Hollywood's Decline: Why Buy a Movie Studio?

The Film Industry's Consolidation: A New Era of Mergers and Acquisitions

The film industry is undergoing a period of significant transformation, with mergers and acquisitions becoming increasingly common. Despite the challenges posed by the decline in theatrical box office revenue and the ongoing shift toward streaming platforms, several companies are showing interest in acquiring movie studios.

One notable example is the potential acquisition of Lionsgate Studios by Legendary Entertainment. While neither company has confirmed the reports, the news has sparked considerable interest within the entertainment sector. This move comes at a time when many studios are looking to strengthen their positions in an evolving market.

In June, Alcon Media Group made headlines by acquiring the film library of Village Roadshow Entertainment for $417.5 million. This deal was part of the company's Chapter 11 bankruptcy proceedings. Alcon, known for producing films such as "The Blind Side" and "Blade Runner 2049," sees value in the acquired library, which includes titles like "Joker" and "Ocean's Eleven."

Another major development is the long-pending sale of Paramount Global to Skydance Media for $8 billion. This deal received government approval recently, marking a significant shift in the landscape of the film industry.

Despite the uncertainty in financial markets, including concerns over trade policies and tariffs, there is a growing sense of pent-up demand for dealmaking. Legal experts suggest that the film and television industry could see increased activity in the coming months and years.

Strategic Value of Intellectual Property

Intellectual property (IP) has become a key factor in the film industry. Audiences tend to gravitate towards familiar content, making existing libraries of films valuable assets. These collections can be leveraged for reboots, sequels, prequels, or spinoffs, as well as for other revenue streams such as merchandise, theme parks, TV shows, and licensing.

"It's less about short-term earnings and more about using that film studio as a key to unlock strategic value down the road," said Brandon Katz, director of insights and content strategy at Greenlight Analytics. "They’re not necessarily standalone cash cows. The interest in one is more about the broader ecosystem.”

The global distribution of movies also contributes to their value. A major hit can generate revenue across various stages of a film's post-release journey. As J. Christopher Hamilton, an entertainment attorney and professor, noted, "It's like being given the raw materials to build the empire."

Private Equity and Foreign Investment

Private equity firms have shown interest in Hollywood, particularly in film and TV libraries due to their cash flow potential. However, some firms have retreated from previous levels of involvement. RedBird Capital Partners and Apollo Global Management have participated in recent deals, including the Skydance bid for Paramount.

Lionsgate, a mini-major studio, has been a potential acquisition target. The company acquired Starz in 2016, but the business model for traditional television has declined with the rise of streaming. Lionsgate has since separated its studio business from Starz, aiming to position itself as a more attractive standalone studio.

Village Roadshow, with its extensive library of 108 films, faced challenges due to legal battles and the impact of the pandemic. Alcon saw value in the assets, even though many of the titles were co-financed with Warner Bros. Pictures.

International Interest

Foreign buyers are also showing interest in the U.S. film industry. Qatari broadcaster BeIN Media Group owns a stake in Miramax, and Saudi Arabia has launched a $100 million film fund to attract productions. Hollywood studios are recognizing the potential of new audiences in the Middle East, with Disney planning a new theme park in Abu Dhabi.

While tech companies like Apple or Google are often discussed as potential buyers, none have yet pursued major acquisitions, except for Amazon’s purchase of MGM Studios. This may indicate that they do not see it as a top priority.

The Future of the Industry

The ongoing discussions around mergers and acquisitions reflect the volatility of the film industry. Companies are reassessing their futures and considering whether they are buyers or sellers. Corey Martin, managing partner at Granderson Des Rochers, believes further consolidation is likely.

"I think we’re going to see further consolidation," he said. "You’re already seeing the signs of some of these various parties coming to grips, being honest with themselves as companies and platforms about whether they’re buyers or sellers — and to the extent you are a seller, how do you best position yourself to maximize shareholder value?"