Jon Feltheimer

This interview originally appeared in the MIPTV 2014 issue of World Screen.

Lionsgate has built a successful business by identifying underserved audience niches and reaching them in movie theaters, on television and on digital platforms. For horror fans there is the Saw franchise. Urban viewers have enjoyed a steady diet of Tyler Perry movies and TV series, and Pantelion Films, Lionsgate’s joint venture with the Mexican media giant Televisa, has been serving Latino movie aficionados, recently scoring a box-office hit with Instructions Not Included. Another key focus has been the young-adult market; the megahit Hunger Games and Twilight franchises have been joined this year by Divergent. For the second year in a row, Lionsgate broke the $1-billion mark at the domestic box office, and took in another $1 billion internationally.

The company has provided discerning viewers sophisticated cable series like Mad Men, Weeds and Nurse Jackie, as well as Orange Is the New Black on Netflix. Lionsgate Television has 21 cable series on 16 different channels, five shows in national syndication, Nashville on the broadcast network ABC, and new shows for Amazon and Hulu. In addition, the television division has diversified its business with its innovative 10/90 model, with such shows as Anger Management and Saint George, and has increased its production of nonfiction series.

Creativity is not only pervasive in the development and production of films and TV series, it is also a hallmark of many of Lionsgate’s financing-and-distribution deals. Following a standard set by CEO Jon Feltheimer, the company has pursued a very disciplined approach to production, yet never at the expense of quality, and always attracting top talent to the studio.

Lionsgate, which had record revenues in 2013 of $2.7 billion, has equity positions in nine branded channels around the world, including FEARnet; EPIX; TVGN, a fifty-fifty partnership with CBS Corporation; and six channels with Celestial Tiger Entertainment in Asia. Feltheimer talks to World Screen about the company’s many businesses and its focus on securing the best talent, opportunities and business models.

WS: What is driving the success of the film division?
FELTHEIMER: What’s interesting is that the billion dollars in the domestic marketplace doesn’t include the revenue from our films that we do through our partner Roadside Attractions, nor does it include the films we do through our Televisa partnership, Pantelion. That would add another $44 million for Roadside, which would include films like All Is Lost and Mud, and it would have added another $44 million on top of that from Pantelion Films just for Instructions Not Included, the Eugenio Derbez film. Those are pretty good examples of things that most of the other studios aren’t doing that we like to repeat over and over. The other area that we’ve emphasized is international growth. The whole international market is growing, but we’ve concentrated a lot of our attention on territories like China. Our film Escape Plan, for example, made more money at the Chinese box office last year than it made in the U.S. Because of our presence on the ground with Celestial Tiger, our channel platform out of Hong Kong, we’ve really been able to focus on that market. We had six releases in China this past year, which is a significant percentage of the 34 films that were released by the Hollywood studios and, as a result, we greatly increased our market share in China. So, we’re seeing a lot of growth from emerging markets like China and India, and we believe that’s starting to add significantly to our international growth story.

WS: 2013 was Lionsgate’s best year in China. How important is China?
FELTHEIMER: China is obviously a very important market given its stature as the second-largest economy in the world, with a huge consumer base and a growing appetite for Hollywood films and television programming. The Chinese box office generated $3.6 billion last year and is projected to grow to more than $6 billion within the next three years, and we’re seeing similar growth in the television market. We established our Celestial Tiger partnership in part to give us proximity to this market and facilitate our licensing of content to Chinese buyers. In the past few years, we’ve licensed hundreds of Lionsgate films and over 1,000 hours of television programming to digital and traditional platforms in China. As demand from consumers increases across multiple platforms, buyers in China are paying significantly more for our content.  For example, our Chinese distribution partner paid a significant sum to license a single upcoming Lionsgate film, Gods of Egypt—more than all the revenue we generated from that territory a few years ago—and the digital platform Youku paid a premium license fee for the first two seasons of Orange Is the New Black so it could stream the series in China the day after it debuted in the U.S.

WS: What other international markets are important?
FELTHEIMER: That’s a little like picking a favorite child. Nearly all of our territories are important to our film and television business, often for different reasons. In addition to China, Russia and Latin America have been big growth markets for our business. Some of our films are now generating tens of millions of dollars at the Russian box office in a territory that generated almost no revenue for us five years ago. The box office for Catching Fire in Latin America was more than 50-percent higher than for the first Hunger Games film and, with distribution from our IDC joint venture, it generated nearly double the profit.

Sometimes you have to create your own growth in a market. We purchased Redbus Film Distribution in the U.K. in 2005, and with a great local management steadily built our business there, culminating in a state-of-the-art output deal with Netflix two years ago. Our U.K. operations have become a diversified profit center that distributes a combination of Lionsgate mainstream commercial releases, third-party acquisitions and their own internally produced films. Lionsgate UK achieved a record year in 2013 and just completed the best quarter in its history.

Our success in the U.K. is attributable not only to the business we built but to the changing business paradigm to which we were responding. The arrival of Netflix and Amazon’s LOVEFiLM ended BSkyB’s virtual monopoly in the U.K. and created intense competition in a market where little or no competition previously existed. Even BSkyB has responded by competing more aggressively for the second windows of our product after their first window on Netflix.

We believe that this paradigm shift will become evident in other territories as new SVOD services and EST platforms continue to emerge. Netflix operates in Latin America, Canada, the U.K., Ireland, Scandinavia and the Netherlands, and we believe they will launch in two other major European terri­tories in the near future. Amazon’s LOVEFiLM has a strong presence in the U.K. [where it is branded as Prime Instant Video] and Germany, and Apple has [iTunes] stores in 110 countries around the world.

WS: How is Lionsgate balancing its mix of films—franchise and non-franchise—in any given year?
FELTHEIMER: We take a global view when we create our film slate, and we rely on a portfolio approach. Our slate includes franchises like The Hunger Games and The Expendables, potential franchises and branded properties like Divergent, Mortdecai, starring Johnny Depp, The Last Witch Hunter, starring Vin Diesel, the sequel to our sleeper hit Now You See Me, and Gods of Egypt, an epic re-envisioning of mythical ancient Egypt that combines spectacular visual effects and a distinctly Lionsgate business model, as well as star-driven genre films with breakout potential. Within each of these categories, we’re very cognizant of capitalizing on the tremendous growth of the international marketplace in everything from our casting to our production locations to our marketing and distribution.

For example, we were committed to building on the success of the first Hunger Games film and making Catching Fire a truly global phenomenon, and we gave it a huge kickoff for our international distributors at Cannes last year and held premieres in London, Paris, Berlin, Madrid and Rome before its American premiere in Los Angeles. Due in part to these efforts, Catching Fire grossed 60-percent more at the international box office than the first Hunger Games film, and we’re already exploring ways to build on that momentum with the two Mockingjay films. Now You See Me was a sleeper hit that grossed $118 million at the North American box office, but it did double that business internationally, so we will be shooting the sequel in the U.S., Europe and Asia to maximize its worldwide appeal.

Escape Plan, starring Sly Stallone and Arnold Schwarzenegger, was a modest performer domestically but it did so well internationally, especially in China, that we’re exploring a sequel that would be shot and possibly co-produced in Asia.

We also see opportunities to take what we’ve learned from our successes in certain markets and replicate them in other territories around the world. Eugenio Derbez’s Instructions Not Included is an example of a film that incorporates universal elements of family, humor and poignancy that are replicable and transportable, so we’re exploring an urban version for the U.S. market and remake opportunities in France, Brazil, China and India.

WS: Through Pantelion Films, what have you learned about Hispanic viewers?
FELTHEIMER: One in six Amer­icans is Hispanic, and they not only represent a market of more than 50 million consumers, but they are the fastest-growing segment of the U.S. population.

Our goal with both Pantelion Films and our South Shore venture with Televisa on the TV side has been to build a brand and an audience with a consistent pipeline of English and Spanish-language content.

When Instructions Not Included was a breakout hit, the only people not surprised were Lionsgate and our partners at Televisa. The film’s tremendous success validated the premise on which Pantelion was built—that the Latino consumer in the U.S. is both underserved and underrepresented in mainstream commercial films and TV series.

What many Latinos want, whether in English or Spanish, are themes, stars, locations and values to which they can relate. Learning from the success of Instructions, a key element of our strategy going forward will be to source content from talent deals with top stars with cross-cultural appeal—George Lopez, Eugenio Derbez and Zoe Saldana.

We’re working on several projects with Lopez who, in addition to his 10/90 series Saint George, has just wrapped production of La Vida Robot for release this fall. We have several projects in the works with Eugenio Derbez, and when this interview appears, we will have just released Pantelion’s biopic of Cesar Chavez, directed by Diego Luna.

Our South Shore TV venture with Televisa is also off to a fast start.  ABC Family has already ordered a full 20 episodes of Chasing Life, based on the Televisa drama Terminales. We have a number of other interesting projects in development, including a new 10/90 comedy series, Ask a Mexican, with George Lopez attached to produce, as well as a Stan Lee–George Lopez drama for Syfy built around a new superhero character that Lee, Lopez and showrunner Nancy Miller are developing.

WS: Lionsgate Television is known for a very disciplined approach to production and being quite cost-conscious, and yet quality on screen is never sacrificed.
FELTHEIMER: When you’re a newer company and you don’t have a lot of the overhead and legacy deals that an older company has, you can start with a fresh piece of paper and build your own model so you make sure that you’re producing the right shows for the right networks. You don’t have a whole infrastructure of soundstages, for example, where you say, “This is where these shows have to be shot,” so you can go to states that offer great tax credits and, frankly, might even be better from a creative perspective. You can take chances. You can build new models that have different kinds of ancillary revenue sources, and you can take chances with shows that might seem daring but actually are very appealing to actors. The combination of all of those factors makes Lionsgate Television a very attractive place for people to do business.

Quite frankly, a lot of the shows that we’ve done are shows that other people either said no to or were scared to do. Mad Men is a great example. Weeds is another example of bold, innovative programming.  They weren’t easy to finance, because you had to put a wide array of different revenue sources together to support their production value and make them profitable. By having less overhead, maybe it’s possible that we’ve been able to do those shows a little cheaper than somebody else. But the main thing is not just keeping the costs down, it’s also creating a business model and enough ancillary revenue to enable you to do a show that you’re proud of. At the end of the day, the best shows are the ones that become the most valuable. They last forever, and that’s the way we’ve been able to supply new buyers as well as to keep attracting talent.

If you look at our 10/90 models, which we’re still the only company doing, look at the kind of talent that we’re attracting. Great showrunners and great stars like Kelsey Grammer, Martin Lawrence, George Lopez, Charlie Sheen, and they all enjoy doing production a different way. When we get an order for 90 episodes, the showrunners and the stars not only know that they’re going to be producing for a long time, they [also] know that we’ve set up a way for them to produce. We can shoot without an audience so we can block and shoot and, when we don’t get it right, we can just keep rehearsing over and over until we do, and we’re not sacrificing any quality in the process.

We’ve simply figured a different way of doing things that takes advantage of the bigger scale and volume of the shows we’re producing.  If you ask any of the show­runners, I think they would tell you this is a better way to work, and our talent would tell you the same thing. We’re not really trying to save money, we’re trying to create a different model each time, and that’s working pretty well for us.

WS: How much are revenues from digital platforms increasing compared to revenues from broadcast and cable entities?
FELTHEIMER: If you look at the growth of our TV business, we’ve gone from revenue of $8 million about 12 years ago to $400 million-plus this year, and a lot of it has been driven by the growth of digital platforms. You can look at digital platforms three different ways in terms of how they affect our business.

One is producing original shows for these new platforms. Two is the syndication of the shows that we’ve got on other networks in the digital platform arena. And the third is how digital is driving the growth of our library. Each of these three ways is pretty significant for Lionsgate.

This year we’re producing original shows for Hulu, Netflix and Amazon.  We’re making a pilot for Amazon, Deadbeat for Hulu and Orange Is the New Black, a big hit show, for Netflix. We figured out a way to work with all those platforms and love the fact that they’re really a new source of what we call pay-TV programming. When you look at some of the really high-quality serialized shows like Mad Men and Weeds, one would’ve thought that there wasn’t much back-end value, but all of a sudden along came these digital platforms and they have shown how significant that value can be on their platforms. Netflix has become a very important syndication partner in the first window for both Mad Men and Weeds, and Hulu and Amazon are all players now in the back end that previously included only the basic cable networks or station syndications.

Turning to the impact these digital platforms are having on our library, if you look five years ago, about 62 percent of our library revenue was coming from packaged media. Today it accounts for only about 28 percent, and the margins have grown from about 33 percent to 38 percent. A lot of this growth is due to the emergence of digital platforms and fresh demand for content from new players who value the library for different reasons and in different ways. So in all three of these areas, digital platforms are helping to grow our entire business, both in features and in television.

WS: Do you think online streaming and on-demand viewing of movies and shows will outpace viewing on linear channels?
FELTHEIMER: Secular changes within our industry used to take place every five or ten years. Now our business is changing every year or two, and whenever our industry transitions from one business model to another, people are quick to proclaim that the old model is dead.

With the advent of cable networks, people said that broadcast was dead. In fact, it turned out to be an opportunity to reinvent itself as the home of event programming, from the World Series and the Olympics to spectacles like The Sound of Music Live!, and nobody does it better. With the emergence of SVOD and EST, pessimists were ready to proclaim that the DVD was dead, even when it remains a vibrant $12-billion business with plenty of opportunities for those willing to find them.

We believe that the same is true of the competition between online and on-demand platforms and linear channels. The television ecosphere is expanding to encompass broadcast, premium and basic cable and streaming services, offering an unprecedented level and diversity of content, and we view this not as an “either-or” but a win-win for content companies and consumers alike.

Consumers not only have more abundant choices but an opportu­nity to view high-quality, premium content in more places than ever before. A hit can come from anywhere. The Sound of Music Live! on NBC, Duck Dynasty on A&E, Mad Men on AMC and Orange Is the New Black on Netflix are all a testament to this golden age of diversity. And that is great news for content suppliers like Lionsgate, because every media platform in this new ecosystem is chasing a hit.

The key to success in the current environment is great content and great curation. Networks like Show­time, Netflix, Hulu, FX and AMC all have common goals—establishing or refining brand identities that cut through the clutter and are synonymous with quality programming, whether consumers watch their shows on television or an iPad, at an appointed time or on the go. Our opportunity is to supply the content that helps them establish these identities.

WS: As you look forward 12 to 24 months, where do you see the greatest opportunities?
FELTHEIMER: The international market for our films and TV programming continues to grow. Although the box office is relatively steady at around $11 billion, the international box office is $24 billion and continues to grow at 6 percent a year, with the greatest growth coming from China, Russia and Latin America. We’re well positioned to capitalize on this growth with a hybrid global distribution infrastructure that includes output deals in most major territories, self-distribution in the U.K. and our IDC joint venture in Latin America.

The emergence of digital platforms like Netflix around the world as well as the launch of local SVOD platforms from China to Brazil is helping to drive growth in our international television business as well—our international TV revenues have increased more than 50 percent each of the past two years. While it’s not surprising that a star-driven TV show like Anger Management can generate international sales of nearly $1 million per episode, the similar level of success we’re achieving in licensing Orange Is the New Black internationally underscores the extent to which new digital platforms are driving demand.

The digital revolution is creating not only meaningful incremental revenue streams but significant opportunities for margin growth throughout our businesses. Our digital and on-demand revenues increased 46 percent to $276 million last year, and that doesn’t even include the new series we license to digital platforms. We expect this growth to continue as we license more content to digital platforms around the world, create original programming for Netflix, Hulu, Amazon and other digital buyers, and forge partnerships with new digital players such as Comcast, which are expanding the dimensions of the EST space.

As I mentioned earlier, we’ve already seen this influx of digital and on-demand revenue contribute to growth in library margins, and we believe that the ongoing consumer shift to digital consumption will help drive profitability as well as growth in our business.

A third major opportunity for growth is obviously the creation of new franchises while we continue to expand our existing brands.

There has never been a better time to be in the content business, and our big franchises have tremendous value still to be unlocked if we’re innovative and opportunistic.