On Lionsgate
How many ways can I say this?
Lionsgate is a bottom heavy, library-first business that is too big and valuable to be sold at a price that feels good, but is too slow and underfunded to ever compete with The Majors in a real way, making its ongoing movie business as significant to its future as that library.
It’s not complicated. But it has made Lionsgate an uncomfortable place to be for the players who have wanted to make their Kerkorian-esque killing on it for over a decade now. In the meanwhile, the company has had a remarkable run of success as, easily, the most successful True Indie distributor, including franchises of real value and a Best Picture Oscar, and a strong TV player.
Thing is, none of the success has ever made the company valuable enough to sell for that magical number that valued both the strong indie business and that massive library. Oscar didn’t matter. The TV hits didn’t matter. Tyler Perry didn’t matter. Saw. And MGM has found with both Bond and The Hobbit in their pocket… it’s just not enough to dominate the library value.
So… they keep building. Go back to the Artisan buy… which backfired when Blair Witch turned out to be a one-time event. The purchase of other libraries. And of course, TV Guide and Mandate, home of Nikki-whisperer Joe Drake. They keep piling the company with new pieces… but the stock price never moves. Why? Because movies don’t move stock prices… same as everywhere else.
And now there is a bigger problem… the value of libraries is dropping as DVD dropped to a stable business instead of a high flier and The Digital Long Tail does not seem to offer anything like the DVD revolution in terms of numbers that potential buyers value.
The problem for Carl Icahn is, like Sam Zell, he has no good answer. Staying where he is not realistic. Lionsgate doesn’t have the money – and no one else has the inclination – to get rid of him by offering even a small profit on his investment. And he can’t sell off the pieces without having control of the company.
In many ways, production is a wildcard/poison pill. In theory, the bets could pay off big… or they could become a real drag on the bottom line. The fact that no one knows – and no one can know – protects the company from predators. So when Joe Drake spends more than Lionsgate ever has on production, they might lose… but it covers the company’s collective ass as well.
And so it goes. Icahn can’t just go away. But there is nothing – not even if Kick-Ass and Killers each end up generating scores of millions of profits for the company – that is likely to turn Lionsgate into a high-flier/attractive takeover target anytime soon… or anytime in the next 5 years.
Epix? Really? Paramount (at war with Viacom brother Showtime), the MGM library – if that holds up – and the Lionsgate long tail? They will eventually get the channel on the big carriers. But how many times can people watch Iron Man, Transformers, Saw, Madea, and Singin’ In The Rain on cable/satellite? (The one ray of hope in the dark clouds is that pressure will force Epix to innovate across platforms and they will set a standard for others… others that will profit from the bumps and bruises Epix absorbs by going first.)
Ask me and the endgame is going to be Icahn taking control… at $7.50 a share or $4 a share. And that’s where the next year or two of production will make a real difference. But neither the Israelis or the Palestinians are going anywhere on their own volition. Sorry.
Carl Icahn, trying to put thousands of people out of work.
Greed is good.
“Movies don’t move stock prices.”
What about DreamWorks the Monday after How to Train Your Dragon? Or are you speaking long term?… Or did blaming the drop on Dragon just make a good but faulty headline?
I’m not taking Icahn’s side. He should have never gotten in. But… if you want to simplify…
Lionsgate is a very frustrating business. And for me, it’s only gotten more frustrating. It’s been built like a business looking to flip, but it’s just too big to flip.
Unlike Viacom, a 4-way split in the business would probably brutalize one of the spin-offs – the library, which would find a buyer at a painfully low price or which could just be allowed to churn along until something hopefully raised library valuations – but make the other 3 a lot more viable. Investment in just the film, tv, or “other media” divisions would be attractive to a lot of serious players.
I don’t know that Icahn has the patience to play it that way… but I do know that LGF management has no interest in doing anything but building until The Big Sale happens. As I wrote before, I don’t see that happening either. So does that make Icahn the only dangerous player, comfortable risking the future of others?
If the company was robust enough to pay the greenmail, this would be over. But it’s not.
Icahn has been in Lionsgate for 4.5 years already. His investment is off about 20%… over $20m.
I’m not saying he’s not a scumbag. I’m not saying that getting further in was not his mistake and no one else’s. But if you made a 5 year investment and not only didn’t make money with your money – 5% a year would be a net up of over $25 million over this time – but you lost 20% or more of your investment… well… does he have to be EVIL to want to find a way to make himself whole… especially while management invests MORE into a rough market instead of being conservative?
Just something to think about. I’m sure that someone will call me a fascist for thinking it out loud.
But were people this angry at Paul Allen for being a major cause of DW going dependent for a few years?
Well, Craig… besides the obvious answer, that DW Animation is not a studio, but a production company that produces 2 films a year, therefore being, indeed, reliant on performance since there is almost no other basis for analysis of the company…
Guess which studio’s parent dropped more than 10% during the month of January? I’ll give you a hint… the one with a $2.7b movie. Earning all of that money didn’t change the issues that brought the stock down. Nor did the film cause the recovery that has the stock at its high since June 2008.
My question wasn’t an attempt to prove you wrong exactly. I was hoping you’d say the headlines were exaggerating, but I hadn’t considered DW as just a 2 film a year production company.
This is getting too inside baseball for me, but it seems like Lionsgate is still trying for substantial growth instead of tread-spinning, and the studio has a (distant) shot to match Universal at the domestic box office until Christmas for 2010. I keep reading articles that Lionsgate is just begging to be bought and is keeping up production to make itself appealing but I’m not entirely sold.
The studio’s first 3 films of the year trend toward mild disappointment, and the new Perry outing is a typical one though on the high end…but there’s been MASSIVE effort put into Kick-Ass. Lionsgate has not marketed a film to this level…ever. And consider it’s a risky, Snakey Planey endeavor (medium reward, big risk), what does that mean? The studio also has two films with significant box-office buzz down the road with “Killers” and the well-received trailer for “Expendables.”
As for the comment “movies don’t move stock prices…” uhhh trust me, buying into Marvel in the 2 months before “Iron Man” is the best move I ever made. There’s tons of examples out there from “Blind Side” helping to keep FedEx in the green last fall, to Sony’s massive 4th-over-3rd-over 2nd quarter improvement in revenue. And you can’t tell me Universal’s disaster after disaster after disaster hasn’t further hampered GE/NBC.
Re: Stock prices. Dave means a company, en totale, not one that is solely devoted to one division.
Marvel, for example, I owned since it first went public, bought and sold it over the years until Misney happened. It was a bust forever because they had no focus – maybe movies, or animation, howabout theme restaurants – when the only thing that actually made a return was the Toy Biz side and that was after Perlmutter bought it. It was still circling the drain until Spidey. Then, film became the focus and everything else was gravy, (animation) or a loss (comics divsion).
The same thing applies to Dreamworks. It was a shambling mound during the SKG days and now has a smarter focus. Lionsgate is in the same predicament. What are they? The TV investment is huge, but film has had decent payoffs when compared to other studios.
If LG was a movie-only business, the sale or merger would have happened two years ago. But now, it’s just an awkward buy. They thought the cable outlets would make them more enticing, but to who and for what purpose?
LG’s best hope is/was to start dropping exclusive content onto TV Guide, rename it, and create a identifiable brand out of it that can be fused online. Establish an audience, then they’ll get bought.
Otherwise, Icahn is right to want to break it up. You can’t go public – ask for people to invest – and then not have direction, and then expect to guilt people into not seeking a return.
“Bottom heavy”? Have you seen the hiring practices of the female employees at Lionsgate? Russ Meyer must be the head of HR.
Ironically, the Valley of the Dolls publicity dept is a product of a female vision, not a male one.