Lions Gate reveals low-budget strategy
Facing challenging film economics, Lions Gate Entertainment Corp. is launching a new initiative to release up to 10 low-budget movies a year costing less than $2 million each to produce.
Chief Executive Jon Feltheimer announced the plans in a conference call with analysts Thursday to discuss the Santa Monica film and television studio’s financial performance in the quarter that ended Dec. 31.
Feltheimer said the low-cost endeavor was one of the key steps the studio was taking to deal with a “motion picture environment facing head winds.”
Though Lions Gate has yet to announce specific movies under the plan, Feltheimer said they would primarily be comedies and horror movies, some of which would have an “urban” component — Hollywood’s term for films with a primarily African American cast — and would be in addition to the studio’s normal slate of releases.
Lions Gate had one of the biggest ultra-low-budget hits of recent times with 2004’s horror film “Saw,” which grossed $55 million at the domestic box office and launched an annual series that just ended last year. In 2010, the company released “The Last Exorcism,” which took in $41 million. Both movies cost $1 million to $2 million to produce.
Joe Drake, president of Lions Gate’s motion picture group, said most of the new micro-budget movies would be targeted at a single demographic group, allowing the studio to spend in the “low-to-mid-$20 million range” for advertising and prints. That is less than the industry average for a nationwide release.
Paramount announced a similar strategy in late 2009 after it released the low-cost smash “Paranormal Activity.” But that unit, Paramount Insurge, has since morphed into one focused on developing and releasing movies rapidly that fit a pop culture moment. Its first picture, “Justin Bieber: Never Say Never,” which cost $13 million, opens Friday.
To reduce risk in its film spending, Feltheimer also said that Lions Gate was aggressively seeking partners to partially or fully finance production or prints and advertising costs for many of its releases.
He noted that the studio was undergoing a review to determine which of its businesses were most valuable and which were not. Vice Chairman Michael Burns said that initiative may result in Lions Gate’s selling some “noncore assets,” though he declined to identify which ones might end up on the block.
During the quarter, Lions Gate’s net loss narrowed to $6 million from $65.3 million in the same period a year earlier. Its revenue grew 24% to $422.9 million because of increases in home entertainment sales, particularly from the hit action film “The Expendables” and international film and television.
Total motion picture revenue grew 30% to $326.7 million, while television production revenue increased 5% to $96.2 million.
Lions Gate stock fell 10 cents to $6.24. Its shares have declined 15% since corporate raider Carl Icahn halted his attempt to seize control of the company on Dec. 13.
