MGM Quietly Shopping 25 International TV Channels (Exclusive)
Metro Goldwyn Mayer has begun shopping its interests in 25 MGM-branded international TV channels after the company’s new management decided they are not part of its core business, according to sources.
MGM has not hired an investment bank to handle a sale, according to banking sources. But the company's top execs have held talks on a more informal basis with potential buyers.
One source says MGM might be moving toward a deal with AMC Networks, whose channel division is run by a former MGM executive with a mandate to build a suite of international channels -- just what MGM appears ready to shed.
The MGM channels operate in Eastern and Western Europe, South America, Asia, India, Oceana and Africa, along with a HD channel in North America. They were a priority for previous management of the storied entertainment company, but the company recently emerged from bankruptcy after former Spyglass executives Gary Barber and Roger Birnbaum took over in December 2010.
Insiders say the channels don’t fit in with the new management’s plans. “Gary and Roger do not consider them core assets,” said a former MGM executive. In fact, say several sources, the new management including Roma Khanna, the former NBC executive who became president of the MGM television group and digital in July, consider the 25 channels to be an impediment to getting full value out of the company’s huge content library, which as of the end of 2011 included 4,100 feature films and 10,500 TV episodes.
The thinking goes that, while in the past the best way to monetize the older library titles once they had been through theatrical, network, pay TV and syndication windows worldwide was to package them on branded channels, that is no longer the case. Now similar libraries are being licensed all over again to Netflix, Amazon and others for online and digital streaming delivery systems. MGM at present can’t do similar deals for most of its library because it is committed to the channels.
“They now believe that on the open market they can sell 10 percent or 20 percent of these titles and make more money than they can from putting 100 percent of them on the channels,” says another former MGM executive who declined to be named.
The channels are believed to produce about $20 million to $30 million a year in cash flow for MGM and as much as $20 million more in deferred profit. They also carry an asset value tied to the use of the famous lion logo and the commitment to draw on the library for product.
Many of the channels sell advertising as well as earning subscriber fees from the cable and satellite systems that carry them. Most also are available on demand or as pay-per-view offerings.
In its 2011 financial report, the privately held company indicated that its total revenue from the channels, most of which are joint ventures, is close to $150 million a year. That figure does not include expenses, taxes and other costs.
Selling the channels is not an easy or quick process. There are questions about whether they will remain MGM-branded and whether they will still have a license for the MGM/UA library -- and if so, for how long and at what cost.
An even bigger issue might be that a change in the brand name or ownership could trigger clauses in affiliation agreements that would require a renegotiation of the deals and could lead to a termination of affiliations. This is a concern at a time many other services and companies are launching their own branded channels around the world.
Some of the channels also are joint ventures with Liberty Media’s Liberty Global division (and its Europe-based content division Chellomedia). These could be especially difficult to unravel, say informed sources, because Liberty and its leader John Malone are not likely to want to break things up.
Among those considered potential buyers are Sony and News Corp.’s Fox International. A Fox spokesman says it is not bidding on the MGM channels.
There is another possible buyer. Several sources say MGM has a natural and motivated buyer in Bruce Tuchman, a former company executive who built many of the channels from the ground up. Tuchman since November has been president of AMC/Sundance Channel Global. His mandate is to expand that company’s global business, especially the Sundance Channel.
Tuchman declined comment, and an AMC spokesperson said the company would not comment on rumors about a possible acquisition of some or all of the MGM channels.
However, sources say Tuchman is the one person who not only knows the channels but in many cases made the deals in question. From 2001 until he left in 2010, he launched numerous channels. According to an announcement by AMC when Tuchman was hired, he increased the number of MGM channels during his tenure “five-fold.”
That means Tuchman knows the cable operators and the deals and would be well positioned to renew them or to work with operators to convert the existing channel allocation to Sundance or another channel from AMC such as IFC or WE.
The MGM HD channel, which operates in the U.S., also could be in play, either separately or as part of an overall deal.
However, sources say MGM is not expected to divest its interest in THIS TV, a 24-hour general entertainment network co-owned with Weigel Broadcasting that airs primarily on digital channels in the U.S. but also on some cable and satellite systems.
A spokesperson for MGM declined comment.