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'Hunger Games,' 'Twilight' hurt Lions Gate earnings before they help

May 30, 2012|By Ben Fritz
  • Releasing "The Hunger Games" in theaters and "The Twilight Saga: Breaking Dawn -- Part 1" on DVD hurt Lions Gate's short-term financial results.
Releasing "The Hunger Games" in theaters and "The Twilight… (Murray Close / Lionsgate )

Any Hollywood studio would kill to release "The Hunger Games" in theaters and the fourth "Twilight" movie on DVD within two months of each other, but doing so actually hurt Lions Gate's bottom line in the short-run.

The Santa Monica studio on Wednesday disappointed Wall Street as it reported a net loss of $22.7 million on revenue of $645.2 million in revenue during the quarter ended March 31.

The reason: $51 million in expenses related to its purchase of "Twilight" studio Summit Entertainment, as well as $53 million in costs to launch the blockbuster hit "The Hunger Games"at the end of the quarter.

Lions Gate shares fell 7% in after-hours trading Wednesday, as the results were far below analysts' estimates. They had expected on average net income of 25 cents per share. Instead, the company lost 17 cents.

Lions Gate has yet to report most of the revenue and profits it will receive from "Hunger Games," which was released March 23 and went on to make $396 million in domestic ticket sales. However, it had to immediately account for the cost of advertisements and thousands of film prints.

In a statement, the Santa Monica company's chief executive portrayed results from its fiscal fourth quarter as a temporary blip on the way to longer-term success from its teen movie franchises.

"With substantially all of the profitability of the first 'Hunger Games' film and this November's release of 'The Twilight Saga: Breaking Dawn -- Part 2' still ahead of us, we have great visibility and have set the stage for anticipated strong EBITDA, free cash flow and earnings in the year ahead," said Jon Feltheimer.

Lions Gate's quarterly revenue grew 71% from the same period a year ago to $645.2 million. That was in large part due to inital box office revenue from "The Hunger Games," which has generated $643 million in theaters worldwide, and home entertainment proceeds from "The Twilight Saga: Breaking Dawn -- Part 1" which was released on DVD and digital platforms Feb. 11 and has since sold about 8 million copies.

But each came with their drawbacks. In addition to the "Hunger Games" marketing expenses, Lions Gate took a $26-million hit on the initial profitability of the "Twilight" DVD due to accounting related to its purchase of Summit during the same quarter. It paid $412.5 million to buy Summit, also based in Santa Monica, in January.

In addition, Lions Gate reported a $12-million charge for transaction and severance costs -- it laid off about 80 people following the Summit acquisition -- and $13 million in increased costs from stock-based compensation as its share price grew 67% from the beginning of the quarter to the end.

For the full fiscal year, Lions Gate revenue was virtually flat at $1.59 billion and its net loss grew from $30.4 million the previous year to $39.1 million.

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