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Genius Q4 Marketing Sinks Q3 Results

14 Nov, 2007 By: Erik Gruenwedel

In an effort to be profitable at year's end, Genius Products Inc. accounted for $6 million in marketing costs in the third quarter (ended Sept. 30) for seven DVDs from The Weinstein Co. slated for release this quarter.

As a result, the Santa Monica, Calif.-based distributor, which is 70% owned by TWC, posted a net loss of $5.4 million, compared to a first-ever profit of $2.1 million last quarter.

New-release DVDs, including the John Cusack thriller 1408, Rob Zombie's Halloween, Michael Moore documentary Sicko, Who's Your Caddy? , The Nanny Diaries, Last Legion and Planet Terror (as half of the double feature Grindhouse) collectively generated more than $172 million at the box office.

The distributor, which said it deferred a record $57 million in DVD revenue on the titles, is expecting net income of $20 million for the fourth quarter ending Dec. 31.

The company said 1408 is the main source for the deferred revenue.

“Although the additional $6 million expense negatively affected our third quarter margin, it will have a positive effect on fourth quarter margin,” said CEO Trevor Drinkwater in a call with investors. “If not for the timing of the additional expenses … we would have delivered another profitable quarter.”

The company cited DVD sales of TWC title Death Proof and non-TWC fare (about $60 million) from World Wrestling Entertainment, ESPN, Sesame Street and Discovery Kids in generating net revenue of $93.4 million, compared to net sales of $112 million last quarter.

“It should be noted that our [non-WTC] branded content grew over five times, versus the same time last year,” said Stephen Bannon, chairman of Genius.

Gross revenue of $135.5 million included $42.1 million in DVD returns, discounts and allowances.

Drinkwater said the returns (which included higher-than-expected allowances on some Weinstein titles) were higher than expected but would be repurposed as third-party sellthrough.

“So, it's not necessarily bad news on the returns front,” he said.

The CEO said the ongoing writers strike would not have a material impact on Genius' release slate in 2008 and 2009.

He said the strike could have a benefit on the company's rental revenue, which he said should increase if television programming reverts to re-runs.

Genius, which said it would co-produce at least 14 titles in 2008, projects preliminary revenue of $1 billion next year, including $44 million in net income.

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