×
You will be redirected back to your article in seconds

What’s Next for Lionsgate, Discovery and Liberty Global?

Discovery Communications and Liberty Global’s $400 million investment in Lionsgate is fueling speculation that the studio behind “The Hunger Games” franchise may eventually merge with companies controlled by media mogul John Malone.

If that happens, it could help trigger a wave of consolidation among content creators at a time when cable companies and other distribution platforms have been joining forces at a furious clip. As the media landscape grows more fractured, and television and movie theaters shed parts of their audience to digital diversions, conglomerates are looking for ways to differentiate themselves from the pack.

“Everybody is battling for eyeballs across the world, and they’re using original programming as a weapon of choice,” said James Marsh, an analyst with Piper Jaffrey.

Malone is the largest individual shareholder in Discovery and Liberty Global, both of which are standalone publicly traded entities. Discovery and Liberty Global together own the U.K.-based All3Media production shop that houses nearly two dozen banners in the U.K. and U.S.

Insiders close to the situation downplayed the idea that the deal unveiled Tuesday is the first step toward a rollup of various Malone-affiliated entities. But outside observers say where there’s smoke there’s fire and the surge in the company’s share price after the pact was unveiled was attributable to a belief among investors that Malone isn’t done with Lionsgate.

It’s a sign of both the respect that Malone commands in Wall Street circles and his reputation for vacuuming up and tying together smaller companies to create media leviathans.  His seal of approval carries weight and is a major show of faith in the studio’s management team lead by CEO Jon Feltheimer and vice chairman Michael Burns. It shows how far Lionsgate has come in the five years since it successfully foiled a hostile takeover attempt from billionaire Carl Icahn, who bashed the Feltheimer management regime.

John Malone does not make investments unless he’s going to get a good return,” said Matthew Harrigan, an analyst with Wunderlich Securities.

Discovery Communications CEO David Zaslav said the deal was designed to allow for closer ties for both companies — Discovery channels want to tap Lionsgate’s film and TV pipeline while Lionsgate gets access to Discovery’s vast network of international platforms — but without a broader agenda to merge.

“This gives us the access to get preferred access to one of the best players in the scripted business,” Zaslav told Variety. “This is a very advantageous commercial agreement for both parties. We’re in 230 countries and we spend $2 billion a year on content. The first thing we’ll figure out within the existing structure is how both sides can get the most out of this relationship.”

A source close to Discovery said the company is actively pursuing more production assets outside of its budding relationship with Lionsgate. To that end, it acquired director Sam Mendes’ Neal Street Productions earlier this year and rolled it into All3Media.

Discovery is increasing its investment in content as its stock has suffered a long slump. Investors worry that its channels are too exposed to the global swings of the advertising market and that it will lose affiliate fee revenue in a skinny-bundle environment where MVPDs pare down marginal channels.

The deal calls for Discovery and Liberty Global to pay approximately $195 million apiece for each company to receive a 3.4% stake in Lionsgate. Zaslav and Liberty Global CEO Mike Fries will join Liberty Global’s board of directors. The deal is expected to come with restrictions on the total amount of Lionsgate stock that Discovery and Liberty can acquire and sell.

In February, Malone spurred a similar pact that saw Lionsgate swap stock valued at 3.4% of the company for a roughly 4.5% stake in Starz, acquiring shares held by Malone and his affiliates. Malone, who remains the largest voting shareholder in Starz, joined Lionsgate board as part of the deal.

The timing is critical for Lionsgate which is bracing for the end of its “Hunger Games” series this winter. Although the studio still has two more “Divergent” films along with sequels to “Now You See Me” and “John Wick” on tap and is bullish on the commercial prospects of “Robin Hood: Origins” and “The Odyssey,” the departure of Katniss Everdeen leaves a big gap in its film slate. Franchises on the scale of “The Hunger Games” do not come along that often.

Though its most recent quarter was lackluster, largely because films like “American Ultra” and “The Last Witch Hunter” flopped, analysts believe that Lionsgate has done enough to diversify its business. Its television arm, which has fielded hits like “Orange is the New Black” and “Mad Men,” has tripled in size over the last five years and no accounts for a quarter of profits.

The studio has also worked to exploit its film library in novel ways. It’s working on “Hunger Games” theme park rides and stage shows, and the studio brass seemed to signal that it wants to make spin-off films. On an earnings call Tuesday, Feltheimer was quick to say the “current ‘Hunger Games’ story arc” was ending — a bit of carefully chosen phrasing seemingly designed to set investors’ pulses racing.

“Replacing ‘Hunger Games’ is a high bar,” said Tuna Amobi, an analyst with S&P Capital IQ. “But I think they’ve got enough in their pipeline to mitigate concerns. They can continue to be very profitable even without super blockbuster films.”

They also happen to be selling what Malone wants to buy. At a shareholders meeting in September, the investor went out of his way to praise Lionsgate’s management, arguing that they had positioned the company to thrive despite the challenges the entertainment business faces.

“There’s a huge appetite for content,” Malone told Variety. “The whole media industry is in a transitional period because of the technological changes and these guys are in the best place where you can be. They’re flexible.”

If Wall Street’s right, then Malone and Lionsgate will continue to navigate this altered landscape together, ducking and weaving as one.

Popular on Variety

More Biz

  • Sully

    Georgia Attorney General Closes Probe of 'Sully' Tax Credits

    The Georgia attorney general’s office has closed a criminal investigation into Warner Bros.’ use of tax credits on the Clint Eastwood film “Sully,” after state revenue agents declined to pursue the case. The state prosecutor’s office opened a criminal probe two years ago, after a whistleblower alleged that the production had claimed more than $600,000 [...]

  • Spotify logo is presented on a

    Spotify VP Paul Vogel Talks Subscription Prices, Label Licenses, Podcasts

    The annual Goldman Sachs Communacopia Conference gives representatives from major companies the opportunity to present to the investment community, and Paul Vogel, Spotify’s VP and head of financial planning & analysis, treasury and investor relations, spoke on the streaming giant’s behalf on Tuesday morning. While many of his comments were statements frequently heard in the [...]

  • Women in Animation Logo

    WIA Partners With Animation Mentor, Toon Boom to Expand Scholarship Program

    Women in Animation has partnered with Animation Mentor and Toon Boom to expand the organization’s WIA Scholarship Program with workshops and software packages. WIA scholarships are given to animation students with a financial need and who demonstrate talent and passion for animation that will lead to a promising career in the field. The Animation Mentor [...]

  • Def Jam, Astralwerks Launch Label Divisions

    Def Jam, Astralwerks Launch Label Divisions in South East Asia

    Universal Music Group today announced what it calls a significant expansion of its recorded music operations across South East Asia with the launch of two new label divisions: Def Jam South East Asia, to focus on the hip-hop scene within the region, and Astralwerks Asia, a label “with a true focus on nurturing talent within Asia across [...]

  • Bob Bakish Viacom CEO

    ViacomCBS Leaders Talk NFL Negotiations, Streaming Wars and Merger Focus

    Viacom and CBS aim to prosper in the streaming arena by covering both ends of the marketplace, blending Viacom’s focus on ad-supported platforms with CBS’ strong head start on subscribers for CBS All Access and Showtime. ViacomCBS CEO Bob Bakish and incoming ViacomCBS chief financial officer Christina Spade outlined the combined company’s vision for how [...]

  • Spotify

    Spotify Dismisses Amazon’s High-Definition Audio: ‘It’s Not a Big Differentiator’

    At the moment Amazon Music launched its new high-definition audio service on Tuesday morning, which it says offers the best streaming audio fidelity available, Spotify VP and head of investor relations Paul Vogel was speaking at Goldman Sachs’ Communicopia conference in Lower Manhattan. While Tidal and Deezer have long offered a high-fidelity service and Apple [...]

  • Randall Stephenson

    AT&T CEO Defends WarnerMedia Strategy, Addresses Activist Investor's Letter

    AT&T chairman and CEO Randall Stephenson defended the $85 billion deal for Time Warner as the right strategy for the company in response to criticism from an activist investor. Consumers are watching more content and more of that viewing is digital, so combining a telecommunications company like AT&T with a content powerhouse like WarnerMedia is [...]

More From Our Brands

Access exclusive content