What's going on?
The soft third quarter results were the result of a disappointing final chapter in the Hunger Games saga. That key premiere was disrupted by terrorist attacks in France and a cramped box office slate in China. The film might make up for some of its theatrical issues with a good home entertainment and cable TV run, but that's mostly a question for future quarters.
The company is changing its business focus away from high-budget theatrical fare toward lavish television content. In fiscal year 2015, Lions Gate TV revenue grew 30% year-over-year to $580 million. In 2017, management expects to land just below $1 billion in TV sales.
The studio bowed seven theatrical releases during the fourth quarter. The slate was headed by the third title in the Divergent series, which fell far short of the first two installments in terms of box office success. Action tentpole Gods of Egypt also disappointed.
Looking further ahead, Lions Gate will produce 17 movies in 2017, up from 13 the prior year. At the same time, production costs for that full-year slate are $100 million lower than the year-ago budget. In other words, the company is lowering its production costs and execution risks in the film segment, while putting the pedal to the metal in television productions instead.
Chief among the TV titles, Lions Gate recently signed a three-year extension for Orange Is the New Black , stretching the Netflix title to at least seven seasons. This is reportedly the most-watched title on Netflix, and Lions Gate also sees it as a major growth driver for years to come.
All told, the fourth quarter report looks unlikely to impress investors. Any good news delivered on Wednesday would have to be about TV titles, since the movie segment saw several duds this time.
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