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Economic Conditions Taking Their Toll On The Movie Industry

Published 08/26/08 Alexia Cameron - Print Article
E-mail - editor@economyincisis.org

The current economic conditions have infiltrated the movie industry. Producer Paula Wagner’s departure from Metro-Goldwyn-Mayer’s United Artists earlier this month initiated Wall Street buzz regarding MGM’s possible sale, according to BusinessWeek. Despite an Aug. 25 press release stating the epic studio is not on the market, other factors indicate we may soon be witnessing the sale of a movie-manufacturing behemoth.

MGM said Monday it is currently just exploring “enhancements” to its long-term capital structure that could include stock offerings or debt refinancing.

United Artists secured $500 million in financing through Merrill Lynch to fund 15 to 18 movies in the next five years. However, Merrill Lynch is reportedly examining its current contract in the hopes of revising its deal on more favorable terms in the wake of Wagner’s departure.

MGM attests that its existing financing arrangements are sufficient enough to meet its needs, but MGM is currently $3.7 billion in debt from its 2004 acquisition by a consortium headed by Sony (SNE). Sony, as part of the Blu-Ray disk association, purchased MGM in order to win its fight to set the format for the next generation of digital disks, according to the New York Times. American owned company TPG capital (formerly Texas Pacific Group) also holds stake in the consortium.

The film business relies on producing commercial hits. With the tightening of the current credit crunch, big budget investors are losing interest in financing. After carefully assessing their risks, MGM is opting not to invest the billions into Hollywood productions it has in the past.

According to BusinessWeek, MGM has three choices; look for more investors to share the load with its bevy of current investor’s, sell shares to the public or restructure the current debt. Restructuring is estimated to cost the company $300 million annually in interest payments. As for public offerings, this seems completely out of the question for a money-losing company.

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