Vault Holds Vivendi's Reel Value
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cc Tuesday, August 26, 2003 LATIMES.COM/BUSINESS Vault Holds Vivendi’s Reel Value ‘Film is a product that never dies,’ one analyst says. Accurately assessing the worth of the movie and TV library is key in negotiating the sale. By MEG JAMES TIMES STAFF WRITER The trail to uncover the wealth of NBC has proposed combining its Vivendi Universal winds through a vault broadcast and cable networks, including in Universal City, past reels of CNBC, MSNBC, Bravo and the Spanish- "Frankenstein" and "E.T." to "American language Telemundo, with Vivendi's en- Graffiti" and "Apollo 13." tertainment operations to form a new With more than 4,000 titles, Universal company. The merger would create an has one of Hollywood's largest and most international media colossus, valued at eclectic film libraries. It boasts Alfred more than $45 billion, and would rival Hitchcock's thrillers — "Rear Window," Viacom Inc. and News Corp., which "Psycho" and "The Birds" — alongside both have a portfolio of properties includ- Steven Spielberg's gems such as "Jaws," ing broadcast and cable networks and "Jurassic Park" and the Oscar-winning movie studios. "Schindler's List." The move is a stark departure for GE, The shelves also are filled with chapters which under former longtime Chairman of television history: "Leave It to Jack Welch had been leery of the boom- Beaver," "Woody Woodpecker," "The or-bust film business. Munsters" and "Magnum P.I." The proposed venture with Vivendi il- Vivendi's directors are meeting today in lustrates that Welch's successor, Jeffrey Paris to vote on how to proceed with the Immelt, and NBC Chairman Bob Wright sale of these assets, along with the rest of have slowly warmed to the idea of mak- their U.S. entertainment empire, which ing movies. The change, top executives they value at $14 billion. The board could say, stems in large part from the belief decide whether to enter into exclusive that the Universal film library is a deep negotiations with General Electric Co.'s well that could be tapped to even out the NBC or opt for a cash-rich proposal by studio's profit peaks and valleys. Vivendi Vice Chairman Edgar Bronfman "A film library is a one-of-a-kind as- Jr. set," said Lloyd Greif, president of Los For buyers, figuring out the value of Angeles investment banking firm Greif & Vivendi's entertainment properties comes Co. "Most assets depreciate over time, down to determining how much money but not film assets. Film is a product that the core assets — including the film li- never dies." brary — will generate in the coming Studios in recent years have mined bil- decades. lions of dollars by releasing movies on So while Vivendi directors are mulling digital videodiscs. These DVD releases over their bids, half a world away in Los oftentimes are little more than repack- Angeles, teams of investment bankers aged versions of laserdisc or videocas- hired by NBC are busy combing through sette releases, gussied up with special the Universal catalog. features. Home video divisions have be- billion to more than $5 billion. Much of the variance comes from different projections of how much revenue the studio will be able to squeeze from the library's thousands of titles. "There's probably a lot of room for interpretation in what certain titles could produce," said Drew Borst, an analyst with Sanford C. Bernstein & Co. "You ask, 'What kind of cash flow will be produced going forward?' and for some films, such as 'Coal Miner's Daughter,' probably very little." The investment bankers who are assessing the studio's value are looking at nearly all the ti- tles in the library, trying to trace their revenue streams and pro- ject future income possibilities. Part of that involves researching who owns the rights to the films and shows and seeing whether come studio workhorses. Although known for its feature films, there are any legal restrictions. "Profit margins for home video activi- Universal is no slouch in the TV busi- For example, a composer who wrote a ties — DVD and VHS sales and rentals ness. It operates three cable channels: Sci theme song for a show might own some — are far superior to the margins for the Fi, USA Network and Trio. Already in rights that could stymie the studio's plans theatrical release," said David W. Miller, the vault, meanwhile, are more than for a video release or add more costs to a Los Angeles-based media analyst for 34,000 hours of television — including the venture. investment banking firm Sanders, Mor- plenty of hits that aired on none other Other restrictions are more far reach- ris, Harris. than NBC. ing. AOL Time Warner Inc.'s HBO ca- "It's almost to the point," Miller added, The relationship goes back more than ble network and Liberty Media Corp.'s "where theatrical releases have become a 40 years to one of NBC's first big shows, Starz Encore have agreements that give promotional mechanism for a film's "The Virginian," which was produced by them the first TV runs of recent Univer- video release." Universal. sal releases. The pact with Starz Encore NBC could leverage the library by us- This fall, the studio will provide five extends through 2005, and HBO's lasts ing it as a foundation to build new cable programs for NBC's prime-time lineup, until 2010 and includes video-on- channels or video-on-demand subscrip- including the three popular "Law & Or- demand rights. tion services, analysts say. Within a few der" shows produced by Dick Wolf. By "All of these things flow from the years, Universal films and TV shows some estimates, the "Law & Order" fran- films, from the library," said Greif, the could be packaged and offered to viewers chise is worth more than $1.5 billion — L.A. investment banker. "Even the Uni- to download for a small fee, allowing the and NBC would face costly renegotia- versal Studio theme parks, every new company to wring more money from tions next year if the proposed merger ride relates to some movie release. It films and shows that have been paid for with Vivendi were to fall apart. always comes back to the films." many times over. Internationally, Universal is also a "You can continue to refresh the rev- force. Revenue from foreign distribution enue potential," said David Goldhill, of films and TV programs exceeds $250 president and chief operating officer of million a year, with nearly half that Universal Television Group. "And there amount coming from television shows. are a lot of opportunities for cross- According to Universal, episodes of promotion." "Miami Vice" reel in nearly a million For example, Goldhill said, when Uni- viewers each week in both France and versal released "The Hulk" this summer, Italy. "Columbo" can be seen weekly in it simultaneously offered a DVD collec- four different time slots in Britain, each tion of the 1970s TV show "The Incredi- delivering nearly 3 million viewers. And ble Hulk." And Universal's feature film "Quincy" is the second-most popular "Out of Sight" was retooled into a TV U.S. television show in Germany. drama that will premiere on the ABC Analysts say the studio, which includes network this fall as "Karen Sisco." the film library, could be valued at $3.8.