Executive Summary / Key Takeaways

• Lionsgate Studios Corp. (NYSE: LION) has emerged as a focused, pure-play content studio following the separation from STARZ, leveraging a deep 20,000+ title library and diversified production capabilities across motion pictures and television.
• Fiscal Year 2025 results showed revenue growth driven by the eOne acquisition and TV production recovery post-strike, though segment profit saw a slight decline year-over-year, reflecting title mix and investment cycles.
• The company is strategically focused on replenishing its content pipeline in FY26 with a strong slate, including major franchises like John Wick and The Hunger Games, to build momentum for anticipated solid adjusted OIBDA growth in FY27.
• LION is actively integrating AI technology into production workflows to optimize costs and streamline visual effects, aiming for tangible efficiency gains.
• While facing intense competition from larger, vertically integrated rivals and nimble streamers, LION differentiates through its entrepreneurial culture, talent relationships (3 Arts), and efficient library monetization, targeting a long-range leverage ratio of 3-3.5x supported by expected positive free cash flow over the next two years.

Setting the Scene: The New Lionsgate Studios

Lionsgate Studios Corp. (NYSE: LION) stands today as a distinct, publicly traded entity, a pure-play content powerhouse forged from the strategic separation of the Studio Business from its former parent's STARZ premium subscription platform. This pivotal event, completed on May 6, 2025, marks a new chapter, positioning LION to operate with greater focus and flexibility in the dynamic global entertainment market. The company inherits a rich legacy built over decades, characterized by a bold, entrepreneurial culture and a strategic approach to content creation and distribution.

A Legacy Forged in Content

The history of Lionsgate Studios is intrinsically linked to the evolution of the Studio Business under Lions Gate Entertainment Corp. Over the years, this segment grew through a combination of organic production and significant strategic acquisitions. Key milestones include building a formidable library of over 20,000 film and television titles, bolstered by integrating assets from companies like Artisan Entertainment and Summit Entertainment. More recently, the acquisition of the Entertainment One (eOne) television and film business in December 2023 was a crucial step, adding scale to the library, strengthening television production capabilities, and expanding international presence. The integration of talent management powerhouse 3 Arts Entertainment and Pilgrim Media Group further solidified LION's position by bringing key creative relationships and production expertise under one roof. The May 2024 business combination with SEAC provided capital and established the Studio Business as a separate public entity, setting the stage for the final separation from STARZ. This journey has culminated in a focused studio equipped with a diverse portfolio of intellectual property and established operational infrastructure.

The Business Model: Content Creation to Global Distribution

LION operates through two primary reportable segments: Motion Picture and Television Production. The Motion Picture segment is involved in the development, production, acquisition, and distribution of feature films across various windows globally, including theatrical, home entertainment (digital and packaged media), and television licensing. The Television Production segment focuses on the development, production, syndication, and worldwide distribution of scripted and unscripted television series, movies, and non-fiction programming to a wide array of platforms, including broadcast, cable, and digital streamers. A core asset underpinning both segments is the extensive film and television library, which generates significant, recurring revenue through licensing deals across various markets and platforms, including the growing Free Ad-Supported Streaming Television (FAST) and Advertising-based Video On Demand (AVOD) channels. The inclusion of 3 Arts Entertainment provides a crucial link to top-tier creative talent, offering both talent representation commissions and production fees.

The strategic approach is characterized by a disciplined, targeted, and cost-effective model. LION aims to mitigate production financial risk through co-financing agreements, pre-licensing international rights, structuring talent deals with performance participation, and leveraging governmental incentives and tax credits. Distribution is increasingly platform-agnostic, seeking to maximize revenue across traditional theatrical windows, accelerated post-theatrical releases, and direct licensing to streaming platforms. The focus remains on creating and extending valuable brands and franchises while rigorously retaining key rights to ensure long-term monetization.

Strategic Pillars for a Standalone Future

LION's strategy for the standalone future rests on several key pillars:

• Leveraging the Library: Maximizing the value of the 20,000+ title library through diverse licensing deals across all available windows and platforms, including expanding proprietary FAST/AVOD channels. The record TTM library revenue of $956 million in FY25 underscores this asset's importance.
• Disciplined Content Investment: Maintaining a cost-effective approach to production and acquisition, using financial risk mitigation strategies like co-financing and tax incentives to ensure a favorable return profile.
• Franchise and IP Expansion: Building upon successful franchises like John Wick and The Hunger Games while developing new intellectual property with broad multi-platform appeal.
• Talent Relationships: Deepening ties with creative talent through 3 Arts Entertainment and direct production deals to secure a pipeline of high-quality content.
• Platform Agnosticism: Adapting distribution strategies to capitalize on evolving consumption patterns and maximizing revenue across all available buyer types, from traditional theatrical exhibitors to global streamers.
• Creator Economy Initiative: Building digital businesses for talent and creating original content for digital platforms, including pursuing brand partnerships, to tap into new revenue streams and audience engagement, particularly noting that half of YouTube viewing now occurs on connected TVs.

Technological Edge: Optimizing Production and Distribution

While the entertainment industry is not typically defined by a single, proprietary "technology" in the same vein as semiconductor manufacturing or renewable energy, LION is actively embracing technological innovation, particularly in the realm of artificial intelligence (AI), to gain operational efficiencies and enhance its creative processes.

LION is collaborating with companies like Runway, a leader in AI creative tools, to integrate AI into its pre-production and post-production workflows. The stated goal of this initiative is to optimize these processes and streamline specific use cases, such as visual effects (VFX). While specific quantitative metrics on the benefits of this collaboration are not publicly detailed, the strategic intent articulated by management is clear: to "save money" and improve efficiency. This suggests an expectation of tangible cost reductions and potentially faster turnaround times in complex production areas like VFX.

Furthermore, the broader industry trend of AI development, including generative AI and machine learning, presents both opportunities and risks. LION's adoption of AIML technologies in daily operations, while relatively new, aims to leverage these advancements. The potential impact includes more efficient content creation, potentially faster editing or animation processes, and data-driven insights into audience preferences that could inform content development and distribution strategies.

For investors, the "so what" of this technological focus lies in its potential to enhance LION's competitive moat by improving cost structures in a high-expense industry. If AI integration can meaningfully reduce production costs or accelerate workflows, it directly impacts profitability and cash flow generation. While LION may not possess a unique, foundational technology like some companies, its proactive adoption and integration of cutting-edge tools like AI in production represent a strategic effort to improve operational efficiency and maintain competitiveness against larger rivals who may face slower adoption cycles due to scale or legacy systems. The success of these initiatives could contribute to achieving the company's financial targets, particularly the goal of improving profitability and leverage ratios.

Competitive Arena: Positioning Against Giants and Nimble Rivals

Lionsgate Studios operates within a fiercely competitive global entertainment landscape. Its primary rivals include major, often vertically integrated, studios such as Warner Bros. Discovery (WBD), The Walt Disney Company (DIS), and Sony Group Corporation (SONY), as well as dominant streaming platforms like Netflix (NFLX) and tech giants entering the content space (e.g., Amazon (AMZN), Apple (AAPL)). Competition is intense across all facets of the business: acquiring intellectual property, attracting top creative talent, securing production financing, and vying for audience attention and distribution outlets.

Compared to giants like WBD and DIS, LION operates at a smaller scale. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, LION's aggregate market share in global content production is estimated to be significantly smaller than these conglomerates. This smaller scale can translate into higher operating costs per unit due to less integrated distribution channels and potentially less leverage in negotiations with major platforms. For instance, LION's TTM Gross Profit Margin of 26.72% trails NFLX's 46% and DIS's 36%, suggesting differences in cost structures or pricing power. LION's TTM Operating Profit Margin of 4.53% is also considerably lower than NFLX's 27% and DIS's 13%, highlighting the impact of higher operating expenses relative to revenue compared to these more efficient or higher-margin businesses.

However, LION differentiates itself through several key factors. Its entrepreneurial culture allows for greater agility and potentially faster project development cycles compared to the more bureaucratic structures of larger studios. The deep content library provides a significant asset for recurring revenue and serves as a foundation for new productions and spin-offs, offering a degree of insulation against the need to constantly create new hits from scratch. The strategic focus on maintaining strong relationships with creative talent through 3 Arts Entertainment is a critical competitive advantage, ensuring access to key personnel essential for successful content creation.

In the evolving distribution landscape, particularly with the rise of streaming, LION positions itself as a preferred, platform-agnostic supplier. While major streamers like Netflix are also competitors in content creation, they are simultaneously key customers for LION's film and television output. LION's ability to license content across multiple platforms allows it to mitigate reliance on any single buyer, although the concentration of revenue from a few major distributors (including Starz and Amazon) remains a risk. The pressure on platforms to control spending, as noted by management, creates a challenging buying environment, requiring LION to be disciplined in its production costs and creative in finding new models and buyers.

LION's adoption of AI technology, while in early stages, represents an effort to address potential competitive disadvantages in operational efficiency. By optimizing workflows and reducing costs in areas like VFX, LION aims to narrow the gap with rivals who may have more advanced internal technological capabilities or greater scale to absorb high-tech investments.

Barriers to entry in the industry, such as the high cost of acquiring and developing intellectual property and navigating complex global distribution networks, favor established players like LION. These barriers help protect LION's market position against purely new entrants, although they do not diminish the intense competition from existing, well-resourced rivals. Customer dynamics, such as the shift towards streaming and demand for diverse content, require LION to continuously adapt its output and distribution strategies. Supplier dynamics, particularly reliance on union labor and key talent, can impact production costs and schedules, a challenge shared by most major studios but potentially more acutely felt by a smaller player.

Overall, LION's competitive positioning is that of a nimble, content-rich studio leveraging its library and talent relationships to thrive as an independent supplier in a market dominated by larger players. Its financial health, particularly profitability margins and debt levels (TTM Debt/Equity of -3.57, though post-separation net debt is a more relevant metric at ~$1.65B), indicates areas for improvement compared to some peers, but its strategic focus and expected future growth trajectory aim to address these challenges.

Financial Performance: A Look at Recent Results

Lionsgate Studios reported fiscal year 2025 results reflecting a period of transition and strategic investment. Total consolidated revenues for the year ended March 31, 2025, increased by 7% to $3.195 billion, up from $2.986 billion in the prior fiscal year. This growth was significantly influenced by the inclusion of a full year of revenue contribution from the eOne acquisition in FY25, compared to only a partial year in FY24.

Breaking down the segments, Motion Picture revenue experienced a 4% decline, falling to $1.590 billion from $1.656 billion. This decrease was primarily attributed to lower home entertainment and theatrical revenue, largely due to the strong performance of major titles like John Wick Chapter 4 and The Hunger Games: The Ballad of Songbirds & Snakes in fiscal 2024, which created a tough comparison for the fiscal 2025 slate. However, this was partially offset by increases in international and television licensing revenue within the segment. Motion Picture segment profit also saw a slight decrease of 3.7%, from $319.4 million to $307.6 million, reflecting the revenue trends and the impact of title mix on margins.

In contrast, the Television Production segment demonstrated robust growth, with revenue increasing by 20.7% to $1.606 billion from $1.330 billion. This surge was driven by the full-year inclusion of eOne revenues and increased domestic television revenue, including licensing deals for Starz original series. Despite the strong revenue growth, Television Production segment profit declined by 7% to $136.5 million from $146.8 million. This was primarily due to higher direct operating expenses as a percentage of revenue, influenced by the mix of titles delivered in FY25 compared to FY24, where titles like The Continental had a lower amortization rate.

Overall, total segment profit for the Studio Business decreased by 4.7%, from $466.2 million in FY24 to $444.1 million in FY25. Operating income saw a larger percentage decline of 10.8%, dropping from $139.7 million to $124.6 million, impacted by factors outside segment profit, such as corporate general and administrative expenses and restructuring costs. The company reported a net loss attributable to shareholders of $128.5 million in FY25, wider than the $93.5 million loss in FY24.

A key highlight was the performance of the company's library, which achieved a record trailing twelve-month revenue of $956 million as of March 31, 2025, representing an 8% year-over-year increase. The fourth quarter of fiscal 2025 was particularly strong for library revenue ($340 million), contributing to a solid finish to the year. The fourth quarter also saw a significant increase in Adjusted OIBDA, up 49% to $138 million, and operating income, up to $94 million, demonstrating the potential for strong performance when key business drivers align.

From a liquidity perspective, cash and cash equivalents stood at $205.7 million at March 31, 2025. The company's net debt at the end of FY25 was $1.5 billion, down from $1.8 billion at the end of Q3, reflecting strong Q4 free cash flow. TTM studio leverage declined to 4.9x. Subsequent to the fiscal year-end, the capital structure was significantly altered by the Starz separation, with post-separation net debt reported at approximately $1.65 billion, supported by a new $800 million revolving credit facility and assumed notes. While cash flow used in operating activities for FY25 was $106.8 million, adjusted free cash flow for the year was positive at $89 million, indicating the company's ability to generate cash despite investment cycles.

Outlook and Growth Trajectory

Management has provided a clear outlook for the coming fiscal years, emphasizing pipeline replenishment in fiscal 2026 to drive growth in fiscal 2027. The expectation is for "solid two-year adjusted OIBDA growth from fiscal 2025 through fiscal 2027."

Fiscal year 2026 is positioned as an investment year focused on building a "strong film and TV slate" to create momentum for FY27. The cadence of financial results and free cash flow in FY26 is anticipated to be "back-end loaded," mirroring the pattern seen in FY25. Content spend is expected to remain relatively consistent with the prior year, around $1.6 billion, split between motion picture and television production. Marketing spend, however, is projected to increase in FY26 to support the upcoming slate.

The confidence in achieving solid growth into FY27 is underpinned by an "incredibly strong slate" planned for that year, potentially including major titles like the Michael Jackson biopic (likely shifting from FY26), the next Hunger Games film (Sunrise on the Reaping), and The Resurrection of the Christ. The paid TV licensing deal is also expected to be in "full swing" in FY27, contributing to anticipated strong and sustainable numbers.

Financially, the company expects to generate "positive free cash flow" over the combined fiscal years 2026 and 2027. Taxes are projected to remain low, near zero ($10-15 million). This expected cash generation is crucial for the company's deleveraging efforts. Management has set a target leverage range of 3.5 to 4 times by the back end of fiscal 2027, with a long-range goal of 3 to 3.5 times. Achieving these targets will depend on executing the content slate successfully, controlling costs, and effectively monetizing the pipeline across all windows.

Key Risks and Challenges

Despite the strategic positioning and growth aspirations, Lionsgate Studios faces several pertinent risks that could impact its financial performance and the realization of its investment thesis.

A fundamental risk is the inherent unpredictability of commercial success in the entertainment industry. Viewer preferences are volatile, and the performance of individual films and television programs is difficult to forecast, impacting revenue, amortization rates, and the potential for costly write-offs if projects underperform expectations. The reliance on a few major distributors, including the post-separation relationship with Starz and platforms like Amazon, means the loss or reduced spending from any of these key buyers could significantly impact revenue and operating results.

The substantial capital required for content production and acquisition presents ongoing financial risk. While LION employs risk mitigation strategies like co-financing and tax incentives, budget overruns or delays can necessitate additional financing and impact profitability. The company's debt levels, while targeted for reduction, still expose it to interest rate risk on variable rate borrowings and require a significant portion of cash flow for debt service. A lawsuit by purported noteholders against Old Lionsgate (now Starz Entertainment Corp.) regarding a debt exchange, which LION assumed, presents a specific legal and financial risk, potentially leading to accelerated payments if unsuccessful.

Changes in consumer behavior, particularly the continued shift towards streaming and evolving distribution models, require constant adaptation. While LION aims for platform agnosticism, failure to effectively anticipate or adapt to new technologies and consumption patterns could negatively affect its business. Competition remains intense, putting pressure on content costs and market share.

Operational risks include potential business interruptions from events outside the company's control (e.g., natural disasters, cyberattacks) and the dependence on highly specialized union labor, which can lead to disruptive labor disputes, as seen with the WGA and SAG strikes in 2023. Protecting intellectual property rights in a global environment where piracy is prevalent is also a continuous challenge, requiring costly measures and potentially litigation.

Finally, the integration of acquired businesses, such as eOne, carries risks related to realizing anticipated benefits, potential undiscovered liabilities, and challenges in consolidating systems and operations. While integration is reported as finished for eOne, the long-term success of the acquired assets is crucial for the company's growth trajectory.

Conclusion

Lionsgate Studios Corp. has strategically repositioned itself as a focused, standalone content studio, leveraging its extensive library, diversified production capabilities, and key talent relationships. The separation from STARZ provides a clearer path forward, allowing LION to concentrate on its core business of creating and distributing film and television content across a multitude of platforms.

While fiscal year 2025 reflected the dynamics of integration and investment cycles, including the impact of the eOne acquisition and post-strike recovery in television, the company's outlook points towards pipeline replenishment in FY26 as a springboard for anticipated solid growth in FY27. The strength of upcoming franchise titles, coupled with disciplined content investment and the strategic adoption of technologies like AI to enhance efficiency, forms the core of the investment thesis.

However, investors must weigh these opportunities against the inherent risks of the entertainment industry, including content performance volatility, intense competition from larger rivals, ongoing capital requirements, and potential disruptions from evolving technology and labor dynamics. The company's ability to execute its slate successfully, manage its debt, and achieve its leverage targets while navigating these challenges will be critical to unlocking the value management believes is embedded in the standalone studio. The record library performance and strong Q4 finish provide a glimpse of the potential when the business is firing on all cylinders, offering a foundation for the path ahead.