Right now, the MGM movie studio is in distress – and is for sale.
So far, the bids for the company have come in around the $1.5B mark – a far cry from the $4B of debt taken on by the current owners (a group including Providence Equity Partners, Sony and Comcast).
The problem: a lack of new movies coming out from the studio at the same time as DVD’s begin their long torturous decline into downloading oblivion. With their most profitable segment of their market weak and getting weaker – how are they to get cash flow up? How are they to get the value of the company above where the debt trades (as of this writing that figure is about $0.48 on the dollar or just under $2B worth of value for the whole company)
One way is to sell off some of the assets. MGM owns half of the James Bond franchise in association with the Broccoli family – and this asset is generally thought to be worth $500-$600M to MGM – reasonable considering the performance of the last two films – and considering the cost of production and the timing of the future films (one every two years or so – maybe longer). MGM also owns half of “The Hobbit”, the prequel to “The Lord of the Rings” and an almost guaranteed hit. Given this is going to be made into two films (no doubt in 3-D at $13 per ticket) this has to be worth another $100M to MGM over time – and maybe more to Time Warner who is the other owner.
What is left is a library of properties which could be made into sequels or remakes – like “The Pink Panther” series – or sold off to others who have a greater interest in the intellectual property.
EPIX – a premium cable channel started by MGM, Lionsgate and Paramount – probably has some value – but is in a start-up phase and currently loses money.
The wildcard to me is the digital rights that MGM has to all of its films. Currently, Netflix is streaming some titles that it has secured rights to (mainly from Starz) and Apple is coming out from the iPad. Given the importance of content to these services – I have to believe that a reasonably robust bidding war could take place over these rights. What are they worth? I’m not sure – but in all the news that comes out around the MGM auction – this is where I would focus my attention.