MGM/UA Communications Company

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MGM/UA Communications Company

450 North Roxbury Drive
Beverly Hills, California 90210
U.S.A.
(213) 281-4000

Public Company
Incorporated: 1986
Employees: 770
Sales: $674.9 million
Stock Index: New York

In 1981 Metro-Goldwyn-Mayer and United Artists, two of the greatest names in the history of motion pictures, became the MGM/UA Entertainment Company. The histories of MGM and United Artists read like the history of motion picture itself. At the time of the merger, each had survived the many changes the motion picture industry had undergone, and each was uncertain of its own future. But neither company could have suspected the complications that would follow over the course of the next decade. In 1981 the entertainment industry was transformed with astonishing speed. During the 1980s, MGM/UA went through so many corporate changes that it was hard to tell what was left of the original studios. Nevertheless today’s MGM/UA Communications Company and its subsidiaries continue to produce quality entertainment for the silver screen and television.

UNITED ARTISTS

United Artists Corporation began in 1919 as a partnership between Mary Pickford, Charlie Chaplin, Douglas Fairbanks, and D.W. Griffith, four of the biggest names in motion pictures at the time. With the widespread disillusionment that followed World War I, motion pictures became a welcome source of escapist entertainment. America’s fascination with movie stars had begun, movie houses sprouted up all over the country, and movies became big business. United Artists was created by these artists to wrest creative control over their own projects from the powerful Hollywood magnates.

The new company could hardly keep up with America’s voracious appetite for movies. UA was essentially a cooperative distributor of individual productions. The company did not operate a studio or have stars or directors under contract. Each producer at UA was required to finance his project himself and each kept his own profits. United Artists received a percentage of each film’s revenues as the distributor.

Despite the resounding success of UA’s first picture, His Majesty, the American, starring Douglas Fairbanks, financing new productions was difficult at times during the early years. Conventional bank loans were almost unheard of for such a risky investment as films. While other motion picture companies offered stock to the public to finance expansion, UA remained private in order to retain control. Some assistance came in the form of advances from theater owners, who pre-paid for upcoming features in weekly installments. In its first five years, United Artists scored a number of hits, but the studio’s schedule was slow, producing an average of only eight films a year until 1924.

In that year, Joseph Schenck became president of UA and reorganized the company. He brought in stars like Buster Keaton, Norma Talmadge, and Gloria Swanson, as well as producer Sam Goldwyn. By the late 1920s, Schenck had added a number of producers to the company’s roster, and United Artists’ production schedule had improved considerably. In 1927, a Howard Hughes film, Two Arabian Knights, garnered United Artists its first Academy Award. That same year, with the release of Warner Brothers’ The Jazz Singer, sound came to motion pictures.

The introduction of sound revolutionized the motion picture industry and brought the downfall of many silent-screen stars who were unwilling or unable to adjust to the new technology. Millions had to be spent to upgrade film production facilities and to buy new equipment for movie houses, many of which were affiliated with major studios. The sound revolution took place over a very brief span of time—by 1930, almost no silent films were being produced. The notable exception to this rule was Charlie Chaplin, who continued to produce silent films successfully until 1940.

UA’s performance had been inconsistent in its first decade, showing a loss six out of ten years between 1920 and 1930, and the early 1930s were no better. The Depression took its toll on movie attendance in 1931 and 1932, and the five big Hollywood studios—MGM, Warner Brothers, Fox, Paramount, and RKO—dominated what market remained. UA struggled to survive, and did so largely due to the talents of Joseph Schenck. Schenck decided that UA would help finance film productions and take a percentage of the revenue. Schenck also formed an independent production company, Twentieth Century Pictures, with former Warner Brothers production head Darryl Zanuck. That company’s success contributed greatly to UA’s own profits in the early 1930s. Despite the fact that Twentieth Century Pictures accounted for almost half of UA’s films, Fairbanks, Pickford, and Chaplin (Griffith sold his shares in 1933) would not give the production company a slice of their pie. In 1935 Schenck and Zanuck left and merged Twentieth Century Pictures with the Fox Film Corporation. Al Lichtman replaced Schenck as president of United Artists.

Throughout the 1930s many of Hollywood’s greatest independent producers worked through United Artists, among them Walt Disney, Alexander Korda, Sam Goldwyn, Hal Roach, Walter Wanger, and David O. Selznick. The company, however, was plagued by low production, resulting in financial difficulties throughout the 1930s. Though film attendance was healthy, competing with the major studios was an uphill battle. United Artists earned a profit through the late 1930s, but did not keep pace with other film distributors. Internal conflicts disrupted the studio as well. Producer Sam Goldwyn, who had produced almost half of UA’s pictures in the late 1930s, felt he wasn’t being adequately compensated for his efforts. Disputes between Goldwyn and Pickford, Fairbanks, and Chaplin led to a number of lawsuits, and eventually to Goldwyn’s leaving United Artists in 1940. In the 14 years Goldwyn had been associated with UA he had made 50 motion pictures.

Although distribution to foreign markets was severely curtailed during World War II, movie audiences increased during the war in the United States and Canada. While some film companies benefited from this increase in attendance, UA struggled to remain profitable. The chronic problem of an insufficient number of films for distribution compelled UA to lower production standards, and the company’s reputation as a provider of high-quality motion pictures faltered.

After the war, independent production became more popular as the big studios struggled to reduce overhead and tax breaks encouraged producers to go it alone. But again, United Artists failed to capitalize on this trend. Independent filmmakers were lured elsewhere. Movie attendance dropped off drastically once America returned to a peacetime economy. In 1946 David O. Selznick, who had produced a number of big hits, including the MGM-released Gone With the Wind, left United Artists. Chaplin and Pickford (Fairbanks had died in 1939) had accused Selznick of breaching his UA contract by distributing a number of films through RKO, while Selznick accused UA of doing a sloppy job of distribution. The producer went on to form his own distribution company, and United Artists lost a key contributor. By the end of the 1940s, plagued by poor-quality pictures and shrinking cinema audiences, United Artists was bleeding red ink.

A drastic reorganization was needed, but Pickford and Chaplin dragged their feet. In July of 1950, the owners announced a change in management of the company. Paul V. McNutt, former governor of Indiana, became chairman of UA, and Frank L. McNamee took over as president. McNutt, however, did not have the expertise to solve UA’s financial woes. Within a few months he turned over the reins to a group headed by Arthur Krim and Robert Benjamin. Krim had been president of Eagle-Lion Films, and Benjamin had headed the American operations of Arthur Rank Organisation, a British filmmaker. The two made a deal with Pickford and Chaplin which gave Krim and Benjamin control of the company for ten years and guaranteed them half the company if they could turn the debt-ridden distributor around. Krim and Benjamin secured a $3 million loan from Fox Films president Spyros Skouras. United Artists scored two big box office hits with High Noon and The African Queen, Within a year the company was showing a profit, and Krim and Benjamin had begun a 20-year reign.

As television began to steal the nation’s movie audience, Hollywood sought new ways to get people into theaters. Cinemascope, Cinerama, VistaVision, and a number of other devices were introduced to make the “big” nature of motion pictures even bigger. Other gimmicks, like 3-D movies, were equally novel, if less spectacular. United Artists released the first 3-D picture, Bwana Devil, in 1953.

Movie budgets skyrocketed as the industry turned to musicals to entice viewers. Racy themes also began to slink their way onto the silver screen. During the mid-1950s, UA’s roster filled with names like John Wayne, Bob Hope, and Otto Preminger. In 1955 Chaplin sold his UA shares, which amounted to 25% of the company, to Krim and Benjamin for $1.1 million. A year later, Mary Pickford also sold her shares, for $3 million, giving full ownership to the Krim and Benjamin group. By the end of the decade the company that had once been chronically short of movies was turning out 50 pictures a year. In 1957, United Artists went public with a $17 million stock and debenture offering. The company ended the 1950s solidly in the black and with its reputation for quality restored.

In the 1960s, the trend toward independent production grew even stronger. The major studios underwent a number of changes. Paramount was bought by Gulf and Western, MGM diversified into real estate, and Warner Brothers merged with a television company, Seven Arts Limited. United Artists, meanwhile, was having one of its most successful decades, winning 11 Academy Awards, five of them for best picture. In 1963, Eon Productions released Dr. No, the first James Bond movie, through United Artists, beginning what would prove to be the longest-running series in cinema history and a sure moneymaker for United Artists.

In 1967 the Transamerica Corporation bought 98% of UA’s stock. In 1969, David Picker and his brother Arnold took over as president and chairman, respectively, of the company. But when UA lost $35 million in 1970, Transamerica chairman John Beckett brought back Arthur Krim as chairman and Robert Benjamin as vice-chairman. The early 1970s was a slow period for United Artists, as other studios were scoring the big hits. In 1973, UA purchased the domestic distribution rights to all of MGM’s pictures for ten years, after MGM decided to cut back on production and invest in the $120 million MGM Grand Hotel in Las Vegas. High budgets and unpredictable audiences combined to make film production more risky than ever. Finally in 1975, United Artists released One Flew Over the Cuckoo’s Nest. The film was a smash, cleaning up at the Oscars, and earning more than $56 million. A year later UA’s Rocky won the Oscar for Best Picture, and in 1977 Woody Allen’s Annie Hall captured the same honor for United Artists for the third year in a row. In 1978, Arthur Krim split from United Artists after a dispute with Transamerica chief John Beckett. Krim, Benjamin, Eric Pleskow (UA’s president), and a number of other key executives formed Orion Pictures. An era had ended at United Artists.

After the departure of Krim and Benjamin, United Artists struggled to find effective leadership. Andy Albeck, a former vice president of the company and assistant to Krim, was installed as president. Transamerica’s James Harvey became chairman. In 1979, hits like Rocky II, Manhattan, Moonraker, and The Black Stallion gave UA its most successful season ever. A year later, the studio released director Michael Cimino’s western Heaven ’s Gate. Cimino’s previous movies, Thunderbolt and Lightfoot and The Deer Hunter, had been hits. Heaven’s Gate, however, had grossly exceeded its budget, finally tallying $44 million. Critics panned the film, and the public concurred. Cimino’s film recovered only $1.5 million at the domestic box office.

In the wake of Heaven’s Gate, Albeck resigned as president. Norbert Auerbach, the former senior vice president of foreign distribution, took his place. In May, 1981 at the Cannes Film Festival, Auerbach announced that United Artists had been purchased by MGM. The MGM/UA Entertainment Corporation was born.

MGM

Unlike United Artists, MGM was a complete production studio from the start, with actors, writers, directors, and production coordinators all under long-term contract. MGM rarely had trouble finding financing, producing enough movies, or attracting audiences. MGM, symbolized by Leo the Lion’s roar, was for years the king of the Hollywood jungle.

In 1924, three motion picture studios, Metro Pictures, the Goldwyn Picture Corporation, and Louis B. Mayer Pictures, began to operate together under the corporate control of Loew’s, Inc., one of the nation’s largest theater chains. Marcus Loew had purchased Metro Pictures in 1919 to help fill his theaters with a steady flow of quality motion pictures. Demand for movies was much greater than the supply at that time. By 1924, Loew found that the films coming out of his Metro Pictures unit were lacking in both quality and quantity. At the same time, Lee Shubert, of Shubert Theater fame, approached Loew with the idea of merging Goldwyn Pictures with Metro. Goldwyn Pictures had been plagued by personality conflicts, resulting in the departure of Sam Goldwyn in 1922. Meanwhile, filmmaker Louis B. Mayer, who had a successful production company of his own, heard of the pending merger and flew to New York to negotiate with Loew. A deal was struck merging the Metro, Goldwyn, and Louis B. Mayer studios as a subsidiary of Loew’s. Mayer was chosen to head the new studio.

Mayer brought with him the 24-year-old Irving Thalberg, who oversaw the company’s production. Prodigiously talented, Thalberg was known as the “boy wonder” of Hollywood. Under the leadership of Mayer and Thalberg, the new company produced more than 100 feature films in its first two years. In 1925, MGM released the extravagant Ben Hur, which was a huge success, and MGM-Loew’s recorded a $4.7 million profit in its first full year. Throughout the 1920s, movie audiences were strong. In 1927, sound gave the industry a boost, and by the end of the decade, movie-going was a habit for many Americans.

The Depression began to take its toll on the film industry in 1931. The novelty of “talkies” had worn off, and hard times kept people preoccupied with things other than entertainment. Despite these troubles, throughout the 1930s, MGM was the most successful studio in Hollywood. MGM’s long list of stars under contract and its reputation for excellence helped it survive the Depression, when theater attendance dropped to half of what it had been between 1927 and 1930. The guaranteed purchase of productions by Loew’s theater chain also gave the studio much-needed stability, and Irving Thalberg’s penchant for excellence earned for the studio the viewing public’s highest regard.

By 1933, attendance began to rise again. In addition to MGM’s fine feature films, the studio also distributed quality shorts like the Hal Roach’s “Our Gang,” “Laurel and Hardy,” and the “Patsy Kelly” series, and William Hanna and Joe Barbera contributed animated films, including the well-known “Tom and Jerry” cartoons. In 1936, Irving Thalberg died at the age of 36. With his death, MGM productions turned away from literary toward purely escapist entertainment, but it continued to pursue excellence, including such hits as The Wizard of Oz and Boys Town.

The year 1939 is often considered the peak of the motion picture industry’s glory. That year the industry released such classics as Stagecoach, Mr. Smith Goes to Washington, Wuthering Heights, Of Mice and Men, Gunga Din, Jesse James, Dark Victory, and Intermezzo, to name just a few. The big hit was, of course, Gone With the Wind. Starring Clark Gable and Vivien Leigh, the film became one of the top money makers of all time. Interestingly, the movie was actually a David Selznick production and should by rights have been released through United Artists, as his other films were. Selznick, however, was determined that Clark Gable play the lead role of Rhett Butler. Gable was under contract to MGM, and in order to use him (and acquire a $1.5 million loan from his father-in-law Louis B. Mayer), Selznick had to release the picture through MGM and give the studio half the profits. The film set attendance records worldwide and snatched up ten Academy Awards.

MGM’s reign over the industry continued into the 1940s. The introduction of Technicolor, together with the desire for entertainment during the dreary years of World War II, kept audiences in the theaters and profits healthy. After the war, however, the “bigness” that once made MGM prosper became a costly burden. The baby boom and the introduction of television kept audiences at home. MGM’s high overhead weighed heavily on the company as it tried to adjust to the changes in the industry. By the late 1940s, film executives were running scared. Loew’s president Nicholas Schenck (brother of UA’s Joseph Schenck) told Mayer to find a new “boy wonder” to snap the company’s production back into shape. Mayer hired Dore Schary, formerly of RKO, as the new production head. Schary pointed MGM in the direction of spectacular musicals to give audiences what they couldn’t get anywhere else. It proved to be a wise move. In the late 1940s and early 1950s, MGM released such hits as Easter Parade, Annie Get Your Gun, Show Boat, Singin’ in the Rain, An American in Paris, and Seven Brides for Seven Brothers.

In 1952, the major studios were ordered to divest themselves of their theater holdings. Loew’s held out for some time, but finally was forced to split from MGM. The industry would never be the same. Without a guaranteed market for the major studios, filmmaking became a risky business. In 1955, theater attendance dropped to its lowest since 1923. The public still came out to see the big hits, but it was getting harder for the studios to predict which films would make money. A large budget was no guarantee. In 1957, MGM lost money for the first time. It bounced back with a profit in 1958, though, despite the general decline in the industry, and relative to other film studios at the time, MGM was doing well.

In the early 1960s, MGM’s profits were on-again-off-again. Advertising began to play a key role in any motion picture’s success. At the same time, the public’s tastes were changing as audiences became younger. By the middle of the 1960s, the major studios began to cater to their younger patrons: movies began to explore controversial topics and sex and violence became more acceptable. By the end of the decade, MGM was no longer at the top of the industry. Independent production had become the standard, and major studios were being bought up by larger corporations.

In 1970, Las Vegas investor Kirk Kerkorian took control of MGM. Kerkorian appointed James Aubrey, a former television executive, as president. The company sold many of its assets, including a number of theaters owned overseas, the MGM record company, and parts of the company’s Culver City lot. In 1973, MGM got out of the distribution business altogether by turning over domestic distribution of its films to United Artists. Foreign distribution was licensed to the Cinema International Corporation (CIC). In the mid-1970s, Frank Rosenfelt replaced Aubrey as president of MGM and Kerkorian himself became the chief executive officer.

In general, the 1970s showed improved revenues for the film industry. MGM, however, was focusing on other activities. By the end of the decade the MGM Grand Hotels in Las Vegas and Reno were bringing in more money that the film production unit. No longer a primary force in the film industry, MGM hoped that its 1981 acquisition of United Artists would give it new life.

The new MGM/UA Entertainment Company was established at a time when the entertainment industry was going through many changes. Pay television and videotape players offered new avenues for marketing old movies. Suddenly, MGM/UA’s movie library was a vital asset. At the same time, theater audiences were growing. In 1983, the company launched a number of subsidiaries: the MGM/UA Home Entertainment Group, MGM/UA Classics, and the MGM/UA Television Group. Also in 1983, majority stockholder Kirk Kerkorian bid $665 million for the MGM/UA shares he didn’t already hold. The bid caused an uproar (and a lawsuit), which convinced Kerkorian to drop the idea of taking the company private, at least for the time being. MGM/UA scored a number of hits at the box office in the early 1980s, including War Games and Octopussy, but profits didn’t keep up with Kerkorian’s expectations. In the mid-1980s, the Las Vegas financier instigated a number of deals which eventually led to the formation of a different company with some of the same assets, and nearly the same name. The MGM/UA Communications Company was incorporated in 1986, but the complicated story of its formation began a year earlier.

In 1985, the MGM and UA production units of MGM/UA Entertainment were separated under a general corporate restructuring. Alan Ladd Jr. and Frank Yablans, who until then had run the combined studios together, were put in charge of one unit each. Analysts speculated that Kerkorian was preparing to sell one of the studios, probably UA, in order to raise cash to take MGM private. That theory went out the window, however, when Yablans was fired shortly after the restructuring and Ladd was put in charge of both studios’ production units. In August 1985, cable television magnate Ted Turner began negotiations with Kerkorian to buy MGM/UA Entertainment for $1.5 billion. Turner’s key interest in the company was its 3,000-title MGM film library, which would provide an excellent source of programming for Turner’s superstation WTBS. By January 1986, Turner’s buyout, at $20 per share and one new preferred share of Turner Broadcasting System stock, went through. At the same time, Turner sold the United Artists assets back to Kirk Kerkorian for $480 million. The MGM/UA Entertainment Company was now a subsidiary of the Turner Bradcasting System, but United Artists was a separate company.

In June 1986, United Artists, under Kerkorian’s control, bought back many of the original MGM assets for $300 million, including the production and distribution units, the Home Entertainment Group, and the UA film library. Turner kept the MGM library, and sold the original MGM Studios real estate in Culver City to Lorimar Telepictures for $190 million. United Artists changed its name to MGM/UA Communications Company, and again restructured its operations.

The “new” company grouped the two television production units together, but kept the film units separate. Alan Ladd headed the MGM group, while Anthony Thomopoulous took over at UA, and David Gerber at the combined TV unit. The company began to come back during the next year. In 1987, Spaceballs, The Living Daylights, and Moonstruck were big hits for the studio. But despite these successful films, MGM/UA recorded an $88 million loss for 1987. In April 1988, frustrated by the company’s performance, Kerkorian began shopping for potential buyers for his 82% holding in MGM/UA. By July, he was planning to split the two companies again. Kerkorian struck a deal with investor Burt Sugarman and producers Jon Peters and Peter Guber to sell a 25% interest in MGM. The agreement fell through, however, and top MGM/UA executives, confounded by Kerkorian’s unpredictable maneuvers, began to abandon ship. Chairman Lee Rich was the first to go, followed shortly by Ladd and Thomopoulous. At the zenith of this corporate crisis during the summer of 1988, production on many of the company’s film projects was canceled.

Stephen Silbert briefly took Lee Rich’s place as MGM/UA’s chief executive in July 1988. By October, he had stepped aside to let former Merrill Lynch executive Jeffrey Barbakow take the reins. Barbakow was experienced in packaging limited partnerships to finance film ventures. He set out to nurse the ailing studio back to health. In fiscal 1988, MGM/UA lost $48.7 million, considerably less than in 1987. Rain Man’s success (it won the 1988 Oscar for best picture as well as three other Oscars) promised improvement, but MGM/UA was debtridden and had only a handful of films in production.

In 1989 the media company Qintex Australia Limited agreed to acquire MGM/UA, but the deal fell through in October of that year. While Kerkorian continues to look for a buyer, many wonder how MGM/UA will continue to fund the production of movies and TV shows. Nonetheless, despite its present troubles, MGM/UA faces the 1990s still firmly associated with quality entertainment.