[Chapter 952: Virgin Records]
Eric felt somewhat puzzled. "Why would Virgin's executives help us facilitate the acquisition of their own record company?"
Katzenberg replied, "Barry mentioned that there are people in high positions at Virgin Records who are also part of the Virgin group. Before EMI acquired Virgin in 1992, the label was doing quite well. However, since the acquisition by EMI, Virgin has been on a downward trend. They likely want to break free from EMI and find better growth opportunities. Barry should have a clearer understanding of the specifics."
Eric thought for a moment and said, "Let's have Barry come over for lunch. We can discuss this in detail."
...
After sending Katzenberg off, Eric continued with his work until he finally left the office at noon.
Barry Weiss had come over from the Burbank headquarters of Firefly Group. Since they had serious business to discuss, Eric led him and Katzenberg to the restaurant at the Titanic exhibition center, where he specifically reserved a private booth.
Barry Weiss seemed to have prepared extensively. Shortly after sitting down, he started explaining the ins and outs of the situation to Eric.
"Originally, Virgin Records was a subsidiary of Richard Branson's Virgin Group. In 1992, when Virgin Atlantic faced financial difficulties, Richard Branson had to sell Virgin Records to raise funds to save the airline. This means that from the start, EMI did not proactively push for this acquisition; they simply believed they could expand their power after purchasing Virgin Records.
However, reality did not match their expectations. Although Virgin couldn't compare to the major record labels in the world, it had a very comprehensive music production and distribution network and catered to a wide range of artists and music genres. It was essentially a mini EMI. Therefore, EMI couldn't simply integrate Virgin into their own corporate system without causing disruptions.
Stuck in this situation, EMI could only let Virgin maintain its independent operation. However, most of Virgin's business overlapped with EMI's, which meant EMI would lean towards its own core operations for development. Not only did this limit the support given to Virgin, but it also meant the siphoning of resources that should have belonged to Virgin. Consequently, over these years, Virgin Records not only failed to grow but fell into decline."
Once Barry Weiss finished, Eric asked, "What popular artists are currently under Virgin Records?"
"If you're talking about mainstays, you could say the Rolling Stones are about the only ones left. The other artists aren't too prominent," Barry Weiss shook his head. "Although the Rolling Stones have been one of the most popular bands in the world since forming in 1962, they've long passed their peak in terms of popularity and creativity. Moreover, they signed with Virgin only after the 1992 acquisition. Since their inception, the Rolling Stones have released 40 albums, but Virgin only owns the rights to the five albums released after they signed. The rest, including many of their classics, are held by other record labels."
Eric felt a surge of excitement at the mention of the Rolling Stones, but his enthusiasm deflated as he listened to Barry Weiss's following remarks.
The Rolling Stones' status in music history was unquestionable. If Virgin Records held substantial licensing rights for their albums, acquiring the company would greatly enhance Yahoo Music's catalog of classic content. However, Eric felt relieved that Barry Weiss had not hidden the band's status in order to close the deal. With that realization, he had mostly come to agree with the transaction. As Firefly Group continued to grow, Eric found himself increasingly unable to manage everything, making it essential for department heads to prioritize ethics over mere capabilities.
Barry Weiss couldn't guess Eric's inner thoughts, but upon noticing Eric's disappointment, he became anxious and hurried to add, "Eric, I believe Virgin's greatest asset to us is its music distribution network. Aside from the headquarters in the UK, Virgin has subsidiaries in Germany, France, the Netherlands, Italy, Belgium, Luxembourg, Spain, and other countries. This creates a perfectly covered distribution system across Europe. Moreover, they also have branches in North America and Japan. Acquiring Virgin Records, combined with Firefly's media resources, could potentially allow Firefly Records to compete with the major labels."
Eric sensed Barry Weiss's ambitious tone and exchanged a glance with Katzenberg, both nodding in agreement before turning back to Barry Weiss. "Barry, how much do you think it would take to buy Virgin?"
Realizing Eric had already agreed to the acquisition, Barry Weiss suppressed his excitement and replied, "$1 billion. Although Virgin is a disposable burden for EMI now, having been losing ground for years, they recognize the underlying value remains. EMI isn't likely ignorant of our intent to acquire Virgin, either. So while we might aim low during negotiations, I believe the final price will be at least $1 billion or possibly even higher."
Eric humorously sighed; he understood Barry Weiss was speaking the truth.
Compared to other media giants, Firefly Group's recent rapid growth had made them the envy of many, akin to a wealthy tycoon looking to acquire another company. It would be a missed opportunity not to make the most out of such a powerful player.
While Eric pondered these thoughts, Katzenberg interjected, "Eric, after we settle our maturing debt this year, Firefly's debt level will drop to $7.5 billion. I believe we can fund the acquisition of Virgin Records through bond issuance."
$7.5 billion in debt was still relatively low compared to other major media companies. With Firefly's estimated value at $100 billion, having a 7.5% debt ratio put them in a very advantageous position. Since bond interest could offset taxes, utilizing bond issuance for this acquisition would essentially be like borrowing with no interest.
Nodding in agreement, Eric said, "Contact EMI as soon as possible. It would be great if we could finalize the deal before the Spice Girls release their first album in April."
Even if negotiations were settled before April, Firefly Group would still need enough time for a complete transition and to master Virgin Records. Nonetheless, once the agreement was in place, it would allow Virgin to distribute the Spice Girls' debut album, a far more efficient option than if Firefly took on the endeavor themselves.
...
Eric spent a few days carefully reviewing the script and budget for Sleepy Hollow.
The plan involved building numerous real sets in the UK, including a complete gothic-style Sleepy Hollow town. In addition, a considerable amount of CG effects would be necessary, contributing to this film's budget reaching $100 million.
Since this money would go toward filming rather than merely inviting overpriced celebrities, Eric agreed without any intention to cut the budget.
The Sleepy Hollow project had circulated among various Hollywood studios before Firefly Group suddenly took it over. Naturally, other studios couldn't remain indifferent. Paramount, which had been negotiating with Tim Burton and was nearly set to acquire the project, immediately raised their offer upon hearing the news.
However, Johnny Depp had already signed up with Firefly for two films to help Tim Burton find a production home. If Burton were to back out now, he would have to replace his lead actor. Given his close friend had just gone the extra mile for him, it was unthinkable for Burton to betray Depp. Thus, Paramount's efforts ultimately led nowhere.
After the project was established, it necessitated significant pre-production work, meaning filming wouldn't start until the second half of the year. During this time, Depp was expected to complete filming for The Ring. The production cycle for The Ring was relatively short, and it was already scheduled to be released in July.
...
On the record label side, EMI responded quickly to Firefly Group's proposal to acquire Virgin Records. Firefly had offered $700 million, while EMI exorbitantly countered with $1.5 billion.
To take over Virgin Records, extra costs were almost unavoidable.
After discussing with Katzenberg and Barry Weiss several times, they confirmed that Firefly Group's ceiling bid was $1.2 billion, leaving the negotiations in Barry Weiss's capable hands.
After being dragged around by EMI for years, Virgin Records' actual value was around $700-800 million. A $1.2 billion premium was the maximum amount Eric could handle.
If it exceeded that price, Eric would rather consolidate smaller record labels across Europe, even though it would take longer; the costs would surely remain under $700 million. The premium offered by Firefly was essentially just for more time to develop.
...
Amidst the busy work schedule, January 18 came, marking the arrival of the important awards season and the date for the Golden Globe Awards.
None of the film companies under Firefly Groups had significant contenders this year. New Line's collaboration with UK's Working Title on the film Elizabeth had only just completed filming by the end of last year and was still in post-production. New Line planned to release Elizabeth as an awards contender by the end of the year.
Nonetheless, New Line did have one film, Event Horizon, directed by Paul Anderson, which had received positive reviews from critics and film people alike.
Yet, the film only garnered two nominations for Best Supporting Actor at the Golden Globes. New Line had also conducted Oscar nomination PR for this movie, hoping to secure a few more nominations, but winning seemed highly unlikely.
This year, Miramax had two hot contenders for the awards, The English Patient and Good Will Hunting.
Initially, Miramax planned to focus their awards campaigning on The English Patient. The Weinstein brothers had high hopes for Good Will Hunting, a film with a more commercial distribution model. However, the results turned out to be quite surprising.
Good Will Hunting premiered on November 7 of last year and after two weeks of limited screenings, it garnered a strong reputation, leading to rapid expansion to over 1,700 theaters.
Subsequently, despite facing commercial films such as Night at the Museum and Monsters, Inc. during the holiday season, Good Will Hunting maintained weekly box office earnings around $10 million, with peak weeks reaching over $14 million. As of the Golden Globes, this $10 million production film had grossed over $81 million, maintaining a weekly earning of around $7 million.
These box office figures vastly exceeded Miramax's expectations for Good Will Hunting, so the Weinstein brothers were not oblivious to the unexpected.
If an art film continued to perform for ten weeks with weekly earnings still above $7 million, securing an Oscar would likely lead to even greater box office returns, surpassing the $100 million mark in total, with even more profits from future VHS sales.
In contrast, The English Patient followed the traditional awards film release strategy, starting its run in early December and remaining steady with around 500 theaters.
Though it received widespread acclaim and became a frontrunner during awards season, The English Patient's box office lagged behind Good Will Hunting significantly. After six weeks, it had only grossed around $25 million.
At this rate, even if it secured multiple Oscars, The English Patient's North American box office would struggle to break the $100 million mark, with $80 million being optimistic. Its production cost was $27 million, nearly three times that of Good Will Hunting.
Despite earning accolades, neither Good Will Hunting nor The English Patient could compare with the commercial achievements of several holiday season blockbusters.
A week before the Golden Globes, Firefly Group's recently released Jurassic Park 3 had achieved box office earnings of $173 million, with international earnings surpassing $150 million, leading to a global total of $323 million. Even with international box office returns underwhelming, Rush Hour 2 had still broken the $200 million mark in its fifth week in North America, reaching $207 million.
Going further back, the two films released during the Thanksgiving period were also doing well. Monsters, Inc. had grossed $251 million, while Night at the Museum 2 reached $175 million in North America, falling short of expectations but soaring past $200 million internationally. It was projected to approach a global box office of $500 million. None of these figures could even begin to rival those of art films.
*****
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