'Talkers' not cheap

“Windtalkers” repped a big thorn in the Lion’s fiscal paw Tuesday, as MGM posted a broadened second-quarter loss of $121.8 million on big losses from the disappointing war pic.

It’s believed the Santa Monica-based studio took a more than $50 million writedown on the underperforming Nicolas Cage starrer.

“The film business is nonlinear — you have a few pictures that don’t work, followed by a few pictures that perform very well,” chairman-CEO Alex Yemenidjian said. “It’s been that way for the past 80 years.”

But though Yemenidjian added, “The bad news is behind us,” company shares slumped 9% soon after execs’ morning conference call with press and analysts. MGM shares fell 91¢, or 8.8%, on the day to $9.44 — the first close under $10 since the Lion went public in 1997.

MGM’s quarterly red ink widened from a loss of $61.3 million in the same period a year ago.

Revenue rose 23% to $336.9 million. But operating cash flow slipped further into the red — to a negative $94.4 million from a negative $35.9 million a year earlier.

Homevid hearty

The revenue surge was fueled largely by a 70% rise in home entertainment revenue. Robust home entertainment operations also were behind the feature film division’s 29% revenue climb to $297.4 million.

MGM’s huge 4,100-title library has been pumping out ever-greater DVD and homevid cash flow for several quarters, but analysts were plainly disturbed by studio’s poor recent theatrical perf.

“They need to make better movies,” UBS Warburg’s Christopher Dixon observed dryly.

He said execs erred in delaying “Windtalkers” from a skedded winter release, a decision made when Sept. 11 fallout prompted marketing concerns. “I have never ever seen any studio delay a picture because it was a good movie,” Dixon said.

Yemenidjian stressed that upcoming releases will be “very compelling” — including the Thanksgiving-skedded James Bond title “Die Another Day.” But execs also seemed resigned to taking their lumps for successive misfires with “Bandits,” “Rollerball,” “Hart’s War” and “Windtalkers.”

“Clearly we made some mistakes with ‘Windtalkers’ and some other films, and we need to learn from those mistakes,” vice chairman and chief operating officer Chris McGurk said.

‘Croc’ has teeth

The currently playing animal adventure “The Crocodile Hunter: Collision Course” was a low-cost production sure to turn a profit, McGurk said. And upcoming Reese Witherspoon laffer “Red, White and Blonde” and horror pic “Jeepers Creepers 2″ have promise, he added.

Last year’s hit “Legally Blonde” is also being adapted for a possible ABC television show.

“Die Another Day,” which wrapped two weeks ago in London, “promises to be the biggest and best Bond film ever,” McGurk said.

MGM continues to grow its relatively modest television division, recently announcing the planned debut of a digital channel in Greece. But the unit posted a 17% revenue slide in the quarter, to $30.1 million.

Fresh funding

Senior exec VP and chief financial officer Dan Taylor noted the studio recently secured a new $1.75 billion corporate financing, raising MGM’s credit base from a previous $1.3 billion.

“Our financial condition has never been stronger, and our confidence in the future has never been higher,” Yemenidjian said.

Yemenidjian said MGM continues to be interested in raising its current 20% stake in four cable TV channels operated by Cablevision’s Rainbow Media unit. With Cablevision execs currently mulling possible asset sales to raise cash, the Lion topper added the studio could be first in line to make a bid for Rainbow.

“We assume they will talk to us first,” he said. But MGM has no guaranteed first right of refusal on the channels, he added.

MGM would still like to be part of a bigger media group and continues to prefer a deal in which it would be an acquirer rather than a seller, Yemenidjian said. But execs are anxious not to be drawn into financially reckless transactions, he added.

“I think there are too many deals in this industry that are driven by ego and not by reason,” the MGM chief said.

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