MGM emerges as sole Epix owner after $1 billion deal

MGM seems set to recover its global 100 year old lead in motion picture entertainment, moving this week to buy exclusive control of the Epix movie channels, already the fastest growing US channels over the past 5 years. MGM will buy the 81% of Epix that it doesn’t already hold from Viacom and Lionsgate.

This sets up MGM, ready to ride-again, after years in the doldrums, marking time, after being bought and sold by Sony and private equity groups and riding out a bankruptcy in 2010.

The move also importantly creates a line of separation between Epix and Starz, similar conglomerations of movies, put together originally to support movie channels on US TV, but more importantly well positioned to be kingmakers in the new US OTT online services.

Lionsgate ultimately held some 31.15% of Epix, and John Malone has become one of the driving forces behind Lionsgate, which he achieved by selling Starz  to the studio, in return for stock. Starz finally came out with its second direct to consumer offering in April last year, 10 years after starting its first failed OTT service. Starz was famously used as the key licensing deal in the creation of Netflix, which after it expired led to Netflix doing deals directly with Sony and Disney.

MGM will also buy 49.7% of Epix from Viacom and the total amount paid for the 81% ownership will be just over $1 billion, valuing the company at $1.275 billion.

Last year MGM acquired the United Artists Media Group as part of its new strategic shape. This deal will give MGM control over Epix’s four linear pay TV channels.

Epix controls the long tail to around $4 billion worth of box office movie hits and Paramount and Lionsgate will continue to provide new first-run theatrical releases to Epix for several more years. Epix is already tied into many cable TV Everywhere initiatives and that would also have meant signing “most favored nation” clauses with some of the larger cablecos, which may also have clauses preventing the collection’s sale online direct to consumers. However, the two leading cablecos now have both signed consent decrees which prevent them from blocking online deals. Those moves will have made Epix more valuable overnight. Epix moves were removed from Netflix 18 months ago and installed instead as an exclusive deal for Hulu, and are almost entirely responsible for recent Hulu success.

“The addition of EPIX provides MGM with a premier distribution platform that complements our strong stable of new and library content in both film and television.  The acquisition creates increased revenue diversity, new opportunities for growth, and earnings accretion for the benefit of stockholders,” said Gary Barber, Chairman and CEO of MGM.

Epix CEO Mark Greenberg said, “Lionsgate and Viacom priorities have evolved in recent months, and now is the right time for them to capitalize on their initial investment and focus their attention on their other businesses.”