Lionsgate: The hidden enigma

Despite its Oscar, studio sticks to eclectic mix

Lionsgate is both a success story and a cluster of anomalies:

  • Hollywood’s largest remaining independent studio may have struck it big this year with “Crash,” an Oscar-winning drama that it acquired on the festival circuit. But Lionsgate is determined to concentrate on developing even more of the low-budget genre co-productions, hardcore horror and urban titles that have rocketed it to the top of the box office charts.

  • Lionsgate talks about keeping finances lean and mean, but it’s contemplating a major outlay: A full-service studio in New Mexico.

  • The shrewd and marketing-savvy indie may have posted a string of box office successes, but its stock remains sluggish. Like other media congloms, it’s been hit by the downturn in the DVD market, which once pumped up the company’s price.

With a record year at the box office (thanks to genre hits like “Madea’s Family Reunion” and “Hostel”) and a first best-picture Oscar for “Crash,” the film side of the company is at a crossroads: The Academy Award could prove a lure to return to its arthouse roots, but Lionsgate, which spends far less on production and marketing than a major, is sticking primarily with crowdpleasing fare like “Saw III” and “See No Evil,” and its execs aren’t ashamed of it. The studio also is moving into teen comedies and Spanish-language pics.

“Our challenge now is to continue growing our slate,” says Lionsgate prexy of production Mike Paseornek, sitting in one of the unassuming offices occupied by the studio’s top execs. “It sounds simple, but it’s not. We need to make sure all of our films are targeted to a particular audience.”

“All the cylinders are clicking now,” he continues. “There were some years when we didn’t know what would hit. Now, I have a good idea of what our slate is for the next few years. That was never the case before.”

Down the hall, prexy of theatrical releasing Tom Ortenberg puts it this way: “The best-picture win, while fabulous, doesn’t change what we do.”

The majors, all owned by big media congloms, envy Lionsgate for being able to take risks they can’t. Right from the start, Lionsgate was known as the place to go with titles that the majors were skittish about releasing, whether for political reasons — such as “Fahrenheit” — or because of content.

Midway through post-production, Screen Gems gave horror pic “Hostel” to Lionsgate to distribute. Insiders say Screen Gems was told to do so by parent Sony Pictures, which was skittish about the pic’s macabre content.

Lionsgate’s lack of bureaucracy also made it easier to strike an unconventional partnership with Starbucks to market the spelling bee drama “Akeelah and the Bee.” “Akeelah” is the first movie ever promoted by the mega coffee chain, which desperately wants to get into the movie biz.

Other studios have balked at Starbucks’ terms, but Lionsgate was willing to take the chance and be the guinea pig. So far, Starbucks hasn’t quite delivered the crossover customers Lionsgate was looking for, judging by the film’s lukewarm recent opening take.

Some indie producers and filmmakers criticize Lionsgate for missing a beat when it comes to marketing specialty pics, pointing to last year’s box office disappointments “House of D” and “Happy Endings,” despite the success of “Crash.”

“That was their bread and butter before,” one top indie agent says. “Now they’ve moved away from those releases.”

Lionsgate execs are quick to counter that the studio will always turn out some arthouse titles, including the upcoming “Bug,” which just won a slot in Cannes’ Directors Fortnight, and two music docus, “The U.S. vs. John Lennon” and “Leonard Cohen: I’m Your Man.”

While some studio specialty arms have created genre labels, such as Fox Atomic and Focus Features’ Rogue, Lionsgate in particular needs more wide releases to help offset the leveling off of the DVD market, which has resulted in diminished revenues.

All told, Lionsgate has been turning out about 18 titles a year. This year, Lionsgate is planning for at least 10 wide releases, compared with eight last year and seven the year before that, according to Ortenberg. Next year, there will be at least a dozen.

Building a studio in Rio Rancho, N.M., would make Lionsgate less dependent on using other people’s soundstages, and the company stands to reap the benefits of shooting in the Southwestern state, which offers some of the best production tax incentives in the country.

Lionsgate, which began as a Canadian company, recently sold its studio in Vancouver, so the new studio could continue the stream of rental revenue from other productions flocking to New Mexico.

Lionsgate won’t say how much a studio would cost, and it is waiting for the state government to pass legislation that would extend tax incentives to companies building such facilities.

Some of the film projects Lionsgate is currently contemplating for its future slate include an LL Cool J project, a redo of “Meatballs,” horror pic “Daybreakers” and an untitled project led by teen phenom Dane Cook, who also stars in the studio’s upcoming “Employee of the Month.”

Recently, Lionsgate bowed its first Spanish-language film, “La mujer de mi hermano.” So far, the Spanish-language market in the U.S. has proved tricky for indie distribs. Pic has taken in $2.3 million domestically in two weeks.

In addition to the two music docus, Lionsgate’s slate for the rest of the year includes the aforementioned horror titles “See No Evil” and “Saw III” along with that genre’s “The Descent” and “Skinwalkers” as well as thriller “Crank.”

Lionsgate’s film unit could be described as mixing the savvy marketing of Fox Searchlight with the genre acumen of Screen Gems.

At Lionsgate’s Santa Monica headquarters, Ortenberg, Paseornek and acquisitions chief Peter Block are informally known as the film division’s all-powerful trifecta. Ortenberg is decidedly low-key, even a bit stiff; Paseornek is the perpetual jokester behind his bookish looks; and Block is a tough buyer who can also sniff out the most gruesome horror title around.

The company is particularly known these days for its crack marketing team, led by newly upped co-prexies Tim Palen and Sarah Greenberg.

Generally speaking, Lionsgate’s marketing philosophy goes against tradition in not obsessing about reaching the “four quadrants” of the theater aud — women over 25, women under 25 and the same for men. Instead, it usually goes after just one quadrant. Men under 25 usually go for horror, while the studio has targeted women over 25 when marketing “Akeelah.”

“We aren’t trying to create a new audience, which the studios have to do,” Paseornek says.

A Lionsgate wide release is a different animal than a studio wide release, since Lionsgate spends far below the norm on production and marketing. While a $20 million to $30 million opening weekend for a major studio pic can be a near disaster, it’s a victory for Lionsgate, such as the case with Tyler Perry’s African-American-themed hit “Madea’s Family Reunion” or “Hostel.”

Lionsgate has a fairly rigid financial formula: Spend between $2 million and $22 million on production and then minimize the cash outlay through international presales and co-financing deals. Lionsgate execs say they spends between $15 million and $18 million on marketing for a wide release, whereas the average marketing budget for a major is nearly $40 million.

“Let’s say our typical production spend is $10 million,” one Lionsgate exec says. “If we are going wide with a release, we then spend $15 million on marketing. That means we are all in for $25 million.”

Lionsgate put up between $6 million to $8 million for “Madea,” which has grossed more than $63 million domestically. Of course, horror titles and thrillers can be especially cheap to make. “Saw II,” which was made for $6 million, grossed $87 million domestically.

“Trust me, we make money,” Ortenberg said.

Not always, of course.

Lionsgate has suffered its share of bombs in the genre arena and elsewhere, including last year’s “Undiscovered” and the Usher starrer “In the Mix,” which helped drive earnings down.

Execs insist Lionsgate’s next earnings report will show improvement over the past few quarters, in which the studio was forced to lower its revenue estimates.

And even if the Oscar hasn’t changed Lionsgate’s strategy, the best-pic win does count on Wall Street in a more abstract way, where analysts are suddenly speaking more kindly about the company. Such talk certainly can’t hurt for an entity that seems to be perpetually rumored for sale.

“Lionsgate had no idea it could win for best pic,” one top producer says. “It proves to people both inside and outside of the company that there’s nothing they can’t do. It makes Wall Street and investors really pay attention, because they’ve become the little engine that could.”