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Tapping Into Show-biz Futures

November 03, 1986|JACK MATHEWS

NEW YORK — More than a dozen entertainment industry experts gazed into their crystal balls during a symposium at the Plaza Hotel here last week and relayed some pretty fuzzy images of the future of the film, television and home-video media.

They weren't sure whether the new tax law would help or hurt production. They weren't sure how the takeover of theater chains by major distributors would affect the exhibition business. And though they were all pretty sure the video revolution is finally losing steam, they couldn't say how it will finally shake out.

The symposium, titled "The Changing Dynamics of the Entertainment Industry," was the fourth in a series of annual conferences conducted primarily for investment brokers by the New York-based financial consulting firm Arthur Young. The idea is that if investors understand some of the dynamics at play in their entertainment-stock portfolios, they will make wiser maneuvers.

Knowing where the winds will blow in the entertainment media is less a science than predicting earthquakes or Liz Taylor's next dinner date. As one of the symposium's paying customers said, in apparent frustration, you can talk and you can talk and you can talk, but making movies comes down to crap shooting.

Last year, the hot topic was management instability and how the transients in the chief executive suites were adding to the volatility of the stocks of those companies in revolving-door cycles. Since then, Columbia, Universal and the new United Artists--which didn't even exist a year ago--have all traded in their top executives for other models.

But the management shuffle was not a theme this year. The most talked about subjects were video (the film industry's hobgoblin for the '80s) and Hollywood's frenzied re-entry into theater ownership. In the last 10 months, the studios have committed more than $1 billion to deals that will put about one-sixth of the nation's 22,000 theaters under their control.

This buying binge apparently comes with the Justice Department's blessings. It has been technically illegal for studios to own theaters since the Paramount decree of 1948. It was ruled then that vertical integration--the ability of individual companies to make and exhibit their movies--led to such un-American activities as price fixing.

In the '30s and '40s, there were only a few studios creating nearly all of the movies and owning nearly all of the theaters. Today, with a multitude of production entities, it seems impossible that a handful of studios could exert enough power to control prices at the box office.

But how impossible is it? Several of the panelists at the Arthur Young symposium expressed skepticism. Officially, the studios maintain that they are merely investing in their own business and that they intend to leave the operation of their newly gained theaters to the theater management.

No one at the symposium appeared to believe that.

"Along the way, the studios are going to get involved in the running of these theater chains," said Joel Resnick, chairman of Orion Pictures' distribution division. "It is inevitable that if they think the theaters can help them with their own product, they'll use them."

Orion has not invested in any theaters yet, and Resnick, the former head of the American Multi Cinema chain, said he thinks the studios are paying outrageously high prices for them.

What do the studios have to gain?

According to Resnick and others on the marketing panel, the advantages of studio ownership of theater chains include:

--Control over cash. It's easier to audit your own company than somebody else's, to make sure you're getting your full cut of the box office.

--Upping the take. Ticket sales account for about 75% of all theatrical revenue. By owning the operation, the studios can get the concession revenues, too.

--Holding screens. One of the horrors of movie distribution is having a theater owner replace a film while it still has a chance to build an audience.

--Control over presentation. An even greater horror is having a big movie shown on faulty equipment under Skid Row conditions. The studios have both the capital and the motivation to upgrade.

Resnick said there is no chance that the studios would attempt to shut out competitors from their theaters. The studios can't afford to make a movie a week, as they did 40 years ago, so they will always need outside product. But he said he wouldn't be surprised to see them install their top movies in their best theaters and charge premium prices for them.

Most of the panelists said the buying binge of theaters, which is now in the defensive stage ("I don't want them, but I'd better buy them"), may already be over. The current asking prices for theaters--from 10 to 15 times cash flow--are considered outrageous for a "non-growth industry."

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