Behind JVC’s Hollywood Deal : What the Japanese electronics giant gave up to get in and why the executives did it

When JVC/Victor Co. of Japan last year reduced prices on the American videos it distributes in Japan, Japanese customers lined up to buy “Roman Holiday,” the Gregory Peck-Audrey Hepburn romance that first appeared in theaters 36 years ago. The Paramount video outsold “Flashdance,” “Raiders of the Lost Ark,” even “Back to the Future.”

If the forward-looking Japanese needed any more reason to invest in American movie production, this was it: Quality Hollywood films hold their value for decades.

But it took another year for the Tokyo-based electronics giant, with $6.2 billion in annual sales, to take the plunge. In the biggest Japanese-Hollywood deal to date, the company last week announced that it was investing more than $100 million in a new film company, Largo Entertainment, to be run by American producer Lawrence Gordon.

JVC’s search for a way into Hollywood began in earnest nine months ago. The company first considered buying a major studio such as Columbia Pictures, but the price was too high, according to company officials. Instead, JVC decided to look for a major American producer who could guide its entrance into Hollywood.

JVC had three criteria in mind for its American producer-partner: A string of hits, an affinity for the kind of action-adventure films that draw huge audiences overseas, and a proven ability to churn out new movies the way a Honda assembly plant produces cars.

All of that narrowed the list considerably, putting former 20th Century Fox president Gordon right on top. Since leaving Fox in 1986 because of a heart condition, the 53-year-old producer has sent an impressive round of hit movies into the nation’s theaters.

While he produced some sentimental favorites like “Field of Dreams,” Gordon’s credits are heavy on hard action films--”Die Hard,” “48 HRS.,” “Predator,” and “Lock Up” among them--that overseas audiences flock to see. (Actor Bruce Willis’ daring deeds in “Die Hard,” for example, brought in ticket sales of $70 million overseas and $81 million in the United States.)

A bonus, as far as the Japanese were concerned, was Gordon’s reputation as a team player. And he is the quintessential Hollywood insider, starting out as an assistant to TV producer Aaron Spelling in the early 1960s before going on to produce both TV programming and feature films.

But the Japanese had to pay a stiff price to get the producer of their dreams. From the outset, Gordon insisted on something few producers would dare to ask from a major Hollywood studio--complete autonomy.

Before negotiations with JVC even began in earnest, Gordon demanded full control over the slate of movies he would make, the stars and directors he would hire, the final cut of the films, even budgets. Everything.

JVC handed it over, apparently with hardly a wince. In the days following the announcement, both sides have insisted that Gordon will have a free rein at Largo. Under his agreement with JVC, Gordon also retained the right to complete commitments for sequels to “Die Hard” and “48 HRS.” and other films already in the works.

“I have total and complete control,” Gordon says, in a tone of voice recalling George Bush’s notorious read-my-lips line.

“It’s a mistake for amateurs like us to get involved with (the creative side),” insists JVC vice president Henry Ishii, who laid the groundwork for the company’s move into Hollywood. “We will strictly act as business manager.” But even on business matters within Largo, Ishii says, “if Larry says black and we say white, Larry will prevail.”

Peter Dekom, the attorney who brought JVC and Gordon together, says the “only limitation on Larry Gordon is the amount of capital put into the company.” And even then, Dekom adds, the contract gives Gordon the right to seek more JVC money if, for example, he wants to make an expensive action movie with potential as a blockbuster.

“Although it may look flamboyant,” says Dekom, “this is one of the most carefully constructed deals I’ve ever seen. (JVC) is an extremely conservative company. They’re incredibly thorough--they probably know when Larry Gordon had his first kiss.”

The issue of Largo’s autonomy is clearly a sensitive one. When Daily Variety quoted a JVC executive in Tokyo saying that the Japanese will be reviewing the Largo arrangement “every three months at least,” JVC spokesmen here were quick to insist that he was referring to the normal quarterly reporting that any business is required to make to its investors.

So far, most of those Japanese investing in Hollywood have been more than happy to turn creative control over to their more experienced American partners. The Japanese are savvy enough to understand that Hollywood movie-making is an intricate game of rituals and relationships laid down over dozens of years. They’re also smart enough to know they’re not equipped to play the game.

“I think it’s a big mistake for Japanese to make creative commitments in this market unless they know what they’re talking about, “ says Ishii. “Mr. Gordon knows what’s a hit.” But Gordon’s partnership with JVC is one that will be watched closely on both sides of the Pacific. Already one Japanese investor, a consortium called CST Communications formed by three major companies, lost its money after handing over a blank check to MGM/UA on three films.

Apricot Entertainment President Naofumi Okamoto, whose movie company was opened early this year on an initial bankroll of $50 million from an Osaka cement magnate, contends that it is next to impossible for outsiders to control their investments in Hollywood. That’s why--in contrast to most of his compatriots here--he is running Apricot himself rather than entering into a partnership with Americans. “Obviously they’ve decided they trust Mr. Gordon,” Okamoto says of the JVC deal.

Yukuo Takenaka, a Los Angeles-based investment banker who focuses on Pacific Rim companies, said JVC’s decision to stay out of the creative side of Largo was a good one.

“If Mr. Gordon can’t make successful movies, then of course the Japanese can’t do it either,” said Takenaka, whose clients include one of Japan’s few successful producer/directors, Juzo Itami. “That’s why they’re spending $100 million on him. It’s a calculated risk. They’re betting on him.”

But, added Takenaka, “whether he can carry out the expectations of the Japanese is another question. This is a risky business. I don’t think the Japanese in general have realistic expectations. They are very, very naive about the movie business.” Aside from the financial risks, he noted that Japanese investors don’t always understand that the line between creative and financial decisions in Hollywood is often a blurry one.

“We are aware of the risky nature of movie-making,” says Seiichiro Niwa, chairman of JVC Entertainment, who was instrumental in arranging the deal with Gordon. “But because of his track record, we believe that Largo pictures, which will be exclusively and carefully developed and produced by Mr. Gordon, will be less risky than other independent films. If Mr. Gordon was not available, JVC would not have made this commitment.”

Although JVC executives will not hold any staff positions in Largo Entertainment, Ishii will work with Gordon as a liaison between his company and JVC. In addition, JVC is flying in one of its senior executives, Isamu Tomitsuka, a graduate of Tokyo University who worked in JVC’s Los Angeles liaison office for six years.

Tomitsuka will be based in Los Angeles as president of the newly formed JVC Entertainment. According to Ishii, JVC Entertainment’s primary focus initially will be its partnership with Largo.

JVC, best known to Americans for creating the VHS video format, has dabbled in film production. In Japan the company produced three movies, some animated shorts, and golf instruction videos. Other small features produced elsewhere include “Mystery Train,” a Jim Jarmusch film that drew attention at Cannes last spring.

The company also distributes Paramount and Universal films to Japanese video stores through an arrangement with Cinema International Corp., the joint venture that distributes those video titles overseas.

Like other Japanese companies shopping for Hollywood opportunities, JVC is anxious to control what it calls “software,” such as movies, to service hardware such as VCR’s, cable TV stations, and the like.

Niwa said JVC wants a Hollywood presence in order to “expand JVC’s software business to an international basis . . . At this time, American culture prevails in large parts of the world, which is the reason why a cultural business targeted at the international market should be based in America.”