MGM - has the lion roared its last growl?

When I was a kid, my entire family went to see a marvelous movie showing in Marble Arch London.  ‘That’s Entertainment’ celebrated the musical history of one of the world’s greatest show brands in the world- Metro-Goldwyn-Mayer.

Now, with great sadness I learn that the once most powerful and prestigious film studio in all Hollywood, has begun a tentative search to explore a “potential sale” as the brand icon looks for a buyer to bail it out of nearly $4bn (£2.4bn) of debt.  (It sounds like a tragic parody of Paramount’s Sunset Boulevard, in which Mr. Meyer himself had to step in to offer a little reality to a fading Hollywood icon.

According to reports, MGM has 140 key lenders who are owed $3.7bn (approx. £2.1bn) in bonds. As with the blockbuster out this weekend in the UK ‘2012’, the bonds will mature and so come to an abrupt end in the same year that shares the disaster movie’s apocryphal title.

The last reels in the can?

In a statement, MGM has been granted a postponement from interest fee payments until 31 January 2010. This allows the studio to complete three movies currently in post production: ‘Hot Tub Time Machine’, With John Cusack, Lizzy Caplan, and Crispin Glover. ‘Red Dawn’; about teenagers trying to save their town from an invasion of Chinese and Russian soldiers, and ‘The Zookeeper’, about zoo animals who plan to help their lovable zookeeper.

According to Reuters, investment bank Moelis & Co, hired by MGM in May to help refinance its debt, will be overseeing the potential sale process.   The initial goal is setting a price for the studio with the aim of getting the maximum value for investors whether by selling the studio in pieces or as a whole.

The studio, faces debt obligations  arising  from its 2005 buyout, as well as payments on a $250 million revolving credit facility which is due April 2010.

Reuters say it was purchased from majority owner Kirk Kerkorian for $2.85 billion by a group including private equity firms Providence Equity Partners; TPG [TPG.UL]; DLJ Merchant Banking Partners, a unit of Credit Suisse (CSGN.VX); and Quadrangle Group; and media firms Sony Corp (6758.T) and Comcast Corp (CMCSA.O). The group also assumed a debt of $2 billion.

MGM was founded in 1924 following the merger of Metro Pictures, Goldwyn Pictures, and Louis B Mayer Company, MGM’s halcyon days were between the 1930s and 1950s, when the studio created some of the most distinguished movies of all time, including The Wizard of Oz, Gone with the Wind, Singin’ in the Rain and countless other Academy Award winning cinematographic classics.

During the 1960s, studio profits weakened, mergers, takeovers and sales left MGM deeply in debt. In recent years DVD sales plummeted and some recent poor movie choices such as Fame’ – which so far has only made a reported $42m worldwide, left shareholders irritated.

Making the king of the Hollywood jungle

So what, if this all goes ahead, can the studio do?  One widely reported option is to sell off MGM’s wonderful library of 4,000 movie and television shows, including Rocky, The Hobbit, and Dances With Wolves.

Part of the current library is the lucrative James Bond franchise, leased to Sony Pictures for ‘Casino Royale’ and ‘Quantum of Solace.’  Industry sources suggest that one studio or investor may even bid to acquire solely the rights to 007 or even the popular ‘Stargate’ television franchise.

Any MGM library catalogue would be of interest to TV broadcasters like BSkyB who, like Turner before them, could yield the content into a highly attractive package for viewers.

Separately MGM could sell off its lion trademark.  However, that could lead to the buyer company slapping on the famous Leo the lion icon onto any old movie or programme it so wished.  In doing so, giving such a movie the allure of MGM quality but not the guarantee. (That should be interesting in terms of copyright infringement laws – the company owns the logo but not the library content).

Brand icons in history

A brand in deed not just name

The Leo the Lion icon is a classic case of a brand name being its greatest asset.  On the other hand this particular movie plot also carries the classic warning that when you buy a brand name, you must also invest in that brand’s values – including its product, people, and certainly in MGM’s case, heritage.

Beyond Hollywood, MGM’s brand has enjoyed success with ventures such as MGM Grand Hotel in Las Vegas as well as lucrative deals with Disney

Rumoured potential buyers include Time Warner Inc, the parent of the Warner Bros studio, and News Corp, home of 20th Century Fox.  Other media moguls have also expressed interest. The hot contender is Michael Burns, Vice Chairman of Lions Gate Entertainment Corporation who said: “They have fantastic franchises like James Bond, they have half of The Hobbit. Of course it’s interesting to us.”

Whatever happens to MGM once the deals been struck it won’t be just a question of “that’s entertainment” but “that’s business”.

I can only hope that, if all this goes ahead , the new custodians of the brand will remember their brand custodian obligation – in this case to put the show before the business – because whatever the economy, whatever the politics, from war to peace, bust to boom, for audiences the world over, that’s what must go on.

Jonathan Gabay

www.brandforensics.co.uk

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