Can MacGyver Save Lions Gate?
Lions Gate Entertainment (NYSE: LGF) is hoping that a reboot of an iconic television show with a cult following can revive its sagging fortunes. The troubled entertainment conglomerate is betting that an updated version of MacGyver will help the company get back the box office and share value it lost in the last few months.
Lions Gate and U.S. TV network CBS (NYSE: CBS) want to update the corny 1980s spy adventure, which featured actor Richard Dean Anderson as a secret agent who could turn anything into a non-lethal weapon, Lions Gate CEO Jon Feltheimer told analysts on Feb. 5. Fast & Furious 7 director James Wan will direct the pilot and Fast & Furious producer Neal Moritz will act as a showrunner, with an assist from MacGyver creator Lee Zlotoff.
Even though it does not have the kind of massive fan base as Star Trek or Doctor Who, MacGyver is a very well-remembered show. It inspired the popular MacGruber skits on the iconic American satire show Saturday Night Live that led to a movie of the same name, and gimmicks from the series are often the object of the Mythbusters experiments. CBS and Lions Gate undoubtedly hope to capitalize upon that history.
There could be a market for MacGyver in today’s environment of anti-gun hysteria, particularly in the United States. On the original series, the title character Angus MacGyver famously refused to use a gun or kill enemies, even though he always managed to outwit the bad guys.
Feltheimer did not say whether MacGyver’s famous obsession with do-it-yourself explosives will make it into the new show. A bomb-making hero could be a tough sell with all the terrorism in today’s world.
CBS has had a bit of luck bringing back older series – its Hawaii 5-0 reboot was a hit. The network is also laying the groundwork for a new Star Trek series that will form a major offering on its streaming video service.
Does Lions Gate Need Help?
It is easy to see why Lions Gate is staking so much on MacGyver: the studio’s finances are definitely a mixed bag. It reported a profit margin of 6.07% on Dec. 31, 2015 and a net income of just $58.89 million.
The studio’s revenue of $2.202 billion is also far from the Hollywood big leagues. Forbes reported that Disney’s cash cow Star Wars: The Force Awakens had made $1.8 billion in worldwide distribution as of Jan. 22, 2016. To make matters worse, Lions Gate’s revenue has been falling: it reported a revenue of $2.475 billion in December 2014.
Lions Gate’s marquee franchise The Hunger Games was also hit hard by Star Wars. Feltheimer admitted that the latest Hunger Games installment Mockingjay lost $100 million in box office revenue to The Force Awakens over the holiday moving season, Deadline.com reported.
Despite that, some of the studio’s other numbers are improving. Lions Gate generated $149 million in cash from operations during the fourth quarter of 2015. That’s a massive improvement over December 2014, when the studio reported a negative cash from an operations number of -$56.36 million.
Lions Gate has no Float
The other cash numbers were not so good. Lions Gate only had $88.29 million in cash and short-term investments during the fourth quarter, which means it has no float. It’s free cash flow of $51.26 million for the same period was positively anemic.
So it is easy to see why Lions Gate is reportedly in merger options with troubled cable network Starz (NASDAQ: STARZA). That also explains why Lions Gate is exploring new options like MacGyver; it needs to generate more revenues and create some float. One way to do that is with more streaming video options. Although it is a little hard to imagine MacGyver being a success on streaming video, the online market seems too sophisticated for that kind of family friendly 1980s kitsch.
Investors should stay away from Lions Gate. The recent collapse in its stock price from $31.30 a share on Jan. 4 to $18.53 a share seems more than justified. I would only consider buying this stock if it falls below $10 a share. It still seems overpriced for the money this studio is bringing in. One has to wonder how MacGyver could fix that.