Looks like the creepy torture chamber of SAW wasn't enough for the folks over at Lions Gate Entertainment (NYSE:LGF). Not only will the company be back with a sequel to that cinematic shrine of the Grand Guignol, but also it's been reported that Lions Gate has struck a new partnership with the twisted people behind it.
According to the press release, Twisted Pictures (which makes me think of that classic '80s hit "We're Not Gonna Take It") will supply nine films for Lions Gate's distributional pipeline. For stakeholders in the company, this can only be perceived as a positive move. Twisted Pictures will be financing the movies and Lions Gate will be distributing; although details of the deal weren't mentioned, one can probably assume that Lions Gate should see an appropriate risk environment since it won't be expending enormous amounts of capital for production.
The inflation of costs related to production have risen significantly over the years, hampering the returns that conglomerates such as Time Warner (NYSE:TWX) and Viacom (NYSE:VIA) see from their movie operations. Even so, Twisted Pictures should do fine as well. Granted, the movie business is fickle at best, but even if some of the projects don't capture the attention of the intended audiences, a thorough read of the release tells me that the slate will deal with lower-budgeted properties that are intensely marketable and attractive to the youthful crowd (i.e. horror films). Before the kids figure out that a movie is a bomb, there is a good chance that enough money will be made to cover costs. SAW reportedly had a budget somewhere between $1 million and $2 million, and its take will go over $40 million domestically any day now; as long as the majority of the flicks are of a comparable caliber, then all parties concerned should be satisfied.
Tim Goh covered the company's latest earnings report, which passed expectations (guidance was also recently upped for expected net income in the current fiscal year to $25 million from $20 million). He mentioned something that I've been thinking about since the recent acquisition of Metro-Goldwyn-Mayer (NYSE:MGM) by a consortium of entities headed by Sony (NYSE:SNE). What about Lions Gate's potential for being acquired, considering the valuable library that it possesses? Makes for interesting speculation. Besides that issue, the company itself makes a compelling vehicle of exposure to the entertainment industry. A one-year chart shows that a lot of players feel the same way.
Going forward, I think there is value to this play on the entertainment industry. It's much riskier than a blue chip such as Procter & Gamble (NYSE:PG), so before you vicariously put on your producer's cap and start sarcastically asking people, "So, you wanna be a star?," make sure you're already covered with some safer bets, as well as an index fund or two.
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Fool contributor Steven Mallas owns none of the companies mentioned, but he may send a horror script or two over to Twisted Pictures. He hopes they won't think that the scripts themselves are horror shows.
