The landscape of the entertainment industry is changing rapidly.
Westinghouse's acquisition of CBS on Tuesday and Walt Disney Co.'s purchase of Capital Cities/ABC Inc. a day earlier demonstrates the continuing consolidation of the entertainment world as fewer and fewer conglomerates fold more and more businesses under their corporate umbrellas.
As government regulations of the network business fall away, analysts predict that there is going to be even more of a scramble among powerful companies to gobble up the remaining pieces, which could prompt acquisitions of such previously unavailable powerhouses as General Electric's NBC and Thorn-EMI.
Competition in this environment is becoming tougher. The world of show business is becoming increasingly polarized with major media players like Disney, Time Warner, Viacom and News Corp. dominating the field.
Wall Street analyst Michael Wolf, a partner in Booz, Allen & Hamilton, observes: "To compete in this new world, entertainment media companies have to be very vertically integrated. They need to be both deep in the businesses they're in and broad across the whole range of businesses." In the changing landscape, he adds, "it's not good enough to be great; you have to leverage strengths across the whole set of businesses."
Companies that were once content to create programming are expanding into distribution, publishing, music, cable and network broadcasting and interactive multimedia services. In the process of making their businesses grow, these firms frequently must assume huge debt loads and sometimes spark dramatic culture clashes.
The job of managing these creatively driven, asset-heavy conglomerates is complicated.
As music mogul David Geffen points out, "The entertainment business is a different animal from other industries."
He notes: "It's not like filling cans with Coke or stamping out Rubbermaid products. Companies usually stumble when they get very big and have to make creative decisions about a zillion different areas."
Geffen's point is that each company has its own strengths and weaknesses that it must address, but that it's nearly impossible and questions whether it's necessary to be in every business across the board.
"It's not realistic to compare these businesses. They are not similar, and that is not the way people who run them analyze their prospects for the future."
Here are some of the major entertainment companies and what analysts say they need to do to compete in the future:
Walt Disney Co.
Disney may have just pulled off the biggest coup in entertainment business, but the firm's rock music division is still the laughingstock of the record industry. Disney Chairman Michael Eisner has professed an interest in cashing in on the lucrative record market but has avoided sinking billions into the purchase of an existing operation like Thorn-EMI. Eisner has been unsuccessful in trying to lure former Warner Bros. Records Chairman Mo Ostin to take over Disney's flagging Hollywood Records division, which has lost more than $75 million since opening its doors in 1990.
Analysts, however, see the rock label's disappointment as but a "blip on the radar" in an otherwise impressive set of assets.
Some analysts also suggest that Disney could better exploit its animation characters and theme park merchandise in the interactive multimedia world.
"I know Disney used to pooh-pooh interactive multimedia and took a toe-in-the-water-stance in the electronic game area, but I believe that could be a key growth area for them," said Tom Adams, president of the Carmel Valley, Calif.-based Adams Media Research. "Kids who love 'The Lion King' are going to grow up into adult computer consumers. There's little doubt that Disney could quickly become a leader in the 'edutainment' game business."
Time Warner ruled the roost in the entertainment business before Disney's announcement Monday of plans to buy Capital Cities/ABC. Last year, the New York-based media giant raked in $16.5 billion in revenue, dominating the domestic market in music, publishing, film and television studio production, with divisions that receive high marks from both financial analysts and media critics. Time Warner falters primarily in the broadcasting sector, where its fledgling WB network scores few points with analysts.
Although its individual businesses are profitable and reported record post-merger profits in the latest quarter, the company has racked up losses in the last five years because of the high cost of servicing its $15-billion debt. Its music division has been beset by management turmoil over the year, and analysts speculated that the firm could resolve its biggest problem by spinning off its cable interests. "Time Warner's problem is not how to get more but how to have less," said one executive from a competing firm. "All they have to do is spin off the cable and they'd have a staggering group of content assets. That stock would go through the roof."