February 18, 2004

It seems to be the week of what isn’t happening…

The Academy Awards season has gone from the great settling to the great big nap… The Passion of the Christ is on the verge of pre-release burnout as opening weekend estimates are beginning to drop in most of the minds of those who started drooling over the tracking only to see David Caruso & Co. hang Mel & Diane out to dry on Monday night… and The Chinese aren’t even going to get to see Nicole Kidman’s tuchus as pay-off for being patient with Cold Mountain for two long hours.

And then there’s Comcast…

Disney’s board officially rejected Comcast’s hostile bid for the company much more quickly than expected, which has now been followed by Comcast insisting that it won’t raise its offer. The offer, which went from being a skimpy 9 percent premium for the company to being less than the stock price for the company when Comcast stock fell and Disney rose, is expected to be raised with a cash offering if Roy Disney and Stanley Gold succeed in causing enough trouble with stockholders… but not enough to make it a sure-fire winner.

It seems that Comcast was mostly interested in swooping in and get a bargain while Mike Eisner was under attack, but grossly overestimated the amount of Eisner discontent out there… just as they underestimated the synergistic value of the NBC/Universal merger. Even at $30, which is about as high as Comcast is expected to ever go, Disney would be selling itself short. And, after all the wailing from Roy, how can anyone argue that Disney is currently undervalued and that the stock price shouldn’t increase by more than 12% in the next few years?

But even bigger is the very real question of whether this much synergy really works. Comcast’s lack of passion for the transaction gave the impression that while they wanted to acquire Disney, it didn’t really matter. One thing is sure. Disney stockholders are used to being the Belle at the ball. They aren’t real interested in a loveless marriage and suggestions that Disney would be little more than product for some cable owners isn’t really the best form of seduction.

Comcast wouldn’t be the sure-bet disaster that AOL was. But, as well respected as Stephen Burke may be, the idea of the Disney part of the company being run by the second banana, while the real power remains in wiring up houses, is another unattractive prospect. Moreover, there has not been an overwhelmingly successful studio/corporation turnaround driven by a change of leadership since Eisner, Wells and Katzenberg did it at Disney over 20 years ago. Is Paramount better under Viacom? Has Columbia’s track record been consistently strong under Sony? When Time merged with Warner Bros, management at the studio didn’t change. Fox has made leaps and bounds under Murdoch’s reign. But he didn’t buy it when the company was in the toilet. Don’t even get me started on Kirk Kerkorian’s on again-off again ownership of MGM. And DreamWorks, as a start up, has not rocked the world for its investors.

It’s interesting that all this is happening on the same week that Alex Rodriguez was traded to the New York Yankees. The Yankees are getting the league MVP at a bargain rate, as MVP’s go, because the Texas Rangers made an untenable deal for the player just three years ago. But for all the hoopla about the league’s MVP switching teams for only the sixth time in major league history, the “how important is the move” questions are already starting. The Yankees traded a young all-star for Rodriguez, after already acquiring two superstar hitters during the off-season. Rodriguez will improve the Yankees as an offensive and defensive team, but only marginally, given the talent that the Yanks are sending to Texas in Alfonso Soriano. If Rodriguez’s acquisition gets in the way of the Yanks grabbing a top-of-the-line left handed pitcher, it could mean that they may not be able to win a World Series, even with all this offensive firepower.

The point of all that – for those of you who could not care less about baseball – is that the entertainment business is made up of hot and cold streaks for every studio. The fundamentals at Disney are not a problem. The programming on ABC and maintaining a winning streak for the movie studio is. And there is no real reason to think that trading Eisner in for Burke will make Disney run any better. (Note: Any enthusiasm from those toiling under Eisner should be regarded first as a lust for fresh blood, aka an easy target, and secondly an itch to have a more open-minded boss.)

Perhaps the greatest fight about to hit this industry is not runaway production or piracy, but the economics of all this cross-ownership and how it affects the creatives in the business. Fox has been sued repeatedly for allegedly under-pricing their in-house produced second-run product, discounting to help build their own cables nets. This is just the tip of a big iceberg, since real synergy requires the freedom to cook the books as fits the big picture. Comcast’s interest in manipulating the rights to Disney content to build its other interests is sure to make the problem even worse. Look for some clever agent and lawyer to start building contracts that use some sort of industry history to guarantee minimum payments regardless of where or for how much a show is sold in the initial syndication stage… unless they already have and I just don’t know about it.

I seem to have digressed again. But look at it like this… if Rupert Murdoch decided to spin off all of News Corp’s satellite holdings, would we expect that business to thrive on its own? The answer is clearly, “yes.” Is Murdoch’s buy of DirecTV really about synergy with his TV and movie studios? No. They are all part of a synergistic empire, but Murdoch’s interest in the satellite business and the news business have been, historically, where his heart is. He doesn’t need the movie studio or even the TV network or television production business. They fit, but they aren’t really reliant on one another. The lack of that pressure to over-synergize is one of the things that make News Corp work so well.

The same thing, if one projects, seems likely to be the case with the GE/Universal deal. The pressure for Universal to do better will be there, but not with the “it has to happen or the deal looks crappy” pressure that happened with AOL/Time-Warner or the early days of Sony/Columbia. It is the kind of perspective that Mel Karmazin has brought to Viacom’s expanding universe.

READER OF THE DAY: LONG ISLAND PAULIE wrote: “"The theaters they have chosen in Jewish areas are minimal — none, for example, on Long Island near Valley Stream and the Five Towns or Great Neck and Roslyn — but screens in more friendly places like Merrick, Lynbrook and Seaford."

Lynbrook is 12 minutes (4.77 miles) from the Five Towns area
Lynbrook is 5 minutes (2.20 miles) from Valley Stream
Port Washington is 17 minutes (5.28 miles) from Great Neck
Port Washington is 13 minutes (4.38 miles) from Roslyn

And: Merrick is both heavily Jewish and upscale.”

SAN JOSE SCOTT wrote: “I stumbled across your article and found Mr. Friedman's on THE PASSION quite interesting. What I thought was humorous was his comments about the film being shown in the "economically less desirable San Jose, Calif." Since I am from the area, I thought I would look to see where it might be playing. The Century Theatres chain is the powerhouse in this area of California and a quick look at shows that they will be playing the film. While locations are not yet shown, most likely it will be at the Century 21, 22 or 23 in San Jose. This "economically less desirable location" features a host of shops across the street in Santana Row including Gucci and Cole Haan. If he considers this area "economically less desirable," I would love to see where he shops.”

And this from SHY-OMING: “What sense are you getting from your readers in regards to the box office potential of THE PASSION? I haven't looked at any tracking reports or anything of that nature, but I get the sense we are in for something much, much larger than any film in recent history. I work for a theatre in Wyoming, and I can tell you that there has been more interest in this film than any other film in the 15 years I've been in "the biz." We've responded by setting up all kinds of special screenings, group sales rules and the like...something our hometown theatres have never had to do. It seems that every single Christian is going to see it once and everyone else is going to go just to see what all the hub-bub is about. Will equate into the biggest opening of all time? Well, maybe not of all time, but there's no doubt it will set every February record in the books. And while the film may not bring the teenyboppers out for multiple viewings, I think THE PASSION has a chance to out do TITANIC'S US box office numbers, simply because of the huge audience it will have in this country. It wouldn't surprise me, anyway. Just wondering what you think, and hoping you'll comment on this aspect of the film at some point....”

E ME: I currently expect the film to open in the $35 - $40 million range and to total out around $135 million… which is a massive win by any reasonable standard. It may well become the biggest selling video/DVD of all time. But getting audiences to pay for repeat theatrical viewings of a self-described brutally violent, emotional foreign-language film is no easy sell. Current tracking suggests a $50 million-plus opening, but I don’t see that either. The movie that this could be analogous to My Big Fat Greek Wedding, potentially playing at smaller numbers for a long, long time. That I could see. And that could make it an even higher grosser. But remember Titanic’s trajectory. It opened in the low 20s and stayed there for months. I don’t see that happening for The Passion though, as I said, I suspect that it will be a major financial success and depending on an absence of any violence in response to the film, it could also be a major Oscar player at this time next year. Two anti-Semitic incidents, however, will bury those chances. Let’s all hope for none.