MGM looking for a buyer; 2 hotels opening in downtown LA
| Download
KPCC business analyst Mark Lacter talks about why movie studio MGM is looking for a buyer; he also talks about two big hotels opening in downtown Los Angeles.
Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, MGM – the long-suffering movie studio – is looking now for a buyer?
Mark Lacter: It is Steve, and frankly, it’s a miracle the place has lasted this long, considering that MGM doesn’t really make movies anymore (just one release last year, the remake of Fame – I know you saw that one). Also keep in mind that it has a debt load of $3.7 billion and interest payments of $300 million, which isn’t all that easy when you’re coming out with one movie a year.
Julian: What are MGM’s assets?
Lacter: Well, it has the franchise to the James Bond movies and it has the film library – the library looking a little less valuable these days because folks aren’t buying DVDs the way they used to. Besides, a studio’s film library only has real value if it has movies that are relatively new – and that only happens if you’re making movies.
So with all that in mind, the folks who have loaned money to MGM are pushing for a sale. There has been interest, but not at anywhere near the prices that the creditors had been hoping for. If the bids come in too low, the creditors might try other ways of salvaging their money, including a bankruptcy filing that could involve selling off bits and pieces of the studio.
Julian: But is this really a studio, as we’re used to thinking of them?
Lacter: No! It’s not like the old days when a single studio decided to bankroll and release something. Now, there is a production company, one or more distributors, one or more investment groups, one or more talent agencies – well, why do you think you have those Golden Globe winners thanking practically half of Los Angeles?
The role of studios is mostly as a means to distribute and market – and when you’re small and heavily in debt, like MGM, you’re probably not going to do those things as well as, say, Fox or Warner Bros. Those studios are owned by much larger media companies, where movies are a relatively small part of the overall package. At MGM it’s the entire package. That’s a real problem.
Julian: I wonder about the timing of two big hotels opening in downtown Los Angeles.
Lacter: Unfortunate timing Steve. L.A. has about 1,000 new hotel rooms available at a time when hotel occupancy is already in the dumps – and it might stay that way for a couple of years.
The new hotels are part of the L.A. Live complex right next to Staples Center – actually, they’re in the same high-rise that you can see from the Harbor Freeway. The Marriott portion will be on the lower floors and the Ritz Carlton will be on the upper floors (that includes over 100 luxury condos that are nowhere close to selling out because the real estate market is so bad).
Julian: When you build a hotel, though, you’re not looking for an immediate payoff.
Lacter: That’s right, hotel developments are long-term propositions – this project had been in the planning stages for more than five years, back when the banks were still loaning money. They’re not releasing financing details, though we do know that the complex cost almost $1 billion, which is way higher than the initial estimates. So the sooner they can open the doors, the easier they can start paying back those loans.
Julian: But L.A. doesn’t exactly need any more hotel rooms.
Lacter: Not right now – even the president of Marriott says that the occupancy rate for the hotel will only be about 50 percent this year (typically hotel operators like to see occupancy in the 80-percent range).
And it’s not just the hotels that will take it on the chin – empty rooms will put a dent on revenues the city had been hoping for through room taxes. The good thing about this monster development is that it’s not going anywhere – and it’s located right next to the L.A. Convention Center, which will provide plenty of opportunity for business.
Mark Lacter is a contributing writer for Los Angeles Magazine and writes a business blog at LAObserved.com.
blog comments powered by Disqus
