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PolyGram Still Wants to Be Big Player

July 19, 1996|CLAUDIA ELLER

What now, PolyGram?

Michael Kuhn, head of Dutch-owned PolyGram Filmed Entertainment, says management may be disappointed but is hardly daunted by losing its bid for Metro-Goldwyn-Mayer studio, something that would have helped fulfill the company's desire to be a major Hollywood player.

Earlier this year, PolyGram was trumped in the eleventh hour by John Kluge's Metromedia in its effort to acquire Samuel Goldwyn Co. PolyGram had also had its eyes on Spelling Entertainment, which Viacom subsequently took off the market when it couldn't fetch its desired price.

Perhaps more significant, last year Seagram Co. made off with 80% of MCA, which owns Universal Pictures, for $5.7 billion before the studio-hungry PolyGram, or anyone else for that matter, had a shot at it.

Kuhn says that despite those missed opportunities and losing MGM to a management-led buyout backed by billionaire Kirk Kerkorian, PolyGram "will go on with our plan to grow organically and look out for the acquisition that will speed us into the major leagues quickly."

Let's face it: With the same $1.3 billion in its pocket that the company's majority owner Philips Electronics had sanctioned for the MGM buy, PolyGram is ready to pounce on the right opportunity.

But Wall Street analysts say that unfortunately for PolyGram, there's no other major acquisition opportunity like MGM on the horizon. "There's nothing left to buy. All the big deals have been done for right now," analyst Harold Vogel of Cowen & Co. says, noting that what's left "is small stuff--relatively speaking." Sony Pictures Entertainment, which is not presently on the block, "is always an open question," says Vogel.

Vogel and other experts agree that the only significant movie business acquisitions out there at the moment are New Line Cinema and, to a lesser extent, Castle Rock.

Many industry observers believe New Line, which is essentially in play now that the government has given a tentative blessing to the Time Warner-Turner merger, would be a natural fit for PolyGram. Turner is said to be looking to get more than $1 billion for the production and distribution company, whose hits include "The Mask" and "Dumb and Dumber."

Kuhn said PolyGram is "absolutely" interested in New Line, though it hadn't pursued talks both because of the MGM distraction and because New Line hasn't officially been put up for sale.

"Once the Time Warner situation is resolved, we'll look," said Kuhn, noting that although he's familiar with New Line's production and distribution side, he knows little about the company's film library and other aspects of the operation.

Turner-owned Castle Rock, also up for grabs in light of the Time Warner-Turner merger, is also of interest to PolyGram, though serious talks with suitors Sony and MCA/NBC have been underway for some time. "They're on my list along with a dozen others," Kuhn said.

But because it's a distributor as well as a producer, New Line, which releases around 25 movies a year through its main pipeline and a dozen more under Fine Line, its New York-based specialty film banner, would give PolyGram more product and an instant distribution capability.

For years, PolyGram has planned to launch its own U.S. distribution operation next year, and, according to Kuhn, the plan is still on, unless of course PolyGram acquires an existing releasing company. PolyGram has its own specialty film distributor, Gramercy Pictures, which releases films to as many as 1,000 screens. PolyGram's bigger movies go out through the major studios. PolyGram already directly distributes its product in various foreign territories, including Britain, Germany, Australia, Spain, France, Belgium, the Netherlands and Luxembourg; and it plans to consider going into the tougher markets of Italy and Japan.

As for its U.S. distribution plans, PolyGram needs to somehow increase its movie output to feed such a costly operation. Presently, each of the company's three major film labels--Interscope Communications, Propaganda Films and Working Title--releases about four movies a year.

Kuhn hopes to increase the total number of releases to 20 by 1999. The way to get there, he says, is either to boost the output of the existing labels or add production units.

Ever since it launched its current film operation in 1992, PolyGram has been struggling to make as big a splash in movies as it has in music, where it's the largest record company in the world and third-biggest in the U.S.

Although PolyGram has amassed a film library of more than 400 titles from the various labels it's bought, essentially the company has had one breakout box-office hit since its inception, 1994's "Four Weddings and a Funeral." The British comedy, produced by Working Title and released by Gramercy, cost $5 million to make and grossed $260 million worldwide.

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