Pricey P&A crashes Gate

$14.1 mil loss attributed to 'Devil's,' 'War'

Lions Gate Entertainment attributed a $14.1 million loss in the last quarter to costs associated with marketing and distributing two wide releases– Nicolas Cage starrer “Lord of War” and “The Devil’s Rejects.”

Hollywood’s largest independent studio said it spent $35 million on P&A, contributing to a $26 million loss for the films, which were released within two months of each other. Lions Gate quickly followed by saying it expected both pics to become profitable when they are released on DVD and pay TV.

All told, Lions Gate Entertainment took in revenues of $212.6 million, an 8% decrease over the same quarter last year, when revs clocked in at $231.1 million. The loss of $14.1 million compared with a profit of $8.3 million in the same time frame a year ago.

Lions Gate execs are taking the earnings report in stride, buoyed by this month’s boffo box office bow of its latest horror pic, “Saw II,” which Lions Gate Films produced with Twisted Pictures. Horror-thriller’s bow marked the highest-grossing opening weekend in the company’s history.

Revs for “Saw II” will be recorded in the current quarter’s earnings, with Lions Gate predicting that the pic will easily make $80 million domestically, having grossed around $62 million in its first 12 days.

Studio also pointed out that its free cash flow of $6.1 million stayed in the black in the last quarter, a positive sign. And Lions Gate’s television production side continued to perform strongly.

In regards to the loss posted for “Lord” and “Devil’s Rejects,” accounting rules require studios to write off P&A costs in the same quarter they are incurred, leaving an indie studio like Lions Gate little buffer, according to company execs.

“When you are a pure content company and you have two or three wide releases in a particular quarter, of course you are going to have a significant expense in that quarter,” Lions Gate Entertainment vice chair Michael Burns said.

Both “Lord” and “Devil’s Rejects” recouped their acquisition costs at the domestic box office; it was the P&A bill that weighed them down. “Devil’s Rejects,” which cost roughly $7 million to make, drew around $17 million domestically. Lions Gate bought up the U.S. distrib rights to “Lord,” which has generated roughly $24.1 million domestically, for $10 million.

Still, neither film was viewed as a success.

But company said “Lord” and “Devil’s Rejects” were among the primary revenue generators for Lions Gate in the last quarter, along with DVD sales of “Crash,” “Barbie and the Magic of Pegasus” and “State Property 2.” Studio also did brisk business on the TV side with its series “Wildfire” (ABC Family), “Missing” (Lifetime), “The Dead Zone” (USA), as well as critically acclaimed frosh drama “Weeds” (Showtime).

Lions Gate Entertainment CEO Jon Feltheimer said the company will perform strongly this quarter and next.

“The second half of our (fiscal) year will be driven by a very exciting theatrical slate, coupled with an expected increase in library sales, forecasted strong seasonal home entertainment DVD revenues in the third quarter and ongoing growth of our television operations,” Feltheimer said.

Studio’s television business generated another $42.7 million in production revenues in the last quarter. That means that through the first six months of the year, Lions Gate saw a total of $88.6 million in TV production revenues, up nearly 60% from the year-earlier period.

This morning, Lions Gate execs will brief Wall Street on the earnings during a conference call with investors. Tuesday’s earnings report was released just after the market closed.

Lions Gate shares fell 7¢ in trading Tuesday to close at $10.

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