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Lionsgate CEO: VOD Driving Home Entertainment

10 Feb, 2011 By: Erik Gruenwedel

Lionsgate CEO Jon Feltheimer said the studio’s revenue from transactional video-on-demand and Web-based on-demand programming, or iVOD, topped $31 million in the third quarter (ended Dec. 31), which was up 84% from the previous-year quarter.

Speaking Feb. 10 in an analyst call to discuss the Santa Monica, Calif.-based minimajor’s quarterly results, Feltheimer reiterated that overall home entertainment revenue grew 63%, due in part to strong disc sales, notably in catalog and Blu-ray Disc.

Indeed, Lionsgate executives said 40% of Blu-ray’s overall revenue growth from $1.1 billion to nearly $2 billion was due to the release of older catalog titles in the high-definition format.

Feltheimer said Lionsgate’s VOD-to-box office conversion rate is 62% higher than the industry average — a statistic he said has seen typical VOD revenue of a theatrical title increase from 5% to 10% of box office two years ago, to 15% to 25% of box office today.

“Although on-demand revenues don’t yet make up the gap from the decline in packaged media conversion, they’re heading in the right direction,” Feltheimer said.

Lionsgate's VOD revenue would appear to be at odds with industry trends, which saw less than one movie or TV program acquired per consumer via transactional VOD in the past six months of 2010, according to Santa Monica, Calif.-based research firm Interpret. It said 1.16 VOD movies and TV shows were purchased in the past three months, compared to 8.8 TV shows and 6.72 movies streamed.

Feltheimer agreed that electronic sellthrough hasn’t taken off as anticipated, adding that there is continual concern that digital growth may be creating a growing percentage of rental customers who were previously retail customers.

“The fact is that the growth of Blu-ray, coupled with our on-demand conversion rate, enabled us to achieve higher operating margin in our home entertainment business for our theatrical product than we did a year ago,” Feltheimer said.

He said Lionsgate recently launched a micro-budget movie initiative that will release up to 10 films (largely comedies, urban and horror) with budgets under $2 million each.

“We will backstop all these films from our home entertainment, and international digital distribution businesses,” Feltheimer said. “If you are skeptical about movies made for a $1 million budget, let me remind of Saw, Paranormal Activities and The Blair Witch Project — two of which were Lionsgate projects.”

Strong disc and electronic sellthrough/rental of The Expendables helped Lionsgate generate $174.4 million in third-quarter home entertainment revenue from revenue of $107 million during the previous-year period.

Key home entertainment titles in the quarter included Tyler Perry’s Madea’s Big Happy Family, the theatrical titles Killers and Kick-Ass, as well as sister company Roadside Attractions’ Academy Award-nominated Winter’s Bone and the television series release “Mad Men: Season Three.”

Overall motion picture revenue for the period was $326.7 million, an increase of 30% from a year ago. Within the motion picture segment, theatrical revenue was $53.8 million, an increase of 9% from a year ago, and attributable to the box office performance of the films The Next Three Days, For Colored Girls and Saw 3D.

For the quarter, Lionsgate posted a net loss of $6 million, a significant improvement from a net loss of $65 million during the previous-year period.
Indeed, without a non-cash equity interest loss of $13.1 million ($11.1 million attributable to Lionsgate's interest in Epix) and $7.9 million in corporate defense and associated costs related to Carl Icahn’s apparent aborted attempt to wrest control of the studio, the minimajor would have turned a profit.

The studio said it would report its first positive fiscal contribution for its pay-TV channel Epix in the next quarter.


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