Do you remember when film studios were strong investments?

John Wick: Chapter 4’s debut made $138M in its first weekend — a much-needed win for Lionsgate Entertainment (NYSE:LGFA) — whose stock has fallen nearly 50% since 2021.

Lionsgate is a tale of two businesses:

1/ Studio business: Lionsgate — which creates and distributes films and TV shows with a massive roster, including Mad Men, Twilight and The Hunger Games.

2/ Cable and streaming business: Starz. In 2016, Lionsgate bought Starz — a cable network and streaming service — for $4.4B to compete in the streaming game.

Exploding Starz

Lionsgate has been struggling with money-losing Starz since the purchase. At the end of last quarter, Starz had 37.2M subscribers — far short of Netflix’s 231M and Disney+’s 161M.

At its scale, even Disney is having difficulty making its streaming platform profitable. It’s no surprise Starz is struggling — it’s simply too small.

Lionsgate is finding more value in selling shows to other platforms:

• The studio pulled their John Wick spin-off series from Starz and opted to sell it to Peacock and Amazon Prime.
• Starz CEO said selling the series to other networks is 7-8x better for shareholders than streaming on Starz.

Where it gets interesting for investors

Lionsgate is splitting Starz and its studio business into their own separately traded companies.

• LGFA
  holders will get one share in each of its studio and Starz businesses.
• The spin-off is expected to be completed by September 2023.

Per Bloomberg data, the studio alone could be worth $4.8B — more than double that of the stock’s current market cap.

Liongate’s vice chairman says: “Take the stock price today, and once you do a separation, you add up what your value is, and if that number is not higher, I should be fired.”

Lionsgate has also explored selling itself in recent years — with reported rumors of potentially interested buyers, including Vivendi, Apollo Global Management and Roku.

Happy hunting.