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Company Town | 1998-99: REVIEW AND OUTLOOK : THE BIZ

For Hollywood, '99 May Bring Sweet Cybermusic, Sour Notes

December 31, 1998|CLAUDIA ELLER and JAMES BATES

Y2K doesn't seem to be as big a concern in Hollywood as Y99.

With high costs, tough economics, threats from new technologies and a continuing cooling-off of production activity in Southern California all lurking, 1999 doesn't bode well for the film, TV and music industries.

There will be some bright spots. The force will be back when George Lucas' "The Phantom Menace" Star Wars "prequel" is released in May by 20th Century Fox. With audiences already cheering the trailer, it's a safe bet to be the year's biggest film and probably will end up as one of the biggest blockbusters of all time.

The longer term still promises growth. Some Wall Street analysts say the proliferation of movie and television outlets worldwide will continue to be a boon for the U.S. entertainment business.

Christopher Dixon, an analyst at PaineWebber Inc., notes that one of every four people on the planet already are able to watch MTV, and its owner, Viacom Corp., is projecting that the cable channel will bring in more money internationally within eight years than it makes domestically.

The popularity of digital videodiscs will also give studios a lift, as will the growth of the Internet. "The Web sites with the highest Internet penetration, after America Online and Yahoo, are Disney's and Time Warner's," Dixon said.

NBC and Disney have been particularly aggressive in acquiring their way into the Internet portal business. Barry Diller's USA Networks could use his new online currency--stock in Ticketmaster Online--to push further into electronic commerce.

Here are brief takes on the outlook in several areas of the entertainment industry:

Lights, Cameras . . . Less Action? After five heated years, the growth in movie and TV production in Southern California finally flattened in 1998 and faces a cloudy 1999. Any of a number of culprits are blamed, among them the trimming of bloated film slates by studios, soaring costs and bad economics of TV and film as well as Canada's special tax breaks and soft currency--factors that have made shooting there much cheaper.

Toward the end of this year, suppliers such as camera leasing companies were complaining that business had fallen by as much as half. Sound stages around Southern California, which were booked tight a year ago, were showing some vacancies and location shooting on the streets of Los Angeles has softened.

Tighter Belts: The industrywide contraction and belt-tightening in the movie and TV businesses is having one of the biggest impacts on Hollywood's talent agencies, which for the first time in years have begun retrenching.

Both International Creative Management and William Morris Agency suffered cutbacks, with rumors of more to come in the new year. The studios are making fewer movies than before, are watching costs more closely and are shelving projects whose budgets climb too high, even those headlined by such superstars as Kevin Costner.

Disney consolidated its production operations into one unit this year and, like other studios, including Warner Bros., has begun shedding unproductive producer deals--taking even more potential business away from the agencies.

With networks producing more of their own shows, there will be fewer and fewer TV package fees for the agencies.

The Big Shrink: Thousands of employees in music will lose their jobs next year as Seagram Co. begins the brutal task of downsizing its music division after its $10.4-billion acquisition of PolyGram. Many of those axed in the blood bath will have trouble finding work again at another record firm as the music industry shrinks from six to five major record conglomerates.

Hundreds of recording acts will also find themselves homeless after Seagram slashes artist rosters at such labels as Geffen, A&M, Motown, Mercury and Island. But it's inevitable that some of the poor-selling acts discarded by Seagram will resurface and make a splash at competing record companies.

The consolidation of the music giants could benefit tiny independent labels, which need to sell far fewer albums than the majors to turn a profit.

Little Net in Networks: CBS and NBC signaled just how dire the network broadcasting business has become. CBS, the former Tiffany network, resorted to airing its first-ever infomercials in December during the critical period leading into prime time on its own television stations to give its fourth-quarter revenue a kick.

At a recent cable convention, NBC chief Bob Wright questioned the viability of free television, saying that advertising alone is insufficient to sustain the networks.

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