How ‘Hunger Games’ Can Make Lionsgate a Major Hollywood Player

The studio has said goodbye to activist investor Carl Icahn, acquired Summit and is poised to launch the biggest film in its history

With the release of “The Hunger Games” next week, Lionsgate is about to become a big Hollywood player.

It will still field a hodgepodge of mid-budget Tyler Perry and horror films, but its hotly anticipated film adaptation of Suzanne Collins’ bestselling novel will give the studio the kind of blue-chip franchise that can lift a minor company into the stratosphere, provided execs play their cards right.

“This is a game-changer for Lionsgate — there’s going to be huge box-office revenue, huge ancillary revenue and huge merchandising opportunities,” Marla Backer, an analyst at Hudson Square Research, told TheWrap.

Even without “Hunger Games,” Lionsgate is riding high. In January, the company acquired Summit, the studio behind “Twilight,” for $412.5 million. And it got activist investor Carl Icahn to abandon his hostile takeover attempts last year. 

The Vancouver-based company, long eager to break through to the top Hollywood ranks, appears poised to finally do so after a bruising year. Lionsgate suffered through a string of flops in 2011, and was still shaking off the after-effects from its brutal proxy fight.

"Hunger Games" and Summit's final "Twilight" installment have brightened the outlook considerably. 

Also read: Why the Lionsgate-Summit Merger Makes Sense

The Twilight Saga: Breaking Dawn — Part 2” is scheduled to hit theaters next fall, the final episode in a series that has so far brought in over $2.5 billion worldwide. 

The studio expects to generate $1 billion at the North American box office this year, more than double its previous high, according to an individual with knowledge of the situation.

But it's "Hunger Games" that will put the studio on the map.

“Lionsgate could continue on the path that it was on of making smaller budget films with a nice return on investment, but instead this puts the studio on a completely different level," Backer said.

Tracking for the film has been sizzling, with theaters from Ammon, Idaho, to New York City already reporting sell-out crowds for most midnight shows.

Rival studio executives anticipate that the film will draw north of $100 million from more than 4,000 locations over its opening weekend.

“Since the first day that tickets went on sale there’s been no let-up," Harry Medved, spokesman for movie-ticketing company Fandango, told TheWrap.

"Hunger Games" was produced for $80 million when tax credits are taken into account and marketed for roughly $45 million domestically, according to an individual with knowledge of the situation. That is about half of what most major studios typically spend to generate awareness for their tentpole offerings.

Also read: 'Hunger Games' Premiere: Why There's No Nudity, and Why It Won't Need It

Despite the relatively tight budget, rival studio executives praised Lionsgate's marketing of the film, noting that while early tracking shows massive awareness among women, it also suggests substantial male interest and the potential for a four quadrant hit.

“This thing is tracking like a Marvel superhero movie with men,” one rival executive said. “It may top ‘Twilight,’ because those movies never had any men show up.”

Unlike “Twilight,” Lionsgate also has its principle cast locked up for all of “The Hunger Games” films, avoiding the kind of pricey re-negotiations that tacked tens of millions of dollars on to the budgets of the vampire romance series' later films.

Last year, without a breakout hit to call its own, the studio dwindled to fourth in domestic market share among the smaller independent players, behind Relativity, the Weinstein Co. and Summit.

Lionsgate racked up a disappointing $175.7 million at the domestic box office last year — a figure that “Hunger Games” could conceivably pass on its own.

Also read: 'Hunger Games' New Clip: Peeta Reveals His Love for Katniss

But Lionsgate's stock has not been badly bruised by that rough patch, or the fact that it is laying off staff as a byproduct of its merger with Summit. What has allowed the company’s share price to nearly double in the past six months to over $13 was anticipation for “Hunger Games,” analysts say.

“In the event that the movie didn’t work, then the stock would be down very materially,” Matthew Harrigan, an analyst at Wunderlich Securities, told TheWrap. “At this point everyone has concluded they’re going to do a huge opening weekend, so buying the stock is warranted.”

Thanks to its deal with Summit, Lionsgate has the potential to brand itself as the biggest player for young adult moviegoers. It also can make good on a strategy advocated by CEO Jon Feltheimer of making more franchise pictures.

Though the studio plans to only bump up its annual slate of releases from roughly 10 to a little more than 15 films a year, more of the films that it produces will be sequels. The company plans four installments of "Hunger Games" over six years. It also has franchise hopes for “The Expendables,“The Lincoln Lawyer,” and the Summit action comedy “Red." 

“'Hunger Games' is a once in a lifetime opportunity,” Ben Mogil, an analyst at Stifel Nicolaus, told TheWrap.

“Given how successful the franchise seems likely to be, the question is what will they do with the cash. Will they buy some other transformative company or will they pay down their debt aggressively?”

In the short-term, Lionsgate will probably use profits to pay off corporate debt, including some $446 million in high-yield notes, but if the headiest projections come to pass and the studio finds itself with a lot more cash on its balance sheets, it could become a buyer, as well.

Welcome to the big leagues.