Lions Gate doubles down on The Hunger GamesNovember 14, 2011: 10:27 AM ET
With Carl Icahn in its rearview mirror and the potential blockbuster The Hunger Games ahead, Lions Gate is staging a comeback.
By Lauren Barack, contributor
But the smart money is betting that Lions Gate is about to roar again because of an upcoming film that has potential to become a Potter-esque smash, The Hunger Games. Lions Gate acquired the rights to the popular series in 2009, before author Suzanne Collins had published the second book. Now the studio has four films based on the trilogy in the pipeline, the first set to open March 23, 2012.
"For the motion picture group, which is a big piece of the company, this has the potential to be a game changer, a transformative event," says Joe Drake, president of the motion pictures group and co-chief operating officer of Lions Gate.
It's a welcome change. Lions Gate (LGF) spent more than a year fighting a series of hostile takeover bids and lawsuits from billionaire investor Carl Icahn, which cost the studio $25 million, according to an industry insider. Confidence in the studio took a further hit when a $65 million Goldman Sachs-led film financing deal fell through in February 2009, forcing Lions Gate to self-finance more of its films.
But now things are looking up. Icahn dropped his bid in August, and the studio narrowed its second quarter loss from $29.7 million in 2010 to $24.6 million in the same quarter this year. The studio was also helped by its 31.2% stake in Epix, a subscription channel co-owned with Paramount and MGM. The stock is up 27% since the beginning of the year.
Yet what investors are eyeing most is Lions Gate's upcoming release of The Hunger Games. While there's no such thing as a guarantee in Hollywood, analysts believe the series could be worth upwards of $700 million worldwide – more than the studio's recent hit, The Expendables, which brought in a $350 million jackpot for Lions Gate.
The books, which chronicle a post-Apocalyptic world where teenagers fight to stay alive, have sold more than 16 million copies in the United States alone, spending 160 consecutive weeks on The New York Times bestseller list, according to its publisher Scholastic. And the studio has spent reportedly more than $80 million to date in producing the first film, a huge budget for Lions Gate.
"We acquired it because it's a series of books with a great resonant story that we know we can into a movie that will be really compelling to an audience," says Drake.
But even if it's a flop in critics' eyes, it's unlikely to stem the fan frenzy growing around the movies. Animated posters, featuring a bird in flames are pinging across fan sites, while its Twitter channel (@TheHungerGames) is north of 69,000 followers -- with more than four months before the film's release. And to feed excitement further, Lions Gate released the premiere on Good Morning America as well as the Times Square jumbotron today, and hinted at an upcoming social gaming component during its analysts call last week.
"This is a hit-driven business and even if they have a modest-sized hit, they've never had anything remotely close to this before," says Doug Creutz, a senior research analyst with Cowen & Co. in San Francisco.
While few anticipate a Harry Potter-like whirlwind in terms of merchandising or theme-park rides with The Hunger Games, the studio is patterning more along the lines of Twilight's take, even working with the same agency, Striker Entertainment, that handled the vampire series to push first into specialty shops and then big box stores after the film is released, Drake explained during the company's analyst call.
The Hunger Games books are certainly darker than the tale of a young wizard and his pals. Katniss Everdeen, 16, travels with 23 other teens to fight to their televised death as demanded by a totalitarian government. It's George Orwell's 1984 meets Shirley Jackson's The Lottery. There are no wands, Butterbeers or flying chocolate frogs.
Yet because the material is a bit weightier, a crossover audience is expected, sending adults to the theaters as well as families. And the marketing arm at Lions Gate is working overtime, with expectations that the studio will spend about $40 million just to push the story franchise to moviegoers. The studio brought in Terry Press, the former DreamWorks marketing head who spearheaded the promotions push behind The Social Network, to consult on marketing for The Hunger Games.
"On the low end this will be a movie over $100 million, and on the high end this could be transformative," says Matthew Harrigan, a senior analyst with Wunderlich Securities in Denver. "A bullish argument would say that on four movies, after tax, they could make their market cap. You don't want to assume that because you never know. But this looks like it's pretty wired in success."
And franchises are such potentially such big market makers that the studio is already eyeing other book series it can bring to the big screen -- in October Lions Gate purchased the rights to another young adult series, Patrick Ness's Chaos Walking. "We're looking at every young adult book opportunity very diligently and making sure we're in a position to compete or say no," says Drake.
While production costs and marketing for a franchise like The Hunger Games are a stretch for Lions Gate, analysts are more concerned that the studio won't spend enough. Any hesitancy could send its stock and profits crashing. Yet with certainty and swagger, the likelihood is that competitors will hear Lions Gate's roar once again.