MGM scales back relationship with Sony

A correction was made to this article on May 31, 2006.

Breaking up is hard to do, but the Lion seems increasingly eager to embark on the process.

Just a year into its dalliance with Sony, MGM will limit their relationship to a co-financing partnership on several films — including “Casino Royale,” the next James Bond pic — and the use of Sony’s Blu-ray format for high-definition DVDs.

In a sign that MGM under new CEO Harry Sloan may once again become a fully independent studio, the Lion has taken back its worldwide homevideo and television distribution rights from Sony, which has been handling them for the past year, ever since the Japanese conglom led a consortium of investors to acquire MGM for $5 billion.

At the time, most observers thought Sony’s $1 billion stake made sense because it could monetize MGM’s 4,000-plus pic library through its global distribution chain.

But at a board meeting Tuesday, MGM’s controlling partners, which also include Comcast and four private equity groups, voted to take back distribution rights, as allowed under the yearlong deal that went into effect at the time of the acquisition.

The Lion doesn’t have its own homevideo operation, however, so it has signed with Fox for worldwide DVD distribution of its library and the 20-plus films it is releasing theatrically each year under its new business model.

MGM is surely getting a better deal from Fox in order to justify the move from Sony.

Prior to MGM’s acquisition last year, Fox handled its overseas homevideo. For the past year, Fox and Sony have split the Lion’s international homevideo operation.

Fox is expected to set up a separate operation within its homevideo unit of about 50 people dedicated to selling MGM films.

In addition, MGM is establishing a worldwide television distribution division to make TV deals for its library of film and TV shows, any new skeins it produces — including the two “Stargate” series on Sci Fi — and new pics that it releases.

The new TV operation is expected to have around 100 employees and will be headed by MGM TV exec Jim Packer.

Domestically, MGM has an output deal with Showtime through 2009, but can negotiate new broadcast and basic cable deals for its pics.

Under its theatrical distribution pacts with financiers such as the Weinstein Co. and Bauer Martinez, MGM has certain TV rights for all pics, but homevideo only for some.

“The deal with Sony was really about putting two catalogs together, but now we have 20-25 new releases per year,” Sloan said. “MGM is coming alive again as a motion picture studio and because of all the new releases we have under our motion picture financing and theatrical distribution model, we wanted to take control of other types of distribution as well.”

Shift comes as the DVD business, which was booming when Sony and its partners agreed to buy MGM in 2004, is flat-lining, calling into question the entire logic behind Sony’s participation in the acquisition.

Besides hoping that the Lion will grow in value overall, the only significant synergy Sony has left from the purchase is the possibility that the inclusion of MGM’s vaunted library will help Blu-ray defeat the competing high definition DVD format, HD DVD.

In addition to this year’s “Casino Royale,” the two studios have agreed to co-finance another James Bond film, as well as a sequel to this year’s “The Pink Panther” starring Steve Martin.

Sony will distribute the pics theatrically, but MGM will handle homevideo and TV for all three. In addition, MGM is theatrically distributing December’s “Rocky Balboa,” which it is co-financing with Sony and Revolution.

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