MGM planning prepackaged bankruptcy, Spyglass takeover

We generally tend to pass over the news on MGM‘s financial machinations, but this month there is some big news on the future of the company that owns the Stargate franchise.  Since it is bound to stir questions among Stargate fans (not to mention fans of James Bond and The Hobbit, as both film franchises are waiting on MGM’s ability to pay for them), we wanted to let you know what’s up.

The historic studio is more than $4 billion in debt, and its production slate has come to a grinding halt over the past year.  With its creditors granting extension after extension on MGM’s loan payments, the plan at the start of 2010 was to find another company to buy them out.  So MGM solicited bids (it has Bond, Stargate, and a highly coveted 4,000+ title film library), but nothing came anywhere close to what they were hoping to get.

Rather than be forced by its creditors into a type of bankruptcy that could bring an end to the 86-year-old studio, resulting in all of its assets being sold off and creditors walking away with pennies on the dollar, they’ll vote this month on a plan to enter a prepackaged Chapter 11 bankruptcy.  This means that the studio and those to whom it owes money will go before a judge with a plan for payment and reorganization in hand.

The Plan

If approved by creditors, MGM would enter bankruptcy and (if approved by the judge) emerge with Spyglass Entertainment‘s Gary Barber and Roger Birnbaum as its new co-chairmen and CEOs.  This effectively puts Spyglass in charge of MGM, though the studio would continue to operate as an independent entity.  Spyglass was founded in 1998 by Barber and Birnbaum, and has produced or co-produced many notable films (recently 2009’s Star Trek, G.I. Joe: The Rise of Cobra, and Invictus).

MGM’s creditors will emerge as owners of a little over 95 percent of the studio.  Spyglass will own the remainder, divided between the main company and a pair of its subsidiaries — Cypress Entertainment Group, Inc. and Garoge, Inc. — that will merge with MGM as part of the restructured company.

What’s not clear yet is whether MGM will retain its distribution and marketing departments, or be stripped down to purely a production studio (and, presumably, let Spyglass take over those other areas).

What Does It Mean for Stargate?

Having a show like Stargate Universe in active development is actually one of the few bright spots on the MGM ledger right now. SGU has the benefit of Syfy Channel as a co-financer, since MGM charges the network a licensing fee that covers a great deal of the production costs.  Syfy is committed to 20 episodes for Season Two, which wraps principal photography in November.

The studio also earns money from licensing the show to networks in other countries; from Blu-ray and DVD sales; from local channels who pay to air SGU and Atlantis in syndication; from iTunes and Amazon.com downloads; and from its deal with Hulu.com.

The question of whether Universe will be renewed for a third season rests entirely with Syfy.  MGM, of course, would like to see it continue.  Syfy’s decision is based first on ratings, since it doesn’t make any of its money from those other revenue streams — which is why, unfortunately, online sales and ratings in other countries don’t affect the renewal decision.  (Expect that news in December, after the first half of the season has aired.)

How Long Will This Take?

MGM has not filed for bankruptcy yet.  Creditors have until October 22 to vote on the plan.  Assuming the plan is approved the bankruptcy filing could happen by the end of the month.  Barber and Birnbaum won’t take over until the studio exits bankruptcy and is officially ready to move forward, hopefully sometime in the first half of 2011.

In the meantime, MGM says that its employees and vendors will continue to be paid and the studio will operate business-as-usual.

Read more about this story at Deadline Hollywood.