Friday, February 29, 2008

New Line Cinema to merge into Warner Bros.

By Claudia Eller, Los Angeles Times Staff Writer

The consolidation marks the end of the line for the once scrappy producer that prided itself on taking creative risks that other studios wouldn't. But in recent years New Line strayed from its street-smart roots with a slew of costly flops that ended its role as a big-time player in the volatile movie business. In a sign of retrenchment
that is increasingly prevalent in Hollywood, the company will now focus on making fewer movies limited to the kind of smaller, low-cost "genre" horror and comedy pictures upon which it built its name. New Line becomes the latest free-standing Hollywood studio to abandon its ambitions as a full-fledged company in a market in which bloated overhead and soaring production and marketing costs have squeezed profits amid flat movie attendance and sagging DVD sales. It comes just as the studio is to release today what could be one of its most promising comedies in a long time, the basketball spoof "Semi-Pro" starring Will Ferrell.

Over the last three years, DreamWorks SKG, the once highflying live-action studio founded by Steven Spielberg, David Geffen and Jeffrey Katzenberg, was sold to Viacom Inc. and scaled back as part of the media company's Paramount Pictures. At the same time, Harvey and Bob Weinstein's Miramax Films became a much smaller unit of owner Walt Disney Co. after the brothers were forced out. Metro-Goldwyn-Mayer was gobbled up by a consortium of investors including Sony Pictures, Comcast Corp. and two major private equity firms. "People start out with high hopes for these indie studios," media analyst Harold Vogel said. "But ultimately they encounter rising costs and difficulties in managing the businesses. At some point, the cash flow and balance sheets fall short of their ambitions."

The consolidation of New Line is the first corporate maneuver by Time Warner Inc.'s recently named Chief Executive Jeffrey Bewkes to rein in costs at the New York media giant, whose stock price has stagnated since its merger with America Online eight years ago. Bewkes is under pressure from shareholders to boost profitability at Time Warner, which owns cable channels such as CNN and HBO; cable systems that are the largest in Southern California; and publishing operations that include Time, Sports Illustrated and People magazines. In a conference call with media analysts this month, Bewkes announced plans to immediately eliminate 100 jobs at Time Warner's corporate headquarters, split AOL into two parts, possibly reduce its 84% ownership of Time Warner Cable and target New Line for "near-term cost cuts." That was an understatement. As a part of Warner Bros., New Line's staff of 600 will be vastly scaled back and the company will no longer greenlight, market or distribute its own movies. Although New Line executives will continue to oversee the development and production of its own films, final say on all matters rests with Warner Bros. President Alan Horn. New Line will make only half the 12 to 14 pictures a year it did previously, which will now be distributed worldwide by Warner Bros. Bewkes will meet today with New Line's New York employees and address its Los Angeles staff via satellite at the Pacific Design Center.

"Between the cost savings and the revenue enhancements, we believe we can at least double the earnings of New Line," Bewkes said in an interview. He added that those gains would more than offset "substantial restructuring charges" that Time Warner would incur as a result of New Line's consolidation and would benefit earnings as soon as next year.

"This is a no-brainer move," said Richard Greenfield, an analyst with Pali Research. "There's no reason to have two separate infrastructures." New Line's diminished star is a huge blow for New Line founder, Bob Shaye, 68, and his longtime top lieutenant, co-Chairman and co-Chief Executive Michael Lynne, 66, both of whom learned Thursday that they would leave the company. No successor was named. In recent weeks, the pair, whose contracts expire at the end of the year, made a last-ditch attempt to stay, presenting Time Warner management with a plan that would have ensured their continued employment. In an e-mail to employees, Shaye said their departure was a "painful decision, because we love New Line and the people who work here have been like our second families." Shaye, who founded New Line in his Greenwich Village apartment in 1967 by peddling "Reefer Madness" to college campuses, continued to reign over the company even after he sold it to media magnate Ted Turner in 1994. Two years later the company was swept up in Time Warner's purchase of Turner's cable empire. Over the next 12 years, Shaye continued to run New Line as a fiefdom.

But his and Lynne's relationship with their corporate parent grew strained as New Line began making costlier mainstream movies in the mid-1990s, including Warren Beatty's "Town and Country," "Little Nicky" with Adam Sandler and "The Island of Dr. Moreau," starring Marlon Brando. Such misfires prompted Time Warner to exercise more scrutiny. In 1997, Time Warner considered selling New Line but was resisted by Shaye's ally Turner, who as vice chairman and a major shareholder held a lot of sway. A couple of years later, Shaye made an audacious bet that changed the course of New Line's fortunes -- at least temporarily. He committed hundreds of millions of dollars to making three "Lord of the Rings" movies after New Zealand director Peter Jackson's idea to bring the literary classic to the screen was rejected by other major studios.

The first "Rings" movie grossed $871 million worldwide, followed by a two sequels that amassed more than $2 billion in ticket sales. That was a tough act to follow. Although all studios have ups and downs, New Line's poor track record in recent years added to the pressures on Shaye and Lynne. Since the last "Rings" film in 2003, the studio has had some hits -- "The Wedding Crashers," "Elf" and last year's "Hairspray." But the hits were outnumbered by flops such as "The Last Mimzy," a family sci-fi fantasy directed by Shaye himself; "Rendition," a thriller with Reese Witherspoon; and "The Number 23," a dark thriller starring Jim Carrey. Its biggest miscalculation came in December with a failed attempt to launch a new movie franchise based on Philip Pullman's literary trilogy "His Dark Materials." New Line spent at least $180 million to produce and tens of millions more to market the first film, "The Golden Compass," which only managed $70 million in domestic ticket sales.

Although the movie grossed more than $250 million overseas, New Line had sold off the foreign rights to offset its high budget. But that longtime practice of the company to hedge its bets runs counter to Warner's strategy to retain worldwide distribution rights. "International revenues are becoming more important and it doesn't make sense to give up foreign rights, where a lot of the upside is," Bewkes said. The Burbank studio will now also be able to exploit New Line's valuable library of about 500 titles, including "Teenage Mutant Ninja Turtles," "The Texas Chainsaw Massacre," David Fincher's thriller "Seven," and the Jim Carrey comedies "The Mask" and "Dumb and Dumber." But the jewel in the crown is a planned adaptation of "The Hobbit," J.R.R. Tolkien's predecessor novel to the "Lord of the Rings" trilogy. The project was in abeyance until New Line and Jackson settled a lawsuit in December over the accounting of the first film's income. That paves the way for Jackson to co-executive produce "The Hobbit," which MGM will co-finance and release internationally. But New Line's legal troubles are far from over. Tolkien's trust is suing the studio for allegedly cheating it out of at least $150 million in profit from the franchise. On a more promising note, New Line has several potential hits in the wings, including a movie version of HBO's popular series "Sex and the City," a screen adaptation of Cornelia Funke's fantasy novel "Inkheart" and "Journey 3-D," based on Jules Verne's classic "Journey to the Center of the Earth," starring Brendan Fraser.

Ambac bail-out fears dent Wall Street

By Stacy-Marie Ishmael in New York (Financial Times)

US equity markets opened lower on Friday, setting the stage for a fourth consecutive month of declines, after reports that the proposed rescue of bond insurer Ambac was at risk and record losses at AIG. The S&P 500 fell 1.2 per cent to 1,351.99 in early trade, while the Dow Jones industrial average fell 1.1 per cent to 12,445.74. The Nasdaq composite traded 0.9 per cent lower at 2,309.79. The Short View: Brazil’s bull run - Feb-28 CNBC said the Ambac bail-out had hit a “significant snag” over the amount of capital the consortium of banks are willing to put up. Ambac’s shares fell 5.7 per cent to $11.13; CNBC said the deal was “far from dead.” Ambac’s rival MBIA fell 4.1 per cent to $13.48 after the bond insurer said it could incur claims payments amounting to a “significant portion” of its reserves. Elsewhere in the insurance sector, Assured Guaranty’s shares soared 14.2 per cent to $26.01 after Wilbur Ross agreed to buy up to $1bn in shares of the triple-A rated bond insurer. But AIG fell 5.9 per cent to $47.18 after the world’s largest insurer posted a fourth-quarter net loss of $5.3bn due to $11.5bn in writedowns on its derivatives portfolio. A report from UBS that credit-market losses at financial firms might top $600bn added to the jitters around financial stocks, which have sold-off sharply this week. “Leveraged risk positions are a cancer in this market and the sooner it is treated the better,’’ UBS strategist Geraud Charpin wrote in a note to clients on Friday. AIG’s $11.5bn writedown “is also the clearest indication that banks are not the only ones to suffer potential losses,” he said. An index of financial stocks fell 2.2 per cent, while an investment banking index declined 1.7 per cent. But there was good news for technology, media and telecommunications companies. Technology consulting company Sapient rose 15.9 per cent to $7.23 after its first quarter sales would exceed analysts’ estimates. Novell rose 4.1 per cent to $6.88 after the Linux software distributor reported a fiscal first-quarter profit that beat estimates. Video game publisher Take-Two Software rose 1.5 per cent to $26.40 after it said had received “informal indications of interest” from other potential bidders following Electronic Arts’ unsolicited $2bn takeover offer for the company earlier this week. The company added that it had not received any written offers and was not in any discussions for a buyout with any party, including EA, according to a filing with the Securities and Exchanges Commission. 3Com leapt 19.6 per cent to $3.48 after the Wall Street Journal said Bain Capital and Huawei Technologies planned to reapply for approval to acquire the networking systems and services provider in a deal worth $2.2bn. On the economic front, data showed US personal income and personal spending in January rose more than expected, but inflation ate up a bigger portion of these as a key price index also rose. In the bond market, yields on the 2-year Treasury note fell 17 basis points 1.7 per cent. The 10-year Treasury note fell 12bp to 3.60 per cent.

HSBC Gets $3.2 Billion Bid for French Regional Units

HSBC Gets $3.2 Billion Bid for French Regional Units

Feb. 29 (Bloomberg) -- HSBC Holdings Plc, Europe's biggest bank by market value, may sell its French regional consumer- banking network to Banque Federale des Banques Populaires for 2.1 billion euros ($3.2 billion) as it focuses on faster growth in French cities and emerging markets. HSBC is in exclusive talks and has got a ``firm'' cash offer for what would be its biggest sale ever, the London-based bank said today in a statement. The price is 21 times the units' after-tax earnings last year and 3.7 times shareholders' equity on Dec. 31, HSBC said. The 400 branches generated less than 20 percent of French pretax profit last year. The London-based bank aims to earn 60 percent of pretax profit from emerging markets, up from about 50 percent in the first half of 2007. In the U.S., it has cut lending, closed mortgage units and changed management to curtail bad debts from subprime consumers. It may need to add $13 billion to provisions, Goldman Sachs Group Inc. analysts wrote last month. The French sale ``is logical, it is consistent with their strategy,'' said Derek Chambers, an analyst at Standard & Poor's Equity Research Ltd. in London who has a ``hold'' rating on the stock. ``The real challenge is to sort out the U.S.'' The regional banks are Societe Marseillaise de Credit; Banque de Savoie; Banque Chaix; Banque Marze; Banque Dupuy, de Parseval; Banque Pelletier; and Credit Commercial du Sud-Ouest, the company said. They had assets worth 8.38 billion as of Dec. 31 and generated net income of 100 million euros last year. They have 400 branches and 2,950 people.

`Faster Growing Businesses'

``This offer is an opportunity for HSBC to redeploy capital to other investments as we pursue our strategy and rebalance our activities towards emerging markets and faster growing business segments,'' HSBC Chairman Stephen Green said in the statement. There are still ``significant opportunities'' for banking in urban France through HSBC's international network, Green said. HSBC fell 1.8 percent to 766 pence in London trading as of 1:40 p.m. The company is down 9.1 percent this year, valuing it at 90.8 billion pounds ($179 billion). Banque Federale des Banques Populaires is the central coordinating unit of Groupe Banque Populaire, a network of regional lenders that isn't traded. ``This acquisition allows Groupe Banque Populaire to improve its growth prospects in retail banking,'' Banque Populaire Chairman Philippe Dupont said in the statement. ``We intend to retain the brands of the regional banks and their individual identities.''HSBC reports full-year earnings on March 3. It plans to complete its $6.45 billion acquisition of Korea Exchange Bank from U.S. buyout firm Lone Star Funds in April.