Warners claims distrib rights to Orion library

NEW YORK — Metro-Goldwyn-Mayer Inc. is in a dispute with Warner Bros. over Warners’ claims to the video distribution rights on product from MGM’s recently acquired Orion Pictures, MGM says in an SEC filing.

Warner Bros.’ homevideo division distributes MGM’s video library under a deal struck in 1990 by MGM’s former owner Pathe, which expires in 2003. The deal was broadly written to extend to the video libraries of any MGM affiliates, which Warner Bros. apparently believes includes both companies that may buy MGM and companies that the Lion may buy.

MGM said in a revision to its stock offering prospectus last week that it has “received correspondence from Warner Home Video alleging that the Orion companies’ future production and library is subject to the WHV agreement.”

MGM argues, however, that the agreement explicitly excludes Orion. The two companies are “currently in discussions” over the issue.

MGM warned that if Warner Bros.’ position prevailed, earnings from distribution of Orion’s library would be reduced. Warner Bros. takes a distribution fee of 10% to 15% on worldwide vid revenues from MGM, the prospectus said.

MGM would not comment on the status of the dispute Friday, while a Warner Home Video spokesman said “As a matter of policy, we do not comment on our business relationships.”

Auction issue revived

This issue reared its head last year during the auction of MGM when several of the bidders for the studio, such as Polygram Holdings and 20th Century Fox, made their bids with a request to be indemnified against the potential cost of fighting Warners over the clause.

The bidders were concerned that if they succeeded in buying MGM, Warner Bros. would try to enforce the vid deal to get its hands on their own releases as well as MGM’s. Of course Kirk Kerkorian and Kerry Stokes, who ended up buying MGM, did not have to make a similar indemnity request because neither owned a studio.

That proved to be a big difference and helped the two win the auction, sources said.

But Warner’s interpretation of the agreement is now working against MGM, and the Lion is expected to fight the issue hard. It is likely that if MGM succeeded in its bid for the Epic library of 1,000 titles, Warner would make a similar claim about distribution of that catalog as well.

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