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Lionsgate Home Entertainment to ‘Catch Fire’ in 2014

25 Nov, 2013 By: Erik Gruenwedel

Mini-major’s record-setting November box office launch of ‘The Hunger Games: Catching Fire,’ portends a rewarding home entertainment run

Lionsgate’s record-setting November box office launch of ‘The Hunger Games: Catching Fire,’ portends a successful home entertainment run in 2014 for the mini-major.

That’s because Lionsgate traditionally over-indexes the industry in box office to home entertainment conversion revenue — a reality that has underscored the latter’s enduring margins.

The second installment of Summit Entertainment’s popular teen franchise starring Oscar-winning Jennifer Lawrence took in almost $160 million at the domestic box office — the fourth best opening box office weekend in history. Combined with European sales, Catching Fire surpassed $307 million globally in 72 hours. The film, which surpassed its predecessor, The Hunger Games (by $8 million), also scored higher with critics.

All of that suggests Lionsgate should have a significant retail haul when it releases the film on Blu-ray Disc/DVD, digital next spring, followed by pay-TV and international TV.

B. Riley & Co. analyst David Miller says the strong box office start to Catching Fire may not have overwhelmed hawkish investors (Lionsgate’s shares closed down 10%), but the film’s financial bones are healthy.

Specifically, Miller said foreign pre-selling of Catching Fire was much more aggressive than for Hunger Games. Whereas Games saw a negative cost of $80 million that was defrayed down to $30 million through pre-selling foreign distribution rights, Fire has a negative cost more akin to $95 million (more expensive because there are a number of scenes filmed on water), but defrayed down to near-zero as LGF/Summit got much more aggressive this time around with foreign distributors, which is Summit’s forte.

Negative cost is the expense to produce and shoot a film, excluding distribution and promotion. Bottom line, according to Miller, Lionsgate is eyeing a major box office title for retail with minimal overhead.

“That will have the effect within the cash flow statement of decreasing film investment,” Miller wrote in a note earlier this month. “That is why we continue to model a fairly dramatic [free cash flow] swing to the positive in the current quarter, as well as fourth quarter [which ends March 31, 2014].”


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