In a move insiders value at between $ 750 million and $ 1 billion, MGM/UA Monday announced the renewal of an exclusive theatrical output deal with Showtime Networks Inc., in which the cabler retains TV rights for as many as 150 of the studio’s pix over the next seven years.
In addition, MGM/UA and the Viacom-owned cabler will co-finance an unspecified number of exclusive original paycable pix made for Showtime Networks. Showtime began producing these successful sexy actioners about three years ago at roughly $ 4 million per title.
Sources said MGM will take over the aftermarket rollout of these pix, which would fill studio pipelines for worldwide TV distribution and homevid. Showtime will then share in MGM’s revenues from these ancillary markets.
But toppers from both camps were quick to deny that cable cash might eventually co-finance part of the new studio slate itself.
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“MGM hasn’t asked us to,” said Winston H. Cox, chairman/CEO of Showtime. “My impression is that (the studio) is getting its balance sheet in order and that it has access to several hundred million dollars” for future films. Though MGM/UA chairman/CEO Frank Mancuso said there were “other things under consideration,” he also denied that scenario.
“This is a very important element in our overall rebuilding of the studio, since we now have the output deal to cover all the movies we intend to make,” Mancuso said. “This is a creative partnership as well as a distribution partnership.”
Facing aggressive bidding from the John Malone-controlled pay web Encore, insiders said Showtime has been under increasing pressure to secure product, and was almost forced to renew the MGM/UA deal.
Two months ago, Encore agreed to plunk down $ 1 billion for a 10-year pay-TV window, beginning in 1997, to be filled by as many as 360 theatricals from Disney shops Touchstone, Hollywood Pictures and Miramax. “We paid a lot more (for the MGM/UA deal) than we wanted to because of the scorched-earth acquisition policy of Encore,” Cox said.
Until now, Touchstone and Hollywood have served as the bellwether supplier of big-screen product to Showtime since the companies signed an exclusive seven-year deal in 1989. Encore also outbid Showtime in May for a five-year exclusive deal for all of Universal’s theatrical releases.
Adding to the onslaught, both Carolco and New Line have decided in the last two months not to renew their contracts with Showtime in favor of new output deals with Encore.
This is not surprising, sources said, since John Malone has recently agreed to pump $ 1 billion into Carolco’s coffers. Malone also owns 22.3% of Turner, which will soon take over New Line.
Sources said that ownership will likely cost Showtime any future output deals with Castle Rock, also being taken over by Turner.
Other than MGM/UA, the only sure source of future product for Showtime is its five-year exclusive pact with TriStar Pictures for 75 titles through 1998. Sources expect that cold reality to put added pressure on Showtime parent Viacom to complete its merger with Paramount, which presently has an output contract with HBO.
Overall, financial pundits reacted favorably to the Showtime/MGM deal.
An industry analyst remarked that MGM is building equity in the slowly ascending studio while spreading the production risk: “This (Showtime) deal gives MGM a way to build the value of its library and of the company. With everyone hunting down libraries these days, the value of MGM is suddenly pretty high again.”
Prudential Securities managing director Michael Burns felt MGM/UA is faster and leaner than other, lumbering giants slouching toward synergy: “MGM is not a studio stuck in the headlights like a frightened deer,” Burns said. “With a streamlined management, Mancuso is taking the PT boat approach where others are trying with an aircraft carrier.”
With the ink barely dry on the recently signed Polygram/MGM/UA output deal (Daily Variety, Nov. 1.), sources added that the Showtime/MGM pact is the second time in a month that the new Frank Mancuso-led studio management has created a platform of partners for upcoming MGM/UA product.