TIME: Almanac 1993/TIME Almanac 1993.iso/time/090489/09048900.002

Text File | 1992-09-23 | 8.0 KB | 161 lines

                S°O                                                          BUSINESS, Page 51

Hollywood or Bust


California, here they come: foreign investors want to be in
pictures

By Barbara Rudolph


    For tourists who sneak a glimpse of the moguls holding court
in the Polo Lounge at the Beverly Hills Hotel, Hollywood's main
products seem to be glamour and glitz. But the motion-picture
business is a vital U.S. industry, one of America's strongest
competitors against foreign economic rivals. Hollywood, despite
its native excess and extravagance, will reap an estimated $8
billion from U.S. box-office and home-videocassette revenues
this year. All told, the entertainment business ranks as the
second largest net U.S. exporter, after the aerospace industry.

    Now well-financed foreign investors want a piece of
America's profits. They are acquiring U.S. studios, bankrolling
American film producers and investing in TV-production
companies. "The expertise is here, and foreign companies want to
buy into it," says Sharon Armbrust, who follows the industry for
Paul Kagan Associates, a consulting firm. For the Old Guard back
at the Polo Lounge, the new competition is likely to make
business a lot more rough-and-tumble.

    Last week a new high roller appeared on the scene when JVC,
the Japanese consumer-electronics company that developed the VHS
format for videocassettes, said it will spend more than $100
million to launch Largo Entertainment, a filmmaking company to
be run by veteran producer Lawrence Gordon (Die Hard, Field of
Dreams). JVC will give Gordon, 53, a former president of 20th
Century Fox Films, a free hand in managing the new company while
splitting the profits evenly with him. Gordon plans to make
three movies in 1990 and five to eight pictures a year
thereafter.

    Besides any direct earnings from the films, JVC hopes to get
new programming that it can sell on videocassettes. Company
officials also want to learn more about the movie business,
possibly as a prelude to buying a major film studio. Says
Gordon: "They have no experience in the business and regard
this as their tuition fee."

    The primary reason that most foreign firms are so interested
in a Hollywood presence is that they want popular American
programming for their booming TV stations, cable companies,
movie theaters and videocassette ventures. "American
entertainment is still viewed as the pre-eminent source of
programming in terms of production values and creativity," says
Jeffrey Logsdon, director of institutional research for the
investment firm Crowell, Weedon & Co. The U.S. posted net
exports last year of $2.5 billion in movies, home videos and
pay-per-view cable TV, an increase of 32% from the year before.

    The wave of foreign money comes at a time when U.S.
investors have soured on film deals because of several flops
among movie start-up ventures. Among them: the studio launched
by producer Dino De Laurentiis, which filed for bankruptcy in
1988 after losing almost $200 million in two years, and a
similar venture launched by veteran music promoter Jerry
Weintraub, which lost $40 million last year after a string of
duds that included My Stepmother Is an Alien.

    The first major arrival of foreign money came in 1985, when
Australian press lord Rupert Murdoch bought 20th Century Fox for
$575 million. Murdoch, who has since become a U.S. citizen, has
successfully used the studio as a source of programming for his
Fox network of TV stations as well as his other broadcasting
outlets overseas. While Murdoch has left studio management
decisions largely to Hollywood veterans on his payroll, his
tabloid tendencies are reflected in the TV programming and have
paid off with several successful, if controversial, shows.
Among them: America's Most Wanted and Married . . . With
Children.

    So far, the most aggressive buyers have been
English-speaking tycoons. Christopher Skase, 40, head of
Australia's Qintex Group, laid claim to an old U.S. institution
in March when he agreed to pay an estimated $600 million to buy
from MGM/UA Communications the United Artists studio, founded 70
years ago by Hollywood legends Charlie Chaplin, D.W. Griffith,
Mary Pickford and Douglas Fairbanks. (Qintex said last week it
had lined up financing for the deal, which must be completed by
the end of September.) Qintex, which owns one of Australia's
largest TV networks, will probably exploit UA's film library as
a steady source of programming for its stations.

    The British are coming too. Last year Television South,
based in Southampton, England, bought MTM Enterprises, producer
of The Bob Newhart Show and The Mary Tyler Moore Show, for $320
million. The Rank Organization, which owns England's Pinewood
Studios, spent $150 million in March to buy a half interest in
MCA's Universal Studios Florida, a combination theme park and
working production sound stage.

    The Japanese, cautious about the political impact of their
investments, have so far moved more slowly. Apricot
Entertainment, the first Japanese production company to come
ashore, has invested $50 million to start a movie-production
company that plans to make four films a year. The Japanese firm
most closely watched in the industry is Sony, which for the
past year has been rumored to be shopping for a major U.S.
studio, possibly Columbia or Universal. A film studio might fit
neatly with Sony's CBS Records Group, which it bought two years
ago for $2 billion.

    Italian financier Giancarlo Parretti aims to join the ranks
of foreign Hollywood moguls, but his reach may exceed his grasp.
Parretti, 47, a former waiter, began buying stock in 1987 in
Cannon Group, a faltering Hollywood mini-studio, and became the
majority shareholder this March at a total cost of $200 million.
But Parretti failed in his bid for another independent, New
World Entertainment. He is running into other obstacles in his
plan to build a global entertainment empire. The French Finance
Ministry is challenging his acquisition of Pathe Films, which
owns 1,500 European movie theaters and an impressive film
library, and in Spain Parretti has been charged with
foreign-exchange violations.

    For Hollywood's independent filmmakers, who must battle
well-heeled studios for everything from scripts to stars,
foreign investment is a welcome source of cash. Says analyst
Logsdon: "The community is rejoicing. Every producer is
wondering how he or she can make their own $100 million deal,"
like the JVC venture. But the big studios perceive their
foreign rivals as potentially serious competitors. Says Joe
Roth, chairman of the Fox Film Corp.: "Large corporations view
foreign investment as threatening to the American studio
system."

    Yet Roth, like many of his colleagues, believes that shrewd
foreign owners will allow Hollywood insiders to manage the
studios. Says Peter Dekam, an entertainment lawyer: "Outsiders
can come to Hollywood, but they will never run it." Major
investors, whether foreign or domestic, have generally
succeeded by following that strategy: Murdoch installed veteran
Paramount mogul Barry Diller at the helm of Fox, while the Bass
brothers helped put Paramount's Michael Eisner at the helm of
Walt Disney.

    For U.S. studios, the most challenging aspect of the foreign
invasion may be the arrival of new management ideas in a town
where indulgent spending and short-term thinking is legendary.
Says Dekam: "Foreign companies, especially the Japanese, are
long-term driven. They look at the world in 15-year blocks. No
one in the U.S. has a 15-year view of anything." To stay
competitive, U.S. studios are likely to bulk up and grow more
diverse. Says analyst Armbrust: "There's pressure now to sew up
as many areas as possible, to compete on all fronts. Size has
great appeal." But wasteful spending may not, if Japanese
efficiency has any influence. The studio executive who has an
allowance for his leased BMW should enjoy it while it lasts.


-- Elaine Dutka/Los Angeles, with other bureaus