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Lions Gate Innovator In Risky Movie Business

Posted: Nov 19, 2009 09:38 AM by Greg Sushinsky

Tickers in this Article: CVC, CMCSA, TWX, MVL, DIS, VIA, LGF

Lions Gate Entertainment (NYSE:LGF) continues to be an innovative and risk taking studio in an industry where success is highly rewarded and failure is severely punished. Lions Gate, currently riding the crest of success with its Mad Men TV show while its movie revenues declined more than 10%, is in a risk-taking mood despite the current sour climate in the movie business. Lions Gate has been mentioned as a possible suitor for MGM Studios, and has launched its joint-venture premium TV channel, Epix, in conjunction with MGM and Viacom's Paramount (NYSE:VIA).

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Lions Gate's Recent Quarter
The company's second quarter earned $31.7 million in profits, or 26 cents a share, versus a loss of 51.8 million in last year's same quarter, which came out to a loss of 44 cents a share. Excluding charges, the company earned 23 cents a share in the recent second quarter. Revenue advanced to $394 million, compared with $380.7 million last year's second quarter, this despite the previously mentioned decline in theatrical movie and home video release revenue.

Movies have had a tough year, as a business. Juggernaut, Walt Disney's (NYSE:DIS) revenue from its studios fell off 16%, and Marvel Entertainment (NYSE:MVL), soon to become a part of Disney, saw its revenues and earnings slip as it had no major superhero movie releases. Others in the movie biz, such as behemoth Time Warner (NYSE:TWX) are finding themselves hamstrung by other divisions, as albatross AOL continues to exert a continuous irritating pressure on the Time Warner windpipe. In light of the struggles of even the larger movie companies, Lions Gate is a nimble, unfettered player doing new things.

Epix, TV Guide Network
While admittedly, Lions Gate's Epix is in its very early stages, both its goal and need is to find more cable distributors that will carry the new channel, as two major players, Comcast (Nasdaq:CMCSA) and Cablevision (NYSE:CVC) have currently refused. But some of the industry's questioning of the birth of Epix, which center around whether there is a "need" for another premium cable channel is a bit misplaced. Epix may be out on a limb, but it's maybe an astute appendage for Lions Gate, whose ventures into TV don't stop with the critically acclaimed AMC series, Mad Men, but include TV Guide Network, which has produced revenues already to offset decline in movie revenues.

The Bottom Line: Lions Out of the Gate
Lions Gate gave an upbeat forecast for its year, but it's both the properties and the direction that this company has that should be of interest to investors. Movies can be a brittle business, riding success or failure, both financial and artistic, on the whims of a couple of hits or bombs. Lions Gate appears to have scored a hit already with its purchase of the Sundance Film Festival award winning movie Precious, which it bought for only $5.5 million. While the theatrical releases coast with the economy, the studio's stronger diversified core portfolio will make for a richer product mix that can better ride the crest of the entertainment waves rather than sink in the trough of a business as tough as the movies.

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By Greg Sushinsky

Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.

Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.

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