Ted Turner has agreed to buy Castle Rock Entertainment for $ 100 million worth of Turner Broadcasting stock. The tentative pact comes just as the cable mogul is “very close” to wrapping a deal with indie powerhouse New Line Cinema Corp.
The deals would finally catapult Turner into the ranks of Hollywood’s key players in the film biz.
In Castle Rock, Turner stands to gain a highly respected film production company that has not only churned out some of Hollywood’s best films but boasts a solid management team.
In New Line, Turner would get a film distribution outlet, a major producer of B-product, stable management for more than two decades and a key creator of longform TV — RHI Entertainment, a New Line affiliate producing the CBS miniseries “Scarlett” and “Return to Lonesome Dove.”
The Castle Rock deal must have the nod of approval from the Beverly Hills indie’s backers, Sony Pictures Entertainment and Group W, which respectively own 45% and 15% of the company.
Sony handles domestic theatrical distribution of Castle Rock pictures. Studio execs were reportedly in discussions with Castle Rock and Turner execs Wednesday.
“Sony will undoubtedly play tough on this because Castle Rock is so critical to them,” the source said. The indie is a key producer for Sony Pictures Entertainment, giving it four pictures a year — some of which have been its biggest box office grossers.
“While discussions are still ongoing, chances are Sony will probably strike a deal that allows them to wind down distribution of Castle Rock’s films. That’s what’s being kicked around,” said one source. Sony will probably continue to distribute the Castle Rock product until New Line’s distribution channels, should that merger succeed, are readied to handle the additional demands.
The tentative agreement squelches persistent reports that German media conglomerate Bertelsmann AG is still an active suitor of Castle Rock.
Both the Castle Rock and New Line pacts also hinge on the support of Time Warner, a major TBS shareholder.
Sources said Time Warner execs have “somewhat reluctantly” given Turner “a blinking green light” to pursue discussions with Castle Rock and New Line. That is not to say they have said yes to mergers.
Turner’s other backer, TeleCommunications’ topper John Malone, must also OK the mergers. Although Malone could not be reached for comment, sources said he is reportedly “on board” with the deals’ scenarios.
As currently structured, the combined deals are worth about $ 400 million in TBS stock.
As the tentative deals stand:
o Turner retains 100% ownership of Castle Rock and New Line. That means TBS will eventually control all rights to the indies’ product, get an established distributor in New Line and a recognized player in the network TV business in RHI.
o Both Castle Rock and New Line retain their creative autonomy and their existing management.
o While Castle Rock may be forfeiting some of the upfront cash it was hoping to get with a new partner, it frees them of restrictions on film budgets under the current arrangement with New Line, which is expiring. That arrangement dates back to the formation of Castle Rock, involving an international distribution pact with the now defunct Nelson Entertainment and Nelson’s lender Credit Lyonnais. When Nelson went belly-up, New Line picked up the Castle Rock agreement and the budget restrictions. Films with production budgets over $ 25 million required CL approval.
Those restrictions would evaporate under Turner ownership, with TBS backing production.
o Should the New Line deal go through, chairman Robert Shaye, who owns 27% of the company, stands to gain about $ 100 million in TBS stock. The value of that stock is expected to soar as TBS becomes more involved in interactive media and worldwide operations become more profitable.
The deal would also boost New Line’s ability not only to make more expensive pictures with TBS’ backing, but to release higher grade product.
While both mergers appear to be stock deals initially, Turner could over time be spending anywhere from $ 700 million to $ 1 billion in production funding for both entities, sources surmised.