MGM Said to Be in Discussions on Cable Merger

Metro-Goldwyn-Mayer is in talks with Cablevision Systems Corp. about a possible merger with the company’s four national cable services, according to executives close to the discussions.

The talks may not be successful and are only one of several opportunities being explored by the two companies, which are under pressure to expand to remain competitive in an entertainment industry dominated by giants with both production and distribution outlets.

The discussions coincide with a major management shake-up that majority shareholder Kirk Kerkorian has engineered at his struggling MGM. The studio on Wednesday confirmed the appointment of Chris McGurk as vice chairman and chief operating officer, replacing Robert Pisano. Earlier in the week, MGM Chairman Frank Mancuso was pushed aside for Alex Yemenidjian, Kerkorian’s key aide in his hotel and casino businesses.

The 42-year-old McGurk--who will be the No. 2 executive after Yemenidjian--was released from his contract with Universal Pictures, where he has served as president and COO since 1996. MGM made certain business concessions to Universal in exchange for the release of McGurk two years before his contract expired.

Sources said those concessions include a $200-million co-production arrangement; various franchise opportunities involving MGM product and characters in Universal’s theme parks, licensing and other businesses; and all music publishing rights to MGM movies for five years commencing in 2001, when MGM ends its existing agreement with BMG.

MGM also agreed to resolve two pending lawsuits with Universal.

MGM’s merger discussions symbolize the frantic search for partners by the few remaining entertainment concerns that are missing either production or distribution. MGM and Sony Pictures Entertainment lack outlets for their content, for example. NBC and CBS are missing the movies needed to compete at a time when Walt Disney Co. and 20th Century Fox are funneling production to their broadcast and cable channels.

Although MGM needs a cable channel to put its television and film library to better use, Cablevision needs content to feed its four entertainment channels: Bravo, Independent Film Channel, American Movie Classics and Romance Classics.

Cablevision has had difficulty competing for programming against such giants as Time Warner, which is feeding shows such as “ER,” “Friends” and a host of Warner Bros. movies to its cable networks, including TBS, TNT, Turner Classic Movies and the Cartoon Network.

Sources say Kerkorian has had several conversations with Cablevision founder Chuck Dolan, with the most recent meetings in Los Angeles early last week. Dolan and Josh Sapan, president and chief executive of Rainbow Media Holdings Inc., the Cablevision unit that operates the four networks, are scheduled to be in Los Angeles next week to continue discussions.

One source said Cablevision is proposing a stock swap that values each company at about $4 billion. Kerkorian is said to be holding out for a $6-billion value on MGM.

In addition to disagreements over price, sources say talks could break down because MGM is reluctant to give Cablevision the management control it is demanding.

Sources say the talks arise out of recent discussions by Cablevision to license rights to MGM’s library for its Rainbow services. In particular, American Movie Classics needs more films.

Over the last several months, Dolan has changed his mind several times about his company’s strategy. He has considered capitalizing on the staggering values cable systems are fetching from buyers such as Comcast, Adelphia Communications and AT&T.;

Sources say Cablevision has had discussions about selling certain of its large cable systems to Comcast. Before AT&T;’s recent bid for MediaOne, the phone giant had been pursuing a purchase of all of Cablevision’s cable systems, which reach roughly 3.4 million subscribers, with dominant holdings in New York. Those talks broke down.

Sources say Time Warner Vice Chairman Ted Turner has offered to buy the four national cable services, and News Corp. is interested in purchasing Cablevision’s interest in certain regional sports channels that are part of Rainbow. Barry Diller, the chairman of USA Networks Inc., also has offered to buy one or more of the national services, but was recently rebuffed by Cablevision after offering a staggering $750 million for Bravo alone.

Some industry executives wonder whether Dolan is ready to part with any of his assets. “He can’t be serious about selling if he didn’t take Diller’s offer,” said one cable executive, who estimated the value of all four networks at about $2 billion.

Indeed, Dolan seems to be pursuing several paths at once. Cablevision even offered recently to buy NBC for $10 billion, and has talked with Sony about merging the entire company with the Japanese conglomerate’s American operation.

In his new role, McGurk will be responsible for all operating divisions at MGM. His primary focus, however, will be to rebuild the studio’s beleaguered movie operation and bulk up television production. A poor stepchild to the other Hollywood majors, MGM has struggled for years with generally lackluster movies at the box office such as “The Mod Squad,” “The Rage: Carrie 2” and “At First Sight.”

McGurk is expected to make some executive changes in the movie division, headed by Michael Nathanson on the MGM side and Lindsay Doran at sister label United Artists.

Considered a savvy, entrepreneurial-minded business executive, McGurk will also be called on to play a key role in identifying new business initiatives for MGM.

Unlike the traditional, button-down thinking of the Mancuso-Pisano regime, McGurk is much more of a risk-taker and forward-thinker who could bring MGM diversity in its financial portfolio. He’s a big proponent of co-financing ventures and presumably would try to forge deals with interesting movie companies like Miramax Films.

At Universal, McGurk championed a number of financial deals, including integrating certain PolyGram Filmed Entertainment assets into Universal, among them the successful British production company Working Title and PolyGram’s international distribution operation.

He was also responsible for Universal buying a controlling stake in specialty film company October Films, which recently sold to Diller along with other PolyGram assets including Gramercy Pictures.

Universal Studios President Ron Meyer said the company has “no plans to bring in anyone from the outside” to replace McGurk. His duties will be handled internally by other executives, including Brian Mulligan, executive vice president for operations and finance.

Before joining Universal, McGurk was a top deal maker at Disney for eight years, where among other chores he helped former studio chief Jeffrey Katzenberg engineer the $70-million acquisition of Miramax. Katzenberg recruited McGurk to Disney from PepsiCo., where he spent six years in various capacities, including chief financial officer of Pepsi Cola East.

McGurk, who comes from a blue-collar background in West Springfield, Mass., said his mandate at MGM is to “get the operations running as effectively as possible and to create value with strategic initiatives and growth opportunities that will help position the company in the next century.”