Will New Hollywood Kid Seagram Pass the Darwinian Survival Test?

Hollywood and the entertainment industry have always been a magnet for the power brokers of the corporate world. Enchanted by the flash, sizzle and celebrities, corporate chieftains the world over have made the pilgrimage to Hollywood. Many of them have been seduced by the color and excitement. They have acquired studio properties, taken major stakes in movie companies and made significant investments in new ventures.

Most investors have regretted these decisions.

Hollywood is more than a place; it’s a state of mind. Entertainment companies are more than just collections of assets; they are an attitude. The entertainment industry is like no other. It’s a place where style, feel and relationship count as much as substance.

In Hollywood, creative, technological and business talent maintain a tenuous partnership that few others in the corporate world have ever fully understood. Even the recent convergence of new multimedia technologies and traditional entertainment has done little to alter the basic Hollywood culture of relationships, alliances and investment decisions based as much on feeling and style as on content.

Hollywood resists change, as only a timeless myth can. The landscape is littered with the broken dreams of corporate financial wizards and the unmet expectations of investors. Consider the once-promising rise of Orion Pictures. Investors expected professional managers to introduce greater business acumen and long-term consistency to movie making. Now, though, Orion is simply one more statistic in the historical record. Like dozens of others, it was a casualty of the inability to sustain momentum and maintain proper balance between business and creative elements.

Today, the entertainment business is undergoing a transformation. The structure of competition is changing, and the road to prosperity is being rerouted. New technologies are altering the character, process and staffing of productions. Art is turning into science, and new delivery systems are being born. Mergers and alliances with telecommunications carriers, digital media magicians and other technology companies have become strategic paths to a new era of entertainment and profitability. The influx of new players means new pressures for change and the introduction of new corporate styles. Hollywood can no longer stand resolutely in defense of its past practices. Future winners will be those companies that successfully bridge the cultural gaps and shape Hollywood to the new business context.

As the industry reinvents itself and the playing field continues to shift, the question on everyone’s mind is whether these bets will pay off. What is the likelihood that the spate of expected new deals will truly lead to a stronger and more prosperous industry?

MCA was led by a legendary Hollywood team that finally succumbed to the indifference of Matsushita. The Japanese parent was unable to recognize and leverage the very opportunities that drove the original acquisition. Will Seagram’s management escape this fate? Will Edgar Bronfman Jr. leverage MCA’s alliances with Paramount, MGM/UA and United International Pictures into a new prosperity? Or will this hands-on outsider add new cultural constraints? For that matter, will Sony’s Columbia Pictures finally be able to capture the opportunities in digital, multimedia entertainment? Or, will internal struggles leave this growing market beyond its grasp?

Mergers and acquisitions in this industry are not simply announced. They are trumpeted with fanfare and hype. New opportunities are confidently projected, as if just doing the deal makes them a reality. Financial returns are promised to investors and accelerated growth is projected.

Unfortunately, the challenges are always underestimated. Look around this industry. Entrenched cultures are allowed to become barriers to new thinking. Bureaucratic structures are devolving slowly. The details of transition management have become a second career and a reason to retain a larger than necessary complement of corporate and division staff. Transition teams are depleting the energy of well-intentioned managers and artists and turning the post-acquisition environment into a planning circus.

Acquired and joint-venture companies require an accelerated post-deal transition that lays a workable foundation for the future. Unfortunately, for most entertainment companies, the post-deal transition has been slow and tedious. It has been a period of reduced productivity, low morale, internal competition and short-term focus. Progress is retarded--and ultimately stalls.

Contrary to popular belief, change is not the problem. The real dilemma is the reluctance of management to make early, firm decisions about new business direction, organizational structure, people and processes. This prolongs the post-merger transition, alienates the work force, undermines operations, obstructs progress and reduces long-term potential.

Change may have costs. But, long, drawn out change is the most expensive kind. A prolonged transition means lost value, less cash for debt service and investment and reduced and delayed shareholder returns.

The message to managers and investors is simple. The path to stardom requires decisive action and an accelerated post-deal transition. Move quickly to stabilize the organization, build early momentum, capture early wins an preserve human and market assets. Establish clear strategic and operational priorities. Concentrate resources on high-value projects. Avoid dilution of effort. Clarify key roles and interdependencies. Stimulate an action orientation. Communicate relentlessly.

And never forget one fundamental reality: Hollywood endures.