Is Sony Finally Getting The Hang Of Hollywood?

The old Metro-Goldwyn-Mayer studio lot, once the sparkling essence of Hollywood glamour, was pretty shabby in recent years. Passed from MGM to Lorimar Telepictures to Warner Brothers, the lot's paint was peeling and its elevators often broke down. But nowadays, under the ownership of Sony Pictures Entertainment, the place is looking spiffy. Workers are putting the final touches on refurbished ceremonial columns outside the entrance. Its revamped theater, renamed the Cary Grant, is again hosting flashy parties. "Coming Soon" signs announce an expanded parking lot, day care for stars' kids, and a giant clock in a four-story crocodile, adapted from Sony's 1991 hit, Hook.

Like its studio lot, Sony Pictures is shaking off the dust. Three years after Sony Corp. spent $5 billion to buy Columbia Pictures from Coca Cola Co.--setting off xenophobic tremors throughout Hollywood--the long-suffering studio is back among the film community's elite. Under Chairman Peter Guber, its roster includes superstar directors such as Steven Spielberg and Francis Ford Coppola, and box-office magnets Tom Cruise and Arnold Schwarzenegger. Better yet, it's making hit films.

Granted, many Hollywood winning streaks run shorter than a Sylvester Stallone soliloquy. But since early summer, Sony's two movie-making units--Columbia Pictures and the smaller Tri-Star Pictures Inc.--have released four winners in a row (table). Some have been huge successes, such as A League of Their Own, while others, such as Universal Soldier, produced by Carolco Pictures Inc., have been more modest hits. But with an upcoming lineup that includes such eagerly awaited flicks as Mr. Saturday Night, starring Billy Crystal, and Coppola's Dracula: The Untold Story, Sony is likely to emerge as the year's box-office champ. One wild card: Husbands and Wives, the new movie from Woody Allen, who is embroiled in a headline-grabbing domestic drama of his own.

TURKEY SHOOT. The good fortune at Sony Pictures is one of the few bright spots in an otherwise dismal picture for its parent company. Blasted by a sharp downturn in consumer electronics, Sony Corp. announced a 37% decline in operating income, to $293 million, in the latest quarter, on $7.1 billion in sales. But Sony Pictures is on a pace to earn some $340 million, 15% higher than last year. "They've done everything we've asked of them," says Michael P. Schulhof, president of Sony Corp. of America and the man who engineered the Columbia takeover. "We couldn't be happier."

Well, let's not go overboard. The high costs of Columbia films are a serious concern. Lisbeth R. Barron, analyst at S. G. Warburg & Co., figures only robust foreign and video sales helped offset the $129 million the unit lost last year at the domestic box office. "There were just too many losers," she says, pointing to such turkeys as Another You and Taking Beverly Hills. "Their big hits just weren't big enough to carry them." Meanwhile, Columbia's powerful TV production unit is showing signs of weakness. The market for its syndicated reruns, such as Designing Women, has deteriorated, and it has few exciting new syndicated shows to offer.

Now, the studio has begun making noises that it is watching its checkbook more carefully. The game plan, executives say, is to cut Sony Pictures' lofty average budget, an estimated $30 million, to below the industry's $26.1 million average. They've made some progress. Columbia's upcoming list includes a $16 million sequel to My Girl, a film by Boyz N the Hood director John Singleton priced at under $15 million, and a Robert Redford film, A River Runs Through It, that cost Columbia $10 million. At the same time, in an effort to ensure its continuing profitability, Columbia has ordered a major overhaul of the TV unit.

The chore of holding down movie costs falls to Jonathan Dolgen, the former president of Fox Inc. Dolgen, a tough negotiator, has trimmed costs up to 30% at Columbia's marketing unit. He has cut the number of promotional trailers for each film, grounded private planes for touring stars, and ordered a tougher stance on salaries: Bill Murray took a steep pay cut for Groundhog Day, as did Richard Dreyfuss for Lost in Yonkers. To keep a sharper eye on costs, Sony Pictures has also ordered big-budget films such as Hook and Dracula to be filmed at the studio lot rather than in far-flung locations.

Sony has come a long way in its three years in the movie biz. The Japanese company's introduction to Tinseltown was brutal, punctuated by persistent reports of management chaos and wild overspending. One of its first projects, Hudson Hawk, cost $50 million and collected $17 million at the box office. Hiring Guber and fellow Batman producer Jon Peters to run the company produced a $1 billion lawsuit, settled only after Sony handed their previous employer, Time Warner Inc., an estimated $500 million in assets.

Guber and Peters seemed intent on setting records for money spent--often unwisely. They set Hollywood tongues wagging by plopping down $1.2 million for the script to Radio Flyer, about an abused child, then paid director David Mickey Evans $1 million not to direct it. Production problems pushed the cost of making and marketing Radio Flyer to $41 million. It grossed $4.2 million. Guber and Peters spent $750,000 for the script to Fire Down Below, then gave up on the project. "They were just getting their feet under them, gearing up," offers Alan Horn, president of Castle Rock Entertainment, which makes films and TV shows for Columbia.

Things are much calmer these days. Peters, the more flamboyant and erratic of the Guber-Peters team, left last year to become an independent film producer. Gone, too, are Columbia's production head and top marketing staff. "If I had known then what I was in for, I'm not sure I'd have come," says the 50-year-old Guber. "We were a lightning rod for all the angst and drama happening in the American market at the time."

BOMB SHELTER. Despite the new cost-cutting drive, Sony is clearly willing to cough up big money to lure big names. Hook not only had a $70 million budget but gave 40% of Sony's take to director Spielberg and its stars, Robin Williams, Dustin Hoffman, and Julia Roberts. Still, the movie helped Sony make the transition from foreign interloper to a magnet for top-flight talent. "It was our way of saying we're open for business, and that we intended to be around for a long time," says Tri-Star production chief Mike Medavoy, who put the Hook project together. More recently, Sony won a frenzied bidding war for Schwarzenegger's next film, The Last Action Hero. It will pay the muscular actor some $15 million.

Now, Guber aims not just to bring in big names for one movie, but to keep them around for several. Taxi and The Simpsons producer James L. Brooks has moved his entire film and TV operation onto the Sony lot. Both Spielberg and Williams have signed on with Tri-Star for future projects. Likewise, Dracula producer Coppola recently signed a lucrative deal to give Sony first crack at his future movies.

Of course, there's no guaranteeing they'll be hits. To hedge against bombs, Guber and President Alan J. Levine have been beefing up the rest of Sony Pictures. Last year, they persuaded Sony to buy back the home-video unit Columbia and RCA had shared since 1981. They have bolstered Sony Pictures' foreign-distribution system with new salespeople. In a money-saving move, Columbia has begun making TV shows jointly with European producers. The studio is also kicking off a game-show cable channel to recycle shows produced by its Merv Griffin Enterprises unit, and it may soon try another channel for the studio's soap operas.

In Japan, Sony analysts like what they see. Rumors that Sony might unload its Hollywood connection once circulated, but now seem unlikely, they say. Sony will probably float some of its movie company's shares, as it did with Sony Music's Japanese unit, figures Peter G. Wolff of Kidder, Peabody International Corp. in Tokyo. But to do so in Japan, where they'd get a much fatter premium, the subsidiary would have to be profitable for three straight years. After the way the Sony-Columbia relationship began, that would be some Hollywood ending.

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