A recent BloombergBusinessweek article covered Lionsgate Entertainment’s strategy to remain relevant and competitive in the film studio industry. Lionsgate is the studio that produced The Hunger Games – a movie that was a huge success worldwide. Since the release of The Hunger Games last year the company has brought audiences other (cough) smash hits like Texas Chainsaw 3D, Tyler Perry’s Temptation and Red 2. The company managed to continue to turn a profit, but the margins were miniscule. The company’s quarterly sales were down 29 percent from this period last year.
Lucky for Lionsgate, Hunger Games: Catching Fire, a sequel is slated to open Nov. 22. The opening weekend box office sales are projected to be nearly 170 million, more than the combined sales of the studio’s six other releases this year. One of Lionsgate’s craftiest moves is to separate the Hunger Games, which originated as a book trilogy, into four movies. The company needs to milk its biggest asset for all its worth. In fact there are talks of theme parks.
Lionsgate’s other strategy has been centered on cost cutting and consistency. Since the studio doesn’t have the resources that other studios enjoy, they can’t pour money into a single film. This limitation helps prevent flops like Disney’s The Lone Ranger and Sony’s White House Down. Rather, Lionsgate seems to bank on consistent solid-to-mediocre sales, but with extremely low costs. Some of these low budget movies – relatively speaking – turned out to be solid performers. The Lincoln Lawyer might be one of the firm’s finer examples of a low cost film that drew high revenue.
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It seems from this blog that Lionsgate is not making much profits in spite of its cost cutting strategy. Is this true? If so, why?
Even if the movie itself brings in a small profit margin this does not mean the end. Merchandising, dvd sales, etc… Also, in my managerial accounting class with Professor Alexander, we learned that many movies according to accounting sheets loose money but in reality make millions for producers. Simple cost accounting can make a hit seem like a negative cash flow but in reality it isn’t.
Its interesting to hear about a film company emphasizing cost cutting. Do you think that the firm is able to get away with making mediocre films for any particular reason, like customers focusing on actors or directors more than studios when viewing films?
While Lionsgate is cutting costs out of necessity, do you think that other movie companies will follow suit and cut costs as a means for profit? There must be diminishing returns for movie production — how much is a higher-paid actor really worth if it only proves slightly higher returns?
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