Columbia’s New Business Plan May Limit Profit

Columbia Pictures Entertainment, formed three months ago by the combination of Tri-Star Pictures and Coca-Cola’s entertainment holdings, said Tuesday that it is adopting a business strategy for the next three years that may result in “limited earnings, if any” in order to position itself for the 1990s.

At the same time, the company said it anticipates an after-tax loss of $105 million for the 2 1/2-month period ended Feb. 29, largely from writedowns of movies made during the regime of former Columbia Pictures studio chief David Puttnam, who resigned after the merger was announced last fall.

The writedowns include a Columbia movie, “Hope and Glory,” that has won an Academy Award nomination for best picture. Despite critical acclaim, “Hope and Glory” has grossed just $8.3 million at the box office and is “going to have a considerable loss,” said Columbia Pictures President and Chief Executive Victor A. Kaufman.

Hopes to Add 4th Business

In an interview, Kaufman expressed confidence that Coca-Cola Co.--the largest shareholder with a 49% stake--supports his plan to concentrate on the company’s cash flow and balance sheet instead of seeking short-term earnings.

Kaufman also reiterated his commitment to operating Columbia Pictures and Tri-Star Pictures separately, including two distribution arms.

The former Tri-Star Pictures chairman said he hopes to add a fourth business to the company’s existing motion picture, television and movie-theater operations, but he did not identify any candidates.

In explaining the forecast of “limited earnings, if any,” Kaufman said: “It isn’t because we couldn’t have it. It’s because we want to keep the cash within the company and limit the tax liability.”

Analysts on Wall Street had anticipated a writeoff for the Puttnam slate of films, but several were startled by Columbia’s announcement that it also anticipates a one-time loss of $50 million to $60 million in the fiscal year beginning Feb. 28, 1989. The company said the loss will result from a new ruling by the Financial Accounting Standards Board that changes the way firms account for the value of their assets.

Most movie companies expect the accounting rule to result in a one-time gain instead of a loss, according to Lisbeth R. Barron, an analyst at Balis Zorn Gerard Inc., a New York investment firm. But Columbia--because of recent acquisitions in television--has already written up assets for book purposes.

Columbia Senior Executive Vice President Lewis J. Korman agreed with that analysis, explaining that Columbia’s “tax rate for book purposes is higher than the tax rate for actual payment. This adjustment gives us a one-time charge to normalize our tax rate for book purposes.”

Production Record Defended

Columbia said the $50-million to $60-million loss should be “more than offset” by television syndication revenues, including those from a current network hit, “Who’s the Boss?”

On the motion picture front, Kaufman staunchly defended Tri-Star’s production record in the past two years under Jeffrey Sagansky. “Tri-Star has produced a total of 16 movies made in-house; 10 of those movies did somewhere between $20 million and $40 million at the box office,” Kaufman said. “We’ve had singles and doubles; the only thing Tri-Star has not been able to do is have a series of home runs.”

Kaufman said writedowns will be taken on 10 to 15 films made during the Puttnam era at the Columbia studio but will not include “The Last Emperor,” Columbia’s other candidate for the best picture award.

Columbia did not pay the full cost of making “The Last Emperor” (with an estimated production expense of $26 million), but the studio acquired limited rights to distribute the film and took on the costly burden of theatrical distribution in the United States. For that reason, it was a “dumb deal,” one film company executive said, terming it “a huge-budget art-house film. There’s nothing you can do about it. You’re condemned to a loss. You have to support it or you’re an enemy of the arts.”

In television, Columbia anticipates a steady stream of revenue beginning in 1989 from the sale of hit shows into the syndicated market for at least four successive years. Columbia and Tri-Star currently have seven comedy series airing in prime time, including “Designing Women,” “Facts of Life,” “227,” “My Two Dads,” “Who’s the Boss?” “Married With Children” and “Trial and Error,” which debuted this week.

Thanks in large measure to earlier acquisitions of Embassy Television and Merv Griffin Enterprises, Columbia already ranks as the industry’s largest distributor of off-network television programming.

On the New York Stock Exchange, Columbia shares closed at $8.75, down 25 cents, with 445,800 shares changing hands.