Qualia's New Bet on Old Flicks

The firm's purchase of a film and TV library is the second major deal of its kind in two weeks. It's more proof of where the action is heading -- to your iPod or family room

The biggest hit in Hollywood these days seems to be old movies. In just the last two weeks, private-equity funds have ponied up for film libraries that until recently were churning out DVDs. But with digital delivery the hot topic among studio executives these days, investors see new gold in faded flicks. In the latest deal, private-equity firm Qualia Capital is paying an estimated $100 million for the rights to scores of old TV shows and movies, including Sex and the City, Hogan's Heroes, and the 1997 film The Saint, starring Val Kilmer.

Qualia is buying the library rights from Internet billionaire Mark Cuban and the production company Gaylord Entertainment. Cuban had purchased rights to the product initially made by Rysher Entertainment. All told, the libraries Qualia is acquiring include more than 200 movies and 20,000 hours of TV shows.

The Qualia acquisition comes after fabled investor George Soros' private-equity fund partnered with Dune Capital Management on Mar. 17 to pay $900 million for the rights to 59 older films produced by Dreamworks SKG (DWA ), buying that library from Viacom's (VIA ) Paramount Pictures unit.

SAVVY EYE ON HOLLYWOOD. The films had been generating solid, if unspectacular, cash flow through sales to TV stations and DVDs. But the Soros deal has a kicker that puts both big-buck purchases into sharper focus. Within five years, Soros has the right to sell the library back to Paramount. That's about when the new world of digital distribution -- be it through video iPods, downloads to computers, or video-on-demand offerings from cable operators -- is expected to make its most serious inroads into consumer's living rooms.

Indeed, by 2009 alone, U.S. consumers will likely spend $1.2 billion a year on video-on-demand versions of movies and TV shows, projects investment bankers Veronis Suhler Stevenson. While small in comparison to the $30 billion that would be spent in 2009 on DVD sales, the video-on-demand sales are skyrocketing while DVD sales continue to slow. On top of that, studios generate far larger margins for selling films electronically, since they do not have to manufacture the discs.

Those kinds of economics no doubt appealed to Amir Malin, the founder of Qualia and a savvy Hollywood veteran who's known for his ability to generate revenues from older libraries. Malin built a profitable company out of the libraries of Hollywood oldies like Republic Pictures, Vestron, and Carolco Pictures. When the market for DVDs exploded, he sold the company he had created, Artisan Entertainment, for $160 million in cash in late 2003. This time around, Malin no doubt is looking for outlets for TV shows like Sex and the City and films such as Like Water for Chocolate and Divine Secrets of the Ya-Ya Sisterhood

DIGITAL PRIZES. "Whatever the pipeline will be in the future, whether it's my iPod or TV shows on satellite, they are always going to need content," says Malin. "It's the beauty of this business that content is always in demand when there's a new platform to put it on." Plus, Malin could find studios willing to make updated versions of some of his golden oldies, he says. Joe Roth's Revolution Studios, for instance, has optioned the rights to remake Hogan's Heroes. Malin says an update of the TV show Lifestyles of the Rich and Famous is also a possibility.

Still, the big prize likely will be the still-uncertain world of digital distribution, he says. As a plus to the deal, Cuban and his partner Todd Wagner, who run a high-definition TV channel, have already largely reformatted their TV shows and movies into high-definition, making it easier to sell to new digital outlets.

That's the great new world that Hollywood figures is coming sooner rather than later. When it will happen precisely is anyone's guess, of course. That makes having product Hollywood's new money sport, with well-heeled investors such as George Soros and Amir Malin angling to find a way to play.

READER COMMENTS

Grover is Los Angeles bureau chief for BusinessWeek

BW MALL SPONSORED LINKS

Mutual Funds at Fidelity Benefit from years of mutual fund management experience.
High interest checking only online! 2.02 APY, FDIC insured, mobile banking and no fee bill pay. Incredible!
OppenheimerFunds. Products and Services For A Range Of Financial Goals. Learn More.
Online PHR Certificate Program w/ Villanova Univ SHRM Approved HR Certificate Program from Villanova University. 100% Online - Find Out More Now!
Your Customers Speak Email: Do You? You Already Have What You Need to Maximize ROI: Your Current Customers.

Buy a link now!

Get BusinessWeek directly on your desktop with our RSS feeds. XML

Add BusinessWeek news to your Web site with our headline feed.

Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video.

To subscribe online to BusinessWeek magazine, please click here.

Learn more, go to the BusinessWeekOnline home page