Lions Gate Faces New World Order

Dow Jones Newswires

It's the end of an era for "Hunger Games" fans and the start of a new one for Lions Gate Entertainment.

Hollywood's largest independent studio was catapulted into the big leagues in 2012 with its first movie based on the three best-selling young-adult novels by author Suzanne Collins. The film grossed a spectacular $408 million domestically, surpassing the company's prior record: $119 million for the Michael Moore documentary "Fahrenheit 9/11" in 2004.

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This weekend, the fourth and final -- for now -- adaptation, "The Hunger Games: Mockingjay -- Part 2," opened with less of a bang than the studio was hoping for. The estimated $101 million domestic opening, while healthy, was by far the lowest of any "Hunger Games" movie.

Lions Gate shareholders are unlikely to be thrilled by the box-office performance, but their bigger concern is that there isn't more of the "Hunger Games" franchise in sight. Each of the prior films, starring Jennifer Lawrence as a young rebel in a post-apocalyptic world, posted an average of about $250 million in profit for the studio, said a person familiar with the matter. The franchise has been a significant factor in the quadrupling of Lions Gate's stock price over the past four years.

And as shareholders wait to see whether and when new investor and board member John Malone will use Lions Gate as a tool for media consolidation, nothing else at the studio seems poised to take the place of "Hunger Games."

"People have been concerned about this 'Hunger Games' cliff for a long time," said Eric Wold, an analyst at B. Riley & Co.

Some recent would-be franchises have flopped, including "The Last Witch Hunter," starring Vin Diesel, on which Lions Gate took a $7.2 million write-down.

Rather than focusing solely on finding another blockbuster, Lions Gate is making an array of bets in its movie and television businesses as well as in new areas such as videogames and live events, said people close to the company. The hope is that when added together, those initiatives can make up for what is lost as "Hunger Games" ends.

Among Lions Gate films, the 2013 thriller "Now You See Me" and the last two movies in the young-adult "Divergent" series have each generated close to $100 million in profits, the person familiar with the matter said. Sequels to both are scheduled for next year.

Other potential franchises include February's "Gods of Egypt" and 2017's "Power Rangers," based on the 1990s children's program.

Like many media companies, Lions Gate has been investing in its TV business, which recorded a 30% increase in revenue during the most recent fiscal year, compared with a 17% decline for motion pictures. It produces "Orange is the New Black" for Netflix, "Nashville" for Walt Disney's ABC and the syndicated "Wendi Williams Show."

Lions Gate recently spent $200 million for a majority stake in the reality-TV production company Pilgrim Studios, expanding into a space where it has had a small presence.

But investors are expecting bigger deals ahead thanks to Mr. Malone, particularly in TV and international businesses. The mogul owns 3% of Lions Gate's shares, and two media companies in which he is a large owner -- Discovery Communications  and Liberty Global -- recently took similarly sized stakes.

Shareholders, and many in Hollywood, are putting the strongest odds on the possibility that Lions Gate might seek to buy premium cable channel Starz. Mr. Malone gave Lions Gate shares in Starz to gain his stake in the studio in February. Lions Gate owns 4.5% of Starz shares, a stake that represents 14.5% of the voting power at the cable channel.

Though it is already a partial owner of another pay-cable channel, Epix, buying Starz would make Lions Gate a bigger player in TV and a give it a significant new in-house platform for shows it produces.

As with any entertainment company, however, growth ultimately depends on hits. One option is to try to go back to the well with "Twilight," which Lions Gate acquired along with Summit Entertainment in 2012, or "The Hunger Games."

The box-office drop for "Mockingjay -- Part 2" might indicate that fans are ready for a break. Still, the $160 million production is poised to be another profitable release for Lions Gate. Overseas, it opened to $146 million in 87 foreign markets. That is 7%less than the franchise's previous film in the same countries and was no doubt affected by the terrorist attacks in France and the rising value of the U.S. dollar.

Meanwhile, Lions Gate plans to keep "Hunger Games" in the public eye. An exhibition is currently touring the U.S., a stage show is expected to make its debut in London in 2016, and theme parks featuring "Hunger Games" attractions are planned in Atlanta, Macau and Dubai.

Among other new releases this weekend, the Seth Rogen comedy "The Night Before" and the Julia Roberts drama "Secret in Their Eyes" had respective modest openings of $10.1 million and $6.6 million.