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The Icahn Saga: The Poison Pill That Isn't

Posted by: Ron Grover on February 16, 2010

Carl Icahn is a reporter's dream. When things get a little slow, the 74-year old dealmaker always does something to spice it up. Which is what he did today when he said he was launching a tender offer for shares of Lionsgate(LGF)in a bid to give him a 30% stake in the company that makes the Saw and Tyler Perry movies.

So why is Icahn making his move on Lionsgate now, nearly a year after he last tried to win control of the company through a failed tender offer to buy the studio's convertible bonds? Among the reasons is this tasty little morsel: in 2009, when the company mounted a successful defense against Icahn, it went out of its way to remind investors that if Icahn got enough of the convertible notes he could be considered to control more than 20% of the company. That would trigger a bank covenant and "could result in a cross-default and acceleration of Lionsgate's payment obligations," the company said back then in a press release. Translation: the company might have to cough up a chunk of cash to pay off its $340 million revolving line of credit to its banks.

Well, that defense doesn't seem to be very potent right now. While no one was looking - no one except Icahn, it appears - Lionsgate but paid down that line of credit. As of Dec. 31, it said in its most recent financial filings, it had drawn only $12 million. So, if Icahn triggered the 20% threshold, it would only cost Lionsgate $12 million to pay off the line, not much for a company that had revenues of nearly $1.2 billion in the nine months that ended Dec. 31.

Neither Icahn not Lionsgate would comment. But Icahn is apparently worried that Lionsgate was keeping its powder dry so that it could use that credit line to make an acquisition, and both MGM and Disney's (DIS)Miramax library are on the market right now. He worried that they might overpay, I am told by sources who understand Carl Icahn's thinking on this issue. And without that line of credit, Lionsgate might not have the money to mount a bid at all, or at least that's what Icahn may be thinking.

Then again, the credit line is cheap money, priced at 2.5% above "adjusted LIBOR" or 2.73% as of Dec. 31, the company's filing says.. That's super cheap money that Lionsgate would no longer have at its disposal. And don't you think for a minute that Lionsgate's management won't make that point to shareholders in an effort to dissuade them from tendering their shares of Icahn.

Yup, here comes Lionsgate-Icahn, the sequel.

Ryan Kavanaugh May Make Believers out of Hollywood Yet

Posted by: Ron Grover on February 7, 2010

For most of the last five years, it seems, Hollywood’s favorite game has been handicap when – not if – Ryan Kavanaugh would come crashing down. Kavanaugh, who runs Relativity Media, is the 35-year old wunderkind who raised more than $8 billion from private equity investors since arriving on the scene in 2005. His company finances most of the movies made by Universal Pictures (GE) and several by Sony Pictures (SNE) as well.
But Relativity has also been quietly becoming a production studio in its own right, and this weekend seems to have hit the big time. Its romantic drama Dear John scored big at the box office, generating a larger than expected $32.4 million opening weekend that made it the first film in nearly two months to knock Jim Cameron’s 3D space epic Avatar from the top rung of box office performers.

For Ryan Kavanaugh critics, and Hollywood is crawling with them, this can’t be good news. The whisper campaign has been that Kavanaugh is all show and now go, that he has used smoke and mirrors to make his numbers look good, and that investors would soon be lining up to sue the financier.
Well, folks, is doesn’t look like that’s going to happen anytime soon. His slate deals with Universal and Sony have had both winners (Universal’s It’s Complicated) and losers (Sony’s The International) but no more or less than any other fund in town. But what Ryan Kavanaugh has right now is a bone fide hit. And, whether he’s saying it or not, odds are that he’s plenty happy to make some people eat their words.

Dear John, which stars young actors Channing Tatum and Amanda Seyfriend in a young love tear-jerker of a couple who find one another before an army soldier ships out, is among a group of films that Relativity is making on its own. (It’s a separate business from its financing of so-called “slate deals” with Universal and Sony.) And Dear John proved to be a huge hit with young women under 21, according to exit polls. Better yet, it was made for around $20 million, meaning that Kavanaugh and his investors will see some heady profits from the flick.

Continue reading "Ryan Kavanaugh May Make Believers out of Hollywood Yet"

Mr. Zucker, Comcast On Line Three

Posted by: Ron Grover on January 12, 2010

The rub on Jeff Zucker, who heads NBC, has always been that no one could ever figure out what he did to get to the top. The 44-year old was a creature of General Electric. He rose from nowhere, starting as a researcher for the 1988 Olympics, and then as Katie Couric’s producer at The Today Show.

Using a combination of moxie and managing upward he jumped to run The Today Show, then sit atop NBC’s entertainment operations, and finally to run the entire NBC operation when Bob Wright retired in early 2007.

Well, Jeff, it looks like your luck has run out. The Jay Leno, Conan O’Brien mess will be your undoing, if not within the next few months then when Comcast takes over controlling interest in NBC Universal in the next year or so.

Your aim might have been laudable – to fix the wobbly network TV business model by cutting programming costs -- but by putting Leno in the 10 pm prime time slot you’ve accelerated all of the business’ ailments. Menacing cable channels have picked off Leno defectors, NBC’s TV affiliates are steaming mad, and now NBC is at the mercy of just about every agent in Hollywood. If NBC wants a hot new David Kelly show (as it recently said it does) the network is going to pay through the nose for it.

The irony is that Zucker rose to the top at NBC on the basis of a prime time schedule that frankly stunk. The numbers of new shows that were created while he headed the prime time unit is few – in fact, I can think of just one, The Office, and that one was a British import.

Somehow Zucker never got tarred with the failure. Instead, he got the top job, and got out while the getting was good. (Of course, he did hire Ben Silverman before moving upstairs, and Silverman never really found his way to a hit, either).

The General Electric folks loved Zucker, it seemed, because he gets the credit for pushing NBC into the brave new world of cable channels. And under him NBC enjoyed steep ratings growth at its Bravo, USA and SyFy (formerly the Sci-Fi) Channel.

But nothing rivets the viewers’ attention like the happenings at a major network. You can bet that, as the Leno and Conan sagas play out, the guys at Comcast are glued to their sets.

Leno Leaves, NBC's Wobbly Business Model Returns

Posted by: Ron Grover on January 10, 2010

Announcements don’t get much more dramatic than the one NBC made today about yanking The Jay Leno show from its 10 o’clock time period just three months after the former host of The Tonight Show began his one-hour comedy, skit show.

Yes, NBC TV honcho Jeff Gaspin told an overflow gathering of reporters on Sunday’s TV Critics Tour in Pasadena, Calif., NBC’s 200-odd affiliates had forced the change because prime time ratings tanked. The reason? Their 11 pm news programs, a nice little profit center for most stations, was suddenly hemorrhaging through no fault of their own.

But what Gaspin didn’t say – at least not so boldly – was that NBC had also made an abrupt u-turn on its plans to remake a broken business model for making TV shows. Prime time pilots are made for $10 million, shows for $3 million or so, and viewing audiences are going south. Gaspin’s predecessor, Jeff Zucker, had made the fateful decision to bring in Leno, and to shuttle Law and Order and other 10 pm shows out of their time slots, by arguing that ratings would go down but so would costs.

So much for that idea. Coupled with the announcement that Leno was taking his $500,000 a week show off the air at 10 pm., was the announcement that NBC was going back to the good old ways that networks have always operated. Namely, big producers, big stars, and cross your fingers the shows work. How about these for some biggies to whom NBC said it is throwing its bucks the next few weeks in hopes of finding TV lightning in a bottle – Jerry Bruckheimer, David E. Kelly and J.J. Abrams, who will direct a pilot called “Undercovers” about CIA agents. The last time Abrams directed a pilot, it only cost $13 million.

Of course, that pilot was Lost, which was an immediate and big (although not terribly long lasting) hit on ABC. Clearly, that’s what NBC is hoping Abrams will bring to NBC as well. Then again, they’re hoping the same thing for a remake of “The Rockford Files” that they’ve also ordered for what’s going to be a pricey sum. We all know how their last retread effort -- i.e. “Knight Rider” -- turned out.

Continue reading "Leno Leaves, NBC's Wobbly Business Model Returns"

News Corp, Time Warner Play to DC Not The Viewers

Posted by: Ron Grover on January 2, 2010

Was there ever any doubt that News Corp. and Time Warner would come to an agreement that would allow Time Warner’s cable unit to continue showing News Corp’s cable or broadcast properties on its system? The announcement on Jan. 1 that the two sides had averted a showdown that would have kept the BCS football game on the sidelines for 11 million folks is, well, a yawner.

It’s become almost an annual kabuki dance among cable or satellite operators and content providers to show which side – content or distribution – has the most muscle when it comes to such talks. Guess what fellas? Neither of you really have what it takes any longer to force your will on the other.

The last time we had a showdown anywhere near this size was back in 2000, when Time Warner, in the midst of a similar showdown with ABC, allowed Regis Philbin and his then-hit show Who Wants to Be a Millionaire” to go dark for some 3.5 million homes. The cries from Washington were deafening. Hearings were held, fingers slapped.

So when the chorus started again in Washington on Dec. 30 on the current impasse you knew that Fox and Time Warner were destined to do whatever they could to avoid having DC on their backs. First, Sen. John Kerry urged the sides toward arbitration, and then FCC commissioners started encouraging peace. If there is anything that a media company wants less than a shutdown in the ad markets, it’s to have the feds on their backs. So Time Warner and News Corp. wisely extended the Dec. 30 deadline, then scurried to cut a deal that you know is less than the monthly $1 per subscriber fee that News Corp. had all but insisted was their right to get from cable operators.

One thing News Corp chairman Rupert Murdoch, who owns TV stations, newspapers and internet sites, understands is that he sure as heck doesn’t want an angry FCC looking over his shoulder. In the past, he’s done back flips to keep them happy, whether it was striking a deal that allowed him to own the New York Post and New York area TV stations, or to get his deal to buy DirecTV passed a few years back. As for Time Warner, do you think they want the feds thinking bad thoughts about them when the FCC is still contemplating rules on such things as “net neutrality” – that is, whether Time Warner’s online offerings are to be regulated? Uh, no.

Sure, it was good theater. News Corp. told America that it might not get the NFL, American Idol or Glee. Time Warner said it was fighting to keep consumer prices from zooming if Fox high jacked higher fees from them. Yeah, yeah. A good show boys. It sure played in Washington.

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