Adding to the tumult in an already turbulent film and television industry, MGM Holdings Inc. is reportedly putting itself, along with its library of 4,000 films and 17,000 TV episodes, up for sale.
The divesture attempt comes at a crossroads of optimism and uncertainty for MGM. On the one hand, the proliferation of streaming platforms has driven up values for content libraries, particularly those with valuable franchises like MGM's James Bond series. On the other hand, over the past two years, MGM has deepened its debt position and been unable to keep its revenue growth afloat during the COVID-19 pandemic.
"We expect this business disruption to have a materially negative effect on our results of operations over the near to medium term," the company said in a third-quarter report filed Nov. 13.
MGM is one of the last remaining independent studios after waves of consolidation moved through Hollywood over the past two decades, and it is hoping to collect about $5 billion for its assets, or about 3.2x its 2019 revenue. Meanwhile, the company has increased its total debt position to $2.41 billion, as of Sept. 30. The company's privately traded shares have dropped to about $80 from about $120 in 2018, according to The Wall Street Journal, which first reported on the proposed sale.
MGM has seen a slow but steady increase in revenue over the past five years, from $1.18 billion in 2016 to $1.54 billion in 2019. However, that growth could curtail in the pandemic year 2020. As of the third quarter, MGM had collected $1.06 billion in total revenue. It would need to add about 30% more revenue in the final quarter of the year to match its 2019 top line, a difficult proposition given widespread theater closures, production delays and suspended film releases.
Already the company has twice moved the release date of its next James Bond sequel "No Time to Die," the 25th film in the franchise. Originally slated for March 2020, MGM now expects to debut the film in April 2021. The prior James Bond title, "Spectre," was the second-highest grossing film in the franchise, collecting $864.8 million in global receipts, which MGM shared with its distribution partner Sony Corp., its exhibition partners and other interests.
Meanwhile, the company has increased its debt faster than its revenue. It carried $2.41 billion in total debt at the end of the third quarter, up from 2016 year-end debt of $200.0 million. Its 2017 acquisition of premium pay TV network and streaming platform EPIX (US) contributed to a spike in debt during that year.
Its debt-to-EBITDA ratio looks improved as of the September 2020 quarter, down from a high point of 14.0x at the end of 2019. But the trailing 12-month figure of 11.4x includes strong EBITDA in the 2019 fourth quarter, and its 2020 fourth-quarter performance will likely not match the prior-year period. The fourth-quarter 2019 EBITDA came to $65.1 million. The second and third quarters of 2020, both impacted by the pandemic, saw EBITDA under $28 million each.
Content investments have also driven a large part of MGM's debt growth, particularly in television. Between 2017 and 2019, the company increased the number of shows it delivered from 21 to 41, or 496 episodes to 792 episodes, according to its third-quarter filing. That included acquisitions of Evolution Film & Tape Inc., which carried the rights to The Real Housewives franchise; and Big Fish Entertainment LLC, which included the rights to the "Live P.D." series. However, in an appropriate 2020 twist, "Live P.D." was cancelled in June following protests over police brutality related to the death of George Floyd in Minnesota.
The studio also carries rights to hit TV series like "Vikings," "The Handmaid's Tale," "The Voice" and "Shark Tank." While it is has been able to capitalize on these series better than its theatrical film content during the pandemic, it has still only been fractionally successful in doing so.
"We began 2020 in an excellent position to achieve another year of growth in television content deliveries. However, television content deliveries for 2020 will be negatively impacted by production and delivery delays stemming from the COVID-19 pandemic and the global measures to prevent its spread," the studio said in its third-quarter release.
Total television content licensing revenue dropped precipitously to $58.8 million in the third quarter from $144.8 million a year prior. Meanwhile, theatrical film revenue cratered to $738,000 from $2.5 million in the prior-year quarter.
Despite the setbacks, MGM executives said on an earnings call that they expect 2021 to be the studio's biggest year yet for new content, according to the Journal, partly due to delayed releases of films like "No Time to Die" and the release of TV content that was forced to halt production.
