Screen Play : PolyGram Hopes to Bolster Its Hollywood Presence With Purchase of Once-Venerable ITC Entertainment

In its 40-year history, ITC Entertainment Group has gone from the heights of producing Academy Award winners such as “Sophie’s Choice” and “On Golden Pond” to more recent B-movies such as the “Stepfather” slasher films. In headier days, the Studio City company was one of the world’s leading independent entertainment firms and once counted among its treasures the Beatles music catalogue.

But in the 1980s a string of box-office bombs--most notably the big-budget disaster “Raise the Titanic”--nearly sank the firm. The company bounced around to three different owners in just a few years, and recently its new production schedule dwindled so much that it has relied mostly on syndication sales of its old movies and TV shows.

Now ITC has yet another owner, and this Hollywood marriage might last. Last month, the company was sold for $156 million to PolyGram, the Anglo-Dutch recorded music giant with $4 billion in annual revenues. The acquisition is part of PolyGram’s plan to build itself into a major Hollywood movie studio, and gives the European concern access to ITC’s well-regarded film and TV library.

ITC “has had its ups and downs,” acknowledged Jules Haimovitz, ITC’s president and chief executive. “Now it’s up because it’s part of PolyGram. We’re just going to get carried by that chip.”

PolyGram, based in London, is one of the world’s largest recorded music concerns and is 75%-owned by Dutch electronics giant Philips N. V. PolyGram’s music labels include A & M, Island and Motown, and it is the undisputed market leader in classical music. Upcoming releases include Stevie Wonder’s first album in seven years.

Before the ITC deal, PolyGram had already gone part of the way to reaching its goal of becoming a major film studio through a hodgepodge of investments starting in the late 1980s. In 1991, Michael Kuhn was dispatched to Los Angeles as president of PolyGram Filmed Entertainment, with the job of spending $200 million to expand the company’s filmmaking activities.

Over the years, PolyGram has acquired majority interests in a variety of movie production firms, including Interscope Communications (“The Hand That Rocks the Cradle”); Island Pictures (“Kiss of the Spider Woman”) and Working Title Films (“Four Weddings and a Funeral”). The company also has production pacts with Jodie Foster’s Egg Pictures and Tim Robbins’ Havoc Inc., and U. S. film distribution through Gramercy Pictures, a joint venture with MCA.

PolyGram got a big boost from last year’s unexpected mega-hit, “Four Weddings and a Funeral,” which has grossed $250 million worldwide and is contending for an Oscar as best picture. The company released 18 pictures in 1994, and plans another 20 this year--including “French Kiss” starring Meg Ryan, “Moonlight and Valentino” with Whoopi Goldberg, and “Home for the Holidays,” directed by Foster and starring Holly Hunter.

Now, PolyGram fills an important gap with ITC’s sizable library of film and old TV series, which can provide a steady stream of revenues to smooth out the bumpy film production business.

ITC’s catalogue consists of more than 350 feature films, including “The Return of the Pink Panther,” “The Boys From Brazil” and “The Eagle Has Landed,” plus British TV classics from the 1960s, such as “The Saint,” “The Prisoner” and “Secret Agent.” Its TV miniseries include “Poor Little Rich Girl” and “Jesus of Nazareth.”

Most important, ITC gets PolyGram into domestic television distribution--ITC’s mainstay of the past few years, and potentially a very lucrative business. PolyGram hopes to milk the ITC library and its other films with sales to TV rerun and cable markets, and through PolyGram’s home video distribution business. “The values of film,” said Haimovitz, “are always in television.”

What’s more, PolyGram now owns rights to remakes or sequels of old ITC movies and TV programs and is reportedly mulling a film version of “The Prisoner” TV show.

Keith Benjamin, an analyst at Robertson, Stephens & Co. in San Francisco, said that the enormous cash flow generated by PolyGram’s music business gives it an advantage in financing its expansion into films. Benjamin praised PolyGram’s go-slow approach in the volatile entertainment business, and said the ITC purchase is “a nice step in a plan they’ve been working on for a few years. This gets them into the TV market, which they really had no presence in before.”

PolyGram’s acquisition of ITC is part of the ongoing “media mating” of companies, said Marc Gabelli, an entertainment and media portfolio manager at Gabelli & Co., a large mutual fund investment firm that invests heavily in entertainment.

So far, PolyGram has steered away from big acquisitions, although it has been consistently rumored to be a possible suitor for MGM / UA. While PolyGram’s quiet building of its Hollywood presence is unusual, Gabelli believes PolyGram’s strategy can be quite effective given its success in the worldwide recorded music business. “You have a management that knows how to compete in the global entertainment marketplace.”

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With ITC, PolyGram gains a company that dates to 1954, when ITC was founded by British television pioneer Lord Lew Grade, now 88. Grade is rejoining the firm as “chairman for life” and a consultant to Kuhn.

By the 1970s, ITC had built an impressive entertainment concern that owned British television shows, London theaters and ATV Music, which owned all the Beatles music. In 1978, the company launched into making Hollywood movies.

But ITC’s track record in motion pictures was mixed, and by 1982 the company was in severe financial straits. “Raise the Titanic,” a fictional 1980 thriller about a crew that recovers the infamous ship from its watery grave, cost $40 million to make but took in just $7 million at the box office. That started ITC’s string of ownership changes: Australian financier Robert Holmes a Court acquired ITC and began dismantling it to raise cash, including selling the division that owned the Beatles catalogue for $47.5 million in 1985 to singer Michael Jackson.

In 1987, Holmes a Court sold ITC to fellow Aussie tycoon Alan Bond, who immediately resold it for $125 million to a management-led team backed by Midland Bank PLC in Britain. Midland was later acquired by Hong Kong & Shanghai Bank.

Haimovitz was hired in 1993 to rebuild and sell the company. The 44-year-old former president of Spelling (“Beverly Hills, 90210”) Entertainment Inc. is known as an astute operator; he will stay on at ITC under a long-term contract.

When the deal with PolyGram was announced after several months of negotiations, trade reports said ITC had come down from an initial asking price of $270 million. Haimovitz called those reports “ridiculous,” adding that the $156-million purchase price was in the range of what he expected. “I’m pleased, as is the bank.”

It’s unclear exactly how ITC will be melded into PolyGram’s movie business. Haimovitz said there are some areas of overlap and there could be some layoffs among ITC’s 90 employees, but details have yet to be worked out.

David Gerber, the former chairman of MGM’s television group who in the past few years has run a joint production venture with ITC, expects PolyGram to have a different management style. European companies like PolyGram tend to be more decentralized and conservative, he said. “They’re going to take precautions. They might be leery about deficit financing, the way we do things here.”

And whether ITC will return to producing a large number of films or TV shows is also in question. Haimovitz indicated it wasn’t a big priority for now, although in recent years ITC has come out with some low-budget films. It also produced the TV miniseries starring Sally Field that airs this week on NBC, “A Woman of Independent Means.”

Last year, ITC had some success with the critically acclaimed movie “The Last Seduction.” That film created a big stir when ITC fought a losing battle to qualify it for this year’s Academy Awards. The movie had been shown on the HBO cable network before hitting theaters--a breach of Academy rules.

Haimovitz called the rule “archaic.” But the fact that he had shopped “The Last Seduction” around to film distributors and couldn’t interest any of them in the film before it aired on HBO, might have signified ITC’s waning influence in Hollywood.

“I’ve been in business too many years to worry about credibility,” Haimovitz professed, adding that “ITC has been around for 40 years. It’s a credible company.”