Against that backdrop, I read with interest a report that first appeared on Bloomberg.com


What's murky in the report are at least the following points:
1 What does it mean that Viacom retained a 49% interest in the films?After doing a bit of internet digging on the subject, I found a March 16, 2006 AP item that appeared on nytimes.com. Entitled "Viacom to Sell DreamWorks Film Library", the AP report noted the following:
2. What does it mean that Soros received broadcast and home sales rights?
3. If the agreement was for Soros to sell back his interest in five years, i..e, in 2011,why did he do so now?
1. The buyers on behalf of Soros were Soros Strategic Partners and Dune Entertainment II. The Soros group would acquire the entire list of 59 DreamWorks live action films released until September 15, 2005.So, if I understand this correctly, Viacom was at the time assured an income stream through distribution as well as exercising certain secondary rights in the library, while the Soros group would enjoy the benefits broadcasting and home entertainment.That leaves the question: Why did Soros sell back his 51% interest in the film library (there does not seem to be any question that the sell-back was within the legal ambit of the agreement)? Two comments that appeared in the news item above are relevant here.
2. The films would be distributed through an exclusive five-year distribution agreement with Paramount, which is owned by Viacom.
3. Viacom would retain "ownership" in music publishing and some other rights in connection with the film library, most notably sequel and merchandising rights.
The first appeared in the 2006 AP report here. There, Harold Vogel, a media analysis and author, observed that it was likely that the Soros Group intended to see the return on its investment through licensing fees for DVD's as well as cable and television broadcasting.
In this connection, Vogel observed that"[t]hey'll project how much each film can generate. The difficulty is, probably only the top 10 films generate 80 percent of the income."
The second observation appeared in the Bloomberg report of yesterday. As stated by David Davis, managing partner of Arpeggio Partners, "[l]ibrary values have clearly come down. And it's because of the decline in DVD sales in the industry."
It we set the Vogel comment against that of Davis, we discern a sea-change in the underlying premise on which the transaction seems to have been based. In 2006, the bet was that the megahits in the library would provide the income stream projected for the deal. The emphasis was a bet on the quality of the movie contents, not on the platform(s) that would distribute the contents and generate the income. In 2010, the bet seems to have failed, but not for the reasons anticipated in 2006. Rather, there was a secular change in the efficacy of at least part of the distribution platforms themselves, namely DVD sales.
If I have understood this correctly, a misjudgment was made in 2006 regarding the commercial future of the DVD sales business. Whether this misjudgment was due to changing circumstances that could not have been foreseen at the time is an open question, at least for me.
If I have understood this correctly, a misjudgment was made in 2006 regarding the commercial future of the DVD sales business. Whether this misjudgment was due to changing circumstances that could not have been foreseen at the time is an open question, at least for me.
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