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June 10, 2005

Crash Winding Down Very Successful Run For Lions Gate

Crash lost 400 screens for this weekend and is down to about 900 screens. With the film's theatrical run winding down, I thought it would be worthwhile to provide a final review of the very favorable economics and also peak into the future for Lions Gate Entertainment (LGF). LGF shares have performed well on the success of Crash but I think plenty of upside remains. Future catalysts for LGF shares include upcoming quarterly earnings and several more promising film releases. A potential sale of the company is always a possibility....

Lions Gate Entertainment (LGF) shares have moved up recently on the successful box office for Crash. The film now looks like it is headed toward $50 million in domestic box office against my prior assumption of $40 million and initial estimates of $30 million.

LGF seems likely to ultimately receive about $100 million in revenue from Crash, composed of its share of domestic box office ($25 million), DVD sales ($70 million), sale of foreign distribution ($3 million) and television rights ($5 million). The cost to acquire and market the film should be around $20 million. Residuals due to the producer, director, writers, and actors could run towards $15 million, and distribution and marketing costs for the DVD could be around $30 million. Thus, total costs could run $65 million against revenues of at least $100 million, producing a $35 million operating profit for LGF, at the high end of my prior estimate. Analyst estimates for 2005 EBITDA are $90 million-100 million, so Crash is obviously a major success for LGF.

Future Catalysts Include Earnings, New Films

Future catalysts for LGF shares include quarterly earnings at the end of June and several more promising film releases over the summer. The quarterly earnings should be good given prior successful films including Open Water, Saw, and Diary of a Mad Black Woman, which should contribute significant revenue and profits. Investors will also be reminded that the LGF model has been working very well over the past year.

Upcoming releases include horror films High Tension, due this weekend, and The Devil's Rejects due in July and the hip-hop documentary Rize, due at the end of June.

LGF shares remain below the $11.40 they reached prior to the aborted bid for Hit Entertainment. I think plenty of upside remains and a potential sale of the company is always a possibility, given that LGF is the only major publicly traded studio now that MGM has been purchased by Sony (SNE).

Posted by Steve Birenberg at June 10, 2005 10:28 AM in LGF