Articles   •   April 28, 2017

Value Investing, a term best known associated with Benjamin Graham in his book “Security Analysis” and popularised by Warren Buffet.

In it, Graham suggested that investors analyse the financial state of companies prior to investing. When a company is available on the market at a price which is lower than its “intrinsic value”, a “margin of safety” exists, which makes it suitable for investment. The determination of the intrinsic value of the company is objectively calculated using a number of ways, all of which involve numerical values derived from the enterprise’s financials. Pretty straightforward one would think, and with this fail-safe approach one should be surprised why one loses money investing in the stock market.

But is value investing all down to cold, hard science? It appears not when one looks at the success of the movie “La La Land”. Lions Gate Entertainment Corp – the backer of the film – is known in Hollywood as a savvy value investor. In the past it has backed films such as the “Hunger Games” series and “Power Rangers”. While big-time Hollywood financiers typically go for big studios aiming to produce one blockbuster after another, Lions Gate chooses to play in a space where films are perhaps a little unusual. According to Bloomberg, Lions Gate success is “the product of a string of savvy, somewhat counter-intuitive decisions.” “Most of our films, in some ways, are contrarian bets.” Erik Feig, co-president of the motion picture group at Lions Gate Entertainment Corp said.

Bloomberg reported that when it comes to value investing and differentiating itself from the masses, Lions Gate has 3 simple rules:

Work with talented people and protect their vision

Lions Gate courtship with Damien Chazelle, La La Land’s writer and director began at the Sundance Film Festival in 2014 when he showcased Whiplash, his hit about a drumming genius clashing with a mercurial conductor. There, Lions Gate tried to buy the distribution rights but lost out to Sony. However, the company hit it off with Chazelle. “We asked him what he wanted to do next and he said, kind of sheepishly ‘a musical,’” Feig recalled. “We were like, ‘Great!’ And he was like, ‘Really?’”

Spend big where it matters

The economics of limited resources mean we need to spend big in the areas that matter. Yet another discipline Lions Gate has fine-tuned over the years. Early in production, Lions Gate encouraged Chazelle to spend more money than he had originally planned—about $30 million more. This enabled production to afford more expensive lead actors in Emma Stone and Ryan Gosling, as well as binge on a few scenes, namely the intro montage, which involved closing a Los Angeles interstate in the middle of the day.

Don’t try to please everyone

Lions Gate was realistic about its audience. When judging a project’s potential, the company tries to target 2 types of consumers: (i) the most likely fan – in this case Broadway lovers, and (ii) the wider demographic that the film may interest – in La La Land’s case couples and older women.

The film, it turns out, over-performed on all fronts. I was never a fan of musicals but I was won over.

These 3 rules apply to any business seeking to stand out.

About the Author(s):

Andrew Lee is the Managing Director of Evant & Co., a management consulting firm with offices in Kuala Lumpur and Jakarta. Our purpose is to help our people and our clients to realise their aspirations while improving lives through business. We advise leaders on strategy, human capital, digital, and outsourcing.