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 between $5 million and $35 million in ticket sales. The studio releases anywhere from 15 to 20 films per year, and it also 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 downstream, depending on the genre and the release date, the revenue we'll see 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 the studio's 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 analysts in the financial planning department 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 of past performance as well as the predictive modeling capabilities that have emerged within the last two to three 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 comes in to eliminate the surprises and minimize the unexpected. Companies face external pressures including regulatory and compliance pressures such as Sarbanes Oxley, 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 enable Lionsgate to forecast revenues over the life of a film soon after it debuts. "We've developed cuts and splits so we know that if we do X in theatrical release, we know what to expect in downstream DVD revenue," says Collins, adding that the studio can also react to shore up films that are lagging. "We can watch and see which films we expect to perform and which films we need to devote a little more attention to in terms of marketing."
While revenue was up 13 percent in Lionsgate's most recent fiscal year, predictability is the chief reward of the studio's performance management deployment. "We have to convince the actors, the finance companies, the theaters and the 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."