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Building Value in TV, Patiently

Exec of the Year Jon Feltheimer Has Carved a Niche for Lionsgate 12/18/2015 8:00 PM Eastern
Lionsgate CEO Jon Feltheimer (third from left) joined the cast of "Mad Men" for the opening bell at the NYSE to celebrate the show's Season 5 premiere in 2012.
TakeAway

For building Lionsgate’s TV business from scratch with a focus on quality programming, Lionsgate CEO is MCN’s 2015 Executive of the Year.

With iconic teen blockbusters like The Hunger Games and Twilight, Lionsgate through the years has carved out a niche in the cutthroat movie business, while its TV business has taken a backseat.

 

But investors and Wall Street analysts are increasingly taking notice, fueled by a string of hits such as Weeds, Nurse Jackie, Mad Men, Nashville and Orange is the New Black for a wide variety of distributors including premium networks, basic cable, broadcast and subscription video-on-demand outlets.

 

At the forefront of it all is CEO Jon Feltheimer, a 30-year TV-industry veteran who has grown the small-screen side of the business exponentially over the past 15 years with a steady stream of high-quality, highly profitable shows.

 

In the past five years, revenue has soared 64.3% at the TV unit, from $353 million in 2011 to nearly $580 million in fiscal 2015 and with an eye toward reaching $1 billion in sales in the next few years. At the same time, Lionsgate’s stock price has increased more than five-fold since 2010, from $6.59 per share to $34.65 per share.

 

Lionsgate also is jumping feet first into the shortform video and online arenas, partnering with YouTube sensation Freddie Wong’s RocketJump Studios last year. Its first production, long-form comedy RocketJump: The Show on SVOD service Hulu, debuted Dec. 2.

 

Through its own digital content company, Defy Media, Lionsgate has also tapped into the online arena with brands like Break, Smosh, Screen Junkies and Clevver.

 

NOT SITTING STILL

 

With an armful of critical and commercial success — the TV side of Lionsgate has garnered 29 Primetime Emmys over the years and continues to win accolades, snagging seven Golden Globe nominations earlier this month — Lionsgate and Feltheimer aren’t sitting still. The content producer is expanding its reach via a November deal with cable legend John Malone’s Liberty Global and Discovery Communications that is expected to lead to joint content productions and expanded international distribution.

 

While still in its early stages, Feltheimer says the Liberty Global-Discovery relationship could expand to other companies in the Liberty fold, including Virgin Media in the United Kingdom and Starz in the U.S.

 

“It’s a little keiretsu, if you will,” Feltheimer told Multichannel News regarding Liberty Global, Discovery and all their intertwined entities. “I can pretty much assure you we will be creating value together.”

 

Creating value has been Feltheimer’s and Lionsgate’s mantra from the start. It’s why Feltheimer is the Multichannel News 2015 Executive of the Year.

 

“The overarching opinion of him [Feltheimer] is that he has been patient — he’s been building this up from nothing — he’s been persistent and he’s been creative,” Evercore ISI Group media analysts David Joyce and Vijay Jayant say. “He’s maintained a leanly run and nimble organization that is decentralized, and thereby fosters a lot of entrepreneurism and a healthy creative environment.”

 

Sanford Bernstein media analyst Todd Juenger put it even more bluntly in initiating coverage of Lionsgate stock earlier this month, calling the studio a “structural winner” because it can profit from precisely what has been plaguing broadcast and cable networks for years — poor ratings means a need for better content. Lionsgate is more than happy to provide that programming.

 

“The same structural change harming TV networks is benefiting independent studios by creating a sustained surge in demand for content,” Juenger wrote, using the older, alternate, two-word version of Lionsgate. “Lions Gate is particularly well situated, with a risk-mitigated theatrical model and an undersized, fast-growing TV model. Lions Gate can happily license content to TV network and SVOD customers, with no conflicts.”

 

Since 2000, when Feltheimer, Lionsgate vice chairman Michael Burns, and their partners — Microsoft co-founder and former Charter Communications chairman Paul Allen, JP Morgan Chase chairman and CEO Jamie Dimon, former Capital Research head Gordon Crawford, investment fund Fidelity, German broadcaster Tele-Munchen and SBS Broadcasting — invested in a struggling Canadian movie studio, Lionsgate has morphed into a powerhouse in the independent film arena.

 

With a string of hits ranging from horror flicks like the Saw franchise to Academy Award winners like Monster’s Ball, The Hurt Locker and Crash, the film unit is still going strong. The Hunger Games: Mockingjay Part 2, the latest in the series, grossed about $245 million in domestic box office, according to Box Office Mojo, and was the No. 1 movie in the U.S. for the fourth week in a row in the week leading up to Walt Disney Studios’s Star Wars: The Force Awakens.

 

TV: GROWTH BIZ

 

But the real growth story lies hidden in Lionsgate’s television division. CEO Feltheimer, who headed up Sony’s Columbia TriStar Television division and New World Television earlier in his career, oversaw a team of executives led by Lionsgate Television Group Chairman Kevin Beggs and Television Group President Sandra Stern in building Lionsgate’s TV business from a humble beginning: revenue in 2000 was a paltry $8 million.

 

Just how he did it was a mixture of smart deals, smarter hires and an entrepreneurial spirit that permeates the company even to this day.

 

Lionsgate was no stranger to dealmaking — it bought several small movie studios during Feltheimer’s tenure, including Summit Entertainment, the home of the Twilight franchise, in 2012, and Artisan Entertainment in 2003. But on the television side, save for its 2006 purchase of distributor Debmar-Mercury, the TV business has primarily grown organically until last month’s acquisition of Pilgrim Studios.

 

“The purpose wasn’t to buy revenue,” Feltheimer said of the Debmar-Mercury purchase, noting that current hits like The Wendy Williams Show and Celebrity Name Game were developed after the purchase.

 

But the acquisition did net two “incredible executives” in Debmar-Mercury co-presidents Mort Marcus and Ira Bernstein, he added.

 

Coupled with Lionsgate TV Group’s existing team: Television Group chairman Beggs, who Feltheimer half-jokingly said asked him to buy a helicopter so he could make pitches to all the potential buyers of their shows; Stern, who has worked with Feltheimer for about 30 years; and executive vice president Chris Selak, who heads the group’s scripted programming.

 

“We’ve got a great group there,” Feltheimer said. “It’s small, but they definitely punch above their weight.”

 

The TV team is encouraged to be entrepreneurial and independent, with the ultimate goal being to define every new network with a Lionsgate show.

 

But with every new deal comes the challenge of meshing quality with the right economics — how to make quality shows that also make money.

 

“I think we’re confident that we’ll put our heads together and we’ll figure it out each time,” Feltheimer said.

 

The Debmar-Mercury deal was followed later by acquiring interests in premium channel Epix (with Viacom and Metro-Goldwyn-Mayer), and Asian pay TV distributor Celestial Tiger.

 

Last month, Lionsgate bought a 62.5% stake in reality programmer Pilgrim Studios for about $200 million.

 

Including Pilgrim titles, Lionsgate has 80 shows on 40 networks.

 

Lionsgate also has stayed on top of the ever-changing trends in the TV business, moving into online video with the RocketJump partnership and Defy Media.

 

While the consensus is that younger viewers don’t watch TV anymore, instead filling their days with short bursts of video from YouTube and countless other online services, Feltheimer isn’t convinced that long-form programming is dead yet.

 

VALUE IN LONG-FORM

 

“I lean more toward longer-form content because, at the end of the day, I feel it has more staying power and library value,” Feltheimer said. “And I think it will be stickier and a lot more defining for these digital networks than short-form content.”

 

That doesn’t mean the Lionsgate chief is soft on technology. Lionsgate has made moves to ensure its content is on virtually every screen available. And he believes the panic over lost viewership to online and over-the-top sources can be alleviated with proper measurement.

 

“New technology has only encouraged people to watch more content than ever, Feltheimer said.

 

On the measurement side, networks like Fox are beginning to see that overnight ratings for shows are losing their relevance, Feltheimer said, a trend he believes is a long time in coming.

 

“People are watching,” Feltheimer said. “The concept of on-demand is a great benefit to content creators, but it also creates new challenges.”

 

Those new challenges include finding what has been an audience scattered among multiple viewing devices.

 

“Going forward, technology will enable us to find viewers much more easily,” Feltheimer added. “They will be more addressable in terms of advertising and on-demand transactional viewing. It’s really a huge benefit to the entire business and especially to companies not stuck in their ways with lots of legacy deals and lots of legacy attitudes.”

 

Improved technology also could mean another distribution channel for the studio — direct-to-consumer.

 

While it may be a little early for the Lionsgate App, it isn’t out of the question either. Feltheimer noted that the studio already has a major presence across many social-media platforms, including 400 million fans on Facebook, and has forged relationships with Tribeca Enterprises, through its joint SVOD Tribeca Shortlist SVOD service, and with Comic-Con International for a second SVOD platform. The company continues to explore working with other potential OTT providers.

 

Lionsgate is also working with narrative video game company Telltale Games (in which it owns a stake) to collaborate on a TV show and video game that would be sold together.

 

“We’re open to and capable of doing virtually anything right now,” Feltheimer said. “Nothing is impossible as long as we remain entrepreneurial.”

 

That maverick spirit has been a part of Lionsgate as long as Feltheimer has been there. But it really reached a head in 2007, when the studio decided to take a chance on an AMC Network drama set in the 1960s advertising business.

 

‘MAD MEN’: GAME-CHANGER

 

Taking on that show — Mad Men — put both Lionsgate and AMC on the quality TV map, according to AMC Networks chief operating officer Ed Carroll. Mad Men completed its seven-year run on May 17.

 

“For both Lionsgate and AMC, Mad Men was a show that changed the way people think about those companies,” Carroll said. He recalled that after receiving the script from series creator Matt Weiner, AMC produced its own pilot for the show at Silvercup Studios in Long Island City, N.Y., and then shopped the pilot around to every major studio.

 

“Jon and his team, including Kevin Beggs, were the only ones who stepped up,” Carroll said.

 

While in hindsight, agreeing to produce Mad Men seems like a no-brainer, it was a big leap for the studio. At the time, the hottest genre in television was episodic crime dramas like Law & Order and CSI: Crime Scene Investigation. Mad Men was a period piece, had a large ensemble cast full of unknowns and dealt with the inner workings of the advertising business.

 

“In many ways, Mad Men went against the grain,” Carroll said. “Jon saw the potential in it, in doing something original, something different, something of high quality. You could see in the scripts that clearly Matt Weiner was a great talent, but there was a lot of risk that Lionsgate took on. Nobody could project that Mad Men would be a very profitable show internationally or in back-end syndication. I give [Feltheimer] a lot of the credit.”

 

Even though Mad Men ended its run this year, Carroll said AMC’s relationship with Lionsgate continues, with the drama Broke, an adaptation of a Danish series by Nurse Jackie and Dexter writer and showrunner Clyde Phillips. The show is expected to premiere in 2016.

 

While another Lionsgate programming stalwart ended its run this year — Nurse Jackie, which bowed in April after seven seasons on Showtime — the pipeline is far from dry.

 

In addition to a fourth season of Orange Is the New Black on Netflix, Lionsgate has multiple series on broadcast, cable and SVOD, including Nashville, which will continue its fourth season on ABC in March; The Royals (in its second season on E!); Manhattan (starting its second season on WGN America); and two sophomore series on Hulu, Casual and dark comedy Deadbeat.

 

In addition, Lionsgate has several new shows in the hopper. Alongside Broke, Lionsgate will launch Graves, a comedy with Nick Nolte and Sela Ward, on co-owned Epix in 2016, Greenleaf, a drama slated for OWN, and The Devil You Know, a period drama around the time of the Salem witch trials from Weeds and Orange is the New Black creator Jenji Kohan for HBO.

 

Weeds, Mad Men, Nurse Jackie, Orange Is the New Black, it’s a pretty good list of accomplishments,” Carroll said. “Those were shows that were certainly successful economically but also had very, very high standards of quality. It is nice to work with someone who has the sensibility for both.”

 

CBS Corp. CEO Les Moonves, a close friend for more than three decades, called Feltheimer a truly great leader, charismatic, with great creative and business abilities as well as an excellent eye for talent.

 

Back in the 1990s, when Moonves was a Warner Bros. TV executive and Feltheimer was running Sony’s TV business, they had a friendly rivalry in competing to place shows with networks. Later, the two became partners as Lionsgate sold shows to CBS-owned Showtime and when the two companies jointly acquired Pop, the former TV Guide Network.

 

Moonves said the Pop partnership came about because of his personal relationship with Feltheimer — the Lionsgate chief called him up when the TV Guide Network was for sale and asked if he’d like to pair up to buy it.

 

“He said it would be fun to do this together. And we did, and it has been fun and it has been successful,” Moonves said. Later, CBS called on Lionsgate to distribute and coproduce a number of films in CBS’s small movie division.

 

“Jon is a first-rate partner,” Moonves said. “He’s very loyal, he’s very fair, he really looks out for his partners. You always know you’re getting a fair shake.”

 

CALL FOR COLLABORATION

 

That sense of fairness extends to the industry as a whole. In 2012, Feltheimer went a little out on a limb in his keynote speech at the Cable Telecommunications Association for Marketing Summit in Orlando Fla., calling for the distribution and content communities to work closer together.

 

At the conference, Feltheimer said the emergence of new technologies and quality content present the cable industry with unprecedented opportunities for growth. But high-profile carriage battles between distributors and programmers threaten to undermine those prospects.

 

“You need to work together and make our jobs easier, not compete in ways that make them harder,” Feltheimer said.

 

Three years later, not a lot has changed, but Feltheimer is optimistic.

 

“I think the tone of conversations between content suppliers and distributors is still not where it could be,” Feltheimer said. “The primary driver for the business, no matter whether you are a distributor, programmer or supplier, should be providing great content.

 

“That content is all of our product,” Feltheimer continued. “Everyone is still incentivized to continue to work cooperatively to grow the pie. People are watching more content than ever before. If we all put our heads together, we will continue to make the pie bigger and ultimately benefit everyone in the media space.”

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