Starz Entertainment Corp. (STRZ) Q3 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Starz Third Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand it over to our first speaker, Nilay Shah, Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us for Starz Entertainment's Third Quarter 2026 Earnings Call. We'll begin with opening remarks from our President and CEO, Jeffrey Hirsch, followed by remarks from our CFO, Scott MacDonald. Also joining us on the call today is Alison Hoffman, President of Starz Networks. After our opening remarks, we'll open the call for questions. The matters discussed on this call include forward-looking statements, including those regarding expected future performance. Such statements are subject to a number of risks and uncertainties. Actual results could differ materially and adversely from those described in the forward-looking statements as a result of various factors. This includes the risk factors set forth in our most recently filed 10-KT for Starz Entertainment Corp. Starz undertakes no obligation to update these forward-looking statements due to new information or any future events, unless required by law. The matters discussed today will also include non-GAAP financial measures and key performance indicators. These non-GAAP measures include adjusted OIBDA, unlevered free cash flow, equity free cash flow and net debt. The reconciliation for these to the most directly comparable U.S. GAAP measures and additional required information is available in the 8-K we filed this afternoon, which is available on the Starz Investor Relations website at investors.starz.com. This non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with the U.S. GAAP. I'll now turn the call over to Jeff.

Thank you, Nilay, and thank you all for joining us today. I am pleased to report that Starz delivered another strong quarter. We are executing against our 4 key priorities of growing OTT revenue, adjusted OIBDA and free cash flow while reducing leverage. The business is performing ahead of plan despite a tough operating environment for many in the industry. For the second consecutive quarter, OTT revenue grew year-over-year and total revenue also returned to year-over-year growth, reflecting our improving financial performance. We generated meaningful free cash flow and accelerated our progress toward our leverage target. Over the last 4 months, we secured multiple new distribution agreements, including a new agreement with Verizon Fios, underscoring the value Starz provides to our distribution partners. Our content portfolio continues to drive strong performance. Raising Kanan concluded its final season at an all-time audience high, while our first owned original, Fightland, continued to build on its successful premiere. Blood of My Blood reinforced the enduring appeal of the Outlander universe, while acquired series, S.W.A.T. Exiles, added proven franchise programming to our lineup. Most notably, Lionsgate's Michael became the best-performing [ Pay-One ] title in Starz history. We program Starz deliberately using our portfolio approach to sustain engagement year-round while maintaining disciplined investment. A consistent offering of compelling titles builds deeper engagement, which supports retention and a more durable revenue base. We saw that connection again in the third quarter as long-tenured subscribers on the app, those who have been with us for a year or more, reached all-time highs in both number and share. Now turning to our outlook. Last quarter, we raised our adjusted OIBDA growth forecast and unlevered free cash flow guidance. Based on our performance through the third quarter, we are reaffirming our full year outlook for mid-single-digit adjusted OIBDA growth and our unlevered free cash flow guidance. Looking ahead, we remain confident in achieving a 20% adjusted OIBDA margin and leverage of 2.5x or lower in the back half of 2027. Our upcoming slate reinforces that confidence. P-Valley returns in the fourth quarter and its teaser was our best-performing teaser in more than 2.5 years, signaling strong audience interest ahead of the new season. We expect the series to drive both subscriber growth and engagement as we close out 2026 and enter 2027. Next year, we will debut several major titles, including the 18-episode first season of Power: Origins, the fifth installment of the Power universe and our second owned original, the untitled Black Rodeo series, now in production. We are just beginning to unlock the financial potential of these owned titles. Owning more of our own content gives us greater control over costs and allows us to retain more of the long-term value of successful IP. We are already seeing the benefits. Our Bell Canada licensing agreement established a new international revenue stream, while the Sky co-commission on Fightland generated international revenue and improved the economics of the series. As our own library grows, we expect to capture more of the economic value created by our content. We also believe Starz is well positioned to benefit as the industry moves toward greater consolidation and bundling. We anticipated this shift years ago and built Starz as a complementary platform-agnostic service with focused programming for a distinct audience. That makes us a natural fit within aggregated offerings and allows us to complement larger entertainment services without competing for the same broad audiences. Starz does not need to own the entire consumer ecosystem to grow. Traditional distribution, add-on subscriptions, strategic partnerships and new bundles give us multiple ways to reach our audiences wherever they choose to watch. Our priority remains driving the success of the core business. We have set a high bar for any strategic transaction. It must accelerate our strategy and create greater value than we believe Starz can create on its own. We are delivering against our plan, creating new revenue streams through ownership and positioning Starz to benefit from the industry's continued evolution. Overall, we remain focused on creating long-term shareholder value. We entered 2026 expecting an inflection in the business. 9 months in, we are ahead of where we expected to be. With that, I'll turn it over to Scott to take you through the financial results and our outlook.

Thank you, Jeff, and good afternoon, everyone. I'm pleased to report that the third quarter was another strong quarter during which we delivered on or ahead of our expectations. Our financial story remains the same: growing OTT revenue, expanding adjusted OIBDA, generating meaningful free cash flow and reducing leverage. And once again, based on our third quarter performance, the business remains on track to deliver on all of these key metrics in 2026. Total revenue for the third quarter was $322 million, our strongest quarter of 2026, driven by strong OTT and distribution revenue growth. OTT revenue was $227 million, up 1.7% year-over-year and up 2.4% sequentially. On a pro forma basis, adjusting for the strategic change in our Canadian operations to a content licensing arrangement in Q4 2025, OTT revenue growth for the quarter would have been 3.2%. The strength in OTT revenue we are seeing is driven by annual subscribers renewing at higher promotional pricing, as well as the continued impact of the April 2026 price hike. Linear and other revenue was $96 million for the quarter, as continued secular pressure on traditional video households was partially offset by increased distribution revenue from the beginning of our strategy to own more of our own content, including Fightland. Specifically, distribution revenue will continue to grow as we own more of our content in 2027 and beyond. Adjusted OIBDA was $44 million for the quarter, ahead of our expectations and up significantly year-over-year. Our Q3 performance exceeded our guidance from our last call, allowing us to shift a portion of our marketing investment into the fourth quarter to further support the return of P-Valley, which we believe will enhance the show's subscriber acquisition and engagement. Accordingly, we are reiterating our 2026 adjusted OIBDA growth to be in the mid-single digits range, and we remain confident in achieving our 20% adjusted OIBDA margin target during the back half of 2027. Unlevered free cash flow was positive $19 million in the third quarter and is positive $85 million year-to-date. Equity free cash flow was positive $13 million in the quarter and is positive $48 million year-to-date. We remain confident in achieving our 2026 unlevered free cash flow target of $100 million to $120 million. Cash content spend was $174 million for the quarter. We continue to expect full year 2026 cash content spend to be below $600 million and see continued improvement in the convergence of cash content spend and programming amortization this year. Additionally, as we discussed last quarter, we continue to expect to materially increase annual free cash flow in 2029 as our Universal termination payments end in 2028. Net debt was $601 million as of September 30, 2026, and our adjusted OIBDA leverage ratio was 2.8x. Our revolver remains undrawn, and we continue to maintain significant liquidity and financial flexibility. As discussed last quarter, we closed on a $100 million increase to our credit facilities, comprised of a $67 million increase to our Term Loan A and a $33 million increase to our revolver. We utilized the $67 million increase in the Term Loan A to fully repay the remaining balance of our programming notes, which were working capital facilities that carried significantly higher interest rates than our credit facilities. As noted on our last call, by refinancing these obligations into lower-cost corporate debt, we expect to improve annual free cash flow by approximately $4 million through lower cash interest expense while also simplifying our capital structure. Even after incorporating this additional $67 million of term debt, we achieved 2.8x leverage at the end of the third quarter, and we still expect to end 2026 with leverage of approximately 2.7x. Importantly, we expect to achieve our leverage target of 2.5x or lower during the back half of 2027. Our financial story is simple, growing OTT revenue, expanding margins, growing free cash flow and reducing leverage. We're confident in our trajectory, and we look forward to continuing to demonstrate our progress. Now I'll turn the call back over to Nilay for Q&A.

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

[Operator Instructions] Our first question will come from the line of Vikram Kesavabhotla from Baird.

This is John Rigatti on for Vik. I guess my first question on Fightland. The season finale of that show was about a month ago. Can you just speak to how that series performed versus your expectations and what you observed with respect to the impact on customer acquisition and engagement on the platform? And then maybe also how Fightland impacted your perspective just on the value of fully owned programming and the approach that you take to these shows down the road? And then my second question is on bundling. You've announced a handful of these bundles over the last several months, I think Peacock and Crunchyroll being the 2 most recent. I'd love to hear what you've observed in the first few months of these array relationships. And then just from a higher level, it seems like, obviously, there's more bundling and add-on activity happening across the industry. How are you evaluating which of these relationships you plan to participate in?

I'll take the first question, and Ali will take the bundling question. Fightland was off to a great start. We feel very good about the arc of the show and the path of the show. Had a lot of long-term connectivity into our core cohorts and we feel great about how the season ended, and we're currently in development on a season 2 right now. I think the performance of that show, not only the cost of the show, how it looked on the air in terms of quality, how it was received by our consumers and the revenue that we've generated in the quarter in terms of the linear and other line item from international sales with our partner, Sky, the co-commission partner, has made us even more bullish in terms of owning our own content and bringing it to the network. We're excited about the Black Rodeo show that's in production right now. And we think we're just really scratching the surface as we've got one original that we own. As we get into the '27 slate, we own half of the slate and then the '28 where we own half more and we have really rebuilt our library and we can monetize those around the world. We think it brings another line of revenue to the business that we don't have today. And if you think about $6 million to $9 million per season, per show on 4, 5, 6 shows, it's really meaningful to a business that's doing $200 million to $250 million of EBITDA every year. So we feel really good about it, and we're excited about its performance, and we're excited about Rodeo coming on the network in the next year as well.

John, this is Alison. Thanks for the question about bundling. Bundles continue to perform really well for Starz. And with the consolidation that we're seeing across the industry, we really expect a new wave of distribution and bundling partners to continue into 2027. In regards to Peacock, I think it's early days, but we are launching a number of operational and tactical initiatives this quarter that we think will really improve our visibility on that platform. So we're excited for that. Crunchyroll is off to a really good start. Also, we launched the first trundle. We were a part of the first super bundle on Amazon Prime Video, which launched just a few weeks ago. And the early results of that are very encouraging. So in general, we are built to be bundled. We are a complementary service. We will be in the bundling and ultimately, the repackaging, we think, of the industry. We see improved retention, north of 20% with a lot of these bundles. And most importantly, bundling is accretive to revenue when compared to a la carte sales. So that means for us that this is something we need to continue to lean in on and it's good for our business.

Our next question will come from the line of Drew Crum from B. Riley Securities.

So you're launching the third and final season of P-Valley later this quarter. You mentioned it in the preamble. Just address your outlook for the series and expected impact on the service. And then a separate question. Scott, just want to understand or reconcile the adjusted OIBDA guidance for the year versus 4Q. I guess I would assume or imply that you're looking kind of flattish to down year-on-year. Is that a function of the shift in marketing spend? Or is there something else that's impacting that number?

It's Alison again. I'll start with P-Valley. We are so excited to have P-Valley back on the network. It has been a little bit of a gap, but the fan base is very excited. It's coming back December 4. It is a rare show in the TV landscape that is both critically acclaimed and commercially so successful. Just taking you back to the second season, it was generating north of 11 million multi-platform viewers per episode, which is massive for us, but I think really holds a lot of weight across the industry in terms of just how big that show is. As Jeff mentioned in his remarks, the teaser is the best-performing teaser that we've had in the past couple of years. So we see momentum happening for that show. And yes, anticipate strong subscriber acquisition, strong engagement. And the way that it's scheduled, it's going to finish out our year and then sort of wrap into the top part of 2027. So that is going to be really key to setting up 2027 successfully. We're really bullish. We're really excited, and we know the fan base is, too.

So with respect to adjusted OIBDA, our Q3 actually came in better than we had anticipated really across the entire P&L. So it was a real strong outperformance. That's going to allow us to invest some additional money in the marketing of the P-Valley series to kind of build on what Ali just said to help that show perform even better and give us a real strong start to 2027 as that show will also air in early 2027. So we felt it important to utilize the outperformance to kind of help the performance overall of P-Valley. We still think Q4 will be a very strong quarter. And then at the end of the day, we're still very comfortable in the mid-single digit adjusted OIBDA growth for the year.

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

First one for me. Earlier this year, you all moved away from subscriber and ARPU reporting and shifted your strategy more toward revenue and OIBDA growth. So since that change, can you update us on how that has affected the business? And any directional color in terms of subs versus ARPU versus retention versus quality of subscriber? Anything that you can give us on how that has affected you.

Brent, it's Jeff. Yes, great question. Look, I think the move away from the quarterly sub cadence to long-term revenue growth has been really healthy for the business. And I think you've seen that in the quarterly results in terms of our continued accelerate OTT revenue growth and return to year-over-year revenue growth. We have really tuned our long-term models to the 24-month revenue growth, and we're looking at longer tenured customers, as I said in my prepared remarks. We're really focused on lifetime value and driving subs longer, staying longer, paying us more money, and you're seeing that in the numbers already. Subs that are 1 year or longer are really -- in terms of number and share, are at all-time high. Churn is at historic lows for the business. ARPU continues to climb. And so we feel like we've got a really good balance between driving rate and subs to drive long-term revenue growth for the business. And it's -- really what it's really creating is slow and steady and durable growth on the revenue line, which we think is the right way to go in terms of driving our business.

Great. And then next question. One topic that is increasingly being talked about is Muse and agentic AI and the ability for AI agents to manage people's subscriptions. If that becomes a more prevalent trend, how do you all feel that Starz is positioned for that?

It's a great question. I think it's a question that's on everybody's mind. I think first and foremost, the quickest way to keep that from becoming an issue is to continue to program the network with a portfolio approach of content on every week for our 2 core demos in a way that is accessible and people just have to tune in and watch. And I think you're seeing that. You'll see that with P-Valley. I think you saw that in the quarter with a mix of originals, S.W.A.T. Exiles coming on as a proven franchise, the Michael biopic coming on. And so the easiest way to get people not to disconnect, whether it's through a tool or it's on their own, either way, it's pretty simple in the digital world, unlike the cable world where I came from, is to have a great product that people are obsessed with and have to keep coming back for. So that's first and foremost. Second of all, remember, we're a wholesale-first business. So 70% of our business is wholesale. So we're sold on top of other subscriptions through other platforms, Amazon being the biggest. I believe the Muse bots aren't actually have any kind of access into the Amazon platform. And even on our wholesale side, we are -- have a very, very small portion that come through storefronts. And so the folks that come through our starz.com, we also have tools in place to monitor that as well. But ultimately, in the digital world, it's a pretty easy way to click in and click out whether you're using a tool or not. And so we believe we've built a great programming schedule and slate with great compelling content that is programmed year-round that will keep customers engaged. You're seeing -- I just mentioned, you're seeing that with historic lows in churn. So as long as we continue to execute against our content strategy and continue to drive pricing in the right place, we think that it won't be an issue for us.

Great. And then, Jeff, you mentioned S.W.A.T. Exiles. Can you talk a little more about that show and what that made -- what made that show attractive to you as an acquisition in terms of cost, the franchise? And are there other opportunities similar to that out there?

Yes. Brent, I'm going to let Ali take that one.

Yes, I think you called it in terms of franchise and just the audience. Having a show available to us that has been relevant to customers for over a decade was a really unique opportunity. We are really pleased with how it's performing. It also has great diversity on screen, great diversity as we're discovering in the audience base and that becomes a really good fit for Starz. So we're excited about that. I think it made a lot of sense to us, and we're seeing that, that move really play out in how it's performing in terms of engagement. I think the other thing that we're seeing with S.W.A.T. Exiles that's exciting is it's bringing a new customer base, net new customer base to Starz, people that we haven't seen before. And that's the case with a lot of our acquisitions, but S.W.A.T. Exiles is doing that really, really well. So yes, we will be on the lookout for more opportunities like S.W.A.T. Exiles. And you'll also see, again, as we build out our portfolio, you're going to see really big tentpole originals that feed our key cohorts. And then you're going to see these interesting efficient acquisitions, co-commissions, co-productions come on to really extend the lifetime value of our audience base. And that really is part of our strategy, of course, along with our movie library and our [ Pay-One ] strategy.

And our next question will come from the line of David Joyce from Seaport Research Partners.

First, a question on the other distribution revenue. Was that a one-timer for episodic delivery for Fightland? Or are there more territories, I guess, on the horizon for that particular asset that will be contributing to that line in the near future? And then secondly, in the past, you've talked about Starz being a platform that's ready to be a consolidator. But we saw recently the ALLBLK streaming service recently traded that used to be owned by AMC Networks. Is that an asset that you may have considered? And if so, is there anything that you liked about it or something that wouldn't have fit? Just trying to think of what sort of structurally could be additive to your platform.

Yes, this is Scott. So on the distribution revenue associated with Fightland, yes, we recognized the revenue associated with the Sky deal in the quarter and as well as the Canadian revenue. So that revenue is recognized upon its delivery and the windows open. And so they'll -- we expect to see distribution revenue to be somewhat lumpy as we start to build our portfolio of own shows, as Jeff mentioned, again, Fightland being the first. We'll have Rodeo in '27. And by the time we get to '28, we should have multiple shows on the air that we own the distribution rights to that will start to make that line item more meaningful.

And David, we will -- there are -- there is rest of the world still to be sold for Fightland. So I do think there's more revenue coming in against Fightland as well. To your question about us being a consolidator, I think we continue to believe based on the tech stack and our ability to transition from linear to digital profitably over the last number of years that there are opportunities for us to continue to grow our business. We look at the real opportunity for us is to kind of diversify revenue into an AVOD, kind of AVOD with a shelf against our SVOD business. And so the ALLBLK business, obviously, as an SVOD business that's very similar to us. And so while we didn't look at it, it's not something that we had our eyes on in the first place. It's a great business. I think it fits really well with MACRO and what they're trying to do. And I think the AMC folks and Kristin have done a really phenomenal job of building that business. But for us to really meaningfully grow shareholder value, we're looking at diversifying the revenue base from just SVOD into AVOD.

Our next question comes from the line of Matt Condon from Citizens Bank.

Jeff, my first one, just following the recently announced Verizon renewal, can you help us understand how the economics of that agreement compare with the prior arrangement? And more broadly, as you navigate renewals with traditional distributors, just how are you balancing rate increases against maintaining distribution?

Great question. Look, it's been unfortunate that the way that, that negotiation went down that our shared customer, mutually shared customer had to lose service. But ultimately, we think we got to a good place. As Scott and I have said in our prepared remarks, we're reaffirming the year and reaffirming our guides for '27. So there really isn't any material impact on the deal that we did there. What I would say is it was a unique deal in the sense that most of our deals today are a la carte or rev share deals where we are aligned in terms of sharing the economics for customers with our partners. And this was kind of one of the last bastions of the legacy days, and we're through that now. I think I want to thank the Verizon team. I think we got to a really good place. And luckily we got the service back for our consumers. But again, it really has no material impact on the business this year in terms of our guide or next year as well.

Got it. Okay. That's helpful. And then maybe just a follow-up. You've highlighted the stronger engagement trends, improving churn trends despite recent price increases. Much of that, there's a lot of different factors, whether it be a stronger content slate, the improving of the underlying subscriber base, just higher LTV consumers or greater adoption of bundling and third-party distribution. Just all those different things that are coming into play. Just can you maybe just look under the covers? And what are the most stronger attributes that you see across maybe all those different categories that are really returning that OTT business back to growth?

Look, I think first and foremost, it's the content slate, right? We have gotten into places in the legacy ownership where we had large gaps of content for our audiences. And so when you have shows on the air every week for the Power audience or the Outlander audience, churn is really low. When you have a show that comes on for 10 weeks and there's a 3- or 6-month gap between a piece of content for that audience, you see people churn out and churn back on and you end up just spinning your wheels on the business, either going back into the market to get low-calorie subs to get to that sub number for the quarter. And so that was a piece of it. But you're starting to see the slate come back in earnest where there aren't a lot of gaps. This quarter -- this past quarter, we had a ton of content on the air that we haven't had before. I think we had Kanan end of the quarter, we had Fightland, we had Blood of My Blood, and we had Michael and S.W.A.T. Exiles and Tip Toe. So you had a really massive quarter of content for folks. P-Valley, again, coming back will probably be one of our biggest shows. It's always been one of our biggest shows. And then we bring on Origins, which is the Power prequel story, and it's an 18-episode arc. And we haven't done a super-sized season yet on the Power side. We used to do it on Outlander with 16 episodes. And so that really brings us from -- you can probably schedule that 18 episodes over 20 to 24 weeks. And so you have a long consistent run of content for folks. We are going into production on Legacy. There's an opportunity to potentially bring that into the year, which is another Power show, which is really exciting. We have a bunch of co-commissions and acquisitions that filter in there. And so as you continue to have a consistent content slate, we're going to have the new Hunger Games movie next year as well. And that seems from all reviews from London last night. Congratulations to our folks across the street. That seems to going to be an outsized hit and everybody is saying it's one of the best in the series. So we're excited about getting that on the air. And so all of that really helps drive long-term lifetime value of customers, which means you have longer customers paying you more money. And so ARPU comes up, churn comes down and the business starts to really accelerate. And I think you're starting to see that in the stability of the revenue base and you're starting to see growth. So moving away from the short-term sub chase, focusing on 24-month revenue growth and having a consistent great slate throughout the year and programming it opportunistically that way is really what you're seeing on the top side of the business.

Our next question will come from the line of David Karnovsky from JPM.

Jeff, we've seen Prime Video go with a 5-service bundle recently. Just curious how you think about offerings like that from a Starz perspective in terms of reaching new subs or the impact to ARPU. And then just separately, you talked a little bit about the performance of Fightland in the U.S. I don't know if you could talk about any metrics specifically for how the show has performed in the U.K. And then as you look at this international opportunity, how do you think about the need to -- or opportunity to adjust your programming for more of an audience abroad?

Yes. I can speak first about the super bundle. We're really encouraged by the early results. It is early, but we're seeing customers take that super bundle. And again, even early on, we're seeing improved retention with that bundle. So that's really great to see. I think that as you add more and more services, it starts to almost look like packaging. It starts to look like a tier. It really starts to resemble sort of the old days of cable. And I think we think that there is great value for the customers there. They get a great price point, and it's just easier to navigate than having a slew of a la carte services. So I think we really are very encouraged by the results we see in the bundle -- in the bundles universe. But also as we're getting beyond the 2 service bundles into the 3s and the 5s, we expect to see even stronger results from those. But again, early days.

Good question on ownership in international sales. I mean, look, I think ultimately, the goal is to have enough owned content where we can have output deals with partners throughout the world, much like we have in Canada today. Having one show is hard to do an output deal, but as you get 2, 3, 4, 5 shows into '27 and '28, we can probably go to the international market and create output deals. But ultimately, that means that we are partnering with folks. We have co-commissions today where we work with folks in terms of putting certain talent into the show that makes the show more impactful for them. And as we're partnering with people around the world, we want to make sure that the content works for them. And so we will obviously invite our partners into the development process to make sure that these shows not only work great for us, but they work for our partners around the world.

Next question comes from the line of Sean Diffley from Morgan Stanley.

I was hoping you could elaborate on some of the learnings now that you've moved away from Lionsgate in terms of your production capabilities. Do you feel like you have more degrees of freedom? You referenced some of the cost efficiencies you're seeing in terms of cost per episode, but flesh that out a little further. And then, Jeff, I think you referenced diversifying beyond SVOD into AVOD over time. Maybe just elaborate on that, pull on that string a little bit. What could that look like? Why would you want to do that? And is there anything you need that you don't have in order to do it?

Yes. Good question. So let me start with the second part. Look, I think we believe that there are opportunities to build an AVOD business around our 2 core demos on scale that allows us to do -- obviously, bring incremental revenue into the business in terms of a lower-priced tier with advertising. Also gives us some pricing power between our ad tier and our SVOD tier. And so we've gone out and looked at the industry, and we know from our consumer, what our consumers are watching on Starz, but leaving Starz and going to watch content in other places. And so we have a really good sense of overlap of consumer, both on an ad-supported basis and on an SVOD basis. And so that becomes kind of a list of content and a list of opportunity for us to build that way. And so we know that, one, the industrial logic around either building it or buying it is sound because we know that consumers will watch against both. We know that the churn reduction of putting that content into the Starz app without ads is meaningful to the business there. We know that we can drive price across the 2 products. And so we think there's a real opportunity there. And we've been in some good conversations with folks, and we'll continue to be in conversations. But as I've said repeatedly on the call, the industrial logic has to, A, work. We have to feel like there is an opportunity to really build a digital business on scale. And leverage has to be in the right place because we're not going to put ourselves in a position where we over lever the business just to kind of build that business. The core business is operating so well right now, and we are on a really good path to having a real massive step-up into equity free cash flow in '29. So the current value versus what we and the Board see in terms of the future value when you get into '29, we're going to be really picky about what we do because the core business is operating so well, and we're really not going to actually risk that execution to do something just for the sake of doing something. And then on the production side, look, I think we've learned a lot with Fightland. I think that went really, really well. I think we understand how to -- obviously, if you look at it on the air, I think it looks as good as anything that we've ever produced on television. Remind everybody that before the Lionsgate acquisition, we were producing our own shows in the first place. P-Valley was originally a Starz show. Hightown was originally a Starz show. Power was originally a Starz show. And so we always had, even through the Lionsgate years, a 20-person development team doing production. And what we've had to add is a production finance and production leader to overlook that, and we've done that. And so we feel good about that. With any first production, there's going to be always start and stops, and we've got to a really good place. And I would say that the average cost per Fightland is probably net $3 million an hour better than what we've got in our first year from the prior parent, which is really -- which is great on an 8 to 10 episode. If you do that multiple times, that's really meaningful cost savings. If you look at the cash content spend over the last -- from '25 to '26, it's come down meaningfully. I think the team has done a great job there, and we expect that to come down even more. And right now, we're kind of in the C block of the untitled Black Rodeo show in Atlanta, and that's going incredibly well. And so we -- obviously, we're learning, but we think we're doing a great job and the cost, the benefit of owning our own content and controlling cost is really starting to benefit the business. And then on the revenue side, you can see in the quarter, we've got one original and you're starting to see that line item really come to fruition. So as you get into '27 and '28, you should start to see meaningful revenue on the business.

And our next question will come from the line of Matthew Harrigan from Benchmark StoneX.

Actually, most of my questions were answered. But you just spoke briefly about Muse and the agentic AI and repercussions on the subscription side. But you didn't talk that much about AI in terms of the development process and the trimming on the production cost side and just being able to expand your programming even more rapidly and efficiently. And I think you've had some interesting comments on that. Jeff has had some interesting comments on that before. So I thought I would prod you to revisit that. And then, of course, the bugbear last spring on the Chinese side on the rights and everything.

So on AI, look, AI is obviously a very powerful tool on a bunch of different parts of the business. I think scheduling the network, acquiring content that we know works for our audience, scheduling it properly to drive long lifetime value is really an important piece, and that's something that's been really helpful in terms of acquiring finished content efficiently, scheduling a network in a way where we can drive subs to a higher LTV is really important. We've got billions of data sets since we launched the app in April of 2016, whether it's price points, channels, ads that people click, retention offers, decay curves, all of the retail business side that is just billions of sets. The AI tools have really been helping us tune the business to long-term revenue growth. In terms of production, obviously, if you're going to do an overhead shot, you're not going to send up a camera and a crew anymore to shoot the overhead of London or Fightland. You can do that through AI. It shortens the ability to finish the show in terms of post. And then there's a bunch of other things that are happening. We'll be a fast follower on those. But actually, as we've been really talking about AI, we actually think there's a real opportunity for a small company which budgets aren't as big as others to use AI to really kind of grow the business. I'll let Ali talk about that.

Yes. In addition to everything that Jeff laid out, I think we get excited about AI's capacity to help us help customers discover our content. I think we can see real gains on our retail app, but also our partners are really leaned in on that. Think about an Amazon, a Roku, really thinking about how AI can help customers discover content they wouldn't normally have discovered, improve merchandising and really uncover the breadth of the library that we have to offer. And so I think it's still early, but that gets really exciting. We see things happening in retail that we think have a lot of relevance and are very analogous to our business and that we can really see gains from.

And then just revisiting the Seedance panic sell-off in February. Do you have any thoughts there in terms of the implications?

Yes. So good question. Look, I think we -- like I said earlier, I don't think -- we watch the business. We watch it daily. We really built the B2C business. And so we get reports every day on churn, gross adds and look at the business across that. And so -- and churn continues to be at historic lows. So I don't think we really had a major impact from that. And we've looked at it, we watched it. We continue to watch. I think there were some other things going on in the stock at that point that may have become available earlier today. But at the end of the day, I think, because 70% of our business is wholesale and we're sold through other partners who are really looking at those as well, we're a little more insulated than others, but we continue to watch it. We continue to build tools on our end to look at tails and to track footprints of the bots coming in and around. And so that's the nice thing about having our own data team in Denver that really is on this every day. But I don't think we saw an impact that we haven't seen a churn impact on that at all.

I'm not showing any further questions in the queue. I'd like to turn it back over to Nilay for any closing remarks.

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

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