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April 28, 2006

Akeelah Provides Just A Small Boost So Far

My idea to buy Lionsgate (LGF) in anticipation of a ramp in the stock ahead of today's opening of Akeelah and the Bee has provided only a 2% return. Not bad, but less than I expected. I've looked over a couple of predictions for the opening weekend and the numbers are just $9 million. I had been thinking the figure would be closer to $14 million. It still could come in at the level and I'd say anything in the $10-12 million range or better will drive the stock higher on Monday. At this point I'd hold over the weekend as I think downside in the box office limited relative to current expectations and upside is possible. Akeelah will play primarily to African-American audiences this weekend and in the past films in that genre have performed fairly well. I'll take the over on $9 million and that should be enough to at least keep the stock at today's levels when it opens on Monday....

Dave Miller of Sanders Morris Harris took at a shot at the economics of the film in a piece earlier this week. Dave thinks that LGF's negative cost on the film is $5 million and P&A is $15 million. He believes Starbucks (SBUX) is not a gross player on the film. Rather, SBUX receives 20% of LGF's share of the film rentals (about 50% of the total box office) after LGF recoups their costs.

So if the film pulled in $50 million, LGF's rentals would be $25 million. The $5 million left after LGF gets its negative and P&A investment back would be split 80/20 in favor of LGF. Based on this analysis, breakeven for the theatrical run for LGF is a total cume of $40 million. This is before any revenue from the home video, pay TV, and free TV windows are considered. Dave thinks that SBUX is getting 100% of the soundtrack, which is selling well in the coffee shops.

This analysis is oversimplified as it does not consider residuals and participations. However, I think it shows this is a low risk film for LGF, which provides another reason to take the risk and hold over the weekend in hopes of a positive surprise at the box office.

Posted by Steve Birenberg at April 28, 2006 10:41 AM in LGF