I'm in Hollywood Chapter 214: Negotiations (part 2)

Chapter 214: Negotiations (part 2)

In response to Murdoch's statement, Eric gently put down the coffee cup in his hand and raised his head as he said, "Mr. Murdoch, first, you must know something about me: I am a very stubborn person. My terms will be very strict and lack any form of concession for Fox which you, ultimately, won't accept and the negotiations will come to a standstill. Therefore, you should be the one to make the offer. If you show some sincerity and your offer satisfies me, I will accept it. After all, I'm not an overtly greedy person."
Murdoch slightly nodded and, after a few moments of consideration, he said, "Eric, Fox and Firefly have always had very pleasant cooperation, so how about this: Firefly will obtain 5% of Fox Film's equity in exchange for giving 5% of its equity to Fox. Presumably, you must be aware of Fox's market value. Through this transaction, Firefly will greatly profit. This will also allow our two film companies to cooperate more closely in the future. In addition to this, my previous offer of 70% advertising share for the broadcasting rights to the subsequent four seasons of Friends will remain unchanged. What do you think of this?"
Hearing Murdoch's offer, Eric was pleasantly surprised for a few seconds.
Murdoch had stated very clearly that Firefly would be exchanging shares with Fox Films, not Fox TV Network.
Perhaps a layman would think that these two companies are the same, but Eric is very clear about the differences between them. Although they are both run by Barry Diller, Fox Films and Fox TV Network are two entirely separate entities. The market value of Fox Films is currently around $2 billion, so 5% of its shares are worth $100 million. Indeed, 5% of Firefly’s shares are not worth that much at the moment. Based on the price at the time of its merger with New Line, the market value of Firefly is only about $600 million. If it's calculated like this, if Firefly agrees to exchange equity with Fox, it will make a profit of more than $70 million.
But, this matter is not as simple as it may seem on the surface.
After Firefly and New Line merged, everyone in Hollywood understood that if Eric's momentum of producing hit movies was maintained, the new Firefly had the potential to stand as equals with Hollywood's Big Six within just a few years. Correspondingly, its market value would also skyrocket, perhaps going even beyond Fox.
Eric was very confident that if everything went well, this would take less than five years. Previously, he paid 15% of Firefly's equity and a large sum of money to acquire New Line. He was willing to do this because this made up for the shortcomings in Firefly's limited distribution capabilities and greatly hastened its development.
5% of the equity is enough for one to have a certain say among the board of directors. After swapping equity with Fox, Eric would not only gain little to no benefit, he would instead be held back.
Not to mention...
The corner of Eric's mouth twitched slightly before he leaned forward and asked, "Mr. Murdoch, how much do you think Fox Films will make this year?"
Murdoch's heartbeat suddenly quickened, and he wondered whether he had been seen through by the young boy sitting opposite him.
However, Murdoch still maintained his poker face as he shook his head and replied, "I'm not very well aware of this. I won't know until the year-end financial report is released."
Eric sneered and said, "Mr. Murdoch, I can do a little calculation for you. Because Mr. Barry Diller has been focused on Fox TV Network, Fox Films itself has not produced many movies. In fact, there has not even been a single big production with a high box office potential. This year, Fox's main features are all my movies: Pretty Woman, Sleepless in Seattle and Home Alone 2. Pretty Woman has earned 210 million in North America and 530 million worldwide. After removing the distribution costs, Fox can make a profit of at least $70 million. In addition, I personally think that my two remaining films, Sleepless in Seattle and Home Alone 2 will earn at least $100 million in profit for Fox. Not to mention, the profit from the other films distributed by Fox, sales of video tapes and other peripheral sales. Hahaha, this will likely be a good year for Fox, maybe it could have an annual profit of $300 million this year, almost twice that of any ordinary year."
Hearing Eric's analysis, Murdoch naturally felt happy. If Eric's analysis was correct, Fox will definitely rank first among the Big Six. Even Warner, which made a fortune this year thanks to Batman may not have such a high annual profit. After the year-end financial report comes out, Fox's market value will greatly increase.
However, after his pleasant surprise faded, Murdoch realized that his scheme had likely been through, but he still asked in mock confusion, "Eric, isn't this great?"
"Of course it's great," Eric replied before he continued, "Alright, let's calculate Firefly's profit this year."
"Pretty Woman, $105 million; Running Out of Time, according to the current box office trend, its global box office will reach about $500 million, meaning Firefly can make around $100 million. By this year's end, Firefly can get at least $100 million in profit from Sleepless in Seattle and Home Alone 2, like Fox. Don't forget, we're releasing three other movies around the end of the year. I am very optimistic about all the three of them, but even if the three combined can only earn us $100 million, Firefly will still make $400 million this year. If both of our companies give dividends, according to the 5% of equity exchanged, Fox will get $20 million, but Firefly will only get $15 million.”
After he finished speaking, Eric sat back with a frosty look on his, but his heart was burning up with anger. After Murdoch proposed the equity exchange, initially, Eric was a bit tempted because of the $70 million difference in stock value, but after some analysis, he realized that this "generous offer" was another pit dug up by the old bastard to swindle him.
Equity exchange between Fox and Firefly and Fox's acquisition of the broadcasting rights for the first five seasons of Friends were two entirely separate matters, but Murdoch cleverly combined them together and gave Eric an illusion of Fox being very sincere. However, if Eric really went through with the equity swap, he may not benefit at all. Instead, because of the profit gap, he will have to pay Fox a handsome dividend every year.
In addition, the transaction would likely have a long sale restriction period. By the time the sale restriction period ends, the market value of Firefly and Fox might be almost the same. Moreover, Fox will definitely have a priority to reclaim its equity. Even if Eric does sell the equity, in the end, Fox will own Firefly's equity and dictate the affairs of Firefly, but Firefly won't be able to interfere with Fox at all. Another hidden danger is that after the equity swap, the interests of Firefly and Fox will be tied together. Even if he is unwilling, Eric will have to give preference to cooperating with Fox. This is likely the main purpose of Murdoch's desire to swap equity with Firefly.
If Eric had been a naive and impulsive young man, like others his age, he would have likely lost his cool when he figured out Murdoch's scheme, and shouted in anger, "You cheat, I'll never work with you."
To be honest, Eric did have a slight impulse to do exactly that, possibly due to some remaining influence on him by the original owner of his body.
However, his body was still under the control of the soul of an experienced middle-aged man who had been through years of struggle. In addition, due to having the unique experience of reincarnation, Eric has become relatively indifferent to other people, unless they plan to harm his interests.
Naturally, Eric was quite angry at Murdoch for attempting to swindle him, but he replied, indifferently, "Mr. Murdoch, maybe Fox doesn't want to show any sincerity at all, in that case..."
Murdoch wryly smiled and replied, "Eric, listen to me. How about we..."
"No," Eric immediately interrupted Murdoch. He wasn't sure if there were any deep pits hidden in the old man's new offer, nor did he care to find out. He quickly said, "Let me make my terms clear. I'm not interested in Fox Films' equity, but since our discussion today is about Friends, let's talk about Fox TV Network. I want the equity of Fox TV Network. If you want the broadcasting rights for the following seasons of Friends, I want 10% equity at the price of 80% of Fox TV Network's market value before Friends aired."
Murdoch was taken aback by Eric's outrageous terms. Although he was called a media tycoon, he actually owned just a little over 30% of News Corporation, and News Corporation only owned about 80% of Fox TV Network, meaning his family's share of Fox TV Network was only around 24%. If he agreed to Eric's terms, Firefly would become the second largest shareholder of Fox TV Network, second only to his family. In case a conflict arises between him and Eric in the future, Eric would be able to seize control of Fox TV Network so long as he obtained the support of other shareholders.
Murdoch had painstakingly created Fox TV Network to enter the North American market. It was impossible for him to agree to Eric's terms.
To be honest, Eric's original plan had been to get around 5% of Fox TV Network's equity.
Fox TV Network's market value is currently just under $1 billion, far less than the three major TV networks that are worth between $4-5 billion.
But Eric knew that in just a decade, Fox TV would become an equal of the three major TV networks, reaching more than $30 billion in market value.
Currently, he only needed to invest less than $50 million. Within a decade, his 5% equity would be worth more than $1.5 billion. In addition, compared to film companies, the performance and profitability of TV networks is far more stable. In the future, he could get tens of millions of dollars as dividends from the annual profit of Fox TV Network.