MGM May Need More Agents of Revenue

James Cameron’s shipwreck epic, “Titanic,” isn’t the only event movie doing blockbuster business around the globe.

Though overshadowed by “Titanic” media attention, the latest James Bond installment, “Tomorrow Never Dies,” has quietly grossed nearly $300 million worldwide, with major markets such as Japan still to open next month.

The film, which Metro-Goldwyn-Mayer Inc. premiered Dec. 19--the same day as 20th Century Fox’s “Titanic” opened--has already grossed more at the U.S. box office (nearly $120 million to date) than any Bond title ever and has a good shot at topping 1995’s “GoldenEye” as the series’ biggest worldwide grosser at $350 million.

“Tomorrow Never Dies,” starring Pierce Brosnan, also bested “GoldenEye” in its domestic TV sale. “GoldenEye” sold to NBC two years ago for $12 million; “Tomorrow” sold to CBS for a floor of $20 million, with additional bonuses as the film exceeds $100 million at the domestic box office.

MGM’s lead underwriter, J.P. Morgan Securities, is forecasting profit for “Tomorrow” in the range of $110 million to $120 million from all revenue sources, including worldwide theatrical, video and TV sales.

According to MGM Chairman Frank Mancuso, although the heirs of late producer Albert “Cubby” Broccoli get “a substantial payday as they always have,” a good deal of the expected profit will go to the studio’s bottom line. J.P. Morgan securities analyst Matthew Harrigan estimates that 20% of the profit will go to the heirs and other participants.

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The Bond franchise, launched in 1962 with “Dr. No,” is one of the most successful in movie history, with the 18 titles made under the United Artists banner generating more than $2.5 billion over the last 35 years. (United Artists later became part of MGM. Two additional Bond movies--”Casino Royale” and “Never Say Never Again”--were made at other studios.)

With figures adjusted for inflation, the heyday of the Bond movies was in the mid-’60s with “Thunderball,” the 1965 film that grossed a whopping $656 million in today’s dollars.

Bond remains MGM’s singularly most prized asset, one that continues to add value to the studio’s movie library of 4,000 titles. MGM’s older Bond titles, in particular, reap the benefit of each new release. According to Mancuso, the theatrical release of “Tomorrow” in Britain prompted the sale of about 500,000 video units of older Bond movies.

Any studio would kill to have a Bond franchise in its library. And MGM appears prepared to do just that as it presses a $150-million lawsuit against Sony Pictures to keep its rival from making its own series of James Bond films.

A more far-reaching question for MGM--which was acquired last year by Las Vegas billionaire Kirk Kerkorian and Australia’s Seven Network--is what its owners and top management are doing to ensure the financial success of one of Hollywood’s few stand-alone movie studios in a world increasingly dominated by vertically integrated entertainment behemoths.

Some industry analysts and observers are highly skeptical.

“I don’t think James Bond matters,” says one top financial expert. “My vision of a successful filmed-entertainment company in the next 10 years is a vertically integrated global company. The worst part of the business is the movie business because it’s highly capital-intensive and has low margins. The great companies have theme parks, record companies, basic or pay cable networks, all of which feed off that content company at its core.”

MGM--the once-legendary studio behind such classics as “Gone With the Wind” and “The Wizard of Oz”--is purely a content company without the diverse business bases of other Hollywood majors--like Walt Disney, Warner Bros., Universal Pictures, Paramount Pictures and 20th Century Fox--that can offset losses in their movie divisions.

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Even Mancuso concedes that MGM--which has been ravaged over the years by a series of takeovers, heavy debt and steady losses--will have to do more than produce box-office hits (as if that’s not hard enough) to compete in today’s marketplace.

In his view, the key is leveraging the library, which, with 3,639 movie titles and 8,200 hours of TV programming, is the largest post-1948 catalog in the world. Today, the library generates cash flow of about $150 million a year, which some analysts expect to increase by about $80 million once the rights, desperately licensed off by former MGM owner Giancarlo Parretti, begin reverting to the studio in 2000.

Mancuso maintains that MGM’s library gives the company “a position in the industry that is singular and unique at a time when the value of libraries is continuing to grow because of the expansion of the delivery capacity into the home.”

He added that it is an “absolute priority” to seek out opportunities that will enable MGM to be either “an owner or co-owner of a system that delivers that product into the house,” probably through a cable or satellite network. Mancuso said it’s less likely that MGM would make a play for a broadcast network.

MGM is seeking to expand its MGM Gold classic movie channel, recently launched in Brazil and Asia, into key European territories.

But until it takes some bolder moves to expand its businesses, either by merging vertically with a network or horizontally with another studio, the company’s prospects are dim, some Wall Street analysts say.

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The studio’s initial public offering in October was coolly received by investors, who undoubtedly were scared off in part by MGM’s disclosure that it didn’t expect to see profit for several years--the company hasn’t made a profit since 1988--not to mention the fact that its ownership of the Bond franchise is being challenged by Sony.

A month before the IPO was launched, Sony announced plans to make a series of Bond films based on rights it believes it has.

Mancuso said the biggest problem MGM encountered was “bad timing.” Literally, on the first day of the company’s “road show” for potential investors in late October, the market dropped a record 554 points. “The day we priced [Nov. 12], it dropped 152 points.”

MGM’s stock has been mostly flat since the offering, closing Thursday at $18.94 a share on the New York Stock Exchange, off more than a dollar from its $20-a-share offering price. The IPO raised $180 million for the studio and was shored up by Kerkorian’s purchase of $75 million worth of additional shares, bringing his total holdings to 64%. (Seven Network has a 25% stake.)

Mancuso, who spent three decades at Paramount, is now in his second round of trying to revive MGM. He came to the nearly defunct studio in July 1993, and he and his team have since helped put MGM back on its feet, regaining credibility with such box-office hits as “The Birdcage,” “Get Shorty” and “GoldenEye.”

That momentum was lost when the studio’s then-owner, French bank Credit Lyonnais, put the studio up for sale, bringing movie production to a halt for 10 months. It wasn’t until early 1997 that MGM restarted production, and it is just now beginning to see the fruits of those efforts with such upcoming releases as “The Man in the Iron Mask,” starring Leonardo DiCaprio, and “Species II.”

MGM’s next Bond installment, which is being written, is due out in late 1999.

Just as MGM/UA revitalized the Bond series three years ago with “GoldenEye” after a six-year hiatus, Mancuso said the studio is hoping to breathe new life into its nine-title Pink Panther movie series. Sources said Kevin Kline is among the candidates to revive the role made famous by the late Peter Sellers.

Mancuso said MGM activated its dormant TV business by culling such library titles as “Stargate,” “RoboCop” and “Poltergeist.” Its first network series, CBS’ “Magnificent Seven,” debuted last month. “In the beginning of 1995, we had zero TV series on the air. When we complete production this year, we will have produced 386 hours,” boasts Mancuso.

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Late last year, MGM secured a $1.3-billion line of revolving credit from a consortium of banks led by J.P. Morgan and Bank of America to provide production financing.

In July, MGM purchased the libraries of Orion Pictures and Goldwyn Films for $573 million.

“If you look back where we were and where we are today, it’s been a constant, gradual improvement of our position, but that doesn’t mean we don’t need to do these other things. We’re very aware of that,” Mancuso said.

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Billionaire Bond

United Artists’ 18 James Bond films, their worldwide grosses, and what that means in 1998 dollars:

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Date Actual gross, inflation Film released in millions adjusted Tomorrow Never Dies 1997 $360.0 $360* GoldenEye 1995 350 365 License to Kill 1989 157 202 The Living Daylights 1987 191 265 A View to a Kill 1985 152 223 Octopussy 1983 184 290 For Your Eyes Only 1981 195 344 Moonraker 1979 203 428 The Spy Who Loved Me 1977 186 455 The Man With the Golden Gun 1974 98 305 Live and Let Die 1973 126 421 Diamonds Are Forever 1971 116 424 On Her Majesty’s Secret Service 1969 65 263 You Only Live Twice 1967 112 491 Thunderball 1965 142 656 Goldfinger 1964 125 587 From Russia With Love 1963 79 376 Dr. No 1962 60 289

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* Industry projection based on to-grade grosses

Source: MGM

Researched by JENNIFER OLDHAM / Los Angeles Times