Hollywood insiders love to observe that boom times could suddenly end.
Television networks are tightening up on payments. The syndication market is soft. Videocassette recorder sales aren't climbing the way they used to. And studios, with or without accounting hocus-pocus, really can't turn a profit on movies that cost an average of $18 million to make and another $10 million or more to market.
Entertainment stock offerings "peaked in July, 1986, and have been (going) straight downhill ever since," said Peter Dekom, an attorney whose firm represents Sylvester Stallone and other industry figures. In a sure measure of investor pessimism, many of the new stocks are trading far below their highs of last year. They include Carolco Pictures, MGM/UA Communications, De Laurentiis Entertainment Group and Aaron Spelling Productions.
"There's always a point where things are going to have to snap back to reality. I think we're fairly close," said producer Richard Zanuck, who helped to revive 20th Century Fox Film Corp. after the studio's near collapse in the 1960s, thanks to "Cleopatra," a budget-buster that cost $35 million to make.
If nothing else, the gnawing suspicion that good times can't last has made Hollywood almost as cautious in guarding personal wealth as it is carefree when spending company dollars.
"There's tremendous insecurity about investments," said Bram Goldsmith, City National Bank chairman. "Even though (entertainment people) are earning big money, they're not spending nearly as much as stars were in the '20s when they were under contract to the studios. Most of the big talent are squirreling money away. They're careful because they don't know if they're still going to make it next year."
According to Goldsmith and others, many of the entertainment industry's newly rich, acutely risk-averse, have rushed in the last few years to secure the services of the more conservative business managers--principally Breslauer Jacobson Rutman or Gelfand Rennert & Feldman.
Each is a relatively small, "Tiffany" management firm based in Century City. Discreet in the extreme, both concerns declined to discuss their clients or policies. But sources close to each say they manage a rapidly growing sum of money for producers Steven Spielberg, Don Simpson and Jerry Bruckheimer; rock star Bruce Springsteen; actress-singer Barbra Streisand; music entrepreneur David Geffen, and a small but powerful corps of the richest movie and TV executives.
One client maintains that the Breslauer firm controls a whopping $500 million in cash and cash equivalents, and that sum supposedly represents just a fraction of its investments. Both are said generally to have avoided stocks, junk bonds, movie partnerships and (until recent tax law changes made them obsolete) the riskier tax shelters. Instead, they have favored investment-grade corporate bonds and participations in first-class real estate projects overseen by solid developers.
Clients usually pay their business managers 5% of the gross return on their investments, although some bigger customers have been put on smaller monthly retainers as their fortunes piled up and the fat percentage fees became an embarrassment. In return, the Hollywood investor gets some assurance that he or she will comfortably survive any personal cold streak or severe downturn in the industry.
The books of one studio officer, for instance, show real estate investments with steady cash flow of about $200,000 a month. Of his more than two dozen manager-supervised partnerships, in which the executive participates with the likes of Barry Diller and Streisand, more than 93% have made money. "The rest broke even on tax advantages," the officer explains.
In keeping with the conservative mood, hearth and home have become another favorite Hollywood investment of the moment--partly because new tax laws, while closing other loopholes, still give interest deductions for a family home, and even a luxury second home, "no matter how big," according to Century City accountant Arnold Bernstein.
Luxury housing prices in the Golden Triangle--Brentwood, Bel-Air, Beverly Hills--languished when interest rates peaked in 1981 and 1982. They are now surging more wildly than ever, with some prices doubling in less than two years, as the new rich scramble for quarters to match their growing wealth.
Aaron Spelling owns a large house near Sunset Boulevard worth $4 million or so. But he has also bought the old Bing Crosby estate for a reported $10.5 million, and according to sources familiar with the clubby world of Westside real estate, is spending about $15 million to rebuild. (Contrary to industry gossip, says a Spelling spokesman, the new house won't include a zoo or an indoor ice skating rink. "But it does have a bowling alley," he said.)