Jennifer Lawrence returns as Katniss Everdeen in The Hunger Games: Mockingjay -- Part 1. Credit: Lions Gate Entertainment.
Look out, Lions Gate Entertainment (LGF-A -0.09%) investors. Pundits are already calling The Hunger Games: Mockingjay -- Part 1 a potential underperformer.
You wouldn't know it to look at the early returns. The film's reported $121.9 million weekend haul already ranks as 2014's top U.S. debut. For perspective, consider that second-ranked Transformers: Age of Extinction generated just over $100 million in domestic receipts in its opener. Guardians of the Galaxy debuted to $94.3 million in U.S. ticket sales while Captain America: The Winter Soldier mustered $95 million during opening weekend screenings. Mockingjay -- Part 1 is already leading its chief rivals in the race for this year's box office crown.
Most observers were nevertheless expecting more. Instead of a $150 million-plus from the latest entry in The Hunger Games franchise, Variety had the weekend consensus at closer to $130 million.Mockingjay -- Part 1 failed to achieve either threshold. What's more, Friday's $55 million opening also ranks below the theatrical debuts for The Hunger Games ($67.3 million) and Catching Fire ($70.9 million). Fewer IMAX (IMAX 1.26%) showings are at least partially responsible for the gap.
An out-of-this-world problem
Widescreen operators chose to stick with Interstellar for an extra week rather than show Mockingjay, a problem that neither of its predecessors faced. The Paramount-distributed space epic earned $20.6 million at IMAX theaters the prior weekend, just the sort of record-breaking debut executives had been banking on. Catching Fire held the prior mark with a $17.1 million open at IMAX theaters last year, The Wrap reports.
Lions Gate investors were apparently hoping for a repeat performance. The stock fell just over 5% Friday and then continued its slide today on what seem to be concerns that a delay in IMAX showings will cost the studio needed profits. Sorry, but I don't buy it.
In fact, I'm calling it right here, right now. When all the receipts are counted, Blu-ray discs sold, and digital editions downloaded, Mockingjay -- Part 1 will end up more profitable than Disney's (DIS 0.18%) Guardians of the Galaxy.
Guardians of the Galaxy was a huge hit for Disney and Marvel this year, but there's good reason to believe that Mockingjay will make more profit. Credit: Marvel Entertainment.
The key to film profits isn't at the theater, it's in the studio
Crazy, you say? Perhaps, but let's consider the two things that make Lions Gate a special studio and then look at where Mockingjay -- Part 1 fits in:
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Lions Gate creatively finances almost everything it does. Look at Divergent. Lions Gate pre-sold foreign rights to the movie to cut its out-of-pocket production costs from $85 million to just $15 million, according to my estimates. That's an astounding figure and consistent with what we've seen previously from Lions Gate chief Jon Feltheimer and his team. Gods of Egypt, a would-be blockbuster scheduled for February 2016, is expected to cost just $10 million to produce after accounting for pre-sales and tax incentives. For Mockingjay, Lions Gate kept a lid on costs by combining some production for the final two films.
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Cost controls are its competitive advantage. Spending well has been a key piece of the Lions Gate story for some years now, and it's no less true here. Mockingjay -- Part 1 is expected to consume just $140 million of an estimated $250 million combined production budget. That's $30 million less than what Marvel spent to make Guardians of the Galaxy.
To be fair, Disney doesn't need the same sorts of cost controls that Lions Gate does. Operating margins routinely range between 14% and 17%, versus just under 8% for Lions Gate over the trailing 12 months, according to data supplied by S&P Capital IQ. That the studio still manages to produce Marvel-sized blockbusters in the face of such constraints says a lot about the studio and the talent it chooses to work with. Outsized profits are the byproduct.
So if I argue that The Hunger Games: Mockingjay -- Part 1 is going to crush Guardians of the Galaxy, it isn't because I think the former is likely to be a better movie. Rather, it's because the data tells me that Lions Gate knows how to create the best possible product at the lowest possible price.
In the big-budget, spotlight-littered "tinseltown" we call Hollywood, that's a rarity.
