MGM’s Lion Hopes to Roar Again in Movie Distribution
By Kate Kelly
9 March 2006
The Wall Street Journal

(Copyright (c) 2006, Dow Jones & Company, Inc.)
Eighteen months after new owners effectively shuttered MGM’s movie business, the historic studio plans to return aggressively to the distribution business with a slate of a dozen new movies to appear in U.S. theaters this year. The move, which was announced yesterday by Chairman and Chief Executive Officer Harry Sloan, will rely on MGM franchises like James Bond, the Pink Panther, and Rocky, as well as new films from producers like Weinstein Co., to fill MGM’s re-opened cinematic pipeline.

MGM’s latest maneuver reflects how the swiftly evolving entertainment industry has forced the company and its owners to rethink a DVD-driven business model that seemed enormously appealing less than two years ago. In the fall of 2004, the investors who bought MGM and its famous roaring lion logo were attracted chiefly to its 4,000-title library, which was viewed as a way to tap into the flourishing DVD market for big profits.

But since the $5 billion deal was struck, DVD and video sales have slackened. In addition, some of MGM’s more aged titles have proved a particularly tough sell, and an industry battle over the format for the next generation of DVDs has threatened to fray the business even further. MGM’s new owners realized that, without new movie product, their ability to maximize value from the big library of older titles would be hampered.

Last fall those developments prompted MGM’s owners — a consortium that includes the Japanese electronics and entertainment concern Sony Corp., the cable giant Comcast Corp., Providence Equity Partners and a handful of other investors — to bring a new CEO on board to help redefine the strategy.

The result: Mr. Sloan’s renewed bet on the distribution business, which the company had essentially abandoned after the release of its last homegrown production, “The Amityville Horror,” last spring.
For now, MGM will stay away from the discipline that helped make it famous — production. Though it will partner with Sony’s Sony Pictures Entertainment to make movies for franchises like Bond and Rocky, there are no plans to hire an in-house production or development staff, said Mr. Sloan. Production tends to be riskier and cost-intensive, and requires additional staff and financing.

“MGM is firing up its theatrical distribution organization with a modern business model that I think is going to be very profitable for our investors,” said Mr. Sloan in an interview. “The old studio model of financing development . . . and determining what the movies would look like on a slate, isn’t what we’re going to be about. The important issue for us is to get into relationships with producers who can deliver.”

To distribute these movies — negotiating deals that place movie content into distribution channels such as theaters or pay television — MGM has kept on board much of the distribution staff it has long employed. The company is also hiring a new marketing team that can help sell product from outside producers who lack the resources to handle the sales themselves.

MGM’s new production partners vary in size. Among them are Weinstein Co., the studio opened last year by Miramax Films co-founders Harvey and Bob Weinstein, and Bauer Martinez Entertainment, a new production company with movies like “Van Wilder Deux” in the works. A likely third partner, according to two people familiar with the matter, is Lakeshore Entertainment, the independent production shop that made the Academy Award winning drama “Million Dollar Baby.” Representatives for Lakeshore couldn’t be reached.

If all goes according to plan, the distribution arrangements have benefits for both parties. For MGM, it is a chance to pocket a sizable distribution fee of roughly 10% of a movie’s box-office gross in a given territory, according to people familiar with the matter. For some of the producers, it is the ability to farm out potentially cost-intensive processes like marketing their films and arranging to show them in theaters. It also allows the producers to sell their product to deep-pocketed pay-television distributors afterward.