Emma Stone Twirls Through L.A. as Lions Gate Attempts to Rebound

(Bloomberg) -- For the first time in a while, the film studio behind “The Hunger Games” and “Twilight” could have a winner on its hands.

Lions Gate Entertainment Corp.’s “La La Land,” from Oscar-nominated director Damien Chazelle, opens in a handful of theaters in the U.S. this weekend and is a favorite for Best Picture at next year’s Academy Awards. Set in a romanticized Los Angeles, the musical stars Ryan Gosling and Emma Stone as a couple struggling to stay together as each finds success in the entertainment industry. Characters burst into song amid traffic jams; Stone and Gosling perform a dance-duet in front of a scenic sunset.

The film has received 94 percent positive reviews, according to aggregator Rottentomatoes.com, and is already notching up prizes, including the New York Film Critics Circle Award for best film. After its limited release this weekend, “La La Land” will expand to more theaters in coming weeks.

An Oscar win would be a much-needed shot in the arm for Lions Gate after a disappointing stretch. Movies the studio hoped would spawn franchises, such as “Gods of Egypt” and “The Last Witch Hunter,” were bombs, and the third installment of the “Divergent” series tanked, ending plans to release the finale in theaters. The company said Thursday it completed the purchase of cable network Starz, a deal that reduces its dependence on movies.

While the Starz acquisition helped lift Lions Gate shares from their lows earlier this year, the stock is still down 19 percent in 2016. Last month, Cowen & Co. analyst Doug Creutz lowered his 2017 adjusted profit estimate for Lions Gate by 9 percent to $218 million “due to our concern about overall film industry dynamics and competition,” he wrote in a note.

Awards, though, are more about prestige than big profit. They bring attention and admiration, and while musicals can be hit or miss, “La La Land” looks likely to achieve both.

“There is a snowballing effect,” said Amy Yong, analyst at Macquarie Capital, with a successful film building confidence in a studio.

Industry Dividends

Success could pay dividends in terms of bolstering relationships with key artists like Chazelle, said Jeff Bock, an analyst at Exhibitor Relations Co. The director was nominated for the screenplay to his 2014 film “Whiplash,” which also garnered a best picture nomination.

“Lions Gate needs to do more of that,” Bock said.

While “La La Land” won’t be a “big swing factor” financially for Lions Gate, it’s likely to be profitable, Creutz said in an interview. The film cost an estimated $30 million to produce, excluding marketing costs, according to Imdb.com. It’s forecast to generate $60 million through its full run at the domestic box office, according to BoxOfficePro.com.

Lions Gate declined to comment on the film’s prospects.

Bock is less bullish on whether “La La Land,” with its West Coast setting, will have broad appeal. “Middle America. Trump supporters. They are not going to go see this film,” he said. The question will be whether the movie can succeed outside of metropolitan areas. Bock predicts a total box office haul in North America of $30 million.

‘Crash,’ ‘Precious’

A Best Picture Oscar would be the first for Santa Monica, California-based Lions Gate since the 2006 winner “Crash.” To be sure, Lions Gate has received plaudits for movies since then, with 2009’s “Precious” and more recently “Hacksaw Ridge.” “Precious” earned Oscars for acting and writing and generated $63.6 million in worldwide ticket sales on a $10 million budget, according to Box Office Mojo. Early reviews of “Patriots Day,” about the Boston Marathon bombing, have been favorable. The film is due out Dec. 21.

But smaller-budget, prestige films in today’s Hollywood don’t keep the lights on. “It is much more important that movies they are spending significant amounts of money on do well,” Creutz said.

And Lions Gate has scored with a couple of those recently, like “Now You See Me 2,” released in June, which took in $335 million worldwide, and the latest Tyler Perry offering.

Next year, the studio is hopeful about the second “John Wick” action movie, starring Keanu Reeves, and “Power Rangers,” a reboot of the 1990s children’s TV hit. The first trailer for the superhero movie generated over 100 million internet views, according to the company, suggesting another opportunity for Lions Gate to create a new hit franchise.

Crowded Market

While Starz will contribute the greatest part of earnings in the combined company, the movie business will still be the biggest “variable at the margin” and the biggest determinant of whether results are better or worse than expected, Creutz said.

After a year in which Walt Disney Co. ruled the box office with hits like “Finding Dory” and “Captain America: Civil War,” it remains to be seen how much of the market is left for smaller studios like Lions Gate, he added.

“There are fewer films that are doing well, and Disney seems to make all of them,” Creutz said.

To contact the reporter on this story: Anousha Sakoui in Los Angeles at asakoui@bloomberg.net. To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Rob Golum