Sonywood Babylon

In the cynical whisperland that is Hollywood, nothing is deadlier than bad buzz. And the buzz swirling around Sony Pictures Entertainment Inc. just now is very, very bad. The gossip mill says money from parent Sony Corp. is drying up, management is lining up to leave, and none of the current execs much want the responsibility of approving any films at all.

There's increasing evidence that all this rumormongering isn't merely standard Hollywood backbiting. A string of big-budget flops such as Last Action Hero and Geronimo last year sent Sony's film revenues plunging 14.8% in 1993. Box-office share for Sony's two film units, Columbia Pictures and Tri-Star Pictures, has dropped by nearly half this year. Worse yet, film production for the coming year has slowed to a trickle.

None of this must thrill Sony, which dearly needs some real returns on the $3.4 billion it spent to buy Columbia Pictures in 1989, especially as it struggles to trim $12.9 billion in debt. Sony had big plans for its studio--especially, it hoped, as the Info Superhighway made the films and TV shows it produced all the more valuable. Indeed, as Superhighway frenzy intensified, Wall Street insiders say that Sony shopped the company for months, looking for cable or telephone companies to invest as much as $3 billion for a 25% stake. It also considered spinning off a piece of its combined film and record companies.

EXTENDED RUN? Now those strategies look hopelessly optimistic. A leading Wall Street investment banker says Sony would be lucky to get $1.5 billion for that 25% interest today, given the studio's lackluster performance and cable companies' reduced appetite for Hollywood acquisitions. And, after the studio's woes helped cut operating earnings at Sony's entertainment unit by 58% last year, there are signs that the parent's vaunted patience is wearing thin. "If last year is just a one-year dip, the fact that Sony can be patient is to our credit," says Michael P. Schulhof, president and CEO of Sony Corp. of America. "But if it becomes two years, then Sony will face some tough decisions."

For now, Schulhof pledges allegiance to the Sony Pictures team led by Chairman Peter Guber, who last year signed a new five-year contract. And the studio clearly has some likely hits in the making: On June 10, it releases the Billy Crystal film City Slickers II; a week later, Wolf, which stars Jack Nicholson as a meek book editor turned werewolf. Hollywood insiders expect both to be moneymakers, although not blockbusters. The rest of this year's schedule, though, is far more uncertain: Only Mary Shelley's Frankenstein is considered a certain hit.

This, from the studio that gave America such box office hits as Terminator 2, In the Line of Fire, and Sleepless in Seattle? Industry executives say that the studio's management, wracked by the departures of production executives such as former Tri-Star chief Mike Medavoy and Columbia production head Michael Nathanson, has been slow in developing new projects and giving approval to make projects. Unable to make quick decisions, Sony watched as contract directors looked elsewhere: Penny Marshall directed her latest film for the Walt Disney Co., while James Brooks is negotiating to do one for Miramax Films.

QUICK SPLICES. Sony Pictures executives, stressing that the company still has a strong TV production unit and theater chain, say privately that production is back on track. A revamped studio management has signed up big-budget proj-ects starring Sean Connery, Richard Gere, and Wesley Snipes. A high-tech remake of Godzilla is also planned. By next year, Sony's two studios expect to release as many as 45 films--up from about 25 this year.

But holes remain. Terminator 2 maker Carolco Pictures, a onetime Sony ally, has taken its films to MGM, while Castle Rock, which produced such hits as When Harry Met Sally and In the Line of Fire, restructured its relationship with Sony after its sale last year to Turner Broadcasting System Inc. Now Sony, which had owned 44% of Castle Rock and shared in all its revenues, will receive only about 8% of the box-office take for distributing films through 1997.

Even with the reshuffled deck, Sony USA Chief Schulhof says his company remains committed to its film unit for the long run. "This is a software business, and software businesses are cyclical," he says. "They had one bad year after three [good ones]. That's still a pretty good track record." Good enough for now. One more off year, though, and the guys in Tokyo may get restless.

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