Jon Feltheimer

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

 

Lionsgate is the leading independent studio in Hollywood. Co-chairman and CEO Jon Feltheimer has successfully bet on a number of factors that have led to the company’s success: targeting audiences that were underserved by the major studios; providing niche content on linear channels and online; focusing on innovative quality content, and keeping a watchful eye on costs. For these accomplishments and more, he has been named MIPCOM 2010 Personality of the Year.

 

WS: What helped you pull through the economic downturn, and how well positioned are you to take advantage of whatever opportunities the market offers now?

FELTHEIMER: We start with the foundation, which is how our company was originally constructed. We have always been diversified, with revenue coming from films, television, including our syndication business, Debmar-Mercury, and our home-entertainment business, which includes not only the sales of the film product, but our direct-to-video business as well. So we have quite a few businesses and when one isn’t performing exactly right, hopefully the others will pick it up, almost like a sports team.

 

Of course, there is the library, which from the beginning, has always been critical. Michael [Burns, Lionsgate’s vice chairman] and I talk all the time about how having that evergreen cash helps pay people’s salaries and covers our operating cash needs even at times when some of our businesses aren’t performing. That library also allows us to have a $340 million credit facility. That gives us a lot of room to operate, particularly in a downturn.

 

The last piece I would mention is that, unlike virtually all the other independents, we’re a public company, and that gives us a lot of options to raise capital and do it in a lot of different ways. You may remember that a couple of years ago we did a high-yield offering. While it was reasonably expensive money, it has allowed us to be in a very strong financial position going forward.

 

We may have been a bit prescient about the recession. First of all, over the last couple years, after the TV Guide Network acquisition, we didn’t start any other new corporate acquisitions other than to continue growing EPIX [the premium channel operated with Viacom and MGM]. Secondly, we started Tiger Gate, but rather than solely fund the negative cash flow ourselves, we brought in the Saban Capital Group as a partner.

 

The third thing we did was to continue to really keep an eye on overhead. And the last thing we did for fiscal 2010 was to cut back our theatrical slate. In 2009 it was 15 or 16 films, and we cut it back to ten. So we did a number of things to preserve cash and to be sensitive to the fact that the consumer wasn’t going to be spending too much discretionary income, certainly not as he or she was spending before. Those are the ways that we built our company to resist the downturns and what we did specifically in this last recession.

 

WS: Lionsgate has always been lean and mean, so to speak, but in these past few years, how have you been able to watch or even cut costs while still getting quality on the screen—both theatrical and television screens?

FELTHEIMER: We cut our corporate cash overhead by about 8 percent last year, which reflected good cost discipline based on the fact that our business was growing. Our overhead this year will be less than 7 percent of our projected revenue. So we start with cost reduction on the corporate side. On the creative side, the question is, how do we make quality films and television in a difficult period of time and keep our costs down? In terms of our theatrical business, people tend to forget that about half of our slate consists of acquisitions and negative pick-ups, so we know going in how much those films are going to cost, and we have a good sense of how much we will spend to market them. Both The Expendables and The Last Exorcism were acquisitions, and they were very, very efficient spends for us.

 

Part of the advantage is that we do more targeted films. We can produce a lot of that branded entertainment for a little bit less, and we can market them a little bit more efficiently than a major studio release that is trying to appeal to a broad audience.

 

On the movie side, it’s that old adage that you never know where your next hit is going to come from. That means that we need to have enough times at bat and have a diversified portfolio and keep the risk low on a per-picture basis. That gives us a shot at having hits and creating franchises. For every movie we make, whether it’s horror, our specialty films like Precious and Crash, our action films like The Expendables or a thriller like The Next Three Days, we try as much as possible—and certainly there are exceptions—to know what primary audience we’re going after. If we can’t identify the audience then, at the end of the day it’s usually not a picture we’re even going to try to acquire or produce.

 

If you look at the Tyler Perry movies, the 3D animated Alpha and Omega, Kick Ass, The Expendables, The Last Exorcism, we were very clear who those audiences were and we didn’t try to fool ourselves into thinking they were four-quadrant pictures. We knew that they were basically two-quadrant pictures. We knew whom we were targeting and that allowed us to keep our marketing costs a little bit lower.

Of course, we produce a lot of both films and television. In our television production business, we’re fairly flexible about where we shoot and how we shoot. On every single television show we start with the philosophy that most of our risk gets covered going in, whether it’s through tax credits, international sales or our very strong home-entertainment revenues. Our team has proved on Mad Men, Weeds and a number of our other shows that they’re the best in the business at exploiting tele­vision shows on DVD. So from both the cost and revenue side of the television business, we try to take out as much of the risk as we can.

 

WS: Shows like Mad Men and Weeds have set the bar so high now, how does that challenge your team to do even better?

FELTHEIMER: I’ve had a strong feeling going back to The Wonder Years and continuing all the way through Mad Men that “me, too” television doesn’t work. But I’m not a snob about what makes the best television, whether that first show is the first Survivor, the first The Biggest Loser, the first American Idol, or the first Mad Men or Weeds. It’s copycat television that doesn’t work. You’re always challenging yourself and your executives to figure out what’s the next thing. Frankly, I’m every bit as excited about Tyler Perry’s House of Payne and Meet the Browns as I am about Mad Men and Weeds. We’re getting groups of 100-episode orders at a time for those shows because they’re working for a specific audience. It’s about making great original television, but it’s also about being very clear who the audience is for different shows. You can only build a profitable model, as in any business, when you know your audience.

 

WS: Tell us about Tiger Gate.

FELTHEIMER: It’s still very early days for Tiger Gate. It follows a pretty simple philosophy that I have, which is first you’ve got to look for an opportunity. In this case we looked at the growth in the pay-television market in Asia. We saw that there was a void in the offering of branded channels and we decided, “Great, we’ve got an opportunity here to fill that void with an Asian action channel and a horror/thriller channel.” Secondly, we bet on talent. I was in business with William Pfeiffer, the CEO of Tiger Gate, for many years at Sony. He ran Asia for us, and he’s a real entrepreneur. Finally, we have a great partner in Saban Capital Group. Our distribution is on track right now. We have on the air pretty much on schedule and now it’s about getting great distribution. We’re able to help supply great content in the horror/thriller area, and I think we’re in very good shape.

 

WS: How are TV Guide Network, FEARnet and EPIX performing?

FELTHEIMER: All of them follow a simple philosophy—we want to create channels in areas that we know well with target audiences that we know well. These channels all follow that philosophy. We’re excited about the October 1 launch of the linear component of FEARnet. It has performed very well in terms of its VOD and Internet presence, but it’s really important for advertisers that we have a linear channel. We’re excited that Peter Block is back as president and general manager of FEARnet. He’s one of the top guys in the whole horror/thriller genre. We and Sony together control so much content in the area and can supply both content and creative relationships, like the one with Sam Raimi, whose Ghost House Pictures label is doing its second original production series for the channel. We’ve got a good rollout plan, and we’re targeting an audience that we know extremely well.

 

At EPIX, the big news recently was our deal with Netflix, reported in the media at nearly $1 billion over five years. When we started EPIX a few years ago, we bet that major studios like Lionsgate, Paramount and MGM should control the pay-television window as much as possible. That’s going to be important as we start looking at new windows and variable pricing for these new windows. This is going to be an important strategic and financial asset for us. It will allow us the flexibility to do some things that all the other studios are going to want to do as well.

 

We got TV Guide at a very, very good price. People don’t realize how significant and valuable its TVGuide.com online business is. And we are excited about our fall season. We’ve got Curb Your Enthusiasm, Weeds, which obviously we were able to supply and is performing extremely well, and Ugly Betty, as well as a lot of other programming. We’ve got new carriage deals with Comcast and Charter and we’re negotiating a number of others. The most important part of our expanded distribution footprint is that we’re migrating the channel to a full-screen product on all of the cable systems. Having a full-screen product to display all of our new content is going to be really important to advertisers going forward.

 

WS: You’re going to MIPCOM to receive the Personality of the Year award. What does this award mean to you?

FELTHEIMER: What I found interesting when I went back and looked at the people who received this award before—Gustavo Cisneros, Gerhard Zeiler, Ted Turner, Leslie Moonves and Sumner Redstone, among others—was that almost all of them were broadcaster-based. And I thought, I went to MIPCOM every year for twenty­some years. What’s interesting about this year’s award for me and why I’m very appreciative of it is that so many of the people going to MIPTV and MIPCOM are producers and distributors of content and, frankly, salespeople, and that’s how I see myself. I’m a salesman representing our content. The people at MIPCOM are people who have crafted content, have figured out how to produce it and sell it, not just in one place but in more than 100 different territories and to many different media. And I thought, “These are really my peers.” So many of them are people who do what I do, so I’m very gratified that they chose to give this award to me and I’m excited about it. It’s one of the few times my wife has actually said, “I’m going with you,” which will probably make me more nervous! I’m appreciative to MIPCOM and the Reed MIDEM organization, and I’m appreciative that she’s coming with me!