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‘Hunger Games’ Turns Ex-Icahn Prey Lions Gate Into Predator

Until “The Hunger Games,” the biggest movie for Lions Gate Entertainment Corp. was “Fahrenheit 9/11,” the Michael Moore war commentary that took in almost $120 million in U.S. theaters.

That record will fall with the March 23 release of “The Hunger Games,” based on author Suzanne Collins’ trilogy about teens who fight to the death on live TV. The dystopian drama should produce three-day sales of as much as $115 million and $270 million over its run in U.S. theaters, according to researcher

It will also transform Lions Gate, an independent filmmaker known for horror movies, Tyler Perry comedies and a long takeover fight with Carl Icahn. With “The Hunger Games,” “Twilight” and two more projects with sequel potential, Vancouver-based Lions Gate has a chance to compete with Hollywood’s biggest studios.

“I think they will continue to make acquisitions, not be acquired themselves,” said Gordon Crawford, senior vice president of Capital Research Global Investors, the studio’s third-largest shareholder with a 10 percent stake. “I think they’re going to be a major some day.”

Lions Gate gained 7.2 percent to a record close of $15.28 in New York trading. The shares have surged 84 percent this year as investors weigh prospects for “The Hunger Games” and the $412.5 million January acquisition of Summit Entertainment, owner of the “Twilight” vampire films and rights to a series of science-fiction novels dubbed “Ender’s Game.”

Original Plan

“The Hunger Games” has sold out almost 2,000 showtimes on the Fandango ticket service and is on pace to become one of that company’s top five advance sellers, according to a statement today.

Jon Feltheimer, Lions Gate’s co-chairman and chief executive officer, and Vice Chairman Michael Burns, always intended to build the studio through acquisitions. Since taking over in 2000, they have made a half-dozen purchases, including Trimark Holdings, Artisan Entertainment and Mandate Pictures, amassing 13,000 film and TV titles.

“Our plan was always to be a large content owner and distributor with the biggest library and the smallest overhead - - two good things,” Burns said.

Lions Gate, run from Santa Monica, California, has struggled to stay profitable. The acquisition drive built up debt of $1.1 billion, and the company posted losses the past four fiscal years. The company is seeking a buyer for its stake in the TV Guide cable channel, a person with knowledge of the situation said in January.

Post-Icahn Era

Feltheimer and Burns spent much of 2009-2011 fending off Icahn, who sold almost 41 million Lions Gate shares back to the company and other investors for $7 each starting in August last year, missing out on a gain of almost $300 million. Icahn, who said he roughly broke even, continues to own 3.4 million shares, according to data compiled by Bloomberg.

The January purchase of Summit marked a turning point. The deal gave Lions Gate the “Twilight” teen vampire series, including the last theatrical release, and rights to “Ender’s Game,” a teen-oriented sci-fi series by Orson Scott Card about youngsters pressed into military training.

Summit co-founders Rob Friedman and Patrick Wachsberger were named to lead the Lions Gate film unit, where they will oversee the push into tentpole film production. Joe Drake, Lion Gate’s chief operating officer, stepped down yesterday.

“The biggest difference with Lions Gate today from that original strategy is that they’ve ended up hiring and retaining great people and they’ve developed a very good creative team in film and television,” Crawford said in an interview. “It’s not just a library roll-up strategy anymore.”

Future Franchises

In addition to “Twilight,” Lions Gate has three projects with potential to become multifilm hits.

“The Hunger Games,” made for $80 million, according to Feltheimer, is set in a post-apocalyptic North America, where an oppressive government forces teens to fight on TV, as entertainment and as a political tool. More than 23 million copies of the books are in print in the U.S., according to Kyle Good, a spokesman for publisher Scholastic Corp.

The film features Oscar nominee Jennifer Lawrence as Katniss Everdeen, a girl from an impoverished region who volunteers to take her younger sister’s place in the competition.

Lions Gate toned down the book’s violence to secure a PG-13 rating, according to the studio. While he avoids showing blood and gore, director Gary Ross leaves no doubt about the outcome of the teens’ combat.

Twilight for ‘Twilight’

Nina Jacobson, former president of Walt Disney Co.’s Buena Vista Motion Pictures Group, brought “The Hunger Games” to Lions Gate in 2008, before the books reached bestseller lists.

Jacobson, who formed her own production company after overseeing films including “The Sixth Sense” and “Pirates of the Caribbean” while at Disney, signed on as a producer, giving the studio expertise in shepherding big-budget films.

In November, Lions Gate will release the last of five “Twilight” movies. The first installment collected almost $400 million worldwide, while three sequels have tallied about $700 million each, according to Box Office Mojo.

In March 2013, the studio is scheduled to release “Ender’s Game,” according to the Internet Movie Database. A third potential series, based on the “Chaos Walking” books by Patrick Ness about teens trapped in warlike circumstances, is in development.

“We wanted, as we grew, to have the capacity to launch a tentpole,” Burns said in an interview. “If you can ever get to the place of having sustainable franchises, it puts you in the position of showing consistency and stability on a year-in, year-out cash flow basis.”

‘Anger Management’

Lions Gate, also producer of cable television’s “Mad Men” series, got about 22 percent of fiscal 2011 revenue from TV production. The company is making “Anger Management,” starring Charlie Sheen, for News Corp.’s FX cable network.

If the first 10 episodes hit ratings benchmarks, FX is committed to another 90, said Matthew Harrigan, an analyst with Wunderlich Securities in Denver who recommends buying the stock.

The studio also owns a 31 percent stake in the Epix cable channel, a joint venture with Viacom Inc.’s Paramount Pictures and Metro-Goldwyn-Mayer Studios Inc.

“They’re kind of de-risked over the next two years,” Harrigan said. “It’s hard to see what goes wrong over the next 24 months. The risk-reward is pretty rational.”

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