Warner Bros. and MGM Negotiate Early Termination of Video-Distribution Agreement

In an effort to regain full control of its video library worldwide, Metro-Goldwyn-Mayer announced last week that it has entered into an agreement with Warner Bros. for an early termination of its existing video-distribution agreement with Warner Home Video. The original agreement with WHV was to end in May 2003.

In announcing the early termination, MGM Chairman and CEO Frank G. Mancuso said, "This is a very important strategic step for MGM, since we are now closer than ever to total control of this enormous collection of film assets. In addition to regaining control of our global video and DVD distribution, a substantial portion of our television rights previously held by other long-term licensees in domestic and certain European markets will revert to MGM in 2000. This is a positive development for our company and a response to the changing landscape in the home-entertainment market. Our desire to extricate MGM from this arrangement, originally executed by previous management in 1990, has been no secret. Now the path is clear to integrate all of our MGM, UA, Orion, and PolyGram library product under an internally managed organization and to fully realize our position as the world's leading content provider."

Under the terms of a transitional distribution agreement, WHV will continue to distribute MGM's video and DVD product through January 31, 2000, to facilitate MGM's conversion to self-distribution. Under terms of the termination agreement, MGM has paid WHV $112.5 million and will make an additional payment of $112.5 million (plus interest) on September 1, 1999. In addition, effective January 1, 1999, MGM assigned to WHV all rights with respect to the Turner Entertainment library of video product; this library includes pre-1986 MGM titles and pre-1948 Warner Bros. titles. Under the original distribution deal, these rights had been set to expire in June 2000.

According to Warner Bros. Chairmen and co-CEOs Robert A. Daly and Terry Semel, "We are very pleased that Time Warner recaptures ownership and control of such films as Gone With the Wind, 2001: A Space Odyssey, The Wizard of Oz, Singin' in the Rain, Ben Hur, Doctor Zhivago, Casablanca, and The Maltese Falcon, allowing us the ability to maximize the value in our library, especially in the growing DVD market."

In a similar move, Universal Studios and Paramount Pictures have agreed to end their joint venture to distribute home-video products outside the North American market. Cinema International Corporation, the distribution company set up by the two studios in 1980, will be taken over by Paramount as its distribution arm. Paramount is owned by Viacom, Inc.

Universal, a division of Seagram Company, will distribute its videos through PolyGram Home Video, which was acquired in the recent takeover of PolyGram NV by Seagram (see previous story). United International Pictures, another Universal/Paramount joint venture, distributes the two companies' films (as opposed to video) outside North America. Its future could be in limbo as well. Universal might use its PolyGram film network for that end of the business, too.