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Analyst: Studio Film Catalog Valuation Hitting Bottom

2 Aug, 2010 By: Erik Gruenwedel

Last week’s $660 million sale of Miramax Films by The Walt Disney Co. to an investor group for near asking price suggests the decline in value of studio film catalogs is approaching bottom, an analyst said.

Specifically, announcements that Relativity Media would acquire Overture Films from Liberty Media Group, ongoing interest in Metro-Goldwyn-Mayer’s (MGM) library and the Miramax sale underscore investor continued interest in catalog content at the right price, according to London-based research firm Screen Digest.

Interest in studio catalog titles — primarily driven by DVD sales — waned in recent years as sales of physical media cooled, offset slightly by burgeoning Blu-ray Disc releases and consumer interest in high-definition content, said Tom Adams, principal U.S. analyst with Screen Media.

“A decline in film library valuations … was clearly warranted, given the shrinking disc-sale business — the biggest source of cash flow earlier in the decade,” Adams said. “But last week’s deals indicate that a bottom is forming. If past swings in library values are any indication, buyers today may end up benefiting from loss-cutting by buyers who overpaid during the mid-decade peak in the DVD-buying frenzy.”

It remains unclear whether the steady rise in sales of Blu-ray Disc players, notably Internet-connected ones, is a harbinger of stabilizing disc sales or growing interest in digital distribution, which continues to underwhelm as a replacement to physical media, according to Screen Digest.

“Digital delivery has not proven popular enough to suggest it can drive overall film revenue growth if disc sales continue to decline,” said Helen Davis-Jayalath, head of video at Screen Digest.

The Digital Entertainment Group said revenue from digital distribution of movies in the first half of the year via transactional video-on-demand (VOD rental) and electronic sellthrough (iTunes) accounted for $1.1 billion in consumer spending, up 23% from the first half of 2009.

“We think it would take a combination of nearly every one of those factors proving negative to reduce the value of film libraries substantially from current levels,” Davis-Jayalath said. “Clearly some deep-pocketed and presumably savvy investors are deciding that’s not likely.”

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