Its revenue tail caught under the merciless weight of the rocking chair of marketing costs, independent filmmaker Lions Gate Entertainment
Reporting a $14.1 million loss for its fiscal 2006 second quarter, Lions Gate brought its total losses to $35.9 million year to date. Though its $0.14-per-diluted-share loss was disappointing compared with analyst forecasts of a $0.01-per-share profit, the loss could have been even worse on a per-share basis. Lions Gate diluted its outside shareholders by 6.3% over the past year, spreading the losses over a greater number of shares. The company actually did better than analysts had predicted in at least one respect: Though analysts expected only $206 million in quarterly revenues, Lions Gate reported $213 million. (That's still down from a year-ago $231 million.)
Lions Gate shelled out a lot to get those revenues, which may explain why they didn't translate into profits. The studio spent $98 million on distribution and marketing in the quarter, including $35 million spent to market Lord of War and The Devil's Rejects. Lions Gate hopes to see a return on its advertising investment in future quarters, however, as the aforementioned films move on to generate additional revenues on the DVD and premium cable television markets. The two films are currently $26 million in the red in total, but Lions Gate expects that they'll ultimately end up earning it a profit.
That sounds great. But investors in other moviemakers have learned the hard way that it doesn't always pay to depend on DVD sales to salvage a lackluster box office number. Two of our own picks at Motley Fool Stock Advisor, Pixar
If Lions Gate thinks that the same trends that cut short DVD sales of megahits like Shrek2 and The Incredibles will leave its films untouched, I'd say that someone needs to lay off the catnip.
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Fool contributor Rich Smith does not own shares of any company mentioned in this article.
