MCA Parent’s New Role : Plan for Matsushita Team to Join Firm Seen as Bid to Tighten Grip on Unit

When serious Japanese money started pouring into Hollywood a few years ago, industry leaders wondered how long it would take for the new owners to assert themselves. In the case of Matsushita Electric Industrial Co., parent of MCA Inc., the answer is: not long at all.

The Japanese electronics giant has repeatedly butted heads with MCA management since acquiring the company for $6.6 billion in January, 1991. Now it plans to dispatch as many as eight executives there by summer in what many see as a move to ultimately tighten its grip on MCA.

The Matsushita executives will be placed in all of MCA’s key divisions. People familiar with Japanese business see the group as the eventual successors to American management.

“They’re the sponges,” one source close to MCA said. “They’ll start as observers, but they will soon become the shadow managers. And eventually, they will be senior management.”

The Matsushita team’s arrival will strain an already difficult relationship. MCA, home to Universal Pictures, Universal Studios theme parks and the MCA Music Group, has squared off with Matsushita over everything from budget items to strategic acquisitions in recent months. MCA executives fear that money for company operations will become even scarcer if its latest film, the big-budgeted Tom Cruise movie, “Far and Away,” isn’t profitable.

Some attribute Matsushita’s heavy-handed management to its vast internal problems, which include a major financial scandal and a severe downturn in electronics sales. With operating profit down 43% in the year ended March 31 and predictions that earnings will fall another 25% in the six months to September, there is widespread speculation within MCA and elsewhere that Matsushita President Akio Tanii will resign as early as this month.

Matsushita spokesman Akira Nagano categorically denied that Tanii will leave the company any time soon. With regard to MCA’s complaints of interference, Nagano said: “We are the parent company, so we can’t leave them alone 100%. We will give them creative independence, but when it comes to accounting we can’t leave them alone.”

Nagano also blamed friction between the two sides on “the difference in culture,” which MCA did not dispute. Executives at the Universal City-based company have been alternately mystified and outraged by Matsushita’s behavior lately, including its insistence on closely examining even the most routine expenditures. The capper came in December, when Matsushita rejected MCA’s proposal to make a strategic bid for England’s Virgin Records.

“MCA had worked nine or 10 months on the Virgin deal,” one source said. “It would have positioned MCA globally. But Matsushita, looking at its own problems, said no to all growth.”

MCA Chairman Lew Wasserman and President Sidney J. Sheinberg--who was said to be livid over the Virgin decision--took their complaints to Chairman Shoji Matsushita in Osaka two weeks ago.

MCA executives declined comment on the meeting, but sources say the chairman offered to personally serve as a buffer between the companies. MCA executives remain skeptical. “For Sid and Lew, the only good beginning is if they leave us alone,” one said.

A pledge of MCA’s autonomy was one of the key provisions in the agreement that led to the Matsushita-MCA union 17 months ago. The Japanese company, a $47-billion a year manufacturing giant whose products include Panasonic, insisted that Wasserman and Sheinberg remain in their long-held positions during the negotiations that led up to the MCA sale.

At the time, Matsushita was thought to have made a better Hollywood deal than its archrival, Sony Corp., which purchased Columbia Pictures Entertainment in 1989.

But signs of trouble began to surface late last year, when MCA froze salaries and bonuses, reportedly at the urging of Matsushita. Since then there have been repeated clashes over the direction of MCA. Sources say the two sides--both entrenched in their respective corporate cultures--have made only limited efforts to get past their differences and become allies.

One setback came when Masahiko Hirata, who had served as one of Matsushita’s point men to MCA, was demoted in the wake of the Japanese financial scandal, which involved hundreds of millions of dollars in bad loans by a Matsushita subsidiary. Sources say that Matsushita’s current liaison, Mamoru Furuichi, has yet to establish rapport with MCA’s senior managers.

“The problems at MCA are twofold: the American management and the Japanese management,” one Hollywood executive said. “It goes all the way to the top of both companies.”

The problems have led to persistent talk of defections from MCA. But sources say it’s too soon to tell if Sheinberg and others will ultimately leave the company.

One executive close to Matsushita says the company’s problems also stem from it’s strict adherence to Japanese business principles. “They want kaizen --which is a famous Japanese term for incremental improvement,” he said. “But in the movie business you can’t apply the principles of kaizen. The creative process confounds the kaizen process.”

Matsushita originally projected annual operating profit at MCA to reach 8.8% of sales, about $340 million in the year that ended March 31. Instead, profit ended the year at $230 million. Meanwhile, Matsushita is feeling the burden of the annual $153 million in interest it must pay on $1.8 billion in commercial paper it issued when it purchased MCA.

Matsushita had about $15 billion in cash at the time of the purchase. Today, its cash level is half that amount. While Matsushita can easily absorb the MCA burden, it has announced cutbacks in capital spending that some observers attribute in part to the MCA acquisition.

The company denies that the spending cuts have anything to do with MCA. But at the same time, Matsushita appears unlikely to sink more money into the company. The Nihon Keizai Shimbun, Japan’s business daily, recently noted that while MCA has $3 billion in interest-bearing debt on its books, parent Matsushita has no intention of bailing it out. “The parent won’t be putting out a cent,” the paper quoted Matsushita’s Tanii as saying.

MCA may find that it’s impossible to sort out its long-range future until Tanii’s own future is resolved. “Conditions are bad at the company now, but there isn’t anybody to take Tanii’s place,” said Masatomo Azuma, an Osaka-based analyst for Yamaichi Securities. “Tanii will probably first restructure the company for his successor, then quit.”

Many believe that the founder’s grandson, 46-year-old Masayuki Matsushita, will become president within the next year or two. But sources in Japan and the United States say that whatever the outcome, Matsushita will never totally loosen its grip on MCA.

“The culture of MCA is that it has always been Sid’s and Lew’s company,” said one executive there. “Now it’s not.”

Citron reported from Los Angeles and Helm from Tokyo.