Lionsgate update

This is an update to a recent post about Lionsgate: kind of stunned by the crumminess of this trailer.  Aren’t most of these worse versions of shots from Pearl Harbor (2001)?

Only instead of coming out in 2001 when people were feeling kinda patriotic, it’s coming out now.

Worried about Lionsgate.  Maybe somebody will buy them?


Bird

Look I like markets, but it’s enough to make a guy a socialist when you observe how easy and consequence-free it is for a company to leave plastic-and-electronic shits on the sidewalk all over the place.  There’s always a grotesque euphemism:

 


Beyond

Beyond Beef ($BYND) IPO’d.  Unlike Uber, it has so far been a huge success.

I will disclose bought some shares of BYND once it was launched.  (I didn’t, like, “get in” on the IPO, like early investor Bill Gates no doubt did, I bought them on day one as soon as I realized it’d happened).

This product is dynamite.  The killer element: there is no gluten, no soy, and no GMO.  Soy-based meat replacements have always seemed pretty limp to me.  Beyond Beef I believe I first tried in burger form: terrific.  The crumbles I’ve used to make very satisfying bolognese-style ragus.  Beyond Beef uses pea protein.  I love peas. Here’s Orson Welles reading an ad for peas.

“Every July, peas grow there.”  I think of that whenever I think of peas.

Tyson and some powerful competitors may get in the alt-meat game.  I’m not certain Beyond’s moat will hold, but I think it’s hard to make an acceptable beef substitute to a beef eater, and they have done so.

A perfect use for this product is in the junk beef realm, the world of frozen ground beef for fast food tacos and burgers, where the beef itself is of probably repulsive quality, raised under obscene conditions, and the taste is really coming from packets of flavor-enhancing additives.

Beyond’s ability to get in on this market impresses me.  When I saw that Del Taco was serving Beyond tacos I tried them as soon as I could.  Here was an area well within my circle of competence (fast food tacos) where I had an advantage over other investors because I live in Del Taco’s range, near their headquarters.

Del Taco originated in the Mojave Desert.  The Mojave Desert may represent a possible future for the United States, and thus be on the cutting edge of trends.  There’s something sci-fi about the landscape.   Something prophetic.  Biblical.

When pioneers reached the American desert, they remembered the desert landscapes told of in the Bible.  They marveled anew at the prophetic power of the Bible on what would be faced on the way to the Promised Land.

At the Del Taco in Ontario (CA) where we stopped to try these tacos again, I asked the kid how the Beyond tacos are selling.  He said they were selling ’em out every day.

Del Taco’s stock has the ticker symbol TACO.  Surely Matt Levine or someone has examined how gimmick tickers tend to do.

Del Taco’s stock has never been a great winner.  Last five years:

Here is the last six months:

A pretty narrow range.  The Beyond taco launched April 25.  Possible that ~$1 bump there in late April – May comes from the Beyond release.  Or just from the stock crossing and staying beyond the legendary $10 threshold.

Whether stocks under $10 really are often ignored by big institutions or not, I haven’t investigated, I’ve seen takes on both sides and can offer no informed opinion.  It does seem like, despite Malkiel, there are dumb glitches like that in markets all the time.

Is Del Taco an effective sneak way of riding the BYND wave?  I don’t know. On May 6, Del Taco posted some disappointing earnings results.

source: CNBC

CEO John Cappasola had explanations though, don’t worry:

Although our quarterly results were negatively impacted by unfavorable weather in California and throughout the West as well as the anticipated three-week shift of the Lenten season

And consider his inspiring tone as he discusses the new Beyond campaign:

Last but certainly not least, we are using menu innovation to drive traffic in incremental Del Taco occasions with the exciting recent launch of the Beyond Taco and Beyond Avocado Taco, which are now available in all restaurants. As guest demand for vegan and vegetarian options continues to grow, we took the opportunity to partner with Beyond Meat, an innovative leader in plant-based proteins, to be the first Mexican QSR chain to develop a proprietary blend seasoned 100% plant-based protein.

A key objective as we developed our Beyond Taco strategy was competitive differentiation which we attack on three fronts, flavor, variety and convenient value. The team did a great job developing a proprietary and unique flavor profile that taste incredibly similar to our current ground beef, allowing us to broaden its appeal to not only attract vegans and vegetarians, but also those looking for better for you options or to reduce red meat without sacrificing flavor.

Next is variety. Our Beyond ground protein can be substituted for any other protein or added on any menu item, including burritos, nachos, bowls or salads. This provides best-in-class variety to our guests and endless future product innovation opportunities for our culinary team.

Word about the Beyond tacos is JUST getting out.  I think it’s fair to say I’m close to the front lines when it comes to fast food taco news.  Has the full impact been felt?  Will it matter?  How much of Del Taco’s consumers are recurring customers?  Will they care about this new item?  Will new customers be drawn in by Del Taco’s enticing campaign (advertised on signs outside every location I’ve seen in SoCal?  Who is eating the Beyond taco?  Cappasola:

And as expected, we are seeing some new faces as well as a lot of trial among our existing guests. So great opportunity here from a consumer standpoint. Generally, this is the type of customer that is in QSR today and QSR just is not traditionally providing them great options and we feel like we can.

It’s fun to think of the stock market as a chance to gamble on all these variables.  It will be interesting if TACO stock falls below $10 again.

One problem, I’d say, is that a Beyond taco costs fully a dollar more than a regular taco.

The pendulum seems like it’s swung in the USA national mood from feeling pretty optimistic about the future, as I think we all did in say 2009, to feeling pretty grim.  Maybe that’s just me getting older or my narrow bubble, but it feels like there’s less talk of wonderful possibilities for the near future.  Eliminating or reducing industrial meat-farming, improving our diets, making more and better food options available even in the cheap fast food space seems to me like it could be a great development of a blossoming future.

The future’s so bright I gotta wear shades, or as John Cappasola puts it:

Our operational efforts are paying off with early guest experience measurement survey results showing a high level of guest satisfaction for Beyond Tacos, even higher than the very successful Del Taco following its launch.

For me as a consumer, I will say, when I left Del Taco after trying the Beyonds for a second time, I felt, “now here’s brand that can deliver a value-oriented QSR-Plus position.”  Which, it turns out, is just what Del Taco was aiming for!

(Disclosure: I am nothing more than an enthusiastic amateur and I do not offer investment or financial advice.  I do not own shares of TACO at this time but I’m thinkin’ bout it!

Other Helytimes posts on business


Lionsgate

Lionsgate continues to grow into a vertically integrated global content platform of increasing diversity, reach and scale. The Company’s portfolio of assets includes one of the largest independent television businesses in the world, a 17,000-title film and television library, a world-class film business and an expanding global distribution footprint.

says their investor website.   What is Lionsgate?  How do we value an entertainment company?

I’m interested in Lionsgate, because they have a majority ownership of 3 Arts

The management company where I am represented.  In a way, I work for them?

Here’s a brief history of Lionsgate – which is not very old – from this recent LA Times article by Ryan Faughnder, entitled

Founded in 1997 in Vancouver, Canada, the company became known early on for edgy indie and horror films such as “American Psycho” and “Saw.” Lionsgate grew its firepower and boosted its stock price through acquisitions, catapulting itself into the big leagues with its 2012 purchase of “Twilight Saga” studio Summit Entertainment and the release of the first “Hunger Games.” The four-movie apocalyptic “Hunger Games” series grossed $2.97 billion. It impressed investors with its tactic of offsetting the risk of producing movies by pre-selling foreign distribution rights and bringing in co-financiers.

Then they had some busts:

“Gods of Egypt,” a $140-million mythological epic released in 2016, flopped after it was slammed by critics and accused of whitewashing its cast. A reboot of billionaire Haim Saban’s “Power Rangers” franchise disappointed after Feltheimer said on an earnings call that the company could produce multiple films based on the kids series.The studio’s decision to turn the third book in the “Divergent” series into two movies backfired when “Allegiant” flopped. A planned fourth installment was never produced.

That LA Times article is entitled Lionsgate, the studio behind ‘Hunger Games’ movies, struggles in shifting Hollywood currents.  

The Wall Street Journal had a whack, too, a few days later:

Management Tension, Mounting Competition Sink Lions Gate’s Stock

As rivals grow larger, studio struggles to find box-office hits and synergies with pay-TV network

Lions Gate’s movie business has lost ground since ‘The Hunger Games’ series ended in 2015. PHOTO: LIONS GATE/EVERETT COLLECTION

Apparently they are, at the moment, attempting to salvage a huge and expensive turd:

Lions Gate faces a major challenge called “Chaos Walking.” The first of several planned adaptations of a series of young-adult science fiction novels cost around $100 million to produce but turned out so poorly it was deemed unreleasable by executives who watched initial cuts last year, according to current and former employees.

A scalding take:

I’m not sure how much Wall Street has built the disaster here into the stock’s price.

Sir John Templeton taught us to look for points of maximum pessimism.  Is Lionsgate an opportunity? How should we value an entertainment company, which is liable to have big swings and misses?

First, what does Lionsgate own?

Over the course of its life, Lionsgate scooped up a bunch of film companies, in the process acquiring a library.  They swallowed up:

  • International Media Group

don’t know what their big movies were

  • Sterling Home Entertainment
  • Trimark Holdings

Their biggest franchise might be Leprechaun

  • Modern Times Group
  • Roadside Attractions

They produced, among others, Supersize Me, Manchester By The Sea, Mystery Team, Winter’s Bone, Mud

  • Mandate Pictures

Juno, This Is The End

  • Summit Entertainment

Hurt Locker, Red, Hellboy, John Wick, American Pie, Ender’s Game

  • Artisan Entertainment

Blair Witch Project, Ninth Gate, House of the Dead, Step Into Liquid

From that library I have to imagine Lionsgate will continue to make some kind of money.  Some of these films are things people will want to see and resee or rediscover, and it’s a good business to keep selling something that’s already made.  All told, according to their 2018 investor letter, Lionsgate has something like 17,000 films in its library.

I was surprised by this fact:

In fiscal 2018, we shipped approximately 65 million DVD/Blu-ray finished units.

The Lionsgate investor page highlights some of their big ones:

MOTION PICTURE GROUP

Lionsgate’s Motion Picture Group encompasses eight film labels and more than 40 feature film releases a year, including 15-20 wide releases from the Lionsgate and Summit Entertainment mainstream commercial labels. Lionsgate’s film slate has grossed nearly $10 billion at the global box office over the past five years, and films from Lionsgate and its predecessor companies have earned 122 Academy Award® nominations and 30 Oscar® wins.

As well as some of their TV productions and co-productions:

TELEVISION GROUP

The Lionsgate’s Television Group has carved out a unique position as a leading supplier of premium scripted content to streaming platforms, cable channels and broadcast networks alike. One of the largest independent television businesses in the world with nearly 90 series on 40 different networks, Lionsgate’s premium quality programming includes the ground-breaking Orange is the New Black, fan favorite Nashville, the hit dramedy Casual, the critically-acclaimed Dear White People and the breakout success Greenleaf. The Company continues to build on its legacy of award-winning premium series that include the iconic multiple Emmy Award-winning Mad Men, one of the best reviewed series of all time, Weeds and Nurse Jackie.

The Company’s development and production slate includes a number of high-profile premium properties including The Rook (Starz), a Lionsgate/Liberty Global coproduction executive produced by Twilight creator Stephenie Meyer with acclaimed producer Stephen Garrett serving as showrunner, The Kingkiller Chronicle (Showtime)Step Up: High Water (YouTube Red)Get Christie Love! (ABC) and American Lion (HBO).

As they note:

many of the titles in our library are not presently distributed and generate substantially no revenue. Additionally, our rights to the titles in our library vary; in some cases, we have only the right to distribute titles in certain media and territories for a limited term.

Coming down the pike are some high-risk, potential high-reward titles.  From the LA Times:

Lionsgate could rebound this year with the release of movies including “Long Shot” and a third “John Wick” movie, analysts said. But otherwise, the schedule includes few obvious hits. Upcoming films include “Angel Has Fallen,” the third installment in the “Olympus Has Fallen” series, “Rambo V: Last Blood” and a Roland Emmerich remake of “Midway.”

How much do people want to see an expensive movie about the Battle of Midway, I wonder?

All told:

the Company’s consolidated revenues from its reporting segments included Motion Pictures 44.1%, Television Production 19.5% and Media Networks 37.1%

The big engine at Lionsgate in Media Networks is Starz, the premium network.

Home to Outlander, Power, Ash vs Evil Dead, a bunch of costume-y looking shows.  Starz produces a lot of the profits:

Starz has performed well financially, with revenue increasing 4% to $366.8 million and profits up nearly 10% to $134.1 million in the fiscal third quarter ended Dec. 31. It added just over one million subscribers in 2018.

There was a writeup of Lionsgate in a recent issue of Graham and Doddsville, “an investment newsletter from the students at Columbia Business School.”  You can read it free, here.  Amit Bushan, Bruce Kim, and Stephanie Moroney won 1st place at the CSIMA Stock Pick Challenge with their case.

Above-consensus subs projection results in a 12% above-consensus NTM adj. EBITDA. Given the FCF stability of the subscriptionbased business, we are applying a premium over movie studios (~10x). Note that 12x multiple is 12% lower than Starz’s recent average (13.7x).  Catalysts: 1) higherthan-consensus OTT subs growth in the next few quarters; 2) increased visibility on the impact of the international expansion; 3) M&A.

Not sure I agree with this assessment.  But there are a couple points I think are interesting about Lionsgate.

  • Starz is easy to add on to your Amazon Prime.  In addition to being its own channel, it’s like an add-on to your Amazon.  To me as a customer, that makes it very accessible.
  • 3 Arts is cool, and represents a lot of top tier talent.  It’s kind of hard to find a list of their clients if you don’t have IMDb pro, but here’s the top ranked by “Star Meter”
7
60
78
256
357
379
604
721
786
820
1,025
1,043
1,047
1,081
1,128
1,270
1,311
1,319
1,347
1,353
1,464
1,481
1,483
1,550
1,620
1,682
1,816
1,823
1,881
1,882
1,903
1,961
1,966
2,136
2,157

 

What impact that will really have on 3 Arts’ bottom line, I’m not sure.  But they do have access and potential synergies with some pretty explosive entertainers and creators.

Net Income 473,600 14,800 50,200 181,800

As always around here, we like to look at a picture of the company’s CEO:

Here is John Feltheimer.  He gets paid a lot of money.

Is this company worth $2.8 billion dollars?

I’ll be interested to hear their fourth quarter earnings report on May 23.

Thank you for joining us on a continued journey to learn about business and entertainment.

 


Jobs

from:

Kondo’ing some books.  Picking up Walter Isaacson’s bio of Steve Jobs does not spark joy, but I did take another look at several passages I’d noted.

Here’re some previous Helytimes posts related to Steve Jobs.


Marijuana and psychosis

This was in today’s Economist newsletter, and I’ve seen it elsewhere too.  Scary!  But then again, what is the definition of psychosis?

Isn’t getting your thought and emotions so impaired that you lose contact with external reality the point of high THC content marijuana?  Is this a feature not a bug?  External reality can be rough.

The study, in The Lancet, used the ICD-10 Criteria (F20-33), so schizophrenia and manic/bipolar episodes. The study compared people hospitalized for that kind of thing versus a control general population. Here’s how the study worked:

We included patients aged 18–64 years who presented to psychiatric services in 11 sites across Europe and Brazil with first-episode psychosis and recruited controls representative of the local populations.

Then this part:

We applied adjusted logistic regression models to the data to estimate which patterns of cannabis use carried the highest odds for psychotic disorder. Using Europe-wide and national data on the expected concentration of Δ9-tetrahydrocannabinol (THC) in the different types of cannabis available across the sites, we divided the types of cannabis used by participants into two categories: low potency (THC <10%) and high potency (THC ≥10%). Assuming causality, we calculated the population attributable fractions (PAFs) for the patterns of cannabis use associated with the highest odds of psychosis and the correlation between such patterns and the incidence rates for psychotic disorder across the study sites.

“expected” and “assuming” are two words that do a lot of work here, but I don’t have time to read the whole study, I have to write cartoons.

In my neighborhood the most booming new shops sell either marijuana or cold brew coffee.  Personally I wonder if drinking huge amounts of highly caffeinated cold brew might be more crazy-making than marijuana.

There is certainly ample psychosis in Los Angeles, so much so that it might be necessary to induce mild psychosis just so you can understand what’s going on with everybody.  The chicken and egg, correlation and causation on psychosis / drug use is a tough one to unravel, as the study’s authors acknowledge.  The study also notes that patients presenting with psychosis were more likely to have smoked ten or more cigarettes a day.

 


How to tell Bruce Springsteen bad news

silvio

DEADLINE: What parallels were there between Silvio and Miami Steve? You can see the affection between you and Springsteen onstage, and in the stories Bruce tells between songs about the old days.

VAN ZANDT: The common dynamic is, as a best friend you have an obligation to tell the truth and you’ve got to know when to do that and how to do that, and it’s never going to be easy when it’s bad news. But once in a while, hopefully rarely, but once in a while you’ve got to be the one to bring the bad news because nobody else is going to do it, so you’re obligated. That’s your responsibility as a best friend. Sometimes they will get mad at you and then, as happened on the show, you see occasionally Jimmy will be screaming at me over something and that’s how it is in real life.

It’s just one of those things that goes with that job, that relationship, in being the only one who’s not afraid of the boss because you grew up together and that puts you in a special category that is very, very useful and very helpful to that boss whether they like it or not. No boss likes to hear bad news or hear they made a mistake. You can’t do it every day or even that often, but when it’s really, really important, you pick your moment and you’ve got to take the consequences and you just have to live with that. That’s the job. And ironically, right after we filmed, Bruce decides to put the band back together that same year.

from this Deadline oral history of The Sopranos.