The Family That Preys
By Erik Gruenwedel | Posted: 09 Feb 2009
In a switch, Lionsgate Feb. 9 cited the poor performance of its theatrical release slate — and not DVD — for reporting a $93.4 million third-quarter (ended Dec. 31, 2008) net loss, compared to net income of $7.3 million during the prior-year period.
Unlike Disney, Fox and Warner Bros., which all partially attributed recent quarterly studio revenue declines to cooling consumer appetites for DVD in the current economy, Lionsgate said wide theatrical releases of The Spirit, Punisher: War Zone and Transporter 3 performed unfavorably, compared to releases in the previous year's quarter.
“The primary factor contributing to this quarter’s loss was the underperformance of our feature-film slate,” said Lionsgate co-chairman and CEO Jon Feltheimer. “This will have a significant negative impact on our [pre-tax earnings] and free cash flow for the whole year.”
He said current fiscalyear theatrical revenue would top $400 million, down from a previous $550 million estimate. Margins would be about 5%, compared to previous estimates of 15%.
“Breaking even or taking loses, even small ones, on so many films this year is totally unacceptable,” Feltheimer told analysts. “We must do better and we will.”
In addition, investor withdrawals reportedly forced the studio to self-finance films The Spirit and My Bloody Valentine 3-D as well as the upcoming Feb. 20 theatrical release Tyler Perry’s Madea Goes to Jail.
As a result, expect to see more Friday the 13th, Tyler Perry and Saw-type releases into next year, according to executives who said they would focus on a smaller theatrical slate of typical Lionsgate fare. Indeed, Fandango.com Feb. 11 reported that 54% all online movie ticket purchases were for the Friday the 13th remake.
The Santa Monica, Calif.-based mini-major’s home entertainment revenue from all segments, including electronic, declined 11%, to $101.5 million, from $114.6 million last year.
Again, Lionsgate blamed the lack of high-profile new theatrical releases coming to DVD in the quarter for the decline. Significant home entertainment titles in the quarter included Beer for My Horses and continued sales of Rambo, The Bank Job, The Forbidden Kingdom and War, which were released in previous quarters.
Lionsgate said it slated the DVD releases of theatrical titles Saw V, Tyler Perry’s The Family That Preys, Bangkok Dangerous, My Best Friend’s Girl and Transporter 3 for the fiscal fourth quarter to avoid the glut of major studio releases prior to the holidays — a problem in previous years.
Steve Beeks, president and co-COO of Lionsgate, said the home entertainment results improved in every segment, except children’s. He said the studio’s home entertainment market share hit a record 6.7%, compared to 5.6% last year.
He admitted the market for packaged media remained challenging but attributed it more to the economy and film releases than erosion of the DVD. Beeks said the studio’s home entertainment revenue for fiscal 2009 would exceed that of 2008.
“The market is still responding to specific film genres when presented well,” Beeks said. “Bangkok Dangerous and My Best Friend’s Girl will over-convert [exceed] their box office performance.”
Lionsgate is on schedule to generate $273 million in library packaged-media revenue this year, which is $30 million less than previously budgeted, according to the executive.
He said digital distribution and Blu-ray continue to generate significantly higher margins, with high-def packaged media representing 10% to 15% of Lionsgate’s new-theatrical-release revenue.
“We expect that revenue to continue growing as overall consumer revenue from Blu-ray is projected to grow significantly this year,” he said.
Beeks said a special library promotion with Apple iTunes on five older titles during the quarter generated 17,000 paid downloads during the promotion, compared to 190 downloads the prior week. He said future digital revenue would supplement, not replace, packaged media and provide incremental revenue.
The studio cited underperformance with its HIT Entertainment DVD distribution deal, which it attributed to softness in the preschool non-theatrical retail market and unusually high returns from the field. It took a $20 million charge on the underperforming unit.
“We’re not satisfied with these results, “ Beeks said.
He said home entertainment revenues could decline 10% to 15% in fiscal 2010 due to the underperforming theatrical slate.
Overall revenue increased 8.4%, to $324 million, compared to $299 million in the previous year.