Wednesday, 13 October 2010

Hollywood Babble On & On #612: What Can A Lion Do?

Welcome to the show folks...

Today we're going to look at options, specifically the options facing the once venerable Metro-Goldwyn-Mayer movie. I think I've written more posts about MGM than MGM's released movies in theaters this decade, but I'm doing it again.


2 reasons.

1. MGM used to be the biggest game in town, boasting "more stars than the heavens" and many of the biggest and best films of Hollywood's golden age. That has to mean something, and even if it doesn't...

2. The movie needs as many viable competitors it can to survive as a business. Consolidation, synergy, and all those other crap buzzwords MBAs shit out to justify their existence have done more to make films blander, costlier, and downright stupider than ever before.

But there's a problem.

MGM has around $4 billion in debt hanging around it like a pair of cement shoes during one of Albert Anastasia's "fishing trips." That massive debt is the result of it spending the last 40+ years being passed around like the corporate equivalent of a spliff at Snoop Dogg's birthday party.

It does have a massive library, made up of what's left of MGM's post 1986 films, the United Artists library, as well as the libraries of now defunct companies like Orion, Polygram Filmed Entertainment, and American International Pictures. This brings in a couple of hundred million a year, but it's not enough to pay off the debt to anyone's satisfaction, and finance the fresh productions MGM needs.

So what can MGM do?

Right now it has 2 options.


Spyglass Entertaiment's plan is for MGM to declare bankruptcy, which is happening, the bondholders then trade their debt for ownership, and the company is restructured into a production only entity, jettisoning its marketing and distribution arms. Future productions would be mostly aimed at TV, and theatrical features would need to find outside distributors.


Mini-major/mega-indie Lionsgate Pictures is expressing interest in merging with MGM. This would combine the MGM and Lionsgate libraries, distribution, marketing, and production. I assume that Lionsgate will either absorb the MGM debt as their own, or accept MGM's bondholder-owners as shareholders in the new combined venture.

Let's look at the pros and cons of each plan, now pay attention, because this will be on the test.


1. It brings MGM's debt under heel. That debt
has been holding the company down for decades.

2. It gets new productions going which are essential if it's going to improve the value of the library.


1. It sacrifices distribution, which I think is a major disaster. The ability to put your movies in theaters is pure power in Hollywood. Sacrifice that power and you are in trouble. MGM will be the red-headed stepchild of their distributor, meant to be used and abused, not respected as a full and equal partner.

2. Any money saved from dropping marketing and distribution will be gone, paying for distributor fees and for the lawyers in the inevitable litigation over profit shares.


1. Lionsgate's status as a mini-major could make this a more equitable partnership.


1. I'm not sure what this plan is planning to do with the debt. Will Lionsgate give shares in their company as part of the merger? Will they just take on the debt? If they just take on the debt they could end up in the same crippled state as MGM, and then it would have claimed 2 companies instead of just one.

But there's another possibility...

Icahn is buying up MGM debt like a sailor on shore leave. If he forms an alliance with the other bondholders he could put himself in a stronger position to takeover Lionsgate for himself, and get MGM in the bargain as well.

So we're going to have to wait and see where all this is going to go.

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