NEWSTAR MEDIA INC, S-3, 1999-07-09

NEWSTAR MEDIA INC
S-3, 1999-07-09
PHONOGRAPH RECORDS & PRERECORDED AUDIO TAPES & DISKS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1999
REGISTRATION NO.

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)

CALIFORNIA 95-4015834
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

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)

ROBERT C. MURRAY
VICE PRESIDENT AND GENERAL COUNSEL
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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

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. / /

<PAGE>

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

<TABLE>

CALCULATION OF REGISTRATION FEE
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF CLASS OF AMOUNT MAXIMUM OFFERING AGGREGATE
SECURITIES TO BE PRICE PER OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED SHARE(1) PRICE REGISTRATION FEE
----------------- ---------- ---------------- --------- -----------------

Common Stock, par value

<S> <C> <C> <C> <C>
$.01 per 9,641,757 shares $1.547 $14,915,798 $4,147

</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 2, 1999 in accordance with Rule 457(c) under the
Securities Act of 1933.

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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9,641,757 SHARES

NEWSTAR MEDIA INC.

COMMON STOCK

This Prospectus relates to an aggregate of 9,641,757 shares of common
stock, $.01 par value per share of NewStar Media Inc., a California corporation.
All of the shares are issued and outstanding and will be sold by the
shareholders holding such shares. The Company will not receive any proceeds from
the sale of the shares.

The common stock is listed on the Nasdaq SmallCap Market under the
trading symbol "NWST." On July 2, 1999, the closing bid price of the common
stock as reported on the Nasdaq SmallCap Market was $1.594 per share.

THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE
SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS. CONSIDER CAREFULLY THE RISK
FACTORS BEGINNING ON PAGE 2 OF THIS PROSPECTUS.

Neither The Securities and Exchange Commission Nor Any State Securities
Commission Has Approved Or Disapproved Of These Securities Or Passed On The
Accuracy Or Adequacy Of The Prospectus. Any Representation To The Contrary is A
Criminal Offense.

The selling shareholders may sell the shares from time to time on terms
to be determined at the time of sale. Each selling shareholder reserves the sole
right to accept or reject, in whole or in part, any proposed purchase of the
shares.

The Information In This Prospectus Is Not Complete and May Be Changed.
The Selling Shareholders May Not Sell the Shares Until the Registration
Statement Filed With the Securities and Exchange Commission Is Effective. This
Prospectus Is Not an Offer To Sell the Shares and It Is Not an Offer to Buy the
Shares in Any State Where the Offer or Sale Is Not Permitted.

The mailing address and telephone number of the principal executive
offices of the Company is 8955 Beverly Boulevard, Los Angeles, California 90048
Tel: 310-786-1600.

July 9, 1999

<PAGE>

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. ALL REFERENCES TO
THE "COMPANY" OR "NEWSTAR" REFER TO NEWSTAR MEDIA INC. AND ITS SUBSIDIARIES.

NET OPERATING LOSSES; NEED FOR ADDITIONAL FINANCING.

The Company had a net loss of $4,936,000 for the fiscal year ended
December 31, 1998, a net loss of $16,570,000 for the fiscal year ended December
31, 1997 and a net loss of $6,673,000 for the fiscal year ended December 31,
1996. The Company's expenses can be expected to increase in connection with the
expansion of the Company's publishing, television and film distribution
activities. Accordingly, for the Company to be profitable, there must be at
least corresponding increases in revenues from operations. There is no assurance
that the Company will achieve revenue growth or that the Company's operations
will be profitable.

On November 12, 1997, the Company entered into an agreement with The
Chase Manhattan Bank ("Chase Bank") providing the Company with an $8,000,000
loan facility for working capital purposes ("Chase Loan"). This facility was
increased in May 1998 to $10,000,000. The Chase Loan is secured by substantially
all of the Company's assets. The Chase Loan terminates on November 4, 2000.

The Company was not in compliance with certain of the financial
compliance tests under the Chase Loan at December 31, 1998 and June 28, 1999 and
has requested waivers from Chase Bank. As of June 28, 1999, the Company has not
received any such waivers and although the Company and Chase Bank are in the
process of drafting amendments and waivers to the Chase Loan, there is no
assurance that the Company will actually receive such amendments and waivers.
Accordingly, the Company has continued to classify Notes Payable to Chase Bank
as a current liability as of March 31, 1999. At June 28, 1999, the Company had
borrowed $7,500,000 against the total facility of $10,000,000. In addition,
Chase Bank had provided a letter of credit for $287,000 in respect of certain
litigation. On January 28, 1999, the Company and Chase Bank were notified by one
of the guarantors under the Chase Loan that there would be no approvals for
guarantees of further extensions of credit under the Chase Loan. Accordingly, as
of January 28, 1999, the Company had borrowed the maximum amount permitted to be
borrowed under the Chase Loan. The Company believes that its current capital
resources may not be sufficient to cover immediate capital requirements.

The Company has experienced significant negative cash flows from
operations, including $10,659,000 and $8,691,000 for the years ended December
31, 1998 and December 31, 1997, respectively, and $1,600,000 for the three
months ended March 31, 1999. Such negative cash flows have resulted from, among
other things, losses from operations, use of working capital for expansion of
audio and printed book publishing, development of television programming and the
acquisition of theatrical motion picture product. The Company plans to
significantly increase the level of activity in both its audio book and
television production operations. In addition, the Company has plans to expand
its development, production and distribution activities in both its publishing
and television operations (although there is no assurance that the Company will
expand or that such expansion will be profitable). Such expansion may include
future acquisitions of library product or other assets complementary to its
current operations or acquisitions of rights involving significantly greater
outlays of capital than required in the business conducted to date by the
Company. In the event that additional working capital is not obtained or not
obtained in significant amounts, the Company's operations may be significantly
curtailed.

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.

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The Company's television production activities can affect its capital
needs in that the revenues from the initial licensing of television programming
may be less than the associated production costs. The ability of the Company to
cover the production costs of particular programming is dependent upon the
availability, timing and the 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
least a portion of its production costs, pending receipt of programming
revenues, out of its working capital. Although the Company's strategy generally
is not to commence principal photography without first obtaining commitments
which cover all or substantially all of the budgeted production costs, from time
to time the Company may commence principal photography without having obtained
commitments equal to or in excess of such costs. 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, including bank financing. There is no assurance
that any such additional financing will be available on acceptable terms. If the
Company is unable to obtain such financing, it may be required to reduce or
curtail certain operations.

In order to obtain rights to certain properties for the Company's
publishing and television 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 and there is no assurance it will be able to
do so in the future.

NO ASSURANCE AS TO LISTING 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 that market. On October 13, 1998, the Company was notified by The Nasdaq
Stock Market, Inc. ("Nasdaq") that the Company's common stock will continue to
be listed on The Nasdaq SmallCap Market via an exception from the net tangible
assets requirement. Although the Company was not in compliance with the net
tangible assets requirement as of March 31, 1998, the Company was granted a
temporary exception from this standard subject to the Company meeting certain
conditions. In addition to complying with all continued listing requirements,
(1) on or before November 16, 1998, the Company was required to make a public
filing containing a September 30, 1998 balance sheet, with pro forma adjustments
for any significant transactions or events occurring on or before the filing
date, evidencing at least $2,700,000 in net tangible assets; and (2) on or
before January 11, 1999, the Company was required to achieve a bid price for its
common stock of at least $1.00 per share and maintain such a bid price for a
minimum of ten consecutive trading days. On December 7, 1998, Nasdaq notified
the Company that the Company satisfied both conditions.

On March 10, 1999, the Company was notified by Nasdaq that the Company
failed to satisfy Marketplace Rule 4310(c)(4) for continued listing of its
common stock on the Nasdaq SmallCap Market by failing to maintain a closing bid
price greater than or equal to $1.00. Nasdaq informed the Company that no
delisting action with respect to the bid price deficiency was to be initiated at
the time of such notification. Instead, Nasdaq provided the Company ninety
calendar days from the date of the notification in which to regain compliance
with the minimum bid price requirement. The Company will be deemed in compliance
if at anytime within ninety calendar days from March 9, 1999, the shares of the
Company's stock have a closing bid price of at least $1.00 or more for a minimum
of ten consecutive trading days. Since March 10, 1999, the shares of the
Company's stock have had a closing bid price of at least $1.00 for ten
consecutive trading days, however, the Company has not been notified by Nasdaq
that is has regained compliance with the minimum bid price requirement.

On April 19, 1999, Nasdaq informed the Company that Nasdaq had
determined that the Company was not in compliance with the net tangible
assets/market capitalization/net income requirements pursuant to NASD
Marketplace Rule 4310(c)(2). Also on that date, Nasdaq sent separate
correspondence to the Company in which Nasdaq noted that the Company has
received a "going concern" opinion from its independent auditor, and expressed
concern that, in light thereof, the Company may not be able to sustain

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compliance with Nasdaq's continued listing requirements. In connection
therewith, Nasdaq requested information from the Company by May 5, 1999 about
the Company's proposal for achieving compliance with Marketplace Rule 4310(c)(2)
and a timeline for resolution of the items that led to the "going concern"
opinion. On May 5, 1999, the Company submitted its response to Nasdaq. If Nasdaq
does not deem the response sufficient to warrant continued listing, Nasdaq will
immediately issue a formal notice of deficiency which specifies the date that
the Company's common stock would be delisted from the Nasdaq SmallCap Market.
There can be no assurance that the Company's stock will remain listed on the
Nasdaq SmallCap Market.

If at some future date the Company's securities should cease to be
listed on the Nasdaq SmallCap Market, they may continue to be traded on the OTC
- - Bulletin Board. If the Company's common stock is delisted from the Nasdaq
SmallCap Market, 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 depress the Company's stock price,
among other consequences. There is no assurance that at any time the Company
will be able to satisfy all of the conditions for continued listing on the
Nasdaq SmallCap Market.

RISKS RELATING TO NEWSTAR TELEVISION.

The Company funds operating expenses of its television operations, even
at the development stage. Television programming in development may not be
produced or sold. In addition, series programming ordered by a network or
syndicator may be canceled. Also, there is a substantial risk that the Company's
television 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. Expansion may place substantial burdens on
the Company's management resources and financial assets and controls. Those
burdens may have an adverse effect on the Company's results of operations and
financial condition. There are risks in the commercialization of new products.
Acquisitions 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.
The Company may not 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.

RISKS RELATING TO THE ENTERTAINMENT INDUSTRY.

The publishing, television and film industries are highly speculative
and involve 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 Company funds the development of its television and publishing
projects. If there is no or low demand for a television project, audio or
published book or film, the Company may expend significant funds to develop such
product without corresponding revenues. That 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 entertainment
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. The
Company may not be able to anticipate and respond to changing consumer tastes
and preferences. There is a substantial risk that the Company's projects will
not be successful, resulting in costs not being recouped and anticipated profits
not being realized.

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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. The majority of the Company's revenues have come
from a small percentage of the Company's projects. The loss of a major project
in any period or the failure or less-than-expected performance of a major
product in any period could have an adverse effect on the Company's results of
operation and financial condition.

RETURNS AND REMAINDER SALES IN THE PUBLISHING INDUSTRY.

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 return by distributors and retailers if not resold to the public. The
Company has experienced significant returns. These returns have been much
greater than the average in the book or audio book industry. The Company may
experience returns of its audio and printed book products in excess of its
historical returns. 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 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. Revenues from these sales typically have not exceeded the
Company's per-unit costs. The availability of 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.

One of the risks of the Company's publishing and television business is
legal claims for defamation, violation of right of publicity or privacy and
other liability claims. Because of the controversial nature of some of its
publications, the risk of liability claims may be greater for the Company
compared to publishers in general. The Company maintains liability insurance
which it believes is adequate to protect its assets. However, damages assessed
against the Company for existing and future claims may exceed the limits of
insurance coverage. Adequate insurance, on terms the Company believes are
commercially reasonable, may not be available in the future. 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.

The level of the Company's sales of books and audio books through major
outlets depends significantly on shelf space allocated to such products. The
Company may not be able to maintain current levels of shelf space or
distribution in major outlet chains or in other distribution outlets. 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. The Company may not be able to
distribute its television product to television outlets to which it has
distributed in the past and/or alternate outlets may not be available in the
future. Loss of any television outlets 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. The Company is in competition with major television companies and film
studios, major publishing houses, other audio book companies and numerous
smaller companies. The Company competes with these companies for sales and for
the services of performing artists, other creative and technical personnel and
creative material. Many major publishing houses have established audio book
operations and the Company anticipates increased competition in the future from
major record companies. 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. The Company may
not be able to successfully compete.

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The cost of obtaining 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 the works of such authors in audio format. In addition,
increased competition within the publishing industry could result in greater
price competition in the sale of books and audio books. Reductions in prices of
books and audio books, would adversely affect the Company's results of
operations and financial condition.

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 actual returns exceed the Company's established
reserves. Actual returns may exceed the Company's 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. Under generally accepted accounting principles, if the Company's
reserves for excess inventory are not adequate at any time, the Company will be
required 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. The Company's reserve for excess
inventory may not be adequate and additional write-downs may 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 event management's
estimate of ultimate revenues is materially decreased. The Company may incur
write-downs of its film and television operations in the future and such
write-downs would have an adverse impact on operating results.

KEY PERSONNEL.

As the Company grows, it will need to hire additional qualified
personnel. Competition for qualified 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 readers and
authors. The Company does not have long-term contractual arrangements with its
readers and authors.

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CONTROL BY MANAGEMENT.

As of July 2, 1999, Media Equities International, LLC beneficially
owned approximately 7,642,042 shares of common stock of the Company
(approximately 27.5% taking into account conversion or exercise of preferred
stock and warrants held by Media Equities International, LLC). This number
includes 6,218,000 shares underlying warrants (which do not have voting rights
until the warrants are exercised) and shares issuable upon conversion of
preferred stock (which currently have voting rights). The beneficial owners of
Media Equities International, LLC are Terrence A. Elkes, Kenneth F. Gorman,
Ronald Lightstone, Bruce Maggin and John T. Healy.

Mr. Elkes is Chairman of the Board of Directors and Chief Executive
Officer of the Company. Mr. Gorman is Vice-Chairman of the Board of Directors
and Vice Chairman of the Office of the Chief Executive of the Company. Mr.
Lightstone is Vice-Chairman of the Office of the Chief Executive of the Company,
and a director of the Company. Mr. Maggin and Mr. Healy are directors of the
Company.

As of July 2, 1999, Mr. Elkes, through a limited partnership, owned
approximately 4,426,515 shares of the Company's common stock (approximately
20.5% of the outstanding common stock), not including shares owned by Media
Equities International, LLC. As of July 2, 1999, Mr. Gorman, through a limited
partnership, owned approximately 4,426,514 shares of the Company's common stock
(approximately 20.5% of the outstanding common stock), not including shares
owned by Media Equities International, LLC. As of July 2, 1999, Mr. Lightstone
owned approximately 1,142,698 shares of the Company's common stock
(approximately 5.3% of the outstanding common stock), not including shares owned
by Media Equities International, LLC, but including shares granted to him under
his employment agreement with the Company that have not yet vested.

Accordingly, Media Equities International, LLC and/or Terrence Elkes
and/or Kenneth Gorman and/or Ronald Lightstone 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.

The Company has never paid dividends on its common stock, and the
Company does not anticipate paying dividends on the common stock in the near
future. In addition, the Company is restricted from paying cash dividends on the
common stock 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 designations, rights and preferences
determined 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. The
Company could use preferred stock as a method of discouraging, delaying, or
preventing a change in control of the Company.

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OUTSTANDING OPTIONS AND WARRANTS.

As of July 2, 1999, there were outstanding options granted under the
Company's Stock Incentive Plan to purchase an aggregate of 587,500 shares of
Common Stock, at exercise prices ranging from $1.00 to $6.00 per share, warrants
to purchase an aggregate of 4,664,013 shares of Common Stock at exercise prices
ranging from $2.00 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. In
addition, on May 14, 1999, the Board of Directors authorized the grant of
options to purchase an aggregate of 3,665,000 shares of common stock. There are
also approximately 1,300 shares of Series E Preferred Stock held in escrow which
are convertible into Common Stock only upon release from escrow. To the extent
that outstanding options or warrants are 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.

LEGAL PROCEEDINGS AND CLAIMS.

The Company is involved with numerous litigation and arbitration
matters. These matters cost the Company substantial amounts in legal fees and
divert the attention of management and employees from productive activities. In
addition, if the outcome of litigation or arbitration proceedings is decided
against the Company, the Company may incur significant monetary liability.

Below is a brief explanation of significant litigation and arbitration
proceedings. In addition to these proceedings, the Company is a party to various
other legal proceedings and claims incidental to its business.

The Company is a defendant in a case entitled Steven A. Stern and
Steven A. Stern as assignee of the claims of Sharmhill Productions (BC), Inc., a
bankrupt company v. Dove Audio, Inc. et. al. (British Columbia Supreme Court,
Vancouver Registry No. C930935). The plaintiff claims that he was fraudulently
induced to enter into an agreement relating to the film "Morning Glory". He is
seeking in excess of $4.5 million in damages. The Company believes that it has
good and meritorious defenses to the action. Nevertheless, the Company may not
prevail in the 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 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 action, which judgment also
awarded the Company its attorney's fees and costs in defending the matter. Ms.
Datig, has appealed the judgment. The Company may not be successful on appeal.

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 complaint alleged among other things that the book "You'll
Never Make Love In This Town Again" defamed Mr. Bass and violated his rights of
publicity under New York statutes. The complaint sought 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. The action in New York was voluntarily stayed after
Mr. Bass filed a similar action in the State of California entitled Michael Bass
v. Penguin USA et. al. (California Superior Court Case No. SC049191) seeking
essentially the same damages. The action in California was dismissed with
prejudice on July 6, 1998. However, there is no assurance that the plaintiff
will not appeal the dismissal, or in the event of such an appeal, that the
Company will prevail.

In August 1997, Michael Viner and Deborah Raffin Viner (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 claimed damages
in excess of $165,000 and additional reimbursements allegedly due for other
items. The Company 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

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<PAGE>

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. On November 20, 1998, the Los Angeles County Superior Court
confirmed the arbitrator's award. The Former Principals have appealed the
court's order confirming this award.

On September 28, 1998, the Former Principals commenced an arbitration
against the Company, alleging breach of, and seeking specific performance of,
the Termination Agreement. In December 1998, the Former Principals asserted that
they were entitled to rescission of the Termination Agreement for material
failure of consideration, or, in the alternative, unspecified damages against
the Company. In a decision dated March 31, 1999, the arbitrator determined that
the Former Principals may not rescind the Termination Agreement on the grounds
presented to the arbitrator. While the Company believes that it has good and
meritorious defenses to the action, the Company may not prevail.

In February 1999, the Company was served with a complaint in an action
entitled Norton Herrick v. NewStar Media Inc., Michael Viner and Deborah Raffin
Viner (Los Angeles Superior Court Case No. SC055421). The action was brought by
one of the shareholders who opted out of the settlement of the Company's class
action lawsuits. The complaint alleges fraud, negligent misrepresentation,
violation of sections 25400 and 25401 of the California Corporations Code and
breach of fiduciary duty, and seeks recovery of in excess of $1,000,000 plus
exemplary and punitive damages. While the Company believes that it has good and
meritorious defenses to the action, the Company may not prevail.

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 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.

On July 6, 1998, a first amended complaint in the action entitled
Mattken Corp. and Gerald J. Leider v. NewStar Media, Inc. was filed in the Los
Angeles County Superior Court (BC 191736). The plaintiffs allege breach of
contract arising out of a purported agreement between Mr. Leider and the Company
in connection with executive producer services on the motion picture "Morning
Glory", and a purported sales agency agreement between Mattken Corp. and the
Company. Plaintiffs are seeking in excess of $350,000. The Company believes that
it has good and meritorious defenses to the action. Nevertheless, there is no
assurance that the Company will prevail in the action.

On July 10, 1998 an action entitled Palisades Pictures LLC, Nothing to
Lose Productions Inc., CUB Films, Mark Severini, Eric Bross and Jeff Dowd v.
Dove International, Inc., Dove Audio, Inc. and NewStar Media, Inc. was filed in
Los Angeles County Superior Court (BC 194069). Plaintiffs allege breach of
contract, breach of implied covenant of good faith and fair dealing, breach of
fiduciary duty, interference with prospective economic advantage and promissory
estoppel, arising out of an alleged distribution agreement pursuant to which
Dove International, Inc. was to have distributed the motion picture "Nothing to
Lose." Plaintiffs are seeking damages in excess of $1,000,000, plus punitive and
exemplary damages. The Company believes that it has good and meritorious
defenses to the action. Nevertheless, there is no assurance that the Company
will prevail in the action.

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<PAGE>

USE OF PROCEEDS

The shares to be sold pursuant to this Prospectus are currently
outstanding and will be sold by the selling shareholders. The Company will
receive no proceeds from the sale of the shares pursuant to this Prospectus.

SELLING SECURITY HOLDERS

The following table sets forth the selling shareholders and certain
information as of July 2, 1999. It is unknown if, when, or in what amounts a
selling shareholder may offer shares for sale.

There is no assurance that the selling shareholders will sell any or
all of the shares offered hereby. 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.

Media Equities International, LLC is a limited liability company, the
members of which are Apollo Partners, LLC, H.A.M. Media Group and Ronald
Lightstone. Apollo Partners, L.L.C. is a limited liability company, the members
of which are Terrence A. Elkes and Kenneth F. Gorman, and H.A.M. Media Group is
a limited liability, the members of which are Bruce Maggin and John T. Healy.
Mr. Elkes is Chairman of the Board of Directors and Chief Executive Officer of
the Company, Mr. Gorman is Vice-Chairman of the Board of Directors and
Vice-Chairman of the Office of the Chief Executive of the Company, Mr.
Lightstone is Vice-Chairman of the Office of Chief Executive of the Company, and
a director of the Company, and Mr. Healy and Mr. Maggin are directors of the
Company. The Elkes Limited Partnership is controlled by Mr. Elkes and the Gorman
Limited Partnership is controlled by Mr. Gorman. Peter Engel is the President
and Chief Executive Officer of NewStar Publishing and Internet Services, a
division of the Company. Tin Man Enterprises and Custom Duplicating are
significant vendors of the Company. Leopold, Petrich & Smith is a law firm that
has represented the Company on various litigation matters. Stanton L. Stein,
Robert L. Kahan, Marcia J. Harris, Samuel R. Pryor, Steven E. Peden, Susan A.
Grueneberg, Bennett A. Bigman, David G. Baram, Joseph R. Taylor, Steven J.
Rosenwasser and Karen L. Dillon were partners in the law firm of Stein & Kahan,
one of the Company's outside law firms that has represented the Company in
various litigation matters. Farid Novian and Farhad Novian are partners in the
law firm of Novian & Novian, one of the Company's outside law firms that has
represented the Company in various litigation matters. Steinberg, Nutter & Brent
is one of the Company's outside law firms that has represented the Company in
certain litigation matters. Michael Viner is the former president and chief
executive officer of, a former director of, and a former principal shareholder
of the Company. Deborah Raffin is a former officer of, a former director of, and
a former principal shareholder of the Company.

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.

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 of 1933, as amended (the "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.

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<TABLE>

SELLING SHAREHOLDER LIST
<CAPTION>

SELLING SHAREHOLDER BENEFICIAL OWNERSHIP OF OFFERED PERCENT OF OUTSTANDING
COMMON STOCK BEFORE COMMON STOCK BENEFICIALLY
OFFERING (1) OWNED (2)

<S> <C> <C> <C>
Media Equities International, LLC 7,642,042(3) 18,089(4) 27.5%

Elkes Limited Partnership (5) 4,426,515 3,775,193 20.5%

Gorman Limited Partnership (6) 4,426,514 3,746,974 20.5%
%

Ronald Lightstone 1,142,698(7) 377,705 5.3%

Peter Engel 250,000 250,000 1.2%

American Audio Literature, Inc 300,000 300,000 1.4%

Fred Tarter 83,333 83,333 *

Custom Duplicating 188,236 94,118 *

Tin Man Enterprises 94,118 42,518 *

Leopold, Petrich & Smith 67,704 26,598 *

Stanton L. Stein 103,196 103,196 *

Robert L. Kahan 51,598 51,598 *

Marcia J. Harris 17,199 17,199 *

Samuel R. Pryor 17,199 17,199 *

Steven E. Peden 17,199 17,199 *

Susan A Grueneberg 17,199 17,199 *

Bennett A. Bigman 17,199 17,199 *

David G. Baram 17,199 17,199 *

Joseph R. Taylor 17,199 17,199 *

Steven J. Rosenwasser 17,202 17,202 *

Karen L. Dillon 17,199 17,199 *

Farhid Novian 40,000 40,000 *

Farid Novian 40,000 40,000 *

Steinberg, Nutter & Brent Law Corporation 37,641 37,641 *

Michael Viner & Deborah Raffin 110,000 500,000(8) *

* Less than 1%

</TABLE>

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<PAGE>

(1) Represents the amount of shares disclosed by such selling shareholder
to the Company as being owned by such selling shareholder.

(2) All percentages are based on 21,565,658 shares of common stock
outstanding as of July 8, 1999, except for the percentage for Media
Equities International, LLC which is based on 27,783,658 shares (which
includes the 21,565,658 outstanding shares and shares issuable upon
exercise or conversion of warrants and preferred stock held by Media
Equities International, LLC).

(3) Represents (i) 3,000,000 shares of common stock issuable upon exercise
of warrants, (ii) 2,000,000 shares of common stock issuable upon
conversion of Series B Preferred Stock, (iii) 960,000 shares of common
stock issuable upon conversion of Series C Preferred Stock, (iii)
258,000 shares of common stock issuable upon conversion of Series D
Preferred Stock, (iv) 1,405,953 issued and outstanding shares of common
stock owned of record by MEI and (v) 18,089 shares of common stock to
be offered hereunder.

(4) Represents 18,089 of common stock issued as partial payment of
dividends on Preferred Stock.

(5) Does not include 7,642,042 of common stock deemed beneficially owned by
Terrence A. Elkes indirectly through Media Equities International, LLC.

(6) Does not include 7,642,042 shares of common stock deemed beneficially
owned by Kenneth F. Gorman indirectly through Media Equities
International, LLC.

(7) Does not include 7,642,042 shares of common stock deemed beneficially
owned by Mr. Lightstone indirectly through Media Equities
International, LLC.

(8) Represents shares issuable upon conversion of Series E Preferred Stock,
some of which is held in escrow and some of which may have been
released from escrow to Michael Viner and Deborah Raffin Viner.

PLAN OF DISTRIBUTION

This Prospectus covers up to 9,641,757 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 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 Act. The selling shareholders
will pay any transaction costs associated with effecting any sales that occur.

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<PAGE>

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 Company's 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.

MATERIAL CHANGES

On April 21, 1999, the Board of Directors of the Company approved and
adopted an amendment to the Articles of Incorporation of the Company that
increases the number of shares of the Company's authorized Common Stock from
20,000,000 shares to 50,000,000 shares. In accordance with the California
General Corporation Law and the By-Laws of the Company, on April 1, 1999, Media
Equities International, LLC, Elkes Limited Partnership ("ELP"), Gorman Limited
Partnership ("GLP") and Ronald Lightstone, who then held, in the aggregate,
approximately 66% of the outstanding voting power of the Company, approved the
amendment by written consent in lieu of a meeting of shareholders. The increase
was approved to provide a sufficient number of authorized shares of Common Stock
for (i) issuance in connection with the private placement and issuance of shares
of Common Stock to raise additional equity capital for the Company (the "Equity
Investment") and (ii) other general corporate purposes.

The Equity Investment provided the Company with approximately $4.2
million of additional equity capital through the sale of approximately 3.5
million shares of Common Stock to persons previously unaffiliated with the
Company (the "New Investors"), and certain of the Company's officers and other
then current holders of Common Stock.

The New Investors had expressed an interest in investing in the Company
through the purchase of shares of the Company's Common Stock. To accommodate the
New Investors' desire to purchase Common Stock which had been registered
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), and
the Company's desire to consummate the transactions in an expeditious manner,
ELP, GLP and Mr. Lightstone sold or agreed to sell to the New Investors a
minimum of 1,300,000, 1,000,000 and 30,000 shares of Common Stock, respectively,
which shares had been previously registered for resale under the Securities Act
pursuant to a registration statement on Form S-3 (the "Registered Shares").
Contemporaneously with the sale of the Registered Shares by ELP, GLP and Mr.
Lightstone to the New Investors, ELP, GLP and Mr. Lightstone purchased or agreed
to purchase, and paid for, an equal number of unregistered shares of Common
Stock from the Company, all at the same price at which the Registered Shares are
sold to the New Investors.

In addition, certain of the Company's officers and current holders of
the Company's Common Stock also expressed an interest in making an additional
investment in the Company. ELP and GLP each purchased an additional 416,667
shares of the Common Stock and Peter H. Engel, President of the Company's
publishing division ("Engel"), purchased 250,000 shares of Common Stock. Each of
these purchases was at substantially the same price as the sales to the New
Investors.

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<PAGE>

TRANSFER AGENT AND REGISTRAR

The transfer agent for the Company's common stock is U.S. Stock
Transfer Corporation, Glendale, California.

EXPERTS

The consolidated financial statements of NewStar Media Inc. as of
December 31, 1998 and for the years in the two year period ended December 31,
1998 have been incorporated by reference herein and in the registration
statement in reliance upon the report of KPMG 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 LLP as its principal accountants as of
September 18, 1995.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's 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, and 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.

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.

-14-
<PAGE>

The Company maintains directors, officers and corporate liability
insurance policies. The policies pay for covered losses of each director or
officer of the Company arising from a claim made against the director or officer
for any actual or alleged wrongful act in such persons capacity as a director or
officer.

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.

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.

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"). The public may read
and copy such reports, proxy statements and other information at the SEC Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0330. The Commission maintains
an Internet 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 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, 1998;

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<PAGE>

2. Amendment No. 1 to Annual Report of the Company on Form 10-KSB for
fiscal year ended December 31, 1998;

3. Quarterly Report of the Company on Form 10-QSB for the fiscal quarter
ended March 31, 1999;

4. Current Report of the Company on Form 8-K filed May 27, 1999;

5. Information Statement on Schedule 14C filed June 8, 1999;

6. 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
therein) will be provided without charge to each person, including any
beneficial owner who receives a copy of this Prospectus, on the written or oral
request of such person made to NewStar Media Inc., 8955 Beverly Boulevard, Los
Angeles, California 90048, tel.: (310) 786-1600, Attention: General Counsel.

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.

UNTIL SEPTEMBER 15, 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

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<PAGE>

NEWSTAR MEDIA INC.
9,641,757 SHARES
COMMON STOCK

PROSPECTUS

JULY 9, 1999
<TABLE>

TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C> <C>
RISK FACTORS.................................................................................................2
Net Operating Losses; Need for Additional Financing........................................2
No Assurance as to Listing on the Nasdaq SmallCap Market...................................3
Risks Relating to NewStar Television.......................................................4
Growth and Acquisition Risks...............................................................4
Risks Relating to the Entertainment Industry...............................................4
Dependence on a Limited Number of Projects.................................................5
Returns and Remainder Sales in the Publishing Industry.....................................5
Potential for Liability Claims.............................................................5
Dependence on Certain Outlets..............................................................5
Competition................................................................................5
Variability of Quarterly Results...........................................................6
Nature of Accounting Principles Applicable to the Publishing and Entertainment
Industries.................................................................................6
Key Personnel..............................................................................6
Control By Management......................................................................7
Absence of Dividends.......................................................................7
Authorization of Preferred Stock...........................................................7
Outstanding Options and Warrants...........................................................8
Legal Proceedings and Claims...............................................................8
USE OF PROCEEDS.............................................................................................10
SELLING SHAREHOLDERS........................................................................................10
PLAN OF DISTRIBUTION........................................................................................12
MATERIAL CHANGES............................................................................................13
TRANSFER AGENT AND REGISTRAR................................................................................14
EXPERTS.....................................................................................................14
INDEMNIFICATION OF DIRECTORS AND OFFICERS...................................................................14
AVAILABLE INFORMATION.......................................................................................15
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................................................15

</TABLE>

-17-
<PAGE>

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.

SEC registration fee $4,147.00

Legal fees and expenses $2,500.00

Accounting fees and expenses $2,500.00

Transfer agent and registrar fees $1,000.00

Miscellaneous $5,000.00

Total $15,147.00

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

II-1
<PAGE>

ITEM 16. EXHIBITS

EXHIBIT NO. DESCRIPTION
-------------------------

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)

5.1 Opinion on legality

23.1 Consent of KPMG LLP

24 Power of Attorney contained on page II-5 hereto

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:

II-2
<PAGE>

II-3
<PAGE>

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, thereunto duly
authorized in the City of Los Angeles, State of California, on July 9, 1999.

NEWSTAR MEDIA INC.

By:/S/ TERRENCE A. ELKES
----------------------------
Terrence A. Elkes, Chairman
and Chief Executive Officer

<PAGE>

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:

SIGNATURE TITLE DATE

<S> <C> <C>
/s/ TERRENCE A. ELKES Chairman and Chief Executive Officer July 9, 1999
- -------------------------------------
Terrence A. Elkes

/S/ JOHN BRADY Chief Financial Officer (principal July 9, 1999
- ------------------------------------- accounting officer)
John Brady

/S/ KENNETH F. GORMAN Director July 9, 1999
- -------------------------------------
Kenneth F. Gorman

/S/ RONALD LIGHTSTONE Director July 9, 1999
- -------------------------------------
Ronald Lightstone

Director July _, 1999
- -------------------------------------
John T. Healy

/S/ LEE MASTERS Director July 9, 1999
- -------------------------------------
Lee Masters

Director July _, 1999
- -------------------------------------
Bruce Maggin

/S/ STEVEN MAYER Director July 9, 1999
- -------------------------------------
Steven Mayer

</TABLE>

<PAGE>

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

EXHIBITS

FORM S-3

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

NEWSTAR MEDIA INC.
(Exact Name of Registrant as Specified in its Charter)

Exhibit 5.1

[NewStar Media Inc. Letterhead]

July 8, 1999

NewStar Media Inc.
8955 Beverly Boulevard
Los Angeles, CA 90048

RE: NEWSTAR MEDIA INC. REGISTRATION STATEMENT ON FORM S-3
-----------------------------------------------------

Gentlemen:

This opinion is being given by me in my capacity as general counsel of NewStar
Media Inc. ("NewStar") in connection with the registration on Form S-3 of
9,141,757 shares of Common Stock of NewStar that were previously issued and are
outstanding (the "Shares") and 500,000 shares issuable upon conversion of Series
E Preferred Stock of NewStar (the "Conversion Shares").

In connection with this opinion, I have examined and am familiar with originals
or copies, certified or otherwise identified to my satisfaction, of (i) the
Registration Statement on Form S-3 relating to the Shares and the Conversion
Shares (the "Registration Statement"), (ii) the Articles of Incorporation of
NewStar, (iii) the By-laws of NewStar and (iv) the Certificate of Determination
of the Series E Preferred Stock.

I have obtained from officers of NewStar and have examined the originals, or
copies identified to my satisfaction, of such certificates, agreements and other
assurances as I consider necessary for the purpose of rendering the opinion
contained herein. I have additionally consulted with officers of NewStar and
have obtained such representations with respect to matters of fact as I deem
necessary or advisable; however, I have not necessarily independently verified
the content of factual statements made to me in connection therewith, or the
veracity of such representations.

In my examination, I have assumed the legal capacity of all natural persons, the
genuineness of all signatures, the authenticity of all documents submitted to me
as originals, the conformity to original documents of all documents submitted to
me as copies, and the authenticity of the originals of such latter documents.

Based on the foregoing and on such other instruments, documents and matters
examined and necessary for the purpose of rendering this opinion, it is my
opinion that the Shares are, and the Conversion Shares, when issued in
accordance with the terms of the Certificate of Determination of the Series E
Preferred Stock, will be, validly issued, fully paid and non-assessable.

I hereby consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to the Registration Statement.

Very truly yours,

/s/ ROBERT C. MURRAY
- -----------------------------
Robert C. Murray, Esq.

RCM:jj

EXHIBIT 23.1

[KPMG Letterhead]

INDEPENDENT AUDITORS' CONSENT

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 LLP

/s/ KPMG LLP

Los Angeles, California

July 7, 1999