I'm in Hollywood Chapter 170: Bottom Line

“Yes, Robert, that’s why I invite you here today, isn’t it?”, since Robert began first, Eric also came straight to the point.
Robert Shea gave a hollow laugh, trying to hide his embarrassment. It was weird. He had decided to give up in this invisible confrontation, but now, hearing what Eric had said, he regained a sense of frustration.
After a sip of bitter coffee, Robert calmed down and said, "Well, Eric, I'm really interested in our cooperation, so let’s hear your conditions first, shall we?"
“You know, Robert, I only value the distribution channels of New Line, so I'm going to buy out it with the initial price of $500 million. This price is negotiable of course. But the most important thing is, after the acquisition, I can make you the CEO of the brand-new Firefly. Come on, Robert, you are only 50 now, you want to retire? Course not.”
“For 20 years’ boss, Eric, and now you want me to be your employee? The position of CEO is not attractive enough”, Robert Shea raised his outstretched hands and continued, “Sure, we can cooperate, only in the way like MGM-United Artists. New Line will have its channels and Firefly, excellent films. If we merge, a new film mogul called Firefly-New Line can rise in Hollywood in the next few years, what do you say?”
“Then, after the merger, how do we allocate the equity?” Robert’s suggestion made Eric laugh in his heart. Firefly-New Line? Interesting indeed, but Firefly alone was enough, any tail behind it was redundant. The brand, New Line would certainly be retained, but only as a subsidiary of Firefly.
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Hearing this question, Robert Shea shed a glimpse at Eric and again took his cup, lost in thought. Actually, he had begun to think about this question even before Eric’s invitation. Firefly was only more than half year old, with barely any distribution capability. The total value of its films was also negligible and worthless. However, the truth was, the profitability of Firefly was overwhelming.
Excluding Home Alone, which literally was not a work of Firefly, even Pretty Woman alone had brought over $100 million to Firefly. Then, if Running out of Time achieved a box office of $200 million both at home and abroad, Firefly could gain at least another $80 million box office cut. Moreover, Robert Shea had learnt that Eric would cooperate with Fox on another two films, with additional three films already underway, among which, Home Alone 2 would definitely bring much profit. In addition, Tom Hunks had joined Sleepless in Seattle, which was directed by Eric himself, so no way would Firefly lose any money on it. As for the other 3 films, they were said to be low-cost investments of less than $10 million each. With Eric’s fame, they would certainly make a small profit. All the above suggested that this year, Firefly's box-office profits alone would be equivalent to those of two film giants combined, reaching an astonishing $400 million or so.
The value of a company was about ten times its annual profit. Take the six film giants in Hollywood for example. The annual profit in good times for each of them was around $200 million, and thus the value translated into $2 billion. Yes, Columbia’s value was surging now, but it was just a result of hype. Before Sony's acquisition got leaked, Columbia’s value was also $2 billion. However, for New Line, only one of the six movies produced and released last year, a Nightmare on Elm Street 4, made a profit of more than 10 million dollars, while others combined only made a profit of several million dollars. Taking video tapes and other film-related products into account, last year, the profit of New Line was only $30 million, which meant its value was no more than $300 million.
Of course, the way it was calculated was only to provide laymen with a general picture of these companies.
In real business, by no means could a company’s value be calculated in such a rough way. True, New Line achieved a profit of $30 million last year, yet the credit should be given to the good year. A Nightmare on Elm Street 4 fortunately became a hit, while its former two works both only took some $20 million at the box office. Putting aside the cost, the profit share of those two films were insignificant. Therefore, Eric’s file showed that New Line’s value estimated by the professional financial audit company was only $ 500 million, which included its new film library, film series copyright, distribution channels and other assets. Its unstable annual profit was just a minor consideration.
But it would a pain on the neck to calculate Firefly’s value. Eric altogether spent less than $10 million on renting office and purchasing equipment. With the copyrights of the films like Home Alone, Pretty Woman and half the rights of Running out of Time, you could value Firefly at $100 million or even at $1 billion.
So, when asked about the share of equity, Robert still failed to give a decisive answer despite days of deliberation.
After a 5-minute-thinking, Robert raised the cup of coffee to his mouth with left hand, meanwhile, quite unassertively he stretched out 3 fingers with right hand, indicating the number 3.
"Three percent?" Eric leaned forward and asked curiously.
Hearing that, a mouthful of coffee spurted out from Robert’s mouth. Thanks to a prompt turn, he did not spray the coffee on the whole table and Eric, but some drops did splash on the chest part of Aniston's long skirt.
This absent-minded lady was totally shocked, even having no time to dodge. She felt a little wet in her chest and screamed, grabbing a napkin to wipe the water stain. Meanwhile, she stared at Eric unpleasantly, not knowing what happened. She only heard Eric say something like ‘three percent’, and then her skirt was ruined.
The service in this restaurant was indeed considerate. Noticing this incident, a waiter rushed to the table and delivered napkins. Having cleaned up the table and the floor, he stepped back quietly.
"I'm so sorry," said Robert Shea, wiping his mouth and clothes with a napkin. He first apologized to Aniston and then turned to Eric, with a strong grievance on his face, "Eric, after twenty years’ hard working, my company is only worth three percent of your share? If that's the case, I think there’s no need for us to waste time.”
“All right, I get it, so you mean...thirty percent?” Eric confirmed again.
Robert Shea nodded: “New Line has accumulated some assets over these years, so I don’t prefer cash acquisition. I really expect our merger, but only on the condition that I take 30% stake. That's my bottom line."