It’s summer time, which is usually a busy time for the movie entertainment industry as people seek out the latest releases at the movies. However, the motion picture industry has suffered, as high ticket prices coupled with movies that moviegoers find unappealing, are increasingly keeping people out of the theaters.
The large, publicly-traded movie houses have learned to go with the ebb and flow of the fickle ways of movie goers. The companies’ resilience has allowed them to continue to provide sufficient shareholder value. Competition among movie production companies remains stiff, and the houses continue to seek to roll out movies that will appeal to movie goers.
There are several much smaller companies that are not deterred by the competition and still wish to enter the space. One of those is Legion M. The startup has an atypical business structure that is based on new rules stemming from the Jumpstart Our Business Startups Act of 2012. Its success could pave the way for other smaller companies to enter the space, and they could give the larger, established movie houses a run for their money.
· The Big Houses
Legion M will be entering a space dominated by several publicly traded companies, including Universal Pictures, which is owned by Comcast Corp. <span style="color: #6600Stock symbol00; font-weight: bold;”>(NASDAQ: CMCSA); DreamWorks Animation (NASDAQ: DSW); and Lions Gate Entertainment (NYSE: LGF).
Since March 22, DreamWorks’ stock price is up roughly 55%. That soar can largely be attributed to NBC Universal, which is owned by Comcast, acquiring it in the spring. Under the terms of the agreement, DreamWorks has an equity value of approximately $3.8 billion. DreamWorks’ stockholders will receive $41 in cash for each share of DreamWorks common stock.
The deal is expected to close by the end of the year.
By acquiring DreamWorks, NBCUniversal will have a broader reach to a host of new audiences in the highly competitive kids and family entertainment space, in both television and film It includes popular DreamWorks film franchise properties, such as Shrek, Madagascar, Kung Fu Panda and How to Train Your Dragon.
DreamWorks’s sharp stock increase was also due to the strong earnings report it delivered in May. Specifically, DreamWorks reported that first quarter 2016 revenues increased 14% to $190 million.
Lions Gate didn’t fare so well over that same period since March. Its share price fell about 5%. It had set its sights on buying Paramount Pictures from Viacom. However, the drama playing out with Viacom founder Sumner Redstone who is replacing members of the board over the company, it is unclear if Paramount will be sold.
And the much touted Lions Gate movie Batman V Superman: Dawn of Justice failed horribly this spring. From its opening date to the following Friday, box office sales fell 81%.
While Batman V Superman was not as successful as had been hoped for, Lions Gate still has the wildly successful The Hunter Games, and Twilight in its treasurer trough. Also, it has Orange is the New Black, which is streamed by Netflix.
· And here comes Legion M
So as you can see, entering the movie production space means facing some pretty stiff competition.
However, that has not deterred Legion M. It is partnering with an alliance of Hollywood creatives to develop movies, television shows and digital content. It plans on announcing its first project later this year.
Thanks to the JOBS act, investors that had traditionally been able to fund projects and receive equity in that startup had to be accredited. There are a host of requirements to be an accredited investor, which limited the amount of funds available for many projects. Thanks to the JOBS act, many of those requirements have been loosened, and Legion M is one of the many startups to take advantage of it.
One of the benefits of the act is that it provides for equity crowdfunding. Through crowdfunding, Legion M is able to raise capital without being limited to accredited investors. The JOBS act also provides a path for startups to go public without having to jump through many hurdles. Legion M’s co-founder and CEO said that his company could “potentially” go public. However, it would assess what is best for the shareholders and how it could preserve the intimate community of investors before making a determination.
In developing its projects, the company is relying on movie fans to invest in the venture, and even go behind the scenes of the production. In return, they will own a piece of the project.
While the big motion picture houses do test their movies before focus groups, it is interesting Legion M’s approach of having those invested in the project also having a say in how they like the movie. This could allow them to receive possible valuable information about the movie before it hits the screen. This could help it avoid movies, or other projects, that flop.
· In conclusion
Players like Legion M present a fresh entry into the space because it is composed of shareholders who have a say in the how movies, or other projects, are made. Also, the grassroots effort could help it keep its costs down.
The motion picture industry is sensitive to the whims of customers, which as we see with Lions Gate, can hurt their bottom lines if the film flops. On that same note, these houses can do astronomically well when their films are hits. I expect to see more mergers and acquisitions in the space as companies, like Viacom, seek to concentrate on their stronger brands.