Will The Hunger Games Boost Lionsgate Shares?
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These days film distribution companies – that is, those entities once known as "studios" – live or die on their franchises. Twentieth Century Fox Film Corporation, a subsidiary of News Corporation (NYSE: NWS), has juggled several franchises since the 1960s, from Planet of the Apes to Star Wars and now Avatar, but also including X-Men, Die Hard, Alien, Home Alone, and the Night at the Museum films. The Walt Disney Company (NYSE: DIS) favors Love Bugs and various Pixar series such as Toy Story, while Paramount, a subsidiary of Viacom (NASDAQ: VIA), handles Star Trek, Indiana Jones, Friday the 13th, and, recently, Paranormal Activity and Mission Impossible.
Lionsgate (NYSE: LGF) may not fall as trippingly off the tongue as do "Disney" and "Paramount," but since its founding in 1997 it has established itself as a viable independent company with fingers in several media pies (film production, television, music and music publishing) and has the Saw series to its credit – or deficit, if you don't share the enthusiasm of Community's Abed for the thus-far seven film set (Lionsgate has threatened to start making them again). Saw shares space on the release schedule with Jason Statham's Transporter films, and the debutant Expendables, a sort of moving wax museum of washed up action stars. The last Saw movie, with the potentially fibbing title of Saw 3D: The Final Chapter and released in 2010, had a $17-to-$20 million dollar budget and made back $131 million dollars worldwide, a ratio that is difficult to resist.
In the summer of 2010, Lionsgate bought the rights to Suzanne Collins' bestselling young adult trilogy, The Hunger Games. Ms. Collins is a former kids TV show writer (Clarissa Explains It All, among others) and author of various children's books series. Scholastic Press, part of Scholastic Corporation (NASDAQ: SCHL), published The Hunger Games in September 2008, with volume two following in 2009 and the climax in 2010, with print runs of almost two million units a title.
The Hunger Games takes place in a dystopian America some time after a nuclear incident, and with the country divided into various districts. For the amusement of the citizens, there is an annual Battle Royale style "most dangerous game" event in which two kids from each of the zones are dumped in an isolated region to fight it out amongst themselves to the death, for the amusement, distraction, and gambling practices of the rich and for the humiliation of the poor. The games are run by the government, now centered in Colorado, and the kids, called "tributes," are selected by lottery.
The first book follows the exploits of the enterprising outdoorswoman Katniss Everdeen in the games, where she represents the impoverished District 12, for which she volunteers after her beloved younger sister is tapped by the lottery. Laura Miller of the New Yorker noted in June, 2010, that "as a tool of practical propaganda, the games don't make much sense. They lack that essential quality of the totalitarian spectacle: ideological coherence. You don't demoralize and dehumanize a subject people by turning them into celebrities and coaching them on how to craft an appealing persona for a mass audience … Are the games a disciplinary measure or an extreme sporting event? A beauty pageant or an exercise in despotic terror? … And the practice of carrying off a population's innocent children and commanding their parents to watch them be slaughtered for entertainment—wouldn't that do more to provoke a rebellion than to head one off?," before adding that, "if you consider the games as a fever-dream allegory of the adolescent social experience, they become perfectly intelligible."
After Lionsgate bought the rights, Collins generated a screenplay, which was apparently redrafted by Billy Ray, an excellent writer-director in the adult-'70s-film-New Hollywood-mode (Shattered Glass, Breach), and then turned over to the director hired to helm the first film, Gary Ross (Seabiscuit). Shooting began in North Carolina in May, 2011, with a release date of Friday, March 23, 2012, and starring Jennifer Lawrence, the esteemed young actress who starred in Winter's Bone, as Everdine. Though some internet posters decried the selection of Ms. Lawrence as Katniss Everdeen because of her differences in look and dimensions of their heroine, the female archer character looks fairly tough in the trailer.
The Hunger Games and Lionsgate might be a good fit. The company is movie and audience savvy. On the deficit side, though: Lionsgate films can sometimes look cheap. The first Saw film in 2004, produced by Evolution Entertainment, featured some sets that looked so cheap they made the cockpit in Plan Nine from Outer Space, with its shower curtain door, look like Cleopatra. The rococo costumes worn by the élites in the county's capital have the potential of looking ridiculous rather than futuristic, if the trailer and film stills can be believed. Worse, there are only three Hunger Games novels. There have been vague rumors that Ms. Collins will write a fourth entry in the series, and Lionsgate has hinted that it might pull a Twilight-Harry Potter and split the last book into two separate films.
Lionsgate execs are bullish on Hunger Games. Deadline New York reported last summer that Lionsgate's operators told Wall Street analysts that the films should do good things for the company (the budget for the first Games is not yet public knowledge). And their enthusiasm was infectious, inspiring investment recommendations. Lionsgate stock hovers around $8 a share, which seems attractively low for a successful film company, but perhaps investors have been scared off by board member Carl Icahn's periodic seeming-attempts at a hostile takeover.
Speculating on the success of an unseen, indeed unfinished film and the potential mood of the viewing public is difficult at best, but the trailer has created additional buzz for the already much-anticipated Hunger Games. Still, the presence of Mr. Ross behind the camera is worrisome. A writer turned director, Mr. Ross is not known for his hand at action films, having written enjoyable fluff such as Dave and Big, which gently flatter middlebrow sensibilities, and written and directed essentially children's fare such as a Lassie "reboot" and the animated Tale of Despereaux – which may be why Mr. Ross was hired to direct what Lionsgate executives may view as youngster pabulum. He is not a particularly visual director, and The Hunger Games would have provided great cinematic opportunities for a David Fincher or a Martin Scorsese. On the other hand, his script for Dave did show some political savvy and the political landscape of The Hunger Games has propinquity with Occupy Wall Street's Zuccotti Park. If The Hunger Games is a massive, $100 million+ hit, Lionsgate shares could be bumped up.
Update, Friday, 13 January, 2012 This morning, Lionsgate announced that it was buying Summit Entertainment LLC for $412.5 million in mixed shares and cash on hand. The Santa Monica based Summit is the independent production and distribution company behind such films as the Twilight series and the Oscar-winning The Hurt Locker, and creates about 12 new movies a year. More details can be found here.
Fool blogger D. K. Holm does not own shares in any of the companies mentioned in this entry.