Global Media : Strategy: With many major players heavily indebted, some observers wonder anew about the viability of worldwide enterprises.

As buzzwords go, few have enjoyed greater vogue in the 1990s than globalization, especially when used in conjunction with the entertainment and communications industries.

Listen, for example, to Steven J. Ross, chairman and co-chief executive of Time Warner Inc., the world’s largest media company: “Globalization is basic to everything we do,” Ross said in a speech last year before he was sidelined with prostate cancer.

“It’s an economic fact of life for our industry and for every American corporation. In order to succeed and be leaders in industry, companies must understand international markets.”

It is little surprise, then, that Ross insisted that he was pursuing his global vision--rather than urgently trying to pay down debt taken on by Time Inc.’s acquisition of Warner Communications--when Time Warner agreed to sell a 20% stake in its cable and film units to C. Itoh Ltd. and Toshiba Corp. of Japan for $1 billion.

Robert Maxwell, the late British publisher, was another empire builder who thought globally. “The strategy of becoming a global pure publishing company . . . has proven correct,” he asserted in the last annual report issued by Maxwell Communication Corp. before he disappeared from his yacht, the Lady Ghislaine, and his body was found floating off the Canary Islands in early November.

Maxwell pursued his global vision by piling on debt--$2.6 billion to buy Macmillan Inc., $750 million to acquire the Official Airline Guides, both in the United States--and, apparently, by plundering his companies and their pension funds of hundreds of millions of dollars.

Then, of course, there were Sony’s purchases of Columbia Records and Columbia Pictures; Matsushita’s acquisition of MCA Inc; Australian-born Rupert Murdoch’s News Corp.’s acquisition of 20th Century Fox and creation of Fox Broadcasting and a European satellite-to-home TV network, and Bertelsmann A.G.’s acquisition of, among other things, RCA Records.

But for all the talk of globalization, for all the transnational investments of billions of dollars, last year media-industry participants got some rude lessons about the viability of global enterprises.

Maxwell, whose empire is being dismembered by bankruptcy administrators, was the most dramatic example. Murdoch was forced to sell off many of his U.S. magazines to help pay down debt. Sony and Matsushita are widely thought to have overpaid for their U.S. entertainment units. And some stock analysts have speculated that Time Warner may be split up if Ross succumbs to cancer.

What, then, are the ingredients necessary for success in the ‘90s? What is the magic combination of technology, product, global reach, hardware, software, distribution and capital?

To Fox chief Barry Diller, the key to success--at least in the movie business--remains what it has always been. “All it is, is: Do you have a good idea, and do you have the talent to execute it?” Diller said in an interview. And, he added pointedly: “There is no corner on good ideas.”

Steven Rattner, an investment banker at Lazard Freres & Co. who specializes in media companies, offers a skeptical view. “Oddly enough, the media business is much less global than people think,” he said. “It’s relatively parochial. The number of companies that are truly international players is relatively small.”

For Rattner, to be truly a global player--rather than simply an exporter--a company must have indigenous production capabilities around the world. By this definition, Murdoch’s News Corp. or Maxwell’s crumbling empire or Bertelsmann is global--but Time Warner is not. “Time Warner is basically an exporter of U.S.-made product,” he said. MTV and Cable News Network, two cable networks that have gained the global label, are similarly U.S.-grown.

Perhaps the biggest outstanding question facing the industry revolves around the wisdom of the Japanese-U.S. hardware-software linkups, the unions of makers of machinery and makers of what plays on them.

“Until recently, I really thought Sony and Matsushita had made major smart moves,” said David Londoner, a managing director of Wertheim Schroder & Co. “But the synergy thing between hardware and software has been exaggerated.”

Frank J. Biondi Jr., president of Viacom International, agreed. “The advantages must be substantially more apparent to hardware makers than software makers,” he said. That’s because, in his view, software--that is, programming--is what drives the industry. “If the software is any good, it will play on all the (commonly available) hardware,” he said.

Biondi said he doubts whether Sony and Matsushita would be able to sell their U.S. entertainment companies for anything close to what they paid. “Could Sony and Matsushita sell? I think not, because I don’t know who would buy.” Of course, neither company wants to sell, but the point is that they probably overpaid.

Biondi and others believe that the hardware-software link is fraught with potential problems.

“Aside from the merits of the business strategy, which is debatable, and the differences between the U.S. and Japan, which are obvious, there are major cultural differences between a manufacturing company and an entertainment company,” he said.

Indeed, some analysts believe that the real value of a Japanese connection is not the hardware, or even the capital, that the Japanese bring, but a Japanese owner’s or partner’s ability to vault over that country’s protectionist barriers. “You go in with the Japanese to get the best distribution in what is basically a protectionist country,” Londoner said.

Indeed, Time Warner figures that it will quadruple its business in Japan as a result of its linkup with Toshiba and C. Itoh.

To be sure, attitudes about what’s needed for success in the ‘90s are colored by the assets and liabilities that various players bring to the party. It’s no surprise, then, that while Ross was chasing capital for debt-straitened Time Warner, he was extolling the virtues of hardware-software combinations as “logical and powerful.”

“From a hardware perspective,” he said, “such alliances ensure manufacturers immediate access to the tastes and demands of consumers--what consumers want and in what form they want it. It also means that hardware companies can’t be shut out of a software market.

“From a software perspective,” Ross added, “an alliance with a hardware company gives a much-needed understanding of the potential of new media and new delivery systems being developed or soon to be on the market. Working with a hardware company, a software company can create in advance, as well as capitalize on, new markets for existing copyrights.”

He noted that the widespread introduction of VHS-type VCRs and CD players brought Time Warner incremental annual revenue of $2.5 billion a year. “But the introduction of these technologies was largely hit or miss, as evidenced by the well-known (Sony) Betamax videocassette failure,” Ross said.

Still, observers said, it remains to be seen whether Sony will be able to use its ownership of a movie and a record company to force consumer acceptance of its 8-millimeter video format and recordable compact discs, both of which face competing formats.

Though the jury remains out on hardware-software combinations, a more settled question is the value of vertical integration in the entertainment business. A good example of vertical integration is Time Warner, which both produces filmed entertainment at its Warner Bros. studio and distributes it through HBO and cable systems.

“Distribution is important, and in the U.S., the cable companies are really the gatekeepers,” Rattner said.

He cited John Malone’s Tele-Communications as a company that is integrating backward. Once purely a cable television company, it is now producing original programming of its own. Viacom too has gotten into the production business.

Diller, on the other hand, said the six major motion picture companies have “a pretty clear, deep distribution system that gives nobody any major advantage or disadvantage.” Even pay-per-view, in which filmmakers with captive cable systems might be expected to have an advantage, “appears to be developing along traditional exhibitor-developer lines,” he said.

Diller too scoffed at the notion that the winner in the entertainment contest will be the player with the best access to capital. “If you have the most money, you may be able to buy the most valuable talent of the day,” he said. But tastes change, and “what is true today is almost undoubtedly not true tomorrow.

“Who knows if any of what I’m saying makes sense?” Diller added. “That’s the most important lesson in this business: That these morning-line prognostications are invariably wrong. Nobody knows what’s going to make a good movie. Forget about all the deals and all the theories. All I know from is, ‘This is a good idea, and I’m going to pursue it.’ ”

Added Londoner: “There’s no mystery to this. The history of the entertainment business, going back to the traveling puppet show, is to take a particular piece of software and show it to as many people as you can.”