Entertainment & Entrepreneurship

The Wall Street Journal today reported that Disney is providing stock and cash to acquire Marvel Entertainment, in a deal reported to have a $4 billion total value. The transaction, which will garner antitrust scrutiny, will likely be one of the largest realignments in tent-pole film production.


Marvel has been the inspiration for summer blockbusters for at leas the last decade, and it owns thousands of characters with potential for films, television, Internet, theme park and product lines. Disney has done a better job than any company in maximizing the return for its copyrighted characters, so the combination will reach much further than the slate of the summer blockbusters.

Though not discussed by the Wall Street Journal is the extent to which Disney hopes to use the Marvel content to redevelop its web strategy, including a pay model for premium content on its exclusive pages. The ownership of the popular Marvel characters will shift Disney's median demographic up to the peak Internet age, adding content to its delivery system.

Marvel already has licensing deals for a number of its characters with Fox, Sony and Paramount. The existing relationships will slow regulatory approval, but are unlikely to halt the transaction, given the level of competition in the industry and the lack of market power held by any of these companies.

The full impact of the transaction will take years to play out on the silver screen, but Disney has been very savvy at maximizing value from lesser characters and ancillary markets. The potential is for web-based content and merchandise to begin appearing later this year.

Not only has this increased the value of Marvel, but it is likely to be a boost to its competitors as well. Interesting how the comic book is the one publishing sector growing in the Internet age.

Posted by Jon M. Garon at 10:19 AM | Permalink | Comments (0) | TrackBacks (0)

According to a report in today's Wall Street Journal, Metro-Goldwyn-Mayer Inc. has replaced Chief Executive Officer Harry Sloan and hired restructuring expert Stephen Cooper. Cooper joins two other MGM executives in an office of Chief Executive: Mary Parent, the chairwoman of MGM's motion-picture group; and Bedi Singh, the company's chief financial officer. Ousted CEO Sloan will remain as chairman.

Nothing good can come out the latest management shakeup. For a studio which has made so many history and toga movies, it should know better than to be ruled by a triumvirate.

Worse, as reported by the Journal, "The 62-year-old Mr. Cooper's most recent assignment didn't work out well. Carlyle Group hired him last year to rescue Hawaiian Telcom, a land-line business the private-equity firm had acquired from Verizon Communications Inc. Those efforts failed when the company filed for Chapter 11 bankruptcy protection last December."

MGM has a fantastic and valuable film library, but its only active franchise is the James Bond films. The return to the Pink Panther has had limited success. It will be producing Fame for this fall and extending the Stargate franchise with another television series, but frankly it has a weak, recycled slate and crippling debt, generated by the purchase from Kirk Kerkorian. A history of bad financing has bloodied what was once the best Hollywood has to offer.

If MGM hopes to overcome its financial woes, the Triumvirate needs to kick open the doors to the vault and encourage a wide array of filmmakers to explore how best to revitalize these properties, perhaps taking a back-end participation so that new voices and new media can be added to the mix. If MGM follows the same old rules, it will be managing its assets through Chapter 11 in no time.

Posted by Jon M. Garon at 12:21 PM | Permalink | Comments (0) | TrackBacks (0)

In a fight reminiscent of Sony v. Universal, Universal and now Fox are trying to control the sales of their DVDs to Coinstar's Redbox DVD kiosks. Despite a pending lawsuit between Coinstar and Universal regarding the legality of the limits, Fox just demanded that it receive a 30-day delay in kiosk distribution. 

The idea certainly is not new. The movie industry has long used distribution windows to protect the pricing of its entertainment product. First run theaters which charged the highest ticket prices (and were often owned or operated by the studios) received licenses to exhibit films before the small theater chains had access to those films. Later, the studios briefly tried to control which video stores had access to video releases.

But the legality of controlling the content has also been well established. The tactics used by the film industry to protect the first run theaters were declared an antitrust violation which was upheld by the Supreme Court in 1948 in U.S. v. Paramount Pictures. Sony v. Universal, which focused on the fair use of recording over-the-air broadcasts for time shifting, was as much about whether the studios could demand a license fee from the sale of the playback machines as about video taping. By losing the fair use claim, the studios lost the leverage to demand those licenses.

According to its press statement, "Redbox is available at more than 17,000 locations nationwide, including select McDonald's restaurants, leading grocery and convenience stores, and Wal-Mart and Walgreens locations in select markets."

Universal demanded a 45 day release window, revenue sharing and the destruction of previously purchased DVDs, all steps designed to support the sales price of DVDs. Fox is demanding the 30 day release window or "agree to better economic terms" according to newspaper reports.

The attempts by the studios to force other distributors not to sell to Redbox looks to be a violation of the Sherman Antitrust Act as a conspiracy or contract in restraint of trade. Moreover, the Copyright Act specifically provides that the owner of a particular copy of a copyrighted work has the right to resell or dispose of that particular copy as the owner sees fit, without any obligation to the copyright holder. Known as the "First Sale" doctrine, the U.S. law denies publishers and distributors the right to downstream control over copies of the work.

So where is the need to increase rental prices coming from? Blockbuster is certainly hurt by Redbox. Blockbuster is owned by Viacom, the parent of Paramount Pictures and a number of cable channels. (Paramount has not made the same demands as Universal or Sony, perhaps out of the more obvious antitrust concerns.) More generally, as the prices for videos in kiosks drop, the price pressure will increase on video-on-demand through iTunes or other retailers. Even more broadly, $1 video rentals make waiting until a movie comes to video more appealing than going to a movie theater. But the $1 movie also makes the idea of video piracy economically stupid and indefensible.

In the short run, the limits on Redbox actually hurt the DVD distributors because it reduces a revenue stream. It also paints the industry as greedy at a time of deep economic difficulty. It is likely to violate the antitrust laws and runs afoul of the copyright laws.

The studios should look at the big picture and rethink their kiosk strategy before real harm is done.



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Posted by Jon M. Garon at 08:53 AM | Permalink | Comments (0) | TrackBacks (0)

As widely predicted, the peer-to-peer file sharing case ended quickly and decisively after U.S. District Judge Nancy Gertner disallowed any evidence on fair use. The jury awarded $675,000 to the plaintiffs. But as mentioned in the previous post, the approach of Judge Gertner has been rather favorable for the defendants (despite the ruling on fair use and her frustration with Professor Nesson).

Taking a cue from a ruling in the prior jury trial ruling out of Duluth, Judge Gertner may follow some of the dicta by Judge Mike Davis in the prior case and review the appropriateness of the damage award in the context of due process and Eight Amendment claims.

Judge Davis wrote of his grave concerns regarding the disproportionate damage awards. This may be the decision that directly addresses the concern that a very few individuals are being held responsible for the costs to the entire industry.  At the same time, of course, there may be evidence that there are far more songs traded than those actually named in the case. Jurors understand that as well, which can definitely impact their decision regarding damages.

Posted by Jon M. Garon at 10:27 PM | Permalink | Comments (0) | TrackBacks (0)