‘Hunger Games’ could be a game changer for Lions Gate
In “The Hunger Games,” 24 teenagers fight to the death in a tournament whose slogan is “May the odds be ever in your favor.”
Executives at Lions Gate Entertainment are hoping those words will ring true for them as they gamble on the most anticipated literary adaptation to hit Hollywood since “Twilight” and “Harry Potter.” The first of four planned “Hunger Games” films, based on Suzanne Collins’ bestselling trilogy, wrapped production in North Carolina on Saturday and will hit theaters March 23.
A successful “Hunger Games” franchise could transform the studio, much as “Twilight” did rival Summit Entertainment, by providing reliable income for years from box-office, DVD and digital sales as well as television licensing and merchandise.
But launching such a movie series won’t come cheap. With a budget of nearly $100 million, the first film alone is the costliest production ever for Santa Monica-based Lions Gate, which is best known for low-budget genre fare such as “Saw” and Tyler Perry’s “Madea” films along with the occasional prestige movie like “Precious.” The studio’s movie business is in need of a jump-start, having weathered a number of flops since last year.
With so much at stake, “Hunger Games” will likely be the hottest topic of conversation as investors gather for Lions Gate’s annual meeting Tuesday in Toronto.
“There are three things on Lions Gate investors’ minds for the next year: ‘Hunger Games,’ ‘Hunger Games’ and ‘Hunger Games,’” said analyst James Marsh of Piper Jaffray, who predicted the four movies would generate more than $475 million in profits over six years.
Unlike rivals such as Sony Pictures that are part of large conglomerates, Lions Gate is an independent studio for which such a bonanza would be more than a blip on the bottom line.
The challenge for Lions Gate executives at events such as Tuesday’s meeting is to get investors excited about that potential without creating so much hype that anything less than a blockbuster performance would disappoint.
“‘Hunger Games’ is not a make-or-break opportunity for the company, and yet it’s a really important one that we cannot screw up,” said Joe Drake, president of Lions Gate’s motion picture group.
For the last two years, Lions Gate’s business has been overshadowed in the minds of many investors by corporate raider Carl Icahn, who was bent on seizing control of the company and ousting Chief Executive Jon Feltheimer and Vice Chairman Michael Burns. The costly feud ended in August when Icahn, the studio’s largest shareholder, agreed to end his crusade in exchange for both sides dropping their litigation.
Due in part to uncertainty around Icahn and the fact that the company hasn’t been profitable for the last four fiscal years, Lions Gate shares have traded below $8 since 2008 — well under a high of $12 the year before. But Hudson Square Research analyst Marla Backer said once Icahn’s shares have all been sold, which is expected by October, growing buzz for “Hunger Games” could change that.
The movie’s young cast, led by “Winter’s Bone” Oscar nominee Jennifer Lawrence, has twice graced the cover of Entertainment Weekly, and a teaser trailer premiered at the MTV Video Music Awards.
The studio has discussed “Hunger Games” on its last five quarterly earnings calls with investors and recently announced that a sequel would be released the weekend before Thanksgiving in 2013, a desirable date traditionally taken by “Twilight” and “Harry Potter” installments.
When Lions Gate acquired the film rights in March 2009, beating competitors including Summit, Warner Bros. and Spyglass Entertainment, the first “Hunger Games” book had sold fewer than 500,000 copies. It was regarded as a movie that would appeal strictly to young adults, a view that changed when the second and third books were released and “Hunger Games” became a broader literary phenomenon with sales to date of more than 12 million copies. As a result, the movie’s box-office potential — and its budget — increased.
“With the books growing in popularity, we knew more people would come in with a certain set of expectations,” said producer Nina Jacobson, who sold the film rights to Lions Gate. “That didn’t change the movie we wanted to make, but it meant we had to deliver on the right scale.”
Lions Gate ended up spending more than $80 million, after tax credits, to produce the movie. The studio has made more than half that amount back through sales to foreign distributors, a move that mitigates risk but also lowers potential rewards if the box office is huge overseas.
The company has a growing television division that produces “Mad Men” and three sitcoms from Tyler Perry, as well as increasing digital revenue, but its motion picture business is in a challenging spot.
Its once-reliable “Saw” series ended its seven-year annual run last year, and although Perry’s pictures continue to reach his devoted audience, the filmmaker keeps half the profits. Meanwhile, Lions Gate has racked up a number of flops over the last 18 months, including the Ashton Kutcher action comedy “Killers,” the Russell Crowe thriller “The Next Three Days,” action remake “Conan the Barbarian” and last weekend’s mixed martial arts drama “Warrior.”
Its one movie in the last three years to merit a sequel was 2009’s aging action hero hit “The Expendables,” which will get a follow-up next summer.
But Drake, who has the next two years of releases largely planned, believes a turnaround is near.
“I think we now have a slate that represents us still owning what we did in the past along with titles that carry the potential to be next-generation brands for our company,” said Lions Gate’s top film executive, whose $2-million-a-year job may hinge on that coming true.
Among the 50-year-old’s upcoming bets are this month’s “Abduction,” for which the studio paid Taylor Lautner around $5 million in hopes of turning him from a “Twilight” heartthrob into an action star; an ensemble romantic comedy based on pregnant parent classic “What to Expect When You’re Expecting”; a remake of “Dirty Dancing”; and “Last Stand,” Arnold Schwarzenegger’s first post-gubernatorial starring role.
At the same time, Lions Gate is continuing to make low-budget action and horror movies and to co-finance films with other studios through its subsidiary Mandate Pictures.
If Lions Gate can turn around its movie fortunes and successfully launch a “Hunger Games” franchise, it will become a more powerful player in Hollywood and valuable company on Wall Street.
“As a publicly traded company, all our cards are on the table, and that has its challenges,” Drake said. “But I’m optimistic. I feel very good about where we sit.”
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