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MGM to spend $1 billion for full control of the Epix movie service

MGM is casting itself as sole proprietor in this Epix tale.

The privately held Beverly Hills entertainment studio on Wednesday said it would spend slightly more than $1 billion to buy out its longtime partners in the Epix movie service, Viacom’s Paramount Pictures and Lionsgate.

The transaction values the pay-TV movie network at $1.275 billion.

MGM Holdings had been a minority partner with a 19% stake in the nearly 8-year-old Epix joint venture, which includes four pay-TV channels and licensing deals with several streaming services. Viacom, which has managed the movie channel, held a 49.76% stake. Lionsgate owned 31.15%.

The sale, which must be approved by regulators, reflects a shift in priorities for the various partners and MGM’s ambitions to bulk up. Last year, the movie and TV company acquired United Artists Media Group.

“The acquisition creates increased revenue diversity, new opportunities for growth, and earnings accretion for the benefit of stockholders,” Gary Barber, chairman and CEO of MGM, said in a statement.

Lionsgate’s strategy has changed. “We are shifting our investment focus to our wholly-owned platforms,” said Lionsgate CEO Jon Feltheimer.

The company in December completed its $4.4-billion takeover of the competing Starz movie service, and the Santa Monica studio wanted to put its weight behind its own asset, which has a larger television footprint than Epix.

However, as part of the deal, Paramount and Lionsgate will continue to provide first-run theatrical releases to Epix, which guarantees the movie service a pipeline of new product.

Viacom is in need of cash to bolster its balance sheet. The New York company also was roiled by management turmoil last year, enveloped by a boardroom clash between Viacom’s controlling shareholders, the family of Sumner Redstone, and the former chief executive. The dispute ended with the ouster of the former chief, Philippe Dauman, who was one of the architects of Epix.

But Viacom’s new management did not consider Epix a core business, and the company plans to use much of its proceeds from the sale, about $600 million, to reduce debt.

“Together with our partners, we are proud to have built EPIX into a strong, differentiated and valuable brand,” Viacom Chief Executive Bob Bakish said in a statement.

“We welcome the opportunity to strengthen our balance sheet by realizing the value of our equity investment, while also extending the successful commercial partnership between EPIX and Paramount Pictures with a new multi-year output agreement,” Bakish said.

The three companies formed Epix in 2008 as a premium movie channel and Internet streaming service to showcase their films rather than license them to an established premium movie channel, Showtime Networks.

Showtime long had dibs on the first-run TV rights to Paramount films, but that changed following the 2006 breakup of Viacom and CBS Corp. CBS took control of Showtime, and CBS’ top manager refused to pay the license fees that Viacom’s Dauman was seeking for the first-run TV rights to Paramount films.

So Lionsgate and MGM joined forces with Viacom in their high-profile bid to cut out the middleman, in this case, CBS. The three partners then created a next-generation movie service as an outlet for their films.

But the Epix launch came amid the Great Recession, and pay-TV distributors initially were uninterested in adding another expensive movie channel to their line-ups. So Epix launched as a subscription Internet movie service. It took several years for Epix to gain traction, but it eventually secured distribution on several pay-TV systems. The venture has been profitable in recent years.

MGM reported in a regulatory filing that its share of Epix net income for 2016 was $28 million, suggesting that the movie service earned more than $150 million last year.

LionTree Advisors served as financial advisor to Viacom and Lionsgate. Latham & Watkins provided legal counsel to MGM, and Shearman & Sterling represented Viacom. O'Melveny & Myers represented Lionsgate in the deal.

meg.james@latimes.com

@MegJamesLAT

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