Lionsgate is known as the horror-movie studio – an apt description since its film and financial performance this year has been downright scary.
While the studio has been successful at diversifying its revenue away from box-office performance, investors are getting spooked by a poorly performing film slate and by upcoming renegotiations on its deal with cable channel Showtime and separately for some rights in its library.
In announcing fiscal 2008 first-quarter results yesterday, Lionsgate said that roughly $47 million of its $53 million net loss was due to increased marketing expenses tied to its expanded film slate.
Unfortunately for the studio, the expanded film slate hasn’t resulted in increased box-office receipts. The $4.2 million opening weekend for “Bratz,” for instance, was a huge disappointment for Lionsgate, which hoped the movie would have broad commercial appeal and help the company break away from its reputation as a horror-film studio.
But even the studio’s scary movies have fallen flat, with the $17.5 million in gross receipts for “Hostel II” falling well shy of the original. In all, Lionsgate’s 13 films released this year have grossed $130.8 million. By contrast, “Saw II” alone generated just under $88 million in domestic box-office receipts in its 2005 release.
Lionsgate CEO Jon Feltheimer acknowledged the studio’s poor performance, but said that the strongest part of the studio’s slate was still ahead.
More troubling for investors is the renewal negotiation with Showtime. Lionsgate has a deal to sell new movie releases to the channel for a percentage of their box office gross, but with Showtime ramping up its original productions and Lionsgate’s poor theatrical performance, sources said the network could seek lower terms or not renew the contract.
Though it is still two years away, investors are also eyeing upcoming renegotiations for certain film titles acquired when Lionsgate purchased Artisan a few years ago. Much of Liongate’s value is tied to its library catalog, so a lot is riding on the studio’s ability to secure those rights.
These factors have sent Lionsgate shares down to near its 52-week low. Shares closed yesterday down 19 cents to $9.31 – a mere 40 cents above its 52-week low.
If shares fall another dollar, sources said suitors could begin circling the company, whose film library has made it an attractive takeover target.
