After Long Wait, Sony May Have Columbia’s Price : Japanese Firm Expected to Pay $3 Billion for Studio and Sister Tri-Star Unit

It took Black Monday’s battering of U.S. stock prices for Sony to finally get its hands on CBS Records two years ago. Now it appears that the weak box-office performances of Columbia Pictures and its sister studio, Tri-Star, has finally given Sony a serious shot at buying that company.

For more than a year and a half, Sony has been shopping for a major Hollywood studio. The giant electronic firm’s expected buyout of Columbia Pictures Entertainment for $3 billion was the breakthrough that many in Hollywood had predicting.

At one point in the past year, Sony was close to a deal for MGM/UA Communications, which instead went to the Australian-based Qintex Group. At another point, the Japanese company was reportedly angling for MCA Inc., owner of Universal Pictures. In a front page story a year ago, the industry trade paper Daily Variety reported that a Sony-Columbia deal was imminent. Nothing came to pass.

Always the sticking point in these talks was the same--price. Industry sources said that while Sony was eager to get its hands on a major film library--”software” to serve its growing array of “hardware” including VCRs, high-definition television and the like--the company’s negotiators were sticklers about finding the most cost-effective route into Hollywood movie making.

But it wasn’t until Coca-Cola Co., which owns a 49% stake in Columbia Pictures, lowered its asking price to about $27 a share that Sony was willing to take a major plunge into American film production, the largest by a Japanese company.

Columbia Pictures became more valuable to potential buyers last March, industry sources said, when the Tri-Star studio was reorganized into a unit of Columbia, substantially reducing the company’s overhead.

But Coca-Cola’s more flexible bargaining position came at the end of a weak summer at the box office for Tri-Star and only a modest one for Columbia. Except for the spring success of the Tri-Star comedy “See No Evil, Hear No Evil,” none of Tri-Star’s films has made more than $25 million at the box office this year. However, Tri-Star has several potentially important films coming later this year, including “Steel Magnolias,” “Family Business,” “Music Box” and “I Love You to Death.”

Columbia, which had been short on product after a series of management changes, was looking forward to a boom season last summer. But ticket sales on its sequel to the popular 1984 film “Ghostbusters,” while a hefty $109 million, were considered disappointing, as were receipts for “The Karate Kid Part III.” And ticket sales for another film with high expectations, “Casualties of War,” may not even reach the movie’s production price tag of $22.5 million. Columbia’s pickings for the remainder of the year are slim.

If Sony’s buyout of CBS Records provides any guide, the Japanese company is expected to take a hands-off management approach to running Columbia. However, whether Columbia chief Dawn Steel will remain in her current post is unclear.

“I expect their management (of Columbia) to be very similar to the way they run CBS Records,” said Yukuo Takenaka, a Los Angeles investment banker specializing in Pacific Rim firms. “I don’t expect them to get involved in the day-to-day operations.”

But, he added, Sony will probably send its own executives into Columbia to learn about the film business. “Sony has a clear strategic intention,” he said. “More and more they are looking at movies as a totally integrated business.”

While Sony continued to dicker with Columbia and other studios over price, more modest Japanese investments have continued to flow into Hollywood. In August, JVC/Victor Co. of Japan entered into a partnership with prominent film producer Lawrence Gordon, infusing $100 million into a start-up production company called Largo Entertainment.

At the beginning of 1989, a cement mogul from Osaka invested $50 million in a start-up studio, Apricot Entertainment, to be run by Naofumi Okamoto. Okamoto has repeatedly said he has access to an additional $200 million for film production and further company acquisitions.

Modest U.S. Unit

Aside from these deals, the Japanese so far have been content to enter into more modest partnerships with American and British producers. Entertainment conglomerate Shochiku-Fuji has committed $50 million to “The Last Emperor” producer Jeremy Thomas and is investing in at least two Edward Pressman films.

Fuji-Sankei Communications is investing $10 million in films produced by David Puttnam, and Zeron Group, a Japanese-run, New York-based venture capital firm, invested $40 million in a slate of films that were to be distributed by American independent Vestron.

Sony also has a modest American film operation, SVS Inc. The New York-based Sony unit has graduated from small exploitation films and plans to produce movies in the $5-million to $8-million range.

Political Support Issue

If Sony succeeds in buying Columbia Pictures, four of Hollywood’s nine studios will be owned by foreigners: Both Columbia and its sister studio Tri-Star will be taking their marching orders from Tokyo; MGM/UA is amid a buyout by the Australian-based Qintex, and Fox’s parent company, News Corp., is based in Australia (although Rupert Murdoch, who controls New Corp., has become a U.S. citizen).

The most immediate impact of this growing foreign presence in Hollywood could be on the film industry’s political muscle in Washington. Rep. John D. Dingell (D-Mich.), chairman of the House’s powerful subcommittee on oversight and investigations, has said that legislators would be more reluctant to back the studios in their battles against the TV networks and foreign governments.

House Judiciary Committee Chairman Jack Brooks, (D-Tex.) said in a recent interview that he is concerned about foreign ownership of “communications and other economic entities in the U.S. They are not allowed to own TV stations. If they control satellites and TV companies, that may be almost as important and dangerous to the independence of the American people.”

(Main Story, Part I, Page 1)