MGM Drops Sony as DVD, TV Distributor

The tensions between Metro-Goldwyn-Mayer Inc. and its studio investor resulted in a board vote Tuesday that will end the fabled company’s reliance on Sony Pictures Entertainment as a distributor of its DVDs and television shows.

News Corp.’s 20th Century Fox Film Corp. will now release MGM’s DVDs worldwide. Previously, Fox had split the distribution of MGM’s home entertainment properties with Sony, which had handled the domestic sales.

As part of the deal, Fox has agreed to an unusual arrangement: It will devote a sales force to handling MGM products.

MGM also has scratched Sony as the global distributor of its television shows and will once again handle sales in-house as it had as a stand-alone studio.

Sony, however, will release, as planned, MGM’s upcoming James Bond movie “Casino Royale,” scheduled for November. Also, Sony and MGM will co-finance and co-distribute the next Bond installment, with Sony handling the theatrical release and MGM controlling the television and DVD sales. The two companies are discussing partnerships on various other projects.

MGM was able to change its distribution arrangement by exercising a clause in an agreement signed in April 2005, when Sony Entertainment parent Sony Corp., Comcast Corp. and four private equity firms bought the historic studio for $4.9 billion from Kirk Kerkorian.

The clause gave MGM the right to drop Sony as a distributor one year after the purchase if certain performance goals weren’t met.

In a phone interview Tuesday, MGM Chief Executive Harry E. Sloan did not deny the tensions between the two companies but downplayed their role in the board vote.

“There are always going to be challenges in a relationship of this manner,” he said. “This has much more to do with MGM coming alive as a viable independent motion picture studio.”

Sony, which has three board seats, controls 20% of the vote.

As a result of the vote, Sony will be forced to forgo $25 million to $30 million a year in distribution fees.

The company emphasized the positive Tuesday. “We are pleased with our ongoing relationship with MGM,” it said in a statement. “Both MGM and Fox are key supporters of the Blu-ray disc format, which will be of tremendous benefit to consumers as well as the entertainment community.”

Blu-ray is Sony’s proprietary high-definition DVD system.

Sloan said a main attraction of having Fox distribute MGM’s home entertainment products was the studio’s infrastructure for handling third-party releases, such as those for producer George Lucas.

Sloan said it was only natural for MGM to control its own TV sales after returning to the business of theatrical distribution this year.

“Worldwide TV library sales are driven by new [film] releases,” he said. “Now that we have 20 to 25 new theatrical releases per year, it makes sense to combine those releases with our catalog.”

Sloan predicted that MGM’s annual TV revenue, now more than $700 million, would “be considerably bigger” without the distribution fees.