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POWER LUNCH by Ronald Grover November 25, 1999

MGM: Will the Lion Roar Again?
Legendary financier Kirk Kerkorian has plenty of content to sell. Now he's looking for the right distribution deal

The Nov. 8 premiere of the latest James Bond film, The World is Not Enough, was one of those glitzy affairs that Hollywood does so well. Stars walked the red carpets into the Westwood Theater. The paparazzi's bulbs flashed at the latest incarnation of Bond, Pierce Brosnan; the latest "Bond Girl," Denise Richards; and such supporting stars as Ted Danson and Joe Pesci. The after-party was held at a Santa Monica airport hangar transformed into a Bond-like casino. Everyone who is anyone was there. Everyone, that is, except the reclusive billionaire who will likely be the big winner at Bond's longtime studio, MGM.

That would be Kirk Kerkorian, the small-stake boxer and airplane pilot who owns 89% of MGM. For all the self-styled, Gucci-wearing moguls who claim to be Hollywood's biggest and best dealmakers, no one holds a candle to the 82-year-old Kerkorian. Since 1969, when he won control of the studio in a proxy battle with Seagram's Edgar Bronfman Sr., Kerkorian has bought and sold MGM twice, making billions on each deal. But wait until you see the deal that's likely to begin playing out in the next few months. Kerkorian & Co. have an ambitious strategy for transforming the legendary film studio that brought America The Wizard of Oz, Gone with the Wind, Rocky, The Pink Panther, and some 4,100 other films.

Those films -- the largest single cinema collection in the industry -- make Kerkorian a major player in the fast-converging world of the Internet, digital television, satellites, and cable TV. Combined with the 9,600 hours of TV shows the company also controls, the films give the 75-year-old studio tons of content for companies to beam into consumers' homes around the world.

Already, MGM has had offers. The company was in talks with CBS before the Tiffany Network announced its merger earlier this summer with Paramount Pictures' parent, Viacom. It has also been chatting up former cable titan John Malone, who controls Liberty Media and is on a buying tear with $5 billion from phone giant AT&T. Jack Welch, chairman of NBC parent General Electric, is also said to be on MGM's speed dial. "Acquisitions and mergers are definitely part of out strategy," says Alex Yemenidjian, Kerkorian's top lieutenant, who became MGM's chairman in April.

LET'S MAKE A DEAL? There's nothing fancy going on here. Kerkorian's current stake in the company is worth just over $3 billion, and he intends to deal his way into a much higher number. How high? Flipping that for a hefty stake in GE could double his money. Or a deal with Liberty, which has the rights to program cable channels for AT&T, would make MGM a much more powerful entity.

Whatever the deal, it would be only the latest chapter in Kerkorian's epic tale of making money by using the same asset over and over again. Back in 1969, he spent $650 million for MGM, before spending another $380 million to buy United Artists from Transamerica. Kerkorian has put additional money into the studio from time to time during its frequent dry spells, but what he put in is nothing compared with what he has taken out. In 1986, he sold the MGM library to Ted Turner for $1.5 billion. In 1990, he sold what remained of MGM to Italian financier Giancarlo Parretti for another $1.4 billion.

None of that counts the use of the MGM name to run an all-luxury airline and to launch two separate Las Vegas casino companies that have made Kerkorian upwards of $1 billion more. As for his current $3.4 billion stake in MGM? He paid $1.3 billion for that in 1996, buying it from French bank Credit Lyonnais, which got it when Parretti couldn't pay his debt on the purchase.

WANTED: DISTRIBUTION. Since then, Kerkorian has been positioning MGM for his next big deal. Much of that chore has fallen to Yemenidjian, a onetime CPA who ran Kerkorian's casino operations before moving to Hollywood. Yemenidjian has structured a series of deals to buy back the portions of the MGM library of older films that Parretti sold off to pay debt during his short and stormy tenure with the studio. The company also paid $235 million to buy the film library owned by Polygram and Orion Pictures, adding such newer films as Silence of the Lambs and Dances with Wolves to its own library.

The studio has since gone back into production, with a target of turning out up to 25 films a year. It has deals with the hot specialty film company Miramax to produce several of those, including one based on the Jimmy Stewart classic Harvey. And talent is again showing up with scripts to make deals.

What's missing is the one deal that would put the Lion's roar back into MGM. Content may be king, but distribution pays the bills. And MGM, without its own TV network or a string of cable systems like Warner Brothers, is missing the ability to get its product into the hands of consumers.

Kirk Kerkorian knows that, of course, and intends to do something about it. His studio's latest James Bond flick was a heady success, opening to $35.5 million in its first weekend. Those are the kinds of numbers that Kerkorian understands. They just need a few more zeros at the end.


Grover covers the media industry from his post as Los Angeles bureau chief

EDITED BY DOUGLAS HARBRECHT _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

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