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Disney evaluates bids for Miramax

Studio eyes offers after closing down auction

Disney is reportedly eyeing four bids after closing down its high-profile auction of Miramax.

Possible bidders are said to include Relativity, Lionsgate and some high net-worth players who are able write a big check. Spokesmen for Relativity and Lionsgate declined to comment.

According to sources, Disney had pegged an $800 million asking price a month ago and was asking for nonbinding bids of at least $700 million for the library.

The pricetag was floated without an independent evaluation of the library’s worth, according to one financial source: “Disney put together a number, but there was no library valuation.”

As the tires are being kicked, there are three key issues underlying the auction:

  • Despite its high-profile productions (“Pulp Fiction,” “Shakespeare in Love,” “Chicago,” et al.), Miramax was built on acquisitions. Since 25-year license terms were prevalent on the Weinsteins’ watch, the rights on some of those titles will be expiring in the near term — and the question is how many.

  • Aside from ancillary rights, an important question regarding the film library is sequel/remake rights.

  • Despite numerous theories on why Disney would want to sell the library, the studio doesn’t need to sell, which means it is unlikely to give a discount for a fast deal.

While some speculated that Disney brass are selling because they want to rid the studio of any lingering Weinstein ghosts, most insiders say the company is too bottom-line savvy to make any move for other than financial reasons. A few more theories: Although Disney is sitting on lots of cash, it’s made significant investments lately, and a Miramax sale would help pay down some of its debt. And the Miramax portfolio doesn’t really fit with Disney’s.

The last seems closer to fact than theory: While the Miramax library boasts some crossover films, including “The English Patient,” “Good Will Hunting” and “The Queen,” plus other titles with a total of several hundred Oscar nominations, Disney is pursuing franchise-friendly movies like “Tron” and “Prom” that can lead to coin across multiple platforms, from plush toys to theme-park attractions. There’s not a lot of potential in a “Cold Mountain” ride or “My Left Foot” action figures.

The climate for library purchases, meanwhile, is tepid at best. “Library values are pretty scary right now,” one banker said. “Just look at the MGM deal and the RHI library. Banks are nervous about lending against libraries.”

But with some 700 film titles to exploit, Disney’s income from the Miramax library likely isn’t chump change. Some published reports have estimated the library’s annual revenues at $150 million, though other sources put it lower.

By comparison, the most recent studio-owned library purchase was Relativity Media’s $150 million buy of Rogue from Universal in October 2008, right after the global financial meltdown. Ryan Kavanaugh’s company picked up just 30 films in that library.

According to a source familiar with the Rogue pact, three independent evaluators had pegged its value at somewhere between $240 million and $380 million. “In any other market, Rogue would command twice as much,” the source added at the time of the sale. (According to insiders, 55% of Rogue titles were profitable — a rate that is nearly double the studio average.)

But GE, like many other media congloms, was desperately looking to reduce overhead. It demanded that U sell something fast to beef up its fiscal-year balance sheet.

Disney may want $800 million for Miramax, but bidders likely didn’t make offers that high. A few of the companies in the bidding mix “weren’t going to go above the high-$400 millions for it,” according to one source — a likely reason why Summit dropped out when Disney established a higher floor price.

There’s also speculation that Lionsgate, given its ongoing woes with share-gobbling investor Carl Icahn, may not be a frontrunner for Miramax. Lionsgate also works with JPMorgan, which has its hands full with the MGM and RHI deals that aren’t exactly going smoothly.

The general malaise of the marketplace is dragging down library sales: While DVDs are still raking in billions, revenues have tumbled in the last few years. And though there are new revenue sources, from video-on-demand to iTunes, so far none has generated a major windfall. The next big thing in the tech world to boost library value (as vidcassettes and then DVDs did in their day) has yet to materialize.

“A library purchase can be seen as an opportunity or a scary proposition,” said one source who looked into buying Miramax a year ago when Disney’s asking price was $1 billion. “Will the library’s valuation go up or continue to decline? The only new platform I see is the Internet, and we still don’t know the value of that. It’s a really tough move to make at this time.”

Still, the Rogue sale demonstrated how much cash-flush players such as Kavanaugh stand to gain amid the global economic downturn. As Kavanaugh once noted, “Everything is available for a price.”

And, as one industryite observed about the Miramax sale, “Someone might buy it, keep the library and sell the Miramax name to Harvey.”

(Tatiana Siegel contributed to this report.)

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