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Buyers confront dropping value of film libraries

Miramax, MGM, Overture face declining DVD values

Beancounters in Hollywood are busy trying to figure out just what digits should follow the dollar signs for the thousands of movies in MGM’s vault, the hundreds at Miramax, and a handful owned by Overture Films, now that Liberty Media’s John Malone is looking to unleash himself from the struggling venture.

With the formula for homevideo returns no longer relevant, and Hollywood waiting for the next big markets for a movie’s afterlife, money men are challenged to determine just how valuable libraries of aging titles really are.

One thing is certain: They aren’t worth as much as they once were.

While MGM is hoping for more than $2 billion for more than 4,000 movies, including the James Bond franchise and half of the rights of two upcoming “Hobbit” films, and 10,000 TV episodes, the nearly 10 potential bidders, including Time Warner and Lionsgate are looking to pay less than that.

Investment bankers’ recommended pricetag for Miramax, made up of 700 movies like “There Will Be Blood,” “Shakespeare in Love,” “Chicago” and “Pulp Fiction.” ranges from $300 million to $700 million. Internally, Disney wants as much as $1.5 billion. Either way, each is far more than the $80 million Disney paid the Weinstein brothers to purchase the indie label in 1993.

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And Overture’s 15-film library of pics that include “The Visitor,” “Law Abiding Citizen,” “The Men Who Stare at Goats,” “Righteous Kill,” “Last Chance Harvey,” Michael Moore’s docu “Capitalism: A Love Story,” and upcoming “The Crazies” and “Brooklyn’s Finest,” is said to be worth up to $200 million and as little as $100 million. Deal would include a pay-TV deal with Starz.

Miramax is valuable to Bob and Harvey Weinstein not just for the coin the library could put into the brothers’ coffers — they also want it back because the name was derived from their parents, Miriam and Max.

Miramax may represent the kinds of movies Disney doesn’t want to make anymore but the Mouse House still sees Miramax as a moneymaker — at least in how much it can fetch from the highest bidder, once it’s released the remaining six films produced by the specialty label.

“We determined that continuing to invest in new Miramax movies wasn’t necessarily a core strategy of ours,” Disney chief Bob Iger said this week in a conference call with analysts. “And with that, we believe that it would be prudent for us to explore all of our options,” adding that Disney is “intent on deriving as much value as we possibly can from an asset, and to some extent that will affect the timing of what we do next with Miramax.”

The suitors are starting to line up. Outside of the Weinsteins, who are attempting to corral hedge funds to make the buy, there’s also David Bergstein, who paired up with a Saudi Arabian investor and Deutsche Bank; Summit Entertainment and Lionsgate, among others.

The idea is that Miramax, MGM and Overture’s films can be repackaged and exploited across various homevideo platforms, as well as licensed to broadcast, cable and pay-TV networks here and overseas. There’s also the reboot potential, the way MGM moved forward with new versions of “RoboCop,” “Red Dawn” and “Poltergeist.”

But homevideo, while still a lucrative booster to any studio’s bottomline, isn’t the cash cow it used to be.

DVD sales continue to decline at a rapid rate, as consumers switch over to rental. Other distribution platforms, especially digital video-on-demand, are emerging as lucrative placements, but none are making up for the loss yet.

For example, Lionsgate said it will collect close to 20% of the $39 million that its actioner “Gamer” earned at the worldwide box office from video-on-demand. And that figure is said to be $3 million more than what it would have generated from VOD three years ago.

The unstable homevid biz is enough of a problem that Sony this month said it will pinkslip 450 staffers from the studio in March.

While MGM was adept at repeatedly repackaging its top films on DVD, the older a film gets the less valuable it becomes to consumers, analysts say. There’s only so much coin that can be squeezed out of even a James Bond film, no matter how many special editions are released.

In the U.S. alone, MGM’s net receipts from DVDs fell from $140 million in its 2007 fiscal year to just $30 million by 2010, according to Edward Jay Epstein, whose book “The Hollywood Economist: The Hidden Financial Reality Behind the Movies” is being published this month.

And just how much can be generated from Miramax’s aging slate of films that were never really blockbusters at the box office is being questioned.

The library is said to generate more than $300 million in annual DVD and television revenue. But Disney has never broken out such figures in earnings statements.

The bigger titles are “The Piano,” “Il Postino,” “The English Patient,” “Good Will Hunting,” “Life Is Beautiful” “Cider House Rules,” “Chocolat,” “In the Bedroom,” “Gangs of New York,” “Finding Neverland,” “Tsotsi,” “The Queen” and “No Country for Old Men.” The rights to the upcoming “The Debt,” directed by John Madden, “The Tempest,” from director Julie Taymor, toon “Gnomeo and Juliet,” and the thriller “Don’t Be Afraid of the Dark,” written by director Guillermo del Toro would have to be negotiated separately.

Other studios control certain rights to Miramax titles: Sony for “Sex, Lies and Videotape,” while Lionsgate distributes “The Crying Game” and “Reservoir Dogs,” and Warner Bros. reps the “The Aviator.”

The decline in DVD sales has made coming up with an accurate formula for figuring out just how much coin can be squeezed from even the most high-profile of titles more difficult than ever. The older a movie gets the less valuable it becomes, equity analysts say.

One strategy to boost the value is getting DVDs of new releases into the hands of consumers faster than ever.

With a typical theatrical release earning most of its B.O. during the first three weeks, Disney is experimenting with cutting short the amount of time its tentpoles play in theaters in order to get DVDs of its films out in stores sooner, starting with next month’s “Alice in Wonderland.”

“We feel that it is really important for us to maintain a very healthy business on the home video side, which we think is actually in the best interest of theater owners,” Iger has said. “Mindful of what is going on the home video side, we feel that it is time on a case-by-case basis to really take a look at how we are windowing home video product into the marketplace.”

Libraries have been instrumental in keeping companies like Lionsgate alive, however.

During the last three months, Lionsgate earned $91 million from 12,000 films and TV shows in its library (the most ever from catalog titles in a quarter), which continues to serve as “an important source of recurring revenue” and “the foundation for the growth of the company’s core businesses,” the company said in a statement.

The company said TV show “Weeds,” which it licenses to Showtime, will generate more than $100 million on homevid during its lifetime, with AMC’s “Mad Men” expected to earn even more than that.

So it’s no surprise that the company is eyeing Miramax as a way to bolster the amount of money it can earn each quarter.

Any acquisition would have to immediately contribute profits, benefit existing operations, add key personnel or result in cost savings, Lionsgate’s executives said this week in a conference call with analysts.

Miramax “obviously is an asset that would fit into a lot of the criteria,” said Lionsgate’s vice chairman Michael Burns, without confirming that Lionsgate was officially bidding for the label.

If it does, “We don’t overpay and we’re not in a hurry,” said Lionsgate’s CEO Jon Feltheimer.

Either way, Lionsgate is especially upbeat on the economic prospects new distribution platforms will provide — signaling the potential upside for other smart library owners.

“We continue to believe that when you look at packaged media on demand and digital as a whole, home entertainment remains a vibrant business,” Feltheimer said. “You just can’t keep operating the same way if you want to maximize the performance of your content. Streaming and downloading our movies and television through to iPods, iPads, iPhones, Xbox, PS3 and a numerable other devices will be generating new business and new customers for our content.”

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