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Lionsgate, the studio behind ‘Hunger Games’ movies, struggles in shifting Hollywood currents

Lionsgate, the studio behind ‘Hunger Games’ movies, struggles in shifting Hollywood currents
David Harbour and Sasha Lane in the movie "Hellboy," Lionsgate’s $50-million critically panned reboot that bombed at the box office. (Mark Rogers)

Joe Drake, the chairman of Lionsgate’s motion picture group, stepped onto the Colosseum stage at Caesars Palace in Las Vegas to pitch theater owners on what he called “our reimagined studio.” Displayed on the screen behind Drake was the company’s logo and a new slogan — “A home for artists to thrive.”

Drake’s message at CinemaCon, the annual gathering of exhibitors and studio bosses, was meant to signal a new era for the Santa Monica studio, which has struggled at the box office the last couple years because of a lack of hit films.

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“It clearly defines our responsibility to our studio, to our filmmakers and our partnerships,” Drake said two weeks ago.

But the rallying cry seemed discordant with what many see as a troubling reality for the 22-year-old company that was once the fastest-rising star in the movie business and known for such franchises as “The Hunger Games” and “The Twilight Saga.”

A week after Drake’s presentation, Lionsgate’s $50-million critically panned reboot of “Hellboy” (backed by Millennium Films) bombed at the box office, opening with $12 million in ticket sales from the U.S. and Canada. Although the company has had some success with lower-budget fare such as Tyler Perry’s “A Madea Family Funeral,” more costly efforts including November’s $100-million “Robin Hood” have fizzled. The bombs mark a startling fall for what a few years ago was known as the seventh major Hollywood studio.

Investors have taken note. Lionsgate shares have dropped to about $16, down 55% from their January 2018 peak of $35.52. They rose 10 cents, or 0.6%, to $15.91 on Thursday.

Deutsche Bank analyst Bryan Kraft, in a research note, called it “the worst performing media stock in 2018.”

The falloff is all the more dramatic given that toymaker Hasbro was willing to pay at least $40 a share for the company in 2017, before talks fizzled over price. The company has been the persistent subject of acquisition rumors.

Amid the troubles, Lionsgate’s film group has been downsized and overhauled. Its TV production business, known for “Mad Men” and “Orange Is the New Black,” has also lacked recent hits. And it remains to be seen if Lionsgate’s big bet on pay-TV network Starz will pay off.

The woes at Lionsgate are emblematic of the larger forces squeezing independent studios in a rapidly shifting market dominated by giants such as Walt Disney Co. and WarnerMedia. Smaller companies are trying to survive at a time when the box office is increasingly dominated by movies based on well-known intellectual property, which Lionsgate lacks. Meanwhile, mid-budget action-adventures, comedies and dramas, which have been Lionsgate’s bread and butter, are gravitating to streaming services such as Netflix Inc. and Amazon.com Inc. And the streamers are buying up talent, making it more difficult for studios to compete.

“They don’t have any homerun IP to run with,” Cowen & Co. media analyst Doug Creutz said of Lionsgate. “Their film business is going to remain challenged.”

The challenges come as Lionsgate Chief Executive Jon Feltheimer and Vice Chairman Michael Burns have shifted their focus toward growing pay-TV network Starz. Lionsgate bought Starz for $4.4 billion in late 2016, in a gamble meant to turn the studio into a full-fledged media company and smooth out its earnings. Starz, which has 25 million domestic subscribers, accounted for 70% of Lionsgate’s segment profits in the most recent fiscal quarter. (Lionsgate posted net income of $22.9 million in the quarter that ended Dec. 31, down from $191 million a year earlier.)

But Starz also faces head winds, including cable TV cord-cutting and a crowded market of subscription streaming services. Disney, AT&T’s WarnerMedia and Apple Inc. are preparing their own over-the-top apps, creating heavy competition in a space that already includes Netflix, Amazon Prime, Hulu and CBS All Access.

The Starz strategy has also led to internal conflict. Starz’s longtime CEO, Chris Albrecht, left in February after Feltheimer moved to take more control of the programming on Starz, according to people familiar with the matter who requested anonymity to protect relationships. The more hands-on approach irked Albrecht, who built HBO’s original content strategy and shepherded Starz shows including “Outlander” and “Power.” Albrecht declined to comment.

While pivoting hard toward Starz, Lionsgate has made dramatic changes to improve the performance of the film studio.

Drake, who previously worked at Lionsgate for five years until 2012 and helped launch “Hunger Games,” was named co-chairman of the motion picture group in late 2017, replacing Rob Friedman. Longtime executives, including film group Co-Chairman Patrick Wachsberger, co-President Erik Feig and marketing head Tim Palen, stepped down last year. Drake brought in his longtime producing partner, Nathan Kahane, as president and Damon Wolf to run marketing.

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At least 45 employees in the film division were laid off this year as the company consolidated operations. Some talent also left. Perry, the “Madea” writer-director, took a deal at Viacom Inc.’s Paramount Pictures. Lionsgate recently ended its partnership with Jeff Clanagan’s Codeblack Films, which produces African American-focused movies.

Several people familiar with the studio’s business say the overhaul reflects an increasingly cautious approach to the movie business, meant to protect the company from costly flops. The new regime has been slow to develop projects as Drake has installed his new team, these people said.

“It seems like they're ratcheting back,” said an executive who has worked with Lionsgate. “What I see is [Drake] pivoting, given the volatility in the indie-releasing business.”

Drake disputed that notion, saying it takes time to ramp up a full film slate, especially while reorganizing the business. Part of the strategy is to seek out movies in genres including comedy, action and horror that can break through with audiences.

Drake has reduced the company’s slate to about 35% of the number of projects that were previously in development in order to focus on the best movies. His goal for the company is to produce 10 to 12 movies a year, plus a handful of acquisitions.

“We’re already well on our way to turning the corner, and we have a development slate that has been very much slimmed down, but very focused,” Drake said in an interview.

The company is still pursuing potential blockbuster franchises — including “Monopoly” and “Borderlands” — but does not want to rely on them entirely, he said.

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“We have a number of films in development that when they’re ready will represent big IP for us, but we can’t have a strategy that relies on four of those a year to be successful, and we don’t need to at our size,” Drake said.

Feltheimer and Burns declined interview requests.

Filmmakers who work with Drake and Kahane say the new leadership is trying to build a more nimble studio that makes long-term bets on filmmakers.

To that end, Lionsgate recently secured a production deal with faith-based production company Kingdom Studios, which is making “I Still Believe,” about Christian singer Jeremy Camp. At CinemaCon, Drake also announced an investment in Seth Rogen and Evan Goldberg’s Point Grey Pictures, which has the new rom-com “Long Shot,” starring Rogen and Charlize Theron.

“That’s a longer lead time for development, but it can reap huge rewards,” said Jon Erwin, who is co-directing “I Still Believe” for Lionsgate.

Founded in 1997 in Vancouver, Canada, the company became known early on for edgy indie and horror films such as “American Psycho” and “Saw.” Lionsgate grew its firepower and boosted its stock price through acquisitions, catapulting itself into the big leagues with its 2012 purchase of “Twilight Saga” studio Summit Entertainment and the release of the first “Hunger Games.” The four-movie apocalyptic “Hunger Games” series grossed $2.97 billion. It impressed investors with its tactic of offsetting the risk of producing movies by pre-selling foreign distribution rights and bringing in co-financiers.

However, the success set a high bar on Wall Street, and film executives faced pressure to repeat the success of those franchises, resulting in costly misfires.

“Gods of Egypt,” a $140-million mythological epic released in 2016, flopped after it was slammed by critics and accused of whitewashing its cast. A reboot of billionaire Haim Saban’s “Power Rangers” franchise disappointed after Feltheimer said on an earnings call that the company could produce multiple films based on the kids series. The studio’s decision to turn the third book in the “Divergent” series into two movies backfired when “Allegiant” flopped. A planned fourth installment was never produced.

Executives were enthusiastic about “Robin Hood,” after Leonardo DiCaprio called the studio to pitch his company’s vision for an edgier retelling. But the $100-million film, released in November, grossed a paltry $84.8 million globally.

Lionsgate could rebound this year with the release of movies including “Long Shot” and a third “John Wick” movie, analysts said. But otherwise, the schedule includes few obvious hits. Upcoming films include “Angel Has Fallen,” the third installment in the “Olympus Has Fallen” series, “Rambo V: Last Blood” and a Roland Emmerich remake of “Midway.”

Nonetheless, the company is betting on some unexpected ideas, including an upcoming movie about the late Fox News founder Roger Ailes. Vancouver producer and financier Bron Studios stepped in to rescue the Ailes movie after it was dropped by Annapurna. Lionsgate agreed to distribute and co-finance the film.

Bron Studios CEO Aaron L. Gilbert said he’s been impressed by Lionsgate film executives at recent meetings with writer Charles Randolph, director Jay Roach and Theron (who plays former Fox anchor Megyn Kelly) to discuss a possible title for the December release and marketing strategies for the movie. The challenge, he said, is to market the film as a commercial movie while not shying away from political sensitivities.

“When the whole group shows up to those early meetings, you can tell it’s a very important film for them,” Gilbert said. “It feels like there’s strong energy in the room whenever we’re there.”

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