March 21 (Bloomberg) -- Lions Gate Entertainment Corp., famous for “The Hunger Games” films, will test moviegoers’ appetite for another series featuring attractive, weapon-wielding teens with today’s release of “Divergent.”
Shares of Lions Gate almost doubled in each of the past two years as “The Hunger Games” and “Twilight” films produced almost $5 billion in global ticket sales. Efforts to build on that success with the sci-fi movie “Ender’s Game” faltered when that movie flopped in November, hurting the stock and focusing attention on “Divergent” and two planned sequels.
The studio has staked its future on movies that are dark, violent and feature young heroes confronting life-and-death situations. “Divergent” gives Santa Monica, California-based Lions Gate a chance to persuade investors it has a sustainable pipeline and can dominate the young-adult film genre.
“It helps answer the question, Have they managed to figure out the secret sauce for young-adult film franchises?” said James Marsh, a Piper Jaffray Cos. analyst in New York who recommends buying the stock. He estimates Lions Gate could earn $165 million in profit before taxes over the film’s life in theaters and on TV, and $700 million from the entire franchise.
Opening in about 3,800 locations in the U.S. and Canada, “Divergent” features Shailene Woodley as Tris, a young woman in a society where people are classified based on virtues such as bravery and intelligence. Woodley, whose credits include “The Descendants,” learns she’s part of a group seen as dangerous and targeted for annihilation. Theo James is her male co-star Four.
Industry researcher BoxOffice.com forecasts first-weekend sales of $66 million, down from an earlier $68 million estimate, and $159 million through the full run in U.S. and Canadian cinemas, a sum the studio will split with theater operators. Tracking data suggest revenue could total as much as $200 million domestically, Marsh said.
Lions Gate said today the early showings yesterday generated $4.9 million in sales.
“Divergent” cost about $85 million to make, according to researcher Box Office Mojo. Lions Gate defrays production expenses by selling international distribution rights, in this case for about $70 million, a person with knowledge of the situation said.
The studio is spending around $40 million on marketing, said the person, who sought anonymity because figures aren’t public. Tie-ins include a make-up collection for Sephora, the cosmetics chain owned by Louis Vuitton Moet Hennessy SA.
“The result should be good for Lions Gate,” said Matthew Harrigan, an analyst at Wunderlich Securities Inc. in Denver who recommends buying the stock and raised his 12-to-18-month price target for Lions Gate to $43 from $40 on March 18. He said “Divergent” probably won’t be as big as “Twilight” outside the U.S. because people aren’t as familiar with the books.
Lions Gate fell 7.9 percent to $27.60 at the close in New York, the biggest one-day drop since Nov. 25. The shares have retreated 26 percent from their Sept. 10 all-time closing high of $37.46.
Like “Twilight” and “The Hunger Games,” “Divergent” is based on popular young-adult novels. The three “Divergent” books from Veronica Roth have sold 17.6 million copies. Its predecessors have set a high bar: “The Hunger Games” has generated $1.56 billion in worldwide ticket sales with two films, while five “Twilight” pictures collected $3.34 billion, according to Box Office Mojo.
Reviews of “Divergent,” running 67 percent negative as of yesterday at the aggregator Rottentomatoes.com, will have a limited impact on fan turnout, according to analyst Marsh, who cited similar reviews for “Twilight” in a March 19 note.
“We believe these reviews will not dissuade fans of the book, but could limit audiences outside this core base,” Marsh wrote. “Teen adaptation films can perform well despite lackluster critical reviews.”
“Ender’s Game,” made for about $110 million and well reviewed, generated worldwide sales of just $112 million, according to Box Office Mojo. The film was based on a decades-old novel by Orson Scott Card, who stirred controversy with his opposition to gay marriage. Lions Gate brought in investors and sold foreign rights, buffering the company from potential losses.
Opening weekend sales for “Divergent” won’t answer a crucial question for Lions Gate: whether the film can draw fans beyond the core younger audiences, said Phil Contrino, chief analyst at Boxoffice.com.
“It won’t be until after the opening weekend that we can judge if this is something that is connecting,” Contrino said.
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