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MGM: Relativity, Malone Out, Time-Warner to Bid Low

Updated Thursday at 12:30 pm:

Bloomberg reported that Time-Warner CEO Jeff Bewkes will be meeting tomorrow with Warner Bros chiefs Barry Meyer and Alan Horn to iron out the price. They’re also reporting, as I did, that bid will likely be low: $1.2 b to $1.5 billion. (I think that second number is the high end. But seems like they’ve not quite decided.)


Relativity Media — backed by Elliott Associates — has removed itself from the MGM sale, a person with knowledge of the situation tells TheWrap.

Ryan Kavanaugh’s finance firm (backed by the hedge fund Elliott) follows John Malone’s Liberty Media, which also bowed Wednesday, out the door — and just two days before the Friday deadline for final bids.

With the dwindling number of bidders and Time Warner’s intent to come in low, the sale of MGM is becoming less certain. If they don’t find a seller, the debt-holders could wind up just keeping the troubled studio.

As the numbers kept coming in, Relativity foresaw MGM’s cash flow grinding to a halt in the next year or two. The reason: With the studio’s restructuring, layoffs that have left only senior management, and sale, there’s no new product — no movies being made, no greenlit projects — and basically no reason to believe its library will generate enough revenue to justify the price.

MGM has been seeking $2 billion for their 4,000-title library. The library may throw off a certain revenue number today, estimated at $350 million, but it’s proving very hard to predict what that number will be in the longer term.

This leaves Len Blavatnik’s Access Industries as the likely front-runner. The Russian billionaire has the deepest pockets — and wants into the movie business badly.

Earlier on Wednesday, Ron Grover at Bloomberg broke the news that Liberty Media had dropped out for the same reason as Relativity/Elliott: valuation fears.

I believe it. The valuations have proven to be the sticking point in just about every movie company that has been up for purchase in Hollywood’s current yard sale. The problem is that libraries have been the one core, reliable source of revenue for studios that have a hard time predicting profits from movie slates. But right now, those values are in decline because of the plummetting home entertainment business model.

No less than Sony co-chairman Michael Lynton told ShoWest yesterday that DVD revenues have shifted to a 75 percent rental/25 percent purchase model, from a 60/40 split a few years ago.

So with Liberty and Relativity out, that leaves the other players who we have written about ad nauseum: Time-Warner, Lionsgate and Blavatnik’s Access.

See previous:

Hollywood for Sale — But What’s the Right Price?

Liberty’s Malone Ready to Break With Overture Films

Overture Box-Office Profits: $50M-$60M

More Hollywood for Sale – Lionsgate, MGM, Miramax – Deadlines!

Miramax Bids Due Thursday, Battle Rages Over Valuation

Lionsgate Files to Raise Up to $750M

Liberty’s Malone Ready to Break With Overture Films