Lions Gate Entertainment (NYSE:LGF.A) recently confirmed that it was in talks with potential theme park partners across four continents to make its Hunger Games theme parks, first hinted at in late May, a firm reality.
Lions Gate has already inked a partnership with theme park creator Thinkwell Group to launch a touring exhibit, The Hunger Games: The Exhibition, in summer 2015. The exhibit will promote the final chapter of The Hunger Games series, Mockingjay: Part 2, which will hit theaters on Nov. 20, 2015. It will be featured in museums and institutions across the country, and feature costumes, props, and other items from the films.
During a teleconference call, CEO Jon Feltheimer stated that the exhibition will be the first test of several "extensions" of The Hunger Games and Lions Gate's other franchises, which include Twilight and Divergent. Could Lions Gate, a mini-studio that generates less than half the revenue of Disney's (NYSE:DIS) Studio Entertainment business, actually develop a theme park business into a new pillar of growth?
The odds are not in Lions Gate's favor
At first glance, a Lions Gate theme park featuring attractions based on top teen franchises like The Hunger Games, Twilight, and Divergent seems like a solid idea. The first two Hunger Games films grossed $1.56 billion, the five Twilight films grossed $3.3 billion, and Divergent grossed $275 million with three more films to go. That's more than $5 billion from eight films -- not bad for a company that reported $2.63 billion in revenue in fiscal 2014.
But the first problem is the target audience. All three franchises heavily appeal to teenage girls. Yet asking teenage girls to spend $60 to $100 per person on a theme park ticket is very different from asking them to pay $7 for a book or $8 to see the movie. Lions Gate's franchises are also much darker than Disney's franchises or Harry Potter, which helped boost attendance at Comcast's (NASDAQ:CMCS.A) Universal Studios. That makes it a tough sell to families, a core demographic for theme parks.
The second problem is the cost. The Wizarding World of Harry Potter, which debuted at Universal Studios in Orlando in 2010, cost approximately $265 million to build. A second Harry Potter area, Diagon Alley, cost an estimated $400 million more. Yet those are only two areas -- a full-size theme park would cost much more. The new Universal Studios in Singapore, for example, cost a whopping $1.4 billion to build.
Partnerships with Thinkwell and other theme park operators could reduce costs, but it would still be a big financial burden for a studio that only earned $218 million in net income last year.
The tough business of theme parks
Although movies and theme parks seem made for each other, Disney rules the market with an iron fist.
In 2013, revenue from Disney's theme park and resorts rose 9% year-over-year to $14.09 billion, accounting for 31% of the media giant's top line. Operating income from theme parks climbed 17% to $2.2 billion, accounting for 21% of its bottom line.
Disney churns out huge profits from its theme parks by raising prices repeatedly -- 1-day ticket prices have risen from around $80 in 2010 to nearly $100 today. For the first nine months of 2014, Disney's theme park business continued growing, posting a 7% jump in revenue and 20% increase in operating income.
Other competitors haven't been as fortunate. Six Flags (NYSE:SIX), which operates 18 parks in the U.S., reported a 5% increase in adjusted earnings and 4% revenue growth last quarter. However, park attendance fell 8% to 8.2 million, and was only offset by higher expenditures per guest. Six Flags blamed bad weather and a prolonged school calendar in certain areas, but those factors didn't slow down the House of Mouse -- both Disney's park attendance and guest spending rose in tandem last quarter.
The key difference between Disney, Six Flags, and other competitors is franchise appeal. Six Flags licenses some Warner Bros. and DC Comics characters from Time Warner, but it's completely outgunned by Disney's massive catalog of film and animation characters.
Comcast's Universal Studios experienced more than a 50% increase in attendance since 2010 thanks to Harry Potter, but it's still much smaller than Disney -- its four parks worldwide only generated $546 million in revenue last quarter, compared to Disney's $4 billion from five main parks, resorts, and cruise lines.
The Foolish takeaway
Lions Gate certainly faces an uphill battle if it intends to open theme parks. It unquestionably has strong franchises -- a key strength that many other theme park companies lack -- but the fans of those films might not be the right audience to make its parks profitable.
Simply put, a theme park starring kids killing each other, sparkling vampires, and brainwashed kids slaughtering civilians just doesn't scream "family season pass." A partnership with Disney, Universal, or Six Flags might be a better way to go, but it would still be money that might be better spent on acquiring and developing new film franchises instead.
So what do you think, fellow investors -- would you visit a theme park featuring Twilight, The Hunger Games, and Divergent? Let me know your thoughts -- and your best ideas for rides based on those movies -- in the comments section below!