Robocop, Bond and The Hobbit – Inside MGM's Surprising Turnaround

Robocop, Bond and The Hobbit – Inside MGM's Surprising Turnaround

“Robocop” represents another step in the studio's re-emergence after bankruptcy

Metro-Goldwyn-Mayer's resurrection is one of the entertainment industry's biggest success stories, though the company that gave the world Leo the Lion has so far resisted the urge to roar.

Under its soft-spoken CEO and Chairman Gary Barber, the studio has emerged from bankruptcy, stronger and nimbler than before. It plans to back or co-finance between six to eight films annually and will field four television programs next year, including MTV's “Teen Wolf” and a series based on “Fargo.”

Its latest venture, “Robocop,” a remake of the 1980s cult classic, hit theaters Wednesday and is expected to generate more than $35 million over its first six days of release. It's the latest step in a long-term strategy that has seen the studio mine its library of 4,000 films and 10,500 television episodes for remakes and possible spin-offs. Each arrives with a built-in brand recognition that helps MGM avoid producing massive flops, investors say.

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“They're not interested in hitting home runs,” said Steven Azarbad, co-founder of Maglan Capital, a hedge fund with a one percent stake in the studio. “They want to hit for a good average with a lot of doubles and triples.”

Given the financial strain the company had labored under and revolving door of corporate owners, it might have been tempting for Barber, who came over to MGM from the film production company Spyglass Entertainment, to make a few cosmetic changes before finding a buyer, but analysts credit him with taking a longer view.

“They've been very intelligent from a project development and financing situation,” Seth Willenson, a library valuation expert and studio consultant, told TheWrap. “They're very conscious of the value of the library in terms of exploiting it. It was always about somebody coming in to do a job rather than just dusting something off to sell it.”

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Still privately held, MGM's stock trades in secondary markets where its share price reflects the company's turnaround. Shares were trading at approximately $25 when the studio exited Chapter 11 protection in 2010; today they sell for $75. The company's revenue was $1.1 billion for the first nine months of 2013,  more than double what it reported in the year-ago period. Net income over that time frame rose 24 percent to $109.9 million.

With $50 million in cash on its balance sheet and a largely untapped $700 million revolving fund, the company is on firm financial footing. When it finally left bankruptcy, the studio was carrying nearly $325 million in debt. When it filed for protection, it was nearly $5 billion in the red.

“What the market sees is a very disciplined and thoughtful management team,” said Colin Wilson Murphy, an analyst with Bowery Investment Management, which maintains an undisclosed position in the studio. “These folks come from a finance background.”

Given the appetite for its stock, it's unsurprising that investors like Bowery and Maglan hope MGM goes public. MGM has flirted with an initial public offering in the past, submitting preliminary paperwork in 2012, although an individual close to MGM says the company is continuing to “evaluate its options.”

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“We'd like to see them go public…I fully expect MGM will do the right thing by its investors,” Maglan's Azarbad said.

MGM execs declined to speak on the record for this article, preferring to keep a low profile.

The studio faces a number of risks. Much of its growth has been driven by two film franchises, the James Bond movies and “The Hobbit” trilogy. Though it can continue to depend on a new 007 film popping up roughly every three years, “The Hobbit” films will likely end when a third installment hits theaters next winter. Other MGM films or co-productions such as “21 Jump Street” have made money and spawned sequels and the company is developing a “Rocky” spin-off and toying with future “Pink Panther” projects, but it's difficult to replicate the success of J.R.R. Tolkien's fantasies. Moreover, there are limits to the number of reboots and remakes audiences are eager to see.

To that end, MGM is banking heavily on television properties and has started to develop original content such as “Hercules” with Dwayne Johnson and “If I Stay,” an upcoming Chloe Grace Moretz thriller it's co-producing with Warner Bros.

“We're trying to create the next franchise,” the individual close to MGM said. “We know it's important to do that while taking advantage of the ‘Poltergeists,’ the ‘Rockys,’ the James Bonds and this legacy of content.”

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Yet,  for MGM, a studio that is synonymous with the golden age of movies through its work on “Gone With the Wind” and “The Wizard of Oz,” the future may rest on the small screen. Television shows such as History's “Vikings” and the syndicated series “Paternity Court” offer stability at a time when the film business is intensely volatile.  Moreover, MGM's 19 percent stake in Epix could be a key source of revenue now that the cable channel has signaled it wants to beef up its original programming.

“When you pull back and look at the balance sheet, there are a lot of hidden assets,” Wilson Murphy said.

The key for Barber and his team will be excavating those gems.

  • Ed

    they have been very smart…..they also have an excellent CFO…..one of the best…..

  • hank

    Really? They can't really take credit for existing properties like Bond and Hobbit – and everything else seems to be re-makes, most of them unnecessary. They can't just keep plundering their library and re-making everything – Robocop, Poltergeist, Carrie, etc. They are going to need original ideas. People are getting really sick of remakes – and they're just not really working any more. And that Jonathan Glickman is unbearable.

  • JD

    I would hardly call, MGM's baby steps back from the brink ‘one of the industry's biggest success stories'. MGM are still well below par in terms of past glories, their cutting costs on a project like Robocop meant any Major bankable A-List Talent backed out which means they will be lucky to turn a major profit on the film that was supposed to signal their triumphant return to the industry (Barber and Glickman would probably be content if it managed 50 million stateside since its likely to finish behind at least 3 other films this weekend).
    Furthermore, their future profitability is largely hinged upon co-productions with the likes of WB and Sony which cuts into profit margins severely (not that MGM could afford to finance it on their own). As for the rest, Hercules?, Pink Panther?, the Fargo TV series? these are hardly sure things that indicate things trending upwards and cementing the studio's position back among the elite.
    This article strikes me as a PR job and a half

    • utazdevl

      Please ignore my comment. You said what I wanted to say but much better.

  • Jimmy Reagan

    Truthfully, MGM has been on life support for the past 25 years. Their catalog is what's gotten them through most of the years, but seeing as they haven't been making smart decisions in that area, and the fact MGM really is no longer a “studio”, but merely executive offices, where there really is no creativity behind the decisions, I don't think anyone should pop the cork on that champagne bottle just yet..

  • utazdevl

    I don't mean to be a hater, but I fail to see how MGM is a successful turnaround. If anything, they just lowered the bar for what they are trying to accomplish. They no longer distribute their films (meaning they take greater risks on their projects) and they are essentially a production company that has a library of films, most of which have already been heavily exploited. Remakes of the library titles have done poorly (Carrie, Red Dawn, Robocop). The are incapable of releasing even their biggest product (The Hobbit and Bond) without other studios help (and therefore splitting the profits). Even the projects they buy in on (like GI Joe 2, Hope Springs, 21 Jump Street and Girl With The Dragon Tattoo) have been a mixed bag.

    By production company standards, they have been passable. By Studio standards, they are as poor off as they have ever been.

    • http://dogwarddown.net/ Mark O'Neill

      Basically, you're just being a hater.

  • DeadLion

    The only chance MGM had was to bank on the brief regime of Mary Parent, who put together a number of strong projects (HOT TUB TIME MACHINE, etc), some of which, like CABIN IN THE WOODS and ZOOKEEPER, got released elsewhere because of financial mismanagement. By getting Barber & Birnbaum to basically turn MGM into Spyglass writ large, the shareholders pretty much threw in the towel on MGM. They have THE HOBBIT and Bond, but beyond that? Financing/co-productions on Spyglass projects like the G.I. JOE franchises? Throwing cash at other studios on co-production deals that exist basically to slap the Lion's logo on posters (MGM doesn't contribute anything creatively to these efforts)? Their two big standalone movies, CARRIE and ROBOCOP (remakes both), have tanked. Up next on the chopping block– HERCULES and POLTERGEIST. Good luck with those, MGM. Also, Brett Lang, are you on MGM's payroll?

  • http://dogwarddown.net/ Mark O'Neill

    I think MGM is doing a great job of- sure they're basically a glorified production company. But why all the negative comments? Jealousy? The last two Bond films were quite an accomplishment in themselves.

  • Michael Vegas

    I SAW Robocop and I thought it was pretty good. I liked how it gave nods to the original, and it left me hoping for another one. This movie was also VERY “ripped from the headlines” with Robots playing peacekeepers as the government would like for us to do. So it showed you the good and the bad of such actions. And if you looked a little deeper it made you think.