Davis Era Wasn’t a Box-Office Hit : Studio Slumped but Oilman Expected to Reap Big Profit

The movie business has been good to Marvin Davis, but the verdict of history may well be that, during his brief proprietorship at 20th Century Fox, Marvin Davis didn’t do much for the movie business.

In June, 1981, the Denver oilman strode into Hollywood and cut a wide swath through a major studio that had survived more than 50 years, despite periods of corporate intrigue and severe industry slumps.

Now that the dust is clearing and Rupert Murdoch is to be Fox’s sole owner, it appears that Davis has prospered handsomely as Fox owner while enjoying Hollywood’s glamour circles.

At the same time, Fox has become a debt-laden shadow of its former self.

In the last half of the 1970s, then Chairman Dennis Stanfill had rebuilt Fox from the brink of collapse into a diversified mini-conglomerate. It acquired the Pebble Beach and Aspen resorts, a string of foreign theaters and a soft-drink business, which Stanfill bought to shelter the studio from the recurrent droughts in movie profits.

This prosperous diversification was made possible largely from the cash bonanzas that Fox reaped by distributing the original “Star Wars” movie and producing the hit television series “MASH.”

But under Davis, the studio never had such an abundance of hits. The oilman, who made his fortune by successful wildcat drilling, put his own personal stamp on such box-office duds as “Six Pack” and “Rhinestone.”

Even though Fox was privately owned by Davis and a silent partner, international financier Marc Rich, it has still been required to file periodic financial statements because some of its debt notes remained in public hands. And those filings document Fox’s financial situation during the last four years.

Debt Repaid

Davis succeeded in swiftly repaying much of the $550 million in original financing for his $720-million purchase of the studio. He did it by liquidating much of the studio’s protective layer of diversified, non-film assets and transferring hundreds of millions of dollars to his private holding company. Meantime, Fox substantially increased its debt, and the attendant interest costs were paid out of operating revenue.

Just how bad the situation was became clear last November, when a 10K annual report on the fiscal year ended Aug. 25, 1984, was filed with the Securities and Exchange Commission. The report disclosed that Fox suffered an $89-million net loss for the fiscal year, with stockholder equity dwindling to $67 million from $301 million a year earlier. The firm’s long-term debt had zoomed to nearly $363 million from $193 million the year before and since has increased to $392 million as of last May.

Not long before that dismal picture came out, Davis had ousted the original management that he had installed in 1981 and hired one headed by ex-Paramount chief Barry Diller to try to salvage the studio’s fortunes. But multimillion-dollar losses on box-office flops in the pipeline continued for several more quarters, finally easing this summer with a substantial hit, “Cocoon.”

The remarkable degree to which Davis handed over operational control of Fox to Diller remained a secret for several months, while Fox sought to avoid public disclosure of Diller’s contract.

By the time the SEC finally decided last March that the contract should be a public record, Davis had sold 50% of Fox to Murdoch for $162.5 million plus an advance of $88 million to the Davis holding company that technically owns Fox. (Davis bought out Rich, now a fugitive from federal tax evasion charges, last year.)

Now, with his sale to Murdoch, Davis appears to be assured of winding up with an impressive profit on his Fox investment. Although some major figures on his dealings are unavailable to the public and thus prevent arriving at an exact assessment of his equity, it could be several hundred million dollars.

Davis himself declined to be interviewed about his business affairs, including Fox.

However, a review of events and insights from Fox officials who served under Davis shows that his ownership was marked by turbulent events. However, none of the former executives interviewed in recent weeks was willing to be quoted by name or otherwise identified.

“I’ve got to continue to work in this industry” was the typical attitude expressed.

The consensus among these former employees is that Davis got off to a rocky start at Fox and the machinery never really seemed to get humming thereafter.

Suit Still Pending

His first few weeks were marred by the resignation of Stanfill, after Davis countermanded the firing of Fox TV chief Harris L. Katleman, whom Stanfill had dismissed in a dispute over personal expense reports. Stanfill filed a $50-million breach-of-contract suit, which still is pending in Los Angeles Superior Court.

The departure of Stanfill, who alleges that Davis deliberately goaded him into quitting, forced Davis to find a new chairman before he had a chance to learn the business.

His choice was Alan J. Hirschfield, the Fox vice chairman with whom Stanfill had long been feuding. The studio’s bankers reportedly had a hand in getting Stanfill to hire Hirschfield to share his work load. Hirschfield was a former Columbia Pictures chief executive who left that studio after opposing the retention of David Begelman as its film chief. Begelman was involved in a 1978 check-forgery scandal.

Hirschfield remained Fox’s top executive until he was replaced by Diller a year ago. Although insiders said Davis later seemed to prefer Norman Levy, Hirschfield’s second in command, the two top officers stayed in their positions for the first three Davis years.

Much Procrastination

In interviews, some subordinates characterized Hirschfield and Levy as too willing to get their cues from Davis, who often took advice from friends or advisers outside the studio. The result, they said, was a lot of procrastination on decisions and sour deals. And there was little apparent control on spending.

“There was no sense of control, no sense of moderation. It was just spend, spend, spend,” one former insider said.

The same source told of major overruns on two feature films. One was the still-to-be-completed “Enemy Mine,” whose budget started at about $18 million and grew to $40 million, he said. The other, which he speculated was “probably the last straw” that doomed the Hirschfield-Levy team last year, was “Rhinestone,” which grew from an $18-million to a $25-million budget and then flopped at the box office.

Those who defend Hirschfield and Levy say that Davis, whose prior experience was with a simply structured oil drilling firm, ran Fox “like a candy store, like a mom-and-pop store,” instead of a complex corporation.

Meanwhile, the record shows that Fox had few film successes and many flops during the Davis years under film production chiefs Sherry Lansing, who departed in December, 1982, and Joe Wizan, who left in July, 1984. The studio has not had sufficient time to make a clear record under Lawrence Gordon, who was retained by Diller when he came aboard last October and began dismissing a flock of executives and replacing them with his own team.

Early in his ownership of the studio, Davis named a prestigious board of directors, including former President Gerald R. Ford and former Secretary of State Henry A. Kissinger.

According to many, Davis reveled in his role as movie mogul, spending up to two days a week in his office at the studio while continuing to manage his oil empire in Denver.

“He did support his people,” one former executive said. “He rarely denied the TV or feature (film) division the right to make a film they wanted. He wanted to know what was going on and be in on the decision making.”

‘Destructive’ Meddling

Another, however, said Davis spoke negatively about Hirschfield to friends, with the result that rumors began to fly that he was dissatisfied with the executive. In addition to the effect on internal morale, he said, this discouraged independent producers and others from bringing prospective deals to the studio for fear their projects would get caught in a management upheaval and be abandoned.

Meanwhile, Davis enjoyed the Hollywood social scene, especially given his influence as studio owner. Perhaps the social highlight was his use of the Fox studio as the setting for a gala dinner welcoming Britain’s Queen Elizabeth II to Los Angeles in February, 1983.

But for much of the time that Davis owned Fox, he was haunted by one particular set of events that pervaded the studio and appeared to be a chronic embarrassment.

It concerned his silent partner, international oil trader Marc Rich. In October, 1982, Rich began receiving national publicity as the target of a big U.S. investigation into an oil price scandal. Attention intensified in early 1983, when Rich took refuge in Switzerland as a fugitive from U.S. jurisdiction. Later in 1983, a federal grand jury in New York indicted him on a charge of evading $100 million in U.S. income taxes while skirting oil price regulations.

It was not until the United States settled on a big fine against a Rich company last October that restrictions were lifted to permit Davis to buy Rich’s 50% non-voting interest in Fox. The purchase price was unofficially reported by government sources as $116 million. Fox has never confirmed the figure.

Several Fox insiders say Rich only visited the studio three or four times and never attended a board meeting. But, ironically, it was the Rich case that put a half-ownership in the studio up for sale and led to the appearance last spring of Rupert Murdoch, who now will be the sole owner.

20th CENTURY FOX AT A GLANCE

Years ended Aug. 25

In millions

1984 1983 Revenue $774.90 $783.40 Net income (loss) (89.74) (10.57) Long-term debt 363.20 192.90 Shareholders’ equity 66.70 301.30