MGM Buys Its Way Out of Pact for $225 Million

Hollywood studio Metro-Goldwyn-Mayer Inc. said Monday that it will pay Warner Bros. more than $225 million to end an onerous video-distribution pact that has scared off suitors and kept MGM from joining in productions with other major studios.

The deal gives MGM control of its post-1986 video library but comes at a high price. MGM said it will take a $225-million pretax charge in its first quarter to cover the costs. Warner Bros., a division of Time Warner Inc., will continue to distribute MGM videos until Jan. 31, when the pact winds down.

For MGM, the new agreement is an expensive means of freeing itself from what is widely regarded as a horrendous deal made by a former owner, Italian financier Giancarlo Parretti, in 1990 when the studio was desperate for cash.

The video arrangement was especially problematic because it had scared off potential MGM suitors. Any buyer who acquired MGM not only would have had to keep distributing videos through Warner Bros., but also would have been required to distribute all of its own movies through Warner.

MGM will regain video rights to such post-1986 films as “Thelma & Louise” and “Rain Man.”

But classic MGM films such as “Gone With the Wind,” “2001: A Space Odyssey,” “The Wizard of Oz,” “Singin’ in the Rain,” “Ben-Hur” and “Doctor Zhivago” are not included because Ted Turner, whose company was acquired by Time Warner, bought the then-existing MGM library in 1986.

MGM’s financial interest in and marketing control of the home video rights of the titles that Turner bought will stop retroactively to the first of this year, 18 months earlier than called for in the original agreement.

In an an interview, Warner Bros.’ co-Chief Executive Robert A. Daly said the two sides had held talks for about nine months and that Kerkorian first approached Warner, asking if there were a way MGM could settle the arrangement.

“This is a very important strategic step for MGM, since we are now closer than ever to total control of this enormous collection of film assets,” Chief Executive Frank Mancuso said.

“Our desire to extricate MGM from this arrangement, originally executed by previous management in 1990, has been no secret,” he said.