Starz Entertainment Corp Aktie

Good day, and welcome to the Starz First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Nilay Shah, Investor Relations.

Good afternoon. Thank you for joining us for Starz Entertainment's First Quarter 2026 Earnings Call. We'll begin with opening remarks from our President and CEO, Jeffrey Hirsch; followed by remarks from our CFO, Scott MacDonald. Also joining us on the call today is Alison Hoffman, President of Starz Networks. After our opening remarks, we'll open the call for questions.

The matters discussed on this call include forward-looking statements, including those regarding expected future performance. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors. This includes the risk factors set forth in our most recently filed 10-KT for Starz Entertainment Corp. Starz undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.

The matters discussed today will also include non-GAAP measures. The reconciliation for these and additional required information is available in the 8-K we filed this afternoon, which is available on the Starz Investor Relations website at investors.starz.com. I'll now turn the call over to Jeff.

Thank you, Nilay, and thank you all for joining us. Today marks the 1-year anniversary of our separation. The Starz of today is structurally stronger than the business was when we separated a year ago. Over the last 12 months, we've made significant strides in setting the business up for long-term value creation. We have been laser-focused on achieving our financial goals of increasing margins to 20%, converting 70% of adjusted OIBDA to unlevered free cash flow and delevering to 2.5x as quickly as possible.

I'm happy to report in our first year, we have met or exceeded all our key financial targets, created a new licensing revenue stream by restructuring the Canadian business, started to rebuild our content library through ownership, announced our first co-commission partner, helping to improve unit economics of our originals, the aged our slate while expanding our most popular franchises. And overall, we have unwound many of the constraints of operating within a studio structure. As I outlined on the last call, calendar '26 will serve as a financial inflection point for the business.

Cash flow timing is now closer aligned with industry norms. Adjusted OIBDA is becoming more predictable and consistent, and we are managing the business against the metrics that matter most: OTT revenue growth, adjusted OIBDA, free cash flow and delevering. We are off to a great start in calendar '26. We had a strong first quarter, meeting or exceeding all financial guides, which Scott will discuss in more detail. Our structural work is showing up directly in the numbers, and our content continues to perform. The finale of Power Book IV: Force started the quarter off strong. The premier Season 8 of Outlander achieved a 4-year series high in its Premier Week.

And just after the quarter, we released -- the Housemaid and it quickly set records as our best-performing Pay 1 film in both acquisition and streaming viewership. I expect this momentum will continue through the year. We have one of the strongest content slates ahead with our proven hit series, Raising Kanan, Outlander: Blood of my Blood and P-Valley, supported by the upcoming MICHAEL biopic. Congratulations to John and the Lionsgate team for the great box office performance. It will further strengthen our already robust schedule this year.

In addition to our lineup of returning series, we announced this week that our first STARZ owned original Fightland, will premiere in just a few months on July 31. If you recall from the last quarter, we also announced Sky as the co-commission partner on Fightland, driving even more upside to the already favorable unit economics. We also continue to make advances in our ownership strategy beyond Fightland with the recently announced greenlight of another STARZ owned original, the untitled Black Rodeo show. This family drama is set inside the thriving world of the Black Rodeo in Texas and production is set to begin this fall. This is another example of us continuing to build out our content library through ownership, which I remind you, allows us to control the cost from inception and globally monetize our IP.

As we have continued to highlight, rightsizing the content cost structure of the business has been paramount to reaching our stated goal of 20% margin. Today, we are announcing that we have exited our Pay-Two agreement with Universal. The Universal titles, which we originally planned to air through calendar '28 are incredibly popular and bring with them tremendous box office strength. However, due to the high subscriber overlap between Amazon and Starz, these titles are heavily watched before they come to us in the Pay-Two window. This unique dynamic with Amazon has resulted in lower viewership than we originally projected. In order to replace the revenue component of the Pay-Two, we will reinvest and acquire high-performing titles at superior economics.

As a result, I'm pleased to announce that our outlook for reaching 20% margin has moved 12 months forward to the back half of 2027 instead of exiting 2028. We are thankful to our partners at Universal for working with us to find a mutually beneficial solution. We continue to see 2 paths for value creation for the Starz business. First, our focus has been growing the core business to achieve the 20% margin guide. Second, we believe there's an additional path to growth through potential M&A opportunities. Our approach to M&A remains disciplined. Any strategic initiative must be complementary and additive to our core audience, must fit within an acceptable leverage parameter and create clear and identifiable value for our shareholders. But given the strength and the profitability of our core business, we do not need M&A to maximize shareholder value.

Before I turn it over to Scott, I would like to reiterate how excited I am about the growth of our business going forward. The free cash flow conversion is materializing. We are advancing ownership of our content library. We've rightsized the overall content portfolio, and we are anticipating continued rapid delevering. Starz remains focused and committed to executing on our growth strategies. We said calendar '26 would be an important year in showcasing what the business will look like as a stand-alone. The first quarter serves as evidence of just that. Now let me hand it over to Scott to take you through the financial details.

Thank you, Jeff, and good afternoon, everyone. I'm pleased to report that Q1 2026 was a strong quarter financially, and we delivered on or ahead of our key guidance metrics. Before I get into the financial details, I want to remind everyone that we are focused on 4 metrics going forward: OTT revenue growth, adjusted OIBDA, free cash flow and leverage. The decision to deemphasize subscriber counts is already being validated as pricing discipline and a focus on higher lifetime value customers are proving more valuable than maximizing quarter end subscribers.

Let me start with revenue. OTT revenue in Q1 was $211 million, up from $210 million in Q4 2025. Total revenue in Q1 was $307 million, down from $323 million in Q4 2025. This sequential decline primarily reflects the timing of Canadian licensing revenue. The sequential growth in OTT revenue is an important benchmark, and it was driven by exactly what we set out to do, pricing discipline on both the acquisition and retention side, fewer low-priced entry offers, more annual and multi-month plans. This is deliberate and is improving the health of the business. While we are not disclosing ARPU directly, ARPU did grow on a sequential basis in the period. We expect ARPU to continue to build through 2026 as promotional customers convert to higher retail rates.

In addition, we recently announced a price increase to $11.99, which will flow through the subscriber base starting in Q2. We continue to forecast positive OTT revenue growth in 2026 versus 2025 and are already ahead of where we expected to be at this stage of the year. Moving on to adjusted OIBDA. We delivered $58 million of adjusted OIBDA in Q1 2026, up sequentially from Q4 2025 due primarily to lower advertising and G&A expenses. On a year-over-year basis, adjusted OIBDA was down due to lower revenue and higher content amortization, offset by favorable advertising and marketing expenses. Importantly, adjusted OIBDA came in ahead of our internal plan, which gives us confidence in our full year guidance of low single-digit adjusted OIBDA growth. We also expect our quarterly adjusted OIBDA cadence to be more consistent in 2026 relative to 2025.

In Q1, as part of our efforts to rightsize our content cost structure, we recorded a $139 million restructuring charge, the majority of which is related to the write-off of content with limited strategic value for our platforms. As the agreement with Universal was entered into in April 2026, we will record the Pay-Two restructuring charge in the second quarter of 2026. The revised terms meaningfully improve our cash payment obligations, creating a significant reduction in cash content spend beginning in 2027. Moreover, we believe this is the final component of our post-separation content rightsizing efforts. Combined with the ongoing de-aging of our original slate and the growing owned content contribution, this gives us clear line of sight visibility to reaching our 20% adjusted OIBDA margin target in the back half of 2027, a full year ahead of our prior guidance.

Cash content spend in Q1 was $113 million, down year-over-year due to the timing of spend on output movies and originals. For the full year 2026, we continue to expect content spend to come in below $650 million, a meaningful decline from 2025. We expect the convergence of content spend and programming amortization to improve significantly in 2026 as compared to 2025 and continue to improve thereafter. When they reach near parity, you will see the full benefit of our content strategy reflected in the cash flow statement. Unlevered free cash flow was $81 million in Q1 2026, up $147 million year-over-year, while equity free cash flow was up $136 million year-over-year to $69 million.

I want to note that Q1 was positively impacted by lower content spend, which we expect to catch up in Q2. Accordingly, we are not raising our free cash flow outlook at this time. Turning to the balance sheet. As of March 31, our net debt was $523 million. Our leverage ratio at the end of Q1 was 3.1x, lower than our internal expectations for the period, and we remain confident in achieving our 2.7x year-end target. I do want to note that leverage increased modestly on a sequential basis due to the timing impact of trailing 12-month adjusted OIBDA, not a reflection of any change in the underlying business trajectory. Our $150 million revolver remains undrawn, and we have significant liquidity and financial flexibility to manage the business.

Let me close with guidance. We are reaffirming our full year 2026 outlook across all metrics. OTT revenue growth versus 2025, low single-digit adjusted OIBDA growth versus 2025, $80 million to $120 million of unlevered free cash flow, leverage exiting the year at approximately 2.7x. We will remain disciplined in how we manage the business, and we are confident in our ability to deliver on these metrics. Finally, 2027 is now setting up to be a very significant year for margin expansion and improved free cash flow generation, given the restructuring benefit, owned originals ramping and continued content cost reductions.

Now I'd like to turn the call back over to Nilay for Q&A.

We will now begin the question-and-answer session. Go ahead, Nilay.

I was going to say thanks, Scott. You can hand it over for Q&A. So we can start. Thank you.

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from David Joyce with Seaport Research Partners.

Regarding the Universal deal, can you size the portion of your available titles, that represented? Is it all theatrical? Or is there episodic in there? And where would you be sourcing more content from? Would it have similar kind of aging? And what are the checks and balances that you've gone through to make sure you don't have overexposed content again?

David, it's Jeff Hirsch. Thanks for the question. This is a really unique situation because of the size of the overlap of our subscriber base sitting on Amazon, which sits in the Pay-One B from Universal. And so what you're really seeing is we were paying Pay-Two prices for library performance. And so we've talked a lot about the data information we have on the business. And we've been able to use the data to kind of recreate and reinvest into other library titles that give us the same kind of performance so we can protect the revenue component of that while actually just putting money to the bottom line while we reinvest. And so it's a little bit of money ball where we actually look at various titles from library from across the industry to kind of recreate the performance that we had at a much better economic level.

The next question comes from Brent Penter with Raymond James.

First one for me. Could you talk a little bit more about -- last quarter, you announced you're not reporting subs and you're deemphasizing subscribers. How are you seeing that reflected in your results so far? Anything specific you can talk about in terms of customer lifetime values, churn, overall revenue, how that's benefiting you?

Thank you so much for the question. I think we're really seeing the rewards of the pricing discipline that we put into the business. In this past quarter, we have seen churn reach an all-time low in our business. Basically, we're not bringing in low-value subscribers in the way that we were when we were in a quarterly sub chase. And so the health of the business is really there. Just another stat in terms of the last quarter that was really strong is engagement was really strong for the business. So we have a strong content quarter and we saw year-over-year engagement up about 8%. So I think we feel really good that this is the right way to approach and operate the business for the long-term revenue growth goals that we have as opposed to, again, orienting around a quarterly sub chase.

Okay. Great. That's great color. And then I also want to ask about the shareholder rights plan put into place in March after there was a big chunk of your shares that changed hands. Can you help us understand why that was put into place, why now? And then the rationale for the 1-year time line expiring next March? And then, Jeff, is that at all related to the M&A possibility that you just laid out?

Yes. Look, great question. I think there's a few components. So one is a newly separated company. And as you've seen, the market cap has moved around a lot and run up. So we wanted, I think, with the Board, we wanted to make sure that we had the ability and the time to kind of get the business rightsized and get value to the right place. And I think you're seeing that reflected in the stock and the market cap today. And so I think that the Board was really coalesced around making sure that we had the ability to get the business in the right place. Also, I think the Board is really also coalesced around our long-term vision for the business and how we can scale the business and wanted to make sure that we were laser-focused on that without any distraction. So we put that in place. It's a 1 year term. And then next year, we'll come up probably for a shareholder vote, whether we extend it or not.

Okay. Okay. Got it. And then final question for me. With the Universal Pay-Two deal ending and you're moving up the 20% margin goal. As we think a couple of years out to 2028, does this mean maybe you could get even above that 20% goal as we look ahead? Or is this really more of a timing thing that it's just a matter of when you hit the 20%?

I think it's a combination of -- we knew that we had the titles through calendar '28. And so as that was rolling off, we had great line of sight into what that margin profile would look like. As we're able to work with the Universal and move that forward, that obviously brings the profitability of the company greater into a shorter period of time. But as you know, there's multiple ways to grow margin in the business. I think as we continue to put more ownership on the network, de-age the slate, get into '28 and '29 where the majority of our originals are owned by Starz and kind of bring that entire portfolio over, there may be some opportunity to continue to grow margin as well.

The next question comes from Vikram Kesavabhotla with Baird.

I think you mentioned in the prepared remarks that you guys raised price recently. It'd be great to hear more about what gave you the confidence to make that decision and perhaps any of the early feedback that you're seeing from customers who've seen that increase.

Yes, Vikram, thanks for the question. We executed our price increase on April 1, and we have done this before. We are really positioned very well as a complementary service. $11.99 is a great price point for the value that we offer and for the audiences that we serve. So far, the price increase is digesting really well throughout our business. It's going to expectations. We'll have more information as we get into the summer and it really sort of plays out through the business. But going to plan and going very well, we think that we're very, very well positioned at that price point.

I would also add that April is off to a really strong start even with the rate increase coming in April 1.

Okay. Great. And then separate from that, I know you've talked about in the past getting to half year slate by 2027. It'd be great to get your updated thoughts on how you feel about that goal right now and maybe some of the puts and takes that will affect your ability to get there? And maybe just some more color on the progress you've made on some of the projects that you already have going.

Look, I've never been more excited about the pipeline that we have in the business. We just announced an untitled Black Rodeo Show, which is -- I think it's going to be one of our biggest shows. We're excited about production beginning that on in the fall. Fightland, which is our first owned original will premiere July 31st. We released a lot of the first look footage pictures of that yesterday, and it looks amazing. And we've got Kingmaker in development. We've got Masquerade in development. We're out. We've landed a couple of book series that we think could be big franchises for us. We've got all 4s.

We've announced Plan B being our production partner there. We're putting more writers around that. And so the pipeline has never been more full and more exciting. And I think you couple that with the Pay-One Lionsgate, we're going to have a very, very strong content slate for the next 1 to 2 to 3 years. And so we're right on track to delivering against that 50% goal, and I think we'll actually accelerate past that. Obviously, the hope is to get most of the slate owned and controlled by Starz long term, and that's something we're laser-focused on.

[Operator Instructions] The next question comes from David Karnovsky with JPMorgan.

Doug Wardlaw on for David. I'm wondering now that you're out of this agreement with Universal, what's the criteria for the acquisition of titles you'll be looking for to properly lead to whether user acquisition or to the churn? And then separately, does this lead to more room for spend on original content?

So great question. We've developed a really robust database of first title streams and viewership on movies that we've acquired over the past from all the different studios. So we have a pretty good sense on in terms of indie films, what kind of viewership and first title stream that we can pull from different titles depending on how -- what their box office was, how old they are, what characters are in it, what's the storyline. And so we're really able to kind of, like I said earlier, Moneyball the portfolio to replace what we were seeing from the Universal titles at a much more of a library price. we were paying Pay-Two rates and they were performing much more like library because of just the strength of the titles being watched to Amazon. So we've got a pretty good view on what we need to acquire and at what price. And so there's an ability to put a lot of the savings to the bottom line. You see that moving the guide to 20% in '27, but we're also reinvesting in the business to protect the revenue side of the business as well. And so we've been able to do both in a much highly economic positive aspect to the business.

Great. And then I guess, separately, you mentioned P-Valley is coming back at some point this year, and it's been a long gap. And I'm just wondering what your data kind of says about audience reengagement for shows that have hiatuses that long? And does that kind of lead to more marketing spend to kind of get some of those viewers back that may have been gone?

It's a great question. Look, I think with P-Valley specifically, and we've seen this with other shows that have had longer breaks, Outlander is a good example where we've had a lot of breaks. The fan bases are so obsessed with these shows that they've been continually looking for it and coming back on the network. So I actually think the moment we bring P-Valley back, the obsessiveness and the craziness for the fan base will get people there. We also have the ability, obviously, within app to notify customers, which is a zero cost game for us as well. And so we've got a lot of different marketing tools that are not economically expensive for us to go ahead and bring them back. But I -- Outlander is a great example. That fan base has created a thing called Outlander, which is the off-season, and they're online every day, wondering when that show is coming back. And I think P-Valley brings that same kind of intensity from the fan base. And so I expect it to be a wonderful return to the network and a massive both subscriber gain as well as viewership gain when we get it back on the air.

This concludes our question-and-answer session. I would like to turn the conference back over to Nilay Shah for any closing remarks.

Thank you, operator, and thank you, everyone. Please refer to the News and Events tab under the Investor Relations section of our website for a discussion of certain non-GAAP forward-looking measures discussed on this call. Thanks, everyone.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Starz Q4 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Nilay from Investor Relations.

Good afternoon. Thank you for joining us for Starz Entertainment's Fiscal 2025 Fourth Quarter Earnings Call. We'll begin with opening remarks from our President and CEO, Jeffrey Hirsch; followed by remarks from our CFO, Scott MacDonald. Also joining us on the call today is Alison Hoffman, President of Starz Networks. After our opening remarks, we'll open the call for questions.

The matters discussed on the call include forward-looking statements, including those regarding expected future performance. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors. This includes the risk factors set forth in our most recently filed 10-Q for Starz Entertainment Corp. Starz undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.

The matters discussed today will also include non-GAAP measures. The reconciliation for these and additional required information is available in the 8-K we filed this afternoon, which is available on the Starz Investor Relations website at investors.starz.com.

I'll now turn the call over to Jeff.

Thank you Nilay, and thank you, everyone, for joining us today. It's only been 9 months since our separation, and I'm pleased to report that Starz delivered another strong quarter, both financially and operationally.

Before I get into the highlights of the quarter, I want to give everyone an update on how we are executing in our core operations and how we are positioned for 2026 and beyond. 2025 was a very successful year, one in which we exceeded all of our financial guidance. It's a feat we're especially proud of amidst the pressures you see happening across the industry.

We ended the year at an all-time high of 12.7 million OTT subscribers, growing year-over-year by 7.6%. We grew OTT subscribers in 3 out of 4 quarters, including adding 370,000 in the fourth quarter alone. This resulted in 170,000 total subscriber growth in quarter 4. We grew total revenue on a sequential basis in both quarter 3 and quarter 4. We exceeded our $200 million outlook for 2025 by 2%, delivering $204 million and grew adjusted OIBDA year-over-year. And we exceeded our leverage target ending the year lower than anticipated at 2.9x versus a 3.1x guide.

The successful 2025 was aided by an exceptionally strong December quarter. Our substantial subscriber growth in the quarter was fueled by the stellar reception to our programming slate. We premiered the highly anticipated Spartacus, revival to critical acclaim, and Power Book IV: Force Season 3 delivered impressive in-season viewership growth of 57%. The momentum from quarter 4 has continued into 2026, resulting in a strong start to the year.

The success of our originals proved that our Bedrock strategy is working. We deliver edgy, premium content for women and underrepresented audiences that broad-based streamers don't address. Content remains core to everything we do. And as we look at the rest of 2026, it's clear we have one of our most compelling lineups of originals. The slate includes the highly anticipated conclusion of Outlander and Power Book III: Raising Kanan, the premiere of Starz owned Fightland, the return of Blood of My Blood and the long-awaited return of one of our biggest hits, P-Valley, from Pulitzer Prize-winning, showrunner, Katori Hall. These 2026 originals, our Pay-One movies from Lionsgate, including films like The Housemaid and the Michael Biopic and our robust development pipeline make it clear that Starz has never been better positioned to keep our audience engaged, entertained and growing.

Before I get into our key financial targets for 2026, I want to recap our operational milestones in 2025. We restructured our Canadian business into a licensing revenue stream, prioritizing our focus on the U.S. market. We greenlit and completed production on our first wholly owned series Fightland, advancing our strategy of rebuilding our content library through ownership. And this morning, we announced that Sky will come on board as our co-commission partner for Fightland, further improving the already superior unit economics we get from owning the series.

We've also made significant strides in the aging our content slate this year while still expanding our network-defining franchises, Outlander and the Power Universe. More specifically, we successfully launched Outlander prequel Blood of My Blood and have greenlit a new Power Universe series. Power Origins, which has a supersized 18-episode order, is currently in production and will give fans an action-packed origin story of fan favorite characters, Ghost and Tommy as ambitious young entrepreneurs. These shifts are critical in achieving our long-term targets of increasing margins to 20%, converting 70% of adjusted OIBDA to unlevered free cash flow and delevering to 2.5x as quickly as possible. The changes fortify our long-term path and set us up to continue the growth we delivered in 2025 through 2026.

Our outlook for 2026 is strong. We expect OTT revenue to grow. We expect to deliver low single-digit percentage adjusted OIBDA growth versus 2025. We anticipate generating between $80 million to $120 million of positive unlevered free cash flow, converting the business to positive equity free cash flow. And we expect to end the year at approximately 2.7x leverage, an improvement from our current 2.9x leverage and well on our way to reaching our stated goal of 2.5x leverage. As we stated, we've spent several quarters unwinding some of the legacy constraints of operating within a studio.

We believe this has set up the business to drive strong cash flow generation going forward, with 2026 functioning as an inflection point. With the long-term growth of the business as our North Star, we are deemphasizing the need to manage the business around quarterly subscriber levels. As a result, we will not be disclosing subscribers starting with the March 2026 quarter. We remain laser-focused on OTT revenue growth, profitability, converting adjusted OIBDA to free cash flow and delevering. We believe this decision is in the best interest of our shareholders as it puts us on a path to achieving the targets we outlined.

Before I hand the call over to Scott, I want to reiterate that we continue to believe that there is an opportunity to scale our 2 core demos and grow our business as a result of the increased consolidation across the media landscape. Given our track record of profitably converting our business from linear to digital and our industry-leading tech stack, we believe we are uniquely positioned to capitalize on potential M&A opportunities. We are poised to increase our scale as assets that are strategically valuable to Starz become available.

Now let me hand it over to Scott to take you through the financials.

Thank you, Jeff, and good afternoon, everyone. I'll briefly discuss the fourth quarter's financial results, provide an update on our balance sheet and discuss our outlook for 2026. It was a strong fourth quarter and calendar year for Starz, as Jeff outlined. We were able to reach the key milestones we outlined on our previous calls for both the quarter and the year, and we positioned the post-separation business to drive a significant increase in free cash flow generation from 2025 to 2026 while further bringing down our leverage.

Let me start the breakdown of the quarter with an update on our subscribers. Please note that our financials for the fourth quarter reflect the transition of our Canadian operations to a content licensing relationship. And hence, I will focus my discussion on subscriber trends on Starz's U.S. business. Starz added 370,000 domestic OTT subscribers in the quarter, reaching an all-time high of 12.7 million customers. Additionally, total U.S. subscribers grew 170,000 in the period to 17.6 million as growth in OTT was partially offset by a decline in linear customers. The increase in subscribers in the seasonally strong fourth quarter was driven by demand for our scripted originals, including Force and Spartacus.

Moving on to revenue. Total revenue in the quarter was $323 million, up 60 basis points on a sequential basis. Sequential revenue growth was driven by an increase in distribution revenue, primarily from revenue recognized in the quarter related to the transition of our Canadian operations to a content licensing relationship and is reflected in the linear and other revenue line item on our income statement. This growth in distribution revenue was partially offset by a decline in linear and OTT revenue, which stemmed from ongoing traditional linear declines and heavy holiday seasonal promotions, including lower-churn multi-month plans.

Adjusted OIBDA for the quarter was $56 million, up over 100% sequentially due to lower programming amortization, lower advertising marketing and higher revenue. We ended the calendar year with $204 million of adjusted OIBDA, exceeding our $200 million outlook.

Looking at the balance sheet, we ended the quarter with net debt of $589 million, roughly flat with Q3 levels. Total gross debt was flat at $625 million and includes $325 million of our 5.5% senior unsecured notes as well as $300 million of our Term Loan A. Cash was $36 million, and our $150 million revolver remained undrawn at the end of the period. Leverage at the end of 2025 was 2.9x, better than our previous guidance of exiting the year at 3.1x.

Looking forward, as Jeff noted in his prepared remarks, 2026 is going to be a year with significant focus on driving increased free cash flow. More specifically, in 2026, we expect unlevered free cash flow to range between $80 million to $120 million, and we expect to generate positive equity free cash flow for the year. This represents approximately an $80 million to $120 million improvement year-over-year in both measures. The improvement in cash flow stems from lower cash content spend in 2026 versus 2025, which drives a closer alignment of cash content spend with the programming amortization expense reflected on our income statement.

Finally, as we complete the transition in the first few months of 2026 from being part of a studio business and bringing our content payment timing in better alignment with industry norms, with improved free cash flow and another year of at least $200 million of adjusted OIBDA, we expect our leverage to continue to decline year-over-year and exit the year at approximately 2.7x.

Now I'd like to turn the call back over to Nilay for Q&A.

Operator, could we open up the call for Q&A?

Yes. Thank you. [Operator Instructions] Our first question comes from Brent Penter with Raymond James & Associates.

And first and foremost, I appreciate the 50 Cent hold music there. So good to see the $200 million target exceeded in '25 and then expected to grow in '26. Can you just walk us through some of the moving pieces? You talked about OTT revenue up. How should we think about total revenue? And then with that 20% margin target out there exiting 2028, what kind of progress in '26 does the guidance contemplate?

Look forward to seeing you on Monday. I'll take the second question in terms of the margin. So we're well on our way to executing against getting to that 20% margin coming out of calendar '28. You'll see a slight improvement in '26, but the lion's share of the improvement really comes in '27 and '28 when you start to see the Starz originals really become a lion's share of our programming slate. And there's a lot of de-aging of the content there, ownership of the content we announced, offsetting some of the costs by bringing Sky in on Fightland as a co-commission partner.

So when you take all of the de-aging of the content, Starz owned content, creating that incremental revenue stream by selling it internationally, you really start to see us move significantly toward that 20% margin in '27 and '28.

Scott, do you want to take that?

I would just say, on OTT revenue, we feel really good about growth next year. When you look at our slate, it's probably one of the best we've ever had. It's very consistently placed throughout the year. So we feel really good about that as well as our focus on our pricing strategy.

Okay. Got it. And then thanks for the commentary on industry consolidation. It sounds like you all are ready to capitalize if there's an opportunity. So I guess, what kind of assets would you be interested in? And then how should we think about the constraints in terms of your ability to buy something? Is there a leverage level you want to go above or an equity valuation that you would want to be at before doing any kind of deal? Or just can you help frame those constraints?

Yes, great question. I'm not going to comment on our conversations to date. But what I will say, and we've said this repeatedly, we have 2 very valuable core demos that make us really complementary and important in the ecosystem. And there's a lot of, I would say, linear networks out there that have great brands that kind of complement our 2 core demos, but are really marooned on the linear side of the business without any kind of tech capability or desire from their larger corporate parent to try to transition them and reconnect them with their consumers that have moved to the digital side.

And so those are kind of the characteristics that we look at to make sure that we're continuing to lean into what we do on an SVOD side, much more on an ad-supported side. And again, we continue to drive leverage down. Scott and I continue to focus on getting leverage down to that 2.5x. And so that's where we would like to operate. So any kind of deal that we do, we'd have to stick within that kind of leverage constraint to keep it around. We don't really want to operate in a business that's 4x, 5x, 6x levered. And so we'll be very cautious about what kind of deal we do when it comes to leverage.

Okay. Got it. And then putting M&A aside, given that free cash flow is starting to inflect, how do you rank order your other capital allocation priorities? Obviously, delevering has been the top goal so far. And -- but as you start to get closer to that 2.5x goal, what are your other capital allocation goals? And at what point, given where the valuation is, do you start to consider shareholder returns?

I think we look at this as it's going to be a good problem to have as we move forward. We -- as I noted, we expect free cash flow to improve or come in the range on unlevered basis, $80 million to $120 million. That's a significant improvement over the year. We'll start to have cash that we'll start to build, which will give us an opportunity to delever, further invest in the business. And at that point, we would be in a position to make the decision to start returning some of that cash to shareholders.

Our next question comes from Thomas Yeh with Morgan Stanley.

On the OTT subscriber momentum into this year, I think you mentioned 1Q is pacing pretty healthy. Can you just talk about the retention patterns that you're seeing for the subscribers that might have come in for Spartacus or it came back for Power Book IV Season 3? Is the slate structured to run that retention through? Or is there something more to do there still?

I think there's really 2 components to that. One is the slate is really set up to have a great connected year throughout the year. We have some of our biggest shows throughout the year, Kanan, P-Valley, Fightland, that's a real long good run across the year against one of our demos. We've got Outlander finale, Blood of My Blood coming in. We have a couple of acquisitions to fill the gaps there. So we have a great, complete slate, again, surrounded by great movies from the Lionsgate Pay-One and Universal Pay-Two, that plus, we really deployed -- what we've seen in our data, we really deployed longer-term offers, so annual offers, which we see really has -- when people roll from that 12-month offer to retail, the take rate up to retail is significantly higher. And so you see a lot more spike in ARPU at the end of those offers, and they're also great for long-term churn.

And so the combination of a great slate and longer-term offers really lead us to push churn down over the next 12 to 18 months.

Okay. That's helpful. Anything on the distribution partnership side that is kicking in as well? Or any update on progress there in terms of the bundled partnerships that you've taken on?

Thomas, this is Alison. I would say we continue to be at the forefront of bundling. This is really a focus for us. We've set up the business to be a complementary or an add-on partner to a broad-based streamer, to targeted streamers. And so that's a real focus for us. I think that we're excited to expand our bundling relationships, and we're excited to see expansion in our distribution relationships. And we think that even with the disruption in the industry that those will come.

And just to comment on particularly the bundling piece, our data is showing that it is very good for business. The bundles that we have in place are expanding our TAM. They're driving net new additions to the business. They're revenue accretive and then also ultimately are driving better retention for the business. So bundling and distribution are a big focus for us, and we're excited about the year to come.

Okay. Great. And then last one for me. You've talked about a time line to get to 60% plus slate ownership. If we just think about the opportunities there, is it fair to assume that we should think about the international sales as concurrent with that ramp and then ancillaries maybe start to build thereafter?

I think that's spot on. I mean we've got -- we've announced 4 originals that we have in some stage of production. All 4, we've just brought in Plan B, a production agency to help produce that show, and we're super excited about that. Kingmaker, Masquerade, the rooms have just finished, and we're just getting the materials into a place. We're out looking for production partners there as well to see where we're going to shoot those shows and at what cost.

And again, as you saw with the Sky announcement this morning, we have somewhat of a first-look deal with Sky, where they continue to look at our slate and be excited about it, and I expect that partnership to build and grow. Also, Fightland was Lionsgate, who's our international sales partner today, took Fightland out to Content London last night to very, very great reviews. So outside of the Sky markets, Lionsgate will sell that for us. So I expect that only -- the unit economics of Fightland to only continue to get better.

Our next question comes from David Joyce with Seaport Research Partners.

A couple of things. Last year, you had a few volatile quarters of cash flows in and out and margins up and down, tied to some of the final content arrangements with Lionsgate. How should we think about the cadence this year of both OIBDA and free cash flow? And on the free cash flow side, is it going to be moving around based on spending for originals? That's the first question.

Okay. Thanks, David. That's a good question. When you think about our P&L, it has been very up and down. A lot of that was driven by the transition from being part of a bigger studio, same thing with the related cash. We worked over the last few months to bring that better -- into better alignment. We worked with our teams as to better sync up when we're spending the dollars on the production and getting that more in alignment when they are much more in line with industry standards. When you're part of a bigger organization, the cash management is just totally different. It's not necessarily based on just what Starz's needs are.

So we feel like we're getting that into a really good place now as we move into '26. There's a little bit of work to do here in the first part of the year. But we feel like we're on a really good glide path to improve our spend. And we see content spend coming in under about $650 million next year. From a P&L cadence, you'll see very consistent over the year, especially in the first 3 quarters. The fourth quarter in '26 will be a more positive quarter, but the first 3 will be very consistent. It won't be as choppy as you've seen in the past.

Okay. And on my other question, I see you've got $41 million in production loans now. How many projects is that for? Is that just Fightland? Or is that a couple of others? And how many originals do you think will be in production by the time you're exiting 2026?

That is just for Fightland, that particular production loan. We look -- it's very cost-effective cost of capital. So we like to use those -- the line -- help us line up our cash flows with those shows. As we greenlight the new shows coming up here, we would expect to have production loans for those shows. It will take a time to -- as those will build up over time. But at some point, the show will be completed and you'll repay the loan. So it should end up being a fairly consistent balance after we get through the end of this year.

Our next question comes from Vikram Kesavabhotla with Baird.

I wanted to follow up on the co-commission deal with Sky. Can you talk more about why they were the right partner? And from a higher level, when you look at the content slate that you have planned, how would you characterize the demand environment for your programming internationally?

Vikram, it's Jeff. Thanks for the question. Look, we think that we've seen in the past when we were in the international business before that the U.K. market is an incredible market for all of our shows. And over time, that has actually expanded into France as well. And so we think there's a real big appetite for our content in some of the biggest international markets.

We've had a great relationship with Sky. We've licensed Amadeus from them. We've licensed Sweetpea from them. And so we have an ongoing relationship with them. I think they're very interested in what we have in production, and I think there's others that will be as well. And so I think the slate that we've designed, we've obviously designed it with international revenue in mind. And I expect that to continue to grow as we get more ownership back onto the network and own our own library.

Okay. That's helpful. And then you referenced the pricing strategy a few times in your previous answers. Can you just elaborate more on your philosophy there? I mean do you think there's one way for you to raise price on your subscriptions over time? And how do you plan to manage the cadence of that going forward?

Yes. So as we said and we'll continue to say, we're a complementary service. We've always wanted to be underpriced, way underpriced of the broad-based streamers out there. And so as they continue to raise rate, it gives us room to raise rate. You've seen the broad-based streamers raise anywhere from $1 to $3 over the last couple of years. So it's created a lot of room for us to have some pricing power against the broad-based streamers. And we'll continue to look at that right time, right place, right slate to determine whether that's right for our consumers. So we'll watch the industry, watch the broad-based streamers and we'll make decisions based on where we think that's right to drop that in.

Our next question comes from David Karnovsky with JPMorgan.

Doug Wardlaw on for David. I just wanted to get an idea of how you guys think about relying on spin-offs or reliable shows like Power and Outlander versus new originals. Obviously, each piece of content kind of plays a large part on what sub growth looks like in the quarter. So I guess, long term, how you weigh starting a new show versus a spin-off of sure thing?

Thanks for the question. I mean franchising here at Starz is a real kind of power of ours. I think we -- as you know, we've successfully franchised Power into 3 successful spin-offs and currently in production. And these are really reliable drivers of engagement, drivers of acquisition for the business. Same with Outlander, we're so proud that Outlander has been on the air since 2014 and still drives a huge engaged fan base, and we successfully launched Blood of My Blood last season.

But what they also provide is a real platform or lead-in for new shows. And so what you'll see is you'll see us using these reliable franchises to launch new IP and establish new IPs with audiences so that we can bring thread audiences from one show to the next as we're marketing and expanding our TAM with new audiences. So I think it's a real -- thank you for the question. I think it's a real part of our programming strategy, and it's something that we think a lot about in terms of how we make investments and how we schedule.

And the last question will come from Matthew Harrigan with Benchmark.

I should probably apologize for belaboring you with this one. But what's your reaction to Seedance? It caused a lot of volatility in the markets. Are there benefits -- I guess, speaking more broadly, do you see more benefits from you on the AI side as far as development? And I guess, secondly, how is the development process differing from when you were under the Lionsgate's weighing? I mean, what parameters are you emphasizing or maybe a little bit different in terms of moving faster or adapting to your demographic even more precisely?

It's Jeff. Thanks for the question. I think on the first one, look, AI is a -- it's going to be a very powerful tool to enhance the business. I think there's 3 or 4 areas that we're using it today. Obviously, with content and reducing costs that we used it with Spartacus, for some of the large scenes in Spartacus, I think, very successfully. On the boring side, I think you can do a lot of internal training with AI that you would have to do -- waste hours of employees.

Again, for us, with a large-scale D2C business that has over 10 years of acquisition data, retention data, pricing data, that, coupled with all of the content we have and how to schedule that content to best align around lifetime value and customer churn and marrying all those key KPIs together with hundreds of millions of data sets, I think the AI tools can really help us be efficient and continue to drive profitability for our business. I do believe it will be an additional tool for the industry. And I don't -- again, this is a lot -- still more art than it is science, and I think the creative process will continue to be that way. And we're excited to use it as a tool, but I think the business is really grown on the success of the uniqueness of our originals, and I think that's hard to replicate. And so we're excited about that.

From a second question, it's -- look, Lionsgate is a tremendous producer of television. We've had a great 9-year run with Kevin and team. And I think that will continue based on the Power Universe that we're still locked on the hip on. And so I don't expect that relationship to change. I think as we go out and start to rebuild our own library again and it gives us the ability to control front-end costs, a little better direct line to the producing partner that way. It also allows us to really get that incremental revenue stream from international that we weren't getting as part of being owned by a studio. And so those are probably the 2 biggest components that we have, a little more control with our team and a little more revenue on the other side.

So -- but again, we're still pretty much locked at the hip with Lionsgate on a lot of our big shows. As I said, they're our sales agent for internationally. They're over in London today. I think Packer continues to do a great job maximizing revenue for us there. So I expect that relationship to continue for a long time, and we're excited about that.

It would be interesting to see what your stock does now.

Thank you. I would now like to turn the call back over to Nilay for any closing remarks.

Thank you, operator, and thank you, everyone. Please refer to the News and Events tab under the Investor Relations section of our website for a discussion of certain non-GAAP forward-looking measures discussed on this call. Thanks, everyone.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Starz Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Nilay Shah with Starz Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us for Starz Entertainment's Fiscal 2025 Third Quarter Earnings Call. We'll begin with opening remarks from our President and CEO, Jeffrey Hirsch followed by remarks from our CFO, Scott MacDonald. Also joining us on the call today is Alison Hoffman, President of Starz Networks.

After our opening remarks, we'll open the call for questions. The matters discussed on the call include forward-looking statements, including those regarding expected future performance. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors.

This includes the risk factors set forth in our most recently filed 10-Q for Starz Entertainment Corp. Starz undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.

The matters discussed today will also include non-GAAP measures. The reconciliation for these and additional required information is available in the 8-K we filed this afternoon, which is available on the Starz Investor Relations website at investors.starzcom.

I'll now turn the call over to Jeff.

Thank you, Nilay. Thank you, everyone, for joining us today. I am pleased to report that Starz delivered a strong quarter, both financially and operationally. Before I get into the highlights of the quarter, I want to give an update on how Starz is executing against our post-separation plan. As we laid out at separation, our growth strategy has 2 clear paths. First, our focus has been on growing our core business by increasing our margins to 20% as we exit calendar 2028, converting 70% of adjusted OIBDA to unlevered free cash flow and delevering to 2.5x as quickly as possible. Rebuilding our content library through ownership is a key component to delivering this result.

Ownership of our series improves both the cost structure of our content and allows us to generate incremental revenue through international content licensing. Today, we are announcing a structural change to our Canadian operation. We are moving from a joint venture model to a stable, consistent content licensing agreement with our partner, Bell Canada.

Under this new simplified structure, the Starz-branded service will continue to be available in Canada and Starz will generate international licensing revenue, while Bell will assume full operational responsibility in the territory. This approach is consistent with our strategy of owning our content and creating incremental licensing revenue without the need to operate international services directly.

As we've shared over the past couple of quarters, we have been aggressively working toward delivering our previously stated goal of owning half of our slate. We opened several writers rooms just weeks after separation. A couple of weeks after that, we greenlit our first Starz-owned original, Fightland from Curtis 50 Cent Jackson.

The series currently in production in London, and we are thrilled with how the show is coming along. We have a stellar cast an award-winning stable of directors and producers, and we plan to have it ready to premiere next year. I'm excited to share today that we're in the late stages of bringing on a co-commission partner on Fightland, which will improve the economics of the series.

This will layer incremental international revenue on top of the previously discussed revenue from Bell Canada. The partnership will lower the per episode cost on an already attractively priced show and has the potential to expand to additional Starz owned originals. Both the Bell and Fightland deals will be modestly accretive to adjusted OIBDA and free cash flow in calendar 2026, and they will assist us on our path to reaching 20% margins exiting calendar 2028.

While we continue to strengthen our core business, we are also looking to build upon our valuable core demos of women and underrepresented audiences. With the potential for increased consolidation across the media landscape, we believe that we are uniquely positioned to capitalize on potential M&A opportunities.

Given our track record of profitably converting our business from linear to digital and our industry-leading tech stack, we are poised to increase our scale as assets that are strategically valuable to Starz become available. Turning to the quarter. We delivered on all key operational goals we outlined on our last call, including a return to positive revenue and U.S. OTT subscriber growth. U.S. OTT subscribers have now grown by 670,000 year-over-year with growth in 3 out of the last 4 quarters.

We expect to continue revenue and U.S. OTT subscriber growth in the fourth quarter and to finish another year with approximately $200 million of adjusted OIBDA. Digging deeper into the third quarter results, OTT engagement reached a 12-month high, driven by the performance of Blood of My Blood, the Prequel to our hit franchise Outlander. The series successfully reengaged the fan base while also attracting new subscribers, demonstrating the continued strength of the Outlander universe.

The quarter was also aided by the premier Ballerina from the John Wick franchise, which we strategically moved to air a quarter earlier than planned. Key tentpoles in the fourth quarter include Season 3 of Power Spin-off Force and the new chapter in the Spartacus World, House of Ashur.

Our slate continues to be strong as we head into calendar 2026. We have a full lineup of originals, including the return of some of our most highly anticipated tentpoles. These include the Epic Final seasons of Outlander and Power Book III: Raising Kanan, the premiere of Fightland, the return of Blood of My Blood and the new season of one of our biggest hits, P-Valley, from [indiscernible] winning creator to Katori Hall. Even with the strength of the slate, we expect investment in content to decrease year-over-year, helping drive improved free cash flow in calendar 2026. In closing, Starz continues to execute well in a rapidly changing operating environment. While the media industry continues to face significant headwinds, we are confident in our ability to deliver on our plan, and we are well positioned to take advantage of the structural changes we expect to take place in the sector over the next 12 to 24 months. And now I'd like to hand it over to Scott to go over the financials.

Thanks, Jeff, and good afternoon, everyone. It was a strong financial quarter, as Jeff noted, and I'm pleased that we reached the key financial metrics that we outlined on last quarter's call. Specifically, we grew revenue sequentially and added U.S. OTT subscribers. Looking forward, as Jeff noted, we are affirming our guidance for the remainder of the year, which includes achieving positive U.S. OTT subscriber growth and positive sequential revenue growth as well as generating approximately $200 million of adjusted OIBDA for the year.

Now let me walk through the financial details for the quarter, starting with subscribers. We added 110,000 U.S. OTT subscribers in the period, ending the quarter with 12.3 million. The increase in the quarter was driven by the successful debut of Outlander Blood of My Blood and the [indiscernible] Premier of Ballerina. We ended the quarter with 19.2 million total subscribers in North America, representing a sequential increase of 120,000 subscribers.

Our North American linear subscriber base ended the quarter at 6.2 million, which was flat on a sequential basis. During the quarter, the carriage dispute in Canada that we mentioned on our May call was resolved. As a result, we reinstated approximately 250,000 Canadian linear subscribers into our base, which offset linear declines in the U.S.

As Jeff noted in his remarks, we modified the structure of our Canadian business, which will result in us no longer reporting Canadian subscribers starting with the December quarter. The Canadian content licensing revenue that we will start to generate next quarter will be a component of linear and other revenue in our statements of operations.

Moving on to revenue. Total revenue for the quarter was $321 million, up $1.2 million sequentially. OTT revenue was up $1.7 million to $223 million, while linear and other revenue was down slightly to $98 million. The sequential increase in total revenue was due to the content slate, which drove improved subscriber performance. Next, our adjusted OIBDA of $22 million was expectedly down $11 million on a sequential basis due to higher advertising and marketing costs related to driving awareness and subscriber acquisition in connection with the premiere of the first season of Outlander Blood of My Blood.

Additionally, advertising and marketing spend was impacted by the marketing associated with the Premier of Ballerina, which we aired a quarter earlier than originally planned. Next on to debt. We ended the quarter with $588 million in total net debt. As a reminder, debt includes $300 million of our Term Loan A and $325 million of our 5.5% senior unsecured notes, plus $37 million in cash.

We had no borrowings outstanding on our $150 million revolving credit facility at the end of the quarter. Our leverage on a trailing 12-month basis was 3.4x for the quarter, better than the 3.5x we noted on the last call, and we continue to expect to exit the year with leverage at approximately 3.1x. As we have mentioned on our last couple of calls, we view 2025 as a transition year for our cash flow.

For the final quarter of 2025, we will have some fluctuations in the timing of our content payments, but we will reach a normal payment flow as we move through 2026. This will set us on a good path to deleverage, which, as we have noted, will be our focus in 2026 and into 2027. Now I'd like to turn the call back over to Nilay for Q&A. Nilay?

Thanks, Scott. Operator, could we open the call up for analyst questions.

[Operator Instructions] Our first question comes from Brent Penter with Raymond James.

First one for me. Jeff, I appreciate the color on Fightland and good to hear that, that's starting to make it through the process and expected next year. Can you just go over a little bit the mechanics in terms of the cost savings that you get as well as the international revenue you get when you produce your own shows with your own IP. I think you said like $1 million to $2 million in savings per hour from that in the past. So just can you help us understand where those savings come from?

Yes. Brent, thanks for the question. I think there's 2 components to getting IP ownership back on the network, which really helps drive us to that 20% margin goal exiting 2028. First and foremost is we're de-aging shows. So we're going from late-stage shows, which are more expensive on a per hourly basis to newer shows, which, generally speaking, are much cheaper than a season 4 or Season 5. We also can control the economics in terms of how we start the show. And so we set the budget and what we're willing to pay as we come into the content.

And so as we open the writers' room and they think about the show, they know what kind of financial envelope they have to work within, and we're rigorously defending that number against that. The second side, obviously, is as a U.S.-based company, we're creating our own content. We can monetize that around the world. And much like if you think about the output deals that HBO and Showtime used to do outside the U.S. as we get to scale and we add 2, 3, 4 shows each year that we own, we can actually package those and really drive kind of an originals output deal that puts an MG or a good amount of incremental revenue on top of the business.

And so creating and owning your own IP domestically allows you to control costs on the front end, but it also creates a lot of incremental revenue from outside the U.S.

Okay. Okay. I appreciate that. And then when you all originally announced Fightland in the writers room, there were a few other shows that you talked about as well. So any update on any of those other shows? And should we expect those also to be coming in the near term? And could that help improve your EBITDA margin then once you start to get more of those owned shows?

Yes. We announced rooms on 4 shows right after separation. [indiscernible] was one of them, and that room is just about to close. So we have most of the script materials. It's probably going to be shot in Venice. And so we're looking at production partners. We're also looking at brand partners to come in to also reduce the cost of that show.

The other one was Kingmaker. That room is just about finished as well, and we're really starting to look for production entities to help us produce that show as well. And those really should earnest come on the network into '27, where half the slate will be owned by Starz. The fourth show we talked about was [ all ours ]. We just announced a production partner there, and we will start to move into kind of a writer's room once we pick runner and a writer we're in that piece right now.

So all those shows are moving really, really well. We've added a bunch more into development since we separated. And so we were really laser-focused on getting half that slate owned by Starz in '27 and really then having the ability to go out and package those together and package kind of each year, 4 or 5 shows to a partner outside the U.S. that it will become our kind of distribution partner outside the U.S. and really drive significant incremental revenue.

Okay. Great. And then final question for me. On the EBITDA guide, can you just walk us through the moving pieces? Obviously, it bounces around quarter-to-quarter based on the costs. So what are the kind of bridge to get us to the $51 million, I think, that you need in 4Q to hit the $200 million? And then through the separation process, you all had talked about the $200 million EBITDA and then that could be something that you would grow off of. Can you talk about your level of confidence that, that's still the case that you hit the guide this year, but then you continue to grow off of that in the future?

Yes, this is Scott. So on the cadence to get to the $200 million, and we feel confident getting there as we sit here in November. The first quarter was -- I'm looking on a calendar year basis. Now the first quarter was our strongest quarter from an EBITDA basis. Q2 and Q3 were always expected to be lower from an adjusted OIBDA basis. And then Q4 was expected to be a better quarter. It's really primarily due to the timing of content and the programming amortization that we'll see in the quarter. So we're quite -- which are -- we know what those items are at this point. So we're confident that we will ultimately get to the $200 million. It's about $52 million that we need in Q4.

And just in terms of confidence level that the $200 million is a level that you can grow from?

Yes. We've continued to deliver against that $200 million. And if you think about the building blocks that we've talked about, getting ownership on the network controlling cost. You'll see our content cost spend will come down next year in '26. That will further come down as we get 4 or 5 shows that Starz owns on the air in '27. And that as we start to really get that content cost spend down, which is stuff that we can control, you'll start to see the business move that margin up to 20% coming out of calendar '28.

And so we feel very confident that we can move that EBITDA up based on the fact that this is self-help and self-control.

Our next question comes from David Joyce with Seaport Research Partners.

Could you please provide some color about particular programming viewership trends, you did have to cancel BMF recently, and you've kind of alluded to that last quarter. But -- how should we think about the performance of these shows granted that we look at the multi-day period?

Yes. This is Alison. I think one of the things that we mentioned with Jeff's remarks is that we did see improved engagement in the last quarter. So active -- we look at it in terms of monthly active viewers. They hit a 12-month high and so we were really excited to see that.

It was up about 7% versus the prior quarter. And I think that's a testament to strong performing content like Blood of My Blood and movies that we have like Ballerina. And so I think that, that sets us up in a nice way in terms of that Outlander universe and what we can expect from that.

We had Force premier last weekend. It went very well. We have early read on that, but we've seen stronger gross additions for Force than we saw with our prior 2 tent poles. So nice trajectory there. We're going into a really strong viewing and subscription time of year.

If you think about Black Friday and holidays and people being home -- so our expectation is that's a really nice platform for growth for the service. Obviously, we have Spartacus coming on in December as well, that will be a new title, but really nice to think about sort of the Power universe being able to discover Spartacus and new viewers coming in for Spartacus and being able to cross you with the power of universe.

So I think we're very excited about that. And then just as we've mentioned, we've got -- looking ahead to next year, we've got Outlander coming for a final season. We've got Kanan. We've got P Valley coming back. We've got Fightland, as Jeff mentioned. So we're feeling really good about our slate, what we're seeing in terms of engagement and what we have coming up.

And can you provide color on how much of your overall viewership of your services is on theatrical content as opposed to these originals?

Yes, definitely. In general, as it pertains to viewership or even how we think about subscription or subscriber acquisition, we measured in terms of first title streams. It is about 50-50 -- it will vary by platform. So for instance, our own retail app will lean a little bit more towards the original series. We'll see more viewership and subscribers coming in there for our originals.

But then other platforms, other distributor platforms that carry us might rely more heavily on the movies. So it really is a nice portfolio. And I think if you think about our amortization versus sort of the viewership and the subscriber acquisition, it's all really nicely aligned to performance.

The other thing I'd add, David, is if we look at the lifetime value of our customers, the consumer -- or customers that watch an original on a movie, their lifetime value is significantly longer than if just one watch one or the other.

So having a good mix of the portfolio of both originals and movies together really helps drive reduced churn and increase lifetime value.

Our next question comes from David Karnovsky with JPMorgan.

Jeff, it would be great to get your thoughts on the streaming landscape currently. I think investors sometimes have concern generally as they look across domestic operators on how much incremental volume or pricing growth there is from here. So I'd be curious to get your thoughts broadly and then if you can tie that context back to your confidence on continued OTT subscriber revenue growth at Starz, that would be great.

Yes. I think as I said in my prepared remarks, there's a lot of headwinds out there. I think there's a lot of moving parts. There's a lot of integrations of platforms. There's a lot of consolidation going on. And I think all of that creates a lot of noise in the marketplace for consumers, and it makes it hard, especially for us because we are a complementary service, and we do depend on these large broad-based streamers to package us, bundle us and sell us.

We're sold on top of Hulu, we're sold on top of Amazon. I think we're the most bundled service on Amazon today. I think we're over 2/3 of all their bundles have a Starz component, and that's really been our strategy. And so as people continue to change and focus on themselves to figure out what their platform looks like, it gets it a little more complicated for us to get sold on top of.

But as you saw, we've had 3 out of the last 4 very strong subscriber quarters. We think that will continue based on the strength of our content slate in the fourth quarter and through all of next year. And as people continue to raise rate as a way to drive revenue, it creates room for us to also raise our rate because as a complementary partner, we've always wanted a large gap between the stated retail rate of our broad-based streaming partners versus our complementary service.

And so it continues to give us the ability to raise rate if we need to. But for now, we really think based on the strength of our content, we can continue to grow subscribers on an organic basis without -- and revenue without having to put rate on the business today.

Great. And then I want to follow up on your M&A comments. I don't know if it's possible for you to give any more detail in terms of assets you might be interested in and how you think that can transform Starz'. And then how should we view Starz' potential financing of any deals just given your goal to delever and maybe use of equity being a challenger.

Yes. I'm not going to comment any specific names, but I think I've said on a few quarters ago that we would like to diversify our revenue base from just an SVOD base into an AVOD and an SVOD base, because of the nature of the adult nature of our content and the amount of content we have, it's not really possible for us to expand into an AVOD basis in terms of competing with the large giants in terms of advertising.

But the one way we can do that is to look at [ maroon ] linear networks that are -- that their consumers have moved to the digital side, but the brands are stuck on the linear side. We can use our tech platform to kind of -- to reposition those brands into the digital world that are very complementary to the Starz content on the SVOD world. And as we've seen and a lot of the work we've done, as you put complementary AVOD businesses next to the SVOD business, the churn reduction on the Starz side is really meaningful, and it really can accelerate both subscriber and revenue growth on scale.

And so we're super interested in looking at that. I do think as these large companies continue to consolidate, pieces of those businesses that become less important to them because their focuses are on, whether it's the studio or the streaming services, not the linear, some of the networks that may strategically fit with Starz may become available.

And I think we are uniquely positioned because of our -- what we've done at Starz in terms of transitioning from 100% linear to 70% digital, doing that profitably, owning our own tech stack, having our own customer acquisition team, having our own data stack, we're able to actually give that expertise to those networks and really put the businesses together and really generate a ton of growth.

In terms of the balance sheet is a pretty good size to be tax efficient in terms of some of these deals. But the one thing I would reiterate, and I said this in the last couple of calls is we're not going to be in the market of doing deals that puts an incredible amount of leverage on the business. We just won't do those deals.

And so if it's a deal that allows us to stay within the kind of the leverage range that we have, it fits with us strategically in terms of our 2 core demos and we believe that we can actually convert the business from linear to digital, and we think that's our home run deal for us.

Our next question comes from Thomas Yeh with Morgan Stanley.

I just wanted to follow up on your comments about the subscriber momentum into the back half of the year. Can you maybe just tease out the dynamics around churn relative to gross acquisitions supporting that momentum? Are we at a point where the slate is bridging consumers over from one series to the next and retention is benefiting? Or is this more like a gross acquisition story, given some of the bundling dynamics that have been picking up a little bit more?

Yes, I think what you saw in the quarter was -- I would say it was a 2/3 was kind of on the growth side, a 1/3 was on the churn side, depending on the platform. The Starz app churn continues to come down to all-time lows. It's a combination of stringing, like you said, stringing shows together, but also looking at longer-term offers.

If you look at the business, if we can get a consumer to month 7 and month 13, churn gets down in the low single digits. And so we've been trying to use pricing strategy to drive consumers to that critical point where we can bring churn down significantly increased lifetime value.

I think as we move into the slate in '26 when you have shows -- you really have shows sung back to back to back. I think you'll start to see that we'll be more reliant on the churn reduction side of the business and less on the gross add side of the business. We did announce Power: Origins, which is an extended a longer season. That's one of the reasons why we're excited about that is to try to do a lot more episodes over a longer period of time. So you have a show that goes instead of 8 to 10 weeks, it goes somewhere between 18 and 20, 22 weeks.

We think that may be another way to really drive churn down and really, especially at certain month points after the show premier getting that to a real all-time low. So we're looking at not only back-to-back shows, but length of series to try to see if we can manage that in a longer way in a more cost-effective way.

Okay. Understood. And can we revisit the Canadian business model shift? I might have missed this, but are you expecting licensing revenues to cover the existing subscription revenues? And is that licensing fee variable to what the partner benefits from, from a subscriber adoption perspective?

No, it's a great question. Yes, it does more than cover what we had in terms of the subscriber business. It's also much more stable in a sense. It was a unique deal where we had 3 partners in that deal. So it was incredibly hard for us to do what we do here in the U.S. in terms of managing the customer acquisition, retention, save cues, all of the different life cycle management. And if you think about, again, the building blocks of how we're getting this business to extend adjusted OIBDA and get to that 20% margin, Canada and licensing is, again, another international territory. So you have to think about it as a kind of overall output deal with Canada for our content. We hope to have more of those around the world in terms of driving stable incremental revenue to the kind of linear and other line item in the revenue side.

Okay. Great. And just last one for me. Can we revisit the cash spend outlook is $700 million kind of still the right number for 2026, and then it kind of continues to go down beyond that just based on some of the timing of how you transition to fuller slate.

Yes. This is Scott. That is our expectation that we would be under -- just under $700 million in 2026. And we're still working through and we'll provide a little more guidance on 2026 on our next call. But that's the plan, and we're also looking to move further down as we move forward, which is key as we de-age the content, as Jeff mentioned, get the ownership on the network that helps to bring the average cost per episode down of the portfolio of shows we have on the air. And that will contribute to getting down to that $600, $650 range here in a couple of years.

Our next question comes from Matthew Harrigan with The Benchmark Company.

Firstly, apart from the de-aging on the slate, I think you cited some advantages on the cost side in terms of development and maybe a little more latitude in terms of really using your data lake to optimize for Starz. I mean, even with the best of intentions, you may have had a bit of a suboptimization problem when you were so tightly bound with Lionsgate television.

And then secondly, I thought your cash burn was a little bit less than -- or actually quite a bit less than I had anticipated. I generally don't ask too many prosaic cash flow timing questions. But does that more or less imply that maybe some of that got punted into Q4 and maybe people are probably going to be in roughly the same place on the cash burn for the year once you -- before you get to normality more or less over the next couple of years?

No. As we noted, again, this is Scott on our prior calls, the cash was going to be a bit choppy right after the separation. So the prior quarter, Q2, we were actually quite favorable. And some of that was just part of the process of us starting to manage our cash. This quarter, we were a bit negative. We expect to be a bit negative next quarter as well on that. And then we start to improve as we move through 2026. I mean it doesn't change overnight. But some of the challenges has been we were not necessarily -- when we're producing shows in the past, typically, you pay for your show and fund it over its production cycle very consistently, and the shows are at different times in their production.

So you get a much more consistent cash flow. Just based on being part of the bigger studio, those cash payments dependent on the needs of the corporate parent. So we would -- they were way more -- they fluxed a lot more than you would like from a normal business perspective if you're just a stand-alone company.

That's what we're working on now to get that back into a better alignment with kind of what you see in the industry. And that's -- we're getting -- we're starting to get there as we get to the end of the year. We'll be working -- still working on it early in '26, but '26 will start to get back in that more normal cadence. And you'll see content spend, as we mentioned earlier, come down probably just below $700 million next year, which is a meaningful decline from where we are today. So it's really -- it just takes some time to get that all worked out through the system. So it will be a bit spotty as we get into the Q4 and maybe a little bit into Q1, but we'll see it start working to be much more consistent after that.

And I guess, then, on the development question, the development costs and your latitude for more creativity and maybe being faster on that side and getting costs down.

Look, I think all of having control over when you open a room, when you greenlight a show, when you go into production, to Scott's point, timing and aligning all of the production to the on-air date to the cash spend. I mean when you get to a consistent kind of assembly line from the day you put it into development to the day you greenlight, to the day you deliver and you pay on delivery and then you air it, ultimately, we should get cash content spend should be 1:1 with cash air over time if you are consistent.

Having control over our own production gives us the ability to align these shows and deliver them when we need to and so that we can get the choppiness of cash content spend out of the business. And so ultimately, the goal is when we get there is that cash content spend at amort should be almost 1:1 as the business goes forward.

And then on the marketing side, I thought you might have some ideas, particularly given the huge demographics actually that you're targeting. But at the same time, I thought you might have some more opportunities there. Are you hamstrung by having such a high bundling component in terms of really being able to do marketing yourself to address those groups through a targeted process?

I don't think we are. I mean I think bundling does a few things. I think back to the prior question, it allows us to align our content slate with others' content slates to fill gaps and you do that at a discount for the consumer. So ultimately, you're bringing 2 slates together to provide more benefit and more value to a consumer, which ultimately gives you more lifetime value.

But again, we are distributed across all different vehicles. We have our own retail app. And again, when we market to our demos in ways that are unique to us, I think it rises not just our own retail, but the component of stars that are in those bundles as well. So we see in our data when we put stuff on the top of the funnel, it drives -- it softens the bottom, not just for us and our own app, but for all of our partners as well, whether it's a stand-alone a la carte sub or it's in a bundled sub.

That concludes today's question-and-answer session. I'd like to turn the call back to Nilay Shah for closing remarks.

Thank you, operator, and thank you, everyone. Please refer to the News and Events tab under the Investor Relations section of our website for a discussion of certain non-GAAP forward-looking measures discussed on this call. Thanks all.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, everyone, and welcome to the Starz Second Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded.

Now it's my pleasure to turn the call over to Nilay Shah with Starz Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us for Starz Entertainment's Fiscal 2025 Second Quarter Earnings Call. We'll begin with opening remarks from our President and CEO, Jeffrey Hirsch; followed by remarks from our CFO, Scott MacDonald. Also joining us on the call today is Alison Hoffman, President of Starz Networks. After our opening remarks, we'll open the call for questions.

The matters discussed on the call include forward-looking statements, including those regarding expected future performance. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors. This includes the risk factors set forth in our most recently filed 10-K for Starz Entertainment Corp. Starz undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.

The matters discussed today will also include non-GAAP measures. The reconciliation for these and additional required information is available in the 8-K we filed this afternoon, which is available on the Starz Investor Relations website at investors.starz.com.

I'll now turn the call over to Jeff.

Thank you, Nilay. Thank you, everyone, for joining us today. Before getting into the details behind the quarter, I want to give everyone an update on how I see Starz is positioned in the ever-changing media landscape.

As I laid out last quarter, Starz is a highly profitable digital-first network that is able to punch above its weight class because it has remained focused on catering to two valuable demos of women and underrepresented audiences. Unlike our peers, Starz took a distribution-agnostic approach to streaming. This resulted in a profitable transition and a business that has delivered consistently strong adjusted OIBDA performance.

We believe this decision not to follow the herd has positioned Starz to be a very straightforward and predictable investment story. The investment case hinges on modest top line and domestic OTT subscriber growth, coupled with lower content spend. We believe this combination should drive three key outputs: One, higher adjusted OIBDA margins; two, higher free cash flow; and three, lower leverage.

Given these business drivers, combined with our outlook of generating approximately $200 million of adjusted OIBDA in calendar '25, and converting 70% of adjusted OIBDA to unlevered free cash flow during calendar '26, we see our current valuation of approximately 4x adjusted OIBDA as very attractive. We believe this valuation disconnect will become more apparent in the coming quarters when several large media companies spin off their linear networks into stand-alone public companies.

It's worth noting that even though these linear networks are heavily dependent on linear advertising and have immaterial digital revenue, most Wall Street analysts are valuing these businesses at similar or higher multiples than Starz, making us a great value.

Turning to the operating fundamentals. We delivered adjusted OIBDA and revenue results inside our expectations despite some underperformance of BMF Season 4. While the season still drew a large audience, it didn't maintain the expected scale relative to our anticipated performance for the series. This resulted in modest sequential declines in OTT subscribers and revenue, which Scott will go into detail momentarily.

Now more than ever, our priority continues to be laser-focused on making great stories that also drive the business. And we are thrilled to report that our highly anticipated and critically claimed Outlander prequel, Blood of my Blood, is already exceeding expectations. It has generated the third highest number of subscriber additions for a series premiere in Starz history, and viewership has exceeded the last episode of Outlander Season 7 by 40%. This impressive performance out of the gate has resulted in strong subscriber growth. And importantly, we are adding these subscribers with higher price promotions than the prior season of Outlander. Based on this momentum, we remain confident in our expectations of sequential revenue growth and OTT subscriber growth in the September and December quarters.

Following Blood of my Blood, the slate features high-performing returning tentpoles such as Force and Raising Kanan, alongside the premiere of Spartacus, which is returning to the service after 12 years.

With this tentpole-heavy slate combined with strong film lineup that includes Ballerina and Oppenheimer, we expect to finish the year from a position of strength, setting us up for continued revenue growth in calendar '26.

Looking forward, we will bring audiences several long-awaited premieres, including the final season of Outlander, P-Valley Season 3 as well as the launch of new Power prequel series, Origins, which will have a supersized 18-episode premiere season. We are also excited to bring our first Starz-owned and produced show Fightland, to our viewers.

In short, this is one of the most compelling content slates that Starz has had in several years. Most importantly, the slate is being delivered at superior economics on a per-episode basis relative to prior years. We expect the structural improvement in our content costs will build over the next several quarters. This is a key tenet to our investment case and bolsters our confidence that we can reach our 20% margin target run rate coming out of calendar '28.

Given the strength of our slate we outlined, the stability of our streaming-first operating model and our improving content cost structure, we are excited about the outlook of our business and believe Starz is the most misunderstood and undervalued stock in our sector.

Now Scott will take you through our key metrics and financial results. Scott?

Thanks, Jeff, and good afternoon, everyone. I will walk through the financial and operational highlights from the June quarter for Starz Networks, which includes our operations in the United States and Canada. I will also provide an update on our balance sheet.

Starz Networks ended the quarter with 12.18 million U.S. OTT subscribers, a sequential decline of 120,000. The decline in the quarter was primarily driven by lower subscriber additions resulting from underperformance of BMF Season 4, as Jeff noted. We ended the quarter with 19.08 million total North American subscribers, down 520,000 sequentially. The linear subscriber base declined to 6.22 million, reflecting continued declines in pay-TV households.

Total revenue for the quarter was $319.7 million, down 2% sequentially and 7.4% year-over-year. OTT revenue was $221.1 million, while linear and other revenue came in at $98.6 million. The year-over-year and sequential revenue declines resulted from lower OTT subscriber additions and continued linear pressure.

Looking forward, as Jeff noted, we are already seeing improved subscriber trends due to the successful premiere of Outlander: Blood of my Blood. We continue to expect sequential revenue and OTT subscriber growth in the next 2 quarters.

Adjusted OIBDA was $33.4 million and was expectedly down from the $92.0 million in the March quarter. The sequential decline was primarily due to higher content amortization related to the airing of 6 episodes of Raising Kanan Season 4 and the premiere of BMF Season 4 during the quarter.

We ended the quarter with $573.5 million in total net debt, down $42.1 million on a sequential basis. Debt includes $300 million of our Term Loan A and $325.1 million of our senior unsecured notes, less $51.6 million in cash. We had no borrowings outstanding under our $150 million revolving credit facility at the end of June.

Our leverage on a trailing 12-month basis was 3.2x for the quarter. We expect leverage to increase to approximately 3.5x in the September quarter due to the timing related to content payments, but we continue to expect to exit the year with leverage around 3.1x.

As we mentioned on our last call, we view 2025 as a transition year for our cash flow, which we now directly manage. For the remainder of 2025, we will have some ebbs and flows in the timing of our content payments before we get back to a more normal payment flow during 2026. This will set us on a good path to deleverage, which will be our focus during 2026 and 2027.

As a result of the passage of the One Big Beautiful Bill Act, interest deductions previously deferred will now be currently available to us to reduce any federal tax liability. Accordingly, when combining this favorable change in the tax law with previously existing NOLs, we do not anticipate having any significant federal cash tax payments for the foreseeable future. We are very excited about the future here at Starz.

Now I'd like to turn the call back over to Nilay for Q&A. Nilay?

Thanks, Scott. Operator, can we open the call up for Q&A, please?

[Operator Instructions] One moment for our first question. And it is from the line of Brent Penter with Raymond James.

Jeff, I appreciate the comments on M&A and the industry landscape. How do you all think about what defines scale in this business? And if you were to participate in M&A, are there any prerequisites that you would want to achieve before pursuing that, whether that be your leverage target, improving your equity valuation, any sort of operational metrics or anything else that you would want to achieve before really actively pursuing M&A?

Brent, thanks for the question. First of all, I think we have a pretty clear plan of delevering and getting to a 20% margin business coming out of calendar '28. So whether we participate or not in M&A, we will continue to focus on delivering that plan to our investors and to the business.

I'm not going to really comment deeply on M&A. But what I would say is we think we've built a very valuable business, both with the serving of the two core demos that we are kind of the destination for. We have a phenomenal tech back end and a data stack that I think is unparalleled in the business. And so that makes us a very valuable asset, but it also sets us up to be a very strong platform to scale around. And I would think -- we like the demos we serve today. We think there's a lot of opportunity in those demos to expand outside of the subscription business but still stay focused on those demos.

And so I do think in the next -- as other peers unwind their businesses and figure out who they are, there will be a lot of opportunity for us to scale our business in the next 12 to 24 months.

Okay. Got it. And then on the 20% EBITDA margin goal by 2028, you laid out last quarter kind of the path of how you get there on your content costs. If we get to 2028, and you've done better than that, what would be the likeliest reason? And vice versa, if we get to 2028 and you haven't quite hit that 20% margin, what would be the likeliest reason? So what would cause you to overachieve or underachieve that expectation?

Great question. Look, I think there's really two core -- the big -- there's two kind of core ways to get to the 20%. The biggest way is actually turning the slate over, de-aging it and getting ownership back on the network. We have announced and we'll start production on Fightland. We talked about it being our first Starz-owned and produced show. If you look at the season 1 of Fightland, the season 1 per hour episode cost is 30% lower than what we've seen in Season 1 premieres on Starz over the last couple of years.

So right off the bat with the first show, we're seeing significant reduction in cost structure. And if you think about us getting to half of our slate, four shows by 2027, where we'll have ownership on that scale, and you can see there's a real opportunity to put a lot of dollars to the OIBDA line. The other piece is we haven't even factored in the international sales of Fightland, so that's incremental dollars to the business.

And so as long as we continue to execute against the strategy of turning over the slate and getting ownership and de-aging, we'll hit that number coming out of calendar '28. I do think there's some other opportunities for us to take cost off the business. The other side of it is obviously revenue growth. We've talked about how revenue will start to grow again in third and fourth quarter and in calendar '26. So we can start to grow the top line again to 1% to 3% on top of cost controls on the content side, I think we can actually hit that number.

We will be opportunistic. If we see some content that comes in that we think will really help the business, we will probably make a decision to put that on. But right now, again, I think we're simply laser-focused on trying to grow top line but also get the cost structure of content into that $600 million to $650 million range, and that puts us at 20% coming out of calendar '28.

Our next question comes from David Joyce with Seaport Research Partners.

A couple, if I could. First, on BMF. Can you pinpoint what didn't work with that this time that made it miss your expectations? And what would you adjust since having the spin-off and franchise strategy is important for you going forward?

And then secondly, I wanted to ask on the ARPUs that was above our expectations. And if you could just go through the puts and takes of price increases in your different distribution relationships and how that's impacting ARPU?

Great question. So look, to the start-off, BMF was still a very large show for us. It just wasn't at the expectation we had in for growth in the quarter. And so it was really a gross adds issue. I don't think there's one thing that we can pinpoint to. And we did see some softness towards the end of season 3. And so -- but we thought we had corrected it in the story.

But that's not to say that there was a lot of different things that went into the softness on gross adds for BMF. We do have two BMF-similar type shows in development with Lionsgate. We like both those shows. But we have the last episode airing tonight. So we'll do what we normally do, which is get into the postmortem on a show with the showrunners and do analysis and see whether it comes back or not.

We do have a lot of great content in development. We talked about Kingmaker. We talked about, obviously, Fightland that's coming. And so we have a lot of opportunity to put shows on the air that I think serves that audience on scale that we can own. And so while I really was hoping that it would perform better. It's been a great show for us for the 3 years we've had it. We did see some softness in gross adds around that.

Yes. With respect to ARPU, this is Scott. It's been fairly consistent quarter-over-quarter on a year-over-year basis, which we think is relatively good for the business. When you look at ARPU, we were down just a little bit this quarter, primarily due to more customers on multi-month type offers. And we really like that kind of transition and getting more of a mix of that because that does help us with reducing churn over time.

And I think to your question about rate and distribution relationships, look, we are -- again, we are set up to be a complementary service and sold with our partners. We make a lot of money for our partners. 80% of our customer base is either a la carte or rev share, which means two things: One, customers are choosing Starz because the content is working; and two, we're making money for our partners. And so we've got a really good relationship with our partners there.

We are -- we do not -- we have done two rate increases in the last 2 years. We do not have any plans to do a rate increase this year or next year. We do think there's going to be a lot of new distribution platforms coming online next year that will allow us to continue to grow the top line through subscriber growth and not have to go to the rate thing to grow the business.

Our next question comes from David Karnovsky with JPMorgan.

Jeff, with Blood of my Blood, maybe can you expand a bit on how much of Outlander's audience or sub-base you think you've been able to carry over? And then maybe just more broadly, what kind of underlies your confidence that you can continue to transition audiences to these new iterations of prior franchises? Maybe you can talk a bit to your track record here.

Yes. I'm going to let Ali talk about Blood of my Blood and the track record, and then I'll jump in as well.

Yes. So thanks for the question. I think successful franchising is a real power here at Starz. Just for reference, our spin-offs, sequels, prequels typically deliver more than 85% of the original season's audience. And that compares to the industry that usually sees about half the audience go to sequels and spin-offs and prequels. So we're very good at this. The programming team and the producing teams work well together to do this and to really expand the storylines, make sure that there's a story to tell, that there's characters that the audiences want to see.

I think with Blood of my Blood, that was very intentional as a prequel. The idea is, serve the Outlander audience really well in all of the things that they're looking for, time travel, history, fantasy and of course, romance, but also make it very accessible to a new audience. You don't have to have seen Outlander to love Blood of my Blood. And that's just what we're seeing. I think with the stats that Jeff noted, we're seeing a 40% lift over the final episode of Outlander. That means new audiences are coming in for this story, and we're carrying over successfully the Outlander audience. So that's really exciting for us to see, but I think something that we are actually kind of accustomed to seeing based on this sort of machine we've built around franchising at the network.

One moment for our next question. And it comes from Matthew Harrigan with the Benchmark Company.

I think we have some sell-side group thing going because most of my questions were already asked. But I was curious on Spartacus. It's been 12 years. I mean the swords and sandals shows and movies sometimes work really well, sometimes they don't. Obviously, Peacock had a fairly racy entry in that genre fairly recently. But what gives you the confidence that there's that much awareness of it still? And how do you get it to resonate with urban and female demographic? And do you have fairly -- I don't know -- I'm sure you're not going to say you have lofty expectations for it, but is this something that you think could be a fairly long running series?

And then secondly, I know it's absurdly early, but how would you characterize the changes in your relationship with Lionsgate Television thus far, structurally, mechanically, and I guess, socially, even though it's been just literally just a few weeks out of the blocks.

It's a great question. I think -- I've been at Starz now 10 years, and I don't think there's ever a time where I travel somewhere and somebody asked me, when is Spartacus coming back. I think it's one of the network-defining shows that we have. I think everybody in the building gets asked about Spartacus all the time. And so that's one of the reasons why we decided to bring it back after 12 years is because there is such this swell of people outside the building looking for it to come back.

If you look at the research that we've done around the show, again, the existing customers and new customers show that there's an incredible desire for us to put the show on the air and see it. If you look socially since Comic-Con and I was down at Comic-Con, you could just see the intensity around the show and Steven DeKnight online right now, there is insane intensity around when it's coming back, when it's going to air. And so we feel pretty good that what we're seeing from the market outside, there's a real desire to have that show back on the air.

I think one of the things that we've done differently in this iteration of Spartacus is we have an African-American female gladiator in the show. The hope with that is for us to then be able to merge some of our existing core demos into the show. But I think the story is as traditional Spartacus as it's ever been, we've had the original crew in terms of Steven and his crew doing it. Karen Bailey on our team here who worked on the original, worked on it again. We were back in New Zealand. So it has all the the markings of a great Spartacus and so we're excited for it to come back on the air.

And then the relationship with Lionsgate. Look, I think the relationship has been great. The -- I think having some natural typical arm's length real relationship now has been good. We continue to talk about various shows. We just picked up another show with them. Obviously, Spartacus, we're doing with them. We did 18 episodes of Origins, the Power spin-off with them, and that was a really interesting, I think, collaboration to get to a price point that we got to 18 episodes. And so the relationship there has been great.

And so I think it's been -- hasn't really been much of a change. Obviously, we have a lot of business with them. We have the pay one, excited for Ballerina to come on the air, and there's still some good overlap with Lionsgate folks on the Board -- on both Boards. And so I think the relationship is as strong, if not better than it was before we separated.

I'm sure your black female gladiator will be just as hard to kill as John Wick. It sounds great on Spartacus.

My hope is she's a little more aggressive than the Baba Yaga, for sure.

And ladies and gentlemen, this concludes our Q&A session. I will turn it back to Nilay Shah for additional comments.

Thank you, operator, and thank you, everyone. Please refer to the News and Events tab under the Investor Relations section of our website for a discussion of certain non-GAAP forward-looking measures discussed on this call. Thank you.

And this concludes our conference call. Thank you all for participating. You may now disconnect.

Thank you for standing by, and welcome to the Starz Business Update Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Nilay Shah, Head of Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us for Starz Entertainment's Fiscal 2025 Fourth Quarter Business Update Call. We'll begin with opening remarks from our President and CEO, Jeffrey Hirsch; followed by remarks from our CFO, Scott MacDonald. Also joining us on the call today is Allison Hoffman, President of Starz Networks. After our opening remarks, we'll open the call for questions. The matters discussed on the call include forward-looking statements, including those regarding the performance of future fiscal years. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors.

This includes the risk factors set forth in the registration statement on Form S-4 for Starz Entertainment Corp. Starz undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. The matters discussed today will also include non-GAAP measures. The reconciliation for these and additional required information is available on the 8-K we filed this afternoon, which is available on the Starz Investor Relations website at investors.starz.com. Before I hand the call over to Jeff, I want to briefly outline our SEC reporting cadence for the remainder of the calendar year. As you know, our fiscal year 2025 ended March 31, 2025.

As a result of the complexity of the accounting for the separation and the fact that we are viewed by the SEC as a first-time filer, we will not be required to file our 10-K for fiscal 2025 until late June. We expect to file our 10-Q for the June quarter in August. While we are not in a position to publish a full earnings release and presentation, given that certain of our financial information is included in the 10-K for Lionsgate, we are disclosing today certain key metrics that drove our business in the March quarter. Second, starting with our June quarter, Starz is going to shift its fiscal year schedule to align with a calendar year time line. Thus, our June quarter results will function as our second quarter of 2025, and we will file a transitional 10-K for calendar 2025 in the first quarter of 2026. Finally, we are still finalizing our audit for fiscal 2025, including the balance sheet, cash flow statement and below-the-line income statement items.

Thus, we will not be disclosing cash flow metrics today. Such metrics will be included with our audited financials that will be filed in late June. I'll now turn the call over to Jeff.

Thank you, Nilay. Thank you, everyone, for joining us today for our first conference call as a stand-alone public company. The separation had some twists and turns, and we appreciate all of the investors and analysts that remained patient during the process. Before getting into the highlights from the quarter, I want to briefly discuss why we believe Starz is a highly investable business. Based on the fundamentals of the business, we are uniquely situated with a strong balance sheet that looks a lot different than our peers. We believe we should be trading significantly higher than the current mid-4x adjusted OIBDA multiple. The Starz business is generating approximately $1.4 billion in revenue, is data-driven, primarily digital, subscription-based with no linear advertising exposure and deliver approximately $200 million of adjusted OIBDA each year, underpinned by owned and scalable tech.

And looking forward, the business is poised to expand margins from 15% to 20%, convert 70% of adjusted OIBDA into unlevered free cash flow with a goal to delever to around 2.5x as quickly as possible. With 20 million subscribers in the U.S. and Canada focused on 2 very valuable core demos of women and underrepresented audiences and a TAM of about $80 million, we see an opportunity to grow our current $1.4 billion in revenue, of which 70% is currently digital. We've made the transition from linear to digital faster than any other linear network while remaining profitable. Throughout this transformation, our revenue has proven to be very durable as we've replaced linear revenue with digital revenue. Currently, we sit at approximately 15% profit margin with about $200 million of adjusted OIBDA. The business should convert approximately 70% of this profit to unlevered free cash flow annually.

As we unwind some of the structural costs from separation and assume responsibility for managing our own cash flow, we expect to be at the 70% conversion level in calendar '26. As I previously stated, we see a clear path to getting to a 20% margin business by the end of calendar '28, driven by changes that we can control. Greenlighting our own IP will restore ownership economics to the business, giving us greater cost control and unlocking new revenue streams. Turning to our performance in the quarter. We are pleased to report strong operating and financial results. We had a strong quarter of OTT subscriber growth, increasing our total subscriber base in the U.S. by almost 2%. The strong sub growth in the quarter was driven by the premier of "Raising Kanan" Season 4.

Customer acquisition for the Premier Week was 50% and 30% higher than seasons 2 and 3, respectively. North America revenue was down both year-over-year and sequentially, reflecting the impact of a strike-infected year that generated only 3 tentpole series. The limited content resulted in pressure on subscribers over the past few quarters, which ultimately impacted revenue. Despite a very difficult year marked by strikes and a limited slate, we are still able to manage through the pressures of the business to deliver $92 million of adjusted OIBDA in the quarter by achieving our goal of $200 million for the year.

With the strike behind us and one of our strongest slates, we are confident that we will continue to drive OTT subscriber growth in calendar '25, and we expect to return to positive revenue growth sequentially in quarters 3 and 4 of this year, paving the way to positive year-over-year revenue growth in calendar '26. As we move into the year, our slate of 5 big tentpoles, including Outlander Prequel Blood of my Blood, the return of Spartacus after 12 years, a strong lineup of proven hits like BMF and our power spin-offs, coupled with a strong lineup of output titles from Lionsgate and Universal, gives us great confidence in our subscriber and revenue trajectory. Before I turn it over to Scott, I want to highlight one key priority for Starz.

With no incremental overhead cost to the business, we will commence on rebuilding our library and reclaim ownership economics, enhance cost efficiency and create new revenue streams. we've officially opened writers rooms for several series that Starz will own the IP. I expect this will be a critical and accretive change to our business with the goal of almost half the calendar '27 slate being owned and controlled by Starz. Now Scott will take you through the key metrics and financial results. Scott?

Thanks, Jeff, and good afternoon, everyone. I'll briefly discuss the March quarterly metrics and financial information that we disclosed in our filing this afternoon for our Starz Networks business segment. Starz Networks includes our operations in the United States and Canada. I will also provide an update on our balance sheet. As a reminder, the results reflected in our International business segment reflect the financial results of Lionsgate Play and minor amounts related to the final closeout of our international operations that were previously exited. Starz Networks ended the quarter with 12.3 million U.S. OTT subscribers, which represented sequential growth of 530,000.

We ended the quarter with 18 million total U.S. subscribers, representing a quarter-over-quarter increase of 320,000. U.S. subscriber growth was driven by "Raising Kanan" Season 4, which debuted late in Q4. Including Canada, we ended the quarter with 19.6 million total North American subscribers, reflecting a sequential decrease of 330,000 subscribers. This decrease was primarily due to a carriers dispute in Canada that led to the removal of a group of channels, including the Starz Linear branded channel from a distributor's programming packages. The dispute remains unresolved and it's uncertain whether the Starz channel will be reinstated. However, the affected linear Canadian subscribers represent extremely low ARPU, resulting in an immaterial impact on both revenue and adjusted OIBDA.

Starz Networks quarterly revenue was $326.2 million and adjusted OIBDA was $92 million. Revenue was down 6.8% year-over-year due to lower total subscribers. The year-over-year subscriber decline was due to fewer tentpole original series in fiscal year '25 and continued pressure on linear subscribers. The drag from lower subscribers in prior quarters is expected to keep revenue growth negative on a year-over-year basis for calendar '25. However, on a sequential basis, we expect revenue for the June quarter to be generally in line with the March quarter, followed by growth in Q3 and Q4. Adjusted OIBDA of $92 million was up $42.6 million year-over-year due to lower programming amortization and lower advertising and marketing expenses. During Q4, we recorded a restructuring charge of $177.4 million.

This charge was primarily related to the reassessment of our content portfolio to better align Starz to operate as a stand-alone company. Programming amortization was favorably impacted by this restructuring charge and the timing of our original series premieres. Advertising and marketing expenses were also favorably impacted by the timing of our original series premieres. Additionally, we had lower spend on OTT direct response marketing due to operational efficiencies. As Jeff noted in his remarks, we continue to forecast that Starz will achieve approximately $200 million of adjusted OIBDA for calendar year '25. Moving on to the balance sheet. We ended the quarter with $615.5 million of total net debt, consisting of $715 million of senior unsecured notes, $17.8 million of cash and an $81.7 million intercompany receivable from Lionsgate, which was settled at separation.

On a trailing 12-month basis, our total leverage was 3.1x. At separation on May 6, our total net debt was $559.1 million, consisting of $300 million of our new Term Loan A, $325.1 million of the senior unsecured notes that remain with Starz and $66 million of cash. Additionally, at separation, we had no borrowings outstanding under our new $150 million revolving credit facility. Please note that our total net debt at separation was an intra-quarter figure, and we expect fluctuations in our net leverage throughout the remainder of the year. We expect to exit this year at a similar leverage level as the March 31 period or 3.1x, and we will begin deleveraging from that level during calendar '26. Now I'd like to turn the call back over to Nilay for Q&A. Nilay?

Thanks, Scott. Operator, could we open up the call for Q&A?

And our first question for today comes from the line of [Indiscernible] Greenfield from LightShed Partners.

I mean I know that you're still early in this process of spinning off and separating from Lionsgate. But I guess, Jeff, just the obvious question is, I remember back to when you were a separate public company before Lionsgate bought you, then controlled by -- or a division of Lionsgate and now separate again. What is being on your own? Like how should we think of -- let's call this Starz 3.0. What's different about 3.0? Like what will you be able to do as a stand-alone public company that you weren't able to do within Lionsgate? Like how will the next couple of years be different than what we've seen over the last several years?

Thanks for the question, Rich. Thanks for coming today. Look, I think if you compare Starz 1.0 to where we are today, 3.0, I don't even think you can make the comparison at that point when I started in 2015, we're 100% linear. We're a wholesale business. We had no consumer data, didn't control any customers. Today, where 70% of our revenue is digital. 80% of all of our customers are a la carte or rev share, which means, one, we're making money for our partners; two, customers are picking it for the content. So we know the content is working. And so it's a fundamentally different business than it was pre- Lionsgate back in 2015 and '16. I think as part of Lionsgate, we were obviously a network and a studio together. There were a lot of decisions that were made for the overall health of the business.

And when you had a studio business that was trading at 11x or 12x and a network business trading at 3x, a lot of the decisions were made were to put dollar of profit out of the bigger multiple business, which was the right decision to make at the time. And so that put a lot of pressure on the cost structure of our business. And so that's one thing as a separate company, we'll start to unwind that pressure of cost on the content side and really start to stand up our IP factory again and start to build our own library and take real control of the cost side of the business. I also think being owned by a studio, there was a lot of decisions in terms of resources around buying library and stuff that was really focused on the studio business. And so as we separate out and become a stand-alone one, we'll be able to solely focus on our business. I think Lionsgate will be able to do the same.

I think that will be healthy. And so it will be a very simple business that we'll be able to focus on in execution. We'll be able to get back up to 20% margin by putting ownership back on the network. And I think we all have a very strong balance sheet with leverage in a really good place that we can actually go out and look to kind of scale our business with the focus on women and underrepresented audiences.

Is there different forms of content you imagine creating that wasn't something that Lionsgate wanted to do? Like will we see a different variety or diversification of content?

I think we're going to stick to what -- stick to our 2 core demos. We think they're very valuable. We think it's a very -- if you remember back in the linear days, we were always a complementary service. We think we followed the customer from the linear side to the digital side. And so we've kept that same model on the digital side as a complementary service that is very focused on 2 very valuable demos that makes us a very good bundling partner to all. And so I think you'll see us continue to lean into that and scale that and just stay focused.

And our next question comes from the line of David Joyce from Seaport.

I have a couple of questions. How much do you think the U.S. over-the-top growth came from new bundling strategies with third parties? And I was just wondering why the revenue came in lighter than expected. How much of that was driven by the Canadian dispute? Or is there some other factor in that?

So I think the majority of the subscriber growth that we saw in the quarter came in from the Premier Raising Kanan that came on the last 3 weeks of the quarter. We did have great success with the Max Starz bundle on Amazon and the BET Starz bundle on Amazon, but the strength of subscribers in the quarter was really driven by Raising Kanan that came in late in the quarter. In terms of revenue for the quarter, you really had the effect of -- the carryover effect of a strike-affected year from last year where we had a tough sub year that really kind of built on itself. We had -- the December quarter had a lot of holiday roll-off in the first part of this quarter in the first month. We had then the Premier of Kanan late in the quarter, so you didn't get a full quarter of revenue from that Premier.

So when you put all those together, you have a little bit pressure on revenue. But again, as we talked about, we think we'll see revenue growth sequentially in quarters 3 and 4 and a strong revenue year in '26.

And if I could, one more question. What was the mix of consumer subscriber engagement on your originals versus library content? And if it's possible, how we can think about the library content engagement from Lionsgate versus third parties like Sony, Universal and so forth?

Yes. So we have -- the portfolio that we have is a mix of big originals that are really surrounded by the Lionsgate Pay 1 and the Universal Pay 2 and then library from everybody else. I think what you see in terms of just overall the business kind of in terms of first title streams, which is a proxy for acquisition, about 60% of that comes from the originals, maybe about 55% from the originals and the balance comes from the big titles and movies. So movies are very important. We're very lucky to have extended the Lionsgate Pay 1 out an extra year on separation. So we have those big movies for a long period of time. Flight Risk did very well for us this past weekend. We're excited about that. We're excited about Ballerina coming to the service. We saw a great success with John Wick when it came on.

So we're excited there. And so the better those movies do for us, the better it is for the service. So it's a combination of all of that kind of portfolio of content working well together. But we think we have a really good mix between Lionsgate, Universal and our originals. And then we have Sony and Disney and the Pay 2 and 3 from the old Pay 1 deal. So we think we've got a great mix of movies, coupled with our big originals to continue to show great strength in OTT growth this year.

And our next question comes from the line of Brent Penter from Raymond James.

First one for me. Can you talk a little bit about the cadence of the shift to owned IP? I saw you made some announcements of a few shows in development. So over what time frame should that shift happen for those 8 to 10 originals you have? And then can you put some numbers around the cost savings you get for each show that you kind of build with your own IP versus third party?

Great question, and thanks for having us in Orlando. great conference. So look, as I said in my prepared remarks, we are going to start to rebuild back the IP library, and we've commenced that with opening 3 rooms of shows that we're really excited about that we'll own. It takes a little while from development to getting shows on air.

There's a lot of tough work that has to go through the creative process to get these shows to be performers that we've seen with the likes of the Power franchises and Outlander. And so it takes a bit of time. We think that half of the calendar '27 slate will be Starz owned shows. And then as you move forward, we will always have great content with our partners at Lionsgate around the Power series. We have Outlander with Sony, but we believe that coming into '27, half the slate will be ours, and then we'll continue to add into that as we go. if you think about the aging of shows, new shows are cheaper than older shows. If you think about kind of just round numbers, 40 hours of television, you could think somewhere between $1 million to $2 million per hour of savings around that, plus we can have international sales that can net that budget down.

And so you can see on scale, when you get to the point -- and again, these are just round numbers. These aren't actual numbers. But when you get to the point on scale, you can see there's large content savings by controlling your IP and controlling the ability to control the cost of the first season and then add sales into it from the international sales. So we think there's a real clear line of path to get to that 20% margin by calendar '28.

Got it. And those are some helpful numbers. And then -- based on the EBITDA and free cash flow conversion expectations you just gave, leverage should come down to the 2.5 level and below that pretty quickly. So once you get there, how are you thinking about capital allocation and the opportunity to potentially return capital via buybacks or dividends?

I think right now, we're really just focused on getting stabilized, getting separated, unwinding some of the transactional constraints that we have as part of separation and getting down that 2.5x. At that point, I think we'll make an assessment whether we actually take some of that and continue to expand the content portfolio. We've been pretty successful in launching franchises and spin-offs and prequels that drive subscriber growth. And we think there's a lot of opportunity in the U.S. to continue to grow the business. But right now, we're really laser-focused on kind of delevering down to 2.5x, and that's our focus.

And our next question comes from the line of Thomas Yeh from Morgan Stanley.

Just a quick follow-up on the owned slate strategy and putting a finer point on how that translates into your cash content spending needs. I think you're running at close to $800 million of cash spend a year over the last 2. What's the right level of spending on content when we reach a more steady run rate on the owned slate mix? And how much working capital drag should we be expecting in the interim in the context of reaching that 70% free cash flow conversion?

Thomas, thanks for the question. This is Scott. What I would say is we expect that the cash spend to start dropping here, again, as we go through this the aging of the original slate. So what we are targeting would be about a $700 million of spend in calendar '26. Our ultimate goal would be about $650 million. To achieve that, as Jeff mentioned, the creative process does take a period of time. So we think we would get there over the next couple of years.

Okay. That's helpful. And Jeff, you've talked historically about consolidation opportunities in the space. What makes sense strategically for you? And what's the best way to think about it now that you're a stand-alone asset that has the flexibility and the cash balance to potentially go out and do something?

Thanks, Thomas. I'm not going to spend -- get into a lot of detail on any M&A at this point. But I do think we have built a really unique and special business, especially the back end, as I mentioned in my prepared remarks, we've got a phenomenal tech back end with a great data stack, and the app has continued to be one of the highest-rated apps in the business. It allows us flexibility to go build and diversify our revenue stream around ad-supported content, not just the Starz SVOD content. And so we do think there's opportunities for us in terms of partnerships with other brands that are kind of marooned on the linear side that would like to get into the digital side to do whether it's a commercial deal and a commercial arrangement or what have you, but to kind of bring together these brands that are focused on women and underrepresented audiences with different type of content and kind of grow the business together that way.

And what that looks like whether it's commercial or a different arrangement, we're just not going to discuss that at this time.

And our next question comes from the line of Barton Crockett from Rosenblatt.

I was just kind of curious about seeing if you can help us kind of understand what happens with your spend on content from the now separated Lion. I think they reported for the year ending March fiscal $620 million of revenue from Starz, which I assume is your expense. If you could give us some sense of how that's breaking down and how you see that trending that would help maybe kind of understand how you see the overall kind of flow of programming cost.

So yes, I think there's really 2 sides to the relationship with Lionsgate will continue for a long period of time. One is the Pay 1 that we talked about, and that's a really big component of the dollars that go to Lionsgate. Very, very powerful slate that works great for our consumers. Like I said, I think Ballerina is really exciting. We're excited to get Michael when it comes to the service. I think the Hunger Games franchise is huge. These movies work incredibly well for us and drive acquisition on scale. And so we're very excited that we were able to extend that deal out an extra year on separation. So that's the biggest component, I believe, of dollars. And then there's obviously the originals.

We've been very lucky to have -- to work closely with Kevin and his team to launch all the franchises around power and shows like P-Valley and work together on that. And so we've announced that there's a power spin-off coming. We're excited about that one. I think the fan base will really be excited about that. So that's a big dollar to Lionsgate there. There will be a second one coming we haven't announced yet that we're really excited about as well. BMF, there's 2 spin-offs there as well. So we're going to be in business on scale with Lionsgate for a long period of time, and we're excited that we've created a great shorthand over the last 9 years. We think that will continue, and it will drive both of our businesses in a very positive way.

But you expect that $620 to be flattish or trending up or down as you go through your transition to more original content?

I think -- well, obviously, as we start to put more of our own content on the air, obviously, and we own our own content, more of our dollars will go to us. But again, I think the majority of that content is in the Pay 1, and so I expect it to be kind of flattish.

Okay. All right. That's helpful. And then just in terms of the originals, just to understand functionally. I mean, you guys have separated yourselves from the studio and yet you're leaning into doing studio things like creating originals. Is -- how much of an impediment is not owning the studio apparatus for that? I mean how much do you have to duplicate to really make this happen? Kind of curious if you could flesh that out.

Yes. I mean, look, as I said in my prepared remarks, there's really no incremental cost to us. We've always had a development group. We've got 40 to 50 projects in development today. The nice thing about a 3-year separation process is we had a lot of time to plan for the fact that we'd separate and start to put -- build our IP library back up again. And so we've had a 20-person team doing development pre-Lionsgate that continued during Lionsgate. A lot of the content that you see on the air was actually originally developed at Starz and then Lionsgate took over the production of it. And so we've been working back and forth with them. We have an intercompany deal, a production services deal that's in place.

And again, because of the shorthand, it's very easy and [know] each other to get some of the shows that we own that will be then -- could be produced by Lionsgate. So we think that relationship will continue. But there really -- there isn't really any truly incremental cost for us to continue to develop Greenlight produce our shows as it was pre- Lionsgate and during Lionsgate.

Okay. And then I'm sorry, I'm going to ask one other just final question here. The economy has been obviously front and center in terms of people's questions, and you guys don't have ad revenue, as you point out, so that lessens one exposure. But to what degree is the macro -- do you notice that you think, generally in your business? And specifically, are you seeing anything right now?

So we aren't seeing anything right now. I mean, I think, again, as we're a consumer-focused business, and we obviously have 20 million subscribers, and we'd like to continue to get more. And if consumers -- their pocket book starts to feel pinched because of the macro issues in the marketplace, that's always a concern of ours. But what we have found historically that when things get tough for consumers, they tend to stay home and watch entertainment at home. And because we are front and center in the home, we feel like we are -- we sometimes can be the the answer to some of that entertainment for the consumer in tough economic times. So while we haven't seen it, we feel like we're in a pretty good place.

[Operator Instructions] Our next question comes from the line of Matthew Harrington from the Benchmark Company.

I think one of the nice attributes of the separation is I know you're never in a position of state of stasis to be a little redundant, but it really enables you to rethink everything. On the marketing side, you talked about $80 million TAM. When you look at some of the more sophisticated marketing tools that are available where you can get more attribution, and I know you do on marketing activity. Obviously, a lot of people on the call are aware how heavily you market on the NBA games on reaching urban audiences.

But is there any sort of ongoing rethink on some of the innovations on marketing and how you can better access that very large TAM that you're distinctly well positioned to access? And then secondly, I have to ask this, what's your reaction to Google and Veo 3? I mean, is it kind of a sophisticated fun toy? Or does it have any implications for the full load creative producers such as yourself over a period of time? Because it looks like you could do some -- people can do some pretty interesting things with that. I'm sure you're well aware of the possibilities that would attach to Starz.

So look, I think we're always trying to test every new kind of marketing tool or ability. The nice thing about having our own -- owning the customer, having our own data stack and having a team that's really kind of flexible. We're testing in the market every day. We're going to be testing different points of view, different vehicles. We're testing with TikTok. We're testing with Facebook, Instagram, we're testing with outdoor. I mean we have various sundry, different things that we're doing across all different vehicles, whether it's the core subscriber that we look at or somebody tangentially around that has a different way in. We're always looking and testing, and I think we're always looking to find the most efficient way to acquire customers.

We've been very lucky that we've always been able to acquire customers in a profitable way and drive lifetime value and reduce churn. And that really is because we're constantly testing every day. So as new tools come up, we have them in the lab, we're playing with them, we're trying with them, and we're always trying to be more efficient. I think our SAC has come down almost 50% over the last couple of years because of our ability to just find the consumers that we want. We've also been able to pivot the way we target based on as a complementary service, wanting to be a partner of all. We've actually used some of the success of our broad-based streaming partners to use their subscriber base to target them as add-ons.

And so we've been looking at different ways, and I think our group has been pretty agile in terms of using technology to kind of grow the subscriber base. [Indiscernible], do you want to?

Yes. I would just say also, we're a focused service. We're really focused again on key cohorts, women and underrepresented audiences. So you really sort of develop that machine over time, and you're able to target that audience efficiently and go back to them again and again. So as Jeff said, whether it's upper funnel marketing or performance marketing, we have a relationship with these audiences, and we're able to sort of speak to them and bring them back year-over-year at a very efficient rate.

Yes. And to your second question, I think there's really 2 sides of the kind of advanced computing stuff that we're seeing in the marketplace today. Obviously, on the content side, reducing content cost is what we're all trying to achieve. But we obviously will be a fast follower and a lot of this looking for our studio partners to help us really understand what we can and can't do in a way that is respectful to the creative process and respectful to the talent that we have in the community and be very cognizant of that always.

I think the other side that I get more excited about is the acquisition, churn, retention, content scheduling side that allows us to go into the millions and millions of data sets that we've had over the last 7 years, building our subscription business and really trying to find more efficient and better ways to acquire customers, acquire content that our customers want to watch, schedule that content in a way that makes the customer stickier and ultimately create an increased lifetime value and take cost out of the front end of the business. And so that's the place that I think we're really focused on today. On the content side, I think we'll look for our studio partners to help us understand what are the possibilities there.

And our final question for today comes from the line of Alan Gould from Loop Capital.

A few questions here on keeping subs and minimizing churn. One, how many series originals do you need a year to keep the subscribers engaged? Two, did you say $1 million to $2 million per hour cost because that just seems really low to me. And then three, I know you're doing some bundling with other services. How much does bundling help reduce churn?

Yes. It's Allison. I can take the last question first. We have seen the promise of bundling really pay off in the business. We are continuing to bundle. I think we're sort of leading the industry in bundling because, as Jeff mentioned, we've really been built as a differentiated complementary service to all of the broad-based streamers. So north of 20% retention is what we're seeing on a bundled customer on the platforms where we bundle. We're also seeing the benefit of net new customers coming in because remember, you're putting your programming slates together, and so you're able to really juice gross adds when you do that. And as we measure it, bundles are accretive to revenue as well. So they're really extending lifetime value and they are driving incremental revenue. But definitely, the benefit of retention is showing up in the business for us.

Yes. And to your other 2 questions, I think, Alan, the $1 million to $2 million was a cost savings per hour. We're sitting somewhere around average cost per hour around $7 million today. The last time the business was over $300 million of EBITDA, we were around $5 million, $5.5 million. And so as you turn the slate over and go from more season series, shows -- seasons to new, you can pull a lot of cost out of the business just by resetting the economics of the season 1 versus a season 4 or season 5. And also, you can net some of that cost down by selling internationally. That international component, we didn't get the benefit of it by not having ownership. So those 2 components really help you take that cost out of the business.

In terms of the number of shows, we think it's somewhere between 8 and 10 shows a year, really allows us to have a consistent flow of content for the 2 core demos that have no gaps that allows us to really move customers from one show to the next to the next, extend lifetime value without having going back into the marketplace and competing for customers on the front end because we're keeping the same customer longer. And that number will change depending on the mix of owned shows, licensed shows and acquisitions. There's abilities like we did with Sweet Tea and Mary and George to acquire great content at a very reasonable cost to add more tail shows around our big originals. So as we look into the marketplace, we'll be very opportunistic about acquisitions versus license versus our own as well.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Nilay Shah for any further remarks.

Thanks, everyone. Please refer to the News and Events tab under the Investor Relations section of our website for a discussion of certain non-GAAP forward-looking measures discussed on this call.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.