MGM Continues to Struggle to Reinvent Itself

Metro-Goldwyn-Mayer seems doomed to be in perpetual flux.

Every time Kirk Kerkorian changes top management at the company he has owned three times, it’s with the fantasy that the ever-struggling operation will somehow regain the status and luster it once enjoyed as one of Hollywood’s premier movie studios.

Having been bought, sold, reconfigured and restarted so many times through so many decades--by Kerkorian and other investors--MGM has long suffered from a lack of continuity and consistency of ownership, management, strategy and output.

With such instability, it’s no wonder that the studio is unable to regain any real parity with the other Hollywood majors, let alone live up to its illustrious past.

There’s nothing more terrifying to top writers, directors and stars than to commit to projects at a studio where ownership or management could change at any moment.

Consequently, talent and literary agents have long been reluctant to send their biggest clients to MGM.

“The concept of stability and continuity would be helpful, since you’re always wondering when the next shoe is going to drop,” said Jim Wiatt, co-chairman of International Creative Management, one of Hollywood’s most powerful talent agencies.

Last week, the rug again was yanked out from under MGM--albeit deservedly so, given its poor financial state--when Kerkorian evicted six-year chairman and industry veteran Frank Mancuso and replaced him with his top hotel and casino lieutenant.

MGM hasn’t turned an annual profit since 1988 and is forever looking to raise more cash. Last week, the company posted first-quarter results showing substantial write-offs from such recent box-office duds as “The Mod Squad,” “The Rage: Carrie II” and “At First Sight.” (MGM shares gained 6 cents to close at $15.25 on the New York Stock Exchange on Monday. They have tumbled from a 52-week high of $27.)

It doesn’t inspire confidence among creative types that Alex Yemenidjian, who most recently was president of the MGM Grand in Las Vegas, is a Hollywood outsider with no practical industry experience.

The 43-year-old is considered a smart business executive but is an odd counterpart to Hollywood’s other movie chairmen: Sony’s John Calley; Paramount’s Sherry Lansing; Disney’s Joe Roth; 20th Century Fox’s Bill Mechanic; Warner Bros.’ Bob Daly and Terry Semel; and Universal’s Ron Meyer.

Each of them has decades of experience working inside Hollywood and has a frame of reference when it comes to tackling trends, talent relationships and the tricky politics inherent in managing an entertainment company.

Yemenidjian has spent the last 10 years at Kerkorian’s closely held Tracinda Corp.--which owns 90% of MGM--focused on building its hotel and gaming businesses.

Yemenidjian, who is said to be smarting from recent negative coverage of MGM, was unavailable for comment.

It helps that he will have an experienced movie executive working for him in Chris McGurk, who Wednesday signed on as vice chairman to operate the studio. Many industry insiders were surprised that McGurk would abandon a top job as president of Universal Pictures and join MGM.

But Universal has its own problems, and McGurk said he views the new gig as an opportunity to run the creative divisions of a studio for the first time (with movies and television reporting to him), as well as a chance for a big payday if and when MGM’s stock improves.

McGurk is considered a smart hire. He is a savvy executive, with an entrepreneurial bent, who has engineered some interesting financing deals and acquisitions while at Universal.

“I do think that McGurk is a top-flight manager who understands the business,” said ICM’s Wiatt, who is not alone in suggesting that MGM might be much better off if it drastically reduced overhead and made just a handful of films.

McGurk and Yemenidjian are saying they want MGM to release about 12 films a year, some of which will be co-financed with other studios. McGurk is a big proponent of joint ventures and as part of his early release from his Universal contract, MGM has agreed to put $100 million toward co-productions with that studio.

The new management team is also involved in negotiations with various strategic partners, including an international video distribution deal with 20th Century Fox and efforts to generate more cash from MGM’s valuable 5,000-title movie library.

But even as MGM’s new managers wax on about plans to reshape and reinvigorate operations, and Kerkorian has agreed to invest an added $500 million for new production through an upcoming stock offering, the company is in the news as perhaps on the brink of merging with a content-hungry company like Cablevision.

Such speculation makes it much tougher for Yemenidjian and McGurk to persuade Wall Street and Hollywood that Kerkorian isn’t looking to position MGM for an eventual sale.

MGM announced that Yemenidjian’s appointment last week is “part of an aggressive long-term growth strategy” to leverage its library and expand movie and TV production, but studio rivals and Wall Street sources say they find it difficult to believe that Kerkorian really thinks long term when it comes to MGM.

He first bought MGM in 1969, added United Artists in 1981 and sold the combined company to Ted Turner in 1986. Months later Turner realized he couldn’t afford the deal and sold most of the assets, including the valuable MGM logo and the UA library, back to Kerkorian.

In 1990, Kerkorian sold MGM/UA for $1.3 billion to Italian financier Giancarlo Parretti, who had a lengthy criminal record and would in short order default on loans, forcing French bank Credit Lyonnais to seize the studio in 1992.

Under the bank’s ownership in the early ‘90s, MGM again found itself in a transitional phase.

The studio was to be reborn by the management team of Mancuso, John Calley and Mike Marcus--all placed there courtesy of Hollywood uber-agent Mike Ovitz, who was being paid a hefty monthly consulting fee by the bank to help get the hit-starved studio back on track.

But the new team had only a limited amount of time to turn things around before the studio would have to be sold by Credit Lyonnais to comply with banking laws. And Hollywood knew it.

New management found itself without decent script submissions. Fortunately, the resourceful Calley decided to reinvigorate UA’s valuable James Bond franchise and to call in favors from some of his close pals in the creative community. The Bond movie, “GoldenEye,” proved to be a giant worldwide hit in 1995. “The Birdcage,” which Calley persuaded best friend Mike Nichols to direct, also hit it big with audiences, and so did “Get Shorty,” a project Marcus landed.

MGM/UA was back in business, but only for a moment.

Since Calley left in 1996, shortly after Kerkorian backed Mancuso in a management buyout of MGM, the studio hasn’t been able to sustain box-office momentum and has had only the occasional hit, the most profitable being the Bond sequel “Tomorrow Never Dies” in 1997.

Continuing box-office doldrums have fueled speculation that production President Michael Nathanson and UA chief Lindsay Doran won’t be long for their jobs.

And so the beat goes on, with MGM once again facing an uphill battle to reinvent itself as a truly viable studio.