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Theatrical Marketing Torpedoes Lionsgate Results

12 Nov, 2007 By: Erik Gruenwedel

3:10 to Yuma

With the highest theatrical marketing expense ($122 million) in company history for titles War, 3:10 to Yuma and Good Luck, Chuck, Lionsgate posted a second quarter (ended Sept. 30) loss of $56.2 million, compared to a loss of $14.3 million during the same period last year.

Revenues for the quarter increased to a record $343.5 million, compared to $218 million last year.

DVD sales of The Condemned and Delta Farce significantly exceeded their box office tallies and helped home entertainment revenue exceed $122 million. Other contributors included Bug, Pride, Bratz Kidz: Sleepover Adventure and Dr. Strange, Lionsgate's fourth direct-to-video with Marvel Comics.

“Our DVD over-performance for films in the quarter that underperformed in the theatres earlier in the year … made up a lot of lost ground,” said Jon Feltheimer, CEO of Lionsgate, in a call with analysts.

Steve Beeks, president and COO, said home entertainment was on track to generate about $250 million in library revenue, including $90 million in free cash.

He said consumer spending for packaged media in the first half of the calendar year was down about 4%, which he said was mostly a function of the product coming to market, not broader industry trends.

“We remain confident that the full year for the industry will end up essentially even with last year,” Beeks said.

The executive said cable video-on-demand and pay-per-view revenue has reached $20 million in the first six months of fiscal 2008, compared to $24 million in 2007 and $12 million in fiscal 2006.

Lionsgate to date has sold more than 2.5 million electronic downloads of both theatrical and TV content, according to Beeks.

When asked what impact electronic sellthrough could have on DVD purchases, Beeks said it was difficult to project when certain consumers would make the shift away from packaged media.

“Our view is packaged media is going to be extremely healthy at least for the next four or five years, so not before then,” Beeks said.

The studio expects marketing costs for 3:10 to Yuma would increase from $27.5 million to $38 million as the studio attempts to showcase the western starring Russell Crowe and Christian Bale for Oscar consideration.

The Santa Monica, Calif.-based studio's previous Oscar campaign in 2006 for Crash resulted in the film winning Best Picture.

Box office revenue (excluding expenses) from the successful releases of Tyler Perry's Why Did I Get Married? and Saw 4 occurred after the close of the quarter.

The company expects the five theatrical releases to generate about $230 million in aggregate at the box office in the fiscal year.

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