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Lionsgate Projects Record 2008 DVD Sales

12 Feb, 2008 By: Erik Gruenwedel

Bucking industry trends, Lionsgate projects record DVD revenue of $560 million in full year 2008, up about 6% from 2007.

Steve Beeks, president and Co-COO of the Santa Monica, Calif.-based mini-major, said DVD continued to outperform pessimistic analyst projections.

Speaking Feb. 12 during an investor call, the executive blamed the 2.5% industry DVD sales decline in 2007 on the product mix, as opposed to economic downturns or industry trends.

He said sequels represented 25% of the DVDs released in 2007, compared to 18% in 2006. The COO said sequels generally convert box-office revenue to DVD sales at a lower rate than non-sequel original titles.

“This accounted for most of the difference in consumer [DVD] spending between 2006 and 2007,” Beeks said.

He said consumer spending on DVD in 2008 is up more than 2%, compared to the first five weeks of 2007.

The studio said it shipped more than 14 million DVDs in January — a record for Lionsgate. Beeks said the titles released last month, which included standard DVD and Blu-ray releases of 3:10 to Yuma, Good Luck Chuck and Saw IV, outperformed their theatrical results. He said the studio exceeded the nearest rival by 20% in converting theatrical revenue to DVD.

He said the studio would generate $250 million in revenue on its DVD library, including $50 million in free cash.

Singing Blu Praise

Beeks said Lionsgate Blu-ray revenue in January was about seven times higher than last year. The studio has already shipped as many BD releases this year as in entire 2007.

“We expect the industry to unite behind Blu-ray by the summer, which should drive the current HD market to triple in size from $300 million in 2007 to more than $1 billion this year,” he said. “It is exciting again to have a true growth opportunity in home entertainment as we expect Blu-ray revenue to be largely incremental in the near term.”

Digital Dreams

Lionsgate said it expects to realize from 10% to 15% of annual company revenue in digital distribution by 2010, compared to less than 1% in 2007.

“This is the year we will see meaningful revenue in digital delivery,” he said, adding the revenue would be accretive and not detrimental to DVD sales.

Beeks said it was premature to discuss ongoing same-day VOD and DVD trials with studios and cable operators. He said Warner has expanded its day-and-date VOD and DVD offerings, a move Beeks said Lionsgate would not emulate.

“It is too early to say exactly what we are going to do,” he said. “The industry wants to have a general view of [impact on DVD] before going forward.”

Beeks said VOD, pay-per-view revenue increased 10% and 15% of theatrical revenue in 2007 depending on the film.

“We expect that to grow even further, especially this year since you will really begin to have true broadband delivered in the calendar year,” he said.

Despite strong theatrical revenue from Saw IV and Tyler Perry's Why Did I Get Married?, Lionsgate posted a 90% drop in third-quarter (ended Dec. 31) net income to $1.95 million, compared to $20.4 million during the same period last year.

The mini-major posted its top third-quarter revenue of nearly $291 million, compared to $254.5 million last year.

DVD sales fell 7.5%, to $105.1 million, from $113.6 million last year. Top selling titles included Bratz: The Movie, Skinwalkers, Captivity, Delta Farce, Saw III and The Condemned.

The studio recorded its strongest international revenue to date ($53.8 million), including $22.4 million from its U.K. operations.

Lionsgate's filmed-entertainment backlog, which includes future revenue not yet recorded from licensing of films and television product for foreign and domestic markets, grew to a record $416 million in the quarter.

“Our theatrical, television, home entertainment, library, international and digital businesses all achieved continued solid performance in the quarter,” said Jon Feltheimer, Lionsgate co-chairman and CEO.

He said the studio was set to achieve record-breaking fourth quarter (ending March 31) revenue (more than $400 million), free cash flow and to be on track to meet its full-year fiscal guidance.

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