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Chapter 651 MGM's Financial Report

Westinghouse Electric must rise again, but this is not something that can be achieved in a short time; rather, it is a systemic project for long-term development.

Only by taking a long-term perspective and making steady progress can we regain our former glory.

Putting down the thick document about Westinghouse Electric in his hand, Ernst sat on the sofa and picked up another cover report on the corner of the table, which contained MGM Group's 1998 financial report data.

Annual revenue of $32.31 billion represented a significant increase of 148.7% over the previous year.

This impressive growth rate demonstrates MGM's strong momentum in mergers and acquisitions and business expansion.

In the context of increasingly fierce competition in the global entertainment industry, such rapid revenue growth would surely astound everyone if it were announced.

"GG ​​revenue and online music copyright revenue sharing." Ernst immediately noticed these two core driving engines, which together accounted for more than 50% of the revenue.

Of the remaining revenue, MGM's film business contributed the largest share, demonstrating a strong performance.

This former film giant is making a full comeback.

In the 1998 Hollywood film market, it wouldn't be an exaggeration to say that it was a battle between two giants, with many others lagging behind.

With its strong brand heritage, powerful IP management capabilities, and accurate market positioning, Disney Studios continues to hold the top spot in the North American film market, with annual North American revenue reaching $10.624 billion.

Among them, the three heavyweight films, "Armageddon," "Mulan," and "A Bug's Life," became the main force at the box office, contributing a total of 6% of Disney's total North American box office revenue.

In particular, "Mulan," with its unique Eastern cultural theme and excellent production, has not only been widely praised in the North American market, but has also sparked a Mulan craze around the world.

Following closely behind Disney is MGM Studios, which has made a triumphant return.

In 1998, its North American revenue reached US$10.289 billion, with a market share of over 14.8%, and the revenue gap with Disney was only US$3350 million, which was very close.

The epic masterpiece "Titanic," released in 1997, was still going strong, and continued to be shown in theaters around the world in 1998, constantly breaking box office records and bringing MGM a huge share of the revenue.

Jackie Chan's action-comedy film "Rush Hour," with its humorous juxtaposition of Eastern and Western cultures and spectacular action sequences, was last year's biggest surprise hit.

It successfully broke the stereotype of Asian actors in the Hollywood film market and achieved both box office and critical success in the North American market.

"Shakespeare in Love," starring Nicole Kidman, is a strong contender for several Oscars this year, and its box office performance is also outstanding.

That year, MGM contributed many good movies, leaving many middle-aged consumers feeling wistful.

The once-dominant Hollywood cinematic behemoth that created countless classics seems to be making a triumphant return.

In stark contrast to the unparalleled success of Disney and MGM, the performance of the other five major Hollywood studios paled in comparison, with the gap between them and the top two widening further.

Apart from Fox Studios, whose North American revenue barely approached $7.5 million, the other four companies all had North American revenues exceeding $7 million.

Universal Pictures performed the worst, with North American revenue of only $3.3 million in 1998, ranking last by a huge margin.

This was originally MGM's location, but it has now been taken over by Universal.

Ernst flipped through the financial report, in a great mood.

Based on the current trend, barring any unforeseen circumstances, MGM's North American market share will successfully surpass Disney's in 1999, reclaiming its position as the number one film studio in North America.

Post-production on the Spider-Man movie is nearing completion. This superhero film, adapted from the classic Marvel comic, has already garnered significant attention even before its release.

The main reason is the promotional video during the Super Bowl, which has aroused the anticipation of countless people.

Since his Super Bowl victory, he has built Playboy into the most famous lingerie brand in the US and even the world.

The Super Bowl has now become a bloodless battleground for major corporations and Hollywood, and it's said that GG fees have nearly doubled in just two years.

Besides Spider-Man, the Blade project, acquired from New Line Cinema, is ready for release at any time; it's already a completed film.

This summer, Ernst aims to use the duo of Spider-Man and Blade to cast a shadow of MGM superhero movies over Hollywood and completely reshape the summer movie market.

According to MGM Studios' plan, the Hulk would officially hit the big screen in 2000.

In 2001, two major IPs, Captain America and Harry Potter, will be released one after another.

If superhero movies are box office hits this year, it will further accelerate the enrichment of MGM's superhero IP portfolio.

Once Pixar's contract with Disney ends, MGM will basically be able to release one superhero film per year, along with a hit IP like Harry Potter or a Pixar animation.

By establishing a three-pronged content production model of superheroes, blockbuster IPs, and top-tier animation, MGM has gained an absolute advantage in the Hollywood market and even the global entertainment industry.

He couldn't even imagine how he would lose.

He was almost humming a tune when his gaze fell on the net profit column, and his relaxed expression instantly turned sour.

"A negative $3.68 million?"

This is financial data from 1998; the funds used to acquire CBS are not included in this figure.

Robert Iger explained, "MGM's revenue is the bulk of our business, accounting for almost half of the group's global revenue."

"But the film and television industry, the profits..." He shrugged.

In the film industry, some people make a lot of money, but others lose even more.

Only a few movies can become huge hits; most movies lose money and usually need to rely on subsequent derivative businesses such as videotape releases and television broadcasting rights sales to recoup costs.

This process often takes a long time and is far less effective than box office revenue in theaters.

In 1998, for example, of the 14 films released by MGM throughout the year, only 6, including "Rush Hour" and "Shakespeare in Love," achieved profitability during the theatrical release phase. The majority of the other films had to rely on derivative businesses to gradually recoup their losses.

In addition to the uncertainty of the film's profitability, high bank interest expenses have also become a significant factor eroding MGM's profits.

The film and television industry is a capital-intensive industry, and film production, copyright acquisition, business expansion and other activities all require huge financial support, and MGM is no exception.

They always borrow money to make movies; it's all about high leverage.

Financial reports show that in 1998, MGM Resorts paid as much as $1.2 million in interest on bank loans alone.

Ernst had already made up his mind: he had to get Ernst Asset Management into the lending business; he couldn't let others profit from it.

"And we must admit that we have serious shortcomings in the consumer products sector," Robert Iger continued. "We can't even compare to Disney, let alone Fox."

There's nothing we can do about it. Entering the maternal and infant field requires a long-term reputation effect; we can only take it slowly.

"As for other sectors such as television and record, as you know, we are still in a period of rapid development. Last year, we acquired quite a few assets."

"If we hadn't produced several hit TV dramas and variety shows, secured the broadcasting rights for NFC, and renegotiated several GG agreements with GG, significantly increasing GG revenue, I wouldn't be surprised if our losses doubled."

Finally, Robert Eger paused, looked at Ernst, and said, "Should we postpone our theme park plans for another two years?"

The acquisition of CBS significantly increased MGM's valuation, but it also substantially increased MGM's debt.

$86.8 in cash payment, while bank loans alone exceeded $30 billion.

It's not that MGM has over five billion in cash flow, but rather that this payment can be made in three installments, with Morgan Stanley acting as guarantor.

For three consecutive years, MGM has borrowed heavily. Even though revenue is expected to increase significantly, with MGM's revenue likely to exceed $5 billion next year, the debt is still putting a strain on MGM.

Including this latest $30 billion loan, MGM's debt has now exceeded $90 billion.

Before bidding for NFC last year, Ernst had seen MGM's debt statement, which showed total liabilities of $45 billion, but $14 billion in cash flow, so the net debt was not much.

However, the development of sports events, coupled with the acquisition of CBS, caused MGM's debt to exceed $90 billion.

With the second payment of $30 billion due in October, proceeding with the theme park plan would instantly push MGM's debt ratio to a dangerous level.

"No way." Ernst rejected the MGM theme park project outright. "It has to start next year."

A theme park like Disney takes one to two years to prepare in the early stages, and the construction period is even longer, taking four to five years.

This is assuming things go smoothly. If things don't go smoothly, issues such as land planning, equity structure, and cultural content review may arise, and it might take eight to ten years to complete the construction.

Fortunately, the first MGM theme park was built in the United States, so there weren't so many concerns.

But considering the work efficiency of Americans, Ernst was already incredibly lucky that the theme park could even open before 06.

His plan was to first establish brand awareness with the first MGM Grand in the United States, and then expand to China, aiming to capture users before Disneyland.

Whoever can enter the Chinese market first will be able to capture users' minds and gain a first-mover advantage.

If the theme park plan is postponed, and Disney gets there first, MGM will miss the best opportunity to enter the Chinese market, and will be more passive in future market competition.

Therefore, this plan had to be launched, and then, after the subprime mortgage crisis broke out in 08, it would receive better policy support.

"The investment in a theme park is not a one-time thing. We can adopt a phased investment and rolling development model to promote the project construction," Ernst explained to Robert Iger. "The main investments in the early stage are land acquisition, construction of core venues and IP content integration. Subsequently, based on market feedback and revenue, we can gradually increase investment in supporting facilities and new projects."

"In this way, we can control short-term funding pressures while ensuring the smooth progress of the project. I don't think this will drag down MGM's finances."