I read today that New Line Cinema was going to be absorbed
into Warner Brothers. As part of that
move, the co-CEOs where taken out of the equation and as many as 200 jobs (out
of 600) will be lost. New Line is a 40-year
old studio that was purchased by Turner Broadcasting in 1994. Two years later Turner snapped up by Time
Warner (TWX), owner of Warner Bros. It
will still be called New Line, but green light approval will have to go to
through the head man at Warner.
New Line has had some big hits as of late – most notably, The Lord of the Rings trilogy. Other hits include the Rush
Hour trilogy, Austin Powers and Elf. But some misses were The Mimzy, Shoot ‘em Up
and Little Children (I personally liked the last two). Browse
hits and misses. At the end of the
day, New Line was the victim of an undeniable trend in the movie industry –
namely, the importance of international markets to a movie’s overall revenue
stream. USA Today reported that this
year, 63% of a Hollywood movie’s revenues come from other markets. A few years ago that percentage was 40%.
Warner Brothers has the international distribution network that
New Line Cinema doesn’t have. And that has been a problem of late. The
Golden Compass was produced for $180 million and only brought in $70
million in domestic box office. In order
to get the money to make the film, New Line sold the international
distribution rights. Then the
international market proceeded to bring in $260 million. Ouch.
In my mind, the consolidation of the New Line business unit will
likely mean less creativity and fewer opportunities for more artistic films
like Shoot ‘em Up and Little Children. Production will be halved to about 12 films
per year.
I am tempted to put on a put position just to protest the
lost of artistic value. Interesting that
Time Warner options had a little spike in volatility a few months back. IV is now around 25 for the March
at-the-money put. Kinda sleepy.
