All right, you ready to go? I am ready to go. Awesome. Are we all set back there? All right, great. All right, I think we can go ahead and get started here. Thanks, everybody, for joining us today. For those of you who don't know me, my name is Vik Kesavabhotla. I'm one of our Senior Research Analysts here at Baird. Very excited to be hosting the conference this week, and right now it's my pleasure to welcome Lionsgate to the stage. Joining me from the company is Adam Fogelson, the Chairman of the company's Motion Picture Group. We have about 30 minutes scheduled for this conversation, a bunch of topics to get through and questions to go through, so we'll try to cover as much as we can, and we'll go on from there. So Adam, thank you so much for joining us today. We appreciate you being here. Thank you for having me. Maybe just to start off, for the benefit of those who aren't as familiar with Lionsgate, if you could just start off with a brief overview of the company and how it's structured and, we'll dive in from there. Sure. Lionsgate is a global media company. There are three primary business segments. The Motion Picture Group, which I run, and the Television Production arm. Those two things make up sort of Lionsgate Studios, and then STARZ, our streaming platform, is the third line of business. The studio side of the business and STARZ intend to separate over the course of this year, but those are the three primary business segments for Lionsgate. Okay, and maybe could you talk more about your role at the organization and also some of your, your history and background as well? Sure. So I run the Motion Picture Group, which basically means figuring out what content we should either produce or acquire, how and when we should market and distribute it, on which platforms, on which dates. I obviously rely on an extraordinary team, many of whom have been with me at various places over the course of my career. I started as a marketer, which is unusual for someone who ends up in a chair role at a studio. I was at Universal for many years and ran Universal for four years. Yep. Decided I was really interested in exploring whether there was a completely different way of thinking about the structure of a motion picture company outside of how the legacies operate and went to a startup and spent eight years at a startup company. Yep. Then came to Lionsgate as Vice Chair almost two years ago, and took over in the Chair role earlier this year. Okay. I should have asked this earlier, too, but just as far as some of the key IP and key franchises that Lionsgate is known for, what are some of the ones that the audience might recognize? I mean, The Hunger Games has obviously been a giant part of the legacy of Lionsgate, and we had an extraordinary success with a prequel last year, Ballad of Songbirds and Snakes. Yeah. It's a very vibrant franchise. Twilight was a huge part of the foundation of the company. The John Wick franchise is enjoying meteoric success, so the fourth movie outgrossing the prior three is a very unusual phenomenon. We're seeing a ton of interest from the fan base in wanting to know more and learn more about that world. So we're excited about that. Now You See Me was an exciting franchise that we're going to create a new installment and effectively also reboot with a younger cast. And then a bunch of other things that have been talked about. We are developing Monopoly, and Margot Robbie and her production team have come in to work with us on that. Naruto, one of the most popular mangas in the world, Destin Daniel Cretton, one of a great filmmaker, is developing that for us. We still think there's a lot of life to be had in revisiting the world of Dirty Dancing, and we're having conversations about how that will go. So a lot of interesting opportunities that are in front of us, and franchises that frankly are in a very vibrant place right now. Yep. There are times when you, for understandable reasons, will watch a studio milk the final juice out of a stone that is ready to be put down. In this case, we've got franchises the audience is telling us they're really excited to learn more about, and so it's one of the many reasons why I was excited to join the company. Yeah, and maybe just kind of pulling on that thread a little more, on that, that last comment you made. So you, you joined the company in 2022, earlier this year, kind of were announced as the new Chairman of the Motion Picture Group. One of the comments I think you made at the time was that, you know, Lionsgate really unified a couple of the, the key threads of your career, right? The scale and the talent of a large studio, but also kind of the resourceful spirit of, of a startup. Could you just talk about that a little more? I mean, what attracted you to join Lionsgate, and then also kind of what stands out to you as kind of differentiating the studio from, you know, its peers? Well, look, there is no question that having a vibrant pool of IP from which to draw can be a very compelling, exciting proposition, and as I said before, I believed that Lionsgate was in an interesting place where the franchises. Last year, last calendar year, John Wick and Hunger Games and Saw all did things that are really unusual in the franchise space. Franchises that you would think may be starting to crest. In the case of Hunger Games, creating a prequel with no returning cast members and a pretty significant genre shift, and making it at the right price with the right people, completely satisfying the audience and opening up the opportunity if Suzanne Collins is inspired to tell more stories. Saw, creating a Saw movie that actually was focused on character, not just the extraordinary traps that have enthralled people for a long time. So I was excited to be able to play with some vibrant IP. I was excited to be able to work with the vast resources that the company has. But as I said to you earlier, one of the things that was very interesting to me at Universal, and I really do believe the Legacy studios do a great job at the businesses that they all set out to do. But at the end of the day, I was intrigued with the question of: Is there a significantly more efficient, more cost-conscious way to operate a movie studio that is not reliant just on hits? The reality is, Lionsgate is operating its motion picture overhead at a micro fraction of the cost of what it takes to run any of the other Legacy studios. Hundreds and hundreds and hundreds and hundreds and hundreds of millions of dollars less every year to run the business. We are not directly distributing our content everywhere around the world. We theatrically distribute in the United States, the U.K., and Latin America, but we license our content to international distributors in other parts of the world. What that does, not only to the overhead, which is only a small part of the savings in overhead, but to the marketing costs, is significant because we're not on the hook for P&A marketing costs in the territories where we're not directly distributing. We have radically rethought what it takes to market a film in the United States. Our marketing spends are 50% or less what the traditional studios are spending to achieve the exact same results. It doesn't mean all the movies work. Most of them, I will tell you, over the last 18 months have worked, but we are just operating in a much more entrepreneurial environment, and we have figured out how to create a relatively reliable business that isn't hit-dependent, and that, for me, was critical. It's lovely when you can have breakout hits beyond what anyone was expecting. It's hard to craft a business plan around that. We have crafted a business plan. The last four films we've released, a prequel to a horror film I got to work on at Universal called The Strangers: Chapter One, a faith film, we're pretty big in the faith space, called Unsung Heroes, a horror film that we made in conjunction with Jason Blum called Imaginary, and a Mark Wahlberg film. Those four films all performed between $20 million and $40 million at the domestic box office. Yeah. Those four films are gonna generate close to a 50% return on invested capital. We have lost money on one of our last 16 films that were released wide in theaters. That is a completely unheard of metric in Hollywood, where it is presumed that you may make money on 25%, 30%, 35% of your films and hope that the upside in massive success covers the downside in losses, and also can then make up for the fact that the overhead it takes to run a legacy studio is massive. So we're just playing a different game, and at this point in my career, the excitement of how do you make John Wick movies and Hunger Games movies, and as big as they can be, global juggernauts, but still be able to create a reliable business on small and mid-budget films that don't always attract the sexiest headlines- Yeah. -but create a great business opportunity for the company. Yeah. So I want to dive into a few of the different kind of topics you mentioned there in that answer, but maybe a good way to frame to start is, you guys just reported kind of fiscal 2024 results. I think the Motion Picture Group, in particular, had a 10-year high on operating profit. I think you talked about some of the factors that led to that in your previous answers. Maybe if you can kind of highlight the few things that kind of drove that performance, but also, you know, how sustainable you think kind of that operating margin is going forward from where you are right now. Yeah, look, we certainly had a couple of high-profile titles that contributed to the financial success last year. While John Wick was released in the prior fiscal year, the majority of its revenue came in last fiscal year. As I said, Hunger Games and- Yeah. ... and Saw were also significant contributors. But the reality, and if you take what I just said, which is we've lost money on one of the last 16 films we've released, you can assume that our absolute commitment to maintaining the most careful overhead structure imaginable. You know, you can't just say: "I'm gonna reduce marketing costs by 50%," and it happens. It requires a lot of time and attention, and a lot of really smart people, and a courageous company that's willing to stand behind the people making those decisions. And I will just point out, even if we were able to do what we have done and reduce marketing costs by that much, we work in a talent business. None of it matters if you're not creating great content, and that means great content creators have to trust the company they're working with. If we were reducing marketing costs, and our talent partners did not feel that they were getting every bit the same level of support that they were getting from other studios, they would just choose to make movies in other places. When you look at the lineup of people, both in front of and behind the camera, who are trusting us with their properties, large and small, I think it is a testament to the fact that this is not just an intellectual exercise, and it's not just something that's good for the bottom line in the short term, but in terms of long-term growing the business, it's an exceptional thing that we're doing. So our library is throwing off a ton of, a ton of revenue, and the opportunities for great content in the global marketplace continue to be spectacular. While we've seen packaged media, you know, continue to dwindle, lots of other platforms and lots of, lots of other buyers are making up for that. Yeah. So I think all of those things together have contributed to the results that you saw. And I think, look, margin is a little more complicated only because it tends to fluctuate pretty significantly depending on content spend and P&A spend. Yeah. If you have significant uptick in content or a bunch of films released in a short period of time, all of that money goes out immediately. The revenue comes back over a period of years, so you may see some fluctuation, but pre-COVID, we were operating roughly 10% margins, and the last few years we've been operating at roughly 20% margins. I wouldn't look quarter to quarter, but I would say over time, I'm very confident that we can continue to meet or exceed those goals. Yeah. So, one of the things you talked about was kind of the variety of the types of films that you're able to be successful with. You know, realizing every project is unique, I'm curious, kind of, in your experience, how you'd compare the ROI on some of the mid-sized projects versus kind of the big budget films. And when you think about curating the pipeline, how you kind of strike that balance in terms of the variety that you're putting together? Well, one of the conversations that we have with the team all the time, it may or may not be shocking to know how few projects come across one's desk that you genuinely believe have a chance to be creatively great. So while it is important for planning purposes to have some sense of what you're going to do in any given year, you also have to be reliant upon what kind of content is being created out in the world and what you can get your hands on. I think that we are in a place, because of the health of the franchises, the existing franchises that I mentioned, and some of the new ones that we've brought on and are in the process of developing. I think that we are aiming for and expecting probably three to four of the larger tentpole films a year. And then the rest of the slate, which is another eight to 10 non-franchise tentpole films, will be a combination of the best films, regardless of genre, that meet the criteria that we use to determine whether a film gets a green light. And it really is i t's not based on, it's not based on the cost of the film in a vacuum. We look to see whether or not a film has the creative elements that we believe. It's really hard to make a great movie, not because everyone isn't always trying their best, but because one of the things I say to people when I'm talking to them and trying to explain it is, if I handed out a script to everyone in this room, and everyone had the desire to read it. Even if we came back tomorrow, and I said, "Who loved the script?" And everyone raised their hand, and I said, "Who thinks we should make this?" And everyone raised their hand. The truth is that the movie every one of you would have made in your brain, you reading the exact same pages, is completely different. How you read each line of dialogue, what you imagined it looked like, what you imagined it sounded like, if you're capable of thinking in musical terms, what the score would be. And so how you align 100 people who are all in the process of making a movie to make a, the same film, I think frequently contributes to the creative challenges. But can a film be creatively great? We insist that the studio and the filmmaking team are aligned not only on what film we're trying to make, but on how that film will be sold when it comes to market, and that is an unusual process in Hollywood. As I said before, it's unusual for someone from a marketing background to have the privilege to be in the chair I sit in. One of the things I brought to the equation was: Is there a way, without undermining the creative talent's ability to make a great movie, to be more respectful of the business realities? And the business realities of Hollywood are that we know within 36 hours of the launch of our product, with about 90% accuracy, whether or not that product will be a financial success or not. That means you've got to motivate a critical mass of people, more on bigger films, fewer on smaller films. You have to motivate a critical mass of people to get out of their home and go to a movie theater in the first 36 hours of that product's existence, or no matter how much people like it, and no matter how much people talk about it, you will know that financial outcome. That means you have to have a marketing plan before you start, and a lot of decisions that are made by the filmmakers are impacted if you've aligned before you start on, on a marketing plan. And then lastly, it's always possible for a film to completely upend the best version of what anyone thought could happen from a business standpoint, and it is possible in a modern world for films to do significantly less than you thought was a worst-case scenario. It's not that hard if you're being intellectually honest, to build a rational high and low case. Yeah. And for us, we will not make a movie where the rational base case doesn't justify whatever the risk is in a... Even though we have not lost money on a movie in a long time, we are always being careful to make sure that we're not, you know, being susceptible to unnecessary risk. Yeah. One of the things you talked about in one of your prior answers was your approach toward distribution and international is different than what you used in the U.S. and a couple of other select countries. Maybe if you can elaborate on that a little more in terms of how you approach international markets with your films. Sure. I mean, I think the simplest way I've been, maybe it's only simple when I say it and less simple to people who hear it. But the simplest way I've been describing it, to differentiate how Lionsgate approaches this from the Legacy studios, is if we were to take what I'll call an average, this is higher than the average of our films, but if we were to take an average $50 million net budget movie, so that would be the production cost of the movie, is $50 million after tax incentives or rebates that you get from certain places that you're shooting the film. At a legacy studio, like Universal, a great studio, that I left a long time ago. At Universal, that $50 million net budget would be on the ledger, and then you would take on the global marketing and distribution costs for that film, and I think you could safely assume that's another $100 million in an average case. So you're starting at -$150 million on that net $50 million film. That same film at Lionsgate, the $50 million net budget would be offset by, on average, $30 million of licensing fees that we would be paid by the partners who are participating and distributing the film. They are taking on all of the P&A costs in their respective territories, and we are profit-sharing with them. And then we are spending $20 million-$25 million in domestic P&A against $45 million-$50 million that would be spent by a legacy studio. If you do the math, Lionsgate is starting at -$40 million, and a legacy studio is starting at -$150 million. Hmm. That radically changes the economics of what the film needs to do in this country. There are, so why doesn't everyone do it? On a movie that has to gross $200 million at the international box office, there are benefits to having directly distributed that film. You will make pennies more on the dollar in profit upside by having retained those rights globally. But clearly, we do not have a problem compensating our talent who are working on films that gross much more than that because they keep coming back to do it. So there are ways to make sure that everyone is being fairly treated in that scenario, and for the large majority of our films, it creates an incredibly appealing economic opportunity on each film we make by virtue of having that international licensing opportunity. Also, those international partners, by the way, who we are the biggest supplier of content to those international distributors. They desperately want high-quality, major studio-level content that they can have access to, and they are, I think, excited to be participating with us in this process. We work with each individual partner around the world, so we profit share once they've recouped their money. We profit share with them equally on a territory-by-territory basis. They're not crossed. If a film wildly overperforms in one territory, we are proud to work with them and be the beneficiaries of that. But significant underperformance in a different market is not something that we bear. That's a responsibility that our partner's taken on. It does create a really exciting opportunity for us to make money on movies that the rest of Hollywood probably can't or shouldn't focus on. Yeah. If you've got overhead that is as significantly, massively reduced as ours is relative to the L egacy studios, we're not just making the kinds of films that great filmmakers and great talent want to make because we love the art, although we do, or because we want to be nice people, which we do but because we have found a way to actually make great business out there. Yeah. I wanted to ask about a couple of higher-level kind of themes on the industry and kinda how you think about it as it relates to the business. Maybe one is kind of the broader transition towards streaming and the way kinda consumers take in their entertainment. How does that affect kind of the way you approach content production, whether that's the type of projects you pursue, the number of projects, and maybe there's no effect, but curious how that, how that, how you think about that influencing your approach towards the business? I think it certainly affects the type of content that you make. I think that there is a collective belief in Hollywood, which I share, that certain categories of film, I would take drama as the most significant, have lost some of their luster as a pure theatrical proposition. I think there are, in my opinion, two primary reasons for that. One is most dramas are not visually, from an audio sound standpoint or from an audience reaction standpoint, wildly more compelling on a massive screen. I think maybe equal to or greater than that is, I think streaming has done such an incredible job of extending people's experiences with dramatic characters, that people have decided if they want to invest in dramatic storylines, they'd rather do it over five seasons than over the course of two hours. So I think it is. There is a question of what are people excited to leave their house to watch on a big screen? But other than that, you know, for a little while, the economics that the streamers were offering to buy content from studios was a compelling opportunity for some to take advantage of, not something that Lionsgate did in any giant fashion. We had a couple of our films, and we still have a couple upcoming movies where we've worked with both the talent and with a platform to make a sequel or another film for that platform. But for the most part, streamers are a great buyer of our content. They are great as ancillary windows after we've released theatrically. Our primary focus in the Motion Picture Group is making movies that we believe can be creatively satisfying and successful business propositions, starting exclusively in the theatrical window. We have a multi-platform business that does 4+ times the volume of content that we do on the main slate, and it's a different proposition there, where, sometimes it may be a day-and-date release, other things like that. But, it hasn't radically changed our business. Yeah. What about just for in terms of the competitive landscape for the cost of new content production? It seems like the industry's obviously gone through some different cycles here with the pandemic, and then you had the strike last year. What are you seeing now in terms of the cost of producing new projects and how that compares to what you've seen, you know, over the past few years? Look, there are some additional costs that were the result of getting through the strike and everyone agreeing on a fair way of working going forward. But at the same time, I think technology is creating a lot of opportunities for us to continue to manage costs going forward. Yeah. I think you can be very thoughtful about what money you choose to spend, how and where, and we're not seeing any significant uptick in our production budgets to make movies that the audiences most often identified as really satisfying films. I would also say that I think that the majority of high-profile talent in Hollywood is thrilled by the opportunities that the streaming platforms have given them. But I think most talent I speak to acknowledges that it's hard to compete with the impact that a theatrically released movie has on culture. Yep. I think that for movies specifically, a lot of talent that maybe has spent more of their time making movies for streamers over the last few years, they'll continue to do it when the opportunity presents itself, but there is a real excitement about making movies for the theatrical audience. When you look at the films that we're announcing over the coming weeks and months, and you look at the talent behind them, I think you will see that we have a unique opportunity to not only provide consumers with what they want, but provide creative talent with the kinds of opportunities that they're looking for as well. Yeah. Maybe if we could spend a minute just talking about the box office, and it'd be great to get your perspective on how you'd characterize the health of the box office today, kind of what you've seen so far this year, and kind of how you're expecting trends to play out. There is certainly more volatility than there's ever been, although I don't think that that is unique to this moment. I think over the last five to 10 years, we've seen significantly more volatility than we had come to expect previously. That having been said, I think that just puts more pressure on what is the right budget to make a movie for? Yeah. The fact that that level of volatility and all the conversation about the health of the box office has not prevented the type of return on invested capital that I mentioned earlier on, I'm very comfortable from where we sit, that we can continue to be incredibly aggressive in how we choose what we're gonna put our time, attention, and money on and make good business out of it. I think as an overall industry, we have to continue to pay attention to what consumers want. I think we have to make the experience that we're giving people in movie theaters better and better. But I'm certainly not concerned as it relates to Lionsgate specifically- Yeah ... about consumers' interest in going to theaters. Yeah. When you look at the kind of the projects that have been successful, not just at Lionsgate, but across the industry, I mean, you mentioned some of the volatility, but the ones that have worked well, are there common threads that stand out to you in terms of whether it's the genre or if it's the way that they went to market? I'm curious if there's any kind of commonalities that stand out to you on kind of what's resonating in the current environment. You know, if I had a great answer to that... I'd be significantly wealthier than I am today. I certainly, my team and I have certain beliefs and philosophies that we adhere to. Yeah. But I wouldn't be presumptuous enough to share them as if it was creating some sort of lesson for everybody. I would say this: I think that consumers are a little bit more predictable than we give them credit for. I think that if you really study what types of stories people like to be told, especially in a theatrical environment, and what the commonalities are, there are times when people break all the rules and something absolutely unbelievable happens. I think that a lot of the great work that happens in motion pictures is finding a fresh, innovative way to tell the types of stories that people have historically gravitated towards. And when I look at the successes and failures that have happened in Hollywood over the last five years, I have been pleasantly surprised by certain upsides. I have been sometimes somewhat surprised by a catastrophic downside that someone has suffered. But by and large, I think the consumer's behavior is more predictable than we give them credit for. Yeah. We're coming up on a couple of minutes left here. I wanted to fit in two more things. One, you talked about this at the front, but I wanted to give you a chance to talk about it again, just what you're most excited about in the content pipeline, you know, as we look ahead and what you guys have announced so far. And then maybe if you could also wrap that into any kind of closing remarks or kind of key messages you want to leave for the audience today. I think, I think my excitement comes from. I was having a conversation earlier. I have had the opportunity, when I, when I started at Universal in, in the marketing side of the business, we were a studio that had almost no IP of any consequence, and most of what was created and thrived, and to some extent continues to thrive. I had the chance to watch how you build franchises and not tire out the audience. The American Pie franchise, the Fast & Furious franchise, the Bourne franchise, the Pitch Perfect franchise, the Despicable Me franchise. Their franchises do an amazing job of continuing to grow the audience, and I'm, I'm excited by the opportunities that we have with the franchises that we've got. When I listen to consumers talk about what they want, there's a lot of runway left for us to grow them. So that's something I'm excited about. I'm also excited by the level of engagement we're getting with talent. As I said earlier, when you look at the actors and actresses that are coming to work with us and the filmmakers that are asking to work on projects that we've got, I think it's. There's no stronger endorsement than when you're running an effective business and the creative community with all of the, with all of the rigor that we're putting into our business decisions, the fact that the creative community at the highest levels is asking to come work with us is, I think, an incredibly compelling proposition. Awesome. All right, well, that's probably a good place to wrap up. We're just about out of time here. Thank you, Adam, for joining us today. Thank you for having me. I really appreciate you being here. I appreciate it. Thanks, everyone.