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UPDATE: Viacom took on $400 million in net debt and bought back a 51% majority stake in the DreamWorks SKG film library from billionaire investor George Soros in order to regain rights to 59 titles, including movies like Gladiator and Saving Private Ryan. 
Jeez, that sounds like Viacom overpaid ridiculously. But not when you realize that Viacom in March 2006 agreed to sell the library to Soros for $900 million and retained a 49% stake. The purchase was completed on February 8th, but not disclosed until today by Viacom COO Tom Dooley on an earnings call. Also it wasn’t voluntary: I’m told that Soros had a “put” to Viacom at the established price of $400 million. “This was all part of the charade under the original Deal,” as a source snarked to me. “The DW library, although chuck full of some compelling pictures, wasn’t worth anywhere near $950 million. So a deal was set up with Soros whereby Viacom would allow Soros, after 5 years, to ‘put’ the library back to Viacom for basically the shortfall.” This library sale comes after I recently broke the story that Disney wants to sell the Miramax name and 700-film library for a high of $700 million — and at least 10 bidders are lining up. Yet at one point Disney valued the Miramax library at $2 billion. And Warner Bros and Russian billionaire Len Blavatnik and others are trying to buy MGM’s 4,100-film library once valued at $2 billion and now thought to be offered for $1.6 billion to $1.7 billion. Plus, there’s Overture Film’s miniscule 14-film library for the taking. Blame the slump in DVD sales for the values of film libraries dropping so fast.
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The hysteria regarding the decline in DVD sales is overplayed. It will be replaced by digital downloads soon (if it hasn’t already). All sorts of dastardly deeds have been done under the cloak of ‘falling DVD sales’, but I’m pretty sure the real numbers from digital rentals and downloads aren’t being honestly reported. Bottom line: the desire to rent and own movies isn’t going anywhere.
I would have to agree. Studios are already adjusting by adding more and more downloadable copies of movies in with their DVD releases.
Jay, what’s the conspiracy? I don’t follow the “dastardly deeds” being done…
Guys, streaming on-demand will replace DVD for mainstream auds. It is a business of revenue sharing, so having a big and powerful library it is actually a great tool for the studios.
Yeah, streaming will replace DVD, but that’s more of a rental model. Those 20 dollar DVD’s flying off the shelves aren’t coming back – mostly because there aren’t any shelves left for them to fly off. Tower and Virgin are shut along with plenty of others, bookstores are in the crapper. Back in the day of VHS rentals, they would sell a VHS for 75 bucks and then the rental store would have to make its money back. So Hollywood has to get used to less money from whatever is next.
A distinction should be made between selling the libraries and selling the underlying intellectual property they contain, namely remakes, sequels, trademarks, characters, etc. Separation of rights is a gigantic obstacle (it’s what’s tied up some of the RKO library). If only the finished films themselves are being sold, then DVD and VOD rights are marginal. If the whole family of rights travels with them, however, it will feed the dumbass remake market for years. (“Saving Private Ryan II: The Reunion Hangover” or “Jimmy, Do You Like Gladiator Movies?”)
The problem with the “digital will replace DVDs” argument is that the numbers just don’t add up today or for the near future. Clearly consumers are moving that direction, but it doesn’t mean that the numbers are the same for the studios. Do you think Warner Bros. makes more money on a $19.99 DVD sale or a $3.99 digital stream?
The same logic applies to the “Hulu replaces NBC” argument. Yes, consumers will watch “network” tv on their computers and other connected devices, but the problem is that the current business model doesn’t pay the same $$$ (a network viewer is several times more valuable to advertisers than an online viewer.)
Libraries will continue to be valuable, but the downward prices for them today are going to reflect the declining DVD market, period.
The issue is not whether DVD moves to streaming/online. It will. The issue is that there was a 10 year period where people were convinced to buy film for $15 a disc. That model has changed to $1-2 rentals, be it online or hard disc. How that revenue is made it is the question.
Yes, Digital downloads and streaming will “replace” DVD sales, but considering the cost to buy a DVD is significantly more than the cost to watch one streamed, the money that the studios make in this new model is less. What we are also seeing is a shift from a Sales model (i.e. Consumers buy the DVD of the movie they want to see) to a Rental model (Consumers rent the DVD of the movie they want to see). Rental returns less money to the studio than Sales does.
I am not crying for the studios (maybe they should consider spending less on Production and more efficiently on AdPub/P&A), but they are definitely not raking it in the way they used to.
BTW, did I miss something, and Overture’s library is up for sale? Are they closing up shop over there?
unlike a lot of stories on this website, all the documentation of the sale to soros can be found in Viacom’s required public filings with the SEC.
I’m not sure anyone on this board reads those things, but the analysts on wall street do, and viacom’s stock is up today.
good deal? maybe, maybe not. but it doesn’t look like anything sinister occurred
Your right – the hysteria over DVD sales has been overplayed. But, replaced by digital downloads? Not even close. In ’09 the DVD business was almost $17 billion. The digital business was just over $1.5 billion. This according to Adams Research. DVD’s were down 15% from ’08 and digital grew 50% but its still a rounding error in the big scheme of things. Growing – yes. DVD maturing & slowing – yes. But I bet a significant portion of DVD’s downfall was due to the economy. I can tell you the underbelly of the DVD business (the eBayers) is growing rapidly. People want this stuff but are seeking less expensive alternatives.
What Bill said + a lot of DVDs you wouldn’t pay $15+/disc to own (Blu-ray or other format of the month be damned)
Is the MGM library up for sale all the later stuff MGM put out (i.e. none of the classics that made Ted Turner & TCM look so genius back in the day)? Other than Bond stuff what is really there with a lot of perpetual appeal?
Exactly. Distribution and technology may change but there is a history of film libraries being valuable from early television to VHS to DVDs, etc.
Studios have lost money when their film libraries were not valued during the first half of the last century and so many films were lost. Lost films can’t generate any revenue.
Jay Floyd — I’ve blogged extensively on this, yes sales of DVDS ARE dropping quite a bit. As are pricier rentals. Why buy a DVD if you think you might not like it, when you can rent from Redbox for $1?
This is why the Studios are doing whatever they can, including pressure on Wal-Mart to restrict DVD purchases to 5 at a time, to stop Redbox.
Average DVD prices went from $22 around 2000 to about $15 today. I can literally pick up DVDs at my supermarket for $9.99, and they are movies no more than two years old.
Digital rentals are both smaller in number, and much lower margins. Apple is selling downloads of selected TV series for $1 an episode. That’s about half the usual price for a box set (~$40 for 22 episodes on DVD release). Even assuming the same percentage margin, my math has that as HALF the net to the Studio. How many people are going to pay twice just for DVD extras?
And we haven’t even touched on Piracy. Eli Roth found copies of Hostel on sale in Mexico City for the equivalent of $0.25! Foreign sales are so bad Fox closed both Spanish and Korean language DVD divisions. American Gangster was on sale in LA and other places at swap meets a week before release.
Streaming on-demand along with widespread digital downloads still needs to deal with hurdles of slow DSL/Cable, and a downward hurtling economy.
Ask yourself this … how much are people going to pay for Saving Private Ryan or Gladiator, and how many will reasonably do so? THAT is the baseline for the valuation of the libraries.
Yeah somehow Hollywood “might just magically be different” than the music industry which saw revenues cut in half over ten years 1999-2009 from a transition to digital downloads from CDs. But more than likely, not.
If you have 10,000 songs on your Ipod, what is another one worth to you? How much will you pay for it? If you own 50 DVDs, what’s another DVD worth to you? How much will you pay for it, or a digital download?
Hollywood, the music business, the newspapers, magazines, all face huge crisis brought on by technology because they can’t get people to pay for things at the margins they did before so much competition.
I don’t think that stuff like Saving Private Ryan or Gladiator has no value. Just not $22, or even $10. More like around $1 which is where Redbox set the floor.
Posts like this remind me how little money Hollywood plays with. $400m is one deal for Soros.
With very few exceptions, the titles in the major film libraries have been comoditized and will become increasingly so as digital downloading grows. The “hysteria” surround the decline of DVDs is justified for companies that built business models around this supposed cash cow. I love when tools like Jay Floyd comment out of their depth. Conspiracies abound…
So do you think Soros collected anything on this library over 5 years ? Funny thing about libraries – as money comes in the value decreases ….
You think maybe Soros needed a tax write-off?
Soros is no fool. He has made billions shorting the market for a decade (or more), and he built-in his ‘put’ hedge b/c its an arbitrager’s typical stop loss maneuver to recoup some of that loss of value on the first go-around with this library. bottom line, the long-tail of these assets, especially when aggregated is quite valuable (duh!). so, whether it’s Ted Turner, Soros, or even Edgar Bronfman, the value of regular revenue streams is in the billions and these men know when to buy these assets to buffet the tides and fortunes of the shifting sands of Wall St.
Can anyone explain to me how MGM values its movie library so highly when the copyright on most of the movies has already expired?
Please explain.
Surely the studios make more money these days from rental. They sell the discs to stores for a modest amount, and then get a share of the rental revenue. Every time a title is rented the studio will earn say a dollar, after the stores recoup the outlay for a disc. Discs can continue to be rented for years until they wear out. A sale to the public is a one-off revenue stream.
Don’t studios own the rights to the soundtracks and music, even after the copyrights expire on the actual films. Didn’t the music rights pull the public domain ‘It’s A Wonderful Life’ back into copyright