'Hunger Games' studio aims to hit bullseye with 'Divergent'

LOS ANGELES, March 20 Thu Mar 20, 2014 5:00am EDT

LOS ANGELES, March 20 (Reuters) - Young actors Shailene Woodley and Theo James arrived on the Hollywood set of the "Jimmy Kimmel Live" TV talk show by sliding above a cheering crowd while harnessed to a zip line, a dramatic entrance to spark interest in "Divergent," the movie Lions Gate Entertainment Corp hopes to make its next hit franchise.

The studio behind the mega-hit "Hunger Games" movies is betting again on a popular series of best-selling young adult novels set in a dystopian future. The "Divergent" books, about a society divided into factions by personality traits, have sold more than 17 million copies worldwide.

"Divergent," opening Friday, likely won't attain "Hunger Games" heights at the box office, but a strong start could answer a question hanging over the independent studio once known for comedian Tyler Perry's films and the "Saw" horror flicks: can it churn out more blockbuster-sized franchises?

The pre-opening buzz points to a strong performance for "Divergent." Opening weekend ticket sales will hit $50 million to $68 million in the United States and Canada, according to projections from Wall Street and box office analysts. That's below the $152.5 million for "Hunger Games," but would be a big enough hit for Lions Gate to forge ahead with sequels planned for 2015 and 2016, they said. The massive "Twilight" vampire series opened with $69.6 million.

"It has the potential to be a massive franchise," said Phil Contrino, chief analyst at Boxoffice.com, said of "Divergent." The movie's Facebook page has more than 1 million likes, a high number for the first film in a series. "The marketing campaign is doing a good job of highlighting the movie and getting people to go online and show their support."

Turning a successful book into a hit film is no sure thing, as Hollywood has found with several attempts to excite teen audiences since "Twilight" ended. Movies including "Beautiful Creatures" from Time Warner Inc's Warner Bros., Sony Corp's "The Mortal Instruments," and Lions Gate's "Ender's Game" didn't draw massive crowds.

Some early "Divergent" reviews were negative, helping push Lions Gate shares down 9 percent this week, Evercore Partners analyst Alan Gould said. Of 13 reviews on the Rotten Tomatoes website as of Wednesday, 31 percent were positive.

Gould, who rates Lions Gate "overweight," said he expects young female fans to turn out and produce strong "Divergent" sales, reaching $150 million in the United States and Canada over its theatrical run.

Lions Gate spent $85 million to produce "Divergent," plus $40 million to $45 million on marketing, according to person with knowledge of the film's budget. The studio has already recouped about $70 million of the cost through international licensing deals, the person said.

Making "Divergent" a success is important for Lions Gate to show investors they can bank on another big franchise outside of "Hunger Games," said Cowen and Company analyst Doug Creutz.

From fiscal years 2013 to 2016, 62 percent of Lions Gate's adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) will come from "Hunger Games" and "Twilight," Creutz estimates. Lions Gate acquired "Twilight" with the 2012 purchase of Summit Entertainment, the unit that produced "Divergent."

While Lions Gate is growing its TV revenue with shows like AMC Networks Inc's "Mad Men" and Netflix Inc's "Orange is the New Black," it needs new films to replace the revenue from the two current franchises, Creutz said.

"They have two more franchises than they had three years ago," said Creutz, who rates Lions Gate "market perform." "Can they do it on a consistent basis? I think that's still an open question. 'Divergent' is an important one for that."

(Reporting by Lisa Richwine; Editing by Mary Milliken)

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