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THE HOBBIT HEDGE: The Real Reason MGM Needs 'The Hobbit' Split Into 3 Movies


The Hobbit

The announcement late last month that the two previously planned "Hobbit" films would become three was met equally with applause and groans from fans and critics.

Forbes asked whether Warner Bros. — MGM's co-funder on the franchise — was getting greedy with another film.

(Note "The Lord of the Rings" is a $3 billion franchise, so there's plenty of incentive to create a new franchise trilogy, considering three-quels are faring pretty well these days.)

MGM, however, has the most riding on a third Hobbit film. 

$500 million in debt

The company was on the verge of filing for bankruptcy protection in November 2010, but resurfaced after raising $500 million and announcing a plan to wipe out $5 billion in debt.

In February, MGM announced it obtained a $500 million credit facility to further manage its debt and build up its film and television business.

But according to MGM's Q2 financial report, its first filing since it reorganized, the studio's revenue declined by $85.5 million in the first six months of the year, from $393.3 million to $307.8 million. 

It also lost $233.7 million in cash from its balance sheet in the last 6 months, after paying off $311 million in debt and spending another $147.5 million on operations.

That's why MGM needs "The Hobbit" to do as well as possible, and why fans are being asked to buy tickets for three movies instead of two or one.

The rocky Robo-reboot


Currently, the studio is benefiting from the Bond franchise — "Quantum of Solace" made its television debut on USA in summer 2011 — and it's already promoting the "Hobbit." MGM spent $45 million, up $7.5 million from 2011, in the first six months on distribution and marketing expenses primarily to promote both films.

However, the studio has a big upcoming slate, with eight films to be released between now and 2013. Among them is "Robocop," with an estimated $80 million budget. According to the release, MGM has all its bets on Q4, with the 50th anniversary promotion for James Bond DVDs and the release of the latest Bond flick, "Skyfall," in November. There will also be further activation around "The Hobbit."

Now, it's looking likely the Robo-reboot may very well be a bust. Earlier this week, film critic and screenwriter Drew McWeeny took to Twitter ripping apart the remake after claiming to have read a version of the script.

mcweeny tweet

mcweeny tweet

The Hobbit Hedge

The first two Hobbit films are estimated to have cost $500 million. A third Hobbit film thus provides a safety net, especially since it would cost next to nothing to produce: "Hobbit" director Peter Jackson admitted he already had enough source material and left over footage from the first two films to expand into a third, cutting production costs.

Assuming "Skyfall" and "Hobbit" perform well this winter, MGM can breathe easy through 2014, the current schedule for the next two Hobbit movies.

SEE ALSO: The 10 most profitable trilogy finales of all time >

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