Anyone who has followed the machinations behind the various sales of the US film studio Metro Goldwyn Mayer (MGM ) will be used to complexity. All the major studios want to own it, but its current owners, a combination of Private Equity Groups along with Sony Pictures and Comcast, all think it is worth more than potential buyers do.
The company is servicing almost $4 billion of debt which is eating $250 million of the $500 million that its film library has been earning each year, prior to the recession. No-one has put a new, lower figure on the company’s income since then. Today there are only 4,000 films in the locker, but that doesn’t include any film or TV series or cartoon, produced prior to 1986, which have already been sold to Time Warner.
For film lovers its fate is about the fate of the Bond Franchise, one of the only things that it continues to put on the big screen, and for TV lovers, it will be the Stargate TV series. Both are in limbo now, with money diverted to creditors instead of finishing them, while MGM tries to get a court and all of its creditors to agree on bankruptcy terms for a pre-pack deal. That means it would enter and leave Bankruptcy on the same day, and creditors have until October 22 to vote on the plan.
Throughout some of 2009 and all of 2010 so far, the studio has been up for sale, its first change of ownership since Sony appeared to have won the day when it arranged its acquisition back in 2004 to a team of Comcast, Texas Pacific Group, Providence Equity Partners and others.
But Sony had no interest in merging MGM with its own studio assets and really only bought a minority of the holding so that it could back its Blu-ray technology with the MGM library.
There are two likely futures for the studio now, one of which has been stated in an application to the bankruptcy court. This consists of it converting most of its debt into equity, taking 95% ownership and give 5% to Spyglass Entertainment, who’s management team of Gary Barber and Roger Birnbaum would turn the company into a film and TV production house once again, rather than a mostly dead film archive.
Spyglass Entertainment is a US film and TV production firm which has a long term distribution deal with Disney and is currently owned by Cerberus Capital Management. Its plan is to put out six major theatrical releases a year and attract Cablecos with a combination of reality programming as well as turning several film assets which it owns into TV shows, including RoboCop, The Silence of the Lambs, and Dances with Wolves.
One of the major obstacles with selling MGM over the past year has been the way the company insisted on a non-disclosure agreement which gave potential investors a view of its books, but at the price of not being able to speak to its existing investors. Many studios failed to sign this and low balled their bids accordingly, but many of these old names will re-emerge as potential counter bidders to rival the deal with Spyglass.
One has already broken cover this week in the form of Lions Gate, which has been part of the hunt for MGM ownership for a long time. Lions Gate is a tier two US studio, which has revenues of a little over $1 billion and assets of around $1.5 billion. Of all the US studios, it needs the assets of MGM so that it can scale, and threaten the larger studios like Warner Brothers, 20th Century Fox, Sony, Universal and Paramount.
Either deal will value MGM at substantially below the $5 billion that Sony and its partners paid for it back in 2004, probably around $1.9 billion. Its fate will be decided quite soon we feel.