Is There A Hit In Sony's Stars?

It's betting big on Christmas to break its losing streak

For Hollow Man, this summer's horror film, the turning point comes when the character, played by Kevin Bacon, struggles to return from his invisible state. The same can be said for Sony Pictures Entertainment, the studio that made the film. Since 1997, when it led all Hollywood studios with films like Men in Black and Jerry Maguire, Sony has been mostly an invisible studio. Hits like The Patriot were far outweighed by such duds as What Planet Are You From?, a Garry Shandling bomb made for $45 million that grossed only $6.3 million. So far this year, Sony (SNE) ranks seventh among Hollywood's eight largest studios, the second straight year it has finished far down on that list.

HUGE BET. But like Kevin Bacon's character, Sony seems determined to fight its way back into the spotlight and may spruce up the company enough to allow execs to test the waters for a long-contemplated merger. By mid-December, the studio will release four films with heavy buzz, including the special-effects-laden mountain-climbing drama Vertical Limit, which Hollywood insiders are predicting will hit the jackpot. It will cost Sony nearly $400 million to make and market the four flicks, a huge bet for a studio whose films this year have averaged $30 million apiece at the box office, trailing most majors and even smaller players like Miramax Film Corp. and New Line Cinema. "This can turn out to be a strong year for us," says Mel Harris, president of Sony Pictures, which oversees Columbia Pictures. "We've back-loaded the year pretty well."

Sony won't have to wait too long to find out. The first of the four films, a movie remake of the 1970s TV show Charlie's Angels, hits theaters on Nov. 3. Starring Cameron Diaz, Drew Barrymore, and Lucy Liu, the film's production was plagued by fighting egos on the set that put it over budget and behind schedule. But Sony is giving it a hearty send-off, with marketing plans that include near wall-to-wall advertising and specials on MTV and HBO. Two weeks later, Sony hits the theaters again, this time with The 6th Day, a futuristic action film starring Arnold Schwarzenegger.

A couple of hits this fall would do wonders for the studio's income statement. In the fiscal year that ended in March, both revenues and operating earnings at Sony's film unit fell by 10%, the second straight annual decline. And hits have been rare for Sony since buying the studio in 1989 to ensure a constant flow of films and TV shows to feed its successful line of video players, set-top boxes, and more recently, its soon-to-be released PlayStation2 game player.

No wonder, then, that Sony is backing off of head-to-head battles to win box-office share. Recently it has reversed its long-held policy of not sharing costs with other studios to make its movies. The theory then: control the film and take advantage of whatever technology might be developed to exploit it. No more. Earlier this year, it bought half the rights to Universal's hit Erin Brockovich and also has a half-interest in Dreamworks SKG's '70s rock film Almost Famous, a critical hit but lackluster at the box office. It also has a half-interest in Schwarzenegger's The 6th Day.

Sony's new attitude toward sharing the costs is only part of a financial overhaul that began last year. Since then, Sony has eliminated its fledgling family film unit, merged its TriStar film label into Columbia, and ended several pricey deals with producers. And in a recent standoff with director Michael Mann, it refused to make the Will Smith boxing film, Ali, until the director slashed costs and agreed to help cover any overruns of its $106 million budget. It's also sharing production costs with Germany's Initial Entertainment Group.

"TOO MANY PICTURES." The most dramatic change at Sony, however, was its sweeping six-year deal with former Walt Disney Studios (DIS) Chairman Joe Roth. Under that agreement, Sony pays half the costs of as many as eight films a year, effectively turning over to Roth one-third of the movies it releases. And those could be expensive, given Roth's track record of working with top-flight stars like Julia Roberts and Bruce Willis.

Why would Sony give up control? According to Sony Pictures Chairman John Calley, his studio gets more time to focus on the 15 or so films that aren't being made by outsiders. Sony Corp. Chairman and CEO Nobuyuki Idei says simply: "We make too many pictures."

The financial revamping may accomplish what has been a goal for Sony's Japanese owners for years, namely finding a way to reduce their Hollywood holdings. Idei says he still hasn't given up the notion of merging the studio with a major company with distribution that could help it sell its content. By then, the 70-year-old Calley is likely to have left the company. One possible successor is Roth, whose noncompete clause with Disney expires next year, when Calley's own contract is up.

Until then, Sony will try to bring its film unit back from Hollywood's lower rungs. It's hoping for a hit with Finding Forrester, a drama starring Sean Connery as a cranky reclusive author who mentors a South Bronx African-American. Then there are sequels to hits like Men in Black and Stuart Little that are somewhere in the studio pipeline. But like Sony's market share so far, they're still invisible.

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