Since the 1980s, advances in technology and ensuing changes in viewing behavior have upended the media business time and time again. Jon Feltheimer has led more than one company through these upheavals, first at New World Entertainment, then at Sony Pictures Entertainment, and since 2000 as CEO of Lionsgate.
Feltheimer has steered his teams through several disruptive evolutions, transforming them from problems into potential, if not lucrative, revenue sources. Lionsgate developed game-changing shows that helped brand cable networks (like Mad Men for AMC), pay-TV services (like Weeds and Nurse Jackie for Showtime), or streaming services (like Orange Is the New Black for Netflix). As viewership fragmented across a changing landscape, Lionsgate stitched together innovative financing and distribution models.
This year’s coronavirus pandemic is arguably the most dangerous, disruptive and damaging change the media business has ever experienced. It caused production shutdowns on films and TV series, the closure of movie theaters and the loss of income for thousands. Meanwhile, thanks to Feltheimer’s leadership, Lionsgate has maintained its employees, continued developing movies and TV series, started production on several shows and ridden the wave of increased at-home viewing. In the process, Feltheimer has kept his eye on trends that have been accelerated by the pandemic.
The motion picture group continues to feed its hit franchises The Hunger Games, John Wick and Now You See Me. While the film industry grapples with releasing new films in movie theaters, Lionsgate has premiered several titles, including Antebellum, on PVOD and multiple windows. The television division continues to supply programming to linear and nonlinear platforms, like Zoey’s Extraordinary Playlist, which was a surprise hit on NBC, and Love Life, the second most-watched series on HBO Max.
The premium service Starz is home to several popular shows, including Power Book II: Ghost, the first of several planned Power spinoffs; Outlander and American Gods. Its OTT service StarzPlay, already in 50 countries, continues its international expansion. Meanwhile, Pantaya, the Spanish-language premium service for Latinx viewers in the U.S., is also growing its subscriber base.
Lionsgate has a track record of catering to underserved audiences and providing a voice to diverse storytellers. Nowhere is this more apparent than in the company’s quick move to acquire the rights to The 1619 Project from the New York Times. Lionsgate reported revenues of $3.9 billion for the fiscal year 2020. Throughout all the changes since the start of the pandemic, Lionsgate’s library of 17,000 film and TV titles continues to increase in value, reaching a record $219 million in the first quarter of fiscal 2021.
Feltheimer talks to World Screen about managing businesses and people through the uncertainty created by COVID-19, continuing to find new revenue-generating opportunities and how the industry may change post-pandemic.
WS: How have you been managing Lionsgate’s various businesses since the coronavirus outbreak, especially with so much uncertainty?
FELTHEIMER: Because we have a tightly-knit and closely integrated company, my first priority was to keep morale and enthusiasm high while also keeping our structure in place.
I started by communicating even more than usual. Since the pandemic began, I’ve sent letters once or twice a week to our Lionsgate family as well as to our Board of Directors. I’ve continued by WebEx the meetings I held every Friday in our screening room with 60 or 70 employees in which everyone asks me questions and tells me what they’re doing. We sent surveys to our employees to learn what they were thinking and find out how we could best support their needs in the at-home environment.
We made sure that everyone was able to work efficiently and productively. Our IT department has done an amazing job giving people the ability to work from home. We also temporarily shifted some employees to areas of the company that were busier than others. Because we’ve been able to keep everyone working productively, we haven’t laid anyone off, haven’t had to cut people’s salaries and all of our executives received bonuses this year. We let people know we care about them, want to keep them working, and also want them to find new ways to work. We’ve challenged them to come up with new business models, and they’ve really taken that mandate to heart.
We’ve orchestrated all of this change very carefully. At the outset, we formed a Crisis Leadership Group that meets three or four times a week with leaders from every area of the Company, which I chair. We also formed a COVID Production Group that meets every Monday to develop new production protocols and figure out the best and safest ways to resume film and television production.
You could say that we’ve taken a “business as usual” approach to a “business as totally different” situation, and it has paid off. Our business has performed well, our financial results have been strong and we’ve pivoted where we’ve needed to pivot, and a big part of that success has been our emphasis on communication.
WS: Lionsgate’s businesses had already been reaching consumers directly, even before the pandemic. How have you accelerated reaching people in their homes?
FELTHEIMER: We’ve been accelerating our direct-to-consumer business for years, and the pandemic accelerated it even further. Several years ago, we recognized that transitioning Starz from a primarily linear bundled network to an over-the-top digital and à la carte premium service was the right strategy. Increased SVOD viewership in the current stay-at-home environment has just put an exclamation mark on that. By the end of the fiscal year, Starz’s domestic business will be nearly 80 percent à la carte, and more than half of our subscribers will be digital.
In our other businesses, since Michael [Burns] and I started Lionsgate, we’ve always taken the approach that there are no sacred cows. We’ve reinvented different kinds of paradigms for feature film and television. In features, we were doing day-and-date movies such as Margin Call and Arbitrage ten years ago. We’ve been exploring premium video on demand (PVOD) and other windowing strategies for years. The recent Universal/AMC Theatres deal is propelling the next round of conversations about new windows in the theatrical business. We built our company to look at different ways that we can get entertainment to the consumer while remaining sensitive to the needs of our distribution partners, and what’s happening now is simply accelerating that process.
WS: Starz and StarzPlay have grown significantly. Tell us about their international rollout.
FELTHEIMER: StarzPlay has 58 different distribution partners across 50 countries. Our global growth strategy is to be a true premium—you might say “ultra-premium”—subscription service with edgy, provocative, grown-up content. We know our brand, our audience and how to reach them, and we know our place in the ecosystem. Internationally, we use more third-party high-end series than we do in the U.S., where we focus primarily on Lionsgate and Starz original programming and movies. But our overall strategy is similar: to have the best of global SVOD content as part of a premium service that can be bundled with everyone and will sit as a premium layer on top of every platform.
I continue to be very bullish about StarzPlay’s international growth. The market opportunity is enormous, and with over 5 million international subscribers [as of the end of the fiscal year], most of them acquired within the past 12 months, we have charted our course, funded it out of our own free cash flow, kept our growth on schedule and now have outsized value creation within our sights.
WS: What was the strategy at Lionsgate’s film division before the pandemic, and how is that strategy being modified now because of it?
FELTHEIMER: Change doesn’t happen easily. We believe in the theatrical exhibition window. It makes watching a movie more of an event, and we want to preserve the economic strength of all of our exhibition partners. However, we also see the opportunity to make the pie bigger for everyone with an earlier, premium VOD window. I believe that is going to happen, hopefully in such a way that our exhibition partners can share the benefit of a growing pie.
We recently released the films I Still Believe and The Secret: Dare to Dream in the PVOD window, where they performed well. We’re releasing the film Run straight to streamers domestically (and theatrically internationally). [We released] the film Antebellum, initially planned for a theatrical release, on PVOD on September 18, with an earlier window than usual for our home-entertainment rights, such as EST and regular video on demand, as well as an earlier window for pay television.
At the same time, we continue to grow iconic film brands like The Hunger Games, John Wick and Now You See Me, moving toward production of fresh installments of each of those major franchises. We’re also renewing older properties like Dirty Dancing—with a nostalgic, romantic new movie starring Jennifer Grey—while incubating exciting new properties such as Borderlands, adapted from the blockbuster video-game franchise, and Are You There, God? It’s Me, Margaret, adapted from Judy Blume’s beloved bestseller.
We’re open to every kind of distribution model, and we have a film slate whose versatility and optionality allows us to embrace a wide range of different distribution strategies—from global theatrical rollouts to PVOD and SVOD releases. We’re all learning as we go, but I’m excited about our ability to maximize the value of great content for consumers who are looking for immediacy and convenience when they see something they want to buy and watch.
WS: Lionsgate’s television output has been particularly strong. What factors have contributed to that?
FELTHEIMER: Our television business has a similar philosophy to our film group in terms of its portfolio approach and ability to create bespoke deals for every different series we make and every distribution platform with whom we partner. We were early in delivering premium scripted content to all of the new platforms, whether it was Weeds and Nurse Jackie for Showtime, Orange Is the New Black for Netflix or, most recently, Love Life, the most successful original series for HBO Max and their second most-watched series after Friends.
When I sit down with Kevin Beggs [the chairman of Lionsgate Television Group], Sandra Stern [the president of Lionsgate Television Group] and their team, we start by asking, “How do we do something that is a win-win for us and our partners?” We’re able to create different business models for every partner according to their needs and economics. This flexibility was critical to our success in a year in which we placed a record number of projects with network partners, launched multiple new series and, most importantly, in a business that is all about keeping shows on the air, had all five of our new series picked up for second seasons.
All of our shows are also driven by strong talent relationships. We invested in and partnered with 3 Arts Entertainment two years ago—a very successful collaboration—with three series already picked up and many more in the pipeline. They have become an important part of our television production business and a central pillar of our talent strategy.
WS: When and how do you foresee production starting up again?
FELTHEIMER: Pilgrim Media Group, which creates nonfiction programming, is already in various stages of production or on the air with 21 different shows. We finished the competition reality series Ultimate Surfer for ABC and Tyson vs Jaws: Rumble on the Reef for Discovery’s Shark Week, along with Dodgeball Thunderdome, also for Discovery.
In scripted television, we have Heels about to shoot in Atlanta; The Girlfriend Experience filming in the U.K.; Ghost, the first new series in the Power universe, resuming production in New York; and Zoey’s Extraordinary Playlist getting ready to return to production in Vancouver.
In our motion picture group, we have a film shooting in Eastern Europe with two more right behind it. Overall, our teams have done an amazing job in creating return-to-work and return-to-production protocols. That said, the situation will continue to change, and we will change with it as we learn more.
I would add that in our television business, our vertical integration benefits us in the current environment because most of our Starz series are produced by Lionsgate Television, allowing us to prioritize our own needs and keep our Starz shows on schedule. We’ll be able to further control our own destiny with the completion of the modern entertainment complex we’re building in Yonkers, New York—brand-new, state-of-the-art sound stages that will allow us to exert even more control over our production operations and protocols moving forward.
WS: Are the COVID-19 safety protocols raising production budgets significantly? And who is sharing those increased costs?
FELTHEIMER: I would estimate [budgets are going up by] about 10 percent on scripted series, but significantly less on nonfiction. In terms of who is sharing these increased costs, that is where “the rubber meets the road,” as they say, but we are working closely with our platform partners on these issues and always want to do what is fair.
WS: Lionsgate has a long history of catering to underserved audiences and supporting diverse voices. With everything happening in the U.S. now, does your history benefit you when attracting and working with talent? I’m thinking of The 1619 Project.
FELTHEIMER: That has been a real priority of mine. Kevin Beggs first brought The 1619 Project to my attention when I was in Atlanta at the opening of Tyler Perry’s new studios. As soon as I [heard] the podcasts, I knew that we had to have that project. Our film, television and location-based entertainment executives did an amazing job working together to secure the rights. It’s an amazing piece of content. We’re thrilled to be collaborating with the New York Times, Nikole Hannah-Jones and our good friend Oprah Winfrey on it. We’re very excited about the ways we can adapt it across our entire portfolio of businesses.
We’ve been creating premium content for diverse audiences for years, going back to Monster’s Ball, Crash and Precious (where we first met Oprah); more than 20 Tyler Perry movies; television series such as Orange Is the New Black and Dear White People; and a market-leading vertical among Latinx audiences, with Pantelion Films and our streaming platform Pantaya. We were there early in serving African American and Latinx audiences, and we’re going to continue to make it a mission not only because it’s the right thing to do but because, quite frankly, it’s also good business to focus on large audiences who have historically been underserved.
WS: Lionsgate’s library has always been of significant value. How much more valuable is it now that so many broadcasters and outlets have gaps in their schedules?
FELTHEIMER: I learned an interesting lesson years ago from Barry Thurston when he worked for me at Sony Pictures. When he first took Seinfeld into syndication, he only let distributors buy one run. I asked him why, because we would make more money selling multiple runs. He said, “Just wait.” And he was 100 percent right. The second syndication run of Seinfeld was far more lucrative than the first, something that had never happened before.
Today you’re seeing the same phenomenon repeated, as great libraries continue to grow in value because there are more people in the world, and more of them are watching TV or some other form of media than ever before. It’s a simple supply-and-demand equation.
The pandemic may be accelerating this trend, but as people become more mobile and their days become more flexible, the value of great content will continue to go up. There are more ways for people to consume it, more platforms, greater delivery speed, bigger screens and better technology. We just syndicated Mad Men for more revenue in half the license period than its original syndication eight years ago, reflecting a massive increase in value. Other studios have seen the same thing with titles like Friends and The Office. The bottom line is that as hundreds of millions of dollars are invested in new platforms and distribution vehicles around the world, that success story will be replicated over and over across the top titles in our library as great content continues to grow in value.
WS: In this world of mega-media companies and tech giants, how does a smaller company survive and thrive?
FELTHEIMER: Let’s start with the word “survive.” We have an amazing company with new cash-flow generation every year, even as we continue to invest in content and the global growth of Starz. In the past year and a half, we have reduced our net debt by nearly $600 million. We just reported another quarter of strong financial results [for the period ended June 30, 2020], our businesses are performing well, and we’re a little better insulated against the pandemic headwinds than many of our peers, so I’d say that the word “survive” is off the table.
“Thrive” is a relative term. Some of the global media conglomerates need to build another $50 billion or $60 billion in value over the next three or four years just to pay off their acquisition costs, service their debt and be considered thriving. Our version of thriving is adding another $3 billion or $4 billion to our current enterprise value of around $4 billion. That would be crushing it for Lionsgate, and we can achieve that by adding another 10 million digital subscribers at Starz or a few more TV and film franchises.
We have to stick to our knitting and understand what we’re trying to accomplish for our shareholders. In terms of scale, in our space, we’re the biggest and strongest. We have the number one nonfiction business in Pilgrim Media. We have the number one talent management and production company in 3 Arts. We have one of the top two or three scripted studios in Lionsgate Television, and every year our film business has one of the top five or six domestic box office market shares of all the major studios. We’ve assembled the largest portfolio of valuable brands and franchises in the independent media space.
And at Starz, as some of our direct competitors change their strategies and broaden their brands, we have the opportunity to be the number one premium, pure-play subscription service. So in our space, we’re a giant.
WS: How has COVID-19 affected Lionsgate’s location-based entertainment attractions?
FELTHEIMER: They’re already resuming operations and showing evidence of a lot of pent-up consumer demand. Our state-of-the-art indoor theme park in China reopened in June to great attendance. In Dubai, we’ve drawn up plans to expand our Lionsgate zone [at Motiongate] with the addition of two new advanced technology rides. We’re planning new outdoor theme parks in the U.S. and Asia, and all of the smaller attractions like The Hunger Games: The Exhibition and the Official SAW Escape Room are open or reopening soon. We also have multiple film and television properties being adapted to the Broadway stage by world-class producers. Location-based entertainment is a great extension of our intellectual property that provides a robust return because we invest very little incremental cash. We love these businesses, and Jen Brown [executive VP and head of global live, interactive and location-based entertainment] and her team are doing a great job growing them for us.
WS: How do you see the film and television business after the pandemic?
FELTHEIMER: Beginning with our work environment, we’ve learned that people can be very productive working from home. As long as we provide the right technology to support them, employees can work equally long hours but within the context of more flexible workdays that allow them to take care of their family obligations. We will continue to measure our productivity, but I believe that office space requirements may change in the future as we continue to become more efficient from our learnings.
Looking at our feature-film business, the new windows that are already emerging are likely a catalyst for more change to come. You talk about an issue, and then something happens that makes you say, “Now is the time.” We’ve hit that inflection point with windows for our films, and we have to be smart about it. We have to figure out the right way to service our motion picture product while continuing to support our exhibition partners.
In television, we love the continuing march toward more delivery systems and more places to consume content, some subscription-based, some ad-supported, but all leading us into an all-streaming world. And as we [move forward], we want to take care of all our constituents, including the cable and satellite partners who brought us to the party. Everyone should be participating in the benefits we’re discovering. People are going to be viewing more and consuming more, and a company like ours that is very prolific and not locked into a single way of doing business has a real opportunity to thrive.