Reuters is circulating a Hollywood Reporter story that provides a little clarification of the deal announced yesterday for Warner Bros. to take over worldwide distribution duties for The Hobbit. Originally the plan had been for MGM to distribute in North America, MGM elsewhere, with the two films chipping in 50% each of the estimated $500 million budget. But it turns out that Warner Bros. is providing the money for MGM to pay for its share of the production costs:

The pact resolves the prickly question of how MGM will pony up its half of the budget, with the other half coming from Warners/New Line.

In recent bankruptcy papers, MGM said it needed a loan of $265 million-$275 million for the two “Hobbit” movies, which are projected to cost at least $500 million to produce.

MGM will still retain international television licensing to the films.

Warner Bros. will collect a distributor’s fee in all territories. I believe this will mean that WB gets a share of the money paid by the theaters before the revenues going to each of the production companies is calculated. Essentially it sounds like MGM will not have to pay the production fees up front but will still be entitled to a share of the eventual income from the film because it initially came into the deal controlling the Hobbit distribution rights.

My guess would be that this arrangement has been planned for some time now but could not be implemented until MGM either got sold or went through bankruptcy. The studio emerged from a short bankruptcy process in mid-December.

Variety reports that today MGM laid off 45 people today in preparation for its emergence from the pre-planned bankruptcy.

Layoffs, which had been anticipated, began Friday at MGM headquarters in Los Angeles and were mostly in distribution and marketing.

MGM disclosed in recent bankruptcy filings that it had planned to cut the staff to about 320 from more than 400 but a spokeswoman indicated Friday that the number of cuts will be significantly smaller.

MGM, which has released only one film this year, received approval on Dec. 2 from a bankruptcy court judge of its “pre-packaged” plan of reorganization. Studio plans to emerge from Chapter 11 as early as next week with $500 million in cash available, once it secures a JP-Morgan Chase loan.

With Spyglass Entertainment toppers Roger Birnbaum and Gary Barber in charge, MGM’s expected to seek a separate loan of $265 million-$275 million for its share of the back-to-back “Hobbit” movies.

Earlier reports had suggested that the Hobbit financing would come out of the $500 million court-approved loan. Now it appears that the MGM will go back to operating in a bigger way by taking out another loan specifically for it. The budget of the two-part film has been announced by the producing studios as around $500 million. The loan seems to confirm that MGM is paying 50% of the production costs.

MGM’s filing for a prestructured bankruptcy is still due to be decided on by the judge on December 2. According to Variety, two final meetings need to take place:

The deadline for court filings of any objections to the plan is on Friday, the day after Thanksgiving. And a required meeting of creditors — where they can question MGM reps — has been set to take place in Manhattan on Tuesday, two days before the court hearing.

“Attendance by the creditors at the meeting is welcomed by not required,” MGM said in a court filing. “At the meeting, the credtiors may examine the debtors and transact such other business as may properly come before the meeting.”

As I reported previously, on November 12 the judge approved parts of the plan, including giving permission for the studio to raise $500 million in loans in order to expand its currently minimal operations. That includes at least part of the reported $250 million that MGM will be contributing as co-producer of The Hobbit.

Unless some sort of drama erupts at one of those meetings, a week from now we can expect to see a resolution of MGM’s long-running financial woes.

Variety reports that today the judge in the hearing concerning MGM’s bankruptcy has ruled favorably on the company’s request for interim operating money:

Attorney Jay Goffman, who is handling the case for MGM, told Daily Variety after the hearing, “We expect to confirm on Dec 2. All of our first day motions were granted today.”

MGM was also granted interim permission by Bernstein to use cash collateral of lenders as it reorganizes so that it can pay employees and continue operating during the bankruptcy.

The bankruptcy filing came only yesterday, and all parties involved are no in agreement about the deal to have Spyglass run the restructured studio are in agreement over the bankruptcy plan.

So MGM could go through the process and emerge in its new form in about a month. Part of the cash collateral mentioned here presumably includes the $40 million I mentioned in my post yesterday, earmarked to pay part of the costs of The Hobbit, which the studio is producing with New Line Cinema. The rest is to be paid via one or more loans.

The Associated Press posted a story this morning detailing the MGM bankruptcy filing. In it, some specific information about how much MGM is expected to pay for its share of financing the two-part Hobbit film, which it is co-producing with New Line Cinema:

In the bankruptcy court filings, MGM sought approval to spend up to $125 million from its accounts on operations over the next 15 weeks.

MGM plans to retain its $40 million investment in “The Hobbit,” the two-part prequel to “The Lord of the Rings” trilogy, and have a lender cover the remainder of its half of the project in exchange for fees, the filing said.

“The Hobbit” is being directed by Peter Jackson and is half-owned by Time Warner Inc.’s Warner Bros. The two movies, being shot back-to-back, have a budget between $530 million and $550 million, and MGM is responsible for half that, the filing said.

MGM said in its statement that the company expects to raise $500 million after emerging from bankruptcy to fund new films and TV shows.

The figure of $530 to $550 million is larger than the $500 million that has been given as the budget in most news coverage since the greenlighting of the film. Now from the court filing we learn that MGM’s share is fully half. Once the film is finished, Warner Bros. is to distribute it within North America and MGM will do so in other territories–if the studios are sticking to the original agreement.