The Big Picture

Patrick Goldstein and James Rainey
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Lionsgate: Will bigger be better?

August 13, 2008 |  6:28 pm

After proving itself to be the spunkiest, most resourceful and opportunistic mini-major studio in Hollywood, Lionsgate is about to undergo a major mettle-testing transformation that could make it a true industry powerhouse or send it stumbling into a crash-and-burn death spiral. As my colleague John Horn reports in his Thursday Word of Mouth column, while much of Hollywood is cutting back on film releases, the industry's most successful indie studio is opening four major films in four consecutive weeks, all in wide release, meaning more than 2,000 screens.

And that's just the beginning. Alli The studio is oh-so-close to announcing the hiring of Alli Shearmur, a veteran studio player who was a successful production executive at Universal Pictures and served a brief stint as co-president of production at Paramount until studio chief Brad Grey axed her and Gail Berman in a bloody studio purge in early 2007. Shearmur's hiring--she's slated to start work at the studio early next month--is a coup for Lionsgate Motion Picture Group President Joe Drake, who has been making the rounds at talent agencies for months, saying that Lionsgate intends to finance more of its own pictures, a crucial step in the studio's strategy to create a more lucrative revenue stream and add value to its film library.

Up until now, Lionsgate has made most of its money on fee-based acquisitions, which are a steady revenue source, but don't deliver the kind of home-run style returns that Warners gets from owning "Harry Potter" or Disney gets from owning its "Pirates of the Caribbean" franchise. Some of the movies Lionsgate is best known for--the "Saw" horror film franchise and the upcoming Oliver Stone-directed "W."--were financed by outside parties, who end up with the lion's share of the profits.  With marketing costs skyrocketing, Lionsgate needs to create its own franchises, hence the arrival of Shearmur, who helped launch two wildly popular franchises at Universal, "The Bourne Identity" and the "American Pie" series, which still makes millions for the studio in direct-to-DVD form.

But there are huge risks involved in a studio bulking up this quickly. Will Lionsgate survive the pitfalls along the way? And how will Shearmur fit in with the studio's freewheeling, close-knit executive fraternity? Here's my take:

Most veteran observers agree that Lionsgate needs to find a way to own its own pictures. Thanks to some shrewd dealmaking by top executives Jon Feltheimer and Michael Burns, it has plenty of ready cash at its disposal. But the track record of small studios who've tried to grow from guppies to whales is littered with failure. It puts a huge strain of the system and often entices the production team into making expensive bets that don't pay off.

The classic cautionary story: In 1996, flush with money from its sale to Ted Turner and eager to be in business with big-time movie stars, New Line made a string of big-budget action-adventure films. In one three-month period in the fall of 1996, the studio released "The Island of Dr. Moreau," "Last Man Standing" and "The Long Kiss Goodnight." All were duds. It took years (really not until the release of "Lord of the Rings") for the studio to recover from the trauma.

No one's saying Lionsgate will suffer the same bad fortune. The studio has had sustained growth for four consecutive years as it has cannily reinvented itself, largely getting out of the specialty film business just as it began to collapse while acquiring solid-performing genre franchises. Lionsgate has a great squad of executive talent, from theatrical film president Tom Ortenberg to production president Michael Paseornek to marketing gurus Tim Palen and Sarah Greenberg. But most small companies that try flexing their muscles often experience growing pains.

Shearmur has a reputation as a gifted but high-maintenance executive. How will she fit into what has been a tight crowd of top executives? And how will Paseornek and Ortenberg react to having a new big fish in their pond? Lionsgate insiders insist they are only doing hiring, not firing, but tensions are inevitable. On the other hand, Lionsgate has, so far, exercised good judgment. After winning an Oscar best picture for "Crash," a lot of studios would have wasted untold millions chasing another Academy Award. Instead, Lionsgate began phasing out its awards film acquisitions, making a deal with a smaller distributor (Roadside Attractions) to handle its art-house films.

Inside Hollywood, Joe Drake is a popular guy. Having met him a couple of times, I can see why. He's direct, ego-free and believes in making deals where everyone comes away satisfied. That means he has a lot of people rooting for him to succeed, especially in an era where most studios are doing cookie-cutter remakes and comic-book effects films. There are cynics who say the real reason Lionsgate is going big is to beef up the studio's bottom line (and its library) for a big sale down the line. Call me a cautious optimist. The real key for Drake--who founded Mandate, which produced the hit film "Juno"--will be to find a way to take bigger swings at the plate but somehow mitigate his risks through tax deals, foreign pre-sales and equity partnerships.

That's a tricky business, one fraught with peril. Most studios these days are so risk-adverse that they wouldn't jump over a glass of water without a team of sponge-holding attendants ready to clean up any mess. What Lionsgate is doing is a lot more like a one-eyed daredevil plunging into a wading pool at the circus. It's one of those intrepid acts that instantly wins your rooting interest, but it sure doesn't leave much room for error.      

Photo of Alli Shearmur from Paramount Pictures   

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