Image gets new partner
UPDATE: New stakeholder Relativity will add theatrical titles
By Susanne Ault -- Video Business, 8/14/2006
AUG. 14 | Image Entertainment, under pressure to bolster its shareholder appeal as a standalone company or be acquired by Lionsgate, has pacted with Relativity Media in a massive home entertainment output deal that also makes Relativity a significant Image stakeholder.
Under the deal, Image will distribute theatrical projects from Relativity, whose production credits include Talledega Nights: The Ballad of Ricky Bobby, on standard-definition DVD, high-def disc formats and digital platforms for a 10-year period.
In turn, Relativity will receive 3.4 million shares of Image common stock. That will grant Relativity a 14% stake in Image, rivaling Lionsgate’s 19% ownership of Image stock.
Relativity will receive the shares after Aug. 25—too late to be eligible to vote on Image board members during its upcoming October shareholder’s meeting. Yet Relativity has secured a seat on Image’s board, placing Relativity co-founder and co-managing member Lynwood Spinks as a director. All Image board members will be up for re-election, including Spinks, in October.
Lionsgate is seeking to elect its own slate of takeover-friendly directors at that time.
Favorable to Lionsgate, Relativity isn’t immediately blessed with Image shares. Relativity must comply with a complicated set of film performance restrictions to be granted the full 3.4 million share amount, as detailed in a Wednesday conference call with Image analysts. First films from the Image/Relativity alliance have not yet been specified but are slated to start hitting DVD next year.
Image aims to release three to five Relativity movies in 2007, more than doubling that flow to 10 to 15 in 2008. Starting in 2009, Image wants to roll out 20 Relativity projects annually.
Image expects hundreds of millions of dollars in additional revenue over the next few years with this infusion of content. The company stands to earn $60 million to $90 million on three Relativity titles and $140 million to $210 million on six.The supplier will service all Relativity films on home video and digital channels that are not already part of major studio financing and distribution deals. Sony Pictures Home Entertainment will distribute Ricky Bobby on disc following its theatrical run.
Image controls home entertainment rights for Relativity films made over the next 10 years and retains these rights for each film for 10 years.
Sources say Relativity production budgets will range between $10 million and $100 million. James Mangold-directed 3:10 to Yuma is in preproduction, but it’s not clear if that will wind up in Image’s pipeline.
“The Relativity deal may be the single most significant agreement we’ve signed in the history of Image Entertainment,” Image president and CEO Marty Greenwald said. “For the past 25 years, Image has developed an internal distribution platform and forged direct retail partnerships that have become the foundation for our success.”
This partnership mimics the David and Goliath pairing of indie Genius Products and blue chip theatrical player The Weinstein Company. However, Image scored elite content by giving up just 14% of its company, but Genius wound up yielding 70% of the ownership to The Weinstein Company in that distribution arrangement.
Greenwald is particularly pleased about raising Image’s profile as it’s under intense scrutiny by shareholders.
“By releasing major motion pictures into traditional and non-traditional retail locations, Image will be the beneficiary of hundreds of millions of dollars in revenues,” he said. “This will also dramatically enhance the value of our large and diverse library.”
Although Image is considered an indie supplier with fewer resources than a major, Relativity was convinced of its distribution capabilities because of its variety of services. By establishing Egami in early 2005, Image was one of the first studios, indie and major, to carve out a specialty business dedicated to full-fledged digital distribution.
“After analyzing the various home video platforms available, we concluded that Image’s solid record of success and innovation, paired with the depth and breadth of its North American retail exposure and its relationships with the major retailers, made Image the ideal partner for us to take such a large and important step,” Relativity co-founder and co-managing member Ryan Kavanaugh said.
