Investors have pulled out of a multi-film financing agreement with Lionsgate, the movie and television studio behind the "Saw" and Tyler Perry film franchises.
The move, which reflects the increasingly tough environment for film financing, means that Lionsgate did not have the money it was counting on to finance the final three movies on its fiscal 2009 slate.
As a result, Lionsgate itself had to commit its own capital to pay for the already released films "The Spirit" and "My Bloody Valentine 3D," and its upcoming Feb. 20 release "Tyler Perry's Madea Goes to Jail."
The loss of funding from the company's Goldman Sachs-led Pride Pictures facility caused a "significant, unexpected shortfall of $65 million in free cash flow," Lionsgate Chief Executive Jon Feltheimer said Tuesday.
Going forward, Lionsgate will be forced to rely more heavily on self-funding its movies and bringing in partners where it can on a film-by-film basis, as it had done in years past.
Shares of parent Lions Gate Entertainment Corp., which is based in Vancouver but runs its studio operations out of Santa Monica, fell $1.43 to $3.90 Tuesday, a 27% drop. As the stock plunged, corporate raider Carl Icahn increased his stake in the company to 10.56% from 9.2%, according to a regulatory filing.
In the current economic downturn, the likelihood of Lionsgate securing another slate fund any time soon is slim; competitors Paramount Pictures and MGM have failed at such attempts recently.
Lionsgate has one other, smaller, Canadian film fund, known as S.G.F., that can provide up to $140 million over a four-year period (capped at $35 million a year) that is about halfway through its term.
Lionsgate said the S.G.F. fund, which helped finance "Punisher 2" and the sixth season of the TV series "The Dead Zone," is unaffected by the loss of its Pride Pictures fund.
The bad news came as Lions Gate Entertainment reported a third-quarter loss of $93.4 million on Monday, compared with a $7.3-million profit for the same quarter last year.
The company blamed the loss on soft performances from releases such as "The Spirit," "The Punisher: War Zone" and "Transporter 3." Lions Gate also took a $47-million charge in the quarter on its HIT Entertainment children's video distribution deal, which hasn't met expectations.
Nearly two years ago, Lionsgate made a deal with Pride Pictures to finance as much as 50% of the company's production, acquisition, marketing and distribution costs up to $196 million. The fund invested in more than a dozen films, including "My Best Friend's Girl," "Forbidden Kingdom" and "3:10 to Yuma."
Pride's pullback was largely triggered by the continued underperformance of films in the last two quarters, according to a Lionsgate spokesman.
Those include second-quarter releases "My Best Friend's Girl," "Bangkok Dangerous" and "Disaster Movie," which combined grossed less than $50 million domestically.
The studio's third-quarter releases fared no better, with the "Punisher: The War Zone" drawing a measly $7.9 million, "The Spirit" pulling in just under $20 million and "Transporter 3" collecting a disappointing $31.6 million.
In a conference call with analysts and shareholders Tuesday, Feltheimer and Lionsgate Vice Chairman Michael Burns were blunt about the company's poor performance.
"As a company that historically achieved profitability on more than 75% of our films, breaking even or taking losses -- even small ones -- on so many films this year is totally unacceptable. . . . We must do better, and we will," Feltheimer said.
Burns echoed that sentiment: "Our top-line revenue for fiscal '09 now looks to be approximately $1.4 billion, down $100 million from our $1.5-billion guidance on our last call," he said. "We need to do better on all fronts, and we will."
The two executives said that in fiscal 2010 the studio would make fewer movies -- a dozen or so compared with 18 in the last year -- to save about $100 million in production costs and another $100 million in marketing expenses.
Times staff writer Meg James contributed to this report.