Lionsgate’s Jon Feltheimer

FeltheimerWhen Jon Feltheimer was appointed CEO of Lionsgate in 2000, nobody could have imagined how radically technology and consumer behavior would soon alter the media industry. But with a vigilant eye on costs and an ability to think outside of the box, Feltheimer built on the experience he had acquired at Sony Pictures Entertainment and New World Entertainment to position Lionsgate to ride the coming wave of change.

From the beginning, the company has targeted underserved film audiences, producing genre movies like the Saw franchise; the Academy Award winners Crash, Monster’s Ball and Precious; and later the young-adult franchises The Hunger Games and Divergent. The television division worked with cable and premium channels that were willing to take risks on shows such as The Dead Zone, Weeds, Mad Men and Nurse Jackie, racking up awards and critical acclaim in the process. It then branched out and began producing shows for broadcast networks and SVOD platforms: Nashville for ABC, Orange Is the New Black for Netflix and Casual and Deadbeat for Hulu. Along the way, Lionsgate has crafted innovative financing and distribution deals—such as the 10:90 syndication model from Debmar-Mercury, owned by Lionsgate—and has built up a library of more than 16,000 titles, which feeds the international-distribution and home-entertainment businesses.

This year, Lionsgate Television will roll out one of its strongest television slates ever, providing series to a wide variety of outlets, including HBO, ABC, E!, OWN: Oprah Winfrey Network, Netflix, EPIX and Hulu.

Working with other companies has always been important to Feltheimer, and Lionsgate has forged many partnerships over the years: EPIX with MGM and Viacom, Pantelion Films with Televisa, the TV channel Pop with CBS Corporation—to name a few—and most recently with Hunan TV, which provides the studio with a foothold in the rapidly growing Chinese market. Last November, Liberty Global and Discovery Communications each took a 3.4-percent stake in Lionsgate. This deal expands the studio’s presence in the nonscripted programming market. Lionsgate has also expressed an interest in acquiring or taking a stake in the pay-TV company Starz, but so far no details about a possible transaction have been released.

Feltheimer talks to World Screen about Lionsgate’s continued ability to adapt to the changing media market by maintaining its entrepreneurial culture and focusing on being a pure-play content company.

WS: What are the advantages, for each company, of the Lionsgate deal with Discovery Communications and Liberty Global?
FELTHEIMER: Discovery CEO David Zaslav and Liberty Global CEO Mike Fries are two of the top executives in the business, so their addition to our board of directors brings a lot of value in and of itself. By aligning our content company with a leading international-distribution platform and one of the world’s preeminent pay-TV programmers, we are creating a tremendous range of strategic opportunities. Since we announced the deal a few months ago, we’ve partnered with Discovery to distribute its television programming through our home-entertainment infrastructure. We’ve also created a new documentary-film division, which we launched with the joint acquisition of our first film at Slamdance. In addition, we’re working with Discovery on marketing tie-ins for recent and upcoming films. In a world where content creators and distributors are cooperating in exciting new ways, we believe that we’ve just begun to scratch the surface of the opportunities that lie ahead.

WS: Tell us about the deal with Hunan TV. How did it come about and what does it entail? Why is it important for Lionsgate and for Hunan TV?
FELTHEIMER: I’ve been focused on content opportunities in China since I was an executive at Sony Pictures in the 1990s and we created one of the first Chinese sitcoms, Ying Da’s Chinese Restaurant. The market there is expanding rapidly and is beginning to realize its tremendous potential. Last year the Chinese box office grew by 48 percent to $6.8 billion, and it’s expected to surpass the North American box office within the next few years. Consumption of both local and Western television content continues to increase and, with less legacy infrastructure, the Chinese media industry has leapfrogged straight to the digital age with a vast array of online platforms. We saw the opportunity to capitalize on these developments with a great partner who checks all of the boxes. Our agreement includes film-slate financing, local film co-production and distribution with Hunan’s TIK Films subsidiary, and potential television co-production with Hunan TV & Broadcasting, one of China’s top broadcasting companies.

WS: Will the deal with Hunan TV alter Lionsgate’s film slate or the types of films it produces? Will it change the ratio between Lionsgate’s franchise movies and smaller character-driven movies?
FELTHEIMER: No. To mitigate risk, we’ve always had financial partners, including Lakeshore, CBS Films, STUDIOCANAL, OddLot Entertainment, Millennium Films, Black Label Media and TIK Films. We continue to distribute a portfolio of 15 to 18 wide-release films a year that encompasses franchise tentpoles such as Now You See Me 2, The Odyssey and Saban’s Power Rangers; star-driven event films with commercial breakout potential, such as Deepwater Horizon; and branded films for affinity audiences in categories of proven strength: prestige (American Pastoral), action (John Wick 2), horror (our untitled film for Halloween) and urban (Tyler Perry’s Boo! A Madea Halloween). The common denominators underlying the films on this slate are the strength of the intellectual property on which they’re built, the caliber of the creative talent driving them, the focus on audiences we can reach with targeted marketing and the financial discipline of our business model.

WS: FX chief John Landgraf started quite a debate when he said there are too many scripted television shows. Do you share that view?
FELTHEIMER: Kevin Beggs, the chairman of our television group, talks about this being the platinum age of television—an era of unprecedented quality in television programming, driven by the most exceptional talent our industry has ever seen, with more options for delivering and viewing content than ever before. Since we started Lionsgate over 15 years ago, the number of scripted shows on prime-time television has increased from 150 to 412. The total number of prime-time shows, scripted and unscripted, has increased to 1,700. That’s a lot of shows, but people are watching more television on more devices than ever before.

When we started out, we had a somewhat different model than the big media conglomerates, and created platform-defining shows for new and emerging channels: The Dead Zone for USA, Mad Men for AMC, Weeds and Nurse Jackie for Showtime, Orange Is the New Black for Netflix, The Royals for E! and Casual for Hulu. Most of these shows were the first scripted series on their respective networks. As the marketplace becomes more crowded, we believe that the demand for noisy, premium-quality shows has become greater than ever. Everyone wants to have the next Orange Is the New Black, Game of Thrones or Transparent. In response to this demand, we’ve launched one of our strongest slates of original programming ever, which includes American Lion for HBO, Graves for EPIX, Dirty Dancing for ABC, Greenleaf for OWN, Guilt for Freeform and Clyde Phillips’ Feed the Beast for AMC.

WS: Now that viewers have so many choices for entertainment, how much more difficult is it to market a TV show these days?
FELTHEIMER: We try to cut through the clutter with great stories, digital fluency in creating social-media fan bases, and content driven by A-list talent that includes showrunners Jenji Kohan, Matt Weiner, Clyde Phillips and Matt Kunitz, and big stars, such as Oprah Winfrey, Sean Penn, David Schwimmer, Nick Nolte and Abigail Breslin.

Noisiness of concept is more important than ever. So are patience and a willingness to play the long game. What we used to call the 500-channel universe has now evolved into a million-channel universe of competing options on television, PCs and mobile devices. In this environment, it often takes at least two seasons for a show to penetrate audience consciousness. That’s one of the reasons why we love to partner with cable and digital platforms that help us build an audience for our shows while we help them build their network brands—a win-win for everyone. Casual was picked up for its second season on Hulu a few weeks after its very first episode streamed. The Royals was renewed for a second season on E! before its first season aired.

WS: Given the deal with Discovery, will Lionsgate increase its production of unscripted programming?
FELTHEIMER: For the past few years, we’ve actually been building an unscripted business alongside our premium scripted content, independent of the Discovery deal. We hired Jennifer O’Connell, a respected industry executive, to lead our nonfiction initiatives, and we assembled a roster of some of the best reality producers in the world—Matt Kunitz, producer of Fear Factor and Wipeout; Adam DiVello, producer of The Hills; and K. P. Anderson, executive producer of The Soup. We’ve launched a nonfiction slate that includes Monica the Medium, already picked up for a second season on Freeform; the nonfiction series RocketJump: The Show from YouTube star Freddie Wong on Hulu; as well as Hellevator at GSN. [In January] FOX ordered Matt Kunitz’s survival reality series Kicking & Screaming, for which we’ve retained all international-distribution and format rights and which we see as a major global brand as we continue to elevate our game in the unscripted space.

A few months ago we complemented this organic growth with the acquisition of a majority stake in Craig Piligian’s Pilgrim Studios, giving us a total of nearly 80 shows on 40 different networks. Pilgrim has some of the top nonfiction properties, including The Ultimate Fighter on FOX Sports, Ghost Hunters on Syfy and Wicked Tuna on National Geographic, and we’re already collaborating with them on a number of new shows that underscore the synergies we expect to achieve together. They’re also developing several unscripted series that are based on our feature-film formats.

Our relationship with Discovery adds yet another layer of optionality to our unscripted strategy. As I mentioned, we’re already in business with them in home entertainment, and we’ve launched a documentary-film division together.

WS: How do creative partnerships play into Lionsgate’s television strategy?
FELTHEIMER: We look at creative partnerships in all facets of our business. At the corporate level, we have multifaceted alliances with some of the biggest and best content companies in the world, including CBS, STUDIOCANAL, Televisa and New Regency—companies that combine a visionary approach to their businesses with tremendous underlying intellectual property.

Within our channel business, we’ve partnered with CBS on Pop, a network that has created nearly 400 hours of original programming. Pop has grown its ratings for five straight quarters and continued to expand its distribution footprint following last year’s rebrand.

Our EPIX channel with MGM and Viacom is the fastest-growing pay-TV network in the world. It increased its subscriber base by 54 percent last year as we continued to assemble a portfolio of digital platforms, MSOs and telcos that includes Amazon, Hulu, Play­Station Vue, Time Warner Cable, AT&T, Charter, Verizon and Dish. This coalition reflects the changing composition of a television ecosystem that is transforming itself to deliver content to consumers whenever, wherever and however they want it. Now we’re putting together EPIX’s first slate of original series, including our political comedy Graves starring Nick Nolte and Sela Ward, as the channel continues to expand its content offerings.

Finally, building profitable models for our individual shows through innovative, multiple window financing deals with creative partners has always been part of our DNA. With Mad Men, we were the first studio to license the back end of one of our series to a digital platform. We’ve been a first mover in creating original content for online networks such as Hulu and Netflix, and we continue to explore innovative ways to bring SVOD partners into the business models of our shows as early as possible, as we’ve done with Amazon on The Royals.

These partnerships have a few things in common: we like to be in business with companies whose strengths are complementary to ours, who can help us explore new markets and reach new audiences, and who are willing to join us in creating innovative and disruptive business models. When we’re able to check off all these boxes, everyone benefits.

WS: The home-entertainment market has been challenging for many companies. What opportunities does Lionsgate see in that business?
FELTHEIMER: As we’ve been predicting for years, the growth of VOD and electronic sell-through [EST] continues to incrementally expand the home-entertainment business, both in terms of top line and margins. We’re well positioned to capitalize on the opportunities created by the proliferation of digital platforms, and we’re able to offer an increasingly broad array of choices to consumers.

All the indicators of the business are strong. Home-entertainment spend increased to its highest level in five years in 2015. EST spend grew by nearly 20 percent and is now on par with transactional VOD spend, reflecting consumers’ embrace of digital ownership. SVOD spend from an increasing number of platforms has grown to more than $5 billion. Even catalog spend reversed its multiyear decline and increased by 2 percent last year.

We expect these trends to continue, driven by record industry box office underlying this year’s slate of home-entertainment releases, the launch of 4K Ultra HD Blu-ray and more MVPDs [multichannel video programming distributors] rolling out their own EST stores.

Within this environment, we will continue to be a first mover in exploring windowing and pricing strategies that are customized to our content. We were the first outside studio to partner with Comcast when they successfully entered the EST space in November 2014, and we will keep focusing on innovative partnerships that are designed to capitalize on emerging opportunities, diversifying our content offerings and embracing cutting-edge technologies that add value to our product.

WS: In terms of financial results, how was 2015? In what areas do you see the biggest potential for growth?
FELTHEIMER: Our television group is achieving record results as we continue to scale and diversify our operations and build a roster of unscripted content alongside our premium scripted programming. We expect our television division to continue growing to annual revenues of more than $1 billion with contribution margins of 15 to 20 percent within the next two years. The depth and quality of our intellectual property is also driving our expansion into new businesses, such as location-based entertainment, video games and OTT channels, which will accelerate our company’s diversification, bring us closer to the consumer and generate significant incremental profits in the years to come.

Though our two biggest franchises, The Hunger Games: Mockingjay Part 2 and Divergent: Insurgent, generated nearly $1 billion in combined global box office in 2015, our overall slate had an off year compared to the strength of previous years. However, we’re looking at a lineup for the next two years that is loaded with potential franchise tentpoles, star-driven event movies and targeted films that we expect will help us resume our financial growth trajectory and return us to our historical average of profitability on more than 70 percent of our releases.

Even more significantly, I believe that our competitive advantages as a pure-play content company with no legacy constraints, our entrepreneurial culture and our strong balance sheet all position us to continue building one of the most vibrant content companies in the world, creating lasting value for our partners and shareholders.