NL to give Freddy new life in ’93

Just one year after it had supposedly killed him off for good, New Line Cinema is resurrecting Freddy Krueger to help it avoid a nightmare on Wall Street.

While the company won’t confirm it, “A Nightmare on Elm Street” will return to theaters sometime in late 1993 and may be tied in with the “Friday the 13th” series of films, the rights to which New Line recently purchased from Paramount Communications.

(New Line already has “Friday the 13th Part IX” scheduled for release in 1993 .)

That development contradicts the company’s insistence last summer that “Freddy’s Dead: The Final Nightmare” was the last of the series, that the franchise had run its course and that New Line was ready to move on.

The independent producer-distributor’s willingness to re-enlist the franchise so soon after putting it to rest is both evidence that it is having a tough time developing new film franchises and a reaction to its somewhat disappointing performance this year.

Though Wall Street remains committed to the stock, New Line spent over five months pursuing an unsuccessful acquisition of bankrupt Orion Pictures, and its stock price has fallen more than 28% since the beginning of the year. New Line closed Friday at $ 11.50 a share.

While revenues were up for the first nine months of 1992, $ 162 million compared to $ 150 million for the same period last year, net income dropped 35% to $ 5.273 million (or 37 cents per share) from $ 8.105 million (60 cents) in ‘ 91. Analysts are predicting full-year earnings may be off as much as 25% from last year’s record performance.

Earnings, stock prices drop

Most on Wall Street attribute the earnings and stock price declines this year to the fact that, for the first time since 1983, New Line didn’t have any of its powerhouse film franchises–“Nightmare,””Teenage Mutant Ninja Turtles” or “House Party”–working for it at the box office.

Instead, the company relied more heavily on purchased product, with mixed results. While “The Player” and “Lawnmower Man” outperformed most industry expectations, other acquired films like “Aces: Iron Eagle III” and “Twin Peaks: Fire Walk With Me” proved major B.O. disappointments.

Even so, the company seems comfortable with its performance.

‘Transitional year’

“This has been a transitional year for us,” says New Line president Michael Lynne. “Two years ago we made a decision to broaden the business base of the company by putting in layers of more predictable businesses with more predictable profitability. That strategy paid off in 1992 when the production activity did not generate as much profitability as in years past.”

While New Line’s core film business may not have been hitting on all cylinders in 1992, the strong performance of its fledgling homevideo, television distribution and Fine Line Films units–all started within the last two years–have allowed the company to remain in the black.

RHI investment pays off

Its investment in movie/television producer RHI Entertainment has also paid off big.

New Line invested $ 8.7 million for a 53% stake in RHI in October 1990. RHI went public last July, making New Line’s investment worth more than $ 30 million. Today, the stake is worth more than $ 37 million.

Accounted for as a one-time pre-tax gain, it contributed more than $ 6 million of New Line’s $ 8 million of profits so far this year.

“This is a company that is simply digesting its rapid growth of the last five years,” says PaineWebber’s Christopher Dixon, who maintains an attractive longterm rating on the stock. “Historically, New Line has often gone through cycles that are driven by product. The good news is that the company has made significant inroads on broadening their base and making itself much less sensitive to the overall motion picture cycle.”

Analysts say they are also impressed with New Line’s practice of writing off film losses just as aggressively as they record gains, something a lot of defunct independents never did.

Eyeing new franchises

New Line will be working hard to break new franchises next year. In February, a long-standing production-distribution deal with National Lampoon will finally bear fruit with the release of “National Lampoon’s Loaded Weapon I.” Lynne says the company is confident (as evidenced by the “I”) that the broad-based spoof of action thrillers will lend itself to a number of sequels (as with Paramount’s “Naked Gun” series).

New Line also has a four-picture deal with martial arts chopper Thomas Ian Griffith, whom Lynne describes as New Line’s “version of Steven Seagal.” His first film, “Excessive Force,” will be released inthe first quarter of ’93.

Finally, there is “Surf Ninjas,” which hopes to tap into the “Ninja Turtles” audience.

Even so, the company is taking no chances and will be trotting out all of its warhorses in ’93. In addition to Freddy, a third “Ninja Turtles” is set for wide release at Easter and a third “House Party “will be in theaters before the end of the year.

Analysts who follow New Line believe the company’s earnings will rebound with the return of the films.

Seidler Amdec pundit Jeff Logsdon, who is predicting just 50 cents EPS in fiscal ’92, believes earnings will rise to between 80 cents and 90 cents a share in fiscal ’93. PaineWebber’s Dixon is predicting ’93 EPS of 75 cents a share.

Still, the question remains: How much more life can New Line squeeze out of the films? While the sixth installment of “Nightmare” grossed a strong $ 34 million at the domestic box office, its performance was enhanced by the fact the film was heavily marketed as the last in the wildly successful series, which has grossed more than $ 500 million since 1984.

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