Once again TV, not film, drives Lions Gate growth

Thanks to strong gains in its television production business, new revenue from its TV Guide Network and reduced movie marketing costs, Lions Gate Entertainment swung to $31.7 million in net income during its second fiscal quarter compared with a net loss of $51.8 million in the same period a year ago. Revenue rose just 3% to $393.7 million.

The movie and TV studio's overall motion picture revenue fell 11% to $277.1 million. That was driven in part by the fact that the company released only two movies in the quarter, compared with four a year ago. The drop benefited Lions Gate, however, by helping it lower theatrical marketing costs by 66%.

Home entertainment revenue was the biggest drag on the movie segment, plunging 25%. New DVD releases, including "Crank: High Voltage," "The Haunting in Connecticut" and "Horsemen" fell short of the studio's home entertainment slate in the same period last year.

The studio's TV business, on the other hand, continued to perform well, growing 30% to $88.9 million. The studio benefited from new episodes of its cable series "Weeds," "Mad Men" and "Crash," a 71% jump in revenue from its syndication unit Debmar-Mercury and an 80% jump in international TV sales.

Lions Gate Chief Executive Jon Feltheimer said the company is on track to "meet our financial targets for the year."

While the studio's sixth installment of its long-running “Saw” movie series was not released in the quarter just ended, it was a big box office miss and is sure to ding Lions Gate’s next quarterly results.

The studio's newest big-screen debut, "Precious," a harrowing drama about the brutal home life of a teenage girl from Harlem, grossed an impressive $1.87 million opening this weekend at 18 theaters in four cities. The studio, wanting to capitalize on the film's strong word-of-mouth and Oscar buzz, will expand the picture's run beginning Friday and through the end of the month. If the movie, based on the novel "Push" by Sapphire, continues to draw audiences, Lions Gate could make a nice profit given that it paid just $5.5 million for the rights at this year's Sundance Film Festival.

Lions Gate stock closed up 6% at $5.41 today before earnings were released.

-- Claudia Eller

Photo: Mary-Louise Parker and Demian Bichir appear in "Weeds." Credit: Sonja Flemming / Showtime

Lionsgate strikes partnership with online film production company Massify

Lionsgate has struck a partnership with an online community of filmmakers in hopes of finding new story ideas.

The newly formed Lionsgate Incubator Project will work with Massify -- a kind of Linked-in for the film world, with a network of 45,000 filmmakers, actors and crew -- to develop novel concepts for shorts and feature films. The first project is to come up with a male-focused comedy short, with the kind of appeal of films like "The 40-Year-Old Virgin" and "The Hangover." 

The professional filmmakers in Massify's network will conduct a virtual pitch session, developing brief plot summaries and shooting scripts. The community will vet the concepts and select the best of the submissions -- with Lionsgate overseeing development.

"We're casting as wide a net as possible, saying you can come in and have the opportunity to pitch one of the major players in Hollywood," said Massify Chief Executive Geoff Pitfield.

The project will be staffed from Massify's pool of directors, cast and crew. The studio hopes these concepts ultimately will become feature-length films.

"There is a revolution of new ideas in filmed entertainment online," Curt Marvis, president of digital for Lions Gate, said in a prepared statement. "We intend to be at the forefront of accessing this enormous and largely untapped source of fresh talent and original new voices."

Lions Gate isn't the only studio to seek to mine the Internet for new voices. Other companies in the  animation business have tried a similar approach of creating virtual pools of talent to make films.

-- Dawn C. Chmielewski

Photo: Curt Marvis. Credit: Berliner Photography.

Moody's rates Lions Gate debt 'high credit risk'

Carl Icahn would love this one.

One of Wall Street's biggest credit-rating agencies is warning investors that Lions Gate Entertainment is a risky bet. Moody's Investors Services today gave a grade of B1 to the $200 million of secured notes that the independent studio recently announced it is issuing.

The agency says (registration required) that B ratings are "considered speculative and are subject to high credit risk."

Moody's gave the overall company a slightly worse rating of B2.

B ratings are far from Moody's lowest grade, but represent significant concern about the rated company's business. In its statement, Moody's said the rating reflects "the inherent volatility of the theatrical production business and the lackluster performance of Lions Gate's film slates over the past several years." The agency also expressed concern that even if the studio does return to profitability in its 2010 fiscal year, as expected, it will still be highly leveraged and continue to burn through cash to pay its debt until the next year.

Moody's didn't only have bad news for Lions Gate, however. It noted that the company could still be an attractive acquisition target, stating that it has "significant perceived value." The agency also said it has "reasonable confidence that profitability will improve in the coming years as [Lions Gate] refocuses its film slate on niches that have proven profitable ... in the past, and as TV program syndication revenues begin to flow due to the popularity of such shows as 'Weeds' and 'Mad Men.'"

While its television revenues have been growing, Lions Gate's movie business has struggled lately. In the quarter ended June 30, theatrical revenue plunged 26%, while home entertainment revenue was down 6%. 

-- Ben Fritz

Lions Gate raises money

Lions Gate Entertainment said in a regulatory filing that it signed a new slate financing agreement with JP Morgan, Chase & Co., Wachovia Corp. and Union Bank.

Under the 3 1/2-year deal, Lions Gate received commitments of $110 million from the lenders, which could go as high as $200 million. The company's slate this year will be 11 films, and next year it plans to make 14.

-- Joe Flint

Inside the battle for 'Precious'

Last week, we briefly reported on the legal blow dealt to Harvey Weinstein's efforts to distribute "Precious, Based on the Novel ‘Push’ by Sapphire," the darling of the Sundance Film Festival that follows the brutal life of a young Harlem girl. The back story of this battle between Lions Gate and Weinstein Co. provides a snapshot into the sale of movies and just how hungry the struggling Weinstein Co. was for this property.

In January, Lionsgate Films announced it had acquired director Lee Daniels' harrowing account of a young black woman's personal life. Weinstein Co. alleged that independent film sales agent John Sloss actually sold "Precious" to Weinstein Co. first, then dealt it to Lionsgate when it offered a better deal.

On Feb. 4, two days after Lionsgate announced that it had acquired the film, Lionsgate and Weinstein Co. sued each other to determine who controlled the movie.

Weinstein Co.'s legal challenge suffered a major setback Friday, when U.S. District Judge Naomi Reice Buchwald dismissed one of the four lawsuits that arose from the dispute. In her ruling in a New York case brought by Weinstein Co. against the film's producers, Smokewood Entertainment Group, Buchwald said that Weinstein Co. never had a written contract to distribute the film, an essential ingredient when a copyright is transferred to another party. For Weinstein Co., it was part of a double dose of bad news to end the week: production head Tom Ortenberg, who joined the firm in January, said he was leaving the struggling studio.

"A signed writing is required to effectuate a transfer of copyright ownership," Buchwald wrote. "To the extent that [Weinstein Co.] alleges a purely oral agreement for the exclusive licensing and distribution rights to 'Push,' that claim clearly fails as a matter of law."

Lions Gate shareholders elect company's 12 board nominees at ho-hum annual meeting

Lions Gate Entertainment's annual shareholders meeting in Toronto today was, as expected, a big yawn, with all 12 of the movie and television studio's 12 nominees, including Chief Executive Jon Feltheimer and Vice Chairman Michael Burns, elected to the board. Only two of them, Mark Rachesky, Lions Gate's largest shareholder, and Phyllis Yaffe, former chief executive of Canada's media company Alliance Atlantis, are new members.

While the turnout of 40 to 50 shareholders was bigger than last year, when Lions Gate executives outnumbered the five shareholders who showed, it's unclear whether that was due to the usual ebb and flow of attendance or wishfull thinking by some that activist investor Carl Icahn might pull something out of his hat at the last minute. No such luck. Icahn -- who never came up with an alternative slate, as he had previously indicated he might after berating management for spending too much money -- was a no-show.

Also possibly contributing to the larger turnout of shareholders was curiosity to see Lions Gate's November release "Precious," which premiered at the Toronto International Film Festival on Sunday night and was presented by executive producers Oprah Winfrey and Tyler Perry. The gritty drama, which won top awards at this year's Sundance Film Festival and is being buzzed about as a potential Oscar contender, is about a pregnant, obese and mentally challenged teenager who struggles to turn her life around.

At the shareholders meeting, Feltheimer naturally took the time to tout the movie as well as the studio's next film in its popular "Saw" franchise, "Saw VI," which also opens next month, and a planned seventh installment, "Saw 7 in 3-D."

On the TV front, he noted that the company's cable show "Weeds" was picked up for a sixth season as it heads toward syndication, and "Mad Men" is poised for Sunday's Emmy Awards presentation with 16 nominations, including one for outstanding drama series.

"The growth of our television business has been anything but random," Feltheimer told the shareholders. "It was an integral part of one of our core values, diversification," and was the main contributor to Lions Gate's  higher-than-expected last quarterly results.

-- Claudia Eller

Carl Icahn's proxy roar for Lions Gate silent, at least for now

Those who follow -- including the movie and television studio's own management -- the events at Lions Gate Entertainment might have expected "activist shareholder" Carl Icahn to wage a proxy war by now given his growling threats earlier this year.

But, with Lions Gate's annual shareholders meeting set to take place tomorrow in Toronto, Canada (where the company is incorporated though it operates out of Santa Monica), all is quiet on the Icahn front, with his alternative slate of directors never materializing. 

While it still remains unclear what is the game plan of the corporate raider regarding his investment in Lions Gate since he's never articulated it, media analysts attribute the current Icahn lull to the possibility that the company's second largest shareholder may have less to carp about these days.

"My guess is he has softened his activist stance a bit because the stock has been up since April and the company has responded to some of his complaints," says analyst David Miller, a managing

Lions Gate top executives' 2009 bonuses plummet, Rachesky nominated to board

Top executives at Lions Gate, including Chief Executive Jon Feltheimer and Vice Chairman Michael Burns, saw their bonuses plunge in the company's fiscal 2009, which ended on March 31. That's not surprising given the lousy year the Santa Monica-based independent studio has had.

Feltheimer's 2009 bonus was $437,500, a huge drop from the $2.15-million bonus he received in 2008,according to a filing today with the Securities & Exchange Commission. Burns got $312,500 compared with $1.6 million in the previous year. Steven Beeks, president of the studio, got a bonus of $175,000, down from $700,000.

The reason for the drop? Although Lions Gate reported record revenue of $1.47 billion for fiscal 2009, its losses before accounting for certain costs rose to $133.6 million, from $54.6 million in fiscal '08.  

It wasn't all bad news on the Lions Gate senior executives' pay stubs, however. While Feltheimer's salary of $1.2 million was the same in fiscal 2009 as 2008, Burns got a raise to $844,792, from $750,000. Beeks' base salary also grew, to $750,000 from $600,000.

Also in its Monday filing, Lions Gate announced its 12 nominees for its board of directors, including the company's largest shareholder, Mark Rachesky. Rachesky, a former chief investment strategist for billionaire investor Carl Icahn, is being nominated in place of board director Mark Amin.

Lions Gate plays nice with Redbox for $158 million

Lions Gate has decided it's better to work with Redbox than against it.

The independent studio has signed a five-year deal to provide its movies to DVD kiosk company Redbox at the same time they are made available to other rental services such as Netflix and Blockbuster. According to a regulatory filing by Redbox's parent company Coinstar Inc., Lions Gate will earn approximately $158 million over the term of the deal.

The agreement, which goes into effect Sept. 1, can be terminated by Lions Gate as early as Aug. 31, 2011 at its discretion.

The Lions Gate deal is similar to one signed by Sony Pictures last month worth $460 million over five years.

While those two studios have decided to cooperate with Redbox, others are trying to undermine the company, which rents out DVDs from kiosks in grocery stores for $1 per night. Universal is in court with Coinstar after last year ordering its wholesale distributors not to give Redbox its DVDs until 45 days after their release. 20th Century Fox last week ordered its wholesalers to do the same, but with a 30-day delay instead.

Both studios are worried that Redbox's cheap offering will undermine more profitable rentals from other companies, as well as lucrative sales. Time Warner Chief Executive Jeff Bewkes recently expressed a similar concern, though Warner Bros. hasn't taken action yet.

Redbox has continued to offer Universal DVDs by purchasing them through alternative means and indicated last week that it would do the same with Fox.

-- Ben Fritz

Television delivers strong quarter for Lions Gate

Lions Gate Entertainment posted better-than-expected results for the fiscal first quarter: Revenue grew 30%, thanks in large part to gains from television production and first full-quarter revenue from its recent TV Guide Network and TVGuide.com acquisition.

For the quarter ended June 30, Lions Gate reported revenue of $387.7 million and net income of $36.3 million, or 31 cents a share, up from net income of $3.5 million, or three cents, for the same quarter last year. Analysts had forecast a loss of five cents a share, according to Thompson/First Call.

Investors welcomed the news: Lions Gate shares were up as much as 11% in after-hours trading.

Overall motion picture group revenue of $272.7 million was up 6% compared to $257.4 in the prior year's quarter, mostly attributable to a strong performance by Lions Gate-owned production company Mandate Pictures, the company behind the Fox Searchlight blockbuster release "Juno" and Universal Pictures' recent release "Drag Me to Hell."

However, Lions Gate's own theatrical revenue fell by 26% as the studio released only one movie in the quarter: "Crank: High Voltage." The action thriller grossed a disappointing $13.7 million in the U.S.

Lions Gate's home entertainment revenue was $151 million in the quarter, a 6% decline from last year. Titles "Madea Goes To Jail," "My Bloody Valentine 3-D," "New in Town," "The Spirit" and "Transporter 3"  could not compete with "exceptional revenue" from the last year's "Rambo" and with the western "3:10 To Yuma" and other titles.

The quarter was far and away driven by strong results in Lions Gate's TV division. TV production revenue increased to $87.2 million, up 112% from $41.1 million in the same period last year, credited to the delivery of new episodes of the cable series "Weeds"; "Nurse Jackie"; "Tyler Perry's House of Payne" and its spinoff "Meet The Browns"; and "South Park."

Lions Gate also realized $27.8 million in new revenue from its recently acquired assets TV Guide Network and TVGuide.com.

This is Lions Gate's first upbeat quarter in the last year, during which activist shareholder Carl Icahn has been highly critical of management for overspending as the company racked up losses and its stock continued to tumble.

Icahn, who recently increased his stake in the independent studio to 17.7%, has been uncharacteristically quiet lately and has not tipped his hand about whether he plans to launch a proxy contest as he had threatened.

The clock is ticking for Icahn to put up his own slate of directors -- Lions Gate's annual shareholders meeting in mid-September is fast approaching.

Meanwhile, as a defensive measure against Icahn, last month Lions Gate nominated its largest shareholder, Mark Rachesky, to its 12-member board. Rachesky, a former associate of Icahn's who owns 19.8% of the company's common stock, has said he would support management's board nominees at the shareholders meeting.

Lions Gate's other "friendly" major shareholders include Michael Steinberg, whose Steinberg Asset Management owns 14.6%, and Gordon Crawford, whose Capital Research Global Investors holds about 9.5%.

Lions Gate has been attempting to shore up its balance sheet, promising to slash some $200 million out of its production and marketing expenses. Earlier this summer, the company sold 49% of the TV Guide cable channel for $123 million. Lions Gate recently announced that it had acquired the right to broadcast episodes of "Ugly Betty" -- the first scripted series to be aired on the TV Guide channel.

In recent weeks, the studio's popular cable shows "Mad Men" and "Weeds" earned a total of 22 Emmy nominations and TBS ordered dozens of new episodes of "Tyler Perry's House of Payne" and "Meet The Browns."

Last week, Lions Gate also announced the launch of two new branded channels in Asia, the action channel KIX and horror and suspense channel Thrill.

-- Claudia Eller