Indie shingle bolsters slate while looking for cash infusion
Lions Gate, the minimajor that passed on “My Big Fat Greek Wedding” but danced all the way to the bank with “Monster’s Ball,” has been famously — and frustratingly — trying to merge with another entertainment company.
But after a season light on new titles, acquisitions activity has recently kicked into higher gear with pickups of Rob Zombie’s controversial “House of 1000 Corpses” and Ken Loach’s “Sweet Sixteen,” which drew acclaim at Cannes.
In absence of merger prospects, topper Jon Feltheimer is stressing a leaner, meaner business model.
Specifically, 5-year old Lions Gate, which splits its headquarters and ownership between L.A. and Vancouver, would love to raise, say, $30 million from the sale of its Vancouver-based studio facilities unit. And its 51% stake in Canadian TV-animation company CineGroupe could fetch $15 million.
Feltheimer insists the selloffs aren’t grabs for operating cash, but potential ways of focusing corporate energies on film and TV projects. Insiders dismiss talk of disgruntled company vendors and speculation that Lions Gate is strapped for cash as vestiges of an acrimonious end to merger talks with Artisan Entertainment. Capital reserves were never that low, and they’ve improved dramatically in recent months, Lions Gate loyalists contend.
By the end of the June quarter — which saw Lions Gate post a $2.7 million return to profitability on theatrical and homevid income from “Monster’s Ball” — execs say $23 million in capital was available from either cash on hand or revolving credit.
And by mid-August, the figure had improved to $39 million, they say.
Annual overhead that previously ran to $28 million has been chopped by $4 million through staff reductions. And the company hopes to increase its ability to go after pricier pics and productions — currently limited to a $1 million-$2 million range — and to increase the frequency of major releases “from one every two quarters to one a quarter,” Feltheimer estimates.
Lions Gate has more than three years left on its $200 million revolving facility through JPMorgan Chase. Its business plan calls for releasing 16 to 18 pics a year, “not unlike a studio, though obviously with smaller pictures,” Feltheimer muses.
Lions Gate has had a few $10 million-plus grossers — “Dogma,” “O,” “American Psycho” and “Frailty” — in addition to “Monster’s Ball.” But an increased reliance on company-produced pics puts the distrib in a potentially precarious position for an indie.
Some 70-plus titles annually go directly into video release (Lions Gate merged with indie video distrib Trimark in 2000), while TV output includes the USA Network dramatic skein “The Dead Zone.”
Film slate titles include:
- “Rules of Attraction,” set to open wide Oct. 11. While Lions Gate’s previous title based on a Bret Easton Ellis novel, “American Psycho,” divided critics, it was one of the org’s top grossers;
- “Confidence,” a Dustin Hoffman-Edward Norton drama skedded to unspool in early 2003;
- “Shattered Glass,” a biopic about disgraced journalist Stephen Glass, starring Hayden Christensen, that recently began shooting in Montreal. Other productions in development include the film adaptation of bestselling novel “The Girl with the Pearl Earring” to star Scarlet Johansson and Colin Firth and an urban-oriented pic, “The Cookout,” produced by Queen Latifah.
Execs are understandably less eager to discuss a decision to bail on Lions Gate’s distribution rights to B.O. phenom “My Big Fat Greek Wedding.”
Lions Gate once held worldwide theatrical rights to “Greek Wedding.” But with video and pay TV already spoken for by HBO, Feltheimer ultimately allowed producers to go elsewhere for theatrical distribution.
The pics Lions Gate has released lately have been mostly modest performers — other than “Monster’s Ball,” for which Halle Berry nabbed a best actress Oscar.
Although Bill Paxton’s “Frailty” grossed a sturdy $13 million in its spring domestic run, Kirsten Dunst starrer “The Cat’s Meow” scratched out just a bit over $3 million in B.O.
And Wesley Snipes starrer “Liberty Stands Still” recently bowed on pay cable without a theatrical release.
“We ran the numbers and it just didn’t make sense,” Feltheimer explains.
Helmer Tom DiCillo (“Living in Oblivion”) griped loudly when distrib released his “Double Whammy” — a laffer starring Elizabeth Hurley and Denis Leary — directly to homevid last year after a poor theatrical test screening. Meanwhile, Lions Gate execs hope they have put to rest talk of bare company coffers, if only by posting their recent rosy financial results. Lions Gate’s equity is split roughly 50-50 between shareholders in Canada and in the U.S. Company founder and chairman Frank Giustra, who comes from an investment banking background, is Canadian.Feltheimer, a former Sony TV exec who’s been CEO since March 2000, lives in L.A. and has been shifting the focus of operations to Hollywood. One of the Brooklyn native’s first acts was to close a New York office to save money.
Chief administrative officer Jim Keegan came aboard in L.A. in May and has been supervising financial operations under chief financial officer Marni Wieshofer and trying to speed up payment times for company vendors. Execs stress that no indie will ever have the financial wherewithal of a major studio, however. Keeping big amounts of cash on hand would incur unnecessary interest expenses, Feltheimer says.
“We try to hold virtually no cash on hand because that’s money that costs me money,” he says.
In addition to its various other operations, Lions Gate holds a 45% interest in Mandalay Pictures. But that film company’s recent track record was sufficiently sketchy to cause Lions Gate to write down the book value of its investment in Mandalay to $10 million at the end of the first quarter in March.
So for the time being, Lions Gate’s fate appears to rest largely on the box office fortunes of its own film releases.
And skeptics doubt any such “pure-play” film company can succeed in the public stock markets indefinitely — the carcasses of too many Carolcos and Cannons are still fresh in people’s minds.
“Even with lower overhead, it’s hard to see an economic model that works for Lions Gate,” a Wall Street source observes.
Lions Gate Entertainment shares recently have been trading at just above or below its 52-week trading average of $2.26. With 43 million shares outstanding, company’s current market capitalization is roughly $97 million — at least 50% lower than what execs insist the company would be worth in any sale or merger scenario.
(Dana Harris in Hollywood and Charles Lyons in New York contributed to this report.)