Matsushita Moves to Patch Rift with MCA : Entertainment: Japanese parent admits missteps and says it won’t sell MCA. Sony’s troubles provide a lesson.

In what may be an attempt to patch up a growing rift with executives at its MCA Inc. unit, Matsushita Electric Industrial Co. confirmed on Friday that it will work with MCA to develop a strategy for the entertainment company.

Matsushita executives in Japan, in a candid admission of missteps in handling its MCA situation, reiterated to reporters that they do not plan to sell the Universal City-based entertainment conglomerate that the company bought for $6.6 billion in 1990.

MCA declined to comment publicly, but executives there privately said they were encouraged by the development as well as a conciliatory tone that suggests Matsushita wants to heal the wounds.

Several noted that working in their favor was the debacle this week at Matsushita’s Japanese rival Sony Corp., which on Thursday disclosed a staggering $2.7-billion write-off on its Sony Pictures unit and a $510-million operating loss. On Friday, Sony executives denied reports that Sony Pictures is for sale or that Sony of America President Michael P. Schulhof is in danger of losing his job because of the losses. They insisted that Sony Corp. is committed to rebuilding the studio now that its balance sheet has been cleansed.

The Sony news may “in a perverse way,” as one MCA executive put it, make Matsushita more sensitive to the importance of solid management in Hollywood and prod the company to quickly resolve differences with MCA Chairman Lew R. Wasserman and President Sidney J. Sheinberg, the industry’s longest-running executive team.

MCA sources also confirmed a Wall Street Journal report that Matsushita had hired investment bank Allen & Co. and Creative Artists Agency Chairman Michael S. Ovitz to draw up various strategic scenarios. Allen & Co. and Ovitz brokered the sale of MCA to Matsushita. Sources said Allen & Co. was hired within the past few weeks.

Relations between Matsushita and MCA have been heated for several years. Wasserman and Sheinberg have been hindered in their efforts to grow MCA through major acquisitions, such as a bid for CBS in conjunction with IT&T; or the acquisition of Virgin Records, which eventually went to British conglomerate Thorn EMI.

Both Wasserman and Sheinberg are likely to leave MCA if their differences with Matsushita can’t be worked out. Such a move would no doubt end the company’s longstanding and highly lucrative relationship with filmmaker Steven Spielberg, to whom Sheinberg has served as a mentor.

Spielberg, who is forming a studio with music mogul David Geffen and former Walt Disney studio chief Jeffrey Katzenberg, has made such hits as “Jurassic Park,” “Schindler’s List” and “Jaws” for MCA’s Universal Pictures unit. If the new studio proceeds as planned, MCA is hoping to distribute the trio’s product until they establish their own distribution system.

Motoi Matsuda, director of accounting, finance and auditing--effectively Matsushita’s chief financial officer--told reporters in Japan that Matsushita will come up with a “short-term and mid-term business strategy” with MCA executives. He blamed the dispute in part on the fact that Matsushita--an industrial conglomerate that makes such electronics brands as Panasonic and Technics--was unfamiliar with the film industry and lacked a medium-term strategy.

“When MCA made new proposals, Matsushita said ‘no’ without having a specific strategy. This led to conflict between the two companies,” he told a news conference.

MCA sources said a host of scenarios are likely to emerge from Allen & Co.’s evaluation, but the critical issue is to give MCA the flexibility to make major strategic moves to grow, such as acquisitions.

Company executives are said to be especially concerned that MCA is falling behind such giants as Viacom Inc., Time Warner and Rupert Murdoch’s News Corp.

The consensus among entertainment executives is that Matsushita, like Sony, overpaid when it entered Hollywood and, as a result, has not produced an acceptable return on its investment, despite such hits as “Jurassic Park.”

But they also believe that, unlike Sony, the value of MCA has climbed substantially, especially in the wake of the $10-billion sale of Paramount Communications earlier this year to Viacom Inc.

They note that MCA has a more viable theme park operation than Paramount, a larger film library and a major music operation, which Paramount lacked.

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Times reporter Katie Harris and the Reuters news service contributed to this report.