Lionsgate: Hungriest of the movie studios

The Hunger Games mega-hit is transforming Canada’s Lionsgate.

Lionsgate hasn’t posted a profit in five years, but The Hunger Games franchise could change all that. (Photo: Lions Gate Entertainment)

It’s Saturday, and the movie won’t start for another 45 minutes. Yet already a long line snakes around Toronto’s Varsity theatre. On shelf after shelf in the Indigo bookstore downstairs, they’re peddling the same story, that of a dystopian future where teens are forced to fight to the death for the amusement of adults. Analysts knew the film version of the book would do well, but they didn’t quite expect this: The Hunger Games raked in US$152.5 million on its opening weekend, the third-best for any movie, ever.

It was, in short, a great weekend for the film’s producer, Lions Gate Entertainment Corp., which is turning into a stunning Canadian success story. Though now run out of Santa Monica, Calif., Lionsgate was founded in Vancouver in 1997 by investment banker Frank Giustra, and eight Canadians still sit on its 12-member board. Its previous No. 1 earner, Michael Moore’s Fahrenheit 9/11, cleared US$120 million domestically. Not bad for an independent studio, but peanuts compared to what The Hunger Games franchise could bring in. The three books will be turned into four movies, and the company’s take is pegged to reach $2.6 billion. As for profit, when you factor in merchandising, “we’re thinking somewhere between $1.5 billion to $2 billion,” says Monica DiCenso, a media analyst at J.P. Morgan.

This franchise isn’t the only reason 2012 will go down as the year Lionsgate finally started to roar. In January, the company acquired Summit Entertainment, the studio that produces the Twilight movies, for US$412.5 million. Lionsgate’s TV slate includes Mad Men, fresh off a season première that was its most watched episode to date. And then there’s Anger Management, Charlie Sheen’s much-hyped comeback show, premièring in June.

DiCenso says strong film franchises and TV series provide stability to the firm, “which they really never had before.” Indeed, Lionsgate hasn’t posted a profit in five years. But shares hit a record high of $16.19 two days before The Hunger Games’ release. Not a bad rebound from the $4 that shares were trading at three years ago.

All along, Liongate’s model was about cheap, low-risk investments, often in edgy material the major studios avoided, such as the Saw slasher movies. Even The Hunger Games’ US$80 million budget was modest for a blockbuster. Costs were brought down by filming in North Carolina for tax benefits, and risk was reduced by selling off foreign rights for over $50 million.

The firm’s frugality to date, though, has made the mega-hits elusive. Now, with The Hunger Games and Twilight franchises in its stable, it’s in contention for more sought-after projects. Indeed, it will have to keep the hits coming just to maintain its spiking cash flow. One factor in Lionsgate’s favour: its new-found profile and credibility will help it attract talent, says Robert Routh, an analyst with Phoenix Partners.

Lionsgate has also shown itself willing to relinquish creative control. That’s how it beat out bigger-spending studios for the rights to The Hunger Games, by letting author Suzanne Collins write the script. It’s a very modern way of doing things, Routh says, and it’s “part of the reason Lionsgate has grown so much.”