Lionsgate Vice Chairman: DVD Still a 'Massive' Business for Us22 Aug, 2016 By: Erik Gruenwedel
On the heels of Liongate’s acquisition of Starz, foray into over-the-top video and heightened emphasis on TV production, lost in the hoopla is home entertainment.
Yet, Lionsgate generates about $500 million in annual revenue from its film library — the bulk through packaged media and digital retail. Speaking at Nomura’s 2016 media, telecom & Internet confab, Lionsgate vice chairman Michael Burns was asked whether the $4.4 billion purchase of Starz redoubled the company’s efforts on TV production at the expense of movies.
“We look at [the Starz acquisition] as an extension of our content play. Gives us an even better chance to become an even bigger player in the content space,” he said.
Lionsgate, with Starz, is looking to spend $1.8 billion annually on content, which includes TV and movies. With episodic content production including “Nurse Jackie,” “Orange Is the New Black,” “Weeds,” “Nashville,” “The Royals,” “Anger Management” and “Mad Men,” among others, television production is profitable from day one — generating margins upwards of 16%, according to Burns.
Despite recent box office missteps Gods of Egypt and The Divergent Series: Allegiant, the film studio is profitable on 70% of its releases, having never lost more than $28 million on a movie (2011’s Warrior), due in part to pre-licensing deals with international partners.
Starring Tom Hardy, Nick Nolte and Joel Edgerton, Warrior’s fight-theme storyline presented marketing and release-date challenges, according to Burns.
“But the movie kept going on [financially with] packaged-media and digital sales,” he said.
Indeed, the title ranks 11th among Amazon’s bestselling sports dramas, which the executive attributed to packaged media's retail staying power.
Lionsgate reported home entertainment revenue increased 16% in the first quarter (ended June 30) to $150.3 million, compared with $129.5 million during the previous-year period. It attributed the increase in part to the release of four theatrical titles in the quarter compared to two theatrical releases in the prior-year period.
“The DVD business is going to be around a lot longer than people think. It’s still a massive business for us. It’s not going away.”
Meanwhile, Burns said Lionsgate caught lightening in a bottle with the "Hunger Games," "Twilight" and "Divergent" franchises, which he said have the ability to generate a billion dollars in ultimate profit.
Lionsgate is the fifth-largest movie distributor in China and is behind the launch (with Disney and Fox) of Atom Tickets, an online app aimed at competing with Fandango.
“You don’t have that in the TV side of the business,” Burns said. “There’s many opportunities the film business gives you that might not be apparent.”
That includes Starz OTT, the $8.99 subscription streaming service launched this spring featuring access to original episodic content and about 2,300 movies. The movie tally will increase to 4,000 in the fall, including the ability to download titles for offline viewing.
“From what we originally had hoped for when we were doing due diligence on Starz, the [Starz OTT sub] numbers are significantly higher. The app/OTT business sooner or later should be a nine-figure business. It is an extremely high-margin business."
Lionsgate, which is associated with OTT services Tribeca Shortlist and Comic-Con HQ, will soon announce another third-party streaming partnership. With target subscriber bases around 500,000, at $5 a month, OTT can quickly become profitable.
“It’s one step closer to the consumer. If you’re going to look at an overall thesis, that’s certainly one we’re embracing,” Burns said.