MGM Studios, which funds a significant portion of the production of Stargate Universe, may not be able to successfully sell itself to a new set of investors. It may instead be forced into bankruptcy reorganization and debt restructuring. As stated in The Hollywood Reporter, MGM is $3.7 billion in debt. And,
With MGM debt recently trading at 60 cents on the dollar, that would mean the studio would have to sell for more than $2.2 billion to fully pay off lenders. But almost nobody sees the Lion fetching that sort of money…
If a top bid for MGM fails to find enough support among its more than 140 lenders, the only other option would be a debt restructuring. That probably would include a prepackaged bankruptcy reorganization by which lenders would morph into owners and present owners would see their stakes heavily diluted.
More details about the depth of the problems were reported a few days ago at Gawker.com. The main issue affecting MGM’s value is that the income from its large library of movies and television in the DVD market, which they expected would skyrocket with the introduction of Blu-ray, has in fact plummeted:
The bet that the hedge funds made when they put up most of the equity for the $4.85 billion LBO in 2004 was that DVD revenue from the library would hugely increase when people replaced their standard DVDs with the Blu-Ray high-definition format that was just being introduced. But their projections proved to be pipe dreams. Instead of expanding, MGM’s DVD revenue plummeted, according to the confidential memo. MGM’s DVD revenues fell from $394.7 million in 2008 to just $69.8 million in the 2010 fiscal year (which ends March 31).
While its revenues from licensing of its properties to television (including Stargate) is steady at over $500 million per year, this is not enough to make up for the drop in DVD sales, nor keep the company afloat. It has to pay out much of that money to producers, actors, writers, etc, for salaries for new productions, and residuals for the library assets. As Gawker.com reports:
What MGM kept turned out to be not enough to pay its overhead — $135.9 million in 2010 — and other costs, leaving it with a negative operating cash flow of $52.4 million. The bottom line here is that MGM cannot pay off its $3.7 billion in debt. And even if a white knight gallops in to carry off the library, the investors and creditors will take a loss.
What does this mean for Stargate? Well, production costs for producing Stargate Universe are shared between MGM and Syfy. Before each season, a deal is struck between them on cost sharing, with Syfy considering its potential ad revenue for airing the show, while MGM looks at its likely DVD sales and licensing revenues. DVD sales for Universe 1.0 have not been stellar — it did not break the top 100 DVDs on Amazon.com. A fan might wonder if MGM was depending on those DVD sales to pay for Season 2 production, and whether it will be able to keep up its end of the bargain, especially if bankruptcy is the outcome of the current bidding process. Stay tuned as we watch the news for more hints of what’s to come!