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Lion rolls dice

Defying odds, MGM ramps up biggest slate

Rights offerings have been very good to Kirk Kerkorian.

Using such devices — offering discounted shares to existing stockholders — the billionaire financier has lowered the effective cost of his 87% stake in MGM so dramatically he could cash out today and reap a $2 billion profit. Not a bad return on a four-year investment.

But indications are that Kerkorian won’t walk away anytime soon from the studio he has controlled three times. This go-around, Kerkorian has privately vowed to continue rebuilding the studio rather than mining it for gold.

Some building blocks have indeed been put in place:

  • The studio is once again writing its financial results in black ink.

  • Its upcoming release slate — led by Ridley Scott’s “Hannibal” toplining Anthony Hopkins as the world’s most charming cannibal — looks stronger than in it has years.

  • Top management has stumped tirelessly to spread the message around town that MGM is committed to making and marketing winning films.

Despite these positive signs of revitalization, nagging questions remain. The biggest: How can a pure-play film company succeed when most media companies have become vertically integrated behemoths?

MGM chairman and longtime Kerkorian ally Alex Yemenidjian and vice chairman and chief operating officer Chris McGurk exude nothing but confidence. That, in itself, is a remarkable change at a studio whose management in recent years repeatedly has had to explain away a paucity of A-list talent in its projects.

McGurk, lured from Universal a day after Yemenidjian’s appointment in April 1999, has brought with him an enthusiasm for co-productions that has allowed the embrace of a broader, bigger-budgeted film slate. MGM anticipates a 20-film slate for 2001 including a few tentpole pics, roughly double the number of theatrical releases in each of the past two years.

“We’re probably a year ahead of where we thought we’d be right now,” beamed McGurk, a balance-sheet kind of film exec who’s become the de facto boss of MGM Pictures above film division president Michael Nathanson. “I think we have the opportunity to put some big numbers up next year.”

High hopes

For the balance of 2000, the studio is pinning its hopes on films including the Richard Gere-Winona Ryder starrer “Autumn in New York,” which bowed last weekend in fourth place with some $11 million, and the upcoming Antonio Banderas and Angelina Jolie thriller “Original Sin.” First-quarter titles include highly anticipated “Hannibal” and Tim Robbins starrer “Antitrust.”

The studio has earmarked $365 million this year — a slim $5 million boost from 1999 — to fund its upcoming productions.

But it’s using co-prod arrangements like the one on “Basic Instinct II,” set for the end of 2001, to lower its costs on individual films. In that case, the studio is picking up only about $30 million in prints and advertising costs to nab domestic rights to the high-profile sequel, a co-production with Mario Kassar and Andy Vanja’s C2 Pictures.

McGurk said the studio has abandoned a previous one-every-other-year quota for releasing James Bond films.

“We’ve made a very conscious effort to become less dependent on Bond films,” he said. “We’re targeting November 2002 for the next one.”

Yemenidjian and McGurk were tapped by Kerkorian to replace Frank Mancuso and former No. 2 exec Robert Pisano for two related reasons — underperforming movies and red ink. And the new team minimizes concern that expanding MGM’s operations is key to a fix of the studio.

“My primary obsession is creating wealth for my shareholders,” said the dapper, well-spoken Yemenidjian. “Vertical integration is only one aspect of that.”

Revs up

Last month, MGM posted its fourth consecutive profitable quarter for the first time in 14 years. Feature film revenue was up 67% in the second quarter at $254 million, but even more impressive was the change in operating cash flow. That hit $45.3 million in the latest quarter, compared with a negative $134 million a year ago.

But despite MGM yearnings to become more than just a factory for Bond releases, the results were largely fueled by revenue from 007 title “The World Is not Enough” hitting homevideo and DVD.

Meanwhile, the new MGM team has managed to turn around perceptions of the studio with relatively little exec bloodletting. Production head Lindsay Doran fell victim to last summer’s United Artist restructuring, but Nathanson remains, as do top marketing and distrib execs Gerry Rich and Larry Gleason, respectively.

McGurk did truncate a producer deal for the former studio head’s son, Frank Mancuso Jr., whose movies once dominated the MGM release slate. “He’s a good guy, but (his producer’s deal) was connected to the old management approach,” McGurk said.

Last summer, Yemenidjian and McGurk visited talent agencies and management firms to spread word of their filmmaking vision, and they’ve followed up that road show with one-on-one meetings with a roster of Hollywood’s top actors and directors.

“I’ve met with probably 200 actors and directors over the past year,” estimated McGurk.

Creating momentum

A source suggests the constant effort to improve MGM’s ability to attract top talent is wearying, absent marquee producer relationships.

But Nathanson said, “We’re creating a momentum that rolls from one picture to the next, and the next.”

Though MGM still doesn’t boast a production partner like New Regency at Fox, it has inked some strong deals.

It enjoys a co-prod pact with Miramax and has inked a key deal with Atlas Entertainment, which includes the summer 2001 release “Rollerball.” Other pacts include a two-year co-prod and distribution deal for MGM’s United Artists specialty division with production and finance house GreeneStreet Films.

And a 10-film UA co-production deal with Francis Ford Coppola’s American Zoetrope includes the newly announced “Monster” from writer-director Hal Hartley.

Thanks in part to this activity, Yemenidjian said MGM is in a better position than ever to broaden its operations beyond filmmaking. Execs said it’s now likely not just one strategic alliance but two or three will eventually come together, including one with a broadcast partner.

That would be particularly useful to MGM’s relatively modest TV division. Its existing distribution tentacles involve scattered syndicated deals and a substantial multiyear arrangement with the Showtime cable net.

Wall Street has been patient through MGM’s strategic search, and some forecasts on its stock already assume a major cable-output deal will be struck by year’s end to more fully exploit the studio’s 4,100-title library.

NBC alliance possible

Analyst David Miller of Sutro & Co. in Los Angeles considers it a “strong” possibility an alliance with NBC or the NBC-owned Pax netlet could emerge. But like most observers, he believes a joint venture for niche theme channels with programmer Encore Media or another partner is the likeliest scenario in the short term.

There are also those who say MGM is ripe for an outright sale of the studio to another media group. After twice buying and selling MGM in earlier decades, Kerkorian regained control of the studio in a 1996 auction and has amassed 179 million MGM shares at an effective price of about $14 a share. A sale of his holdings at the stock’s recent share price of $25 would fetch a profit of $1.97 billion.

His current MGM reign since then is brief by comparison to long runs of control in the ’70s and ’80s, so the 83-year-old financier could stick around at least a while longer to prove his desire to restore the studio to greatness.

Yemenidjian noted it ultimately will be up to the studio’s Kerkorian-appointed directors to decide when to sell. But the MGM chief added that’s not his agenda.

“The company’s not for sale,” said Yemenidjian, who expresses a love of movies but has built a long and close relationship with Kerkorian mostly through work in casinos, including a recent stint running MGM Grand.

“My job as CEO is to provide my board with alternatives,” he said. “But the best package of alternatives includes one to continue growing organically and through acquisitions. That’s my objective, and I think that — in terms of our growth strategy — our best years lie ahead.”

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