MGM Pays Warner $225 Million To Liberate Videos

MGM is paying Warner Bros. $225 million to terminate a video distribution deal that has been depressing the value of the studio. The deal releases MGM to exploit video, DVD and e-commerce markets and establish the studioís own distribution of home video product. The release will reportedly save MGM $15 million to $20 million a year from not having to pay fees to Warner based on a percentage of gross sales. The original forced distribution agreement was the result of the 1990 purchase of MGM by Pathe Communications, which, in order to finance the studioís purchase, sold off worldwide home video distribution rights to Warner under a 12 1/2 year deal that was to expire in May 2003. In the last eight years, MGM has paid out more than $350 million to Warner in distribution fees. The new agreement will compensate Warner for distribution fees and interest that Warner would have received during the next four years and includes additional distribution fees to be paid by MGM to Warner during a transition period that runs through January 31, 1999.The deal frees MGM to fully exploit DVD and e-commerce markets with an arsenal of more than 5,000 titles now owned and controlled by MGM, including post-1986 MGM films and the libraries of United Artists and Orion Pictures. The agreement, however, calls for all pre-1986 MGM and pre-1948 Warner libraries to remain in the control of Warner.While MGMís financial picture will improve as a result of the deal, MGM also will benefit from building a new distribution system which reflects the current marketplace. As a result, the studioís video unit, MGM Home Entertainment, will be strengthened and positioned to distribute as well as market the studioís vast library, and to form mutual benefit joint ventures with others.