Lions Gate Entertainment (LGF +0.00%) just premiered the new trailer for The Hunger Games: Mockingjay Part 1 at San Diego Comic-Con 2014.
Mockingjay Part 1, which will arrive on Nov. 21, will be the penultimate chapter of The Hunger Games series. The final film, Mockingjay Part 2, will hit theaters on Nov. 20, 2015.
Since Lions Gate had director Francis Lawrence film the two Mockingjay films back-to-back, the mini-studio is clearly confident that the stellar box-office performance of the first two films will continue. However, could Mockingjay Part 1 top Lions Gate's own expectations and become the highest-grossing film of 2014?
The business of The Hunger Games
The first Hunger Games film grossed $691 million on a budget of $78 million. The second film, Catching Fire, grossed $865 million on a budget of $130 million. This means that gross ticket sales rose 25% between the first two films.
The Hunger Games. Source: Lions Gate.
By comparison, the global box office of Lions Gate/Summit Entertainment's Twilight series surged 81% from $393 million to $710 million between the first two films. Therefore, it's not unreasonable to assume that Lions Gate could experience another 25% bump between Catching Fire and Mockingjay Part 1, which would help the latter's global box office hit $1.08 billion. That would be enough to edge out Viacom (NASDAQ: VIA)/Paramount's Transformers: Age of Extinction, the top film of 2014, which has grossed $968 million worldwide.
More important, the combined budget of the two Mockingjay films, at $250 million, is only moderately higher than Age of Extinction, which had a budget of $210 million. If Part 2 is as successful as Part 1, we could easily see the two Mockingjay films grossing more than $2 billion on a $250 million budget. By comparison, Disney's The Avengers grossed $1.5 billion on a budget of $220 million.
Soaring into the finish ... but the landing could be rough
The recent practice of splitting final books into two films has also revealed an interesting sales trend -- the second part performs better than the first one. Box-office sales rose 16% between Twilight: Breaking Dawn Part 1 and Part 2. Box-office sales surged 40% between the two parts of Time Warner's Harry Potter and the Deathly Hallows. Therefore, Mockingjay Part 2 could soar into a very impressive finish next year.
One of the biggest concerns about Lions Gate, however, is that it doesn't have anything to follow up the success of The Hunger Games. The mini-studio reported revenue of $2.63 billion in fiscal 2014, with a theatrical slate of 13 films, and Catching Fire accounting for the lion's share of its top line.
Lions Gate's best hope right now is Divergent, another dystopian young adult series that is frequently compared to The Hunger Games. The first film grossed $275 million on a budget of $85 million -- far less impressive than the first Hunger Games, but box-office sales could bounce back if the series posts delayed growth like Twilight. Lions Gate has already started filming the second movie, Insurgent, and scheduled the third book, Allegiant, to be split into two films in 2016 and 2017.
Divergent. Source: Lions Gate.
Lions Gate also acquired the rights to an upcoming young adult sci-fi trilogy, The Outliers, in March. Although the first book won't even arrive until 2015, Lions Gate is already planning a companion film series, starring Reese Witherspoon, which could be the studio's second-best hope to carrying the Hunger Games torch after Divergent.
Could a Hunger Games spin-off be in the works?
Since Divergent won't become as profitable as Hunger Games, and other young adult films like Warner's Beautiful Creatures and Sony's Mortal Instruments: City of Bones have generated lackluster returns, it may be time for Lions Gate to persuade Suzanne Collins to help write new Hunger Games spin-off films.
After all, Warner Bros. chief Kevin Tsujihara recently convinced J.K. Rowling to write a new trilogy of Harry Potter spin-off films, based on the 54-page Hogwarts textbook, Fantastic Beasts and Where to Find Them. If Lions Gate convinces Suzanne Collins to revisit the world of The Hunger Games -- although she has adamantly refused to write a fourth book -- it could lead to another series set in Panem. Fans of the books know that there are plenty of stories left to be told, considering that the final tournament -- as seen in Catching Fire -- was the 75th Hunger Games.
For now, a Divergent spin-off seems more likely, considering that Veronica Roth has written a series of e-book spin-offs starring Four, the male lead of the Divergent series.
The Foolish takeaway
The massive success of The Hunger Games is both a blessing and a curse for Lions Gate.
On one hand, the annual sequels are a strong, reliable source of top-line growth. On the other hand, Lions Gate isn't as diversified as the major studios, and its long-term outlook looks murky after Mockingjay Part 2. The best-case scenario is that Divergent experiences a delayed growth spurt -- or The Outliers becomes a major hit. Of course, spin-offs from Hunger Games or Divergent might eventually arrive, but that's pure speculation for now.
So what do you think, fellow film fans and investors? Will The Hunger Games: Mockingjay Part 1 be the highest-grossing film of 2014? Let me know in the comments section below!
