Hollywood Set to Hunker Down as Times Get Hard : Entertainment: Some analysts are questioning the reputation of the industry for economic resilience. Things are different now than in past downturns, they say.

At least since the Great Depression, when Hollywood discovered that Americans would go to the movies even in the worst of times, the entertainment industry has enjoyed a reputation as an economically resilient business.

“Whether you are talking about cable TV, theatrical box office . . . or a Rolling Stones concert, entertainment seems to hold its own,” said Dennis I. Forst, a senior entertainment analyst at Security Pacific Merchant Bank. “People always have a need to get away from reality.”

Hollywood’s reputation may endure--and many financial experts besides Forst believe the industry is recession-resistant. But 61 years after Americans first became infatuated with the “talkies” that replaced old-fashioned silent pictures and catapulted the nascent film business into a multibillion-dollar enterprise, some observers are beginning to question the optimism that surrounds the industry.

“I don’t think the entertainment industry has ever lived up to its reputation as being recession-resistant in terms of the economy having no impact on it at all,” said David Wilkofsky, chairman of an economic consulting firm in New York. “Entertainment is an important basic staple of life . . . but I expect to see some declines,” he said.

“The big question this time around is whether the movie industry will be impacted by” new and cheaper forms of entertainment that didn’t exist a decade ago, added David Wyss, research director for DRI-McGraw Hill, an economics consulting firm in Lexington, Mass. With cable TV and home video, he said, “movies are no longer the cheapest form of entertainment . . . and may be more affected by this recession than they have been in the past.”

Among those now evaluating their spending amid the looming recession are consumers like Los Angeles resident Sean Randle.

Since losing his job as a stockbroker in June, Randle has cut back in on many forms of entertainment, including going out to concerts, buying recorded music and attending movies.

“I don’t buy as much music or go out to movies like I used to,” Randle said. “It’s cheaper to entertain (guests) at home. They can kick off their shoes and watch a video and we can eat in.”

In 1929, when sound was introduced to movies, theaters had relatively little entertainment competition. What’s more, movies were inexpensive and Americans flocked to them in such great numbers that the net profits of the major film studios jumped 100% or more within a year. But today, with theme parks, recorded music in several formats, cable TV, home video and video games all vying for consumers’ disposable income, it’s a lot more competitive in Hollywood.

Most of the new competition--cable TV, home video and video games, to name a few--has emerged in the eight years since the last major recession. That’s why some analysts say new diversions could pose a major challenge to traditional Hollywood: movies, music and theme parks. Figures from industry trade groups, for instance, show that even before competition intensified during the 1980s--music, theme parks and, to a lesser extent, movies, had not fared well in economic downturns:

* Movie attendance, defying the pummeling that most other industries took during the 1973-74 recession, jumped 16.9% in 1974, according to the Motion Picture Assn. of America. But in the 1980 slump, movie attendance fell 8.9%. In the 1981-82 recession, attendance rose 4.5% in 1981 and 10.2% in 1982, aided by hit movies such as “E.T.” and “Raiders of the Lost Ark.” But attendance is off 8% this year despite hits such as “Ghost” and “Pretty Woman.” Because of the mixed performance, some experts argue that the industry is recession-proof and that movie quality, not the economy, affects attendance the most.

* Record sales fell 3.5%, 2.7%, 7% and 9%, respectively, in each calendar year of the last three recessions, says the Recording Industry Assn. of America. The impact of music quality is hard to measure. But many of music’s biggest stars released records both during and after downturns yet appeared to sell less well in recessionary periods. Michael Jackson’s “Off the Wall” album, released in 1979, just before the 1980-81 recession, sold about 8 million copies worldwide through 1986, while his “Thriller” album, released as the 1982 recession ended, sold about 38 million copies through 1986.

* Walt Disney Co., the nation’s largest theme park operator, reported attendance declines in two of the last three recessions. Attendance declined 5.6% in 1974. It was up 3.1% in 1980 but down 2.9% in 1981 and down 6.4% in 1982. Disney says attendance was mostly hurt by oil shortages that existed during those periods. But Jeffrey Lodgson, an analyst with Seidler Amdec Securities, notes that while gas is now widely available--albeit more expensive--attendance has fallen at several theme parks in the last six months, including Disney, Knott’s Berry Farm and Sea World.

Despite the evidence that some sectors of the entertainment industry are negatively affected by economic downturns, cash has been thrown around Hollywood in recent months as if investors believe it is the only safe haven from bad times.

More than a dozen well-financed record labels have been launched in the last 12 years. Germany’s Bertelsmann Music Group was the latest to enter the fray with the Imago Recording Co. label, launched Nov. 30 and backed by about $50 million. The Japanese have invested more than $1 billion in various studio deals since January. And last month, the U.S. entertainment giant MCA Inc. agreed to be acquired by Matsushita Electric Industrial Co. for $6.59 billion.

Even as the money has poured in, however, more and more entertainment companies find themselves hunkering down.

More than 200 people have been laid off since the summer by A&M;, Island, Enigma and RCA records. In October, General Cinema Corp. announced layoffs and a cutback in theater construction. The 1,700-screen Cineplex Odeon theater chain reached agreement with its banks in late November to defer principal payments on loans until mid-1992. Another theater chain, AMC Entertainment, says it is also retrenching. Meanwhile, MGM-Pathe Communications has fired about 280 people since merging Nov. 1.

General Cinema spokesman Peter Farwell attributed his company’s difficulties to an overabundance of movie screens. But Disney, which leads all other studios in motion picture market share in 1990, traced its sluggish growth to the economic downturn.

In a statement issued Nov. 8, Disney said financial results for the three months ended Sept. 30 were “negatively impacted by the weakened domestic economic climate.”

Although the economic pressure seemed to most affect Disney’s theme parks, analysts expected stronger film results, too. They noted that although the hit movie “Pretty Woman” did well this year, “Dick Tracy” has had trouble recouping its huge marketing costs.

In fact, nearly a third of Disney’s $104.6 million in fourth quarter operating profit for its filmed entertainment division came from the syndication of “The Golden Girls” television show and home video sales of “Peter Pan.”

Despite the shifting of the film unit’s profit centers, the coming economic downturn could prove the most daunting yet. Escalating production, marketing and distribution costs have put pressure on entertainment companies to increase prices, and that could change the widespread perception that entertainment is a relative bargain compared to other expenditures.

“In past recessions, the evidence indicated that people continued to go to the movies for the most part because it was a fairly inexpensive form of entertainment, but things have changed,” said Nick Counter, president of the Alliance of Motion Picture and Television Producers. “We really won’t know what will happen this recession until it comes. But the honest answer is that things could get rough.”

While consumers can subscribe to cable TV and rent home videos for as little as 99 cents a day, movie tickets have risen from a nationwide average of $2.70 in 1980 to $5. At an average price of $12.49, compact discs cost 100% more than LPs sold in 1980. In many metropolitan areas, such as Los Angeles, it can now cost as much as $7 for a movie ticket and $15 to $20 for some compact discs. The higher prices have given some consumers pause.

“Entertainment would be one of the first things to go if I lost my job,” said Tracy Pierson, a free-lance writer from Santa Monica. “You don’t necessarily have to go to the movies or an expensive concert, especially when there are other forms of entertainment like home video. It’s absurd to think that when someone’s out of work they are going to go to the movies or buy music.”

Indeed, as the price of entertainment escalates, more and more “consumers may decide that entertainment is not a necessity,” said Alan Levenson, an economist with WEFA Group in Bala Cynwyd, Pa.

Many consumers may choose home videos over movies during hard times, according to a nationwide survey of 7,000 families conducted by the Conference Board, a New York-based research organization.

Consumers rate renting home videos a “good” value. But they say premium cable channels and movie tickets are “poor” values, along with auto insurance and lawyers’ fees. Compact discs fared relatively poorly in the Conference Board survey, too.

Fabian Linden, executive director of the Conference Board’s consumer research center and author of the study, said items deemed a poor value by consumers “are likely to be skipped over” when times are bad.

“Once you get into a recession, there is a tremendous inclination for people to become more cautious in their spending,” Linden said. The first things to go, he said, are “impulse shopping” and luxuries. Second to feel the pinch are what he called “postponeables”--repairs or scheduled replacements that can be delayed. He included much entertainment fare in the latter category.

“Don’t let anybody kid you,” Kelvin Anderson, owner of VIP Records in Long Beach, told a recent gathering of the National Assn. of Recording Merchandisers. “Things are terrible out there. People are hurting.”