MGM Woes Now Delay Bond #23

[Mazer Rackham]

casinoroyale_danielcraigSo today's announcement comes via the PR newswire, untypical for EON Productions which always operates with the maximum amount of secrecy. Some showbiz news outlets are mistakenly claiming the next Bond movie, #23, is cancelled. Nope. You can see it's only been postponed. This is the same pic on which Sam Mendes has been consulting and ultimately was expected to direct.

MgmlogosmallSo what's really going on? Well, given that MGM is teetering on the brink of bankruptcy and at the mercy of its creditors, EON may have the right to take Bond elsewhere. So it stands to reason that the producers wouldn't want to do anything now that further complicates ownership of Bond #23 or binds them to MGM during this precarious period during which the once storied studio may now be in its standalone swan song.

broccoli 2As you know, the James Bond filmmakers operate with great autonomy. And producers Barbara Broccoli and Michael G. Wilson were in pre-production on Bond #23 for release in 2011. (The story begins after Quantum Of Solace's and again stars Daniel Craig.) But those two have been watching the current MGM auction proceed with a mixture of dismay and curiosity. Dismay because Bond's longtime home is a mess. And curiosity because Broccoli and Wilson would love to move Bond to a fully functioning studio. Like Sony, where Amy Pascal is dying to keep the famous franchise. Or Fox, which handles Bond's DVD distribution. "It feels like EON is sending a message to MGM," one source tells us. "If they try to continue as a stand-alone studio, don't expect to be making any Bond films."

Broccoli and Wilson very deliberately have made certain they don't do anything on Bond #23 which ties the movie further to MGM. (That's why Mendes was hired as a consulting, not the director. Because once EON hires a director on their Bond films, it triggers a first payment from MGM.) We believe today's announcement is about that as well. With the MGM auction apparently busted, even though no official announcement has been made yet, EON Productions wants to keep all its options open. Here's the news release:

LONDON, April 19, 2010 /PRNewswire/ -- 007 producers, Michael G Wilson and Barbara Broccoli of EON Productions, today announced they have suspended development on the next James Bond film previously scheduled for release 2011/2012.

"Due to the continuing uncertainty surrounding the future of MGM and the failure to close a sale of the studio, we have suspended development on BOND 23 indefinitely. We do not know when development will resume and do not have a date for the release of BOND 23," stated Michael G Wilson and Barbara Broccoli jointly.

EON Productions have produced twenty two James Bond films since 1962. In 1995, Michael G Wilson and Barbara Broccoli took over the 007 franchise from Albert R 'Cubby' Broccoli and are responsible for producing some of the most successful James Bond films ever, including CASINO ROYALE and more recently QUANTUM OF SOLACE. The James Bond franchise is the longest running in film history. EON Productions and Danjaq LLC are affiliate companies and control all worldwide merchandising for James Bond.

[Blowfeld]

So what is your take on this Mazer?

[Mazer Rackham]

A few people who should know better are going on about this being a warning shot across MGM that Eon will not be making them any new Bonds, or they do not want to be more entangled with MGM as they start to go down, or they want to move Bond to a new studio.

There may be some truth in the entanglements aspect of it but the primary fact being forgotten is MGM owns half the franchise. I think what is happening is people are looking thoroughly into the Bond franchise books. While on paper and as often repeated by alleged journalists the Bond movies have never lost Money and bring home high dollar Box Office, sadly the research never goes any deeper. It should.

LTK alone would disabuse the Bond movie can never lose money myth. Studio keep on average 45% of the Box Office take before deducting advertising and other costs.
What people interested in Bond are looking at is a expensive to make movie series, now north of the $200m mark, and then the slow trickle of return. I've been told the QOS DVD sales have hurt the franchises standing in some eyes.

To simplify it here is what the interested parties are seeing;
They fund production: Eon gets $200m to produce the movie
When the movie is finished they spend another $150m or more to advertise it: Eon spends nothing
The movie is distributed they pay the distributor 10%: Eon pays nothing
Movie Box Office comes back they split the under 50% take with Eon
When dvd is released they get around $7 per unit: Eon gets a cut
The Television rights are sold

Nothing is new about this set up except MGM is no longer paying themselves to distribute and the DVD sales have tanked. Also the Televisions rights aren't worth what they used to be, but that is not here nor there.

What is new is that any prospective partner is looking hard at the other half, a partner who does not contribute funding or advertising to the production yet reaps a full half share. I don't think there is a corporate entity in today's market who would be willing to let that stand and that is what I think the Brocs are protecting themselves from. If they are not in production then they can not be as leveraged against as they would be if they were in production with agreements singed and deals on the table.

They retreat into their shell and wait it out withholding their half shares consent until they can once again establish more favorable terms. Of course they studios/ whoever the new partner is will be fighting for their rights just as fiercely. I think another 1990s legal mess could be the fall out, but I also think whoever gets control would desire to make money ASAP. All depends on how shrewd and hard nosed they are. Would they be willing to push the Brocs hard, to starve them out, MGM didn't have the grapes, Sony did, WB would, other unknowns?

[Blowfeld]

Variety has a headline that Time Warner is the only bidder left.

Front Page Breaking Story: Access Industries withdraws from studio auction -- Len Blavatnik's Access Industries has dropped out the bidding for beleaguered MGM, leaving only Time Warner Inc. as a potential buyer

[Mazer Rackham]

MGM will get a fifth extension next week. WB AFAIK has not been contacted back by MGM, they are in the same boat as Blavatnik before he withdrew. The talk has been of the creditors pursuing a standalone plan where they take over. I would like WB to get MGM because for the long term it would be the best home for Bond. In the short term it would get Bond in back production much quicker. All the creditors wanted was $2.4b they might have accepted slightly less but now I don't know if they'd play ball even if WB upped their offer.

[Mazer Rackham]

MGM's future now in hands of debt holders, not management
Hedge funds that control large chunks of the studio's debt are ignoring a 2-month-old acquisition offer from Time Warner and a restructuring plan to raise $1 billion in new capital.
May 24, 2010|By Claudia Eller and Ben Fritz, Los Angeles Times

After nine months of tumult over the future of Metro-Goldwyn-Mayer, the storied movie studio's fate now rests in the hands of debt holders with little experience in the entertainment business.

Hedge funds that control large chunks of MGM's $3.7-billion debt, including Anchorage Advisors and Highland Capital Management, are ignoring a 2-month-old acquisition offer from Time Warner Inc. and a restructuring plan backed by Chief Executive Stephen Cooper, a turnaround expert brought in last year, to reboot the studio with $1 billion in new capital.

The hedge funds, which would own the studio by swapping debt for equity, have balked at raising that much money and are seeking to keep MGM afloat at significantly lower cost, according to people close to the matter. The debt holders are now at odds with MGM management over how ambitious a plan is needed to salvage the studio.

The internal divide and lingering uncertainty demonstrate how tortured MGM's reorganization process has been and how the balance of power has shifted from management to lenders.

"Now that MGM's debt holders are in control of the company, they have a steep learning curve to get up to speed on a complex business," said Clark Hallren, managing partner of entertainment banking advisory firm Clear Scope Partners, who is not involved in the process.

In recent weeks they have also met with veteran Hollywood executives, including former News Corp. President Peter Chernin, onetime Warner Bros. co-Chairman Terry Semel, and Joe Roth, who previously ran Walt Disney Studios and 20th Century Fox, to seek their advice and gauge their interest in running the studio.

The debt holders are considering a strategic partnership with such companies as Summit Entertainment, the independent studio behind the "Twilight" movies, and production and financing company Spyglass Entertainment. In exchange for equity in a restructured MGM, the partner would oversee a small production slate and manage the 86-year-old studio's 4,000-title library, which controls the James Bond franchise.

But a cohesive plan has yet to materialize and must be accompanied by the none-too-simple task of raising money for operations and new movies.

You are now up to date on the MGM quagmire.

[Blowfeld]

An unusual casting call has attracted some of Hollywood's biggest moguls. The role: rescuer of Metro-Goldwyn-Mayer, the film studio struggling under $3.7 billion in debt left over from a 2005 buyout.

Former News Corp. (NWS) President Peter Chernin and Jonathan Dolgen, Viacom's onetime Hollywood chief, recently auditioned for the job. The decision makers will be MGM's creditors, who must figure out whether it makes more financial sense to sell to Time Warner (TWX), the high bidder in a March auction, or to run the studio themselves. MGM, owner of franchises that include James Bond and Pink Panther, is suffering from a lack of hits and the industrywide slump in DVD sales.

The lenders, which include Highland Capital Management (HCF) and Anchorage Advisors, already have learned one of Hollywood's first lessons: Never bet your own money on the movie business. Loans that traded at 65 percent of face value in January changed hands for as little as 43 percent in late May—valuing the company at $1.6 billion. That's close to Time Warner's $1.5 million high bid, according to people with knowledge of the auction. If the creditors decide to turn it down and go into show business themselves, they may have to put up some $500 million to jump-start production.

"They're trying to understand how they do it," says Clark Hallren, managing partner of the Los Angeles-based entertainment advisory Clear Scope Partners. "Do we need to keep domestic theatrical distribution? Do we continue to outsource home-video distribution? What kind of movies should we make?"

Delays in resolving MGM's fate have further clouded its outlook. Producers Barbara Broccoli and Michael Wilson, who co-own the lucrative 007 brand with MGM, suspended production on the 23rd Bond film in April, citing "uncertainty"about the studio's future. On May 30, director Guillermo del Toro bailed from MGM's upcoming The Hobbit, a J.R.R. Tolkien movie. MGM shares the rights to The Hobbit with Warner Bros. "The film business can be awfully seductive," said former Universal Studios Chairman Frank Biondi, who advised some of the private equity investors who bought MGM for $5 billion in 2005. "I told them then that they had a melting ice cube."

The Broccoli family has urged Warner Bros. to stay in the bidding, said three people with knowledge of the situation. Scott Rowe, a spokesman for Warner Bros., declined to comment, as did Susie Arons, an outside spokeswoman for MGM. Stephanie Wenborn, a spokeswoman for Broccoli and Wilson's London-based Eon Productions, also declined to comment.

With new management, the creditors hope to boost production, cut costs, and eventually seek a price of more than $2 billion for the studio, said two people who have discussed the plan with them. Finding ways to maximize MGM's value won't be easy, says Mark Patricof, managing partner of investment bank MESA. "There are not that many new faces out there with a lot of new ideas for MGM to consider," he says.

Patricof says the creditors should instead sell off MGM's assets, including its rights to the Stargate TV series. The Bond franchise could fetch $750 million alone, according to Douglas Lowell, who advises independent film companies on film financing. Its last five installments averaged $461 million in worldwide ticket sales. Whatever the outcome, the creditors aren't the only ones looking to get paid. Actor Tom Cruise, who signed on with MGM in 2006 and helped raise $500 million to produce films, owns a 30 percent stake of MGM's United Artists film unit, according to one former MGM executive. "Tom is protected and will be fine," says Cruise's attorney, Bert Fields.

The bottom line: MGM's valuable franchises make creditors believe they can profit by reviving the storied studio. It won't be easy.

Bloomberg/BusinessWeek: Creditors Seek Leads for MGM, the Sequel[/QUOTE]