Jon Feltheimer

November 1, 2010 World Screen

This interview originally appeared in the AFM 2010 issue of World Screen.

As co-chairman and CEO of Lionsgate, Jon Feltheimer has pursued the successful strategy of targeting audience niches that were not served by the major Hollywood studios. As a result, movies such as the Academy Award–winning Crash, Monster’s Ball, Precious, and the horror franchise Saw, in addition to the hit television series Mad Men and Weeds, have made Lionsgate the leading independent studio.

Feltheimer was named MIPCOM 2010 Personality of the Year. During his keynote address, he focused on today’s rapidly evolving media landscape, in which the only constant is change, and gave numerous examples of how Lionsgate looks at change, responds to it and turns it into a strength.

“In a world where advertiser-supported models of big audiences are migrating towards hundreds of affinity niches where the traditional linear progression of windows is increasingly challenged and the emergence of digital online video is threatening the traditional way we monetize our content, we have plenty of questions that are keeping us all awake at night,” said Feltheimer.

He went on to explain that today most shows reach much smaller audiences than they used to but that these are more passionate audiences. Viewers will not only watch a show when it airs, they will also record it on their DVRs, download it from iTunes, buy it on DVD and watch it on cell phones.

In order to adapt to this new world, new business models are necessary. More than that, courage is necessary for taking risks and even making mistakes.

Feltheimer cited the example of Mad Men, for which the Lionsgate team stitched together a patchwork of basic cable, DVD sales, iTunes downloads, international sales and half a dozen other distribution platforms, resulting in “a formula that will ultimately deliver millions of dollars per episode.”

Another new business model is represented by Epix, Lionsgate’s pay-TV venture with Viacom, Paramount and MGM. Epix became profitable after only ten months of operation. The company has made a deal with Netflix and carved out a new window for streaming movies 90 days after they premiere on traditional premium pay TV.

And recently, once again focusing on underserved niches, Lionsgate partnered with Televisa, the largest Spanish-language media company in the world, to form Pantelion Films, a joint venture that will cater to Hispanic moviegoers in the U.S. Farther from home, Lionsgate formed another joint venture, Tiger Gate Entertainment, with Saban Capital Group, and is launching pay-TV channels in Asia.

What has been guiding Feltheimer and his team as they navigate through the new media is the knowledge that what hasn’t changed is consumers’ demand for content, and he is confident that the digital explosion we are witnessing will continue to provide new opportunities to produce and distribute movies and TV shows in creative ways.

World Screen sat down with Jon Feltheimer after his speech for a question-and-answer session. Here is an edited transcript of that conversation.

WS: When you joined Lionsgate, how did the strategy to focus on underserved audience segments come about?
FELTHEIMER: The studios had done a good job at figuring out how to do broad-based entertainment. It seemed to me that people—even ten years ago—were watching television and movies more in large affinity groups than they had before, and it seemed like an interesting opportunity for us to [produce and distribute content] with less capital and perhaps a more focused approach to how to reach those individual audiences.
 
WS: Mad Men, Weeds, Nurse Jackie and Running Wilde are not ordinary shows in any sense of the word. What kind of creative environment do writers and producers find at Lionsgate?
FELTHEIMER: We have a much smaller staff than most studios, and the kind of empowerment that we give our executives is very similar to how we treat showrunners. We want the writers and showrunners to do what they do. We try to guide them and work with the networks. We try to make sure we can market the shows and get them out to the right audience at the right time. At the end of the day, our showrunners are given a lot of freedom to create.
 
WS: Given the success of those shows, what reputation does Lionsgate have in the creative community?
FELTHEIMER: You are only as good as your last hit, and people look at Nurse Jackie and Mad Men and Weeds, so we have a reputation as a company that cares about quality and gives showrunners and talent the opportunity to be empowered and follow their own creative direction. I think we have a very good reputation, an entrepreneurial reputation. We’ve been mostly involved with shows that I’m proud of, and certainly we always try to do the best that we can and perhaps not always try to attract the money as much as get the show right and then we’ll figure out how to bring the money in through various platforms.
 
WS: Lionsgate is known for being very cost-conscious. How do you ensure you get the quality on screen—whether in film or television—and still keep costs in check?
FELTHEIMER: The interesting thing is that you can’t be that much smarter than anybody else, but we do use a lot of tax credits; we’ve made interesting deals in New Mexico and Pennsylvania. We’re pretty mobile about where we shoot our shows. We don’t have a big studio lot. We don’t feel compelled to use a studio lot. The main thing is to make sure that you just do shows that you know you can produce efficiently. There were a couple of shows this year that Kevin [Beggs, the president of Lionsgate Television Group] brought to me and we talked about them. They seemed like great shows but they really weren’t for us, [they wouldn’t allow us to] do the best that we could do. And so we said to the creator, you may be better off someplace else. It’s very much about picking the shows that you know how to do, and know where you can do them, so that they can be efficient, profitable and great shows.
 
WS: There was a time when a distributor could sell a show to a U.S. network and cover most of the production costs, and then make a profit through international sales and a syndication deal. How long did that process take compared to how long it takes today to piece together a business model for a show which includes not only broadcast or cable, but also iTunes, digital channels, Netflix and whatever other piece is necessary to make the show work?
FELTHEIMER: Surprisingly, it could just be that the old model was slower in some ways because you did have to look all the way through to syndication to even believe that there was going to be a profit. Even if you had a show on the air for four years, you might never get there or your back-end value would be so diminished. Right now we are looking at the possibility of being profitable well before then. It just requires a lot more arm wrestling with a lot of different platforms. [If you take] Running Wilde as an example, the reason that we decided to go ahead and produce that show was that we had seen how significant the DVD business had been with the series Arrested Development. We thought if we could keep Running Wilde on for a couple of years we could actually be in profit significantly earlier. The old way was perhaps safer, or at least it was simpler, but it wasn’t necessarily a faster way to reach profitability.
 
WS: The last two years have not been easy for independent studios, with the credit crunch, the bad economy and sluggish ad market. How did Lionsgate weather the storm?
FELTHEIMER: We took our lumps like everybody else. 2008 and early 2009 were pretty rough years, but the key thing for us was diversification. We never set out to be a film company; we never set out to be a television company. We built a very large library early on that throws off about $100 million of free cash flow every year, and it enables us to actually make sure that we can pay everybody and fulfill all our obligations. And it has worked pretty well. Some quarters, the film business carried us, and the next quarter maybe it was the television business. DVD has been actually pretty solid for us. So I think diversification has been the key.
 
WS: What is your management style, and how do you get the best out of your team?
FELTHEIMER: At the end of the day, it’s not how much you pay people, it’s how much you respect them. And the way you show how much you respect them is by letting them make decisions, giving them the ability to make mistakes. At more established organizations that have big legacies of 50, 60 or 70 years, there is perhaps less of that—it’s a little more mechanized. I tend to let people make mistakes and sometimes afterwards if it is a mistake I kick myself and say, Why didn’t I exert more influence over that decision? But I think that is where the magic comes from. The magic comes from entrepreneurial people who can take ideas that other people haven’t thought of, and therefore look like they are probably a mistake, and make them work. That’s the whole game as far as I am concerned.
 
WS: In previous interviews we’ve done, one of my last questions has always been, “Are you satisfied with Lionsgate’s growth and performance?” and you’ve always answered that you are never satisfied. Well, I’ve got to ask again, are you satisfied?
FELTHEIMER: I’m definitely not satisfied. I love the growth we’ve had in our television business. I love the growth we’ve had in our channel platforms. The international marketplace is very exciting right now, and as I’ve certainly said before, I think there is a digital explosion about to happen. There’s our Netflix deal, the NBC Netflix deal, every day now you’re reading about Netflix. And it’s not just Netflix, it’s Amazon, Microsoft and Google. You are going to start seeing significant deals being made by these companies. It’s not necessarily a replacement for the traditional distributors, but there’s big, big, big money there and these companies have huge installed [subscriber] bases and a tremendous connection with the consumer. Once we tap into this together there is an amazing amount of money on a worldwide basis that we can generate. I think that is very exciting so, no, I’m not satisfied, but I’m happy!
 
WS: Are there areas of opportunity you see as you steer the company forward in what is very much uncharted territory—today it’s Twitter and Facebook and the iPad, and who knows what it will be tomorrow.
FELTHEIMER: When we made our deal with Netflix for Epix, who knew that there was another billion dollars sitting there that we left on the table? You don’t know because you can’t compare it to some other deal. So it’s the uncharted territory that is so exciting, that is going to be so interesting, and that’s really the new frontier of what we are talking about. As I said, the demand is there. You always hear people say, “Oh, television used to be better 10 or 20 years ago.” No, television has never been better; it’s the best it’s ever been by far. You’ve got great content being created all over the world. We are going into a tremendous period of growth for the business and for our company, and I’m very excited about it. There are other entrepreneurial, like-minded companies out there that we’d be interested to do other deals with, that would be interesting to partner with, and to be in business with, and those are the things we are looking at.