You are currently browsing the daily archive for July 26, 2010.

Innovation Blog

How to destroy a great business by falling asleep: The case of Metro Goldwyn Mayer

By Shlomo Maital

The American people are rightly furious at the U.S. Treasury Dept. for its incompetent bailout of “too big to fail” companies (AIG, Citigroup, Bank of America, General Motors).  The leaders of these companies, who were all extremely highly paid, all failed.  Many of them clearly did not know what was going on in their industry, in the world, and indeed within their own companies.  They endangered the livelihood of thousands of honest working people and betrayed their fiduciary trust.  The bailouts make it likely this will happen again.

Now, we have a case again of company leadership failing, this time destroying one of Hollywood’s most respected and venerable movie studios, MGM Metro Goldwyn Mayer, founded by legends Samuel Goldwyn and Louis Mayer in the 1920s.

MGM owns an enormous backlog of wonderful old movies.  For a time it made money by selling DVD’s.  Indeed the whole movie business shifted its revenue model toward DVD’s, which for many movies brought in more money than box office sales of tickets.

But today MGM is virtually bankrupt.  Its film library no longer generates sufficient revenues to pay MGM’s huge debts.  This was entirely predictable.   Had MGM’s management tracked the music industry, they would have seen how CD sales plummeted owing to the shift to on-line downloads, many of them pirated.  The same thing happened to movies.  And it was entirely predictable, years in advance, had movie executives simply stayed awake and drew conclusions from their friends in the music business.   Those same executives could have innovated their business model, shifting toward web-based business (just as Steve Jobs initiated with iTunes — virtually rescuing the music industry) and inexpensive downloads that create high volume business.

Time and time again, Peter Drucker’s axiom comes back to haunt us —   businesses fail not because they do things the wrong way but because they do the wrong things.  MGM is the latest example.   Nobody will bail MGM out.  But count on its senior managers to retire with golden parachutes.  MGM workers will, as always, face a hard landing.


See:  “Who killed James Bond?”, by Matthew Garrahan,  Financial Times, Weekend, July 25 2010, p. 1.


Blog entries written by Prof. Shlomo Maital

Shlomo Maital
July 2010
« Jun   Aug »