WB makes Epic claim in vid-rights auction

NEW YORK — Warner Bros. has sparked a storm among studios bidding for the 1,000-title Epic film library, by asserting that its homevid deal with MGM gives it ownership to the video rights on the Epic catalog, Wall Street sources say.

The library is being auctioned by French government agency CDR, which strongly disagrees with Warner’s claim, while people close to the deal have dismissed the claim.

Nevertheless, bidders, including MGM, Polygram and Walt Disney Co., said they have to take the claim into account when weighing their offers for Epic, which are due Nov. 24.

“It’s an issue. I don’t know how people are going to handle it,” said one banker. Neither WB nor CDR’s advisors, Furman Selz, would comment Thursday.

WB is making the statement based on the broadly written terms of its homevideo agreement with MGM, signed in 1990 and extending to 2003. The deal covers existing and new movies produced by the Lion and its “present or future” affiliates — which Warner argues includes both companies that may acquire MGM and companies that the Lion itself might buy.

Warner raised the issue when CDR was selling MGM last year, causing some bidders such as Polygram to ask CDR for an indemnity against a possible lawsuit from Warner. The issue gave MGM’s management team’s bid, backed by Kirk Kerkorian and Kerry Stokes, a significant edge over other bidders, which some observers think swayed the whole deal.

In recent months, Warner claimed video rights on Orion Pictures’ films as a result of MGM’s acquisition of Orion. MGM claims the agreement specifically excludes Orion.

The Epic claim appears to take Warner’s arguments further than either other case. The studio says Epic is an affiliate of MGM because both companies were housed under the CDR structure before MGM was sold last year.

Warner has asserted its right in correspondence with CDR’s attorneys, sources said. It is not known whether the two sides are in discussions.

Vid rights to the Epic library may prove potentially very valuable because video rights constitute more than half of the value of what is being sold, sources said. Epic is expected to be sold for between $150 million and $200 million.

Wall Streeters said Polygram in particular will want to avoid “another MGM,” where this issue costs it the acquisition. People close to the situation said Warner’s claim is not being taken as seriously as it was during the MGM case.

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