MGM film studio headed for bankruptcy
Studio famous for Wizard of Oz and Singin' in the Rain faces bankruptcy after creditors vote for reorganisation under deal with Spyglass
Edward Helmore in New York
The Guardian, Saturday 30 October 2010
Metro-Goldwyn-Mayer, the legendary film studio famous for classic movies such as The Wizard of Oz, Gone with the Wind and Singin' in the Rain, is set to file for bankruptcy within days. The move comes after creditors approved a plan to restructure its $4bn (£2.5bn) debt under the protection of insolvency courts and place the company under new management.
Resolution of the long-running saga of the studio's finances came after creditors rejected an aggressive takeover bid by corporate raider Carl Icahn. A reorganisation will require MGM to declare a chapter 11 bankruptcy in order to renegotiate its mountain of borrowing.
Icahn, who holds as much as $800m of MGM debt, had been campaigning for Lions Gate Entertainment to take over the firm. Yesterday Lions Gate sued Icahn claiming he was planning to buy a stake in the company and was offering to buy debt from other MGM creditors in an effort to gain control of the studio's fate himself.
Spyglass Entertainment, a small production company half-owned by private-equity firm Cerberus Capital Management, is now set to take over the company.
Under the new management, MGM is expected to make just four to six movies a year, most with modest budgets of $50m. Gary Barber and Roger Birnbaum, founders of Spyglass, have said they aim to be ruthless about costs, outsource distributing films to theatres and focus on the TV business and online services .
But the plan is considered a gamble. MGM faces bankruptcy in part because the DVD and film catalogue business attached to its 4,100-title film library no longer generates enough to service the firm's debt.
A plan earlier this year to bring in director Ridley Scott to serve as creative head along with his brother, Tony Scott, was seen as incoherent and was rejected.
But Spyglass's budget movie plan is considered risky by Hollywood veterans who warn against trying to run a studio on the cheap.
"Part of MGM's problem has always been that many of its owners are financial players more focused on the short term," Clark Hallren, a consultant and former banker for MGM, told the LA Times. "Being in the entertainment industry is typically a long-term play because of the nature of distribution and massive amounts of capital needed."
Joe Roth, ex-head of Walt Disney Studios, said MGM's rescuers had to be bold. "You either compete head-on or not at all," he said. "By making half-efforts, you never get the right product or talent."