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Miramax purchase puts Colony Capital in the Hollywood spotlight

December 6, 2010 |  1:56 pm

ThomasBarrack With the sale of Miramax Films finally completed, the future of the pioneering independent studio will be a test of one of Hollywood’s newest sources of money: Colony Capital.

Since the 19-year-old Santa Monica investment firm in late June joined with construction magnate Ron Tutor to bid for Miramax, Colony has taken the lead in shaping the acquisition, raising money, and charting a new course for the studio.

The total purchase price for Miramax and its 700-plus film library was $663 million, which included some cash generated by the Walt Disney Co. division since negotiations began.

The deal's lead investor was the Qatar government’s sovereign wealth fund, which was recruited by Colony founder and Chief Executive Tom Barrack. Together, the Qatar fund, Colony and Barrack himself provided the majority of the $250 million in equity paid for Miramax. Most of the rest came from Tutor, who declined to comment for this article.

Though the new partners won’t operate the specialty film label, Colony principal and former Disney executive Richard Nanula will be chairman of the board. 

Overseeing Miramax and its library will be Mike Lang, a former News Corp. executive who is expected to shortly be named chief executive.

Previously best known for its investments in real estate, Colony has established a new entertainment fund that was the brainchild of Barrack along with his friend, actor Rob Lowe. A portion of the fund, which is not fully financed yet, was used for Colony's investment in Miramax -- its first foray into the movie industry.

Previously, Colony's only entertainment-related deals were with celebrities whose work the firm believes has unrealized value. The firm previously took over Michael Jackson's Neverland Ranch before his death and bought debt owed by photographer Annie Leibovitz.

It is yet to be seen whether Colony's bet that Miramax has untapped value will pay off. Several other parties had considered acquiring Miramax -- including supermarket magnate Ron Burkle on behalf of Miramax founders Bob and Harvey Weinstein -- but balked at the asking price. If Miramax turns out to be a lucrative investment, it would establish Colony as a savvy investor in Hollywood as it seeks out other opportunities in entertainment and media.

“Miramax is an irreplaceable and undervalued asset and brand," Barrack said in an e-mailed statement.  "We see many exciting opportunities to bring the Miramax library to viewers around the world, through both traditional and new outlets, as the way people consume media continues to evolve.”

RichardNanulaAmid a shrinking home entertainment market, many in Hollywood have questioned whether any investment in a film library these days is a wise one. However, people close to Colony said the firm is convinced that Miramax was a largely ignored asset that will generate enough cash to repay the debt portion of the purchase within four years.

The library comes with about $300 million in revenue committed from existing deals, along with approximately $100 million in projected revenue for movies released in the last 10 years, people close to the acquisition said.

Under Lang, the new Miramax is expected to explore making a digital distribution deal with Google’s YouTube, building miramax.com as a destination site to view movies online, and launching a new cable channel devoted to its library, which includes titles such as "Shakespeare In Love" and "Chicago." The new owners will also seek a new distributor for Miramax's DVDs, a service that will continue to be handled by Disney for the next several months.

The new Miramax will have between 60 and 80 employees and about $15 million in annual overhead spending, said people with knowledge of the plans. Though executives will explore rights deals and partnerships for sequels and spinoffs based on its library, Miramax won’t finance the production of new films for at least a year, those people said.

A key figure in the Miramax negotiations was Nanula, a longtime senior executive at Disney who served as chief financial officer when the company acquired the specialty studio in 1993 from the Weinsteins.

When his boss, Barrack, gave him a green light to pursue entertainment acquisitions in late June, Nanula suggested they look at Miramax. Barrack contacted Tutor, who was already in talks with Disney to buy Miramax after a previous deal with Burkle and the Weinstein brothers collapsed.

As he had longstanding relationships with several Disney executives, including its lead negotiator, Executive Vice President of Corporate Strategy Kevin Mayer, Nanula spearheaded the talks beginning in early July. He and fellow Colony principal Justin Chang helped to shape the deal that Colony, Tutor and Disney agreed to in principle on July 23.

In the ensuing four months, many details of the purchase were reshaped, as investors originally brought in by Tutor, including Morgan Creek Productions Chief Executive James Robinson, were replaced by parties associated with Colony, most notably the Qatar fund.

Colony and Tutor plan to begin assembling their executive team in the coming weeks. Along with Lang, who has extensive experience in digital media, they are expected to hire a senior television distribution executive to sell Miramax movies to cable and broadcast networks around the world. At one point, talks were underway with Metro-Goldwyn-Mayer TV executive Jim Packer, but the two sides didn't reach an agreement.

-- Ben Fritz

Related:

Ron Tutor-led group closes Miramax deal

New Miramax closing in on CEO, other executives

Disney agrees to sell Miramax to investor group led by Ron Tutor

Top photo: Thomas J. Barrack. Bottom photo: Richard Nanula. Credit: Colony Capital.

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