Lions Gate Results May Put More Pressure on Studio to Seek Deal

Anousha Sakoui, Bloomberg News

(Bloomberg) -- Lions Gate Entertainment Corp., which held talks to sell its Starz pay-TV network to CBS Corp., posted fourth-quarter sales and profit that missed analysts’ forecasts, underscoring the challenges facing the independent studio as competitor bulk up through mergers.

A smaller film slate and a drop in TV production revenue led to lower sales and profit for the period ended March 31, as theatrical releases like “Cold Pursuit” failed to click with moviegoers. Sales in the TV division, which makes “Orange Is the New Black” for Netflix, slumped 11. At the same time, Lions Gate was boosting its investment in Starz.

Key Insights

A 61% plunge in Lions Gate shares since November 2015 is pressuring the company to deliver more from its film library, movie slate and pay-television businesses. Lions Gate has a couple of major investors: Chairman Mark Rachesky, with 19 of the stock, and cable billionaire John Malone.
Major media companies like Walt Disney Co. are bulking up to compete with Netflix Inc. and Amazon.com Inc. as more consumers turn to streaming for entertainment. While Starz has an online business, it doesn’t have the film library or swath of channels that give larger media companies clout in the business.
The company held talks on selling Starz to CBS, but rejected an informal bid of about $5 billion, people with knowledge of the matter said last week.
Sales for the quarter fell to $913.7 million, the company said Thursday, missing analysts’ estimates of $947.7 million. Profit, excluding some items, was 11 cents a share, below projections of 22 cents.

Market Reaction

Lions Gate fell as much as 8.7 to $14.60 in extended trading after results came out, before recovering. The stock advanced 15% on May 17, when the talks with CBS were first reported.

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