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For Lionsgate, TV Guide Network's Price Was Right

1/10/2009 3:28 AM Eastern

With the closing of its $255 million deal for the TV Guide Network a little more than a month away, Lionsgate co-chairman and CEO Jon Feltheimer has some work to do in the coming weeks. But the studio executive and his team are more than ready.

In an interview last week, Feltheimer said that Lionsgate, the home of theatrical blockbusters like Saw and cable-network staples like Mad Men for AMC and Weeds for Showtime, sees the TV Guide Network deal as a rare opportunity to snap up some prime real estate — it is the 19th-largest cable network and is available in 83 million homes — and use the channel as a launching pad for additional acquisitions down the road.

For the meantime, Feltheimer said Lionsgate intends to capitalize on TV Guide's established audience — mainly 30-to-40-year-old women — and supplement it with its own programming targeted at that demographic. And it is a demographic that Lionsgate is very familiar with. The studio produces several shows targeted at women, including reality shows like Paris Hilton's My New Best Friend Forever for MTV and a reality dance show for next fall based on its Dirty Dancing film property.

“Their core demographic and the core demographic we reach in our television business really match up quite well. The idea is to build up the value, build the audience, build an interesting platform for advertisers and build a better value proposition for the MSOs,” Feltheimer said.

Despite any obvious synergies, the deal came as a surprise given that Macrovision — TV Guide Network's current owner — had announced a similar deal with television producer Allen Shapiro and One Equity Partners, the hedge-fund arm of investment-banking giant J.P. Morgan on Dec. 18. That deal, for $255 million in cash, plus earn-out provisions that could have pumped another $45 million into Macrovision coffers by 2012, was set to close on or before April 1.

Feltheimer said that Lionsgate was involved in the initial auction process, but backed off when the price got too high.

“Initial indications were that the price was going to be higher,” Feltheimer said. “We're pretty disciplined buyers and there was a number beyond which I really didn't want to go. When we realized we could get it for a number that we thought was the right price, we jumped in quickly.”

The Lionsgate deal is for the same amount of cash — $255 million — and does not include the earn-out provisions. But Lionsgate has pledged to close the deal by Feb. 28, which appears to have made all of the difference to Macrovision.

In a statement, Macrovision said that its earlier deal with Shapiro and One Equity allowed it to solicit other buyers. The company said it believed that Lionsgate had a better chance of raising the necessary capital and closing the deal quickly.

“We believe this transaction improves the probability and the timing of closing the transaction, while providing for non-contingent consideration comparable to our previously announced transaction,” Macrovision president and CEO Fred Amoroso said in a statement. “Throughout our divestiture process, speed, certainty to close and the overall terms of the transaction have been important considerations for us. We believe our agreement with Lionsgate represents an improvement for us on those considerations and the combination of these factors represents a positive result for Macrovision and its stockholders”

Shapiro did not return a call for comment but in other published reports he hinted that he could take legal action.

“It's unclear whether the last chapter on this deal has been written yet,” Shapiro told Variety last week.

Lionsgate has become an increasingly important player in cable, as a partner in a new pay TV service called Epix, that launches this fall, a joint venture with Viacom and Metro-Goldwyn-Mayer Studios. Lionsgate is also a partner with Sony and Comcast on FearNet, an on-demand and online service.

Whether or not the TV Guide Network could eventually become the home for Epix remains to be seen.

“That really is not our intention,” Feltheimer said.

Miller Tabak analyst David Joyce, who follows Lionsgate, said it is possible that the TV Guide Network slot could be used for Epix, but he believes it would be unlikely.

Joyce thinks that the Epix consortium would look to Viacom to muscle a channel spot for the network. TV Guide Network, he said, would likely use its existing content like entertainment and awards shows and newly created content to attract female viewers.

“It's not going to be the James Bond channel,” Joyce said.

Joyce estimated that the TV Guide Network attracted affiliate fees of around 7 cents per subscriber per month, adding that those fees could rise significantly once Lionsgate takes control. Feltheimer hinted that MSOs could wind up paying more for the channel under the new owners, but added that won't be happening immediately.

“We're always looking for, whether it's a consumer or MSO or anybody else, a win-win situation,” Feltheimer said. “The last thing we're going to do is go walking in to operators and say, 'You should be paying us more.' Clearly we have to build a value proposition that is worth more. It's as simple as that.

September