If you had to name businesses that are unpredictable, the movie industry could easily top the list. Nonetheless, Lionsgate, a boutique among Hollywood's major studios, has made its results predictable with the aid of performance management software.
Lionsgate is the studio behind big hits such as Terminator 2, Dirty Dancing and last year's Best-Picture Oscar winner, Crash, but its usual stock-in-trade is small, independent films that gross anywhere between $5 million and $35 million. The studio releases 15 to 20 films per year, produces television shows and distributes some 90 million DVDs each year from its catalog of 5,000 films. Despite the fickle nature of the entertainment industry, Lionsgate can forecast revenue and profitability with a high degree of accuracy.
"If we have a film of a particular genre at a particular time of year with these stars and this release pattern, we can predict how much revenue we can expect," says Leo Collins, CIO of Lionsgate. "Then we predict the revenue we'll see downstream from DVD sales."
Lionsgate's forecasting and financial planning tool is a predictive performance management system from Outlooksoft. The software is used to automate the complete planning process, analyzing data exported from its core financial system, SAP, as well as from distribution partners such as theater chains and DVD retailers. The system integrates with Microsoft Excel, and 15 Lionsgate financial planning analysts use it on a daily basis for budgeting, forecasting and reporting.
"When the analyst sits down, he doesn't have to run a different program or go into a strange environment; he's looking at Excel, and he sees all the actual results as well as the forecasts he has been working on," Collins says.
Developing accurate forecasts requires a blend of historical analysis as well as the predictive capabilities that have emerged in the category within the past few years. "Predictive performance management is no longer a luxury or a nice-to-have; it's critical to businesses that need to get a better sense of both current and future performance," says Gartner analyst Lee Geishecker. "The predictive aspect eliminates the surprises and minimizes the unexpected. Companies face external pressures including regulatory and compliance pressures, where not only are you expected to publish results in a specified time period, but there can't be any unknowns. From an internal standpoint, strategic decision-making makes predictive performance just as critical."
Predictive capabilities help Lionsgate revise forecasts soon after a film debuts. "We've developed cuts and splits so we know that if we do X in theatrical release, we know what to expect in DVD revenue," Collins says. "We can watch and see which films we expect to perform and which films we need to devote a little more [marketing] attention to."
While revenue was up 13 percent at Lionsgate's last year, predictability is the deployment's chief reward. "We have to convince actors, finance companies, theaters and major retailers such as Wal-Mart, Target and Best Buy that they want to do business with us because we have good forecasts and it's predictable," Collins explains. "That means that we really have to look into our crystal ball and come up with good estimates." --Doug Henschen
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