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May 23, 2005

Crash A Winner For Lions Gate

While the world focused on the astounding box office numbers for the latest Star Wars film, Lions Gate Entertainment (LGF) had another successful weekend at the box office with Crash. Crash has now grossed over $27 million and has shown the best legs of any film this year, falling just 20% in each of its first two weekends. It now looks like total domestic box office for the film could reach close to $40 million, ahead of the $25 million-$30 million I mentioned in my initial bullish post on LGF....

....One rule of thumb is that a film can produce total revenue of 2.5 to 3 times its domestic box office after adding DVD sales and the sale of international and TV rights. So with Crash headed toward $40 million, total revenue of $100 million or more is not out of the question. From what I have read, LGF paid about $5 million for the film and planned to support it with about $13 million in advertising and other distribution and marketing costs. Given the film's success and legs, it seems likely the ad budget has been increased by a few million dollars. If domestic box office reaches $40 million, LGF's share will be about $20 million (theaters get the other half), so the film could break even based on its domestic theatrical run. Most films lose money based solely on domestic box office.

If DVD sales and the sale of foreign and TV rights total $60 million-$80 million at an operating margin of 60%, earnings before interest, taxes, depreciation and amortization from Crash could range from $25 million-$35 million over the life of the film. Most of that seems likely to hit in LGF's fiscal year ending March 2006 where EBITDA estimates average around $100 million, giving me a lot of confidence in the projections.

LGF shares have not rallied much since Crash was released and remain below the $11.40 level they attained prior to the sharp pullback when the company announced they were considering a bid to acquire a British children's television producer that would have doubled the size of the company. LGF withdrew the bid on May 5. I think the shares are headed at least back to the March highs based on the success of Crash and a strong 1Q05 earnings report due on June 29th.

LGF's next major film release is High Tension due in theaters on June 10. High Tension is a horror film originally released in France and now dubbed and subtitled for U.S. release. The film is quite well thought of by horror film junkies. LGF has done well historically with horror flicks, although the box office of recent horror films from other studios indicates the genre may be cooling off.

Posted by Steve Birenberg at May 23, 2005 03:04 PM in LGF