MGM Suffers Third-Quarter Operating Loss But Bond, 'Hobbit' Raise Hopes

James Fisher/Warner Bros. Entertainment

UPDATED: The studio, which had a $23.4 million net profit for the third quarter, says it expects to see big results from "Skyfall" and "The Hobbit" in its balance sheets from the fourth quarter and early next year.

Metro Goldwyn Mayer’s operating income in the third quarter of 2012 fell to a loss of $4.3 million from $32.8 million in the comparable period a year earlier, but CEO Gary Barber could not have been more upbeat during a conference call with investors in the privately held company on Thursday.

Overall, MGM recorded a net profit in the third quarter of $23.4 million compared to $15.2 million in the comparable period last year. The difference was in part because of the sale of its satellite TV channels.

Citing the worldwide mega-success of the new James Bond movie Skyfall and the buzz building around the upcoming release of the first of three Hobbit movies in December, Barber predicted a significant increase in revenue and profits ahead for the fourth quarter of this year and the first quarter of 2013.

Barber said that they expect Skyfall to gross more than $800 million worldwide, and that in its first three weeks in release it has already grossed more than the total take of the two previous Bond movies, Quantum of Solace and Casino Royale.

He cited records it has set, including becoming the second biggest release in the history of the United Kingdom. He said the film has already grossed more than $550 million worldwide, including more than $100 million in the U.S., and has yet to open in many key territories around the world such as Japan and China.

Skyfall will be the biggest Bond of all time,” said Barber, adding that they expect the next Bond to hit screens in 2014 or 2015, depending on how long it takes to prepare and produce.

The results for the past quarter and the first nine months of 2012 were negatively impacted, said Barber, by MGM’s contribution to the marketing and distribution cost of the movies. He said going forward those costs will recede, and the new content will produce a strong flow of revenue from theaters and beyond.

MGM said that The Hobbit: An Unexpected Journey was financed by Warner Bros., and that MGM will have to repay its share of that cost out of the upcoming proceeds. After that, Warners (and its New Line unit) will split proceeds with MGM.

Barber noted the release of The Hobbit comes just shy of two years after MGM went through a bankruptcy and brought in Barber and Roger Birnbaum as the new leadership.

Barber noted that Birnbaum has resigned his executive post but remains at MGM with an exclusive producing deal.

Barber said he has signed a new contract that will keep him at MGM at least through the end of 2017.

For the past nine months, MGM’s theatrical marketing and distribution costs were $94 million compared to $63.3 million in the comparable period last year.

During the third quarter of 2012, MGM had total revenue of $169 million, which was about the same as the prior year. The revenue for the nine months was $427 million, down a bit from the $460 million in the comparable period in 2011.

Part of that can be attributed to $48 million from the sale of the MGM TV channels around the world. CFO Dene Stratton said that while they sold the channels, they still have long-term licensing agreements that ensure a continuing stream of revenue.

MGM did not record any revenue from the release of 21 Jump Street, Hope Springs or The Girl With The Dragon Tattoo under accounting rules. That means none of them made back their investment.

However, MGM did tout the cash flow from the home video re-release of the James Bond movies on Blu-ray and over special TV channels leading up to the release of Skyfall. Barber said that they had pulled back distribution of Bond movies at the beginning of 2012, which took low-cost product out of the market and set the stage for the re-release, and also served to help promote the release of the new movie.

That was despite a decline in overall home video revenues, in line with the declining market for DVD releases. Home entertainment revenue for the third quarter was $34.2 million, down from $41 million in the comparable period last year.

Overall TV revenue was also down for the quarter. MGM recorded revenue of $90.2 million from TV, down from $95 million in the comparable period a year ago.

MGM currently is in production on only one TV series, Teen Wolf for MTV. Barber said, however, they are just completing production on The Vikings, a nine-part series which will air on the History Channel in the U.S., and MGM expects it to be strong in foreign markets. Barber said sales of The Vikings were robust at MIPCOM.

MGM sold $50 million in new shares at a price of $33.50 each, with the proceeds used to buy out investor Carl Icahn at a cost of $590 million for his 24 percent interest in the company.

The rest of the payment to Icahn came from cash on hand and an increase in the amount borrowed under a revolving loan. There is $320 million in credit available under the loan.

However, MGM’s cash on hand dropped to $101 million at the end of the third quarter from $508 million on Dec. 31, 2011.

In response to a question from an investor on a conference call after the earnings were released to shareholders, MGM said it currently has $100 million cash on hand, and that it has $249 million still available under its revolving loan arrangement.

MGM said its total debt at the end of the quarter was $290 million compared to $308 million on Dec. 31, 2011.

MGM has three movies planned for release in the first half of 2013. They are Hansel and Gretel Witch Hunters, a remake of Carrie and G.I. Joe: Retaliation.

MGM no longer distributes movies itself. That is why Sony handled Skyfall and Warner Bros. is releasing The Hobbit. G.I. Joe will be distributed domestically by Paramount Pictures.

Barber said they expect to have a new RoboCop movie for release in the first quarter of 2014.

When asked about plans for an IPO -- a public stock offering -- Barber said that under SEC rules he could not discuss their plans. MGM is expected to do an IPO in the first quarter of 2013 when it expects to have significant income to show from Skyfall and The Hobbit.