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» Yemenidjian profile » VSS media 100

Metro-Goldwyn-Mayer over the past three years has come back from the brink of death over the past three years under CEO Alex Yemenidjian, but the company has been through a rocky 2002. Wall $treet Week with FORTUNE co-anchor Geoff Colvin recently sat down with Yemenidjian to talk about MGM's future prospects:

GEOFF COLVIN: If you want to be in pictures, at least as an investor, there's just one place left to go for a nearly pure play. MGM is the only studio of any size that isn't part of some larger entertainment conglomerate. Right now it's a hot studio, with the hugely successful new James Bond Movie, Die Another Day. The company has been in turnaround, as they say in Hollywood, since 1999, when CEO Alex Yemenidjian came aboard. And he joins us now from Los Angeles. Alex, welcome.

ALEX YEMENIDJIAN: Thank you for having me.

COLVIN: Congratulations on the Bond movie, huge hit. How much difference does one movie like that make to the value of the company?

YEMENIDJIAN: Well, when it's a movie, a franchise movie like James Bond, of course it makes a lot of difference. This isn't just the second or third. This is the 20th. It has been the most successful Bond movie ever. It has broken records all over the world. And usually the Bond movies are very profitable for us, and this one is going to be extremely profitable.

COLVIN: This was a big budget movie. According to what I've read, about $140 million. But I believe your philosophy or your general approach is that you're also making a lot of movies without big budgets. Is that right?

YEMENIDJIAN: That's true. Outside of sequels, we have what we think is a very good risk/reward profile for our shareholders. And what we mean by that is in certain cases we sell foreign rights to pictures, so the objective is for the portfolio to be such that our average investment in our MGM label pictures is less than $20 or $25 million. And that doesn't mean that all pictures are small pictures or that we only make pictures that are less than $25 million. It's just that if a picture is more than $25 million, we try to, in certain cases, sell foreign rights and create, again, a risk/reward profile that we think creates a good downside protection for our shareholders.

COLVIN: You had one very successful small picture this year called Barbershop. What happened there?

YEMENIDJIAN: It's one of those situations where you have a good subject matter, and it hit the spot. It's one of those things where there was this alchemy between the picture and the audience, and it did what we call crossed over. It appealed to many different quadrants that we weren't anticipating at the beginning.

COLVIN: Those were a couple of big hits this year. Obviously like any studio there were some flops. Everybody has them, nobody bats 1.000, and a lot of investors think that MGM, a movie studio, is going to be basically a hit-driven business, and therefore as an investment always fairly volatile. Are they wrong?

YEMENIDJIAN: Well, you know, we have four core businesses, and certainly the film production business gets most of the attention. We also have a television production business, which is very profitable for us and very steady, very predictable. We have another core business which is our film library, because our film library is so vast we own the largest modern film library in the world we treat that as a separate core business. And that generates over $300 million in free case flow for us every year. And then finally we have our networks business, both domestic and internationally, the MGM branded channels and the other pay TV channels that we have an interest in. So all of our core businesses are doing very well, and of course the more unpredictable of those four is the film production business, which as you know gets most of the attention.

COLVIN: Yes indeed. Would you like to own outright a cable channel such as American Movie Classics?

YEMENIDJIAN: Yes. I think it fits very well with MGM. It provides us with vertical integration, it provides us with scale, it provides us with more diversified revenue streams, and it's a very good fit from the point of view of creating a value proposition where one plus one equals three.

COLVIN: You mentioned earlier that you do have another business in television production. What's the most important thing going on there now?

YEMENIDJIAN: Well, our biggest show has always been Stargate SG-1, which is the number one rated show on the Sci-Fi channel, and it's now been picked up for season seven. But we started the year in our television division with two shows on the air, and we're finishing the year with five shows, so it's been a very good year for us.

COLVIN: I gather you have something that comes off another hit movie you had a few years ago called Legally Blonde.

YEMENIDJIAN: On the Fourth of July we'll have Legally Blonde 2: Red, White and Blonde. And after that we are giving serious consideration to having a television program. There's a lot of demand for it, and also there's a lot of demand for a TV sitcom based on Barbershop at the moment.

COLVIN: One concern that a lot of investors have is that a single person, Kirk Kerkorian, controls some 80 percent of the stock, and so if you're an investor you are to some extent hitching a ride on his vehicle. What can you tell us about his plans for the company?

YEMENIDJIAN: Well, it's very interesting. Kirk is the controlling shareholder of the company, but he takes no salary, no bonus, no stock options or any perks of any kind. And he has acquired every share in the open market at prices available to other shareholders. So it's very symmetrical, because the only way that Kirk makes money on his investment is from the appreciation in the value of the stock, and we pay no dividends of course. So it's exactly the same way that the public shareholders are benefitted.

COLVIN: There are some rumors on Wall Street that the company's for sale. Is it?

YEMENIDJIAN: Well actually, you know, I've been here since April of 1999, Geoff, which is just over 3 years, and in that period of time, we have never put the company up for sale. We have never solicited anybody, and all of these rumors only serve to disrupt the great employees that really make MGM the great company that it is today.

COLVIN: Alex Yemenidjian, thanks so much for being with us.

YEMENIDJIAN: Thanks for having me.