Hasbro (NASDAQ:HAS) is 0-for-2 when it comes to buying big movie studios. Reuters recently revealed that the toy maker was in talks to buy Lions Gate Entertainment (NYSE:LGF-A)(NYSE:LGF-B), but the deal apparently fell apart over price. Similar to Hasbro's failed attempt to acquire DreamWorks Animation in 2014, which also went nowhere because of price, it shows the toy maker is serious about breaking into Hollywood.
Making toys is OK, but the real money is in movies, which can lead to higher toy sales. Owning a studio outright cuts out the middleman and allows Hasbro to keep more of the profits for itself. Still, it's a strategy fraught with risk and one Hasbro hasn't shown itself particularly adept at outside of the Transformers franchise, but since the toy maker seems intent on buying a studio.
A checkered past
Lions Gate is the largest independent film studio and distributor and currently stands in sixth place overall in total gross box office receipts this year. According to BoxOfficeMojo, Lions Gate has generated $514.7 million in total gross this year, giving it 7.3% market share, just behind Sony's Columbia Pictures, which has a better than 9% share of the market on a $664.3 million gross.
Hasbro and Lions Gate collaborated on the toy maker's animated feature My Little Pony: The Movie, starring Emily Blunt, which is due to hit the big screen in October, while Hasbro teamed up with Viacom's Paramount Pictures to release the various Transformers movies, as well as G.I. Joe.
Previously Hasbro had hooked up with Universal to make a series of movies based on Hasbro's game portfolio -- including Ouija, Clue, and Candy Land -- but Battleship was the only one that actually made it to theaters. While it did well globally, the film, which was only related to the board game by the most tenuous of threads, was largely panned here at home, and Universal ended up backing out of all its other movie commitments with the toy maker.
So it's clear Hasbro has had its sights set on the big screen for some time, and there are a number of smaller studios it could consider, though whether they'd want to sell is another matter.
The Weinstein Company is a leading independent studio like Lions Gate, but the types of movies it produces aren't really in Hasbro's wheelhouse (Django Unchained, Inglorious Basterds).
Neither, seemingly, is Open Road Films, a joint effort from movie theater operators AMC Entertainment and Regal Entertainment (The Promise, Spotlight), but the studio did pick up the U.S. distribution rights last year for the Playmobil animated movie based on the German toy line from Brandstätter Group (notably, Lions Gate is the international distributor for it).
More interesting might be STX Entertainment, which released last month the sci-fi feature Valerian and the City of a Thousand Planets. Although the film got off to a weak start here in the U.S., with a 51% rating from RottenTomatoes, and it's only generated $36.5 million domestically total, STX is the eighth biggest studio this year in terms of gross, according to BoxOfficeMojo, with almost $91 million for a 1.3% share.
It also offers the possibility of collaborating on TV programs. While the studio tends to make more adult fare, it did produce True Life that will be airing on MTV later this year, as well as the No. 1 show in China, Number One Surprise.
The combination of movies and TV would seemingly mesh well with Hasbro's own mix of big and small screen that it produces with its Allspark Pictures movie studio and the TV-oriented Hasbro Studios.
Although a merger with toy rival Mattel repeatedly makes the rounds, as it did again earlier this year after Hasbro reported strong earnings and Mattel disappointed, the negotiations with Lions Gate confirms the toy maker is determined to go to Hollywood. It might not be so surprising next time to read that it has picked up a smaller independent studio to fulfill its star-struck fantasy.
Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Hasbro, Lions Gate Entertainment Class A, and Lions Gate Entertainment Class B. The Motley Fool has a disclosure policy.