'Antistudio' business booming
NEW YORK — Billing itself as “the antistudio,” Lions Gate has methodically built a business by exploiting such niches as horror, teen comedies and urban-artsy pics as well as cable TV dramas like “The Dead Zone,” fitness videos and Barbie products.“We will have had five hits in 2005, including three franchises — in ‘Saw,’ ‘Punisher’ and ‘Diary of a Mad Black Woman,’ ” vice chairman Michael Burns told a group of investors Monday at the Harris Nesbitt Media and Entertainment Conference in Manhattan. Just 10 days ago, in Lions Gate’s best movie opening ever, “Saw II” showed how that alternative strategy can pay off. The scary movie cost $5 million to make (of which 70% was covered in pre-sales) and $20 million to market. It grossed $30.5 million the first weekend and $17 million in the second. DVD will do the rest. The company’s latest horror click is just one instance of the calculatedly conservative approach the company has taken in playing the indie game in Hollywood. Speaking at the conference two days before the company announces third quarter results, Burns called business “robust.” Even so, Harris Nesbitt senior research analyst Jeffrey Logsdon pointed out, there is an unprecedented disconnect between the muscular performance of many media companies and the lack of enthusiasm for those companies on Wall Street. “Never in 20 years have the sentiment and stock performance so diverged from fundamentals,” Logsdon told the conference participants in kicking off the two-day confab. “We think the health of the entertainment industry is pretty strong. We don’t believe these kinds of (stock) discounts are warranted. Maybe one has to be more select, but there is money to be made,” Logsdon argued. Harris Nesbitt is the U.S. investment arm of BMO Financial Group and services middle market companies in a dozen industry sectors, including media and communications. In addition to Lions Gate — and another niche player with a unique game plan, Imax — other companies presenting at the confab Monday included station groups Univision, Belo, Hearst-Argyle and Emmis as well as ESPN and Viacom. Latter two both put the accent on their digital strategies. Lions Gate’s Burns, whose background includes stints at Lehman Bros. and Prudential, outlined how his company has maneuvered in just six years to own and control content in a world in which distribution platforms keep multiplying. And the best, Burns suggested, is yet to come. To his mind there are several more hot prospects on the Lions Gate roster: horror pic “Hostel,” which debuts Dec. 21 and that he called “really horrifying,” and, bowing later in the winter, “Akeelah and the Bee” — “the best movie we’ve ever done,” Burns hazarded. He also said the highly publicized dip in DVD sales that’s afflicted the sector hasn’t been much of a factor for his 8,000-title catalog. “We still see a lot of upside from our library, which is bringing in $200 million in revenues annually. For a title like ‘Dirty Dancing,’ we sell 100,000 DVDs a month,” Burns said by way of illustration. Lions Gate stock, which Logsdon reminded attendees was a dollar stock six years ago, has traded in the $8.20-$11.82 range for the past year, getting a noticeable uptick after the “Saw II” opening. It closed at $10 a share Monday on the New York Stock Exchange. As for future growth strategy, Burns ticked off several areas of focus: Company plans to expand its slate to make or acquire 14-18 movies a year, grow TV revenues from $50 million to $120 million a year and boost its family entertainment titles. Asked if anything much changed with the new players on the indie film scene like the Weinstein Co. and HBO-New Line’s Picturehouse, Burns said Lions Gate typically manages to land 80% of the titles it goes after — and not (unlike some, apparently) by overpaying for buzz titles at film fests. “We’re trying to be faster on our feet and more innovative in the dealmaking,” he said. Burns also said the company — which bulked up by acquiring Trimark, Artisan and recently Britain’s Redbus — stands by its recent offer of $4 a share for Image Entertainment (of which it already owns 19%). Image has so far resisted Lions Gate overtures. In other remarks Monday, Imax co-chair/co-CEO Richard Gelfond told investors that his company is poised for significant growth this year and next. His bullishness is largely based on deals for tentpole pics with Warner Bros. and a significant increase in signings with exhibs to convert or retrofit their theaters with Imax technology. “Harry Potter and the Goblet of Fire” will debut in November, and there’ll be a re-release of “Polar Express,” which last year grossed an impressive $45 million on 83 Imax screens. Already lined up for 2006 are Imax releases of Disney’s “Roving Mars” and four titles from Warners — “Poseidon,” “Superman Returns,” “The Ant Bully” and “Happy Feet.” The latter two are in Imax 3-D. In addition, exhib signings climbed from 21 in 2002 to 36 in 2004, with a quicker pace expected going forward: There are 37 for the nine months ended in September. “Our business momentum is just beginning to accelerate,” Gelfond said, pointing to the relative ease with which an exhibitor can now reconfigure a theater with Imax’s MPX system. (The time from signing to installation is now six months to a year.) He also said growth in foreign theaters getting the Imax makeover is quickening, notably in China, India, South Korea and Mexico. Gelfond also said he expects Imax to enjoy 20% revenue and earnings per share growth in 2006.