Hollywood Or Bust

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.

With reporting by Elaine Dutka/Los Angeles, with other bureaus