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Lions Gate launching micro-budget movie initiative, may sell assets

February 10, 2011 | 10:28 am

ExpendablesGuns Seeking to cash in on the next "Paranormal Activity" or "Saw" phenomenon amid challenging film economics, Lions Gate Entertainment is launching a new initiative to release up to 10 low-budget movies a year costing less than $2 million each.

Chief executive Jon Feltheimer announced the plans on a conference call with analysts Thursday morning in which he discussed the Santa Monica film and television studio's financial performance in the quarter ended Dec. 31.

Feltheimer said the low-cost endeavor was one of the key steps the studio is taking to deal with a "motion picture environment facing headwinds."

Though Lions Gate has yet to announce any specific movies under the plan, the executive said they would be 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).

The studio had one of the first 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. Also in 2010, the company released "The Last Exorcism," which took in $41 million. Both movies cost between $1 million and $2 million to produce.

In response to an analyst's question, Lions Gate's motion picture group president Joe Drake 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 plans for a similar venture 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, debuts Friday.

In order to reduce risk in its film spending, Feltheimer also said that Lions Gate is aggressively seeking partners to partially or fully finance production or prints and advertising costs for many of its releases.

The chief executive noted that the studio is undergoing a review to determine which of its businesses are most valuable and which are not. In response to a question, vice chairman Michael Burns said that initiative may result in Lions Gate selling some "non-core assets," though he declined to identify which ones might end up on the block.

During the quarter, Lions Gate's revenue grew 24% from the same period a year ago to $422.9 million because of increases in home entertainment, particularly from the hit action film "The Expendables," and international film and television. The company's net loss shrank significantly from $65.3 million to $6 million.

Total motion picture revenue grew 30% to $326.7 million, while television production revenue increased 5% to $96.2 million.

Lions Gate stock was down less than 1% at $6.32 in Thursday morning trading. Its shares have declined 15% in value since corporate raider Carl Icahn halted his attempt to seize control of the company on Dec. 13.

--Ben Fritz

Photo: Jet Li, Dolph Lundgren and Sylvester Stallone (left to right) in "The Expendables." Credit: Karen Ballard / Lionsgate.