Jon Feltheimer on prowl for Lionsgate mate
CEO ponders potential of union with MGM, othersIt says something about your company when so many upstart media entities claim that they want to be "the next Lionsgate." Jon Feltheimer, who has been the co-chairman and chief executive officer of Hollywood's premier mini-major for a decade, is the man behind movies as diverse as "Precious" and "The Expendables" and TV shows as varied as "Weeds," "Mad Men" and "Running Wilde." He talked to The Hollywood Reporter editor Elizabeth Guider about the value of such content globally, how digital is starting to pay off, and why "Dirty Dancing" is still sexy.
The Hollywood Reporter: You're about to be honored at Mipcom as Personality of the Year for your savvy in dealing with the international market. What would you say is the biggest challenge for American companies trying to compete globally?
Jon Feltheimer: I think it's two or three things. One is that the international marketplace is starting to see what we face here in the U.S., which is catering to much more fractionalized, targeted audiences that are taking advantage of getting their content from multiple sources. So people selling content internationally need to be highly focused on selling the right product to the right buyer. If things don't succeed on a particular network, they're not going to stay on very long. And so to create enduring value for that content abroad, you've got to be on top of your game in terms of whom we're selling to, what challenges are emerging, and what is the right outlet for the content.
THR: What would you say in today's world is the value of trade shows like Mip and Mipcom?
Feltheimer: There's no question that selling and marketing of content is a year-round business and there's financial pressure on companies to say "Oh no, don't go get a big booth at any of these conventions, don't send 50 executives, and so on," and yet the truth of the matter is that these are the kinds of events that further your relationships and allow you to develop others. And, they are ideal places for the exchange of ideas.
THR: This fall Lionsgate boasts a broadcast series in "Running Wilde." Does this beachhead into the primetime schedule on a Big Four network matter?
Feltheimer: Yes, I think it matters. For us, it meant taking on incremental risks in order hopefully to have incremental rewards. Typically, the backend of broadcast shows is more valuable than for cable properties, and foreign sales for broadcast shows are more valuable, so there's no question that we think it's a big step for us to take. If you look at "Arrested Development," which Mitchell Hurwitz also created, it had very significant home entertainment and digital value.
THR: Among Lionsgate's properties are critically acclaimed and Emmy-nommed cable shows, including "Weeds," "Mad Men" and "Nurse Jackie." How important is the TV business to the overall health of your company?
Feltheimer: It's very, very important. It'll be $350 million to $400 million in revenues this year. If we get to $400 million it would be a record, and that would bring it to about 22% of our overall revenue, so that's pretty significant. When you couple it with the investment that we're making in our channels and digital businesses, like the TV Guide Channel and the pay service Epix, it's clear a significant expansion of our business going forward will be on the television front. If you look at the next round of our corporate development and of deals we might do, the focus will be on the television and channel area.
THR: Your colleagues and rivals at the other studios have found local production operations abroad to be an important part of their international strategy. How do you see it?
Feltheimer: Well, you know, we're not quite there yet. We did do a pilot for BBC this year, but generally we're just being opportunistic about it. It's a little different in Asia where we have a channel venture with Saban and as part of that, we've announced one deal with financing from Malaysia to produce motion pictures and TV shows. So for that venture there will be original programming for the region specifically, and I think you'll certainly see that content traveling further afield. We also experimented doing the Paris Hilton show, which I felt was pretty innovative , instead of just doing a straight format deal, we actually took Paris to Dubai and to London, and did localized shows. That was an interesting new version of what to do with the format. Then again, we're still a growth company, and I don't want to get us spread out too thin. We have to be careful about how we spend our resources.
THR: You're in business with Paramount and MGM on the fledgling Epix pay service. It started out of the gate slowly. What's the status now and can you foresee taking that model abroad?
Feltheimer: Channels don't typically break even or go cash positive for five years; I think that we're actually ahead of that. We'll be cash flow and earnings positive this next year. We did run into a very difficult marketplace with the recession, but we recently delivered in spades on our broadband component, we're in pretty good shape with the number of traditional MSOs right now, and we just made this very unique deal with Netflix. I think that the answer to your other question is absolutely yes. Major content creators and distributors should be able to control the destiny of these rights, particularly going forward when there's so many new windows. I think that being more in control of your pay rights will allow you to do much more in that area. As you see really in the international marketplace, it's far less crowded in terms of strong pay TV channels than in the U.S., meaning that potentially there's room.
THR: Back here on the immediate horizon: Does Lionsgate still have a shot at MGM?
Feltheimer: When you say, does Lionsgate have a shot at MGM, I say, does MGM have a shot at Lionsgate? If there were to be a deal, it's only a good deal if it's good for both sides, so my sense is that there are a lot of interesting combinations. We've built an incredible platform, and I think we have a great fit going forward with a number of other entities and assets that are out there. MGM could potentially be one of them, but it's only a good fit if we and they together both feel that the plan, how we might proceed together, is in sync.
THR: So if not the Lion, what other companies or opportunities are there out there?
Feltheimer: I would say television is a focus and expanding our channel platform is a focus. As for buying libraries, when catalogs are going down in value, the answer is that it's all about price! We've built a platform, we've got strong distribution all around the world, we don't need to build infrastructure anymore. We can add on a lot of other kinds of assets on top of our current distribution foundation, so I think really that the world is our oyster.
THR: Still, on the stock side, things are a little troubling, in that Lionsgate had been trading around $10 but now it's down to roughly $6 or $7. How are you dealng with that and doesn't it hurt if you want to make acquisitions?
Feltheimer: I'd like to put that all in perspective. Look at CBS, and where it was before, they're probably in the same place, if not lower, than 10 years ago. Our stock 10 years ago was $1.65; today's it's $6.60 or whatever it is. When we had a very robust economy, when digital enterprises were being very highly valued, our stock was higher. CBS, just as one example among media congloms, was $38 or something like that, and now they're at $13. As for isn't it better when you've got a more robust stock price so you can use your stock to be more aggressive about acquisitions, the answer is absolutely yes.
THR: What about your debt load as compared to your revenues and such?
Feltheimer: Our debt is about $500 million, which for a company doing about $1.8 billion isn't bad. I's probably about the right amount of leverage to have on a company. We did pare it down recently, and you might see us deleveraging a bit more.
THR: Looking at your quarterly earnings I notice you have a lot of booked future revenue from licensing. What are your thoughts on the value of old as well as new content?
Feltheimer: We recently did a new library evaluation, and it was up significantly, especially its digital value. Five years ago we actually got no value for digital, those rights weren't very clear, and this year we were up 12%. There's no question in my mind that replenishing a library is important -- first, for the packaging opportunities, and secondly, a year or two later it becomes library, and at the beginning of the cycle, it's obviously higher revenue as library than it will be 20 or 30 years later. However, there are certain titles where that's not the case, they never go down: "Dirty Dancing" is one of them. Year after year for packaged media, television sales, and the format we're using for TV shows and new stage plays. It's absolutely extraordinary the kind of value we get from it.
THR: So there still are surprises to be had in the business for you?
Feltheimer: If you drill down a little bit and start thinking about the new players in this business, you think about Wal-Mart with Voodoo, you think about Amazon, you look at the incredible usage for film entertainment on Playstation and XBOX, and if you look at what's going on with Hulu going to subscription, you have to say, wow guys, there is something going on. Just in the month of June, we did about $250 million or maybe $260 million , and of them, the only movie you've ever heard of was "Lord of War." This concept of a long tail is definitely viable as there are more and more players who value content. The flip side of this is that we need to be careful how we price them, and distinguish between movies that are impulse buys, and movies that aren't. We need to protect them differently, we need to price them differently, but this acceleration of digital value, I think, is really starting to happen.
THR: But there still are disappointments on the movie side like say "Kick Ass."?
Feltheimer: You know, it's always funny that who frames the discussion -- the distributor or the press. I just read again today about "Kick Ass" and how disappointing it was, and I think 'Jeez, who was disappointed on that?' We did $50 million for a movie we paid about $15 million for: It's number 1 in DVD, it's number 1 in digital. My point is that that was actually a great Lionsgate story. "Kick Ass" was just an acquisition that any other company could have had, and it'll be in our library forever, and it's helping drive packaging in the digital space. Not every movie is going to be a home run. I guess it was disappointing because we thought it could be a franchise, but we didn't think that til the press told us. I would say our percentage in movies for a successful profitable picture is over 70%; our hit rate in TV is pretty extraordinary, too.
THR: With media consolidation picking up and consumer tastes changing ever more quickly, where do you see Lionsgate in five years?
Feltheimer: We want to continue to be a change agent. We want to be the architects of change instead of reacting to change. We want to be a consolidator not a seller and we want to continue to explore the kind of targeted entertainment, targeted audiences, that I think are happening and emerging in every country in the world. Other than that, I think I'd be very foolish to describe anymore because this foundation that we have built is very very flexible, and will allow lots of kinds of content creation and distribution. I want to be open to all different ways we can manage the future of the company.