Lionsgate End of an Era

Hunger Games
[UPDATED:] Lionsgate stock descends back to 2012 levels.

After four years of Hunger Games & Twilight, how much marketshare will Lionsgate lose in 2016?

Even with the announcement of Hunger Games prequels in the works, the next two years will determine if Lionsgate can compete with the studios or settle back into the troubled middle-market with The Weinstein Company and Relativity.

During the years of Twilight and Hunger Games, Lionsgate films accounted for 7-11% of box office receipts in N. America, just short of the studios. However, before 2012, Lionsgate only averaged 4%.

How is Lionsgate going to plug the $350 million void in their slate?

Domestic Box Office Receipts

Year Yearly Gross Top Film Gross / %
2006 $335 Saw III $80(23%)
2007 $368 Saw IV $63(17%)
2008 $436 Saw V $56(13%)
2009 $407 Medea Goes to Jail $90(22%)
2010 $517 The Expendables $104(20%)
2011 $185 The Lincoln Lawyer $58(37%)
2012 $1239 The Hunger Games $408(33%)
2013 $1069 THG: Catching Fire $395(37%)
2014 $736 THG: Mockingjay 1 $313(43%)
2015* $660 THG: Mockingjay 2 $260(39%)
in millions

The SPC Advance Report includes licensed guarantees for 175 films released by Sony Pictures Classics, spanning all major genres.

Divergent

[UPDATE: The third installment of the Divergent films, Allegiant, was an unmitigated disaster. The film’s opening weekend underperformed the second film by 44% in North America. During the second week of release Lionsgate publicly announced that the budget to the fourth and final film will be slashed.]

The second installment of the Divergent films, Insurgent, underperformed the first film by 14% in North America. Although, both films grossed over $100 million domestically, the franchise will do little to plug the hole left by Twilight and The Hunger Games.

Stock Price: No Where But Down

For a number of years, Lionsgate has been a darling of Wall Street. The company’s shares (NYSE:LGF) are up more than 400% in the last ten years.

However, the latest news from Lionsgate is falling earnings and underperformance due to soft releases. The company reported a net loss of $42.1 million, or 28 cents a share, for its Q2 2016, which ended Sept. 30. In Q2 2015, Lionsgate had earnings of $20.8 million, or 15 cents a share. As of today (April 3rd 2016) Lionsgate stock is trading at 2012 levels.

Lionsgate Stock Ascent & Correction

Year Share Price
2006 $8.85
2007 $11.03
2008 $10.24
2009 $5.45
2010 $7.27
2011 $6.24
2012 $14.74
2013 $29.27
2014 $28.41
2015 $35.42
2016* $21.75
June price

Have The Good Times Gone?

Thanks to the acquisition of Summit Entertainment and the mega-hit Hunger Games, Lionsgate hit a high-water mark in 2012 and 2013 when it grossed more than $1 billion at the North American box office. The newly merged company out-grossed both Fox and Paramount in those years, but those heady days will come to an end this weekend.

Over the past ten years, Lionsgate has only released two films that have grossed more than $100 million domestically, which were not films of Twilight, Hunger Games or Divergent – Now You See Me in 2013 ($117 million) and The Expendables in 2010 ($104 million). As a side note, Expendables 3 released in August 2014 only managed $40 million.

Feasting On The Hunger Games

In order for Lionsgate to match its 2014 domestic box office performance ($736 million), Mockingjay: Part Two must gross more than Part One. Since its the last in the series, it could see a bump. Overall, the series has been trending down.

[UPDATE: After three weeks Mockingjay: Part Two has grossed $231 million. Based on trends and the Star Wars factor, the second installment should gross $255 million in 2015, a drop of $50 million from last year.]

We believe Mockingjay: Part Two will gross $27,000 per screen domestically in its opening weekend compared to $29,000 for Part One.

[UPDATE: Mockingjay: Part Two had the smallest opening of the series. Domestic receipts edged just over $100 million, around $24,400 per screen.]
Film Domestic Gross Int'l Gross Release
The Hunger Games $408 $286 23Mar12
Catching Fire $427 $440 22Nov13
Mockingjay 1 $338 $418 21Nov14
Mockingjay 2 $285 $380 20Nov15
in millions

What’s Next?

With the dystopian young adult fiction market waning from a flood of content, how will Lionsgate grow to challenge the major six studios without a super-hero or animation franchise? Maybe a Dreamworks or Liberty Global merger, but these would be balance-sheet mergers rather than strategic ones.

The next few years will prove if Lionsgate can compete head-to-head with the major six studios or settle back into the troubled middle-market with The Weinstein Company and Relativity.

With a lack of mega-hits in the pipeline, and an inconsistent track record, we expect downsizing and layoffs as Lionsgate adjusts to a post-Hunger Games world. Both The Weinstein Company and Relativity have had significant layoffs and restructurings this year.

Summit Acquisition Strategy

Many have questioned the merits of Lionsgate’s acquisition of Summit Entertainment in 2012 as being either too rich or too late. When Lionsgate acquired the Twilight production company, only one of the remaining five Twilight films was unreleased.

From a personnel perspective, it’s easy to see why Summit was a hot property. Summit grew Twilight from $392 million in global box office receipts in 2008, to over $700 million in 2011 with Breaking Dawn: Part One. This meteoric trajectory made Summit irresistible.

Summit’s Unmatched Franchise Growth

Film Domestic Gross Int'l Gross Release
Twilight $192 $200 21Nov08
New Moon $297 $413 20Nov09
Eclipse $300 $398 30June10
Breaking Dawn 1 $281 $430 18Nov11
Breaking Dawn 2 $292 $537 16Nov12
in millions