Image fights to keep its niche
Indie battles Lionsgate takeover bid
"Hail! Hail! Rock 'n' Roll," the 1987 Chuck Berry concert film directed by Taylor Hackford, plays on the flatscreen TV in the lobby, and poster-sized box art of Pee-wee Herman, Cher and the Ramones frame the hallways at the company's headquarters in Chatsworth, deep in the sweltering San Fernando Valley.
Senior execs for the homevid distributor-supplier admit they don't have the same goals as the majors, which need to sell millions of DVDs to recoup theatrical investments. At Image, selling 1,000 units is common and 10,000-20,000 units is dandy.
"We're high-fiving in the hallways if we sell 100,000," says CEO Marty Greenwald, drawing knowing laughter from his staff.
The mood quickly turns serious when talk turns to Lionsgate's hostile takeover bid. The battle, which began almost a year ago, has grown increasingly nasty as both sides prepare for an Oct. 10 shareholder election.
At stake: control over the largest -- and arguably quirkiest -- independent video label in a rapidly shrinking pool. Image has quietly built a catalog of 3,500 DVDs and CDs by acting nimbly and mining untapped niches. The supplier latched onto Blue Collar Comedy before it became a sensation and bought out the remaining 50% distribution rights to the tony Criterion Collection last summer, right around the time Lionsgate began buying up its stock.
Other recent coups: a Wanda Sykes concert film and the "Hail! Hail!" reissue, which is being distributed at 5,200 Starbucks outposts in Image's first such venture. At the end of the month, Image could pocket an Emmy for Bill Maher's HBO concert "I'm Swiss," which it co-produced.
On the film side, the label has snapped up rights to Asian pics from the Shaw Brothers and recently released the massive avant-garde retrospective "Unseen Cinema."
"Our real value is our library because distribution is not rocket science," says Greenwald, a colorful character who worked as stockbroker and porn-theater proprietor before founding the company almost 25 years ago.
One minute he's chafing because people still think of Image primarily as a distributor, the next he's gleefully talking about nabbing rights away from the majors. "Who is Image Entertainment and why do they have the rights?" he quotes one major label exec as saying upon learning that Image would release Blue Collar comedian Ron White's CD. "How did you get Wanda Sykes?" another asked incredulously.
The company tries to secure rights to as many platforms as possible: DVD, CD and especially digital. Like its rivals, Image has several digital initiatives under way.
Yet all this content is precisely what makes Image so desirable to Lionsgate, a rising mini-major that three years ago bought Artisan Entertainment, another homevid specialist with a large catalog. After Image, the biggest video labels outside the major studios are First Look Studios, an amalgamation of labels bolstered with the acquisition of Ventura Entertainment in April; Anchor Bay Entertainment, a division of IDT Entertainment recently sold to Liberty Media; and Genius Products, the vid label majority owned by the Weinstein Co.
"Companies like Image are in the sweet spot," says former Artisan exec Jeff Fink, now a consultant. "It's a good company on its own, and it's a good company for an acquisition buy. There are a lot companies out there looking to increase their flow of product, but it's not easy to find companies that have tens of millions in revenue."
Image generates more than $100 million in revenue annually and has a heavy concentration of music and comedy titles. Ron White's "You Can't Fix Stupid" is its current biggest seller at 1.6 million units; it sold 2 million copies of the Eagles' "Hell Freezes Over" concert film, but those rights have since expired.
In some ways the takeover bid comes hand and hand with Image's success. "They really separated themselves from the pack," Fink says.
"Image is a good company that has built a good business," concurs a rival video topper. Yet given potential cost savings with Lionsgate, "it's kind of natural they buy them out."
Lionsgate isn't saying much about its plans outside filings with the Securities & Exchange Commission. In its original offer of Aug. 30, 2005, CEO Jon Feltheimer called Lionsgate "uniquely capable" of leveraging Image's film and music library assets and helping to accelerate Image's push into theatrical production. Image rejected Lionsgate's $4 a share offer (roughly $85 million) as inadequate.
Later the company retained investment bank Lazard Freres to explore other offers -- for merger or acquisition -- which a special committee will evaluate.
The bigger question: Would Image's indie spirit survive such a takeover? Its execs aren't so sure.
"This doesn't happen by magic," says senior programming VP Barry Gordon, a lanky fellow with a shaved head and a poster of the Ramones in his office. "We're ahead of the curve, which is wonderful, but ahead of the mass merchants so you have to wait for them to catch up to you."
Ted Sarandos, who has been developing programming for Netflix as its chief content officer, believes the deal makes sense but concedes Image "reflects the personal passion of senior management," Lionsgate less so.
The rival video topper, who went through a similar merger of his own, predicts Lionsgate would slash 80% of Image's staff due to overlap, removing potential culture clashes or warring fiefdoms of the short that have bedeviled the Sony BMG merger.
Image has been counted out before. Almost 10 years ago, the company had to reinvent itself from a laserdisc specialist distributing licensed studio fare to survive the transition to DVD; in 1999, it began producing its own titles.
And it's not giving up the fight easily. This month, Image sent shareholders an election proxy accusing Lionsgate, already a minority shareholder with almost a 19% holding, of paying its board of directors candidates $20,000.
Greenwald didn't seem overly worried during a recent visit to his office, where Jim Cramer's "Mad Money" flickered on the flatscreen, not too far from a framed note from financier John Kluge, one of the company's original investors. He sounded a forward-looking note about Image's move into digital distribution.
But chief operating officer David Borshell struck a more wistful tone, sighing, "It really would be a shame to lose what we've built in 24 years."
