The Mogul

Much has been made of Edgar Bronfman Jr.'s early and unspectacular career as a theater and film producer. Most telling, perhaps, is that it began at an age when most kids are learning to drive. A pudgy-faced rich kid in Levis and sneakers, Bronfman latched on to a 30-year-old Broadway producer named Bruce Stark while still in high school. Bronfman Sr. was funding Stark's efforts, so entree was easy.

The surprising part is that Stark was happy to have him. What he remembers most is Bronfman's chutzpah. In meetings with powerful agents and assorted glitterati of the entertainment world, young Bronfman did all the talking. No doubt the teenager's money and family ties got him through the door, but his charm and wit made people take him seriously. "He was an amazing kid," says Stark. "He has a language facility that's really quite amazing. He often made me feel like I was kind of incompetent."

For the past two weeks, such praise has been hard to come by for the 39-year-old chief executive of $6.4 billion Seagram Co. More common have been the cries of dismay over what is probably the ultimate expression of Bronfman's moxie: His two-step deal to transform Seagram from a liquor company with a 24% stake in DuPont Co. to a broad-based entertainment company focused squarely on the Information Highway. The news drove Seagram stock down 18%, to a low of 263/8, from which it has yet to recover significantly. Wall Street came alive with protest. "I think the Bronfman kid is making a terrible error," said Scott Black of Boston's Delphi Management Inc., which holds 206,000 Seagram shares.

NEXT STOP, A NETWORK? Right or wrong, the complex set of transactions will surely rank among the flashiest and most controversial deals of the 1990s. First of all is the irresistible urge to paint the event in made-for-Hollywood terms. To many, this was the tale of a rich, young scion risking the family fortune to pursue his star-struck fantasies. No one really knows what motivates a person, but it is worth pointing out that Bronfman has been rich all his life and already knows plenty of celebrities. Says film producer David Puttnam, whom Edgar Jr. lived with for a period in high school: "He got his illusions out of his system by the age of 24 or 25. He could have been a producer like Steve Tisch. He had the money. But he didn't think it was something serious people did."

The more serious aspect of these deals, of course, is what will make them endure as symbols. Like the failed $35 billion merger of Bell Atlantic Corp. and Tele-Communications Inc., Bronfman's big bet makes the business world focus anxiously on the real value inherent in the mythical I-way. By selling Seagram's DuPont stake back to the company for $8.8 billion so he could buy 80% of MCA Inc. for $5.7 billion, Bronfman raised a fundamental question: What's more valuable, a steady, old-line industrial business like chemicals or a glitzy, high-promise technology play like entertainment? Wall Street, for now at least, has voted with its feet.

But was this budding mogul's bet so misplaced? Experts in the entertainment industry say that depends entirely on how well he plays out his hand. It is easy (and scary) to see what Bronfman gave up: unencumbered cash flow from DuPont dividends, which should top $300 million this year. Determining MCA's true value is far more difficult. A wager on Seagram stock right now is a bet on both the future and Edgar Jr.'s ability to manage it. Says one Wall Street executive close to Seagram: "This will require a good deal of luck and skill, which Edgar may or may not have."

One thing is clear: Even priced at a rich 15 times 1994 cash flow (a peak year), MCA and its Universal Studios unit provide a ripe opportunity. Bronfman has the advantage of little debt, plenty of excess capital to play with, and a board of directors that isn't likely to cross the Bronfman family, given its 36% stake in the parent company. After paying down some debt, Bronfman will have at least $1 billion left over from the DuPont deal. And a 14.9% stake in Time Warner Inc. is worth about $2 billion. MCA's cash flow, meanwhile, can probably finance $3 billion to $4 billion in leverage, if need be.

Bronfman's big disadvantage, however, is that, besides cash, Seagram brings nothing to the entertainment party in terms of management or assets. Viacom Inc. may have paid a similar multiple for Paramount Communications Inc. in 1993, but the owner of MTV, Showtime, and Nickelodeon had loads of Hollywood experience.

Moreover, making MCA a true player against giants such as Time Warner and Disney may take all of Bronfman's resources--and more. At going rates, just finding a top-notch executive to run MCA for him could cost hundreds of millions in stock and salary. That's especially true if he hires Hollywood superagent Michael Ovitz, as people close to Bronfman say he would like to do. Filling out a new management team could cost millions more.

Then there are the investments required to take MCA into the future. To guarantee distribution for the studio's TV shows, most experts think MCA will go after one of the networks. Bronfman and Barry Diller are rumored to be mulling a run at Laurence A. Tisch's CBS Inc. But Tisch is asking a stiff $5 billion. MCA, meanwhile, has already committed to spending $3 billion for theme-park upgrades, including a new Jurassic Park ride at its 50%-owned property near Orlando. Says one entertainment executive: "It's the kind of deal where you buy it and then start spending money."

DIPLOMATIC SKILLS. From what little he has said publicly about the deal, Bronfman's view is this: DuPont was a passive investment in a cyclical business. With MCA, Seagram will control its own destiny and reap the rewards. So finding new management is Bronfman's first priority. He badly needs someone who can decipher the kaleidoscopic future of the entertainment business. And more immediately, he needs to find ways to squeeze more cash out of MCA as it exists today.

Chief Executive Lew R. Wasserman, 82, and President Sidney J. Sheinberg, 60, have managed MCA well over the years. But they've complained that MCA's former owner, Japan's Matsushita Electric Industrial Co., wouldn't let them spend enough money. Rivals say privately that the company also suffered because Wasserman and Sheinberg are themselves conservative. Contends one competitor: "MCA needs an injection of leadership and pizzazz to go along with the same fiscal constraint."

Here's what's likely to happen, according to sources close to Sheinberg: Wasserman will be given an emeritus title with a big salary at MCA and a seat on Seagram's board. Bronfman, meantime, will set up Sheinberg with a well-funded but separate production company where he can make movies with his two sons, Jonathan and Billy. Bronfman then would be free to bring in Ovitz and let him decide the fate of the existing studio hierarchy.

Ovitz denies he has any part in this scenario. He says he has turned down similar offers to manage studios in the past and would rather keep running Creative Artists Agency (CAA), his powerful talent shop. Still, most close observers believe his long ties to Bronfman as a friend and confidant make him candidate No.1. Sources also say that while Ovitz has distanced himself from the process while Bronfman deals with Wasserman and Sheinberg, he has dispatched two trusted CAA officials to help Edgar Jr. sort through personnel issues.

If Bronfman has demonstrated he is good at anything over the years, it is making people comfortable with his agenda. In 1988, he spent long hours coaxing the Martell family of France to sell the Bronfmans its lucrative cognac brand. Sources close to the deal say his gentle cajoling during two trips to Osaka persuaded Matsushita's managers to give Seagram exclusive rights for two weeks to negotiate for MCA. Even the wooing of his current wife, Venezuelan Clarissa Alcock, took three years of work. He had to convince her Catholic parents to bless her marriage to a Jew. "This is not a capricious man," says producer Puttnam.

Bronfman will need all of his diplomatic skills to make this management transition a smooth one. Because Hollywood is a business built on relationships, moving Wasserman and Sheinberg aside is a delicate proposition. The foremost consideration is MCA's biggest moneymaker, director Steven Spielberg, who began his career at Universal and feels strong loyalty to its two top executives. Bronfman has toured Universal's 428 acres with Sheinberg and spent long hours listening to the executive's views on MCA's future. And in a lengthy meeting on Apr. 11 at Spielberg's Amblin Entertainment, which sits on Universal's lot, he did his best to lend comfort to Spielberg.

Solving the management issue is crucial. But it is only a first step toward unlocking MCA's values. Boosting performance will be tricky. When Michael D. Eisner brought his team to Walt Disney Co. in 1984, there were obvious ways to increase value. He ratcheted up theme-park ticket prices and began a vigorous strategy to spin characters such as Snow White and Mickey Mouse into video rereleases and merchandise sales. Similarly, when Viacom bought Paramount in 1993, the studio's income was depressed, a situation that quickly reversed itself thanks to such films under way as Forrest Gump and Clear and Present Danger.

ANEMIC SYNDICATION. MCA has no such quick fix. In fact, its pipeline is clogged with an enormous liability called Waterworld. This infamous Kevin Costner epic could end up costing $175 million. And though some who have seen it say it is O.K., it will likely lose money even if it scores big. Rumor has it that the company has already taken an extra $50 million reserve against earnings. It has been disruptive in other ways as well. Because it was late, the studio apparently urged director Ron Howard to push up the release of Apollo 13 from November to June 30 to take over Waterworld's early summer slot. Studio sources say the rush to finish hiked the price tag by about $5 million.

Waterworld-type fiascos are rare at MCA. But ironically, that's the reason it will be hard for Bronfman to get a Disney-like bounce in cash flow just by fixing obvious problems. Bronfman told analysts MCA had $475 million in 1994 cash flow, a number generally thought to represent a peak. Squeezing out more will mean reenergizing every part of the business, with the possible exception of MCA Music and Geffen Records, which contributed 40% of cash flow last year and are going great guns.

Most experts believe revamping the TV production business is crucial. After making a killing in the mid-1980s by syndicating hour-long shows such as Magnum P.I., MCA was slow to see the trend toward half-hour sitcoms such as Cosby and Roseanne. Today, its only half-hour hits are Coach and Major Dad. Without more, an anemic syndication business will remain so. In cable, MCA's only entry is the USA Network, a 50-50 joint venture with Viacom. It is widely thought to be unfocused and sluggish.

Theme parks are probably MCA's fastest-growing unit. But adding attractions like the Jurassic Park ride due to open in Florida will cost billions. And it is often forgotten that MCA only owns 50% of the park in Florida, which means that it only gets half of every dollar of profit.

Finally, there's the film unit and its dependence on Spielberg. Blockbusters such as Jurassic Park and Schindler's List have carried Universal for the past two years. The Jurassic Park video alone supplied one-third of MCA's operating profit in 1994, says a source close to the company.

THE HOUSE OF STEVEN. It may just be that in weaning itself from Spielberg, MCA would, in the long run, be better off. While much has been made of the director's relationship with Wasserman and Sheinberg, the tie has had its downside as well. Most damaging is that MCA has become known as The House of Steven. Spielberg's typical deal--he takes 15% off the top of every film he makes--leaves little money to pay other big picture directors, such as James Cameron and John Hughes. All this argues against depending on him for too much volume.

Bronfman's next steps are still unclear. There's plenty of speculation that he's itching to do a network deal with Diller. That would boost MCA's syndication business right away and add $460 million in cash flow, says Furman Selz Inc. analyst John Tinker. Sources within Universal say Bronfman also hopes to quickly create a cable channel out of MCA's library of 4,700 films, something like Ted Turner's TNT network. "The library is the one asset you can't overvalue," says Alan Horn, the chairman of Turner's Castle Rock studio. "Just ask the folks who thought Ted overpaid for the MGM library." Bronfman's likely partner in such a venture: TCI's John C. Malone, whose Encore pay channel has a multibillion-dollar, nine-year deal to air Universal's first-run movies.

The opportunity is indeed ripe. But questions still outnumber answers. Could Bronfman, whose creative urge dates back to his childhood, resist undue interference with his new manager? And if he snares Ovitz, can Hollywood's ultimate power player make the transition from agent to studio head?

Given declining worldwide liquor consumption and sluggishness at Tropicana, Bronfman's performance at Seagram hasn't silenced critics who say he was born to his position and didn't earn it. "He'll be dogged by that the rest of his life," says old friend Bruce Stark. Edgar Jr. has used his position to create the chance of a lifetime. Making the bet pay off, however, will take a lot more than chutzpah.

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