Update on MGM Situtation

Business Week has written an article that provides an update on the financial straits of storied studio Metro-Goldwyn-Mayer (MGM). The studio is financially underwater with $3.7 billion in debt and while there are suitors to buy the studio, no firm decision has been made by its creditors on what solution will allow them to recoup as much of that debt as possible.

Proposal number one is for the creditors to run the studio themselves. Considering the multiple franchises the studio owns, careful use of their properties could lead to new found strength for the company. See Marvel and their success story as they went from a nearly bankrupt company to a worthy addition to the Disney brand. The franchises that could be tapped include The Hobbit films, James Bond, Pink Panther, Stargate and really anything from their extensive library of films. However, desperate times often leads to desperate decisions which means bad choices could actually cause the debt to grow. The increase in losses would start immediately as the creditors would have to invest at least $500 million just to "jump-start" production.

The second choice is to cut their losses and sell the studio and all those franchises to Time Warner who was the highest bidder in the March auction with a $1.5 billion bid. The current value of the company is only $1.6 billion, more than half of what the debt is so the losses would be huge.

If they go with decision reviving the studio, two franchises are really just a quick infusion of cash away from starting. Production on the 23rd James Bond film was suspended when the problem with MGM mounted but this suggests that at least some of the scripting, casting and other decisions have been made. The Hobbit films have also been in unofficial pre-production mode with props, sets, scouting, scripting and design being conducted as a run up to an official greenlight. While the Hobbit suffered a set back with Guillermo del Toro no longer attached as director, filling that role should not take that much time once the final disposition of the studio is determined.

Business Week's sources indicate the creditors are giving serious consideration to reviving the studio in the hope to increase its market value to at least $2 billion and possibly sell those franchises in a piecemeal fashion. For example, James Bond's estimated value is $750 million (which seems low to me).

Sadly for The Hobbit fans, what all this really means is there is no end in site on the MGM situation so no telling when the films will finally get the greenlight and budget necessary to move forward.