Universal City Plan Seen Focused on Tourist Trade
If Walt Disney Co. won’t build a $3-billion resort in Southern California, rival MCA Inc. will.
That was the message that public officials, entertainment industry executives, financial analysts and homeowners are hearing in MCA’s announcement Wednesday that it plans to spend $3 billion over the next 25 years to build out its 415-acre Universal City property in the Cahuenga Pass.
While the company continued to stress Thursday that it plans to build high-tech production facilities and offices in addition to family-oriented destination resort hotels on its vast mountaintop overlooking the eastern San Fernando Valley, many observers believe that MCA’s ambitious new efforts signal a dramatic shift away from filmmaking toward theme-park operations.
The difference is critical, and cuts two ways for the local economy.
On one hand, post-production suites create high-paying jobs for film and music technicians, while theme parks utilize minimum-wage workers such as maids and restaurant workers. On the other, a destination resort would bring tourists and conventioneers to the San Fernando Valley who are likely to stay two or three days and spend money throughout the community.
Evidence of MCA’s tilt toward its resort business, said a former MCA executive on Thursday, is that the current project is being managed internally by the company’s theme park division rather than its development division, which normally handles such matters.
“We are talking about a major change in the land-use planning for the area,” said the executive, who asked that his name not be used. “Planning in the past has always been done by MCA Development. Now it’s the amusement park folks.”
The former manager noted that space on the property equals jobs.
“How many acres of studio will be eaten by a theme park?” the former executive asked. “When you eat studio, you eat good-paying jobs and replace them with tourist jobs.”
Currently, about 10% to 20% of MCA’s operating income is derived from its two theme parks in Universal City and Florida, according to industry analysts.
MCA on Thursday denied that its plans--which came to light Wednesday in the form of a request to the city and county of Los Angeles to approve a new specific plan for Universal City--mark the beginning of a shift away from filmmaking by the entertainment conglomerate.
“That is absolutely not true,” said Christine Hanson, an MCA executive vice president. “The studio is an integral part of the expansion. It is the heart blood for our company.”
Hanson said that after the expansion--to 11.2 million square feet of developed space from the current 5.4 million--the ratio of studio facilities to entertainment attractions will remain about what it is now. She would not say what the current ratio is.
A notable exception, she acknowledged, would be the addition of 2 million square feet of resort hotels.
Several executives at independent post-production firms in the San Fernando Valley said they doubt MCA really needs more room to edit motion pictures, video, music and multimedia software.
“There are already enough production facilities for the demand,” said one, who declined to be identified because he performs contract work for MCA. “Movie studios aren’t exactly renowned for their chic editing rooms. Post people work in tiny, closet-like spaces.”
Another production executive noted that editing is cyclical and requires little permanent space. “Right now, all of (MCA division) Universal’s editing suites are filled up for ‘Waterworld,’ their big film of the moment,” he said. “They can put up portable bungalows for any excess temporary demand and strip ‘em all down when the picture is done.”
Entertainment industry analysts in New York, Los Angeles and Tokyo saw differing motivations in MCA’s proposal.
Said Merrill Lynch analyst Jessica Reif: “If there’s one thing I know about the Valley, it is desperate for good hotels. There are a dozen good places to stay on the Westside, but there’s nothing over the hill--particularly for a two- or three-day business conference.”
Assessing MCA’s proposal in the face of the intense rivalry between MCA and the Walt Disney Co. in neighboring Burbank, Reif considers it a plus for both.
“It’s not bad for Disney, because people who visit Southern California usually go to both Disneyland and Universal Studios. This would give them more reason to visit,” she said.
In terms of scope, MCA’s project sounds much like Disney’s vision for Anaheim.
Both companies drew up plans that call for spending $3 billion to build an integrated entertainment complex of hotels, restaurants, shopping and amusements. MCA would construct it over 25 years while Disney said it hoped to open its first phase by the year 2000.
Disney demanded, and received, hundreds of millions of dollars in commitments for public funding of parts of its resort. Despite having won many of the assurances it sought, the company backed away from its initial plans last month, saying the project could no longer be profitable in California’s weakened tourism climate.
Instead, Disney officials said they would start over with plans for less expensive additions to the Disneyland site that will be spaced out over a longer period.
Disney spokesman Michael Johnson said Thursday that the company has no comment on MCA’s plans.
In Tokyo, a Baring Securities analyst who closely follows MCA parent Matsushita Electric Industrial Co. viewed the plan in the context of the recent battle for control of MCA’s future.
“Matsushita management regards MCA as a pain in the ass--they are backing away from their media strategy,” said the analyst, Joseph Osha.
Matsushita “published their manifesto for the future recently and it was all about cutting costs and investing in plants to produce devices like flat-panel LCD displays and batteries--nothing about entertainment,” Osha said.
Osha believes that means that Matsushita--an Osaka-based electronics powerhouse with annual revenues of $70 billion--is getting ready to spin off the subsidiary it bought for $6.6 billion four years ago, perhaps selling a majority stake to outsiders.
“If you’re going to try to sell a chunk of this asset, it makes sense to increase the perception of its value,” he said.
Likewise, analyst Jeffrey Logsdon of the Seidler Cos. in Los Angeles said longtime MCA bosses Lew Wasserman and Sidney Sheinberg may want to expand their resort business because it could represent a shift toward a more stable financial performance--something highly prized on Wall Street.
Making movies, which is expensive and risks huge losses on inevitable flops, has net profit margins of about 5%, he said, contrasting it with the “highly lucrative” and more stable theme park industry, which generates 10% net margins.
Before any projects can begin, however, MCA must obtain approval for its plans.
Over the next two months, MCA will meet with Los Angeles County planning officials--most of Universal City is on unincorporated county territory--to determine the scope of an environmental impact report. MCA said it expects to complete the EIR by the end of September. A two-month comment period would follow its publication. Hearings before city and county officials could commence early next year.
Then the project would be voted on by the Los Angeles City Council and the County Board of Supervisors.
Los Angeles City Planning Director Con Howe said the city and county would try to coordinate hearings because Universal City involves both jurisdictions. Although most of the project will be built on county land, all of its impacts--such as increased traffic and noise--will be borne by city residents.
“It doesn’t make sense to plan for one side and not the other,” Howe said.
In the past, much of MCA’s development in Universal City has been accomplished in a piecemeal fashion, with each individual project requiring separate governmental review. By obtaining approval for a long-term plan, Howe said, the company hopes to avoid having to return to officials for approvals again and again.
Chief among nearby residents’ concerns is the increased traffic any expansion would bring.
Universal City Expansion Plan
Although still in preliminary phases, expansion plans in Universal City would more than double development in the 415-acre complex by adding 5.8 million square feet of facilities to the current 5.4 million over the next 25 years. Plans include development of a resort hotel and entertainment facilities as well as additional studio production and office space.
