What Carl Icahn Wants with Lionsgate

The war between Lionsgate Entertainment and corporate raider Carl Ichan is all about controlling content, the new gold of this decade.

Recently I spoke with the CBC Radio show On The Coast to discuss what’s going on with Carl Icahn and our favorite home grown movie business, Lionsgate Entertainment.

Icahn, probably the most famous – and certainly the richest – “activist investor” has been attacking Lionsgate, of which he owns a third.

Icahn, a shrewd and sophisticated New Yorker, is what used to be called a corportate raider. He buys up shares of promising companies, and then starts agitating for change (usually of management) to improve the company’s stock, and/or position it for sale.

With some $11 billion in his war chest, he’s been and still is involved with many such raids. Icahn has been buying up Lionsgate shares for some time. He has also fiercely opposed Lionsgate’s attempts to buy up the fabled MGM studios, which is several billion in debt and is lurching into bankruptcy. Interestingly, he has also been buying up MGM debt – more than $500 million so far, apparently.

So what’s up with Icahn, who appears to be playing both sides against each other?
 
It’s all about controlling content, the new gold mine of the 2010 decade.  
 
Lionsgate, which was founded in North Vancouver by Frank Giustra, has long ago shaken off the “plucky little guy scores big” image it use to have when it made potboiler movies like the Saw series. After Giustra sold it, Lionsgate went Hollywood – literally. Although it’s listed as jointly domiciled in Vancouver and Los Angeles, its real headquarters is in Santa Monica.
 
Now it’s a media powerhouse, producing some very successful, even Oscar-contending, movies, but also owning a vast storehouse of older movies and televisions shows (plus some current hits, like Mad Men). MGM, of course, has some 60-70 years of movies and television shows in its library.
 
If Icahn can put these two together – under his control – he will have a strong hold on the content industry’s supply chain and, consequently, a very valuable property.
 
But the shrewd raider isn’t the only one trying to acquire content properties so as to create this semi-monopoly. Other visionary investors such as media mogul Rupert Murdoch, are also in the game. Lionsgate management has something like that in mind as well, although they probably don’t think as big as Icahn.
 
I believe they’re all forming these visions because they know that content, the fruit of knowledge, expertise and creativity, will be THE industry over the next 10 years. Despite the turmoil in music, film, publishing, education, marketing, and media, and the experiment going on right now about “free content,” content created from specialized knowledge will eventually become owned again.
 
That means, once again, it will be sold for a price. New distribution channels like Apple’s ITunes, Netflix and a few we haven’t seen yet, will allow millions of people to download entertainment content cheaply and easily.
 
Do you think the content suppliers and their investors don’t see the opportunity there?
 
If they can sell a million copies of an old movie or a television show online for a couple of bucks, they’ll do it in an instant. It’s pure profit, since the costs to produce have long been rationalized. They can extend their profits by cutting it into snippets and charging for each one.
 
Welcome back to the 1930’s world of the movie serial, when some people became very rich by delivering short, cheap content to Depression-burdened populations.  
 
BTW: If you think this is immaterial for your company, consider the content possibilities that reside within its walls and in the heads of your workers.
 
In the low-profit 2000-teens, how can you profit from that knowledge and creative work?  
 
Why not do a little gold mining yourself?