[Mb-hair] The MGM story takes another turn Economist

[Michael Butler]

The MGM story takes another turn

Sep 14th 2004 
>From The Economist Global Agenda


A consortium led by Sony has agreed to buy Metro-Goldwyn-Mayer, Hollywood¹s
last remaining independent movie studio of any size. What does this say
about where the industry is headed?




METRO-GOLDWYN-MAYER (MGM) has made a fortune several times over for Kirk
Kerkorian, its octagenarian owner, who has bought and sold it three times
over the past three decades‹but this time the Hollywood studio is likely to
stay put. A consortium led by Sony, a Japanese consumer-electronics giant,
agreed on Monday September 13th to buy it for close to $5 billion in debt
and equity. Sony, which owns a big Hollywood studio of its own (see chart),
had just previously done a deal with Comcast, America¹s biggest cable
telephone and television provider, to sell its old movies through Comcast¹s
network. That tie-up encouraged Sony to raise its offer for MGM and snatch
it from under the nose of Time Warner.

MGM has Hollywood¹s biggest movie library, with some 8,000 titles, though
Sony intends to close the company¹s ongoing studio operations, with the
exception of the James Bond and Pink Panther franchises. The new, combined
group will own half of the colour movies ever made.

Sony, which is struggling with low margins in its core consumer-electronics
division, is also trying to amass content that it hopes will drive sales of
its electronic goods. Sony Music recently merged with Bertelsmann Music
Group, another big record label. It hopes this enlarged catalogue of songs
will help it sell music to buyers of its new, portable digital music player,
which rivals Apple¹s hugely successful iPod.

Comcast is fresh from a defeat in its audacious bid to acquire Disney (and
its Buena Vista studio) earlier this year. In addition to its distribution
deal with Sony, it is also understood to have an option to acquire 20% of
MGM for $300m. Both agreements underline the belief that drove the Disney
bid: that owning content is essential to Comcast¹s target of reaching 40m
customers by 2006. Indeed, Comcast¹s involvement is symptomatic of a broader
trend in America¹s media business: consolidation between those who make
music, movies and television programmes, and those who distribute them,
whether via broadcast networks or, increasingly, via cable, satellite and
the internet.

These new channels of distribution are changing the way movie studios make
their money. In the early days of cinema, studios made almost all of their
money from box-office takings. Then the advent of television gave them
earnings from selling old movies, especially family classics like ³Gone With
The Wind², to broadcasting networks. The video recorder brought two new
streams of income: from renting and selling video cassettes. And the
industry got a big lift from the invention of the DVD.

New digital technology brings new opportunities as well as the threat of
online piracy. Five studios already offer customers a chance to download
movies directly through a service called Movielink. However, few customers
have the technology to make this anything other than a clunky and
time-consuming exercise.

Movies have also become the latest weapon in the battle between cable
companies and fixed-line phone companies. The cable companies¹ superior
technology allows them to offer interactive content and video-on-demand as
well as a regular phone service and high-speed internet access. Comcast
already offers more than 1,300 hours of progammes free, on demand. The Sony
deal will bring hundreds more movies every month. Fixed-line phone companies
are trying to emulate this sort of deal. SBC Communications, a regional
phone company, and EchoStar Communications, a satellite television company,
have agreed to develop a set-top box that would allow users to play movies
virtually on demand.

While the vision of a world in which every movie ever made is available at
the press of a button is an enticing one for consumers, some worry that it
spells disaster for independent movie studios. Ironically, Ted Turner, who
founded CNN, a cable news network, and avidly pushed consolidation of the
film and TV industries, is now one of the loudest protesters. In particular,
he has bemoaned the recent loosening of America¹s so-called ³fin-syn² rules,
which had been put in place to limit the power of a handful of companies (at
the time, broadcast networks) to control America¹s media.




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