Lions Gate Entertainment: Bulk Up or Go Lean?

If we need an illustration of the changing world of media we have to look no farther than the battle between the (vaguely) Vancouver-based film company Lions Gate Entertainment Corp. and activist investor Carl Icahn.

Lions Gate is the little movie company that could, starting out in North Vancouver with a few low-budget films and relentlessly building itself up as a player in the industry. Now largely operating out of Los Angeles, although it's still listed as Canadian based, its successes include television's Mad Men, and film's very lucrative, albeit blood-splattered, Saw franchise (no truth to the rumour that it's spinning out other film franchises named Drill and Chisel).

Icahn is a famous American corporate gadflyr whose modus operandi is to buy a position in a company and then agitate relentlessly to drive the stock price up. This agitation usually involves complaining, about and often subverting, various strategic intitiatives a company makes.

Icahn is currently trying to lift this stake in Lions Gate from 18.9% to 29.9% so that he can have more say in how Lions Gate is being run.

And right now, he wants more say in Lions Gate's ambitions to take over old Hollywood. It's expected (by industry analysts) to be pursuing a couple of biggie movie companies, namely MGM -- the company that had a lot ot do with making Hollywood what it is -- and Miramax, which was big in the latter years of the 20th Century.

Both are rumored to be struggling, victims of a changing media landscape.

Movies on your computer

Like the newspapers and television industries, the film landscape has been thrown into turmoil in the past five years because of the Internet . Moviegoers now have the ability to simply download a film to their laptops instead of lining up in the rain to get into a movie theatre where they have to pay outrageous prices for butter-slathered popcorn.

I don't watch movies on my computer, because I need a larger screen (the eyes are the first to go) but apparently almost everyone under 35 does. The typical movie date has changed from cuddling in the back row of a theatre to cuddling up to the LCD screen in a matchbox-sized apartment.

And that spells trouble for the traditional film industry structure. Like the aforementioned industries, the film industry is being disintermediated by the Internet.

That's what Icahn and Lions Gate are scrapping over.

Lions Gate apparently figures the best strategy to fight this trend is to bulk up. So it's recently bought TV Guide, which has a film business, for $255 million. And now it's circling around traditional film distribution companies like MGM.

Presumably, the idea is that it can extend its low-cost, high-return model to these companies and thus survive in the new world.

Icahn appears to have a different attitude. He's already complaining that Lions Gate paid far too much for TV Guide, and will likely pay too much for MGM or any of the film companies that are currently on the auction block. The solution, he indicates, is to get leaner, not to bulk up.

Is he right? Who knows?

But their argument over strategy will be interesting to watch because it goes right to the heart of change in the media world.

Mentoring For The Newbie CEO

Anyone who has ever started a company knows of the learning curve that entrepreneurs must climb in order to make a go of it.

Unfortunately, many stumble along the way because there is so much to learn when starting out.

You need to perform a dozen different jobs. You have to determine a value proposition for the product or service you're developing that will get buyers slavering for it. Then, you have to develop a strategy to get it to market.And you have to do it all while carefully husbanding your funds.

Most of all you have to sell at the same time you're developing the product because you want a couple of initial customers in place when you launch. Early-adopter customers validate your business in other customers' eyes.

Is it any wonder that the entrepreneurial spirit dampens quickly? Don't you wish sometimes that you could find a seasoned mentor to help you sort it all out and keep the flame alive?

Now you can.

No customers? No revenue? Help is on the way.

ACETECH, the organization of CEOs of technology companies who help each other with the problems inherent in running a technology-based business, is bringing its much praised training system down to the start-up level.

Usually, ACETECH helps established companies grow. But it found that many young companies weren't eligible for its programs because they weren't there yet. They were still developing their product or service and didn't have any customers.

Worse, many are so consumed with developing their products that they forget that customers are more important. This is especially true in the new world of agile development, in which "beta" customers are needed to influence the larger mass of buyers.

So ACETECH has partnered with the Discovery Foundation, the charitable arm of the Discovery Parks system, to deliver its training to new tech companies at an affordable price.

The ACETECH market entry program for very early-stage technology companies provides a structured process and one-on-one mentoring from an experienced technology CEO to help trainees get to market faster with less risk.

It's open to new founders or CEOs who are still in the "visionary" stage, i.e. started, but  pre-revenue.   

The program, taught by veteran entrepreneur and investor Ralph Turfus,  includes three full-day interactive, educational sessions in April, May and June, as well as three one-on-one mentoring sessions with an experienced technology CEO.

At the end of the program, new company founders will have a strong understanding of market positioning, a go-to-market strategy, techniques to sell to early adopters, actionable tools and templates and access to contacts and resources.

Better yet, the program will cost the cash-strapped trainee only $295. ACETECH courses usually cost $1795, but the Discovery Foundation is subsidizing $1500 of that cost.

New CEOs can apply to ACETECH online to take the course. The deadline is April 2, and only 20 applicants will be selected. 

A Boost For BC Tech

When the feds brought down their budget last week, most of the noise was directed toward how it affected Canadian consumers regarding jobs, taxes, and business.  

But most commentators missed a crucial part of it that will have longer reaching effects than simple measures that direct a bit of money to forestry and other sectors.

The government upset a system that effectively blocked foreign investors from investing in Canada, which cut off access by BC companies to millions of dollars in financing.

Under the rule, foreign investors had to pay a 25-per-cent tax on capital gains earned when a Canadian investment was sold. Or they could fill out paperwork to receive an exemption, but each individual investor in a capital fund would have to personally fill out forms and wait months for a reply.

The system was so complex, that most foreign (read American) capital funds didn't bother. Sure, they might see some promising Canadian business that they could grow and earn a healthy return on investment, but were put off by the complexity of it all. Certainly their own investors were, and so they found it much easier and simpler to just ignore Canada altogether.

The silly rules were created back when foreign investors were considered an evil army intent on raping the oh-so-pure Canadian business sector and so had to be stopped. This would, of course, leave Canadian businesses that needed funding at  the mercy of the far more rapacious, albeit conservative, Canadian investors such as the Bay Street banks. But that was okay, because they were Canadian.

Of course the theory didn't work, because foreign investors didn't quite live up to their evil billing, and Bay Street investors became even more cautious than usual. As a result investment in this country, and particularly in BC, has been reduced to a trickle.

Don't set your expectations too high

Now, opening the doors to foreign investment is not -- repeat, not -- going to result in a flood of foreign capital into BC.

The rules have been around for so long, it's going to take some time before investors notice that they can once again look at Canada as a source of promising investments. Many, who are doing quite fine at home, thank you very much, won't bother.

Also, most venture capital likes to stick close to home, so the likeliest connection for BC would be Silicon Valley near San Francisco. But the valley is chock-a-block full of hot companies, so I suspect it will be some time before they start looking seriously north of the border.

And lastly, venture capitalists most affected by the now-disappeared rules tend to focus on a segment of business that's become somewhat established They haven't been real fond of funding riskier early stage or start-up companies that make up the large majority of BC technology companies.

This may change however, because the new rules mean that some of the more adventurous and risk-taking funds will eventually look to BC as fertile ground for promising early stage prospects, especially in the new fields such as digital and online business. f

Despite delusions of grandeur in some corners, BC has always been a farm team for the big leagues of technology to the south, probably at the lower Double A level. And even that has been hampered by a lack of funding.

So, maybe this new tax ruling will rewrite that farm team system by giving us more hitting power.  

I suggest that instead of shooting for the bigs right away, we use it to first elevate ourselves to Triple A.

B.C. Budget: Barely Medalling

Government budgets always draw a wide array of complaints, and Tuesday's was no different. But there were some wins. When BC Finance Minister Colin Hansen unveiled his "austerity" budget on Tuesday, the Olympic Gold Medal euphoria that gripped the province for more than two weeks quickly faded.

Many complained that it was too austere; other that is wasn't austere enough.

Welcome to reality folks. Put away those Team Canada sweaters and red outfits. In BC it's back to our favorite sport -- bitching about budgets.

Conservatives complained that the provincial debt is now a whopping $47.8 billion, largely because the government seems to have embraced deficit financing to pay for escalating health care costs. This will eventually bankrupt us, they say.

Meanwhile, social democrats complain that the budget still doesn't meet health care needs and is attacking education to boot.

And of course everyone hates the new HST, which will impose a 12-percent combined provincial and federal sales tax on just about everything in July. Despite Hansen's attempt to paint the HST as a support of the health system, no one was buying it.

BC's citizens have never been very good at recognizing that taxes must be imposed to pay for increasing service demands. Most think the money will come magically from somewhere else -- increased economic activity, perhaps, or some sort of transfer from the feds (who also delivered a relatively stand pat budget this week).

So we're back to the same old budgetary Olympics in which we have generally been in the middle of the pack for decades. although everyone knows their roles, this is no easy game, involving as it does much sleight of hand, much hidden revenue grabs (siphoning off more than $700 million from ICBC, for example. Remember the NDP's famous forcing of BC Hydro to pay a "dividend" to government?), and many quiet fee increases for government services, which are already underway.

Going For the Gold

However, in all budgets some government ministries manage to insert cash for pet projects. And that's where the whiff of gold is.

For example, Tuesday's budget included $100 million for climate action and clean energy development in this province.

Certainly, $100 million isn't a gold mine when compared to an overall budget that has almost hit $41 billion. But it's enough yellow dust to please those involved in the province's nascent clean energy industry.

Sure, there were the usual complaints -- the oil and gas industry was getting far more, and the government was spending 10 times that on highway expansions, which put the lie to its claims to be a green leader.

But you take your wins where you can get them and at least that $100 million fund is better than nothing. It's not going to create the desired world leading clean energy cluster that we all talk about having here. But at least it may seed and water it for a while.

So, some mistakes and some victories;  I'd have to give the government a bronze on this one.

Not a loser, but not a winner either.

Sorry! I'm Canadian

But something changed. So,  I'm not doing that because it would be a load of bull hooey. 

Far more real would be for me to admit right here that  I was wrong. 

Like many others, I kvetched about the Olympics, and maintained a healthy (I thought) Canadian reserve about the whole "big show" aspect of it all. I found lots of faults and wasn't quiet about pointing them out. 

So ... sorry. 

I basically had my head up my butt on this one.

Now that they're over, I believe that these Olympics were a resounding success, particularly in that they showed Vancouver -- and by extension -- Canadians -- who they really were. Intelligent, creative, sociable, and more than a touch exuberant.

Goodbye, inferiority complex.   Certainly there were a few fails along the way. But  most were the fault of the oh-so-imperious IOC, not Vanoc, our province or ourselves. 

There was the incident of the luger killed at the beginning and the IOC's pompous blame-the-victim response that he wasn't experienced enough. Why not just admit that you never expected this to happen, screwed up, and would never do this again? Nobody's perfect. 

There was the disgusting sight of rows of empty seats at Olympic venues because pompous IOC members and assorted hangers on decided they'd rather network in plush surroundings provided by some slavish corporate sponsor than to actually watch an event with the ordinary proles.

There was the inability of ordinary Vancouverites to afford or attend Olympic events. Joe citizen was left begging and had to content him or herself with wandering the streets. (which as it turned out was a good thing). Surely there could have been a mechanism to ensure others than the elite could take in some aspects of what the Olympics was supposed to be about.

But let's look at some of the wins, or UnFails. 

The first would have to go the people of Vancouver and Canada themselves, who got over their crabbiness and usual bitchiness, and embraced these Olympics with an enthusiasm and joi de vivre that  will probably become an essential part of our identity from now on.

It's because of ordinary Vancouverites that those august bureaucrats who run the Olympic empire can pat themselves on the back about how they really pulled it off this time. 

The second,should go to Vanoc, which showed everybody in Canada -- and ourselves -- that we have some supreme managerial talent in this town. Vanoc had an almost impossible job, and made it possible, even in the face of conditions that would have humbled captains of industry around the world.

How'd you like to manage something  that started with a death, suffered the worst weather conditions in history, featured a horrifying lack of your main product (snow) and in the final moments had to deal with an adversity no one would ever have dreamed of --  a tsunami watch.

And then there is OPD, Own The Podium, which I savaged along with many others. It actually worked and we hauled in a record number of gold as well as great showings throughout. 

Um, sorry. 

But mostly, I think we should look to Japadog as an example of what this city is all about. The two-stall hot-dog stand was the secret hit of the Olympics, drawing hour-long lines for its product and generating buzz throughout the world. 

If ever there was an innovation that exemplifies BC's ability to synthesize many different cultures into creative thinking and new products, it was the humble Japadog, which proved that you don't have to split the atom or find the secret to life in some lab to create a groundbreaking innovation.

So, despite my early attempt to be a cool journo and match my mates in other parts of the world, by the end I embraced this event with a fervour that surprised not only many others, but most of all myself. 

I actually felt pride in showing the world that we Canadians have a sense of self that stands up to anyone.

Sorry.