TIME: Almanac 1990/1990 Time Magazine Compact Almanac, The (1991)(Time).iso/time/090489/09048900.002

Text File | 1990-09-22 | 7.9 KB | 145 lines

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