Curtain Lifts on a New Year : Will 1996 Be as Dramatic a Show as ‘95?

1995 saw more than $40 billion in deals, rumors about virtually every conceivable transaction and some of the biggest executive shifts ever in Hollywood.

Who would have predicted that Ted Turner would agree to sell? Or that Michael Ovitz would leave his perch at Creative Artists Agency to take the job as second-in-command at Walt Disney Co.? And didn’t conventional wisdom have it that Japanese companies such as Matsushita Electric Industrial--which divested 80% of MCA Inc. to Seagram Co.--were in it for the long haul?

Based on conversations with dozens of people in the entertainment business, here are some predictions for what 1996 might hold:

1996 will largely be the year of digestion for major players.

Disney is absorbing Capital Cities/ABC Inc. Westinghouse Electric Corp. is absorbing CBS Inc. Seagram continues to absorb MCA. Plenty of management issues and turf boundaries still have to be settled.

Unless Sony Corp. puts its entertainment operations up for sale, don’t expect a deal involving a major studio in 1996.

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Telecommunications deregulation promises to heat things up in the cable and phone businesses.

What deals do occur in 1996 probably will be telecommunications driven. Phone companies are expanding into distribution, with the possibility of acquisitions of cable properties looming.

One of the more aggressive regional Bell companies like Ameritech Corp. could be first out of the gate. Or maybe Tele-Communications Inc. and Bell Atlantic Corp. could try again to tie the knot if the latter doesn’t combine with Nynex Corp. first.

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Cable operators just grow bigger.

Companies such as TCI, Time Warner Inc., Continental Cablevision Inc. and Comcast Corp. will continue to cluster their cable systems geographically to position themselves to deliver phone service, swapping subscribers and making acquisitions to fill in holes in their strongholds. They’ll offer specials on cable packages to get customers to try their phone services and peddle modems that promise higher-speed links to the Internet than are offered by telephone modems.

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The networks become bigger station operators.

Exploiting the high profit margins of the station business, Disney, NBC, and Fox Broadcasting will add to their broadcast groups as ownership limits allow them to reach 35% of all viewers, from the current 25%. Analysts predict that Ronald Perelman could sell the group of Fox affiliates under his New World Communications banner to Rupert Murdoch. For the right price, Barry Diller could flip the four Fox affiliates he picked up in his purchase of Savoy Pictures Entertainment back to Fox. Independent station operators like Tribune Co., Chris-Craft Industries Inc. and Renaissance Communications will eat smaller operators or be eaten themselves. Even UHF stations and stations in small markets could fetch high prices.

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Time Warner’s pending acquisition of Turner looks ever more iffy.

Federal antitrust questions, unhappy shareholders, a litigious phone partner, a Time Warner stock that remains stuck below $40 a share, and a feeling in the air that TCI’s John Malone got the deal of the century. Federal regulators are unlikely to stand for the top two cable operators sleeping in the same bed. But it’s hard to imagine Malone being bought out of the deal or Time Warner Chairman Gerald Levin giving up his cable dream and selling off the wires to his partner US West Communications Inc. or even to AT&T; Corp.

Either way, the high-fives between Levin and Ted Turner may have been premature. If the Time Warner-Turner Broadcasting System Inc. deal falters, Levin’s in trouble.

And it does unravel, expect General Electric Co.’s NBC to take another shot at acquiring Turner. Combining NBC’s news operations with Cable News Network could produce $100 million in savings.

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Don’t expect a quick decision out of Sony on whether it will ultimately divest its entertainment units.

The company is at a crossroads over whether again to hire a new management team, or forget about trying to link hardware and “software.”

Odds are better than ever it will follow Matsushita’s lead and go back to its core electronics business, but don’t count on anything happening soon. The company moved glacially in shaking up its studio, and finally ousting Sony Corp. of America Chief Executive Michael P. Schulhof.

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Westinghouse will make a move into cable.

Eyeing the global opportunities, dual revenue streams and its competitive void in that arena, the industrial company will make a run for Gaylord Entertainment Co., the owner of two CBS affiliate stations, the Opryland hotel, the Country Music Television and The Nashville Network cable channels. Although other suitors have their eye on Gaylord, Group W has an edge through its agreement to market and distribute the two cable channels. Meanwhile, despite Westinghouse’s claim not to need a partner to run CBS, some analysts predict a change of heart before year-end. If advertising turns down, Westinghouse could be in serious trouble.

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Murdoch will fill in some of the missing pieces in his sprawling global media empire.

He has Fox in the U.S., Star TV in Asia, BSkyB in Britain and a new deal with Brazil’s Globo, Mexico’s Grupo Televisa, and TCI to provide satellite television service in Latin America. The News Corp. chief has only Continental Europe and Japan left to cover to achieve worldwide reach. His quarry in the new year could be CLT, Europe’s oldest cross-border media conglomerate, although he might have a contest with Bertelsmann.

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The agency wars heat up.

The playing field leveled after the departure from CAA of founders Ovitz, Ron Meyer and Bill Haber. International Creative Management, the William Morris Agency and United Talent Agency will continue to pick off clients and possibly some agents, and the newcomer Endeavor will continue to build on its specialty in television.

Look for CAA to streamline its unwieldy nine-man management structure put into place after Ovitz left.

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PolyGram starts to come alive.

The multinational’s go-slow approach will pick up the pace. The company missed the boat when Japan’s Matsushita sold control of MCA to Seagram.

PolyGram now wants the library of the Samuel Goldwyn Co., and may try to wrest Carolco Pictures from Twentieth Century Fox Film Corp. Future acquisitions could include Spelling Entertainment, which Viacom Inc. is selling.

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More front-page headlines from Barry Diller.

With two public stocks now under his thumb, Diller will make other acquisitions in his attempt to build “community” programming for the dozen or so UHF stations that comprise his Silver King Communications. Local news is his emphasis, gathering it cheaply is his goal, and what distinguishes his brand from the networks’ should unfold this year. Count on something daring from the man who used the little QVC home-shopping network to try to wrest control of Paramount Communications Inc. and CBS.

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MGM finally goes on the block.

Investment bank Lazard Freres was hired to tell the company when it should go up for sale. Using the simply theory that you always sell when you’re hot, look for the company to be put up for sale next year. MGM came back from the near-dead with two box-office hits in “GoldenEye” and “Get Shorty,” its “Leaving Las Vegas” is a major contender in several Oscar categories.

A host of prospective buyers--including some major European media companies--will kick the tires and MGM’s current management will try to organize a buyout.

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Disney’s sports empire grows.

The company, especially with new President Ovitz aboard, has been working overtime to get a National Football League franchise in Southern California. Betting here is that they do it, and possibly get a National Basketball Assn. team as well.

As for Disney’s merger with Cap Cities/ABC, analysts believe the company will spin off Cap Cities’ newspapers. Newspapers haven’t fit in any entertainment company’s plans for business synergy. Less certain is the future of its magazines, which Disney may keep.

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Hollywood will continue to whine about the costs of films, but will still pay.

Studio chiefs are like baseball team owners. They pay outrageous salaries, then react with horror to what they’ve just done.

The lip service will continue, although fewer movies might get made. Executives will continue to pay Jim Carrey $20 million or more as long as he continues to open pictures.

What’s more, the competition will be intense between Disney and MCA to make big deals with talent.

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The baby networks merge.

Many industry sources are predicting this will be the year that United Paramount Network and the WB throw in the towel as independents. Chris-Craft Industries is the survivor, and some pundits believe that Viacom, which must decide whether to pony up for its half of UPN in early 1997, could step up and buy not only the network, but Chris-Craft’s stations as well, securing an outlet for its Paramount studio’s production and bolstering its station group.

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DreamWorks links up with CBS in kids programming.

Once the merger of Disney and Cap Cities/ABC goes through, DreamWorks SKG will modify its programming joint venture with ABC. It could continue to supply prime-time programs to the network, while freeing itself from any obligations for children’s programming. CBS may provide a home for DreamWorks on Saturday morning’s and UPN on Sundays.

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The networks fall out of love with 18-to-34-year-old viewers.

Advertisers’ penchant for paying top dollar to reach the young and the restless pointed all the networks in the same direction: Toward creating “Friends” and “X-Files” imitators. Some marketing experts predict that the networks will give up these narrow targets to refocus on the mass audiences they specialize in delivering. At the least, they will stop focusing on delivering demographics and concentrate on delivering good shows.

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The cable news wars.

NBC and Microsoft are launching one. Cap Cities/ABC. has approached cable carriers like Comcast to set up another. Murdoch has been talking about teaming up with the BBC and Malone’s TCI for a third. That could spell trouble for the CNN, which has enjoyed a virtual lock on 24-hour news broadcasting--and for its proposed new owner, Time Warner.

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Shakeout time in the music.

Sales in the U.S. are down and serious problems are ahead in the retail sector where several chains, including the Torrance-based Wherehouse, have already filed for protection from creditors. The Trans World and Camelot chains are suffering in the market. Even Blockbuster Entertainment, which operates a highly profitable video store business, is being hurt by the lagging performance of its music stores. Rumors abound that the company will close some stores, or revamp that operation if it doesn’t improve fast.

Cut-throat price wars with record clubs and discount houses such as Best Buy, which sell new compact discs below wholesale for $10, have destroyed the “perceived value” of compact discs and driven down profit margins for the traditional record retail community.

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Buyers will lust after EMI, but it probably won’t be sold this year.

Thorn EMI chief Colin Southgate is expected in September to spin off the conglomerate’s music and record retail division, EMI Music, which releases music by Garth Brooks, Janet Jackson and the Beatles. Viacom’s Sumner Redstone, Seagram’s Edgar Bronfman Jr. and Disney’s Michael Eisner are all interested, but they won’t pay the current price tag, said to be around $10 billion.

If the price comes down, expect bidding by MCA, Viacom and Disney, with the early line favoring MCA. Parent Seagram has the money, and the deal would make MCA the top record distributor. Unlike Viacom or Disney, the company could get back some of its money through cost savings by combining some of EMI’s music operations with its own.

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The Biz’s first offering of 1996 was written and reported by staff writers James Bates, Claudia Eller, Sallie Hofmeister and Chuch Phillips.

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1996: What’s Coming in Hollywood

Last year was an extraordinary one in the entertainment industry. Will 1996 be as wild? Company Town writers look ahead.