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The Biz Roundup April 20

A cup of Java worth $6.6 billion. And you thought Starbucks was overpriced . . .

Oracle boss Larry Ellison unveiled a surprise $7.4bn offer for Sun Microsystems on Monday, turning Sun’s collection of widely-used but undervalued software properties into the next targets for his wholesale consolidation of the software industry. . . .

Oracle gave no other details for how it expected to achieve these profit targets. Instead, its executives on Monday focused squarely on the long-term strategic advantage to Oracle of owning Sun’s leading software assets, principally Java and the Solaris operating system.

Java has become a key part of the software foundation for a generation of IT systems created by companies like Oracle and IBM. Yet even though it is in use on hundreds of millions of PCs, mobile phones and other digital gadgets, Sun has failed to make much money from the software. Licensed cheaply and operated as an open standard, it has become a shared resource for many of the software companies that exist outside the Microsoft camp.

(“Oracle in $7.4bn swoop on Sun,” Financial Times, April 20) According to Sun’s February 5 second quarter report, Sun has $1.6 billion in cash, $2.5 billion in accounts receivable, a billion in short-term investments, a billion in prepayments, plus some change totalling $7.1 billion in current assets and $5.9 billion in current liabilities (with about $1.3 billion in accounts payable). Total assets excluding goodwill and non-tangible assets (about $2.1 billion) is $9.6 billion and total current and long-term liabilities are $8.2 billion, giving the company a book value (excluding non-tangible assets and goodwill) of around $1.4 billion. Subtract the $600 million in payouts Sun executives are going to walk off with (which is why IBM balked), and you now have a company worth $800 million. Since the prime — nay, the only — reason Oracle is buying Sun is to acquire Java and start charging Nokia, IBM, and everyone else in the immediate galaxy higher licensing fees, that would make Java worth $6.6 billion, almost four times the value Sun has been valuing it at. (Sure, Oracle is valuing the acquisition, excluding cash and debt, at $5.4 billion, but that doesn’t square with the math on the 10-Q). For details, you can view the 8-K (without exhibits) here.

The Hollywood studio definition of “frugal” is everybody else’s definition of “lavish.”

Along with hosting fewer lavish premiere parties, curtailing newspaper advertisements and restricting the number of agencies that produce trailers, the Hollywood studios are struggling to get a grip on the movie industry’s equivalent of the pork barrel earmark: marketing budgets. And like an entitlement program that can’t be axed, Hollywood isn’t having much success. . . .

After falling from a peak of $40 million in 2003, the average marketing cost for a studio picture popped back up again to $36 million in 2007, the latest year for which data is available, according to Hollywood’s movie trade association. Studio executives contend that marketing costs have only risen since then. . . .

But executives say it’s hard to know exactly where to trim marketing costs because they fear spending too little could hurt a movie’s chances at the box office. A picture basically gets one shot to make a mark on opening weekend; if it doesn’t gain traction with audiences, it will be knocked out of the way on subsequent weekends by the next films opening up behind it.

“None of us know what to cut because you don’t really know definitively what pushes someone’s decision to go to a movie,” said Kathy Jones, a longtime studio marketing executive who now works at Participant Media,an investor in the upcoming drama “The Soloist.”

(“,” Los Angeles Times, April 20) The Los Angeles Times is one of the few business sections (New York Times and Hollywood Reporter are two others) that really understand the film business. Movie marketing is like government spending — no-one is really sure if it works and there are powerful constituencies that want the money to keep flowing, even if it does no good. For instance, a big part of selling a movie is flying stars around to various events and press junkets. The marketing department books a flight, but the star’s manager call up and insists on a private jet for the star. And another private jet for the star’s family and hairdresser. And that hotel room? Sure the hotel is nice, but Tom really deserves a penthouse or he’ll never do a movie for your studio again. It’s just like government spending — the physics of movie marketing just keeps driving the bills up. Good luck, guys!

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