In order to bolster their Amazon Prime Video streaming service, Amazon is buying the legendary M-G-M, probably the most famous of the great movie studios, for $8.45 billion. This will be the second biggest acquisition in Amazon’s history, exceeded only by its $13.7 billion 2017 purchase of Whole Foods Market. Metro-Goldwyn-Mayer, with its roaring lion logo, produced such blockbusters as Gone with the Wind, the Wizard of Oz, and Ben-Hur. Yet Amazon will get none of those films from the studio’s glory days, as detailed in this brief version of M-G-M’s convoluted history.
Our story begins with New Yorker Marcus Loew, who has made money from a life in the fur business. Known as an easy, amicable fellow, he begins to invest in income-producing real estate such as apartments. Loew with his neighbor and lifelong friend, fellow fur maker Adolph Zukor, then begins to put penny arcades into vacant spaces in New York City. Later they start showing 5-10-minute films in nickelodeons. The two men merge their entertainment businesses and grow wealthier from them. Zukor’s daughter later marries Loew’s son. (Zukor’s amazing life story is told here.)
Zukor watches audiences’ reactions to films closely and decides that they might sit still for a long movie – say 20 minutes – if it had a good story. He sells out his interest in their partnership to Loew and goes into movie production in 1912. Largely through his efforts, feature length movies come about, against strong opposition from those making money off short films, including Thomas Edison. Zukor’s movie production and distribution company evolves into Paramount Pictures, which he controls. Marcus Loew, on the other hand, likes the theater (“exhibition”) business and builds large movie houses around New York City. Zukor owns no theaters.
Back in 1906, Marcus Loew had brought two brothers into his company. Nicholas “Nick” and Joseph Schenck emigrated from Russia when they were young and ended up powerful forces in the film industry. After delivering newspapers and other odd jobs, the brothers get a beer concession at the Fort George amusement park on a high point in upper Manhattan. With the profits, they add rides and amusements there, where Marcus Loew is a frequent customer. The two later build Palisades Amusement Park across the Hudson River in Fort Lee, New Jersey. Nick Schenck becomes Marcus Loew’s right-hand man in the operation of his theater circuit.
As we swing into the post-war boom and the beginning of the roaring twenties, the motion picture industry becomes big business. Producers fight to get their pictures into the top theaters in the biggest cities and the theater owners fight over which pictures they get first. Adolph Zukor realizes he needs to control his own cinemas, so he goes on a buying and building spree. Marcus Loew wants to ensure he has a steady flow of films for his theaters. He decides to put together a movie production company. The two old friends move into each other’s turfs.
The Creation of Metro-Goldwyn-Mayer
Marcus Loew first plans to buy two smaller film companies. The first is Metro Pictures, a producer and distributor of pictures. (Film distribution companies decide which films go to which theaters, pay for all advertising and printing the films, and usually receive 25-35% of the box office receipts on top of the advertising costs.) Metro’s future does not look good in 1920, when Loew makes his move, eight years after Zukor has entered the movie production side of the business.
The other firm Loew pursues, four years later, is Goldwyn Pictures in 1924. The eight-year-old studio has been created by Samuel Goldfish, Broadway producers the Selwyn brothers, and a few friends. Its name comes from the combination of Goldfish and Selwyn. The company’s logo is a roaring lion, which the new company keeps. Goldfish runs the studio and has high quality standards but cannot afford major stars; the company struggles. Goldwyn Pictures has gone public, but in 1923 the stock drops about 60%. Marcus Loew has found a bargain. Samuel Goldfish by then has legally changed his name to Samuel Goldwyn, and soon leaves the company to produce movies on his own.
As Loew is creating Metro-Goldwyn, he comes to believe he needs someone stronger to run the total operation. He picks former Boston area theater owner Louis B. Mayer, a former producer at Metro who has left to make pictures on his own. Also joining our story is Irving Thalberg, who at age twenty-one has run production for the smaller Universal Pictures studio. In 1923, Mayer hires this “boy wonder” of Hollywood, then twenty-three-years-old.
These operations, wholly owned by Loew’s, Inc., are merged into Metro-Goldwyn in 1924 and renamed Metro-Goldwyn-Mayer in 1925.
Marcus Loew and Louis B. Mayer make a great pair. Loew stays out of the spotlight and remains in New York, running the company. Louis B. Mayer runs things with an iron hand in Hollywood. He is happy to be the public face, frequently out with stars and starlets for the photographers. While Mayer ultimately goes on to much greater fame than Marcus Loew, the two are in continual communication and Loew calls all the financial and budget shots.
Loew takes good care of Mayer and his associates. Loew’s pays Mayer $1500 per week, Thalberg $650, and their associate Robert Rubin $600. Within a year, Mayer’s salary is increased 67% and the twenty-five-year-old Thalberg’s pay is tripled (equivalent to annual salaries in 2021 dollars of $2 million and $1.5 million, respectively). In addition, the three get twenty percent of any profits their pictures make, with Mayer receiving over half of that profit pool.
But only two years later, in 1927, Marcus Loew dies at the age of fifty-seven. Nick Schenck is now the head of Loew’s, Inc.
The Glory Years
Nick Schenck and Louis B. Mayer form the oddest of partnerships. They apparently strongly dislike each other, but nevertheless make a lot of money and some great movies while in partnership. Mayer has to take orders from Schenck in New York but in Hollywood he is seen as a star-maker. Behind his back, Mayer refers to Nick Schenck as “Mr. Skunk.”
As the 1920s progress, Schenck’s M-G-M and Zukor’s Paramount are the largest studios in the nation and own hundreds of theaters. M-G-M promotes itself as “having more stars than heaven,” including Ramon Novarro, Buster Keaton, John Gilbert, Norma Shearer, Greta Garbo, Joan Crawford, and Lon Chaney. Top directors included King Vidor, Marshall Neilan, and Erich von Stroheim. With additional talent in set and costume design, the studio employs 4500 people.
Two other firms of the era are worth mentioning because they show up later in our story.
In 1919, a group of superstars create their own movie production company in order to escape the grasp of the industry giants and have more artistic freedom. Mary Pickford, her husband Douglas Fairbanks, Charlie Chaplin, and pioneering director DW Griffith form United Artists. Nick Schenck’s brother Joe joins that organization as President. The upstart company makes good profits as long as Pickford and Fairbanks are active but goes into decline after World War II.
Another smaller studio was that of the four Warner brothers. Their studio leaps into the big time when it, along with William Fox’s studio, led the way into sound “talkies.” Warner Brothers leads the way in 1927 with The Jazz Singer starring Al Jolson. (Both M-G-M and Paramount add sound cautiously, in part because of the cost of re-equipping their larger theater chains with new projection and sound equipment.)
The twenties were also the time of the rise of the great picture palaces across America, palatial venues for watching movies. Paramount, Loew’s, Fox, and Warners all participate in building these massive beauties.
In 1929, competitor William Fox, enriched by his early move into sound film, buys control of Loew’s (and thus M-G-M) from Marcus Loew’s family and Nick Schenck, who gets a multi-million dollar bonus for engineering the deal. But Mayer and his Hollywood team are outraged, only learning of the pending merger when it is announced in the newspapers. When the stock market crashes (and Fox is critically injured in a car wreck), the deal falls through, but the relationship between Schenck in New York and Mayer in Hollywood is further strained.
When the Great Depression hits, movie attendance takes a sharp decline. Ticket prices drop. Foreign bookings, always important to the industry, dry up (and even more so during wars). Adolph Zukor has built his empire with debt and complex stock deals: Paramount collapses into bankruptcy, Zukor losing control.
Following the conservative financial management tradition of Marcus Loew, M-G-M remains profitable and survives under Nick Schenck and his Hollywood team. Despite Thalberg’s early death at thirty-seven in 1936, M-G-M produces a string of classic movies, most famously both the Wizard of Oz and Gone with the Wind in 1939. Gone with the Wind, one of the most expensive films produced to date, is a huge blockbuster. The movie’s cumulative ticket sales through 2021 (If adjusted for inflation) total over a billion dollars, ranking it as the biggest box office success in history.
The movie industry’s top players generate these revenues in 1938 from production, distribution, and exhibition (theaters):
For Loew’s and M-G-M’s leaders, the cash keeps flowing. In 1937, the three highest-paid executives in any company in America are reportedly Louis B. Mayer at $1.2 million, Rubin at $750 thousand, and Nick Schenck at $540 thousand (in 2021 dollars, equal to about $22 million, $14 million, and $10 million).
In 1948, the federal government determines that these companies are “too powerful” and forces them to separate their production businesses from their theater chains. Paramount has the largest chain, over one thousand movie theaters. Paramount lawyer Leonard Goldenson takes over the new company that owns the Paramount theaters and uses their cash flow to buy the ailing ABC TV network, turning it into a major competitor to industry pioneers NBC and CBS. Ultimately ABC leaves the theater business and is acquired by the Walt Disney Company.
Loew’s smaller theater chain also becomes an independent company, separate from M-G-M. Control of the Loew’s theaters is bought by New York’s Tisch brothers in 1959. They proceed to leave the theater business and turn Loew’s into a conglomerate of diverse businesses, today a $13 billion (revenues) company focused on energy, finance, and hotels.
Worse than the loss of profits from their theaters, the movie studios have to deal with a new phenomenon in the late 1940s and early 1950s: television. The future looks bleak for the movie industry; stock prices drop. The companies try to woo customers back to theaters with expensive blockbusters, but most do not sell enough tickets to cover their enormous production costs. M-G-M’s 1959 epic Ben-Hur is an exception, raking it in at the box office, but still not enough to make the company successful.
Louis B. Mayer hangs in there with M-G-M until 1951, when his conflict with Schenck finally results in the two men parting ways. Nick Schenck retires from M-G-M in 1957, having run the company for thirty years. A new guard tries to revive the company, but its glory days are long past. As the 1960s and 1970s proceed, Paramount, Fox, Warner Brothers, Universal, United Artists, and others, including upstart Walt Disney Productions, fare better.
The Wheeler-Dealer Era
In the following decades, the M-G-M story gets complex beyond recognition. Hundreds of articles and books have been written about these dealings, each with their own drama. Here we only outline the key developments.
As television rises, broadcasters and others begin to see the value in the classic films. The “vault” or libraries of old films begin to be bought and sold for tens of millions of dollars. The buyers reap millions in “syndication” rights for television. Warner Brothers sells off some of their older films in 1956, M-G-M starts licensing or selling films to television stations and networks that same year, and Paramount follows in 1958. M-G-M is offered $10 million for one TV showing of Gone with the Wind, but passes on the offer, preferring to make money by showing the movie in theaters every few years. The movie companies also go into the production of television series for the networks, M-G-M producing Dr. Kildare and The Man from U.N.C.L.E., among others.
M-G-M’s Dr. Zhivago is a 1965 success, but hits are few and far between. The major studios of old struggle to achieve consistent profitability. United Artists, still backing independent producers rather than owning a physical studio, achieves success with the James Bond series and other films.
The 1960s and 1970s become the “conglomerate era” on Wall Street, with upstart companies (and some older ones) buying up company after company in unrelated industries. Corporate raiders begin to circle M-G-M. High-flying conglomerate Gulf & Western buys Paramount in 1966 and San Francisco’s Transamerica financial company buys United Artists the following year. In 1969, parking lot and funeral home operator Kinney National Services buys Warner Brothers, renaming itself Warner Communications.
In the midst of this, in 1967, heir to and President of the Seagram liquor company Edgar Bronfman acquires control of M-G-M, with help from magazine publisher Time, Inc. In an effort to turn around the company’s declining fortune, Bronfman and the board of directors choose Louis Polk, Jr., to head M-G-M in 1969. Polk, still in his thirties, has been chief financial officer of General Mills. He brings with him a team of financial analysts and planners, with a goal of “rationalizing” the movie industry. Their efforts are cut short when another big figure arrives on the scene, desiring to own M-G-M.
That figure is none other than a real gambler, Kirk Kerkorian. Kerkorian has made his fortune in the airline business, but then sells it and uses to proceeds to build casinos in Las Vegas. He sees M-G-M as a powerful, well-known brand that he can put to better use. By the end of 1969, Kerkorian replaces Bronfman in control of M-G-M. Kerkorian begins building the biggest casino hotel on the strip, the M-G-M Grand (today named Bally’s casino, later succeeded by an even more humongous M-G-M Grand, one of the largest hotels in the world). While M-G-M continues producing films and TV shows, and is profitable, two-thirds of those profits come from the hotel and casino operations. In 1980, Kerkorian splits the company into two publicly held corporations, one with the casinos and the other, Metro-Goldwyn-Mayer Film Company, in the entertainment business.
In 1981, this new M-G-M, under Kerkorian, buys United Artists from Transamerica for $380 million. This transaction contains a bit of irony, given that United Artists was first created to get out from under the thumb of the big studios like M-G-M. The business has become all about owning libraries of films that can be sold or licensed to others. The company now owns large libraries of M-G-M, United Artists (including the James Bond films), and even some Warner Brothers films that United Artists has acquired over the years. In 1982, Kerkorian renames the company MGM/UA Entertainment.
In 1985 and 1986, another towering figure enters our story. Maverick Atlanta cable broadcaster Ted Turner wants more films to show on his Turner Broadcasting networks and stations. Turner buys MGM/UA for $1.5 billion but takes on too much debt to finance the transaction. He sells the UA part back to Kerkorian for $300 million to recoup cash. He also sells off M-G-M’s valuable California real estate. When the dust settles, Turner Broadcasting ends up with the M-G-M and Warner Brothers film libraries and Kerkorian keeps the United Artists libraries and the rights to the lion logo, one of the most recognized in the world. Kerkorian’s entity emerges with the name MGM/UA Communications Company. But the Wizard of Oz and Gone with the Wind are now owned by Turner.
This new MGM/UA has a few hits including Rain Man, with Dustin Hoffman, but the company is bleeding red ink, over $40 million a year in losses in the late 1980s. Management is a revolving door under Kerkorian, with new executive after new executive trying to turn the company around.
So, in 1990, Kirk Kerkorian sells MGM/UA to Italian Giancarlo Parretti’s Pathe Communications for $1.3 billion, a nice profit from the $300 million he had paid four years earlier. Parretti buys the company with funding from giant French bank Credit Lyonnais. But Parretti turns out to be a fraud and a crook, draining MGM/UA of resources. He has also bribed Credit Lyonnais officers in order to get his loans. Parretti ends up in prison and the bank forecloses on the renamed MGM-Pathe in 1992. That year, the company posts a $271 million loss. Credit Lyonnaise pumps $2 billion into the company, trying to turn it around, with little luck.
Kirk Kerkorian, always looking for an interesting deal and knowing the company’s history, buys MGM back from the French bank for $1.3 billion in 1996 with partners and outside financing. With Kerkorian’s support, the company buys several film libraries for over $800 million in 1997 and 1998. As a result, the company, again named Metro-Goldwyn-Mayer, owns the largest film and TV library in the world, despite not owning the classic M-G-M pictures which Ted Turner has purchased.
(The Turner evolution is almost as convoluted as MGM’s. In 1996 he sells Turner Broadcasting to Time Warner, the result of a merger between magazine publisher Time, Inc. and diversified entertainment company Warner Communications, owner of Warner Brothers. After an ill-fated merger with AOL, Time Warner is eventually purchased by AT&T, the former Southwestern Bell Telephone Company, in 2016. But that does not work out too well, either, with AT&T announcing it is spinning out those operations and merging them with the Discovery Networks into a new company in 2021. The new company, entitled Warner Brothers Discovery, will continue to own the classic films of both Warner Brothers and Metro-Goldwyn-Mayer.)
Throughout these years, the old film studios continue to change hands. Rupert Murdoch gets control of Fox, Sumner Redstone’s Viacom controls Paramount, and Japanese giant Sony gets Columbia Pictures.
In an effort to get more material for their emerging Blu-Ray disc technology, Sony puts together a consortium of investors (and big lenders) to buy MGM and its huge film library from Kerkorian for $1.6 billion in 2004. The company becomes a private corporation once again, with no shares available to the public on the stock market. Despite some successes, especially the continuing James Bond series, revolving leaders fail to make MGM prosper. Failing to find a buyer and beset by enormous debt, the great, historic MGM files for bankruptcy in 2010. It emerges from bankruptcy owned by the creditors and a new group of managers from independent film production company Spyglass Entertainment.
Under the new team’s leadership, MGM continues to make new deals and soon becomes profitable again. The company buys a majority stake in the company that produces such TV shows as The Voice, Survivor, The Apprentice, and Shark Tank. Making the most of their library, they sign distribution and licensing deals with others, including Sony.
Which brings us up to 2021, when Amazon agrees to acquire the company for a total of $8.45 billion, including the assumption of debt. While the great films of Mayer and Thalberg are not in the deal, being owned by Warner Brothers Discovery, Amazon gets an enormous library of 4000 movies and 17,000 TV programs. They also get the lion and his roar.
At the American Business History Center, we have studied many companies, but few have had the dizzying complexity of the tumultuous MGM story, even after we’ve omitted many details and great movie titles. One thing is clear: great art, even in film, has lasting value. While movie theaters, retail chains, big companies, and even tall buildings come and go, classic films from every era retain or increase their value decade after decade. Who knows how much these old films will be valued at in another century?
For the full details on all the events described in this story, see the excellent book MGM by Tino Balio (2018).
For a more complete history of the movie industry, watch this video.
American Business History Center