Plans by Metro-Goldwyn-Mayer Inc. and Liberty Media
Group's Encore International to become a force in studio-branded channels became
tarnished last week, as the two companies closed MGM Gold Networks Asia.
MGM and Liberty, which each owned one-half of the movie
channel, invested almost $45 million in MGM Gold Asia since it launched two years ago, and
they programmed it with MGM and United Artists library product.
There is a wide belief among industry sources that the
closure was linked to Encore's desire to exit the partnership, although the companies
blamed Asia's economic downturn.
"Recessionary economic conditions in Southeast Asian
markets had lengthened the required investment horizon to the point where the original
profit objectives were no longer achievable," they said in a written statement.
One of Encore's concerns, observers believe, was that
another English-language movie service is not viable in Asia with HBO Asia, Cinemax and
TNT & Cartoon Network already in operation. On top of that, MGM Gold Asia was backed
by only one major Hollywood studio, while its competitors involved studio partnerships.
Encore officials declined comment.
Sources who follow the industry said Encore had been
looking to exit MGM Gold Asia for the last six to eight months.
People familiar with MGM Gold Asia reckoned that
Encore's desire to leave the partnership was also rooted in the re-evaluation of
international investments by its parent, Tele-Communications Inc., and by Encore's
move to pay greater attention to its domestic operations, which include the Starz! premium
channels and the Encore basic multiplex.
There was speculation among sources that Encore was
prepared to exit the partnership as far back as December, but that it held back due to
MGM's initial public stock offering and the launch of MGM Gold Brazil, both of which
occurred at that time.
An MGM spokesman would not comment on that speculation.
People familiar with MGM Gold Asia considered its closure
"shortsighted," even amid a recession, and they speculated that it would
eventually return. They also noted that MGM chairman Frank Mancuso has been a strong
backer of the company's move into the branded-channel business.
"MGM knew that they weren't venture
capitalists," and that the channel was a long-term investment, one source said.
"Asia's economy will come back, and those subscribers would have been a valuable
piece of real estate."
Drew Kaza, managing director of Mediaplex, a London-based
TV and film consultant, also expressed surprise: "They've gone a long way to
build a base, and they had the first one or two years -- which everyone knows are the most
difficult -- behind them."
Sources said MGM, knowing that Encore wanted to exit MGM
Gold Asia, had looked for a new partner, but it had courted many of its competitors, which
weren't likely to invest in the channel. Sources also said potential investors for
Encore's share may have been scared away by Asia's economic crisis.
Either way, people familiar with the situation believe that
MGM, as one of the smaller Hollywood studios, will have to take on a partner if it intends
to make branded channels a global business.
MGM Gold Asia built up to a total of 2.8 million
subscribers in Hong Kong, Thailand, Taiwan, Malaysia, Indonesia, Singapore, the
Philippines and mainland China.
MGM said it still plans to launch local versions of the
channels in Spanish-speaking Latin America and Europe. Likewise, Encore said it will
maintain its independent investments in Asia -- namely, a reciprocal-programming deal with
China's state-owned China Central Television.
Still, the decision to close MGM Gold Asia appeared to come
as a shock to staff in Hong Kong, where most of its 52 employees are based. They declined
to answer questions about the closure, but the office remained busy through the end of
March, hiring personnel and concluding distribution, marketing and advertising deals and
Two weeks ago, the channel said former Star TV staffer
Aaron Lee had been named vice president of business development and affiliate relations,
shortly after a sales team was announced to serve Taiwan.
Additionally, MGM Gold Asia ran full-page advertisements in
the April issues of Asian media-trade publications, and it was working on a second
quarterly promotional newsletter.
Gary Davey, CEO of News Corp.'s Star TV, said he
agreed with the comments by MGM Gold Asia linking the closure of the channel to the
region's economic malaise. "We have long felt that this year was going to be a
sorting-out year and, inevitably, there's going to be casualties. I think that MGM
Gold was unlucky with their launch into secondary markets like Thailand, Malaysia and
Indonesia, where the recession has been hardest," Davey said.