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DVD Spurs Lionsgate Profit

2 Jun, 2008 By: Erik Gruenwedel

Characterized by Lionsgate president and COO Steve Beeks as “hitting on all cylinders,” the mini-major posted fourth quarter (ended March 31) fiscal-2008 income of $29.8 million on revenues of $511.5 million, aided by strong DVD sales across multiple genres.

The Santa Monica, Calif.-based studio reported net income of $25 million and revenues of $331.6 million during the previous-year period.

The tally fell below market expectations, resulting in a 10 cents drop (1%) for Lionsgate's stock, which closed June 2 at $9.85.

DVD sales — spearheaded by 3:10 to Yuma, War, Saw 4, Good Luck Chuck and Tyler Perry's Why Did I Get Married? — helped Lionsgate generate 9.1% home entertainment market penetration.

“This is major-studio level market share,” said CEO Jon Feltheimer, in a call with analysts. “We've had a great year.”

Lionsgate ended the fiscal year with 7% market share in home entertainment.

For fiscal 2008, home entertainment revenue grew 18% to $623.5 million for combined new media, DVD and library, and is projected to top $700 in fiscal 2009.

Beeks said library revenue, which included television and international, grew to $264 million and generated cash flow of $100 million. Direct-to-video, family, TV on DVD and fitness rounded out the DVD drivers. The quarter also saw the first DVD release of Tyler Perry's TV series, “House of Payne.”

Fiscal 2008 revenues topped $1.3 billion, up 39% from $976.7 million last year.

Lionsgate reported fiscal year net losses of $74 million, compared to a profit of $27.5 million during the previous-year period. The studio cited a 118% increase in theatrical distribution and marketing expenses ($326.3 million, up from $149.7 million) for the loss.

Beeks said Lionsgate's recently announced DVD distribution deal with Hit Entertainment would catapult it to No. 3 among distributors of non-theatrical children's entertainment.

Key properties include Bob the Builder, Barney and Thomas & Friends.

The COO said Blu-ray sales were off to a great start in 2008, with industry sales in first quarter of the calendar year generating about $150 million and on track to reach $1 billion this year, especially with the introduction of a sub-$300 Blu-ray player at Wal-Mart.

“This is what all of us have said we need to spur growth in HD,” Beeks said.

Digital revenue increased 60% to $40 million from $25 million in 2007, and is projected to reach $70 million this year and $100 million in fiscal 2010.

The COO said the studio generated 3 million Internet downloads (VOD and sellthrough) in the fiscal year, compared to 800,000 in fiscal 2007.

Beeks said digital revenue was expected to grow by 250% by 2010, with episodic downloads increased by 275% from last year.

“The growing ubiquity of digital delivery will dramatically expand our available markets at ever increasing margins with no inventory or obsolescence risks,” Beeks said. “All of these developments underscore the strengths of home entertainment and our bullish expectations.”

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