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2017-02-09 13:06:17
Lionsgate’s Bets Pay Off as Studio Makes a Big Comeback

SANTA MONICA, Calif. — In July, Lionsgate was stuck under a storm cloud.

Several of the company’s movies had been critical and commercial debacles, including “The Divergent Series: Allegiant” and “Gods of Egypt,” which also embroiled Lionsgate in a humiliating whitewashing casting controversy. Even worse, Lionsgate’s takeover of the Starz cable operation in June had been a bust on Wall Street: Not only did the $4.4 billion deal fail to raise Lionsgate’s stock price, but shares went lower.

And the end of Lionsgate’s year looked like more misery, with three problematic movies — another chapter in an aging comedy franchise, starring Tyler Perry as a sassy grandmother (“Boo! A Madea Halloween”); a violent war film from Mel Gibson (“Hacksaw Ridge”); and an original musical (“La La Land”) that most competing studios saw as a fool’s errand.

What a difference six months makes.

Lionsgate’s marketing department turned each of those potential misfires into a major hit. “A Madea Halloween,” made for $20 million, took in $75 million, the second-highest gross for a “Madea” film. The $40 million “Hacksaw Ridge” collected $164 million and received six Oscar nominations, including one for Mr. Gibson’s directing. “La La Land,” which cost $30 million, is cruising toward $300 million in ticket sales and could take home the best picture award. (A “La La Land” Broadway musical is already planned.)

All told, Lionsgate films received 26 Oscar nominations, by far the most of any movie company this year. That total goes up to 32 if you count those achieved by Roadside Attractions, which released “Manchester by the Sea” and is 43 percent owned by Lionsgate.

Some analysts have also been eating crow about the deal with Starz. On Jan. 17, for instance, Todd Juenger at Bernstein Research upgraded Lionsgate’s stock and reversed his initial negative take on Starz. “Our hypothesis was wrong,” he wrote in the report, citing research showing that Starz and its new streaming app were more appreciated by subscribers than he had realized.

Lionsgate’s stock has climbed nearly 40 percent since mid-July. “We’re pleased with the strong momentum,” Jon Feltheimer, Lionsgate’s chief executive, said on a call with analysts on Tuesday to discuss the company’s third-fiscal-quarter results.

For the period that ended on Dec. 31, which included almost no income from “La La Land” because of its late-quarter theatrical rollout and only 23 days of Starz results, revenue grew 12 percent, to $752 million, compared with the year-earlier period. After adjusting for one-time charges, profit stood at $34 million, a 36 percent drop. The third quarter of 2015 benefited from the blockbuster finale of the “Hunger Games” series.

The question now: As Hollywood tumult increases — consumers are watching more content on smartphones; major entertainment companies are searching for chief executives; the power imbalance with technology giants has media conglomerates looking to get bigger — does Lionsgate become predator or prey?

With its TV division increasing in size, which lessens exposure to the volatile film business, and its reinvigorated movie division, Lionsgate has achieved the near impossible in terms of positioning itself for the road ahead: It could be either, which is one reason it has become one of the more interesting companies in Hollywood. Alan Gould, an analyst with Brean Capital, wrote in a recent report that he had one major conclusion: “how well positioned Lionsgate is as either an acquirer or an entity to be acquired.”

Does Lionsgate combine with other entities controlled by the cable titan John Malone? It was Mr. Malone who sold Starz to Lionsgate; his other holdings include the Discovery Channel and Charter Communications. Some analysts have speculated about a Lionsgate merger with CBS, which would join Starz and Showtime, among other things. A revitalized Metro-Goldwyn-Mayer could be an attractive purchase for Lionsgate, analysts have said, unless MGM values itself too aggressively.

Michael Burns, Lionsgate’s vice chairman, declined to comment on the guessing game surrounding his company, although he did say, “We believe that our greater scale brings great opportunity.”

Lionsgate, of course, could also seek to grow organically. Mr. Feltheimer and Mr. Burns wanted Starz in part because of its fledgling direct-to-consumers streaming service. “We’re trying to be right next to the consumer,” Mr. Burns said. Lionsgate has introduced several of its own niche streaming services over the last year and was the primary backer of Atom Tickets, a fast-growing movie ticket app and website.

Lionsgate still faces enormous challenges. Starz recently lost its access to new Disney movies; Disney made a deal with Netflix instead. While Lionsgate’s own movie pipeline has expected hits — among them “The Shack,” a faith-based film — other bets are uncertain. Lionsgate’s next major release is “Power Rangers,” which cost about $120 million to make and will arrive on March 24.

“Still not for the faint of heart,” Mr. Juenger wrote of Lionsgate’s stock.

Tim Palen, Lionsgate’s marketing chief, said that a staff reorganization since last summer — Mr. Palen now reports to Mr. Feltheimer instead of an intermediary — had improved his ability to respond to the marketplace, contributing to recent successes. “Having the marketing group plugged directly into Jon Feltheimer has made an enormous difference,” Mr. Palen said, adding that morale had also improved. “One of the things that makes our jobs challenging and fun is that we have wildly different movies with wildly different release strategies.”

While investors have been focused on Lionsgate’s movies, the company’s television division has become a quiet powerhouse, supplying shows like “Orange Is the New Black” to Netflix and “Nashville” to CMT. Coming projects include a big-budget drama for YouTube Red and a Netflix series based on the film “Dear White People.” Lionsgate also has at least three new series orders from Starz.

While still considered a midlevel performer, Starz, led by Chris Albrecht, has found momentum at a time when it is hard for any prestige-minded network outside of HBO and FX to stand out. The crime drama “Power” and the time travel romance “Outlander,” for instance, produce sizable viewership and buzz for Starz.

In a sign of confidence, Starz recently moved the broadcast date for its slate of original shows from Saturday to Sunday, a more competitive terrain, going head-to-head against HBO and Showtime.