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Lionsgate Q3 Profit Dips

10 Feb, 2006 By: Erik Gruenwedel

Sluggish DVD sales in family and direct-to-video entertainment combined to push down Lionsgate's third-quarter (ended Dec. 31) net income to $3.1 million, from $3.3 million during the comparable period last year.

The Santa Monica, Calif.-based mini-major said it would announce as early as next week 10 titles to be released this summer in the Blu-ray Disc format at $24.98 per title.

Revenue from theatrical titles Saw II, Waiting… and In the Mix and DVDs The Devil's Rejects, High Tension and Crash helped boost the Santa Monica, Calif.-based mini-major's revenue 21% to $231 million, compared to $190 million last year.

Lionsgate reported $4 million and $2 million charges, respectively, due to the bankruptcy of Musicland Holding Corp. and additional marketing for the Academy Award nominated Crash.

New releases in family entertainment and DTV are expected to generate $40 million and $30 million in this fiscal year, said Lionsgate president Steve Beeks in an investor call Friday morning.

CEO Jon Feltheimer said ongoing DVD softness forced the company to lower year-end guidance by $15 million in both EBITDA (earnings before interest expense, interest, taxes, depreciation and minority interests) and free cash.

The guidance reduction is due to an $11 million revenue decrease in family entertainment, $10 million in EBITDA in catalog sales and $8.2 million in DTV product, among other charges.

“We did not foresee the amount of family product entering the third quarter,” said Beeks.

Lionsgate continues to lead the industry in theatrical-to-DVD sales conversion rate by an average 50%, according to Beeks.

He cited titles such as Waiting… and The Biggest Loser Workout, the latter released Dec. 20, which initially shipped 75,000 units and has been upped to 225,000 units.

A sequel to the No. 1 fitness video is planned later this year.

Crash saw a 100% increase in unit sales the week following its six Oscar nominations. A special edition DVD will be released shortly after the awards March 5.

Beeks said catalog revenue — driven primarily by DVD — is still on target to generate $200 million in fiscal-year revenue despite substantial downward pricing pressure from two unnamed studios. He said catalog unit prices would drop about 25 cents as a result.

“There are library titles available from these two studios for $3.88 and $4.88,” said Beeks, who added margins on library content remain about 21%.

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