The theatrical box office market is facing significant challenges, with attendance struggling to recover after the COVID-19 pandemic.
Despite these hurdles, there is a surprising level of interest in acquiring movie studios, as indicated by recent deal activity in the film business.
A notable development occurred earlier this month, when it was revealed that Legendary Entertainment, known for hits like “Dune,” is considering acquiring Lionsgate Studios, the company behind the “Hunger Games” and “John Wick” franchises.
Both companies have opted not to comment on these acquisition talks.
This potential deal is just one of several transactions that have sparked conversation in the entertainment industry.
In June, Alcon Media Group, recognized for films such as “The Blind Side” and “Blade Runner 2049,” acquired Village Roadshow Entertainment’s film library for $417.5 million amid the latter’s Chapter 11 bankruptcy proceedings.
Alcon has not commented on the acquisition, while Village Roadshow also declined to provide insights.
A larger-scale deal currently awaiting regulatory approval is the sale of Paramount Global to Skydance Media, an $8 billion transaction that recently received government clearance.
Tom Ara, a partner at Weil, Gotshal & Manges, says that despite the market’s financial volatility, the entertainment industry is witnessing a resurgence of deal-making interest.
Ara indicates that there’s a significant amount of capital waiting to be invested, and many strategic players are eager to pursue acquisitions.
He believes that films and television remain the most cost-effective form of entertainment, ensuring that the industry will continue to thrive in the long run.
Comscore reports that domestic box office revenue is still down 24% compared to 2019.
However, even amidst ongoing changes in the industry, there is a strong demand from both domestic and international buyers for the intellectual property that film studios hold.
Intellectual property is viewed as a critical asset, especially as audiences tend to gravitate towards familiar franchises.
Studios with vast film libraries not only have potential for reboots, sequels, and prequels but can also tap into various revenue streams, such as merchandise, theme park rights, and streaming partnerships.
Brandon Katz from Greenlight Analytics notes that the interest in acquiring film studios goes beyond immediate profits, hinting that these acquisitions could unlock substantial long-term strategic value.
J. Christopher Hamilton, an entertainment attorney, elaborates that a successful film can generate revenue at multiple distribution stages, creating immense value for its owner.
He compares acquiring a studio to having the raw materials needed to create a thriving empire, emphasizing the unique impact blockbuster films can have globally, compared to streaming platforms.
Although private equity firms have pulled back somewhat from Hollywood in recent years, some, like RedBird Capital Partners and Apollo Global Management, have been involved in recent deals.
Apollo Global Management is particularly noteworthy as it has a stake in Legendary and sought to acquire Paramount through a joint bid with Sony Pictures Entertainment.
Lionsgate has long been viewed as a potential acquisition target, especially as one of the remaining mini-major studios left in the industry.
In 2016, Lionsgate acquired Starz for $4.4 billion, aiming to strengthen its competitive position in the media landscape.
However, the traditional television model has faced challenges due to the rise of streaming, leading to Lionsgate’s decision to separate its cable network Starz into a distinct publicly traded company earlier this year.
This separation was seen as a strategic move to distance Lionsgate from the declining fortunes of traditional TV and to enhance its attractiveness to potential buyers.
Lionsgate’s recent merger with a special purpose acquisition company was intended to raise new capital, valuing its studio assets at $4.6 billion.
Village Roadshow, which boasts a library of 108 films, including iconic franchises like “The Matrix” and “Mad Max: Fury Road,” also found itself on the market after facing legal issues with Warner Bros.
The company’s ambitious plans suffered greatly due to the pandemic and the dual strikes by writers and actors in 2023.
Alcon’s decision to acquire the Village Roadshow titles was motivated by the potential to enhance its own content library, despite some limitations in how it could utilize the properties, many originally co-financed with Warner Bros. Pictures.
The titles are estimated to generate about $50 million annually, a significant draw for Alcon.
For investors like David Ellison and his father, Oracle co-founder Larry Ellison, purchasing a legacy studio such as Paramount represents a chance to revitalize an asset hindered by poor corporate decisions and underinvestment.
Analysts speculate about who else might be looking to acquire studios or film libraries amid this consolidation trend.
Foreign buyers, especially from the Middle East, are seen as potential players in the game.
BeIN Media Group, a Qatari broadcaster, owns a 51% share in Miramax, while Saudi Arabia has initiated a $100 million film fund to attract international productions.
Hollywood studios are increasingly aware of the potential market expansion into the Middle East, evidenced by Walt Disney Co.’s announcement of a new theme park set to open in Abu Dhabi.
While tech giants like Apple and Google are often mentioned as potential suitors for legacy studios, their lack of concrete acquisition activity (with Amazon’s purchase of MGM Studios being an exception) may suggest that such investments aren’t currently a priority for them.
As discussions about mergers and acquisitions continue, they highlight the volatility of the film industry and a growing realism among companies about their futures.
Corey Martin of Granderson Des Rochers remarks on this shift, observing signs of various parties reassessing their positions, whether as buyers or sellers, and how to effectively enhance shareholder value in an evolving landscape.
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