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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.