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Wall Street Crisis Begins to Hurt Media Moguls 

Be afraid. Be very afraid

Wednesday, Oct 22 2008
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Let me see ... first, there were the Nazis. Then the Russians. Then the oil sheiks. Then the international Trilateral Commission bankers. Then the European terrorists. Then the Japanese industrialists. Then the Hong Kong Chinese tongs. Then the Red Chinese. Then the media moguls. Then the Middle East terrorists. Now film and television studios plan to make Wall Street execs into the next big villains.

No wonder. Because the stock-market plunge has meant panic time in Big Media executive offices. Overleveraged Sumner Redstone had to sell $233 million worth of his controlling shares of Viacom and CBS, which he’d used as collateral for a $1.6 billion loan (more below). And now Wall Street investor Carl Icahn, who loves to destabilize management when a stock is underperforming, has increased his stake from 4 percent to 9.17 percent (10.762 million shares) in Lionsgate Entertainment.

In the SEC filing, Icahn said he took the position because he thinks the shares are undervalued. A Lionsgate rep claims Icahn and the mini-major are having a “constructive dialogue.” But be afraid, be very afraid, Jon Feltheimer. Because Icahn caused all that trouble for Time Warner and its chairman/CEO Dick Parsons not too long ago. (Remember when Icahn was pressing TW for board seats and then enlisted Bruce Wasserstein to try to take over the company and put Frank Biondi in as the new CEO?) And the same guy who made Jerry Yang’s life miserable at Yahoo. And on and on ...

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Icahn looks to be bottom-feeding. That’s why I was surprised when the suck-up trades celebrated when Feltheimer this month extended his contract to run Lionsgate through March 14 for a base salary that’s reportedly $1.2 million until 2011, at which point it rises in accordance with the Consumer Price Index.

The pact also provides that he’ll receive 458,036 shares of stock vesting over a three-year period starting in 2012, giving him a 1.5 percent ownership stake — while Lionsgate shareholders keep getting hosed. The mini-major’s stock price has hit a 52-week low in a downturn that has impacted all media stocks. And at least one mogul.

It’s now come to light that, as the stock plummeted to more than a four-year low, Lionsgate Entertainment Vice Chairman Michael Burns lost 49 percent of his stake in the mini-major on October 10 in a forced liquidation by Merrill Lynch. In other words, the trades were not initiated at the direction of Burns. Merrill liquidated 672,000 of his shares for $4.04 million, according to regulatory filings. The sales left Burns with just 689,635 shares, according to the filings. Yikes!

So far there’s no indication that Feltheimer’s Lionsgate stake has been harmed. But here’s what really confounds me about him: how someone who was such a brilliant TV mogul at Sony, and whose mini-major had the good taste to be in business with Matthew Weiner for Mad Men, could allow Lionsgate to keep making revolting horror flicks, including many with torture porn?

True, Lionsgate — with its long-term association with Tyler Perry and its newly expanded studio production — is moving away from the traditional “Hard R” gory fare that made the mini-major successful financially into making more PG-13 product fare.

 
But I want Feltheimer to make a public announcement renouncing torture porn kinds of films before Saw V is released this month. My own fervent wish has been for someone to strap him to a chair and force him to repeatedly watch the sicko Saw franchise. But now Icahn may represent punishment enough for Feltheimer.

As for Redstone, it’s now known what the octogenarian was doing on the phone while dejectedly staring at the saltwater fish tanks in his office. The executive chairman of both Viacom and CBS was caught off-guard when, at first, he thought he had to sell $400 million in shares in those companies on the day their share prices tanked big-time (along with the rest of the stock market) because they were used to back a $1.6 billion loan to expand his family’s movie-theater chain, National Amusements.

But over the weekend Redstone negotiated a better payback arrangement. So in the end he had to sell “only” $233 million in Viacom Inc. (7 million nonvoting shares) and CBS Corp (17 million nonvoting shares).

National Amusements holds Redstone’s controlling interest in Viacom and CBS, and is the vehicle for his control over both companies. National Amusements now owns 46.8 million of Viacom’s voting shares and roughly 16.4 million nonvoting shares. It owns 46.8 million of CBS’ voting shares and about 22.8 million nonvoting shares. Viacom stock has fallen about 50 percent in the past year, while CBS is down around 70 percent.

When it rains, it pours. The share price for Redstone’s video-game publisher, Midway Games, also has hit the skids and lost a whopping 12 percent of its market value. The maker of titles Unreal Tournament 3 and Mortal Kombat fell 15 cents to close at $1.10. That’s down 67.1 percent from its year-ago price. As Forbes.com noted, Midway Games had “a doozy of a day” — making Redstone’s really rotten.

Geez, it wasn’t long ago that other media moguls were envious of Redstone for having the foresight to invest in video games — which he once boasted were “the hottest part of the entertainment industry” — not for Viacom but for his National Amusements.

And if that’s not enough bad news, Redstone and his wife of five and a half years, former NYC schoolteacher Paula Fortunato, filed for divorce. It was news to everyone but me, since I reported 14 months ago that there was trouble in the entertainment mogul’s marriage. At the time, I was told she’d signed one of those iron-clad prenups and would only get $1 million if the marriage broke up. But now Redstone claims he’ll be more “generous” and everything is friendly between them. Whatever. Normally I don’t delve into the moguls’ personal lives, but Redstone’s train wreck of a family life remains Page One news these days. Is anyone feeling sorry for Sumner now? Anyone? Anyone?

 
The Screen Actors Guild’s National Board of Directors has announced what its next steps will be. The AMPTP immediately said it would not give SAG a better deal than it had made with the other four major unions. But now the SAG National Board is asking for federal mediation because the Hollywood employers are refusing to negotiate. Time will be allowed for that federal mediation to accomplish a breakthrough.

The board is leaving it up to SAG’s national negotiating committee to determine if and when mediation becomes fruitless: If that point is reached, then the referendum seeking a strike authorization goes out to members. This process takes 30 to 45 days, including three weeks for the ballots to come back to SAG. If the vote is yes to empower a strike by at least 75 percent of eligible SAG members who return ballots, this still does not mean a strike will be called. Because then it’s up to the National Board to decide if and when to call for the work stoppage. In other words, Hollywood is still a long way from another strike. But the timing could threaten the Golden Globes and Academy Awards, again.

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