Peter Levin had just started his job as head of Lions Gate Entertainment Corp.'s new video games division in 2014 when the phone calls about "Dirty Dancing" started. There was apparently a lot of pent-up demand to make a game based on a young Patrick Swayze dancing at a Catskills resort. When Mr. Levin went to his first industry conference as a Lions Gate employee a month after being hired, he quickly lost track of how many developers brought up the 1987 film. "I had no idea how big that fanbase was," he said. "I knew I was not supposed to put Baby in the corner, but other than that I hadn't seen it."
Two years later, Lions Gate still hasn't released a "Dirty Dancing" game, but Mr. Levin's been busy in the meantime. He's led Lions Gate to invest in four game companies, most recently in a deal that was announced Tuesday with Fifth Journey, a developer that specializes in making games based on movies; the two companies have already said they'll make a game based on Lions Gate's film "The Expendables." Fifth Journey is based in Hong Kong, and pitches itself to Western media companies as a partner that can help get them into the Chinese market, which has proven consistently difficult for American gaming companies. In addition to Lions Gate, MGM and Universal Pictures also participated in its latest fundraising round. The companies declined to give any financial details.
Under Mr. Levin, Lions Gate's investment in gaming has ballooned. The studio has commissioned video games based on "The Hunger Games" and "Orange Is the New Black," and has arranged for characters from its movies J"ohn Wick" and "Point Break" to appear in "Payday 2," a heist game. Lions Gate is making a feature film based on the popular game "Borderlands" and a TV show based on the ubiquitous mobile game Candy Crush Saga. This is all happening while Lions Gate's main business—film—has been going through a rough patch. The latest "Hunger Games" movie made less money than investors hoped, and the company's stock price is down about 40% over the last year. Video games are one branch of a wider diversification strategy.
Mr. Levin has had a long and varied career. He's a long-time Hollywood presence who literally worked his way up from the mail room —that was at Creative Artists Agency. He worked in Disney's corporate strategy department and recently ran Nerdist, a digital media company. He also founded the Chicago Rush, an Arena Football League team. In the early days of Rovio Entertainment Oy, the company that makes Angry Birds, Mr. Levin advised it on its licensing and merchandising strategy. He served on the board for Next Games Oy, another well-known Finnish studio, and convinced Lions Gate to invest in the company when he joined. A deep background in gaming was clearly going to be something Lions Gate needed, given the studio had done practically nothing with video games before he showed up. Levin insists this was an advantage. "It wasn't as if we were having to brush over a decade of roadkill in the arena," he said.
The frenetic pace of activity at Lions Gate reflects the growing lovefest between the industries lately: Gaming companies and studios are more interested than ever in working together. Mobile games alone were a $25 billion industry last year, and that kind of money is too much for Hollywood to ignore. Games are a way for studios to reach people that might not be shelling out for theater tickets, while tapping into one of the key forms of entertainment that's replacing their traditional income sources.
Game developers are happy to collaborate—and share the profits—because they have to. A growing market has led to a glut of games, which makes it hard to get anyone's attention. The standard way that game companies talk about marketing expenses is how much they have to spend to get a single person to try out a new game. By this measure, marketing has gotten 430% more expensive over the last four years, while the amount the companies make from each user has doubled, according to market research firm SuperData. Games based on recognizable TV shows or movies can help cut through the noise by bringing in people who are interested in the underlying story, which is why gaming companies want to work with Hollywood.
Movies have been turned into video games for decades. Often, the results were cringe-inducing. A version of the movie "ET" made for the Atari 2600 in the early 1980s has been described as the worst video game in history, and Atari buried unsold copies in a landfill in the New Mexico desert. "There were so many terrible, terrible games that were made," said Craig Derrick, the chief creative officer of Fifth Journey, and a veteran of the gaming division at LucasArts, which made various video games based on "Star Wars." "We made a lot of bad 'Star Wars' games, as much as we made good 'Star Wars' games," he said.
Mr. Derrick said collaborations between Hollywood and the gaming industry were often doomed by bad timing and misunderstandings. It can take longer to make a game than it takes to make a movie, leading to what he describes as "brand-slaps," where the look of a TV show or movie is hastily attached to whatever the developer can pull together on the fly. Fifth Journey wants to get involved earlier in the process, sitting in the writers' room for television shows and reading scripts of films instead of being handed a fully-baked concept with a demand that a game be produced on a tight time frame.
When Mr. Derrick visited Lions Gate to discuss one project, he said, Mr. Levin surprised him by sitting him down and showing him a cut of a completely separate movie. "They put us in a screening room and said, 'This is a film that's coming out next year'—it was like a year in advance—and said, 'Are there any ideas?' " said Mr. Derrick. "I don't know what other developers get to see, but they made us feel pretty special." Mr. Derrick said Fifth Journey ended up pitching Lions Gate on an idea based on the unreleased film, but neither company would give any details.
Mr. Levin has also been focusing on virtual reality. Lions Gate collaborated with three gaming companies to put out a "John Wick" VR game, based on the 2014 film starring Keanu Reeves as a hitman. While Mr. Levin is bullish on VR in the long term, he said it will take time before there are enough headsets in circulation to create a serious market. "We don't want to get too far ahead of ourselves in terms of timing," he said.
Lions Gate isn't the biggest player in gaming among Hollywood studios, but it could end up being more important to the company given its relatively small size, said Mike Vorhaus, a consultant and investor for games companies. "These guys stand out for doing a lot with a company that is of a very small size compared to the industry," he said. "These are investments they will make good money on, I guarantee it."
At the moment, such claims are impossible to assess. The company's "Hunger Games" app fizzled, never making it into the top 200 highest-grossing mobile games, as measured by market research firm App Annie. A predictable part of Lions Gate's earning calls for the last year has been a question about the financial performance of Mr. Levin's division. Executives haven't answered this directly, but Michael Burns, the company's vice chairman, has said he expects the gaming division to make a "significant contribution" as soon as 2017.
And don't count out a "Dirty Dancing" game. Lions Gate's long-awaited remake is hitting TV screens some time in the future—the studio is casting now—and Mr. Levin expects to release multiple "Dirty Dancing" games within the next few years. It seems the studio has its choice of partners. "The incoming calls continue," he said.