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Steve Beeks: Home Entertainment Operating Margins Highest Since 2009

8 Aug, 2014 By: Erik Gruenwedel

Early packaged-media sales of 'Divergent' running 30% ahead of Lionsgate's projections

Consumer spending on home entertainment through the first six months of the year may be flat, but for the studios, the bottom line is mushrooming.

That’s because sales and rentals of digital movies have escalated, and when combined with strong Blu-ray Disc revenue, operating margins at the studios have actually risen to their highest point since 2009, according to Steve Beeks, co-COO and president of the motion picture group at Lionsgate.

Speaking Aug. 8 on the mini-major’s fiscal call, Beeks said media attention focusing on declining home entertainment revenue due to the maturation of the packaged-media market has failed to look further down the income statement.

“The story is the operating margin,” Beeks said.

Indeed, Divergent is on track to become Lionsgate’s bestselling digital release title ever. The movie also “significantly” over-indexed packaged-media sales in its first three days at retail (since Aug. 5) for a title in the $200 million to $300 million box office range.

“The movie has gotten off to such a great start in packaged-media sales it even surprised us,” Beeks said. “It’s tracking more like a picture that did 40% to 50% more than its box office. The picture will become more clear after the weekend but the trajectory is very, very good. So far we’ve shipped a lot of units, but it looks like we’re going to sell through every unit we’ve shipped.”

Divergent has already equaled (since its July 22 launch) the entire EST revenue generated by The Hunger Games: Catching Fire.

“Obviously, that’s a great sign in terms of its trajectory,” Beeks said.

Lionsgate is also readying a branded subscription streaming service in China through a content partnership with The Alibaba Group — the latter in the process of launching an IPO.

The studio already has licensing agreements for “Mad Men” and “Orange Is the New Black” in the region with ad-supported platform Youku. Lionsgate produced the former for AMC Networks, while creating the latter exclusively for Netflix.

Lionsgate is also in discussions with Yahoo for a streaming service in the United States. It also creates programming for Hulu and Amazon Prime Instant Video — the former getting exclusive access to atomic bomb-themed series “Manhattan” 24 hours after its initial broadcast on WGN America in Chicago.

The show has already become the second-most-popular on Hulu, according to Lionsgate, which considers the series to have the potential staying power and appeal of “Mad Men.”

“We’ve never seen a show with this much critical acclaim across the board,” said Kevin Beggs, Lionstate TV group chairman.

When asked if expanding third-party SVOD relationships threaten its deal with industry powerhouse Netflix, Beggs said no.

“We look at this opportunity in the streaming space much the same way we looked at the cable space 10 years ago as an emerging and open market,” he said.

Finally, Lionsgate has moved its international sales office from Santa Monica to its London office, which is home to Lionsgate U.K. The company has already relocated several executives, including motion picture group EVPs of international sales Wendy Reeds and Crystal Bourbeau, and is in the process of hiring several additional executives for the London office as well.

"The relocation of our international sales headquarters accelerates our evolution into a truly global organization and brings us closer to our overseas markets," Lionsgate CEO Jon Feltheimer said in a statement. "The U.K. government has been an extremely supportive partner in facilitating a move that positions us to capitalize even more fully on tremendous growth opportunities in the global marketplace."

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