How fitting that when “Alice in Wonderland" is the top draw so far at the box office this year, Hollywood itself is starting to feel as if it's fallen down a rabbit hole.
The industry is waking up to a topsy-turvy world where everything it's gotten used to for decades has again changed -- perhaps forever.
Studio libraries have lost their value, and making movies is now about how much you can make theatrically rather than banking on the kind of coin that can be collected for years down the road. In short, the homevideo paradigm that has driven Hollywood's thinking for the last five to 10 years has been upended. The biz has shifted back to the traditional box office-based model, now enhanced by the rise of 3D.
It's a harsh new reality that's become especially apparent over the last six months as a frenzy of bidding -- or the lack thereof -- for MGM and Miramax Films, a potential acquisition of Overture Films and hostile takeover of Lionsgate exposed the current state and financial future of the film biz.
Until three years ago, libraries were thought to have a pretty stable value," says an analyst who has assisted investors in evaluating the price of studio libraries. “But people are starting to question the value of libraries because the numbers are showing there's not the demand from the public that there used to be."
A 4,000-film library like MGM's consistently pumped out close to $600 million each year for the company. That figure has since plummeted to $400 million, but once overhead costs are factored in, the number is actually $250 million.
Specialty label Miramax's 700 films had been generating around $100 million a year for Disney. In five years, that's expected to drop to $25 million, unless new pics are added to the mix.
That's largely because titles have lost 20% of their value over the last two years. An older film that sold $1 million worth of DVDs in each year from 2003 to 2007 earned $800,000 in 2008. Last year, that fell to $640,000.
That decline is what's led to lowball offers from companies like Time Warner, which offered $1.5 billion for MGM. The Lion was seeking at least $2 billion.
The Mouse House was looking for bids of at least $700 million to offload Miramax, but instead it received an offer of $600 million in cash and payouts over several years, from Bob and Harvey Weinstein, backed by supermarket mogul Ron Burkle, while Alec Gores' investment venture the Gores Group and Tom Gores' Platinum Equity offered $550 million in cash as their joint bid.
A third bidder, Pangea Media Group, run by David Bergstein, is said to have bid between $650 million and $700 million. But individuals close to the process questioned the viability of that prospective deal, given that the financier is embroiled in an involuntary bankruptcy proceeding involving the assets of Thinkfilm, Franchise, Capitol and other companies he controls, and that he faces more than two dozen creditors, including the guilds, who are seeking back payment of residuals and salaries.
Several interested bidders, including Summit Entertainment, Lionsgate Entertainment, Amir Malin and Ken Schapiro's investment fund Qualia Capital, and Daniel Snyder, owner of RedZone Capital and the Washington Redskins football team, walked away from the auction after they balked at Disney's starting bid of $600 million. They were considering bids of around $450 million.
Given the more high-profile films it has in its library, not to mention the James Bond franchise and “The Hobbit," MGM's pics are attractive to investors because the films can be rebooted or launched as new franchises. Potential buyers have said they want to keep MGM afloat as a studio, but they'd still have to start paying off the Lion's $3.7 billion debt, with interest payments due in mid-May.
In the meantime, New York investment portfolios like Qualia Capital and Access Industries, as well as Relativity Media, have offered up $500 million in equity to enable MGM to continue producing films and use B.O. earnings to make payments, while upping the value in the company with potential hits (it has remakes of “Red Dawn," “Poltergeist" and “RoboCop" in the works). News Corp has similarly offered up $250 million.
Miramax, however, is in an entirely different position.
The industry is waking up to a topsy-turvy world where everything it's gotten used to for decades has again changed -- perhaps forever.
Studio libraries have lost their value, and making movies is now about how much you can make theatrically rather than banking on the kind of coin that can be collected for years down the road. In short, the homevideo paradigm that has driven Hollywood's thinking for the last five to 10 years has been upended. The biz has shifted back to the traditional box office-based model, now enhanced by the rise of 3D.
It's a harsh new reality that's become especially apparent over the last six months as a frenzy of bidding -- or the lack thereof -- for MGM and Miramax Films, a potential acquisition of Overture Films and hostile takeover of Lionsgate exposed the current state and financial future of the film biz.
Until three years ago, libraries were thought to have a pretty stable value," says an analyst who has assisted investors in evaluating the price of studio libraries. “But people are starting to question the value of libraries because the numbers are showing there's not the demand from the public that there used to be."
A 4,000-film library like MGM's consistently pumped out close to $600 million each year for the company. That figure has since plummeted to $400 million, but once overhead costs are factored in, the number is actually $250 million.
Specialty label Miramax's 700 films had been generating around $100 million a year for Disney. In five years, that's expected to drop to $25 million, unless new pics are added to the mix.
That's largely because titles have lost 20% of their value over the last two years. An older film that sold $1 million worth of DVDs in each year from 2003 to 2007 earned $800,000 in 2008. Last year, that fell to $640,000.
That decline is what's led to lowball offers from companies like Time Warner, which offered $1.5 billion for MGM. The Lion was seeking at least $2 billion.
The Mouse House was looking for bids of at least $700 million to offload Miramax, but instead it received an offer of $600 million in cash and payouts over several years, from Bob and Harvey Weinstein, backed by supermarket mogul Ron Burkle, while Alec Gores' investment venture the Gores Group and Tom Gores' Platinum Equity offered $550 million in cash as their joint bid.
A third bidder, Pangea Media Group, run by David Bergstein, is said to have bid between $650 million and $700 million. But individuals close to the process questioned the viability of that prospective deal, given that the financier is embroiled in an involuntary bankruptcy proceeding involving the assets of Thinkfilm, Franchise, Capitol and other companies he controls, and that he faces more than two dozen creditors, including the guilds, who are seeking back payment of residuals and salaries.
Several interested bidders, including Summit Entertainment, Lionsgate Entertainment, Amir Malin and Ken Schapiro's investment fund Qualia Capital, and Daniel Snyder, owner of RedZone Capital and the Washington Redskins football team, walked away from the auction after they balked at Disney's starting bid of $600 million. They were considering bids of around $450 million.
Given the more high-profile films it has in its library, not to mention the James Bond franchise and “The Hobbit," MGM's pics are attractive to investors because the films can be rebooted or launched as new franchises. Potential buyers have said they want to keep MGM afloat as a studio, but they'd still have to start paying off the Lion's $3.7 billion debt, with interest payments due in mid-May.
In the meantime, New York investment portfolios like Qualia Capital and Access Industries, as well as Relativity Media, have offered up $500 million in equity to enable MGM to continue producing films and use B.O. earnings to make payments, while upping the value in the company with potential hits (it has remakes of “Red Dawn," “Poltergeist" and “RoboCop" in the works). News Corp has similarly offered up $250 million.
Miramax, however, is in an entirely different position.
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