Hefty Price Draws No Bids For Valuable MGM Archive
By DARRELL SATZMAN
Staff Reporter
It’s the $7 billion question.
What’s the value of a storied Hollywood studio that owns the world’s largest modern film library but lacks the means to deliver that content, keeping it from competing on equal footing with the new breed of entertainment Goliaths?
So far, billionaire investor Kirk Kerkorian is finding the answer not to his liking.
Kerkorian’s bid to sell Metro-Goldwyn-Mayer Inc. for the third time in 16 years appears to be going nowhere. While anything is possible in Hollywood dealmaking and quickly potential buyers like Viacom Inc., Walt Disney Co. and AOL Time Warner Inc. are so far chafing at the hefty sticker price.
Nevertheless, in an industry where content remains king, MGM’s 4,100-plus titles represent a treasure trove of programming with an unparalleled allure for entertainment executives angling to gain market share in distribution channels ranging from network and cable television to DVD and video-on-demand.
But establishing a value to a film library is a tricky business that involves betting on future revenue streams in a range of markets. And while some believe Kerkorian might eventually get his price, others contend that $7 billion is far too much to pay for a studio with limited assets outside of its library.
“The value of a library depends on who the buyers are, what the pressures are on those companies,” said Clark Hallren, vice president of J.P. Morgan Inc.’s entertainment industries group, who advised Credit Lyonnais on its sale of MGM to Kerkorian in 1996. “Could the value be $7 billion for, say, a number three player who could instantly shoot to number one? Maybe.”
Others express doubts that Kerkorian who reportedly is in search of a tax-free stock merger that would position him as a major shareholder in one of the media giants will find a buyer.
Title power
Though MGM’s pre-1986 films, including such classics as “Ben Hur,” “Gone With the Wind” and “The Wizard of Oz” were sold to Ted Turner (giving rise to Turner Classics Network) and now belong to AOL Time Warner, the MGM library contains scores of lucrative titles including the “James Bond,” “Pink Panther” and “Rocky” franchises.
As a rule, newer films tend to have more commercial value than older films, and MGM boasts more than 2,000 titles produced after 1970 and more than 600 titles produced after 1990. Some of MGM’s most valuable titles, including the Bond films, were acquired through the purchase of the United Artists, Polygram and Orion libraries.
(Warner Bros., with more than 6,500 features as well as thousands of hours of television programming and animated shorts, has the most extensive film library, but MGM controls the largest contemporary library.)
MGM officials say library sales amounted to 37 percent of the company’s 1999 revenues of $1.1 billion and 2000 revenues of $1.2 billion. Results for the fourth quarter of 2001 are due out next week.
MGM’s box office were results were mixed in 2001, with the studio commanding just 5.5 percent of the domestic market, putting added pressure on the library to support revenues.
“They did a very good job last year, releasing 304 titles (on DVD), said Ralph Tribbey, a former vice president of marketing at MGM who is now editor of the San Diego-based DVD Release Report. “They went in really aggressively and mined the library.”
Skyrocketing value
After backing out the 20 percent stake that MGM owns in the Bravo, American Movie and Independent Film cable channels a stake valued at about $1.5 billion the $5.5 billion price tag allotted to the library, the studio’s major asset, averages out to $1.3 million for each of its 4,100 titles.
That’s more than three times the $336,000 per title Turner paid when he bought 3,235 of MGM’s older films for $1.1 billion in 1985. (Kerkorian paid $1.3 billion for MGM in 1986.)
“The value Turner paid for MGM at the time was considered astronomical,” Hallren said. “In retrospect, many would consider it a bargain.”
The inevitable decline in value of movies that have been broadcast repeatedly is less a problem at MGM than it is at other studios, Hallren said, because of the more recent vintage of its titles as well as the sheer number of titles.
Robert Gustafson, the director of the entertainment industry institute at Cal State Northridge, said that while $7 billion may seem like an outrageous price, it would be unwise to assume that Kerkorian will back down.
“Kerkorian is so good at this. He understands the value of the label,” Gustafson said. “It’s doing pretty well so he puts up the for sale sign. He’ll probably come back and do it again.”
