Lionsgate Studios (LION) Risk Analysis

Data Privacy and Security. In the ordinary course of its business, Lionsgate collects, generate, uses, stores, processes, discloses, transmits, shares and transfers (collectively "process") personal data and other sensitive information, including proprietary and confidential business data, trade secrets, intellectual property, and third-party data, through its websites and applications and those of third parties. Among other purposes, Lionsgate uses this information to engage with users, promote its programming, and monitor the use of its digital platforms. Lionsgate's processing of personal data subjects it to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contractual requirements, and other obligations relating to data privacy and security. In the U.S., federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data privacy laws, consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act and the Controlling the Assault of Non-Solicited Pornography and Marketing Act), and other similar laws (e.g., wiretapping laws). For example, numerous U.S. states have enacted comprehensive privacy laws that impose certain obligations on covered businesses, including providing specific disclosures in privacy notices and affording residents with certain rights concerning their personal data. As applicable, such rights include the right to access, correct, or delete certain personal data, and to opt-out of certain data processing activities, such as targeted advertising, profiling, and automated decision-making. The exercise of these rights may impact Lionsgate's business and ability to provide its products and services. Certain states also impose stricter requirements for processing certain personal data, including sensitive information, such as conducting data privacy impact assessments. These state laws allow for statutory fines for noncompliance. For example, the California Consumer Privacy Act ("CCPA") applies to personal data of consumers, business representatives, and employees who are California residents, and requires businesses to provide specific disclosures in privacy notices and honor requests of such individuals to exercise certain privacy rights. The CCPA provides for fines and allows private litigants affected by certain data breaches to recover significant statutory damages. Similar laws are being considered in several other states, as well as at the federal and local levels, and we expect more states to pass similar laws in the future. These developments will further complicate compliance efforts and increase legal risk and compliance costs for Lionsgate and the third parties with whom Lionsgate works. Outside the U.S., an increasing number of laws, regulations, and industry standards apply to data privacy and security. For example, the European Union's General Data Protection Regulation (the "EU GDPR"), the United Kingdom's GDPR (the "UK GDPR" and, together with the EU GDPR, the "GDPR"), the EU Digital Services Act, Brazil's General Data Protection Law (Lei Geral de Proteção de Dados Pessoais, or "LGPD") (Law No. 13,709/2018) and Canada's Personal Information Protection and Electronic Documents Act ("PIPEDA") impose strict requirements for processing personal data. For example, under the GDPR, companies may face temporary or definitive bans on data processing and other corrective actions; fines of up to 20 million Euros (under the EU GDPR) or 17.5 million pounds sterling (under the UK GDPR), or 4% of annual global revenue, whichever is greater; or private litigation related to processing of personal data brought by classes of data subjects or consumer protection organizations authorized at law to represent their interests. As another example, in Canada, PIPEDA and various related provincial laws, as well as Canada's Anti-Spam Legislation ("CASL"), apply to Lionsgate's operations, as well as the LGPD in Brazil. The LGPD broadly regulates processing personal data of individuals in Brazil and imposes compliance obligations and penalties comparable to those of the GDPR. Additionally, regulators are increasingly scrutinizing companies that process children's data. Numerous laws, regulations, and legally-binding codes, such as the Children's Online Privacy Protection Act ("COPPA"), California's Age-Appropriate Design Code, CCPA, other U.S. state comprehensive privacy and social media laws, GDPR, and the UK Age-Appropriate Design Code impose various obligations on companies that process children's data, including requiring certain consents to process such data and extending certain rights to children and their parents with respect to that data or verifying a user's age. Some of these obligations have wide ranging applications, including for services that do not intentionally target child users (defined in some circumstances as a user under the age of 18 years old). These laws may be, or in some cases, have already been, subject to legal challenges and changing interpretations, which may further complicate Lionsgate's efforts to comply with these laws. Additionally, under various privacy laws (such as the Video Privacy Protection Act) and other obligations, Lionsgate may be required to obtain certain consents to process personal data. Noncompliance with such obligations is increasingly subject to challenges by class action plaintiffs. Lionsgate's inability or failure to obtain such consents could result in adverse consequences. In the ordinary course of business, Lionsgate transfers personal data from Europe and other jurisdictions to the U.S. or other countries. Europe and other jurisdictions have enacted laws requiring data to be localized or limiting the transfer of personal data to other countries. In particular, the European Economic Area ("EEA") and the United Kingdom ("U.K.") have significantly restricted the transfer of personal data to the U.S. and other countries whose privacy laws it believes are inadequate. Other jurisdictions may adopt or have already adopted similarly stringent interpretations of their data localization and cross-border data transfer laws. Although there are currently various mechanisms that may be used to transfer personal data from the EEA and UK to the U.S. in compliance with law, such as the EEA standard contractual clauses, the UK's International Data Transfer Agreement / Addendum, and the EU-U.S. Data Privacy Framework and the UK extension thereto ("DPF") (which allows for transfers to relevant U.S.-based organizations who self-certify compliance and participate in the DPF), these mechanisms are subject to legal challenges, and there is no assurance that Lionsgate can satisfy or rely on these measures to lawfully transfer personal data to the U.S. If there is no lawful manner for Lionsgate to transfer personal data from the EEA, the UK or other jurisdictions to the U.S., or if the requirements for a legally-compliant transfer are too onerous, Lionsgate could face significant adverse consequences, including the interruption or degradation of its operations, the need to relocate part of or all its business or data processing activities to other jurisdictions at significant expense, increased exposure to regulatory actions, substantial fines and penalties, the inability to transfer data and work with partners, vendors and other third parties, and injunctions against processing or transferring of personal data necessary to operate its business. Additionally, companies that transfer personal data out of the EEA and UK to other jurisdictions, particularly to the United States, are subject to increased scrutiny from regulators, individual litigants, and activist groups. Some European regulators have ordered certain companies to suspend or permanently cease certain transfers out of the EEA for allegedly violating the GDPR's cross-border data transfer limitations. Lionsgate is also bound by contractual obligations related to data privacy and security, and its efforts to comply with such obligations may not be successful. We are also contractually subject to industry standards adopted by industry groups and, we are, and may become in the future, subject to such obligations. For example, Lionsgate is contractually subject to certain industry standards adopted by industry groups, such as the Payment Card Industry Data Security Standard ("PCI DSS"). The PCI DSS requires companies to adopt certain measures to ensure the security of cardholder information, including using and maintaining firewalls, adopting proper password protections for certain devices and software, and restricting data access. Noncompliance with PCI DSS can result in penalties ranging from fines of $5,000 to $100,000 per month by credit card companies, litigation, damage to Lionsgate's reputation, and revenue losses. Lionsgate relies on third parties to process payment card data, who may be subject to PCI DSS, and its business may be negatively affected if these parties are fined or suffer other consequences as a result of PCI DSS noncompliance. Moreover, Lionsgate publishes privacy policies, marketing materials and other statements regarding data privacy and security, including as required by applicable laws and regulations. Regulators in the United States are increasingly scrutinizing these materials, and if these policies, materials or statements are found to be deficient, lacking in transparency, deceptive, unfair, misleading or misrepresentative of Lionsgate's practices, it may be subject to investigation, enforcement actions by regulators or other adverse consequences. Obligations related to data privacy and security (and consumers' data privacy expectations) are quickly changing, becoming increasingly stringent, and creating uncertainty. Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions. Preparing for and complying with these obligations requires significant resources and has in the past and may continue to necessitate changes to Lionsgate's information systems, policies and practices and to those of any third parties with whom it works. Lionsgate may at times fail (or be perceived to have failed) in efforts to comply with data privacy and security obligations. Moreover, despite its efforts, its personnel or third parties with whom it works may fail to comply with such obligations, which could negatively impact Lionsgate's business operations and compliance posture. If Lionsgate or the third parties with whom it works fails, or are perceived to have failed, to address or comply with applicable data privacy and security obligations, Lionsgate could face significant consequences, including, but not limited to: government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-action claims) and mass arbitration demands; additional reporting requirements and/or oversight; bans or restrictions on processing personal data; or orders to destroy or not use personal data. In particular, plaintiffs have become increasingly active in bringing privacy-related claims against companies, including class claims and mass arbitration demands. Some of these claims allow for the recovery of statutory damages on a per violation basis, and, if viable, carry the potential for monumental statutory damages, depending on the volume of data and the number of violations. Any of these events could have a material adverse effect on Lionsgate's reputation, business, or financial condition, including, but not limited to: loss of customers; interruptions or stoppages in business operations; inability to process personal data or to operate in certain jurisdictions; limited ability to develop or commercialize its products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or substantial changes to its business model or operations. Our employees and personnel use generative AI and/or automated decision-making technologies to perform their work, and the disclosure and use of personal data in AI technologies is subject to various privacy laws and other privacy obligations. Governments have passed and are likely to pass additional laws and regulations regulating AI and/or automated decision-making technologies. Our use of this technology could result in additional compliance costs, regulatory investigations and actions, and lawsuits. If we are unable to use AI and/or automated decision-making technologies, it could make our business less efficient and result in competitive disadvantages. Consumer Protection Laws. The continued growth and development of the market for online commerce may lead to more stringent consumer protection laws both domestically and internationally, which may impose additional burdens on Lionsgate. If authorities start taking increased enforcement action related to statutes governing perceived unfair deceptive acts and practices, Lionsgate could suffer additional costs, complaints and/or regulatory investigations or fines. Several of these laws also have private rights of action. Lionsgate's actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions, litigation, fines and penalties, reputational harm, and other adverse business consequences. Other changes in consumer protection laws and the interpretations thereof could have a materially adverse effect on Lionsgate's business, financial condition and results of operations. Levies/Taxes. Governments are increasingly looking to introduce regulations related to media and tax that may apply to Lionsgate's services. For example, some international governments have enacted or are considering enacting laws that impose levies and other financial obligations on media operators located outside their jurisdiction. Other changes in levy or tax laws and the interpretations thereof could have a materially adverse effect on Lionsgate's business, financial condition and results of operations.

As a producer and distributor of media content, Lionsgate, in the ordinary course of business, may be subject to claims alleging defamation, invasion of privacy, negligence, infringement of copyright or trademark rights, or other claims based on the nature and content of the materials it produces, distributes or licenses. Lionsgate may also face claims arising from statements made by its personnel or creative talent in connection with the promotion of its content or otherwise attributable to its business, as well as claims relating to mature or controversial subject matters. These types of claims have historically been asserted, sometimes successfully, against producers and distributors of media content. The defense and resolution of such claims may be costly, time-consuming and disruptive, and adverse outcomes could result in damages, settlements, injunctions, restrictions on the distribution or exploitation of content, or other judicial or regulatory remedies. In addition, such matters, regardless of their ultimate outcome, may generate negative publicity, which may be rapid and amplified by social media and digital platforms and may persist even after underlying issues have been addressed or resolved. Any resulting reputational harm may impair Lionsgate's ability to market content effectively, secure or renew distribution and licensing arrangements, attract or retain creative talent, or maintain audience engagement, and may result in financial losses or increased operating costs. While Lionsgate maintains insurance coverage for certain liabilities, such coverage may be subject to exclusions, deductibles or coverage limits and may not apply to particular claims. Any liability that is not covered by insurance, or that exceeds available insurance coverage, or any resulting adverse market or commercial effects, could have a materially adverse effect on Lionsgate's business, financial condition and results of operations.

Under current U.S. federal tax law, a corporation is generally considered for U.S. federal tax purposes to be a tax resident in the jurisdiction of its organization or incorporation. Because Lionsgate is incorporated outside of the U.S., it would generally be classified as a non-U.S. corporation (and, therefore, a non-U.S. tax resident) under these rules. However, Section 7874 of the Internal Revenue Code (the "Code") ("Section 7874") provides an exception to this general rule under which a non-U.S. incorporated entity may, in certain circumstances, be treated as a U.S. corporation (or surrogate foreign corporation) for U.S. federal tax purposes if it acquires a domestic entity (referred to as a "domestic entity acquisition"), and after the domestic entity acquisition, 80% or more (by vote or value) of the non-U.S. incorporated entity's stock (60% or more for purposes of a surrogate foreign corporation determination) is held by former shareholders of the domestic entity by reason of holding stock in the domestic entity. This exception generally does not apply to situations in which, prior to the domestic entity acquisition, 80% or more (by vote and value) of the stock of the domestic entity was held directly or indirectly by a parent corporation (referred to as the "common parent"), and, after the domestic entity acquisition, the same common parent holds 80% or more (by vote and value) of the stock of the non-U.S. incorporated entity (referred to as the "internal group restructuring exception"). There is limited guidance regarding the application of Section 7874, including the application of the rules to the facts as they currently exist. If Lionsgate were to be treated as a U.S. corporation for federal tax purposes, it could be subject to substantially greater U.S. tax liability than currently contemplated as a non-U.S. corporation. In addition, non-U.S. shareholders of Lionsgate would be subject to U.S. withholding tax on the gross amount of any dividends paid by us to such shareholders (subject to an exemption or reduced rate available under an applicable tax treaty). Alternatively, if Lionsgate were to be treated as a surrogate foreign corporation for federal tax purposes, it and its U.S. affiliates (including the U.S. affiliates historically owned by it) may, in some circumstances, be subject to certain adverse U.S. federal income tax rules (which, among other things, could retroactively increase its transition tax under Section 965 from 8%-15.5% to 35% (as well as that of its prospective U.S. acquiror as the case may be) and limit its ability to utilize certain U.S. tax attributes to offset U.S. taxable income, such as the use of net operating losses and certain tax credits, or to offset the gain resulting from certain transactions, such as from the transfer or license of property to a foreign related person during the 10-year period following the merger).

Lionsgate's ability to compete depends, in part, on maintaining and protecting its proprietary and intellectual property rights. Lionsgate attempts to maintain and protect its rights to its content through available copyright and trademark laws, contractual protections in agreements with employees, contractors and production partners, and licensing and distribution arrangements with reputable third parties for specific territories, media and terms. Despite these precautions, intellectual property laws may afford protection in certain countries, and unauthorized third parties may copy and distribute or otherwise exploit Lionsgate's productions or certain portions or applications of its intended productions, without authorization. Moreover, there can be no assurance that Lionsgate or third-party content producers or parties from whom it may license or acquire content have, in all instances, obtained or maintained sufficient intellectual property rights, or entered into agreements containing appropriate "work made for hire," assignment, nondisclosure or other protective provisions. As a result, Lionsgate may be required to expend significant resources to enforce its intellectual property rights, protect trade secrets, determine the scope or validity of its rights or those of others, or defend against claims of infringement or invalidity. Such actions may be costly, time-consuming and disruptive, and may divert management attention and operational resources. Lionsgate's more successful and popular films, television programs and franchises may be particularly susceptible to infringement, especially in connection with or shortly after release. Alleged infringers may assert defenses such as fair use or similar doctrines, challenge the validity or enforceability of Lionsgate's intellectual property rights, or assert counterclaims alleging improper enforcement. Even if such claims lack merit, they may result in adverse publicity, unfavorable interim rulings, significant litigation costs or delays, and there can be no assurance that Lionsgate will prevail in all cases. Conversely, Lionsgate may from time to time be subject to claims alleging that its productions, content or production techniques infringe or misappropriate the intellectual property rights of third parties, including patent rights. Such claims, whether or not meritorious, may require Lionsgate to incur significant legal and management costs, pay damages or license fees, modify business practices or technology, or be subject to injunctions or other restrictions. These risks may be amplified by the increasing number of third parties whose primary business is asserting intellectual property claims. In addition, Lionsgate may lose or cease to control certain intellectual property rights over time. Certain rights may expire, revert or be terminated under applicable copyright laws, or be subject to transfer or termination rights exercised by third parties. In other cases, Lionsgate may have acquired rights for a limited duration or subject to other restrictions, or the underlying content may enter the public domain. The loss of, or limitations on, Lionsgate's ability to control or re-acquire such rights on acceptable terms, if at all, could limit its ability to prevent third-party exploitation of related content. Any of the foregoing could have a materially adverse effect on Lionsgate's business, financial condition, operating results, liquidity and prospects.

Lionsgate's results of operations depend significantly on the commercial success of the motion picture, television and other content that it sells, licenses or distributes, the performance of which cannot be predicted with certainty. Viewer preferences and audience acceptance are difficult to predict and may be influenced by numerous factors beyond Lionsgate's control, including critical reception, the format in which content is released, the talent involved, genre and subject matter, audience response, the quality and volume of content released by competitors, the availability of alternative forms of entertainment (including user-generated content), general economic conditions and other tangible and intangible factors. Lionsgate may not be able to anticipate and respond effectively to shifts in consumer tastes and viewing behaviors. Lionsgate's results of operations may also fluctuate due to the timing, mix, number and availability of theatrical motion picture and home entertainment releases, as well as licensing windows for content. In addition, low viewership for television programming produced by Lionsgate may result in the cancellation or non-renewal of a program, which could lead to significant programming impairments in a given period, and reduced license fees or other revenues in future periods. Other than non-renewals or cancellation of television programs or series that may occur from time to time, Lionsgate is not aware of any current material cancellation of television programming releases or of content that Lionsgate sells, licenses or distributes. In addition, the comparability of Lionsgate's results of operations may be affected by changes in accounting guidance or changes in Lionsgate's ownership of certain assets and businesses. As a result of the foregoing factors, Lionsgate's results of operations may fluctuate and differ from period to period, and therefore, may not be indicative of the results for any future periods or directly comparable to prior reporting periods.

Lionsgate's success depends upon the continued efforts, abilities and expertise of its executive teams and other key employees, including production, creative and technical personnel, as well as its ability to identify, attract, hire, train and retain such personnel. Although Lionsgate has employment agreements with certain senior executive officers and production executives, it does not maintain significant "key person" life insurance policies for any employee and such agreements cannot assure continued services of such employees. In addition, Lionsgate relies on the availability of a number of actors, writers, directors, producers and other creative talent, many of whom are engaged through third-party production companies who create its original programming. Competition for experienced executives and sought-after creative talent is intense, and Lionsgate may be unable to attract or retain key personnel or artistic talent on acceptable terms, or at all. The loss of, or inability to attract or retain, key personnel or creative talent could disrupt operations, delay or impair content development and production, and could have a materially adverse effect on Lionsgate's business, financial condition, operating results, liquidity and prospects.