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Record Home Video Surge Narrows Lionsgate Loss

10 Nov, 2008 By: Erik Gruenwedel

“Bangkok” indeed did prove “Dangerous” at the box office, but not quite a “Disaster Movie,” as strong home entertainment sales helped Lionsgate limit second-quarter (ended Sept. 30) losses to $48.1 million, from $58 million during the prior-year period.

The Santa Monica, Calif.-based mini-major said the theatrical releases, including My Best Friend’s Girl, performed below expectations, generating $34 million, compared to $45.3 million in box office revenue last year from 3:10 to Yuma, Good Luck Chuck and War.

The results did not include popular horror release Saw V, which has generated about $64 million at the box office since debuting Oct. 24, according to the studio.

DVD and Blu-ray releases of The Bank Job, The Forbidden Kingdom, Meet the Browns and Rambo, among others, plus video-on-demand and digital, helped boost home entertainment revenue 32%, to $178.3 million, from $135.2 million last year.

Strong DVD sales of the third season of television series “Weeds” ($6 million) and first season of “Mad Men” ($5 million) also contributed to the quarter.

The result was the strongest second quarter result for home entertainment in the studio’s history.

President and COO Steve Beeks said Lionsgate’s home entertainment market share topped 7.5%, the highest in company history. He said home video was on track to generate more than $700 million in revenue.

Library revenue, which includes international, home entertainment and TV, should approach $300 million, according to Beeks.

The executive downplayed concerns about slowing DVD sales, which he attributed more to quality of title than macroeconomic conditions.

“We see any recent softness to have been mostly limited to G, PG and non-genre PG-rated films that are not strong brand names,” Beeks said.

He said Circuit City’s bankruptcy had exposed Lionsgate to less than $500,000 in possible losses.
“We have watched them very closely and had worked their receivables down,” Beeks said. “They are 3% of our business, and while we want them to restructure and succeed, we feel that if there are further issues, other retailers will have no problem picking up that slack.”

He said there didn’t appear to be any other retailers “that give us concern right now.”

Despite home entertainment’s performance, Lionsgate released 17 employees, or 8% of its workforce, across the board at its corporate headquarters and eliminated 24 vacant positions. The studio employs 550 people in Santa Monica.

The staff reductions, which are expected to save about $10 million in overhead costs, constitute part of a company-wide hiring freeze initiated last summer, according to sources familiar with the company.

Analysts remained upbeat about Lionsgate despite the theatrical missteps, which they say the studio can compensate via home entertainment distribution.

“We continue to believe [Lionsgate’s] assets are worth substantially more than its equity valuation, which should make it attractive to small-cap value investors,” Jeffrey Logsdon, analyst with BMO Capital Markets, wrote in a research note.

Overall revenue climbed 8.2% to $380 million, from nearly $352 million last year.

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