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A Multiplatform Approach to Creating Franchises

Mar 24, 2003  •  Post A Comment

Agent Cody Banks, starring Malcolm in the Middle’s Frankie Muniz as a teenage CIA agent, opened recently as the nation’s second-most-popular movie with a surprisingly strong $14 million first weekend, but Chris McGurk is already thinking about it as a television series. After a few sequels, of course.
Mr. McGurk, vice chairman of Metro Goldwyn Mayer, wants to maximize the value in each distribution window before moving on to the next. That means theaters, home video, video games, sequels, live theater, publishing and licensing as well as the TV series spinoff, usually in association with a network partner who foots most of the costs in return for the content.
That’s the game plan at MGM these days: use its intellectual property and other people’s money to build corporate assets. MGM still does movies and TV shows that stand on their own, but the primary plan hinges on a series of modestly budgeted, highly marketable movies that will feed multiple media platforms. This synergistic system provides the focus for the kinds of movies and TV shows the studio produces.
Put simply, the strategy is to create franchises at as reasonable a price as possible, starting from movies, TV shows or properties from Hollywood’s biggest film library. One of the big successes so far using this strategy is Legally Blonde, starring Reese Witherspoon as a ditsy law student and then lawyer. It is about to spawn a major sequel called Red, White and Blonde, due for a very wide release in July. Once that has played out, even as the video is hitting stores and the pay TV window is opening, MGM and ABC will rev up the TV spinoff, which could well be a midseason replacement.
Then there is Barbershop, about an African American barber shop owner, played by Ice Cube (who is also one of the producers), and his eclectic customers. There is also a Barbershop sequel in the works, and it has just been put into development as a TV series at NBC.
MGM and General Electric’s NBC have developed a very close working relationship in the past few years that benefits both. MGM needs a network and NBC is the only big network not attached to a studio. It works at many levels. MGM now distributes all NBC prime-time entertainment shows around the world, including Will & Grace and Boomtown. The international distribution agreement was recently extended with NBC for four additional years through the 2007-2008 season.
“It would be difficult to find a partner as compatible as NBC or as productive in terms of giving us quality shows to distribute, and as good a partner in production,” Mr. McGurk said. “We really do think the same way.”
They are also partners on the sexy action hour She Spies, which started on the NBC Network, then launched in syndication on the NBC station group. It was just renewed for a second season. And NBC is developing Fame as a reality TV series, as first reported by TelevisionWeek.
Now the two companies are partnering to develop a TV version of The Thomas Crown Affair.
“I think we are having a very good run [in television] at this point,” Mr. McGurk said. “We’ve had our ups and downs, but right now our strategies are coming together and we are about to enter a very good period.”
Sometimes it works the other way. MGM is considering a theatrical feature with the cast of Stargate, hoping to grow the franchise to Star Trek proportions.
MGM takes a very disciplined approach to TV production, as it does with its program of mid-budget, high-concept movies. Mr. McGurk said the company will not greenlight a project unless it sees its costs covered almost immediately, and multiple places to sell it over the years.
Last year MGM’s cable networks were available in 25 countries. Next month, when the new MGM channel launches in Germany, the company’s exclusive branded product will be in front of viewers in 97 countries.
It is still stymied in the United States, where MGM is a minority owner in what is left of Rainbow, including the AMC cable channel.
However, MGM is always looking for the right opportunity to leverage the value of its library, even if it can live without it for now. “Our objective, No. 1,” said Mr. McGurk, “is to get our brand name on top of a general entertainment channel or movie channel in as many countries and in front of as many eyeballs as possible worldwide.”
Since a new management team led by Chairman Alex Yemenidjian and Mr. McGurk was installed by majority owner Kirk Kerkorian in mid-1999, the TV operations have been reinvented and have become a role model for many in the industry. MGM was one of the first large companies to refuse to deficit finance network shows, even if it meant walking away from an on-air commitment. “We saw a business with a high risk ratio and payback too far down the road,” said Mr. McGurk. “The economics of that game were very problematic. Fundamentally, we made the choice to do things differently.”
The company got out of the network business and concentrated on areas where there was a quicker return. “The interesting approach that MGM’s taken in television,” said analyst and consultant Dave Davis, senior VP of Houlihan, Lokey, Howard & Zukin in Los Angeles, which has been retained by MGM in the past, “is one which made them forerunners in the no-deficit model, or the repurposing model, by airing the same shows on Showtime and in syndication.”
MGM paid a price for that in revenue, but stopped the red ink. Market analyst Jeffrey Logsdon of Gerard, Klauer, Mattison & Co. of Boston said that in 1999, the year of the management change, all MGM TV operations produced revenues of $205.7 million, and a profit (earnings before interest, taxes, depreciation and amortization) of $27.5 million. In 2000, the revenues dropped sharply to $139.2 million, with a loss of $2.6 million. Things began to rebound in 2001 with revenues of $138 million but a profit of $12.7 million. Last year, said Mr. Logsdon, MGM’s revenues rose to $171.2 million, with an EBITDA of $4.9 million. That is consistently about 10 percent of MGM’s overall business, adds Mr. Logsdon.
After three years focused on getting the right mix of shows, higher quality programming and operating with a smarter economic model, Mr. McGurk said “MGM TV will see the benefits in 2003 where we anticipate earnings will increase substantially.”
Beyond costly network commitments, the new management’s legacy from the Frank Mancuso era was a handful of successful shows on pay TV and cable, including Stargate, based on a movie, which aired on Showtime under a deal that covered most costs and allowed MGM to syndicate the shows after only one or two seasons. MGM combined these with first-run syndicated offerings, including a few misses like the National Enquirer show.
Since then MGM has continued to add shows that are unlikely to win any Emmys, but come with a built-in appeal for young males and work better than most product in international markets. They are what James Griffiths, president, worldwide television distribution, calls “very commercial niche programming.” The current list includes Stargate SG-1, The Outer Limits and Jeremiah, also recently renewed for a second season.
The executives at MGM talk about shareholder value, which must be music to Mr. Kerkorian’s ears. “We’re not going to do a deal just to do a deal,” said Mr. McGurk. “We have to be able to see the value creation opportunity.”
Mr. McGurk said MGM executives don’t look at any one part of the company by itself, but rather at how all the pieces can work together to get the most out of each property. They are working on movies with marketable concepts, such as Foxy Brown and Walking Tall, about a heroic country sheriff, which Mr. McGurk believes can also be successful TV properties if the franchise is successful.
MGM is satisfied to grow its TV business slowly while looking for the next breakout hit. It doesn’t do expensive writer deals, but instead works with established producers and deep-pocket partners. “We’re not going to do a deal just to do a deal,” said Mr. McGurk. “We have to be able to see the value creation
opportunity.”