BUSINESS

Blood splats and bean-counters

Half of ‘CSI’ sold for nearly $1 billion. Is that too much for a megahit?

JASON KIRBY January 29 2007
BUSINESS

Blood splats and bean-counters

Half of ‘CSI’ sold for nearly $1 billion. Is that too much for a megahit?

JASON KIRBY January 29 2007

Blood splats and bean-counters

Half of ‘CSI’ sold for nearly $1 billion. Is that too much for a megahit?

BUSINESS

BY JASON KIRBY • At first glance, it’s a mystery fit for the sleuths on CSI: Crime Scene Investigation, those too-hot-to-be-real lab nerds who’ve made bodily fluids and gunpowder residue analysis into the most pervasive crime drama on TV. Last week, when producer Alliance Atlantis sold itself to CanWest Global Communications and Goldman Sachs, the CSI franchise was a star attraction. The New York investment firm, which bankrolled most of the $2.3-billion transaction, took Alliance’s 50 per cent stake in CSI for itself, effectively valuing the show at nearly $1 billion. But just how does one value a TV series? And why is Wall Street so hot for a show viewers seem to be cooling to?

If CSI investigators really were analyzing the deal, there’d be lots of close-ups of calculator buttons, followed by a eureka moment when Gil Grissom looks up from his statement of consolidated cash flows with a knowing glint in his eye. The real process is far less dramatic, and anything but scientific. “This show,” says one analyst who tried to value it ahead of last week’s deal, “is a black box.”

CSI debuted on CBS in 2000 and regularly ranks in the top five shows on network TV. When CBS’s original partner for the show, Disney Touchstone, backed out at the last minute, Alliance poured in development money to earn its stake. Smart move. As CBS rolled out the spinoffs, first CSI: Miami, then CSI: NY, the franchise’s value grew. Last year, Alliance’s CSI revenue topped $288 million, up from $205 million the year before.

But lately the show’s vital signs have turned worrisome. Neither of the spinoffs has matched the original’s clout, and that show’s audience is shrinking. It now averages 22.6 million viewers a week, down from its 2004 peak of 26.3 million. Critics note the shows’ increasing reliance on guest stars to juice ratings (singer Nelly Furtado will appear on CSI: NY next month) while the gore factor has been amped up with scenes that would make a real coroner cringe.

WITH NAMES LIKE CSI: KRIMINALISTAI, IT RUNS IN OVER 70 COUNTRIES. THERE’S NOW TALK OF CSLPARIS.

Yet by all accounts Goldman Sachs paid top dollar for the show. The deal is complicated, but in essence CanWest and Goldman’s private equity arm jointly agreed to buy Alliance’s slate of specialty channels, such as Showcase and HGTV. CanWest CEO Leonard Asper valued those at about $1.5 billion. Working from that, analysts estimate the investment bank paid as much as $967 million to own half of CSI. Given the fact that at least one research firm, Sprott Securities, had earlier pegged CSVs value at about $450 million, the Goldman price tag looks rich. “I don’t understand how Goldman thinks they’re going to make any money on that,” says one analyst. “I think they’re kinda crazy.”

And there’s still a chance a better offer could emerge. A rival bidder must contend with the $65-million break fee that would be due to CanWest and Goldman. The deal is not expected to close until this summer, and other bidders are no doubt hungrily eyeing those specialty channels. A surprise bid could jack up CSVs value even further.

Harold Vogel, an entertainment analyst in New York, says the price tag isn’t outlandish at all compared to other big hits. Take Seinfeld, for instance. At its peak, it was worth upwards of US$3 billion. The Cosby Show: US$1.5 billion. Friends: a cool US$1 billion. “A new show doesn’t have much value, but an older show that’s been around for a few years is fairly predictable,” says Vogel. “Seinfeld is in its third cycle of syndication and it’s still pulling in $1 billion or so each year. We’re not talking about small change here.”

CSI is also popular overseas. Under names like CSI: Kriminalistai (Lithuania) and CSI: Den Tätern auf der Spur (Germany), the original series alone airs in more than 70 countries. There’s talk of launching a CSI: Paris. Add DVD sales and new content platforms like cellphones, and residual sales quickly go up. “Private equity is very interested in libraries [of TV shows and movies] these days,” says Gary Adelson, a Los Angeles-based investment banker at Houlihan Lokey. “They’re perceived to be a good way to make money.”

Even so, it’s also just as likely Goldman will unload the show before too long. Private equity funds typically want an easy exit strategy. “Goldman is a trading house, not buy and hold types,” says Vogel. And before the Alliance deal was announced, Variety, the entertainment industry bible, reported CBS was keen to own CSI outright.

Last week, around the time the deal was being hammered out, CSI creator Anthony Zuiker appeared at the Consumer Electronic Show in Las Vegas with CBS head honcho Les Moonves. “Community in terms of the CSI franchise has literally expanded,” Zuiker said. “It’s content-on-the-go on all platforms.” There’s still plenty of money to spill out of the crime lab, in other words. Too bad it won’t be flowing into Canada anymore. M