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Bidding War

23rd October 2020

Will MGM accept a cash offer for the North American rights to No Time To Die?

MI6 logo By MI6 Staff
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Just when you think things in the world of James Bond could not become more complicated...

Two weeks ago, it was reported that MGM is actively up for sale and seeking a buyer. A new owner before April 2021 would then control the release of the 25th James Bond film 'No Time To Die'. Bidders were said to include Comcast, Apple, Amazon, and Facebook, with the asking price understood to be around $8b. MGM's investors want to be cashed-out as the hedge funds have been in too long. Last week, Apple used the James Bond theme when unveiling the new iPhone 12, sparking further rumours that a deal between the tech giant and MGM may be close.

Last night, a new twist emerged when it was rumoured that MGM was receiving offers to buy the North American rights to 'No Time To Die' for a streaming release.  The well-connected Drew McWeeny (who is a film critic, screenwriter, and the former west coast editor of the Ain't It Cool News website) tweeted this: "I can't get my head around the idea that we may well see James Bond debut on Apple TV+ or Netflix. The numbers I've been hearing the last few days are I N S A N E..."

MI6 understands that those offers started at $200m are now heading towards $250m - just for the North America streaming rights.

Now, even if MGM wanted to take one of these offers, they may not be able to without some agreement from Danjaq who owns the other half of the James Bond film rights (their subsidiary EON Productions makes the films). However, there may be a loophole in play as MGM granted the distribution in North America to United Artists Releasing, which they control. UAR could, in theory, sell on their rights to a third party.  

Any North America deal would cause enormous complications to the worldwide release, for which MGM and Danjaq assigned Universal Pictures to distribute. It may force Universal to pivot to a streaming release, too.

Why would MGM sell the North American streaming rights to 'No Time To Die'? Quite simply - cash flow. Investors want a return in 2020 and with no theatrical release soon (many commentators doubt April 2021 is going to happen, either), a bird in the hand is worth two in the bush. A sale of the entire studio is the goal of the majority of investors, but such a deal will take time and the longer 'No Time To Die' sits on a shelf the impact of the partner marketing weakens and the returns diminish. MGM receiving a big lump sum also removes them from any risk on how much the film will earn - that responsibility will be for the buyer to worry about.

On the surface, $200m does not sound like a good deal for MGM, but the maths of the movie business are not always obvious.

Taking 'Skyfall' as a best-case example of recent James Bond film performances at the box office, the 2012 film raked in $304m in ticket sales in North America. You then have to deduct the cinema share of $122m (40%) and the estimated publicity and advertising budget of ~$100m. That leaves the studio with a net income of ~$82m.

Suddenly, a check for $200m looks like a great deal.

"But PVOD doesn't scale for big-budget movies" has been a common response to the prospect of a franchise movie like 'No Time To Die' going straight to streaming. Certainly, having to find 6 or 7 million customers willing to pay $29.99 to recoup the cost of buying the film rights seems a challenge. But this is a naive opinion that does not factor in the marketing spend for these new OTT platforms and their Customer Acquisition Cost (CAC). Routinely, platforms like Apple+ and Netflix will spend more on marketing to acquire a new customer than the revenue that customer brings in on their initial purchase. Once you have a customer into your eco-system, it is then all about maximizing their Total Customer Value (TCV) with products like subscriptions and additional purchases. This is the economic balancing act between CAC and TCV, and why companies will spend more to get a customer than they are initially worth. In short, Apple can drop $200m to get 'No Time To Die' for their platform, not recoup that money directly from PVOD sales, and still make money off the venture in the long term. Platforms like Apple+ and Netflix are also under pressure to report subscriber gains to Wall Street.

As emotional a subject as cinema can be, a decision on how and when 'No Time To Die' will be released will come down to a cold hard financial calculation.

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