MGM moves distribution to Fox

UPDATE: Bond, Pink Panther movies will stay at Sony

By Paul Sweeting and Susanne Ault -- Video Business, 5/31/2006

MAY 31 | Metro-Goldwyn-Mayer is moving its domestic home video distribution business from Sony Pictures to 20th Century Fox, the company announced Tuesday.

The move adds a bizarre, late twist to the long saga involving the sale of the fabled MGM studio.

Last year, Sony led a group of investors in bidding $5 billion for MGM, beating out rival suitor Time Warner. Sony ended up owning 20% of MGM as a result of the deal, along with a distribution deal for its 4,000-title library.

At the time, the deal was seen as a coup for Sony and the Sony-backed Blu-ray Disc format, which is in a battle for next-generation DVD supremacy with Toshiba’s HD DVD format.

Although Fox also is a Blu-ray supporter, the shift will cost Sony control over the timing and pricing of MGM catalog releases.

In explaining the move, sources said MGM—which for years excelled at marketing its catalog, with few new releases—has become impressed with Fox’s distribution capabilities, including its command of Star Wars.

Additionally, MGM is angling to re-brand itself as an independent studio, unique from its Sony investors. In March, MGM began revitalizing its domestic theatrical distribution division with several new hires.

“Fox has spent millions of dollars developing its third-party distribution system,” said a source at MGM. “And there will be a team dedicated to handling MGM product.  In the past, Sony had to bundle their [product] with MGM’s. I think that we needed that individual attention. And Sony realizes that Fox is in a better position to handle it.”

To shepherd the MGM titles, Fox is creating a separate unit, likely hiring dozens of staffers for full-service sales, marketing and distribution activities. It’s unclear whether certain Sony employees will shift to roles at Fox.

For years, Fox has overseen DVD distribution for Lucasfilm content, which includes the entire Star Wars catalog. Also, Fox handles more limited physical distribution services for Lionsgate Home Entertainment and Anchor Bay Home Entertainment.

With distribution of the MGM library, Fox gains significant DVD market share. Fox will collectively hold distribution rights to approximately 8,000 film titles and stands to capture about 17% of U.S. consumer spending on home entertainment.

“The truth is that Fox has excelled at creating events out of films and catalog collections,” said a source familiar to the deal. “Who wouldn’t be impressed with all that?”

Sources estimate that Sony will lose about $30 million in annual distribution fees with MGM jumping ship.

“But that’s small in terms of making MGM overall successful,” the MGM source added. All the owners “are looking to raise the valuation of the company by the billions. This was a business decision to grow MGM.”

Sony officials declined comment on the deal’s impact.

MGM called the move part of its “reinvigoration” including the formation of its New Media division. The studio also is reestablishing its TV distribution in-house.

The Fox deal also continues the studios’ international theatrical distribution relationship.

MGM said the changes will not affect Sony’s distribution of the latest movie in the James Bond franchise, Casino Royale, which bows in theaters in November.

The studios will co-produce and co-distribute future Bond movies as well as Pink Panther titles. And Sony and MGM are co-financing with Revolution Studios a new Rocky film, Rocky Balboa, which will be released by MGM on Dec. 22.

"MGM’s motion picture distribution business is growing rapidly as we will release some 80 new feature films in North America over the next four years,” MGM chairman and CEO Harry Sloan said in a statement. “We are now ready to turn our attention to our TV and home entertainment distribution businesses. In so doing, we have identified another important opportunity to build out our business by returning our worldwide TV sales operations in-house and by consolidating our home entertainment releases with a single distributor.”