MGM's dollar days
'Barbershop,' TV pump profit
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Lion lathered up $11.7 million in quarterly net income.
Revenue was down 3% to $381.2 million due to difficult comparisons in theatrical film and home entertainment operations. But operating cash flow rose more than threefold to $28.7 million in the latest quarter vs. $9.2 million a year earlier.
Execs said cash flow growth reps reason for optimism at the Santa Monica-based studio.
"These improved fundamentals, combined with the strongest balance sheet that MGM has ever had, allow us to look to the balance of this year and to 2003 with great confidence," chairman-CEO Alex Yemenidjian said.
MGM previously had said it didn't expect a return to profitability until the fourth quarter.
Film revenue was down 13% in the latest quarter, at $305.7 million.
Theatrical releases in the latest quarter compared with a year-ago period that included the runaway success of "Legally Blonde" and significant income from "Jeepers Creepers." And home entertainment ops -- while, like theatrical film, performing solidly in the latest quarter -- compared with a year-ago period featuring unusually robust income from the homevid release of "Hannibal" and "The Silence of the Lambs" re-release.
TV nearly doubles
Television revs nearly doubled in the latest quarter, to $67.3 million vs. $35 million.
"She Spies," a syndicated co-production with NBC, preemed in September, and Lion debuted two new channels in Africa during the quarter. Studio plans to launch an MGM-branded channel in Germany and Austria in the second quarter of next year in a joint venture with Euro feevee operator Premiere.
The theatrical success of "Barbershop" has already prompted discussions with multiple networks about a possible TV spinoff, execs said.
"We've been trying very hard to develop the TV business in a smart way," MGM vice chairman-chief operating officer Chris McGurk said. "We haven't really gone after the network business whole hog."
That's kept overhead reasonably low while international expansion and other endeavors have allowed for increment division growth.
Lion hopes to get a TV spinoff of "Barbershop" placed with a web by fall or midseason 2004, after the theatrical run for a pic sequel, McGurk said. Studio also hopes to adapt "Legally Blonde" for the small screen sometime after a "Blonde" sequel bows next July.
"Barbershop" has grossed $69 million domestically to date. But like "Crocodile Hunter: Collision" -- MGM's other third-quarter movie release -- pic cost less than $15 million to produce, McGurk said.
So "Barbershop" is expected to rep one of the studio's best return on investment ever from a movie, and even more modestly performing "Croc" will also turn a profit, he said.
Low-cost hoopla
Execs emphasized MGM's continued commitment to lower-cost filmmaking, with the production budget for 2003 pegged at $250 million -- the same level as in 2002, minus costs on a tentpole James Bond pic, "Die Another Day." Production costs will continue to average just $20 million on all releases other than sequels, they said.
That would exclude "Die Another Day," for which execs declined to disclose production or marketing costs other than to say pic cost more than $100 million to make.
Execs also wouldn't specify their profit participation on Universal's latest Hannibal Lecter pic "Red Dragon," but a U source indicated Lion's split of gross receipts is "minimal." Studios had shared equally in profits for the franchise's previous installment, "Hannibal."
Home is hoppin'
Meanwhile, there's nothing modest about MGM's home entertainment ops these days, with studio seeing an 18% surge in U.S. shipments of DVDs in the quarter and a 20% rise worldwide. Lion is especially well positioned to exploit the recent boom in the new home entertainment format while continuing to enjoy robust biz with VHS ops, thanks to its enviable 4,100-title movie library.
"We don't see any slowdown at all when it comes to the homevideo department in general and DVD sales in particular," Yemenidjian said. "There's no reason for that growth to stop in the near future, from what we can see."
Execs also took obvious pride in efforts to shape up MGM's balance sheet.
Chief financial officer-senior exec veep Dan Taylor said debt will total a manageable $900 million by year's end, and so far nothing's been drawn from studio's $600 million revolving credit facility.
Rainbow's pot of gold
The studio will head into next year with at least $300 million in the bank and perhaps $250 million more if Rainbow sells its Bravo channel to NBC at the price that's been speculated, execs said. MGM has a 20% stake in Bravo and three other Rainbow cable channels.
Additional asset acquisitions remain possible, but only if the price is right, Yemenidjian said. It's also possible MGM could sell its Rainbow holdings at some point, despite a continuing interest in sizing up, he said.
"I think we've all seen way too many transactions in our industry that were driven by ambition (and) not by reason," Yemenidjian observed. "Size for the sake of size is a fool's game."
Street happy
Yemenidjian said MGM may continue to buy back its stock occasionally if the share price remains at recent low levels. So far, studio has purchased more than 2.5 million MGM shares at an average $11.19 per share.
Wall Street reacted warmly to the upbeat MGM earnings. Lion's shares rose 35¢, or almost 3%, to $12.75 on Tuesday.
"I thought MGM was awfully strong across all of their platforms," UBS Warburg analyst Christopher Dixon said. "All in all, the company is hitting on all cylinders."
