NEWSTAR MEDIA INC, S-3, 1998-07-23

NEWSTAR MEDIA INC
S-3, 1998-07-23
PHONOGRAPH RECORDS & PRERECORDED AUDIO TAPES & DISKS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 22, 1998
REGISTRATION NO. 333-____

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

NEWSTAR MEDIA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
CALIFORNIA 3652 95-4015834
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

8955 BEVERLY BOULEVARD
LOS ANGELES, CALIFORNIA 90048
(310) 786-1600

(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

RONALD LIGHTSTONE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEWSTAR MEDIA INC.
8955 BEVERLY BOULEVARD
LOS ANGELES, CALIFORNIA 90048
(310) 786-1600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE AS
DETERMINED BY MARKET CONDITIONS.

If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
reinvestment plans, check the following box. /X/

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.

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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF SHARES AMOUNT AGGREGATE AGGREGATE
REGISTRATION TO BE PRICE PER OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED SHARE(1) PRICE FEE
---------------- ---------- -------- ----- ---
<S> <C> <C> <C> <C>
Common Stock, par value

$.01 per 450,000 shares (2) $ 1.656 $ 748,312 $ 221
</TABLE>

(1) Estimated solely for the purpose of determining the registration fee
based on the average of the high and low prices of the Common Stock
reported on the NASDAQ on July 22, 1998 in accordance with Rule 457(c)
under the Securities Act of 1933.

(2) Consists of 250,000 shares of Common Stock, plus 200,000 shares of
Common Stock issuable upon conversion of outstanding convertible Series
E Preferred Stock, plus a presently undeterminable number of shares of
Common Stock as may be issuable pursuant to the anti-dilution provisions
thereof for which no registration fee is paid.

(3) The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.

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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED JULY 22, 1998

450,000 SHARES

NEWSTAR MEDIA INC.

COMMON STOCK

This Prospectus relates to an aggregate of 450,000 shares (the "Shares")
of common stock, $.01 par value per share (the "Common Stock"), of NewStar Media
Inc., a California corporation (the "Company"), of which (i) 250,00 Shares are
currently issued and outstanding and (ii) 200,000 Shares are issuable by the
Company upon conversion of Series E Preferred Stock previously issued by the
Company, all of which may be offered for sale by the holders (collectively, the
"Selling Shareholders"). See "Description of Securities".

There is no assurance that any of the Preferred Stock will be converted
into Common Stock. The Company will not receive any proceeds from the sale of
Shares offered by the Selling Shareholders.

The Common Stock is listed on the Nasdaq SmallCap Market under the
trading symbol "NWST." On July 22, 1998, the closing bid price of the Common
Stock as reported on the Nasdaq SmallCap Market was $1.625 per share.

FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" COMMENCING
ON PAGE 4 HEREOF.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The Selling Shareholders, acting as principal for their own account,
directly or through agents, dealers, brokers or underwriters to be designated
from time to time, may sell the Shares from time to time on terms to be
determined at the time of sale. To the extent required, the number of Shares to
be sold, the respective purchase price and public offering price, the name of
any agent, dealer, broker or underwriter and any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying Prospectus Supplement. See "Plan of Distribution." Each Selling
Shareholder reserves the sole right to accept or reject, in whole or in part,
any proposed purchase of the Shares.

The date of this Prospectus is July ___, 1998

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AVAILABLE INFORMATION

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can also be obtained from the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information filed by the Company with the Commission. The Company's Common
Stock is listed on the Nasdaq SmallCap Market. Such material can also be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.

Additional information regarding the Company and the Shares offered
hereby is contained in the Registration Statement on Form S-3 (of which this
Prospectus is a part) and the exhibits thereto filed with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus
does not contain all the information set forth in the Registration Statement,
certain portions of which have been omitted pursuant to the rules and
regulations of the Commission. For further information pertaining to the Company
and the Shares offered hereby, reference is hereby made to the Registration
Statement (including documents incorporated by reference therein) and the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract or other document are not necessarily complete, and
in each instance such statements are qualified in their entirety by reference to
the copy of such contract or other document filed as an exhibit to the
Registration Statement or incorporated by reference therein.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company incorporates by reference the following documents heretofore
filed with the Commission pursuant to the Exchange Act:

1. Annual Report of the Company on Form 10-KSB for the fiscal year ended
December 31, 1997;

2. Quarterly Report of the Company on Form 10-QSB for the fiscal quarter
ended March 31, 1998;

3. Current Report of the Company on Form 8-K filed June 29, 1998; and

4. The description of Common Stock contained in the Company's Registration
Statement on Form 8-A, filed on October 14, 1994.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Shares shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein, in any accompanying Prospectus Supplement or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.

Copies of all documents incorporated by reference herein (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference herein) will be provided without charge to each person, including any
beneficial owner, who receives a copy of this Prospectus on the request of such
person made to NewStar Media Inc., 8955 Beverly Boulevard, Los Angeles,
California 90048, tel: (310) 786-1600, Attention: General Counsel.

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The following summary should be read in conjunction with, and is
qualified in its entirety by, the more detailed information and financial
statements (including the notes thereto) incorporated by reference herein.
Unless the context otherwise requires, all references in this Prospectus to the
"Company" or "NewStar" refer to NewStar Media Inc. and its subsidiaries. This
Prospectus contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in such forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed in "Risk
Factors."

THE COMPANY

NewStar Media Inc. (formerly known as Dove Entertainment, Inc.)
commenced business in 1985 as one of the pioneers of the audio book industry and
has become one of the leading independent producers (i.e., unaffiliated with any
single book publisher) of audio books in the United States. Through Dove Four
Point, Inc. ("NewStar Television"), a wholly owned subsidiary of the Company,
the Company is engaged in the production and development of television
programming. Other activities of the Company include a limited printed book
publishing program and the distribution of feature films and television.

Through its audio division, the Company has produced and distributed an
average of approximately 100 to 120 new audio titles annually since its
inception and has built a library of over 1,000 audio titles. The Company's
audio books generally consist of audio recordings of abridged and unabridged
works from well-known authors such as Sidney Sheldon, Amy Tan, Jack Higgins and
Dominick Dunne and read by the author or celebrity readers such as Linda
Hamilton, Patrick Macnee and William Windom. In 1997 the Company received two
Grammy nominations and in 1996 the Company received four Grammy nominations and
was awarded the Grammy for best spoken-word comedy category for Al Franken's
"Rush Limbaugh is a Big Fat Idiot and Other Observations." The Company's audio
books range from best-selling fiction and nonfiction to movie tie-in audios,
classics, humor and foreign language product. The Company generally produces its
own masters for its audio book products, the majority of which are recorded at
the Company's own recording studios located at its principal offices.

At the end of 1995, the Company began a printed book publishing program
and to date has published approximately 150 titles. The Company is currently
developing up to 24 books for potential publication in 1998, including "The
Complete Guide to Nutritional Supplements" by Brenda Adderly, M. H. .A.,
co-author of the New York Times #1 bestseller "The Arthritis Cure", "The
Internal Frontier" by Morris R. Schechtman and "On Managing" by Mark McCormack.
There is no assurance that the Company will publish any or all of such books in
development or that any of such books that are developed will be successful.

The Company is an independent developer and producer of long-form
television programming, consisting of movies-for-television for the major
domestic television networks. In April 1996, the Company significantly expanded
its presence in television programming through the acquisition of Four Point
Entertainment, Inc. (now NewStar Television). NewStar Television develops and
produces both episodic series and long-form television programming, including
pilots, series, telefilms, mini-series, talk shows, and game shows for the major
network, cable and syndicated markets. In addition, NewStar Television owns and
operates post-production and edit facilities for its own and third-party
programming. Since its inception ten years ago, Four Point Entertainment, Inc.
has produced over 26 television shows (accounting for 1,415 episodes of national
television programming), including "American Gladiators" and "Amazing America."
NewStar Television currently produces the syndicated series, "Make Me Laugh"
(distributed by Buena Vista in association with The Walt Disney Company).
NewStar Television recently delivered to ABC the made-for-television motion
picture "Futuresport" starring Wesley Snipes, Dean Cain and Vanessa L. Williams.

During the second quarter of 1995, the Company formed a wholly-owned
subsidiary, Dove International, Inc., now known as NewStar Worldwide Inc.
("NewStar Worldwide"), to engage in domestic distribution of feature films. In
July 1996, the Company embarked on a program to acquire independent films and
videos for distribution in the United States and Canada on an all rights basis
(including theatrical, home video and all forms of television and a video output
arrangement), but following review in 1997, has discontinued the theatrical
production and video

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distribution operations and has limited the film and television distribution
operations to the existing film and television library and future television
programs provided by NewStar Television.

The Company was incorporated in California in 1985. Its principal
executive offices are located at 8955 Beverly Boulevard, Los Angeles, California
90048. Its telephone number is (310) 786-1600.

RISK FACTORS

Prospective investors should consider carefully the following factors,
as well as all of the other information set forth or incorporated by reference
in this Prospectus, in evaluating an investment in the Shares.

NET OPERATING LOSSES; UNCERTAINTY AS TO FUTURE OPERATING RESULTS.

The Company had a net loss of $6,673,000 and $16,570,000 for the fiscal
years ended December 31, 1996 and 1997, respectively, and $1,763,000 for the
three months ended March 31, 1998. Although the Company implemented a cost
savings program in the second quarter of 1997, the Company's expenses have
increased each fiscal year and can be expected to increase in connection with
the expansion of the Company's publishing, television and film distribution
activities. Accordingly, the Company's future profitability will depend upon
obtaining at least corresponding increases in revenues from operations. There is
no assurance that the Company will achieve revenue growth in the future or that
the Company's future operations will be profitable. The Company has historically
experienced significant negative cash flows from operations. If the Company is
unable to realize anticipated revenues or if the Company incurs costs
inconsistent with anticipated levels, the Company would either need to obtain
additional financing (including possibly through the sale of debt or equity
securities, by obtaining additional bank financing or through the sale of
certain assets), limit its commitments to new projects or possibly curtail its
current operations. In addition, any further expansion of the Company or
acquisitions of particular properties or libraries, would require capital
resources beyond those currently available to the Company, which acquisition of
such resources would be dependent upon the ability of the Company to obtain
additional sources of working capital. There is no assurance that any such
additional sources of working capital will be available on acceptable terms.

CERTAIN RISKS RELATING TO NEWSTAR TELEVISION.

The Company's liquidity has also been adversely affected by the need to
fund certain operating expenses of NewStar Television. There is no assurance
that any of NewStar Television's programming in development will lead to a
production commitment or that any series programming ordered by a network or
syndicator will not be canceled due to ratings, clearances or otherwise. In
addition, there is a substantial risk that any of NewStar Television's projects
will not be successful, resulting in costs not being recouped and anticipated
profits not being realized.

GROWTH AND ACQUISITION RISKS.

The Company intends to continue to actively pursue a strategy of growth
both internally through expansion of its product line and externally by the
acquisition of companies or assets. Such expansion may place substantial burdens
on the Company's management resources and financial assets and controls and
there is no assurance that such increasing burdens will not have an adverse
effect on the Company's results of operations and financial condition or that
the Company will successfully manage such growth. In addition to the risks
inherent in the commercialization of new products, any such acquisitions, in
particular, may involve a number of special risks, including adverse effects on
the Company's operating results, diversion of management's attention, dependence
on hiring and training of key personnel, risks associated with unanticipated
problems or legal liabilities and amortization of acquired intangible assets.
Furthermore, there is no assurance that the Company will be able to identify,
acquire or profitably manage additional companies or successfully integrate
additional companies into the Company without substantial costs, delays or other
problems.

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CERTAIN RISKS RELATING TO THE ENTERTAINMENT INDUSTRY.

The publishing, television and film industries are highly speculative
and historically have involved a substantial degree of risk. The markets for the
Company's products are also subject to rapidly changing consumer preferences,
resulting in short product life cycles and frequent introduction of new
products, many of which are unsuccessful. The inability to maintain a sufficient
level of demand for any particular television project, audio or published book
or film may result in the expenditure of significant funds to develop such
product without corresponding revenues and could adversely affect the Company's
future operations. The Company's success will be largely dependent on its
ability to anticipate and respond to factors affecting the industry, including
the introduction of new market entrants, demographic trends, general economic
conditions, particularly as they affect available discretionary income levels,
and discount pricing and promotion strategies by competitors. There is no
assurance that the Company will be able to anticipate and respond to changing
consumer tastes and preferences and there is a substantial risk that any of the
Company's projects will not be successful, resulting in costs not being recouped
and anticipated profits not being realized.

DEPENDENCE ON A LIMITED NUMBER OF PROJECTS.

The Company's business is dependent on its ability to acquire or develop
rights to exploit new audio, book, television and film properties that will have
broad market appeal. To date, the majority of the Company's revenues are
attributable to a small percentage of the Company's projects and the loss of a
major project in any period or the failure or less-than-expected performance of
a major product in any period, unless replaced by new projects, could have an
adverse effect on the Company's results of operation and financial condition.

POSSIBLE NEED FOR ADDITIONAL FINANCING; LIQUIDITY.

The Company's operations in general, and its publishing, television and
film operations in particular, are capital intensive. The Company anticipates,
based on currently proposed plans and assumptions relating to its operations and
anticipated outcomes of current litigation, that the projected cash flow from
operations and available cash resources, including its existing financing
arrangements, will be sufficient to satisfy its anticipated cash requirements
for at least 12 months following the date of this Prospectus. In the event that
the Company's plans change, its assumptions change or prove to be inaccurate or
the cash flow proves to be insufficient to fund operations (due to unanticipated
expenses, delays, problems, difficulties or otherwise), the Company would be
required to seek additional financing sooner than anticipated or curtail its
activities.

The Company has experienced from time to time significant negative cash
flows from operating activities which have been offset by equity and debt
financings. The Company plans to expand its audio publishing, television
production and television distribution activities and it may continue to
experience negative cash flows from operating activities. In such circumstances,
the Company will be required to fund at least a portion of production and
distribution costs, pending receipt of anticipated future revenues, from working
capital, from additional debt or equity financings from outside sources, or from
other financing arrangements. There is no assurance that the Company will be
able to obtain such financing or that such financing, if available, will be on
terms satisfactory to the Company. The Company is subject to restrictions in
its current financing arrangements that may restrict or preclude the
Company's ability to obtain additional financing.

To the extent the Company obtains financing through sales of equity
securities, any such issuance of equity securities would result in dilution to
the interests of the Company's shareholders. Additionally, to the extent that
the Company incurs indebtedness or issues debt securities in connection with any
acquisition or otherwise, the Company will be subject to risks associated with
incurring substantial indebtedness, including the risks that interest rates may
fluctuate and cash flow may be insufficient to pay principal and interest on any
such indebtedness.

The Company's television and film production activities can affect its
capital needs in that the revenues from the initial licensing of television
programming or films may be less than the associated production costs. The
ability of the Company to cover the production costs of particular programming
or films is dependent upon the availability, timing and amount of fees obtained
from distributors and other third parties, including revenues from foreign or
ancillary markets where available. In any event, the Company from time to time
is required to fund at

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least a portion of its production costs, pending receipt of film revenues, out
of its working capital or financing facilities.

In order to obtain rights to certain properties for the Company's
publishing and film operations, the Company may be required to make advance cash
payments to sources of such properties, including book authors and publishers.
While the Company generally attempts to minimize the magnitude of such payments
and to obtain advance commitments to offset such payments, the Company is not
always able to do so.

RETURNS AND REMAINDER SALES IN THE PUBLISHING INDUSTRY -- POTENTIAL EFFECT ON
RESULTS OF OPERATION AND FINANCIAL CONDITION.

In accordance with industry practice, substantially all of the Company's
sales of audio and printed book products are and will continue to be subject to
potential return by distributors and retailers if not resold to the public.
Historically, the Company has experienced significant returns and there is no
assurance that the Company will not experience returns of its audio and printed
book products in excess of its historical returns, which in certain cases have
been substantial. Although the Company makes allowances and reserves for
returned products, significant increases in return rates could materially and
adversely impact the Company's results of operations or financial condition. In
addition, the Company from time to time makes price concessions or allowances or
grants credits to distributors or retailers in order to minimize returns, and
such concessions and allowances may adversely affect the Company's operating
results. Certain of the Company's revenues are derived from sales at discount
prices of excess inventory of books, including returned book products, effected
through warehouse, outlet and other stores ("remainder sales"). Revenues from
remainder sales typically have not exceeded the Company's per-unit costs. The
availability of remainder product at discount prices also may have the effect of
reducing sales of full-price books, and, therefore, could adversely affect the
Company's results of operation and financial condition.

POTENTIAL FOR LIABILITY CLAIMS.

The nature of the Company's publishing business entails the risk of
liability claims, which may be heightened because of the controversial nature of
certain of its publications. The Company maintains liability insurance which it
believes is adequate to protect its assets. However, there is no assurance that
claims will not be asserted in the future, or that any damages assessed against
the Company for existing and future claims will not exceed the limits of
available insurance coverage or that adequate insurance, on terms the Company
believes are commercially reasonable, will continue to be available. In
addition, the potential negative publicity that could arise from a liability
claim could have a material adverse effect on the Company, even if the Company
were ultimately to prevail in the defense of the claim.

DEPENDENCE ON CERTAIN OUTLETS.

With respect to publishing, the level of the Company's sales of books
through major outlets, such as Ingram and Barnes & Noble/B. Dalton, depends
significantly on shelf space allocated to such products. There is no assurance
that the Company will be able to maintain current levels of shelf space or
distribution in such chains or in other distribution outlets or that alternative
distribution channels will be available in the future. Loss of any of these
retail outlets as a distribution channel or loss of a significant amount of
shelf space would have a material adverse effect on the Company's results of
operation and financial condition. Similarly, with respect to television
product, there is no assurance that the Company will be able to distribute its
television product to television outlets to which it has distributed in the past
or that alternate outlets will be available in the future. Loss of any of these
or television outlets or retail outlets as a distribution channel or loss of a
significant amount of shelf space would have a material adverse effect on the
Company's results of operation and financial condition.

COMPETITION.

Competition is intense within the publishing, television and motion
picture industries and between each of these industries and other entertainment
media. Many major publishing houses have established operations and the Company
anticipates increased competition in the future from major record companies. The
cost of obtaining

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publishing rights from popular authors is escalating and, in many cases,
obtaining such rights is beyond the Company's capital resources. The Company
expects this trend to continue. As a result, it may become more difficult to
acquire rights to "blockbuster" works by authors with past successes. Such
ability may limit the opportunities available to the Company to publish in audio
format the works of such authors. In addition, increased competition within the
publishing industry could result in greater price competition in the sale of
books. Reductions in prices of books, as a result of competition or otherwise,
would adversely affect the Company's results of operations and financial
condition.

In addition, the Company is in competition with major television
companies and film studios as well as with numerous smaller companies for the
services of performing artists, other creative and technical personnel and
creative material.

Many of the entities against which the Company competes have
substantially greater financial, personnel, technological, marketing, managerial
and other resources than the Company and have well established reputations in
the publishing, television and film industries. There is no assurance that the
Company will continue to successfully compete.

VARIABILITY OF QUARTERLY RESULTS.

The Company's operating revenues, cash flow and net earnings (losses)
historically have fluctuated significantly from quarter to quarter, depending in
large part on the delivery or availability dates of its programs and product and
the amount of related costs incurred and amortized in the period. For example,
the demand for audio books is seasonal, with the majority of shipments taking
place in the third and fourth quarters of the year. Therefore, year-to-year
comparisons of quarterly results may not be meaningful and quarterly results
during the course of a fiscal year may not be indicative of results that may be
expected for the entire fiscal year. Such fluctuations may adversely affect the
market price of the Company's Common Stock.

NATURE OF ACCOUNTING PRINCIPLES APPLICABLE TO THE PUBLISHING AND ENTERTAINMENT
INDUSTRIES.

The Company recognizes revenues from the sale of audio and printed
books, including the licensing of audio and printed book rights to third
parties, net of estimated returns and allowances, upon shipment of the product
or upon availability of the rights pursuant to the Company's licensing
arrangements. To allow for returns, the Company establishes a reserve against
revenues from audio and printed book sales, the magnitude of which is based on
management's estimate of returns. The Company's future reported revenues will be
negatively impacted if the Company's actual return experience exceeds its
established reserves. There is no assurance that the Company's actual return
experience will not exceed its reserves.

Audio and printed book inventory is valued at the lower of cost or
market using estimated average cost, determined using the first-in, first-out
method. If the Company's reserves for excess inventory are not adequate at any
time, the Company will be required, under generally accepted accounting
principles, to write down audio and printed book inventory, which will increase
cost of sales. Any such write-downs would have an adverse impact on the
Company's operating results. Excess inventory may arise as a result of, among
other things, customer returns. The extent of any write-downs will depend on,
among other things, the quantity of actual returns received and the level of
production and sales activity and the state and the state and volatility of the
remainder market. The Company establishes reserves against such write-downs
based on past experience with similar products. There is no assurance that the
Company's reserve for excess inventory at any time will be adequate and that
additional write-downs will not be necessary.

Film costs, which include development, production and acquisition costs
of television programming and feature films, are capitalized and amortized, and
participations and royalties are accrued, in accordance with the individual film
forecast method in the proportion that current quarter's revenue bears to the
estimated total revenues from all sources. These costs are stated at the lower
of unamortized costs or estimated realizable value on an individual film basis.
Revenue forecasts for films are periodically reviewed by management, and the
Company's results of operations may be adversely affected as a result of a
write-down of carrying value of particular films in the

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event management's estimate of ultimate revenues is materially decreased. There
is no assurance that the Company will not incur write-downs in the future in
respect of its film and television operations such write-downs would have an
adverse impact on operating results.

KEY PERSONNEL.

The Company may be dependent on the continued services of Ronald M.
Ziskin, President of NewStar Television, who has an employment agreement ending
in December 2000. As the Company grows, it will need to hire additional
qualified personnel. Competition for such personnel is intense, and the loss of
key employees or inability to hire and retain additional qualified personnel
would have a material adverse effect on the Company. In addition, the success of
the Company's audio and printed books is in large part dependent upon the
individuals with whom the Company contracts as readers and authors. The Company
does not have long-term contractual arrangements with its readers and authors,
and specific individuals may not be available with respect to particular
projects.

CONTROL BY MANAGEMENT.

As of March 31, 1998, Media Equities International, LLC ("MEI") (the
beneficial owners of which are Terrence A. Elkes, Kenneth F. Gorman, Bruce
Maggin and John T. Healy (all of whom are directors of the Company) and Ronald
Lightstone (the President and Chief Executive Officer of, and a director of, the
Company)), beneficially owned, in the aggregate, approximately 6,718,000 shares
(52.6%) of the Common Stock (including 6,218,000 shares subject to outstanding
warrants (which do not have voting rights until they are exercised) and shares
issuable upon conversion of the Company's Preferred Stock (which currently have
voting rights)). Accordingly, MEI will continue to be in a position to exercise
significant control over the general affairs of the Company, including the
ability to elect directors, increase the authorized capital of the Company,
dissolve, merge, or sell the assets of the Company and generally direct the
affairs of the Company.

ABSENCE OF DIVIDENDS.

No dividends have been paid on the Common Stock to date, and the Company
does not anticipate paying dividends on the Common Stock in the foreseeable
future. In addition, the ability of the Company to pay cash dividends on the
Common Stock is restricted by the Company's working capital credit facility.

AUTHORIZATION OF PREFERRED STOCK.

The Company's Articles of Incorporation authorize the issuance of up to
2,000,000 shares of preferred stock with the designations, rights and
preferences determined from time to time by its Board of Directors. Accordingly,
the Company's Board of Directors is empowered, without shareholder approval, to
issue preferred stock with dividend, liquidation, conversion, voting, or other
rights preferential to the rights of the shareholders of the Common Stock. The
Board of Directors has designated 214,113 shares as Series A Preferred Stock,
5,000 shares as Series B Preferred Stock, 5,000 shares as Series C Preferred
Stock, 400,000 shares of Series D Preferred Stock and 1,500 shares as Series E
Preferred Stock. In the event of additional issuances, the preferred stock could
be utilized, under certain circumstances, as a method of discouraging, delaying,
or preventing a change in control of the Company.

OUTSTANDING OPTIONS AND WARRANTS.

As of March 31, 1998, there were outstanding options granted under the
Company's Stock Incentive Plan to purchase an aggregate of 89,000 shares of
Common Stock, at exercise prices ranging from $2.50 to $6.00 per share, other
options and warrants to purchase an aggregate of 5,495,513 shares of Common
Stock at exercise prices ranging from $.01 to $12.00 per share, 4,000 shares of
Series B Preferred Stock which are convertible into an aggregate of 2,000,000
shares of Common Stock, 1,920 shares of Series C Preferred Stock which are
convertible into an aggregate of 960,000 shares of Common Stock and 214,113
shares of Series D Preferred Stock which is convertible into an aggregate of
258,000 shares of Common Stock. There are also 1,419 shares of Series E
Preferred Stock held in escrow which are convertible into Common Stock only upon
release from escrow and 81 shares of Series E Preferred Stock which have been
released from escrow. To the extent that outstanding options or warrants are

-8-
<PAGE> 11

exercised or shares of preferred stock are converted, the interests of the
Company's shareholders immediately prior to such exercise or conversion will be
diluted.

NO ASSURANCE AS TO LIQUIDITY ON THE NASDAQ SMALLCAP MARKET.

Although the Common Stock currently trades on the Nasdaq SmallCap
Market, there is no assurance that the Common Stock will continue to be traded
on such market. On April 23, 1998, the Nasdaq Stock Market, Inc. ("NASDAQ")
informed the Company that NASDAQ had determined that the Company was not in
compliance with new net tangible assets/market capitalization/net income
requirements pursuant to NASD Marketplace Rule 4310(c)(2). On May 14, 1998, the
Company filed a plan to regain compliance with the NASDAQ requirements. On June
9, 1998, NASDAQ rejected the plan and determined that the Company's common stock
would be delisted at the close of business on Thursday, June 18, 1998. The
Company has appealed this decision, which will stay the delisting pending an
oral hearing, which hearing has been set for August 6, 1998. Although the
Company believes that it can come into compliance with the continued listing
requirements in a reasonable period of time, there can be no assurance that its
oral hearing or any appeal therefrom will be successful or that the Company's
common stock will remain listed on the NASDAQ SmallCap Market. If the Company's
common stock is delisted, it would likely be more difficult to buy or sell the
Company's common stock or to obtain timely and accurate quotations to buy or
sell. In addition, the delisting process could result in a decline in the
trading market for the Company's common stock which could potentially depress
the Company's stock price, among other consequences. In the event that the
Company's appeal is successful, there is no assurance that at any time
thereafter, the Company will be able to satisfy all of the conditions for
continued listing on the Nasdaq SmallCap Market.

LEGAL PROCEEDINGS AND CLAIMS.

In August 1993, the trial court confirmed an arbitration award in favor
of the Company, Michael Viner and Jerry Leider and against Steven Stern and
Sharmhill Productions in the approximate amount of $4.5 million (plus interest
accruing thereon from September 1992 and attorney's fees) relating to the film
"Morning Glory." In March 1995, defendants appealed the judgment to the
California Court of Appeals. In June 1995, the Court of Appeals affirmed the
judgment, and that judgment is now final. In a related matter, the Company
sought to restore certain fraudulent conveyances that Mr. Stern had made. In
August 1995, Mr. Stern filed for bankruptcy protection. The United States
Trustee is pursuing the fraudulent conveyance action on behalf of the bankruptcy
estate, of which the Company comprises approximately 80%, and the Company, Mr.
Viner and Mr. Leider are separately pursuing their own adversary proceeding for
conspiracy against Mr. Stern and others in the bankruptcy case. The Company is
also objecting to Mr. Stern's discharge in bankruptcy. There is no assurance
that the Company will ultimately prevail, or as to if, when or in what amount
the Company will be able to recover the amount of the original judgment in its
favor.

In February 1993, Mr. Stern filed a complaint against the Company, Mr.
Viner and Mr. Leider entitled Steven A. Stern and Steven A. Stern as assignee of
the claims of Sharmhill Productions (B.C.), Inc., a bankrupt company v. Dove
Audio, Inc. et al. (British Columbia Supreme Court, Vancouver Registry No.
C930935) (the "Canadian Stern Action") claiming that he had been fraudulently
induced to enter into the agreement underlying the arbitration award and seeking
as damages the amount of the judgment. The Company believes that it has good and
meritorious defenses to the Canadian Stern Action. Nevertheless, there is no
assurance that the Company will prevail in the Canadian Stern Action.

In February 1996, the Company was served with a complaint in an action
entitled Robert H. Tourtelot v. Dove Audio, Inc. etc. et al. (Los Angeles
Superior Court Case No. SC040739) (the "Tourtelot Action"). Mr. Tourtelot seeks
in excess of a million dollars in damages claiming that he had an oral agreement
with the Company to write a book that the Company would publish, and that
information he provided to the Company was used in another book published by the
Company, "Legacy of Deception." Mr. Tourtelot alleged causes of action for
breach of oral contract, fraud, suppression of fact, breach of the implied
covenant of good faith and fair dealing, breach of fiduciary duty, infringement
of common law copyright, conversion, conspiracy and accounting. The Company
successfully removed the action to the United States District Court for the
Central District of California, and successfully moved to have the claims for
infringement of common law copyright, breach of fiduciary duty,

-9-
<PAGE> 12
conversion, conspiracy and accounting dismissed. The Tourtelot Action was then
remanded to the Los Angeles Superior Court, which has permitted Mr. Tourtelot to
pursue claims for breach of oral contract, fraud, suppression of fact, breach of
the implied covenant of good faith and fair dealing, breach of fiduciary duty,
conversion, conspiracy and quantum meruit. While the Company believes that it
has good and meritorious defenses to the Tourtelot Action, there is no assurance
that the Company will prevail in the Tourtelot Action.

In March 1996, the Company was served with a complaint in an action
entitled Alexandra D. Datig v. Dove Audio, et al. (Los Angeles Superior Court
Case No. BC145501) (the "Datig Action"). The Datig Action was brought by a
contributor to, and relates to, the book "You'll Never Make Love In This Town
Again." The Datig complaint sought in excess of a million dollars in monetary
damages. In October 1996, the Company obtained a judgment of dismissal of the
entire Datig Action, which judgment also awarded the Company its attorney's fees
and costs in defending the matter. Thereafter, the Company sued Ms. Datig for
malicious prosecution. Ms. Datig, however, has appealed the judgment. While the
Company believes that it will prevail on the appeal, there is no assurance that
the Company will in fact be successful on appeal.

In July 1996, the Company was served with a complaint in an action
entitled Terrie Maxine Frankle and Jennie Louise Frankle v. Dove Audio (U.S.
District Court, Central District of California Case No. 96-4073 RSWL) (the
"Frankle Action"). The Frankles claim to be the authors of "You'll Never Make
Love In This Town Again," and have alleged claims for copyright infringement and
fraud. The Frankles' application for a preliminary injunction was denied because
they could not demonstrate a likelihood of success on the merits of their
claims. The Company believes that it has good and meritorious defenses and
counterclaims against the Frankles. Nevertheless, there is no assurance that the
Company will prevail.

In June 1997, the Company was served with a complaint in an action
entitled Michael Bass v. Penguin USA Inc., et al. (New York Superior Court Case
No. 97-111143) (the "Bass Action"). The complaint alleges among other things
that the contribution of Liza Greer (one of the authors) to the book "You'll
Never Make Love In This Town Again" defames Mr. Bass and violates his rights of
publicity under New York statutes. The complaint seeks damages of $70,000,000
for defamation and $20,000,000 for violation of the New York right of publicity
statutes and an injunction taking the book out of circulation and prohibiting
the use of Mr. Bass' name.. As a result of the Bass Action, the Company brought
a cross-complaint against Ms. Greer. The Bass Action was dismissed with
prejudice on July 6, 1998. However, there is no assurance that the plaintiffs
thereunder will not appeal the dismissal, or in the event of such an appeal,
that the Company will prevail.

In July 1997, Michael Viner and Deborah Raffin Viner (the "Former
Principals") commenced an arbitration against the Company. In their arbitration
demand, the Former Principals claimed that they were owed in excess of $1
million by the Company relating to the motion picture entitled "Morning Glory".
The Former Principals claimed that they were also entitled to the repayment of
certain deferred amounts for producing and acting services rendered by them in
connection with "Morning Glory" and to 50% of the profits. They claimed that a
former director of the Company, Gerald Leider, is entitled to the other 50% of
the profits. The Former Principals also asserted that from any recovery of a
judgment confirming an arbitration award against Steven Stern and/or Sharmhill
Productions relating to "Morning Glory" (the "Stern Judgment"), they are
entitled to receive $1 million, as well as the deferred amounts and 50% of the
profits. Present management believes it has good and sufficient defenses to the
claims, including, but not limited to the Former Principals' waiver of their
claims that any amounts are owed to them as debt, as profit participation or as
deferred compensation and that the Company has not yet recouped its investment
in the Picture. The Company also asked the arbitrator to determine that the
Former Principals are not entitled to any moneys or rights with respect to
"Morning Glory", including from the proceeds of the Stern Judgment. On June 17,
1998, the arbitrator issued an order in which he ruled that the Former
Principals were not entitled to repayment of such deferred amounts, to any
percentage of the profits or to the $1,000,000 claimed by the Former Principals.
The arbitrator also ruled that the Former Principals were not entitled to any
proceeds from the Stern Judgment. The Former Principals requested that the
arbitrator reconsider his ruling. The arbitrator determined on July 15, 1998
that there was no basis for reconsideration. The Company is not aware of any
appeal by the Former Principals. In the event of such an appeal, there is no
assurance that the Company will prevail.

-10-
<PAGE> 13

In August 1997, the Former Principals commenced an arbitration against
the Company seeking specific performance of, and alleging breach of, a
termination agreement to which they and the Company are a party (the
"Termination Agreement"), and claiming damages in excess of $165,000 and
additional reimbursements allegedly due for other items. The Company believed
that, with the exception of certain immaterial amounts which it expected to pay,
it had good and meritorious defenses to the claims by the Former Principals and
it filed its own claims against the Former Principals. On July 17, 1998, the
arbitrator ruled in favor of the Company on some issues and in favor of the
Former Principals on other issues, resulting in a net recovery by the Former
Principals of approximately $30,000. The arbitrator also confirmed an earlier
ruling that a provision of the Termination Agreement prohibiting the Former
Principals from competing with the Company in the audio book business for a
period of four years from June 10, 1997 is valid and enforceable, and enjoined
and restrained the Former Principals from engaging in the audio book business
during that period. There is no assurance that the Former Principals will not
appeal, or in the event of such an appeal that the Company will prevail.

A settlement has been reached in the securities class action lawsuits
pending against the Company and two former officers and directors and a
Stipulation of Settlement was filed with the Los Angeles Superior Court in July
1998. The settlement has received preliminary court approval and is conditioned
on certain contingencies and final court approval following notice to be
provided to the plaintiff classes. Under the terms of the Stipulation of
Settlement, all of the pending class actions will be dismissed and a settlement
fund of $3.75 million will be created for the members of the proposed classes.
The Stipulation of Settlement provides that the settlement does not constitute
an admission of liability by the Company or any other party with respect to the
matters alleged in the class actions. The full amount of the settlement and
associated legal costs incurred by the Company to date have either been
previously reserved for or covered by the Company's insurance carriers. The
pending class actions consisted of three separate cases, Alan Fields v. Dove
Entertainment, Inc., et al. (Los Angeles Superior Court No. BC174659), Global
Asset Allocation Consultants, L.L.C. v. Dove Entertainment, Inc., et al. (United
States District Court for the Central District of California Civil Action No.
97-6253-WDK) and George, et al. v. Dove Entertainment, Inc. et al. (United
States District Court for the Central District of California Civil Action No.
97-7482-R). Although the Company anticipates that the settlement will receive
final court approval, there is no assurance that the settlement will receive
final court approval or that members of the plaintiff classes will not opt out
of the settlement and pursue their own actions.

In December of 1997, the Company was served with a complaint in an
action entitled Gerald J. Leider V. Dove Entertainment, Inc., f.k.a. Dove Audio,
Inc. (Los Angeles Superior Court Case No. BC 183056). Mr. Leider is a former
Chairman of the Board and consultant to the Company and has sought damages of
approximately $287,000 for breach of contract and $60,000 for unpaid consulting
fees. Mr. Leider also is seeking a declaration that the Company must comply with
certain purported stock option agreements and for an order for inspection and
copying of certain records of the Company and an award of expenses related
thereto. On April 21, 1998, Mr. Leider obtained a writ of attachment for
approximately $287,000 in respect of his claims, for which the Company has
substituted an

-11-
<PAGE> 14

undertaking for the amount of attachment. Although the Company believes that it
has good and meritorious defenses and setoffs to such action, there is no
assurance that the Company will prevail in such action. The Company has filed a
separate complaint against Mr. Leider for breach of fiduciary duty, fraud and
breach of covenant of good faith and fair dealing asserting that Mr. Leider
entered into purported agreements with the Company that were unfair to the
Company, were not disclosed to the Board or the Company's shareholders and were
never approved by the Board or the Company's shareholders.

The Company has filed an appeal in the action entitled Greer v. Dove
(Los Angeles Superior Court Case No. BC 160871) (the "Greer Action"). In order
to file the appeal, the Company was required to post a bond in the amount of
approximately $179,000 (i.e., 150% of the judgment amount). There is no
assurance that the Company will prevail in such appeal.

In June 1998, the Company was served with a complaint filed in Los
Angeles Superior Court (Case No. BC193089) entitled Liza Greer v. NewStar Media,
Inc. for breach of contract, breach of fiduciary duty, breach of agreement,
breach of the implied covenant of good faith and fair dealing and fraud, in
connection with the book "You'll Never Make Love in this Town Again" and
circumstances relating to the Greer Action. Ms. Greer claims, among other
things, that she has suffered damages in excess of $1,000,000. The Company
believes it has good and meritorious defenses to the action. Nevertheless, there
is no assurance that the Company will prevail.

In addition to the above claims, the Company is a party to various other
routine legal proceedings and claims incidental to its business.

There can be no assurance that the ultimate outcome of these matters
will be resolved in favor of the Company. In addition, even if the ultimate
outcome is resolved in favor of the Company, involvement in any litigation or
claims could entail considerable cost to the Company and the diversion of the
attention of management, either of which could have a material adverse effect on
the business of the Company.

USE OF PROCEEDS

The Company will receive no proceeds from the sale of the Shares
pursuant to this Prospectus.

SELLING SHAREHOLDERS

The following table sets forth the Selling Shareholders and certain
information as of March 31, 1998. It is unknown if, when, or in what amounts a
Selling Shareholder may offer Shares for sale. None of the Selling Shareholders
has held any position or office or held any other material relationship with the
Company or any of its affiliates within the past three years, other than Michael
Viner and Deborah Raffin. Mr. Viner is the former President and Chief Executive
Officer and a former director of the Company and Ms. Raffin is a former vice
president and director of the Company.

There is no assurance that the Selling Shareholders will sell any or all
of the Shares offered hereby or any Preferred Stock will be converted or that
any Shares issued upon conversion of the Preferred Stock, if any, will be sold
by any of the Selling Shareholders. To the extent required, the public offering
price of the Shares to be sold, the names of any agent, dealer or underwriter
employed by such Selling Shareholders in connection with such sale, and any
applicable commission or discount with respect to a particular offer will be set
forth in an accompanying Prospectus Supplement.

The Shares covered by this Prospectus may be sold from time to time so
long as this Prospectus remains in effect; provided, however, that the Selling
Shareholder is first required to contact the Company's Corporate Secretary to
confirm that this Prospectus is in effect. Although the Company will use its
best efforts to maintain this Prospectus in effect for up to three years, there
is no assurance that such will be the case. Since a Selling Shareholder may be
liable if he sells Shares when this Prospectus is not in effect, the Company
requires each Selling Shareholder to contact it to confirm that this Prospectus
is then in effect prior to any sale of Shares. The Selling Shareholders expect
to sell the Shares at prices then attainable, less ordinary brokers commissions
and dealers' discounts as applicable.

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<PAGE> 15

The Selling Shareholders and any broker or dealer to or through whom any
of the Shares are sold may be deemed to be underwriters within the meaning of
the Securities Act with respect to the Shares offered hereby, and any profits
realized by the Selling Shareholders or such brokers or dealers may be deemed to
be underwriting commissions. Brokers' commissions and dealers' discounts, taxes
and other selling expenses to be borne by the Selling Shareholders are not
expected to exceed normal selling expenses for sales over-the-counter or
otherwise, as the case may be. The registration of the Shares under the Act
shall not be deemed an admission by the Selling Shareholders or the Company that
the Selling Shareholders are underwriters for purposes of the Act of any Shares
offered under this Prospectus.

SELLING SHAREHOLDER LIST

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
COMMON STOCK

SELLING SHAREHOLDER BEFORE OFFERING(1) OFFERED
<S> <C> <C>
John Tinker 325,000 125,000

Michael Yagemann 300,000 125,000

Michael Viner and Deborah Raffin 10,000 200,000(2)
</TABLE>

(1) Represents the amount of shares disclosed by such Selling Shareholder to the
Company as being owned by such Selling Shareholder. With respect to Messrs.
Tinker and Yagemann, includes the 125,000 shares being registered hereunder by
each such Selling Shareholder. With respect to Michael Viner and Deborah Raffin,
the amount shown does not include the shares being registered hereunder.

(2) Represents shares issuable upon conversion of the 81 shares of Series E
Preferred Stock released from escrow and a portion of the Series E Preferred
Stock currently held in escrow. The Series E Preferred Stock is registered
jointly in Michael Viner's and Deborah Raffin's names.

PLAN OF DISTRIBUTION

This Prospectus covers up to 450,000 shares of the Company's Common
Stock. All of the Shares offered hereby are being sold by the Selling
Shareholders. The Company will receive no proceeds from the sale of the Shares
by the Selling Shareholders. The Company will not receive any proceeds from the
conversion of the Series E Preferred Stock into Common Stock.

The distribution of the Shares by the Selling Shareholders is not
subject to any underwriting agreement. The Selling Shareholders may sell the
Shares offered hereby from time to time in transactions in the over-the-counter
market, in negotiated transactions, or a combination of such methods of sale or
otherwise, at fixed prices which may be changed, at market prices prevailing at
the time of sale, at prices related to prevailing market prices or at negotiated
prices. The Selling Shareholders may effect such transactions by selling the
Shares to or through broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of the
customary commissions). The Selling Shareholders and any broker-dealers that
participate with the Selling Shareholders in the distribution of the Shares may
be deemed to be underwriters and any commissions received by them and any profit
on the resale of the Shares commissioned by them may be deemed to be
underwriting commissions or discounts under the Securities Act. The Selling
Shareholders will pay any transaction costs associated with effecting any sales
that occur.

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<PAGE> 16

If any Selling Shareholder sells his, her or its Shares, pursuant to
this Prospectus at a fixed price or at a negotiated price which is, in either
case, other than the prevailing market price or in a block transaction to a
purchaser who resells, or if any Selling Shareholder pays compensation to a
broker-dealer that is other than the usual and customary discounts, concessions
or commissions, or if there are any arrangements either individually or in the
aggregate that would constitute a distribution of the Shares held by a Selling
Shareholder, to the extent required, the number of Shares to be sold, the
respective purchase price and public offering price, the name of any agent,
dealer broker or underwriter and any applicable commissions or discounts with
respect to a particular offer will be set forth in an accompanying Prospectus
Supplement. The Company is under no obligation to file a post-effective
amendment to the registration statement of which this Prospectus is a part under
such circumstances.

The Selling Shareholders are not restricted as to the price or prices at
which they may sell their Shares. Sales of such Shares may have an adverse
effect on the market price of the Common Stock. Moreover, some of the Selling
Shareholders are not restricted as to the number of Shares that may be sold at
any one time, and it is possible that a significant number of Shares could be
sold at the same time which may also have an adverse effect on the market price
of the Company's Common Stock.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent for the Common Stock is U.S. Stock Transfer
Corporation, Glendale, California.

EXPERTS

The consolidated financial statements of NewStar Media Inc. as of
December 31, 1997 and for the years ended December 31, 1997 and 1996 have been
incorporated by reference herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.

The Company engaged KPMG Peat Marwick LLP as its principal accountants
as of September 18, 1995.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Companies by-laws, as amended provide that the Company will
indemnify any person who was or is a party or is threatened to be made a party
to any proceeding (other than an action by or in the right of the Company to
procure a judgment in its favor) by reason of the fact that such person is or
was an agent of the Company, against expenses, judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with such
proceeding if such person acted in good faith and in a manner he or she
reasonably believed to be in the best interest of the Company, and, in the case
of a criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. In addition, the Company will indemnify any person who was or is a
party, or is threatened to be made a party, to any threatened, pending or
completed action by or in the right of the Company to procure a judgment in its
favor by reason of the fact that such person is or was an agent of the
corporation, against expenses actionably and reasonably incurred by such person
in connection with the defense of settlement of such action if such person acted
in good faith and in a manner he or she believed to be in the best interest of
the corporation and its shareholders, except that no such indemnification will
be made (a) in respect of any claim, issue or matter as to which such persons
will have been adjudged to be liable to the Company in the performance of such
person's duty to the Company and its shareholders, unless, an only to the extent
that, the court in which such proceeding is or was pending determines that, in
view of all of the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for expenses, (b) of amounts paid in settling
or otherwise disposing of a pending action without court approval, or (c) of
expenses incurred in defending a pending action which is settled or otherwise
disposed of without court approval. For these purposes, "Agent" means any person
who is or was a director, officer, employee or other agent of the Company, or is
or was serving at the request of the Company as a director, officer, employee or
agent of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, or was serving as a director, officer, employee or
agent of a foreign or domestic corporation which was a predecessor corporation
of the Company or of another enterprise at the request of such predecessor
corporation. "Proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative.

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<PAGE> 17

The rights to indemnification provided by the Bylaws are not exclusive
of any other right which any person may have or acquire under a statute, bylaw,
agreement, vote of shareholders or of disinterested directors or otherwise.

Except to the extent set forth above, there is no article, provision, bylaw,
contract, arrangement or statute under which any director or officer of the
Company is insured or indemnified in any manner against any liability which may
be incurred in such capacity.

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<PAGE> 18

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR SOLICITATION OF ANY OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER TO SELL OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.

NEWSTAR MEDIA INC.
450,000 SHARES
COMMON STOCK

PROSPECTUS

JULY [____], 1998

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION...................................................................2

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.........................................2

THE COMPANY.............................................................................3

RISK FACTORS............................................................................4

USE OF PROCEEDS........................................................................12

SELLING SHAREHOLDERS...................................................................12

PLAN OF DISTRIBUTION.....................................................................

EXPERTS................................................................................14
</TABLE>

<PAGE> 19

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSE OF ISSUANCE AND DISTRIBUTION

The following table sets forth costs and expenses payable in connection
with the sale and distribution of the securities being registered. All amounts
are estimates except the Securities and Exchange Commission registration fee.

<TABLE>
<S> <C>
SEC registration fee $ 221.00

Legal fees and expenses $ 5,000.00

Accounting fees and expenses $ 3,000.00

Transfer agent and registrar fees $ 1,000.00

Miscellaneous $ 5,000.00

Total $14,221.00
</TABLE>

None of the expenses of issuance and distribution of the Shares is to be
borne by the Selling Shareholders.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

<PAGE> 20

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
-------------------------
<S> <C>
4.1 Specimen common stock certificate of the Company (filed as
Exhibit 4.1 to Amendment No. 2 to the IPO Registration
Statement filed with the Commission on November 29, 1994)

23.1 Consent of KPMG Peat Marwick LLP

24 Power of Attorney contained on page II-4 hereto
</TABLE>

ITEM 17. UNDERTAKINGS

(a) The undersigned Registrant hereby undertakes to:

(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:

(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act;

(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change
in the information in the registration statement; and

(iii) Include any additional or changed material information
on the plan of distribution.

(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at
that time to be the initial bona fide offering.

(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.

(b) The undersigned Registrant hereby undertakes that:

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-2-
<PAGE> 21

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, in the City of Los
Angeles, State of California, July __, 1998.

NEWSTAR MEDIA INC.

By: /s/ RONALD LIGHTSTONE
-----------------------------
Ronald Lightstone, President
and Chief Executive Officer

II-3-
<PAGE> 22

POWER OF ATTORNEY

The Company and each person whose signature appears below constitutes
and appoints Ronald Lightstone, his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution for him or her and in
his or her name, place and stead, in any and all capacities, to sign and file
(i) any and all amendments (including post-effective amendments) to this
Registration Statement, with all exhibits thereto, and all other documents in
connection therewith, and (ii) any registration statement, and any and all
amendments thereto, relating to the offering covered hereby filed pursuant to
Rule 462(b) under the Securities Act of 1933, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite or necessary
to be done, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>

/s/ RONALD LIGHTSTONE July __, 1998

Ronald Lightstone President, Chief Executive Officer
and Director

/s/ NEIL TOPHAM July __, 1998

Neil Topham Chief Financial Officer (principal
accounting officer)

/s/ TERRENCE ELKES July __, 1998

Terrence Elkes Director

/s/ KEN GORMAN July __, 1998

Ken Gorman Director

/s/JACK HEALY July __, 1998

Jack Healy Director

/s/ LEE MASTERS July __, 1998

Lee Masters Director

/s/ BRUCE MAGGIN July __, 1998

Bruce Maggin Director

/s/ STEVE MAYER July __, 1998

Steve Mayer Director
</TABLE>

II-4-

<PAGE> 1

EXHIBIT 23.1

The Board of Directors

NewStar Media Inc.:

We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.

KPMG Peat Marwick LLP

Los Angeles, California

July 22, 1998