Lions Gate Entertainment Corporation
Motion picture and video production industry is one of the fastest growing industries considering technological progress and increase in disposable earnings. The success of this industry is largely attributed to mergers and acquisitions where a parent company is seen to have numerous subsidiaries. However, Lion’s Gate Entertainment Corporation has not been as successful as other potential competitors in Motion Picture and Video industry have. The Turnaround side has analytically studied the basis of the company’s meager and dreary performance and came up with the possible solutions, which may boost the financial destiny of the Lion’s Gate Entertainment Corporation. The Turnaround group of analysts considered the six best performing companies in the industry, which is indeed a reasonable number to regard in compiling the report. This piece of writing analyses the way out given by the explanation compiled by the team.
The Turnaround research team’s idea of rating Lions Gate Entertainment’s company as the low performing firm is dreadfully precise considering the corporation’s portfolio diversification, leverage level, profitability and market allocation. Nevertheless, the firm performs highly in video production compared to other competitors. The Turnaround team therefore considered the overall industry performance, which is exceptionally plausible. The first six companies in the Motion Picture and Video production industry occupy the market focus. The top six companies comprises of 91.2% market absorption and experiences a fierce competition amongst themselves abandoning Lion’s Gate Entertainment Company with only 4.3% of the market allocation (Davidson et al 1) .
High profitability in this established companies are caused by various factors ranging from the barriers imposed by the existing firms, buyers bargaining power, medium supplier power and the economies of scale enjoyed by the firms. The financial capabilities of the top six Motion Picture and Videos production companies have enabled them to acquire highly developed technologies and burly promotional networks thus covering a wider market. The monetary competence boosts the medium supplier power by using celebrities and creative artists in their Video production thus attracting larger crowd. Investors’ self-belief is also elevated on these companies due to a first-rate standing enjoyed by the enormous companies thus encouraging investments. The need to focus on the taste and fulfillment of the population is additionally important in attracting a huge customer base as explained by the team (Davidson et al 2-3).
Lions Gate Entertainment Corporation should embark on having a large risk tolerance portfolio, which eventually increases investors’ confidence, and widening customer base. However, the increase of portfolio does not directly raise customer base as claimed by the report. The Lions Gate Entertainment Corporation should increase its investment in production in order to increase their profit margin as explained by the team. The larger firms seem to be investing much in video production thus increasing their income. This can also apply in the Lions Gate Entertainment Corporation for higher profitability.
The fact that Lions Gate Entertainment Company has lower cost of production is not adequate since the team further explains the higher debt to equity ratio, which directly affects the net profit of the firm. The shareholders do not enjoy the dividends because a larger amount of profit is used to pay the debtors. The Lions Gate Entertainment firm cannot therefore use diversification strategy properly due to its fiscal incapacity. Furthermore, the financial inability makes the corporation have a low cost budget, which cannot be interpreted as efficiency due to diseconomies of scale. Although, Lions Gate has expanded its portfolios, it experiences an overall net loss due to its unprofitable subsidiaries thus reducing its dividends. The team suggestion that the company should center on deleveraging itself is very important in order to improve its overall performance. The cost of debt is very high compared to shareholders funding thus there is a great need to reduce interest expense by avoiding further debt funding (Davidson et al 8-9).
The suggestion by the team that the Lions Gate Entertainment industry should diversify in order to lessen the financial threat is incredibly important in increasing the firm’s profitability. The company should indeed collaborate with other firms without same financial risk and engage in joint ventures to encourage portfolio diversification. Portfolio diversification may certainly heighten investors’ confidence in the midst of debt crisis as it may increase the net earnings. Considering the Lions Gate Entertainment firm’s strength in movie production, it should remain independent as it collaborates with other companies to maintain higher profit obtained from the production of movies. It is definitely true from the teams report that the Lions Gate Entertainment Company may not be able to acquire other firms because of its financial problems. The firm’s best strategy is therefore limited to joint venture and partnership (Davidson et al 11).
The Lions Gate Entertainment firm has very great potential of expansion as suggested by the research team since The Hunger Games, which is one of its franchises, has only released one movie out of the many existing movies it has. The company may also expand its distribution network especially when acquired by a highly distributed company. However, the fact that culture differences may hinder the buyout of Lions Gate Entertainment Corporation as suggested by the team is not true since the cultural divergence may be harmonized. When acquired, the Lions Gate Entertainment will share its losses with the parent company. The Lions Gate Entertainment firm should not consider potential buyers such as Viacom who are engaged in similar activities and are aligned to like audiences as it would discourage diversification. The team’s proposal that the companies with same arrangement in content and audiences should acquire the Lions Gate Entertainment firm is therefore not appropriate. The matter of conflict of interest is similarly imperative while considering mergers and acquisition as illustrated by the research team in Sony and Samsung case (Davidson et al 11-14).
The research group conclusively did a commendable job in their research by deeply analyzing the motion picture and video production industry situation. The companies in this industry largely require mergers and diversification in order to maximize their profit and reduce financial risks. The Lions Gate Entertainment firm, to the highest degree, call for mergers and acquisition in order to solve their leverage problems and improve its profitability level. The company, as suggested by the study group, should be bought by a financially stable parent companies with very high portfolio diversification to reduce its marketing and distribution cost, maximize profit and eventually increasing its dividends hence attracting more investors.
Davidson et al. “Motion Picture and Video Production Industry: Lions Gate Entertainment Corporation Turnaround Proposal.” Winter 13 (2013): 1-28. Print.