Lionsgate Blames Marketing For Red Ink

By Robert Marich
   Aug. 10 2012—Lionsgate blamed theatrical marketing costs as the main culprit for a sizeable $44.2 million quarterly loss, which indicates even the films of an independent distributor aimed at niches require hefty advertising support.
   Lionsgate, which is the largest indie with $1.8 billion in annual revenueand is publicly-traded, presents itself to investors as stingy compared to major studios in terms of marketing expenditures by focusing on genre films such as horror or black audiences. The film/TV mini-conglomerate is also home of the mainstream Hunger Games and Twilight blockbuster films.
   But for Lionsgate's quarter ended June 30, “results were hurt by a $90 million increase in movie marketing costs tied to releases, including the horror picture The Cabin in the Woods and the comedy What to Expect When You’re Expecting, which Lions Gate predicted will be profitable on an ‘ultimate basis,’” says a Bloomberg news wire story. Financial accounting rules require marketing expenses be booked when incurred, and so Lions Gate points out that a snapshot from one three-month reporting period doesn’t give a full picture of film profitability. That refers to the broader “ultimate” profit/loss for each film, which includes revenue from all first-cycle release windows including TV and DVD.
   In the quarter, Lions Gate had five wide release films, versus one in the same quarter a year ago, according to the Hollywood Reporter. For overseas theatrical release, Lionsgate hands off to local territorial distributors for most overseas territories (with a few exceptions), so the bulk of its own marketing expense is for the domestic market—USA and Canada.
   A quick back-of-the-envelope analysis indicates that since Lionsgate added $90 million in theatrical expenses with four additional wide releases, then each of those four averaged $22.5 million. As a rule of thumb, the low end of a major studio release going wide in the domestic market is $35 million in ad spending, so Lionsgate is still below that major studio level. Remember, Lionsgate doesn’t rack up big overseas marketing expenses, like the majors, as discussed.
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