Goodwill and Intangible Assets

9 Months Ended

Dec. 31, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

Changes in the carrying value of goodwill by reporting segment were as follows:


	Motion Picture		Television Production		Media Networks		Total
	(Amounts in millions)


Balance as of March 31, 2023(1)	$	393.7	$	401.9	$	493.9	$	1,289.5
Acquisition of eOne (see Note 2)	1.0		4.8		—		5.8
Impairment	—		—		(493.9)		(493.9)


Balance as of December 31, 2023(1)	$	394.7	$	406.7	$	—	$	801.4

________________

(1)As of March 31, 2023 and December 31, 2023, accumulated goodwill impairment losses totaled $1.475 billion and $1.969 billion, respectively, related to the Media Networks reporting unit, as further described below.

Impairment Assessments

Fiscal 2024. During the second quarter ended September 30, 2023, due to the continuing difficult macro and microeconomic conditions, industry trends, and their impact on the performance and projected cash flows of the Media Networks segment, including its growth in subscribers and revenue worldwide, and the expanded restructuring activities discussed in Note 14, along with recent market valuation multiples, the Company updated its quantitative impairment assessment for its Media Networks reporting unit goodwill based on the most recent data and expected growth trends. In performing its quantitative impairment assessment, the fair value of the Company's reporting units was estimated by using a combination of discounted cash flow ("DCF") analyses and market-based valuation methodologies. The Media Networks reporting unit goodwill was established in connection with the acquisition of Starz as of December 8, 2016.

Based on its quantitative impairment assessment, the Company determined that the fair value of our Media Networks reporting unit which was previously disclosed as a reporting unit "at risk" of impairment, was less than its carrying value (after the impairment write-down of its indefinite-lived intangible assets discussed below). The analysis resulted in a goodwill impairment charge of $493.9 million in the second quarter ended September 30, 2023, representing all of the remaining Media Networks reporting unit goodwill, which is recorded in the "goodwill and intangible asset impairment" line item in the unaudited condensed consolidated statement of operations in the nine months ended December 31, 2023.

During each quarter in the nine months ended December 31, 2023, we performed qualitative goodwill impairment assessments for all our other reporting units (Motion Picture, and our Television and Talent Management businesses, both of which are part of our Television Production segment). Our qualitative assessment considered the market price of the Company’s common shares, the recent performance of these reporting units, and updated forecasts of performance and cash flows, as well as the current micro and macroeconomic environments in relation to the current and expected performance of these reporting units, and industry considerations, and determined that since the quantitative assessment performed in the quarter ended September 30, 2022 and our qualitative assessment performed for fiscal 2023, there were no events or circumstances that rise to a level that would more-likely-than-not reduce the fair value of those reporting units below their carrying values; therefore, a quantitative goodwill impairment analysis was not required for these reporting units.

Fiscal 2023. In fiscal 2023, during the second quarter ended September 30, 2022, due to adverse macro and microeconomic conditions, including the competitive environment, continued inflationary trends and recessionary economies worldwide and its impact on the Company's growth in subscribers worldwide, the Company began implementing a plan to

restructure its LIONSGATE+ business, and the Company revised its subscriber growth and forecasted cash flow assumptions and implemented certain cost-saving measures.

Accordingly, for the second quarter ended September 30, 2022, the Company updated its quantitative impairment assessment for all of its reporting units, using a combination of DCF analyses and market-based valuation methodologies to estimate the fair value of the Company's reporting units, and determined that the fair value of its reporting units exceeded the carrying values for all of its reporting units, except the Media Networks reporting unit which had been previously disclosed as a reporting unit "at risk" of impairment. The analysis resulted in a goodwill impairment charge of $1.475 billion in the three months ended September 30, 2022, related to the Company's Media Networks reporting unit goodwill, which is recorded in the "goodwill and intangible asset impairment" line item in the unaudited condensed consolidated statement of operations. Since the impairment charge reduced the carrying value of the Media Networks reporting unit to its fair value, at September 30, 2022 the fair value and carrying value of the Media Networks reporting unit were equal and thus it continued to be considered "at risk" of impairment.

Indefinite-Lived Intangible Assets

Through September 30, 2023, our indefinite-lived intangible assets consisted of trade names representing the estimated fair value of the Starz brand name determined in connection with the acquisition of Starz as of December 8, 2016, amounting to $250.0 million related to the Media Networks reporting unit before the impairment charge recorded in the second quarter ended September 30, 2023 discussed below.

During the second quarter ended September 30, 2023, due to the events and their impact discussed above related to our Media Networks reporting unit, we performed a quantitative impairment assessment of our indefinite-lived trade names. The fair value of the Company's indefinite-lived trade names was estimated based on the present value of the hypothetical cost savings that could be realized by the owner of the trade names as a result of not having to pay a stream of royalty payments to another party. These cost savings were calculated based on a DCF analysis of the hypothetical royalty payment that a licensee would be required to pay in exchange for use of the trade names, reduced by the tax effect realized by the licensee on the royalty payments. Based on the quantitative impairment assessment of our trade names, we recorded an impairment charge of $170.0 million in the second quarter ended September 30, 2023 related to the Company's Starz business, which was recorded in the "goodwill and intangible asset impairment" line item in the unaudited condensed consolidated statement of operations in the nine months ended December 31, 2023.

After the Company performed its quantitative impairment assessment, during the second quarter ended September 30, 2023, the Company then reassessed the estimated useful life of the trade names with a remaining carrying value of $80.0 million, net of the impairment charge discussed above. The Company concluded that based upon the most recent factors, including current macro and microeconomic conditions, market competition and historical Company and industry trends, the trade names now have a finite estimated remaining useful life of 10 years. Accordingly, beginning in the third quarter ended December 31, 2023, the trade names are being accounted for as finite-lived intangible assets and amortized over their estimated remaining useful life. This resulted in an increase to amortization expense of $2.0 million for the three and nine months ended December 31, 2023 with a corresponding reduction of income before income taxes, net loss, and net loss attributable to Lions Gate Entertainment Corp. shareholders. This resulted in a decrease to basic and diluted net loss per share for the three months ended December 31, 2023 by $0.01 per share, and a decrease to basic and diluted net loss per share for the nine months ended December 31, 2023 by $0.01 per share. There was no tax benefit from the change due to changes in the Company’s valuation allowance on deferred taxes.

Finite-Lived Intangible Assets

Our finite-lived intangible assets primarily relate to customer relationships representing Starz affiliation agreements with distributors, related to the Media Networks reporting unit. Beginning in the third quarter ended December 31, 2023, our finite-lived intangible assets also include the trade names previously accounted for as indefinite-lived intangible assets as discussed above.

The Company monitors its finite-lived intangible assets and changes in the underlying circumstances each reporting period for indicators of possible impairments or a change in the useful life or method of amortization of our finite-lived intangible assets.

During the third quarter ended December 31, 2023, there were no events or circumstances that would indicate that the carrying amount of our finite-lived intangible assets (which including the trade names discussed above amounted to $1,028.5 million at December 31, 2023) may not be recoverable.