Could Theme Parks And Video Games Provide A Lift For Lions Gate Entertainment?

| About: Lions Gate (LGF.A)


Lions Gate Entertainment has strong assets that could see demand as theme park rides and attractions.

Lions Gate partners with Kabam, which has had success with games based on movies before.

Shares are down 30% from 52-week highs and offer good buying point.

Lions Gate Entertainment (LGF) has made a large amount of money for investors since launching the blockbuster "The Hunger Games" movie franchise. Now, several new ventures could continue to increase revenue for shareholders and also diversify the company away from box office dependence. If Lions Gate Entertainment has its way, consumers will soon have the opportunity to attend theme parks highlighting "The Hunger Games" and other Lions Gate assets.

In a partnership with Thinkwell Group, Lions Gate is bringing "The Hunger Games: The Exhibition" to museums and schools around the country. This interactive tour will include costumes and props from the movies, as a behind-the-scenes look at The Hunger Games movies.

The tour will launch in the summer of 2015, months before the final Hunger Games movie, "Mockingjay: Part 2" hits theaters around the world (11/20/15). A full interactive exhibition will be "featured in major museums and institutions across the country paired with local school curricular."

Lions Gate is getting serious with plans for theme parks, as it also announced it was hiring Thinkwell executive Jenefer Brown to be the senior vice president of branded attractions. Aligning with Thinkwell is a huge move and being ignored by investors.

Thinkwell has worked with big companies like Warner Brothers, Lego, CORE Media, Sesame Street, Nickelodeon, and the National Basketball Association. Thinkwell has also worked on Super Bowl and Olympic productions, helping design sets and create huge entertainment spectacles.

Specifically, Thinkwell helped launch an interactive behind-the-scenes tour of Harry Potter sets and costumes. This worldwide tour turned into several Harry Potter theme parks, which have helped transform the make-up of Universal Studios, a unit of Comcast (NASDAQ:CMCSA).

Lions Gate announced potential plans for theme parks back in November. At the time, the company had been approached by two companies for potential theme park attractions related to its library of characters. The exhibition tour could easily be serving as a display of public interest for potential theme parks down the road.

The demand for the Harry Potter tour from Thinkwell led to plans for a Harry Potter theme park in Florida. That park has seen its market share grow in Orlando, compared to rival Disney. Attendance at Universal Studios was up 30% from the prior year for 2013.

Theme parks could be a great market for Lions Gate Entertainment. While rivals like Disney (NYSE:DIS) and Universal Studios have more characters to choose from for their theme parks, Lions Gate has relevant in-demand content. Lions Gate has The Hunger Games, Divergent, and Twilight, three of the top teen movie franchises of all time. Other theme park content could come from Saw, The Expendables, Now You See Me, and Ender's Game. Future franchises like Chaos Walking, Gods of Egypt, and the recently announced Power Rangers movie re-boot will also be instrumental to theme park plans.

Thorpe Park, a Merlin Entertainment property, has a theme park ride based on the "Saw" movie franchise. The ride features a 100 foot drop and several spinning blades throughout the ride. This Saw ride was the first and remains the only theme park ride based on a horror film.

The first two Hunger Games movies have grossed over $1.5 billion worldwide. "Catching Fire" recently became the 10th highest grossing domestic movie. More importantly, international box office of the second movie grew 55% to help increase overall box office take by 25% for the sequel.

The increase in international box office take is a big step for Lions Gate theme park plans. Many international entertainment companies are licensing characters and ideas to create new theme parks overseas. This could end up being the best play for Lions Gate, as it would lower associated costs in building theme parks, and see strong licensing revenue for Lions Gate' brands. The strong international box office revenue and new interactive tour will increase box office revenue for the next two Hunger Games movies, releasing in November of 2014 and 2015.

The other new prospect for Lions Gate is video games. Lions Gate announced a new partnership with Kabam, a privately held free to play game maker. Kabam isn't a recognizable name to most investors, but has had a string of hits and saw revenue increase 100% in the most recent year.

The new game will be a free-to-play, role-playing video game for smartphones and tablets. The game will center on content from the first Hunger Games movie and book, leaving expansion and new content possible down the road. Lions Gate and Kabam have a goal of releasing the game before the upcoming release of "Mockingjay Part 1" in November. Lions Gate hopes the game will keep fans tuned into the franchise in between movie releases. The game will be available through the Apple Store, Google Play, Amazon Store, Facebook, Yahoo, and

Kabam is the maker of video games about "Fast and the Furious," "The Hobbit," and "The Godfather." More recognizable games are "Kingdoms of Camelot" and "Dragons of Atlantis." Both Kingdoms and Dragons have each grossed over $100 million. Kingdoms is the company's highest grossing game with lifetime revenues of over $250 million. In 2013, Kabam saw revenue double to $360 million.

Investors can read more on Kabam and its potential in my article on Keating Capital (KIPO), one of several publicly traded companies to own equity in Kabam. Other investors in Kabam include Google, Intel, MGM, and Time Warner. A successful launch of The Hunger Games video game could help Kabam get closer to its highly anticipated IPO.

Investors got spooked on Friday when Lions Gate fell well shy of revenue forecasts for the fourth quarter. Quarterly revenue of $722 million missed by $121 million, but earnings per share of $0.42 actually came in above consensus. Shares fell 12% on Friday.

I remain a believer in Lions Gate for the long run, as the company diversifies into television and other segments, like theme parks and unlocking the value of their brands. Investors need to remember that the fourth quarter included only 11 days of Divergent's box office run, while carrying the majority of the movie related production and marketing costs.

Analysts see revenue increasing 11.2% in fiscal 2015. Revenue is seen increasing 6.5% in fiscal 2016, according to analysts. Lions Gate told investors during its earnings call that it sees revenue increasing 50% over the next three years, which would come in ahead of analysts. The company also sees profit margins rising, which should lead to earnings beats or revised earnings forecasts from analysts.

Shares of Lions Gate Entertainment fell on Friday. Shares are now down 18% in 2014, after having a nice climb in 2012 and 2013, on the back of a successful Hunger Games movie franchise. Shares are up 80% since "The Hunger Games" hit theaters and up 270% since my first recommendation in August of 2011. With shares now down 30% from 52-week highs, investors should see this as a buying opportunity in this great media company.

Disclosure: I am long LGF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.