or outside interference could also disrupt the facility’s services. STARZ has made arrangements at a third-party facility to uplink STARZ’s linear channels and services to STARZ’s satellites in the event STARZ is unable to do so from this facility. Additionally, STARZ currently has direct fiber connectivity to certain of STARZ’s distributors, which would allow continuous operation with respect to a significant segment of STARZ’s subscriber base in the event of a satellite transmission interruption. Notwithstanding these precautions, any significant or prolonged interruption of operations at STARZ’s facility, and any failure by STARZ’s third-party facility to perform as intended, would have a materially adverse effect on our business, financial condition, operating results, liquidity and prospects. In addition, our success in the U.S. is dependent upon our continued ability to transmit STARZ’s programming to distributors through STARZ’s satellite uplink facility. STARZ has entered into long-term satellite transponder leases that expire in 2023 for carriage of the STARZ networks’ programming. These leases provide for replacement transponders and/or replacement satellites, as applicable, throughout the term of the leases to ensure continued carriage of STARZ programming in the event of transponder or satellite failures. Termination or interruption of satellite transmissions may occur and could have a materially adverse effect on our business, financial condition, operating results, liquidity and prospects.Despite STARZ’s efforts to secure transponder capacity with long-term satellite transponder leases, there is a risk that when these leases expire, we may not be able to secure capacity on a transponder on the same or similar terms, if at all.
We face substantial competition in all aspects of our business.
We are an independent distributor and producer. Most of the major U.S. studios are part of large diversified corporate groups with a variety of other operations that can provide both the means of distributing their products and stable sources of earnings that may allow them to better offset fluctuations in the financial performance of their motion picture and television operations. The subscription video programming industry is highly competitive. Our STARZ networks compete with other programming networks and other video programming services for marketing and distribution by distributors. We face intense competition from other providers of programming networks for the right to be carried by a particular distributor and for the right to be carried by such distributor on a particular “tier” or in a particular “package” of service. Certain programming networks affiliated with broadcast networks like ABC, CBS, Fox or NBC or other programming networks affiliated with sports and certain general entertainment networks with strong viewer ratings, have a competitive advantage over our networks in obtaining distribution through the “bundling” of carriage agreements for such programming networks with a distributor’s right to carry the affiliated broadcasting network. The inability of our programming networks to be carried by one or more distributors, or the inability of our programming networks to be placed on a particular tier or programming package could have a materially adverse effect on our business, financial condition, operating results, liquidity and prospects.
We must successfully respond to technological changes and alternative forms of delivery or storage to remain competitive.
The entertainment industry continues to undergo significant developments as advances in technologies and new methods of product delivery and storage (including the emergence of alternative distribution platforms), and certain changes in consumer behavior driven by these developments emerge. New technologies affect the demand for our content, the manner in which our content is distributed to consumers, the sources and nature of competing content offerings and the time and manner in which consumers acquire and view our content. New technologies also may affect our ability to maintain or grow our business and may increase our capital expenditures. We and our distributors must adapt our businesses to shifting patterns of content consumption and changing consumer behavior and preferences through the adoption and exploitation of new technologies. If we cannot successfully exploit these and other emerging technologies, our appeal to targeted audiences might decline which could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.
We face economic, political, regulatory, and other risks from doing business internationally.
We distribute content outside the U.S. and derive revenues from international sources. As a result, our business is subject to certain risks inherent in international business, many of which are beyond our control. These risks may include: difficulties in understanding and complying with local laws, regulations and customs in foreign jurisdictions; the loss of one or more of the major global partners that we rely upon to distribute our programming internationally; laws and policies adversely affecting trade, investment and taxes, including laws and policies relating to the repatriation of funds and withholding taxes, and changes in these laws; sanctions imposed on countries, entities and individuals with whom we conduct business (such as those imposed
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due to Russia’s invasion of Ukraine); the impact of trade disputes; anti-corruption laws and regulations such as the Foreign Corrupt Practices Act and the U.K. Bribery Act that impose strict requirements on how we conduct our foreign operations and changes in these laws and regulations; changes in local regulatory requirements including regulations designed to stimulate local productions, promote and preserve local culture and economic activity (including local content quotas, investment obligations, local ownership requirements, and levies to support local film funds); censorship requirements that may cause us to remove or edit popular content, leading to consumer disappointment, brand tarnishment or consumer dissatisfaction; regulatory requirements or government action against our service, whether in response to enforcement of actual or purported legal and regulatory requirements or otherwise, that results in disruption or non-availability of our service or particular content in the applicable jurisdiction; inability to adapt our offerings successfully to differing languages, cultural tastes, and preferences in international markets; international jurisdictions where laws are less protective of intellectual property and varying attitudes towards the piracy of intellectual property; laws and policies relating to data privacy and security such as the European Union General Data Protection Regulation; establishing and protecting a new brand identity in competitive markets; financial instability and increased market concentration of buyers in foreign television markets, including in European pay television markets; the instability of foreign economies and governments; currency exchange restrictions, export controls and currency devaluation risks in some foreign countries; the spread of communicable diseases (such as the COVID-19 global pandemic), which may impact business in such jurisdictions; and war and acts of terrorism (such as Russia’s invasion of Ukraine). For additional information about the data privacy and security laws and regulations to which we are or may become subject and about the risks to our business associated with such laws and regulations see, “Our activities are subject to a variety of stringent and changing obligations which may adversely impact our operations” and “Service disruptions or failures of the Company’s or our vendors’ information systems and networks” sections respectively.
Additionally, with respect to our direct-to-consumer offerings, these risks may include: differing technical, architectural and payment processing systems and costs as well as consumer use and acceptance of electronic payment methods, such as credit cards; availability of reliable broadband connectivity and wide area networks in targeted areas for expansion; low usage and/or penetration of internet-connected consumer electronic devices; new and different sources of competition; and laws and policies relating to consumer protection.
We are managing and adjusting our international business to address varied content offerings, consumer customs and practices, in particular those dealing with e-commerce and streaming video, as well as differing and changing legal and regulatory environments. As online streaming grows in international markets, governments may look to introduce new or extend legacy regulations to these services, in particular those related to broadcast media, consumer privacy and tax. While we believe our legal and regulatory positions are consistent with the laws and regulations in the jurisdictions in which we conduct our business, it is possible that we will be required to comply with new regulations or legislation or new interpretations of existing regulations or legislation. In such an event, increased jurisdictional legal or regulatory oversight and/or action could cause us to incur additional expenses or alter our business model.
Protecting and defending against intellectual property claims may have a material adverse effect on our business.
Our ability to compete depends, in part, upon successful protection of our intellectual property. We attempt to protect proprietary and intellectual property rights to our productions through available copyright and trademark laws and licensing and distribution arrangements with reputable international companies in specific territories and media for limited durations. Despite these precautions, existing copyright and trademark laws afford only limited practical protection in certain countries where we distribute our products. As a result, it may be possible for unauthorized third parties to copy and distribute our productions or certain portions or applications of our intended productions, which could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects. Litigation may also be necessary to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Any such litigation, infringement or invalidity claims could result in substantial costs and the diversion of resources and could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects. Our more successful and popular film or television products or franchises may experience higher levels of infringing activity, particularly around key release dates. Alleged infringers have claimed and may claim that their products are permitted under fair use or similar doctrines, that they are entitled to compensatory or punitive damages because our efforts to protect our intellectual property rights are illegal or improper, and that our key trademarks or other significant intellectual property are invalid. Such claims, even if meritless, may result in adverse publicity or costly litigation. We vigorously defend our copyrights and trademarks from infringing products and activity, which can result in litigation. We may receive unfavorable preliminary or interim rulings in the course of litigation, and there can be no assurance that a favorable final outcome will be obtained in all cases. Additionally, one of the risks of the film and television production business is the possibility that others may claim that our productions and production techniques misappropriate or infringe the intellectual property rights of third parties. From time to time we are subject to claims and legal proceedings regarding alleged infringement
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by us of the intellectual property rights (including patents) of third parties. Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources, require the development of alternative technology or business practices, injunctions against us, or payments for licenses or damages. These risks have been amplified by the increase in third parties whose sole or primary business is to assert such claims. Regardless of the validity or the success of the assertion of any such claims, we could incur significant costs and diversion of resources in enforcing our intellectual property rights or in defending against such claims, which could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.