Why movie studios are still seen as good investments despite falling box offices

Box office takings are down. It is harder than ever to get people out of their homes and into the cinema. The business model for movies in streaming is still a work in progress. Given all these challenges, who would want to buy a movie studio now? Many people, it turns out. Earlier in July, the entertainment industry was abuzz after reports that film and television production company Legendary Entertainment, the company behind Dune and A Minecraft Movie, was considering a potential acquisition of Lionsgate Studios, producer and distributor of The Hunger Games and John Wick. It is far from the only deal news in the film business. In June, independent film finance and production firm Alcon Media Group – known for Blade Runner 2049 and The Blind Side – bought the film library of Joker and Ocean’s Eleven producer and financier Village Roadshow Entertainment for US$417.5 million after an auction process that was part of the latter’s bankruptcy proceedings. And of course, the biggest takeover in the business is the long-pending sale of Paramount Global to Skydance Media, a US$8 billion deal that received government approval last week. Though the first half of the year has been rocked by uncertainty in the financial markets – including fears about the effects of US President Donald Trump’s tariffs and trade policies – there is likely pent-up demand for deal making that could emerge in the coming months and years, said lawyer Tom Ara, a partner in the private equity group at Weil, Gotshal & Manges who also leads the firm’s entertainment, sports and media practice. “There’s a lot of capital sitting on the sidelines, and I think there’s a lot of desire by different strategic and financial players to make deals,” he said. “Film, TV – it’s still the least expensive form of entertainment for the vast majority of the general public, and so it’s not going anywhere.” Movie attendance was badly damaged by the Covid-19 pandemic and has not recovered. US domestic revenue remains down 24 per cent from 2019, according to analytics company Comscore. But even as the industry has undergone change and upheaval, strategic buyers, both foreign and domestic, see value in what film studios are producing. Intellectual property has become key, as audiences now gravitate mostly toward what they already know. With studios’ vast libraries of films, not only could those collections be ripe for reboots, sequels, prequels or spin-offs, but they also give owners options for other non-film revenue streams, such as merchandise, theme park opportunities, television shows, streaming deals 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 research firm Greenlight Analytics. “They’re not necessarily stand-alone cash cows. The interest in one is more about the broader ecosystem.” While intellectual property can come from anywhere, movies are a particularly valuable way to generate value because of their worldwide distribution. A major hit can drive more revenue at every stage of a film’s post-release distribution journey, said J. Christopher Hamilton, a practising entertainment lawyer and a professor at Syracuse University in New York who focuses on the business of media. “It’s like being given the raw materials to build the empire,” he said. “No matter how successful the streaming network is … it’s never going to have the same level of impact globally on every level as a blockbuster hit.” Private equity firms – which tend to be attracted to film and television libraries because of the cash flow they generate – have retrenched slightly from their previous interest in Hollywood. But some groups have taken part in recent deals, including RedBird Capital Partners, which is backing the Skydance bid for Paramount, and Apollo Global Management, which also made a play for Paramount in a joint bid with Sony Pictures Entertainment. Apollo has a minority stake in Legendary. Lionsgate has long been considered a potential acquisition target, particularly as it is one of the few so-called mini-major studios left in the industry. The company acquired cable network Starz in 2016 for US$4.4 billion to bulk up and better compete in the media ecosystem. But the business model for traditional television cratered amid the rise of streaming, and earlier this year, the two formally split into separate publicly traded companies. Lionsgate merged its studio business with a special purpose acquisition company in a deal that valued its assets at US$4.6 billion and gave it a way to raise new capital. The decoupling from Starz was seen as a way for Lionsgate to separate itself from the declining fortunes of the television business and potentially be more attractive to buyers as a stand-alone studio, analysts said. Lionsgate also has a distribution arm, which could be enticing for a company like Legendary, which partners with other studios such as Warner Bros. to release its films. Village Roadshow, which has a library of 108 films including stakes in The Matrix films and Mad Max: Fury Road, went up for sale amid a bruising legal battle with Warner Bros. and after the pandemic and the dual writers’ and actors’ strikes of 2023 throttled an ambitious slate. Alcon, led by co-CEOs Broderick Johnson and Andrew Kosove, could be limited in what it can do with the properties, many of which were released by, and co-financed with, Warner Bros. But Alcon still saw value in the assets to supplement its own content library. The Village Roadshow titles collectively generate an estimated US$50 million annually, Alcon said. For David Ellison, CEO of Paramount buyer Skydance, and his billionaire father, Oracle co-founder Larry Ellison, buying a legacy studio like Paramount is an opportunity to turn around an asset that has long suffered from poor corporate decision-making and chronic underinvestment. Who else could be in the market for a studio or film library during this period of consolidation? Foreign buyers are a possibility, particularly those from the Middle East, analysts and experts said. Qatari broadcaster BeIN Media Group already owns a 51 per cent stake in film and television studio Miramax – Paramount Global owns the other half. In 2024, Saudi Arabia launched a US$100 million film fund to attract productions to the country. And Hollywood studios are recognising the potential for new audiences and customer bases in the Middle East – earlier this year, Walt Disney said it would open a new theme park in Abu Dhabi, in the United Arab Emirates. Though tech companies like Apple or Google are frequently discussed as potential buyers of legacy studios, the fact that none have yet embarked on a deal – with the exception of Amazon for MGM Studios – could indicate that they do not see it as a business priority, Hamilton said. In the end, the discussion about mergers and acquisitions indicates the volatility of the industry – and individual studios’ realistic assessments about their own futures, said Corey Martin, managing partner and chair of law firm Granderson Des Rochers’ entertainment finance practice. “I think that 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 maximise shareholder value?”

Why movie studios are still seen as good investments despite falling box offices

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}With industry movements involving the companies behind Dune, A Minecraft Movie, John Wick and more, is it really all that bad in movie land?

With industry movements involving the companies behind Dune, A Minecraft Movie, John Wick and more, is it really all that bad in movie land?