Monday, November 03, 2003

Indie movie merger While few start-up companies openly admit it, the strategy of many is to grow to the point where they can threaten to disrupt, even a little bit, the industry they are in. Then, they are all but certain to be bought out by a larger company, and the owners can walk away with full wallets. At one time, entrepreneurs could dream of building their own empires. It still happens, but big companies in our time have their radar out, and the choice of being bought or being overwhelmed is an easy one for all but a few hardy souls. Building an acquirable company, then, is a priority for many, if not most, ventures. That seems to be what's happening with Lion's Gate, a film studio pygmy among the oligopoly giants. The Hollywood firm just announced that it will acquire fellow independent Artisan Entertainment. The cost, $160 million, is barely more than the budget for one second-rate major film from Sony or Universal. But it will make Lion's Gate the biggest player in the small sandbox of indie filmmaking. The new company will have a market capitalization of around $225 million, and will have a sizeable video library. Lion's Gate has produced such films as "Monster's Ball" and "Gods and Monsters," while Artisan's hits have included "Young Guns" and "Stargate". Both companies have had moderate they are occasional, not regular as with the big studios. According to a Wall Street Journal article ("At Lion's Gate, It's Only Intermission", 11/3/03) Lion's Gate is positioning itself to be a takeover target. "Now, only Lion's Gate and MGM (MGM) stand out as film outfits that don't have large media parents…. For an outfit eager to fill its pipeline with tons of films, Lion's Gate would be the perfect fit. Among the possible suitors, writes analyst Robert G. Routh of Natexis Bleichroeder in a recent report, are Comcast, John Malone's Starz pay channel, or maybe MGM itself." Lion's Gate CEO Jon Feltheimer says that he is not interested yet in a takeover, but the WSJ article sees one not far away. As for a sale, Feltheimer says 'give me six months.' That's a joke, perhaps, but the CEO's history is peppered with major deals, including helping to sell New World Entertainment to Sony (SNE) (where he headed TV operations) and then putting the deal together for Sony to sell its stake in the Hispanic TV network Telemundo to NBC (GE). As Lion's Gate grows, it will be under pressure to produce more typical Hollywood films. In fact, it's planning releases next year with de Niro and Robin Williams. But the more it gets lured into competing with the big boys, the harder it may be to stay in the game with the studios with deep pockets. In the end, it probably will have to sell out or fold. 7:45:22 PM

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