Earnings call transcript: Star Buffet Q4 2025 shows revenue decline, debt focus

Star Buffet Inc. (STRZ) reported its financial results for the fourth quarter of fiscal year 2025, highlighting a 6.8% decline in revenue year-over-year, with total revenue reaching $326.2 million. Despite this decrease, the company saw a significant increase in adjusted OIBDA, which rose $42.6 million to $92 million. With a market capitalization of $275.72 million and trailing twelve-month EBITDA of $800.1 million, the company’s valuation metrics suggest it may be currently overvalued according to InvestingPro analysis. The company is focusing on reducing its leverage ratio and content spending as part of its strategic initiatives.

Key Takeaways

• Star Buffet’s Q4 2025 revenue declined by 6.8% year-over-year.
• Adjusted OIBDA increased significantly, up $42.6 million from the previous year.
• The company is targeting a leverage ratio reduction to 2.5x from the current 3.1x.
• Star Buffet plans to cut content spending from $800 million to $700 million in 2026.
• The company completed its separation from Lionsgate and incurred a restructuring charge.

Company Performance

Star Buffet has experienced a challenging quarter with a notable decline in revenue, reflecting broader industry trends and competitive pressures. However, the company managed to improve its adjusted OIBDA, indicating effective cost management and operational efficiencies. InvestingPro data shows the company maintains a GOOD overall Financial Health Score of 2.59, with particularly strong momentum metrics. The strategic shift towards reducing content spending and leveraging its own intellectual property is expected to bolster future performance. Subscribers to InvestingPro can access over 30 additional financial health indicators and expert insights in the comprehensive Pro Research Report.

Financial Highlights

• Revenue: $326.2 million, a 6.8% decline year-over-year.
• Adjusted OIBDA: $92 million, marking a $42.6 million increase from the previous year.
• Total net debt stands at $615.5 million with a leverage ratio of 3.1x.

Outlook & Guidance

Star Buffet is projecting sequential revenue growth for the third and fourth quarters of 2025 and anticipates positive year-over-year revenue growth in 2026. With a current debt-to-equity ratio of 0.91 and trading at just 0.3 times book value, the company’s deleveraging efforts are crucial. The company aims to further reduce its content spend to $650 million and continues to focus on deleveraging to a target leverage ratio of 2.5x. Analyst consensus from InvestingPro suggests potential upside, with price targets ranging from $15 to $30. The strategic focus includes expanding its owned intellectual property slate and maintaining strong content partnerships.

Executive Commentary

CEO Jeffrey Hirsch emphasized the company’s transition from linear to digital, stating, "We’ve made the transition from linear to digital faster than any other linear network while remaining profitable." He also highlighted the company’s margin goals, saying, "We see a clear path to getting to a 20% margin business by the end of calendar twenty-eight."

Risks and Challenges

• Market competition remains intense, with major streaming platforms posing significant challenges.
• The company’s high leverage ratio could impact financial flexibility.
• Economic uncertainties and potential shifts in consumer spending could affect subscriber growth.
• Content cost management remains crucial as the company navigates its spending reduction strategy.
• Dependence on digital revenue streams exposes the company to technological and market shifts.

Star Buffet’s strategic initiatives and focus on financial health are key to navigating the current market landscape. As the company continues to implement its plans, investor sentiment will likely hinge on its ability to achieve projected growth and maintain operational efficiency.

Full transcript - Star Buffet Inc (STRZ) Q1 2025:

Conference Operator: Thank you for standing by and welcome to the STARS Business Update Call. At this time, all participants are in listen only mode. After the speakers’ presentation, there will be a question and answer session. As a reminder, today’s program is being recorded. And now I’d like to introduce your host for today’s program, Neelay Shah, Head of Investor Relations.

Please go ahead.

Neelay Shah, Head of Investor Relations, STARS Entertainment: Good afternoon. Thank you for joining us for Stars Entertainment’s fiscal twenty twenty five 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 MacDowell. Also joining us on the call today is Allison Hoffman, President of Stars 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-four for Stars Entertainment Corp. Stars 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 information is available on the eight ks we filed this afternoon, which is available on the STARS Investor Relations website at investors.stars.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 twenty twenty five ended 03/31/2025. 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 ks for fiscal twenty twenty five until late June.

We expect to file our 10 Q for the June 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 ks for Lionsgate, we are disclosing today certain key metrics that drove our business in the March. Second, starting with our June, STAR is going to shift its fiscal year schedule to align with a calendar year timeline. Thus, our June results will function as our second quarter of twenty twenty five, and we will file a transitional 10 ks for calendar twenty twenty five in the first quarter of twenty twenty six. Finally, we are still finalizing our audit for fiscal twenty twenty five, 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.

Jeffrey Hirsch, President and CEO, STARS Entertainment: Thank you, Nile. Thank you, everyone, for joining us today for our first conference call as a standalone public company. The separation had some twists and turns and we appreciate all of the investors and analysts that remain 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 four times adjusted OIBDA multiple. The Starz business is generating approximately 1,400,000,000.0 in revenue, is data driven, primarily digital, subscription based with no linear advertising exposure, and deliver me approximately 200,000,000 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 two and a half times as quickly as possible. With 20,000,000 subscribers in The US and Canada focused on two very valuable core demos of women and underrepresented audiences and a TAM of about 80,000,000, we see an opportunity to grow our current 1,400,000,000.0 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 $200,000,000 of adjusted OIBDA. The business should convert approximately 70% of this profit to unleveraged 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 twenty six. As I previously stated, we see a clear path to getting to a 20% margin business by the end of calendar twenty eight, 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 Canaan season four. Customer acquisition for the premiere week was 5030% higher than seasons two and three respectively. North America revenue was down both year over year and sequentially, reflecting the impact of a strike infected year that generated only three Temple 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 $92,000,000 of adjusted OIBDA in the quarter, achieving our goal of $200,000,000 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 twenty twenty five, and we expect to return to positive revenue growth sequentially in quarters three and four of this year, paving the way to positive year over year revenue growth in calendar ’twenty six. As we move into the year, our slate of five big temples, including Outlander prequel Blood of My Blood, the return of Spartacus after twelve 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 wanna 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?

Scott MacDowell, CFO, STARS Entertainment: Thanks, Jeff, 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. Stars 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 Lions Gate play and minor amounts related to the final closeout of our international operations that were previously exited.

Stars Networks ended the quarter with 12,300,000.0 U. S. OTT subscribers, which represented sequential growth of 530,000. We ended the quarter with 18,000,000 total U. S.

Subscribers, representing a quarter over quarter increase of 320,000. U. S. Subscriber growth was driven by Raising Cane in Season four, which debuted late in Q4. Including Canada, we ended the quarter with 19,600,000 total North American subscribers, reflecting a sequential decrease of 330,000 subscribers.

This decrease was primarily due to a carriage 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 $326,200,000 and adjusted OIBDA was 92,000,000 Revenue was down 6.8% year over year due to lower total subscribers. The year over year subscriber decline was due to fewer TempPul original series in fiscal year twenty twenty five 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 twenty twenty five. However, on a sequential basis, we expect revenue for the June to be generally in line with the March followed by growth in Q3 and Q4. Adjusted OIBDA of $92,000,000 was up $42,600,000 year over year due to lower programming amortization and lower advertising and marketing expenses. During Q4, we recorded a restructuring charge of $177,400,000 This charge was primarily related to the reassessment of our content portfolio to better align STARZ to operate as a standalone 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 $200,000,000 of adjusted OIBDA for calendar year 2025. Moving on to the balance sheet. We ended the quarter with $615,500,000 of total net debt, consisting of $715,000,000 of senior unsecured notes, 17,800,000.0 of cash and an $81,700,000 intercompany receivable from Lionsgate, which was settled at separation.

On a trailing twelve month basis, our total leverage was 3.1 times. At separation on May 6, our total net debt was $559,100,000 consisting of $300,000,000 of our new term loan A, 3 and 20 5 point 1 million of the senior unsecured notes that remained with STARZ and $66,000,000 of cash. Additionally, at separation, we had no borrowings outstanding under our new $150,000,000 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 3.1 times and we will begin deleveraging from that level during calendar twenty twenty six.

Now I’d like to turn the call back over to Nile for Q and A. Nile?

Neelay Shah, Head of Investor Relations, STARS Entertainment: Thanks, Scott. Operator, could we open up the call for Q and A?

Conference Operator: Certainly. And our first question for today comes from the line of Ruth Greenfield from LightShed Partners. Your question, please.

Ruth Greenfield, Analyst, LightShed Partners: Hi, thanks for taking the question. I mean, I know that you’re still early in this process of spinning off separating from Lions Gate. 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, you know, division of Lionsgate now separate again. What is being on your own? Like, how should we think of let’s call this line let’s call this STARS three point o.

What’s different about three point zero? What will you be able to do as a standalone public company that you weren’t able to do within LionSeal? How will the next couple of years be different than what we’ve seen over the last several years?

Jeffrey Hirsch, President and CEO, STARS Entertainment: Thanks for the question, Rich. Thanks for coming today. I think if you compare STARZ one point zero to where we are today, three point zero, I don’t even think you can make the comparison. At that point, when I started in 2015, we’re a % linear. We’re a wholesale business, we had no consumer data, didn’t control any customers.

Today, we’re 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 when it was when we were pre Lionsgate back in 2015 and ’sixteen. 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 11 or 12 times and a network business trading at three times, a lot of the decisions were made were to put dollar profit on 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. So as we separate out and become a standalone 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.

Ruth Greenfield, Analyst, LightShed Partners: 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?

Jeffrey Hirsch, President and CEO, STARS Entertainment: I think we’re going to stick to our two core demos. We think they’re very valuable. We think it’s a very complement. 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 two 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.

David Joyce, Analyst, Seaport: Thank you.

Scott MacDowell, CFO, STARS Entertainment: Thank you, Rich.

Conference Operator: Thank you. And our next question comes from the line of David Joyce from Seaport. Your question, please.

David Joyce, Analyst, Seaport: Thank you. 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 later How much of that was driven by the Canadian dispute or is there some other factor in that? Thank you.

Jeffrey Hirsch, President and CEO, STARS Entertainment: Hey, so I think the majority of the subscriber growth that we saw in the quarter came in from the premier Raising Canaan that came on the last three weeks of the quarter. We did have great success with the Max Stars bundle on Amazon and a BET Stars bundle on Amazon. But the strength of subscribers in the quarter was really driven by Raising Canaan 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 effected year from last year where we had a tough sub year that really kind of built on itself. We December quarter had a lot of holiday roll off in the first part of this quarter and in the first month.

We had then the premier of Cannon late in the quarter, so you didn’t get a full quarter 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 three and four and a strong revenue year in ’26.

David Joyce, Analyst, Seaport: Thanks. 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 how we can think about the library content engagement from, you know, your Lionsgate versus, you know, your third parties like Sony, Universal and so forth? Thanks.

Jeffrey Hirsch, President and CEO, STARS Entertainment: Yes, so we have the portfolio that we have is a mix of big originals that are really surrounded by the Lionsgate Pay one and the Universal Pay two 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, is a proxy for acquisition, about 60% of that comes from the originals, maybe about 55% from the originals, the balance comes from the big titles and movies. So movies are very important. We’re very lucky to have extended the Lions Gate Pay one 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 think we have a really good mix between Lionsgate, Universal and our originals. And then we have Sony and Disney in the Take Two and Three from the old Take One 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.

David Joyce, Analyst, Seaport: Okay. Thank you, Jeff.

Conference Operator: Thank you. And our next question comes from the line of Brent Pintner from Raymond James. Your question, please.

Brent Pintner, Analyst, Raymond James: Hey, everyone. Thanks for taking the questions. 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 timeframe should that shift happen for those eight 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?

Jeffrey Hirsch, President and CEO, STARS Entertainment: Great question, and thanks for having us in Orlando. Great conference. So, 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 three 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. It’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 franchise 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 de aging of shows, new shows are cheaper than older shows.

If you think about kind of just round numbers, forty hours of television, you could think somewhere between 1 to $2,000,000 per hour of savings around that. Plus we can have international sales that can net that budget down. 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. We think there’s a real clear line of path to get to that 20% margin by calendar twenty eight.

Brent Pintner, Analyst, Raymond James: Got it. And so 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?

Jeffrey Hirsch, President and CEO, STARS Entertainment: 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 two and a half times. 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. We think there’s a lot of opportunity in The US to continue to grow the business. But right now, we’re really laser focused on kind of delevering down to two and a half times and that’s our focus.

Brent Pintner, Analyst, Raymond James: Got it. Thanks, Jeff.

Conference Operator: Thank you. And our next question comes from the line of Thomas Yeh from Morgan Stanley. Your question, please.

Thomas Yeh, Analyst, Morgan Stanley: Thanks. Just a quick follow-up on the own 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 $800,000,000 of cash spend a year over the last two. 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?

Scott MacDowell, CFO, STARS Entertainment: 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 de aging of the original slate. So what we are targeting would be about a $700,000,000 of spend in calendar twenty six. Our ultimate goal would be about $650,000,000 But 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.

Thomas Yeh, Analyst, Morgan Stanley: Okay, that’s helpful. 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 standalone asset that has the flexibility and the cash balance to potentially go out

Jeffrey Hirsch, President and CEO, STARS Entertainment: Thomas. I’m not going to spend a get into a lot of detail on any M and 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 stars 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. What that looks like, it’s commercial or a different arrangement, we’re just not gonna discuss that at this time.

Thomas Yeh, Analyst, Morgan Stanley: Okay. Appreciate the color. Thank you so much.

Conference Operator: Thank you. And our next question comes from the line of Barton Crockett from Rosenblatt. Your question, please.

Barton Crockett, Analyst, Rosenblatt: Okay. Great. Thanks for taking the question. 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. You know, I think they reported for the year ending March ’6 hundred and ’20 million dollars of revenue from STARS, 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, you know, that would help maybe kind of understand how you see the overall kind of flow of programming cost.

Jeffrey Hirsch, President and CEO, STARS Entertainment: Hey, Barton, how are you? Yeah, I think there’s really two sides to relationship with Lionsgate, will continue for a long period of time. One is the pay one that we talked about. 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, you know, 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, you know, out an extra year on separation.

So that’s the biggest component, I believe, of dollars. 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 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 big dollar to Lions Gate there. There will be a second one coming. We haven’t announced yet that we’re really excited about as well. BMF, there’s two spin offs there as well.

So we’re gonna 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 nine years. We think that will continue and it will drive both of our businesses in a very positive way.

Barton Crockett, Analyst, Rosenblatt: But you expect that 06/20 to be flattish or trending up or down as you go through your transition to more original content?

Jeffrey Hirsch, President and CEO, STARS Entertainment: I think it’s 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. Again, I think the majority of that content is in the pay one, and so I expect it to be kind of flattish.

Barton Crockett, Analyst, Rosenblatt: Okay, all right, that’s helpful. And then just in terms of the original, just to understand functionally. You know, I mean, you guys have separated yourself from the studio, and yet you’re leaning into, you know, doing studio things like creating originals. Is how much of an impediment is not owning the studio apparatus for that? I mean, much do you have to duplicate to really make this happen?

Of curious if you could flesh that out.

Jeffrey Hirsch, President and CEO, STARS Entertainment: Yeah. 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 three year separation process is we had a lot of time to plan for the fact that we’d separate and start to 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 and forth with them. We have a inter company 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 Lions Gate.

So we think that relationship will continue. But there really, you know, there isn’t really any truly incremental cost for us to continue to develop green light produce our shows as it was pre Lions Gate and during Lions Gate.

Barton Crockett, Analyst, Rosenblatt: Okay. And then I you know, I’m sorry. I’m gonna ask one other just final question here. The 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 or do you notice that you think generally in your business and specifically, are you seeing anything right now?

Jeffrey Hirsch, President and CEO, STARS Entertainment: So we aren’t seeing anything right now. I mean, I think again, we’re a consumer focused business and we obviously have 20,000,000 subscribers and we’d like to continue to get more. And if consumers, their pocketbook starts to feel pinched because of the macro issues in 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. Because we are front and center in the home, we feel like we are we sometimes can be 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.

Barton Crockett, Analyst, Rosenblatt: Okay. Thank you.

Conference Operator: Thank you. Our next question comes from the line of Matthew Harrington from The Benchmark Company. Your question, please.

Matthew Harrington, Analyst, The Benchmark Company: Thank you. 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 80,000,000 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, 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 VO3? 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 people can do some pretty interesting things with that. And I’m sure you’re well aware of the possibilities that would attach to STARS? Thank you.

Jeffrey Hirsch, President and CEO, STARS Entertainment: So look, I think we’re always trying to test every new kind of marketing tool or ability. The nice thing about 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. AB testing different points of view, different vehicles. We’re testing with TikTok.

We’re testing with Facebook, Instagram. We’re testing outdoor. I mean, have various sundry different things that we’re doing across all different vehicles, whether it’s the core subscriber that we look at or it’s somebody tangentially around that as 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.

That really is because we’re constantly testing every day. So as new tools come up, have them in the lab, we’re playing with them, we’re trying with them, and we’re always trying to be more efficient. Think our SAC has come down almost 50% over the last couple 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, I think our group has been pretty agile in terms of using technology to kind of grow the subscriber base.

Ally, wanna

Neelay Shah, Head of Investor Relations, STARS Entertainment0: Yeah, 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 speak to them and bring them back year over year at a very efficient rate.

Jeffrey Hirsch, President and CEO, STARS Entertainment: Yeah, and to your second question, I think there’s really two 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 will obviously will be a fast follower in 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, we’re respectful to the talent that we have in the community, and 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 seven years, building our subscription business and really trying to find more efficient and better ways to acquire customers, acquire content that our customers wanna watch, schedule that content in a way that makes the customer stickier, 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 the art of the possible is there.

Matthew Harrington, Analyst, The Benchmark Company: Great, thanks for taking my questions.

Conference Operator: Thank you. And our final question for today comes from the line of Alan Gould from Loop Capital. Your question please.

Neelay Shah, Head of Investor Relations, STARS Entertainment1: Thanks. Hi, Jeff. 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 to 2,000,000 per hour cost?

That just seemed really low to me. And then three, I know you’re doing some bundling with other services. How much does bundling help reduce churn?

Neelay Shah, Head of Investor Relations, STARS Entertainment0: 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. 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.

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.

Jeffrey Hirsch, President and CEO, STARS Entertainment: Yeah, and to your other two questions, think Alan, one to two million was a cost savings per hour. Okay. We’re sitting somewhere around average cost per hour around $7,000,000 today. The last time the business was over $300,000,000 of EBITDA, we were around $5,000,000 5 point 5 million dollars And so as you turn the slate over and go from more season series show seasons to new, you can pull a lot of cost out of the business just by resetting the economics of a season one versus a season four or season five. And also, can net some of that cost down by selling internationally.

That international component, didn’t get the benefit of it by not having ownership. So those two components really help you take that cost out of the business. In terms of the number of shows, we think it’s somewhere between eight and ten shows a year, really allows us to have a consistent flow of content for the two core demos that have no gaps. So 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, you know, competing for customers on the front end because we’re keeping the the same customer longer. And and that that number will change depending on the mix of own shows, license shows, and acquisitions.

There’s there’s abilities like we did with Sweet Tea and Mary and George to acquire great content at a at a very, reasonable cost to add more add more tail shows around our big originals. So as we look into the marketplace, we’ll be very opportunistic about, you know, acquisitions versus license versus our own as well. Thanks.

Conference Operator: Thank you. This does conclude the question and answer session of today’s program. I’d like to hand the program back to Nile Shah for any further remarks.

Neelay Shah, Head of Investor Relations, STARS Entertainment: 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.

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

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.