Universal’s Tale of Woe Is an Often-Repeated Saga

Like a movie that gets remade every few years, one of Hollywood’s most familiar corporate plots is being recycled yet again. An outsider buys a studio, vows to tame a notoriously unruly business, then proceeds to have his lunch eaten.

It happened to such huge companies as Coca-Cola Inc., Japanese electronics conglomerates Sony Corp. and Matsushita and insurance company Transamerica. Now, it’s spirits giant Seagram Co.’s turn.

More than three years ago, Seagram’s 43-year-old chief executive, Edgar Bronfman Jr., spent $5.7 billion of his family’s liquor fortune to diversify into the entertainment business by buying 80% of MCA Inc., with the promise that he would turn around a staid company, create the most “talent-friendly” environment for actors and directors and teach Hollywood a few things about doing business.

Instead, Bronfman’s tenure has proved wilder than any of the rides at his Universal Studios theme park. And, like some other outsiders before him, Bronfman is stunned to find that the movie and television businesses are more fraught with vagaries and volatility than he ever anticipated. His harshest critics say Bronfman has turned a once-great company into a fragmented mess seemingly adrift strategically.

“He destroyed our company,” said Sidney J. Sheinberg, a 38-year MCA veteran who was president when Bronfman took over. “The most important thing he destroyed is the base of manpower, the sense of history and continuity.”

A spokesman said Bronfman couldn’t comment because the company’s $10.6-billion acquisition of PolyGram is still pending.

Universal Studios President Ron Meyer said, “I know I’m suspect because he’s my boss, but I believe in what Edgar’s doing. It’s easy to criticize him because he was born with money, but he’s about as knowledgeable and qualified a leader as I know and one of the smartest people I’ve dealt with in my entire business career.”

At the heart of the problem is what one former executive described as Bronfman’s formal, “textbooky” approach to running an entertainment company. After renaming the company Universal Studios Inc., he spent more than $100 million on a re-engineering program that critics say was a fancy name for scores of consultants scouring the studio for cuts.

When Seagram made its acquisition, Bronfman appeared to be a different kind of outsider. After all, he already knew and hung out socially with many of Hollywood’s top players, among them entertainment mogul Barry Diller, former super-agent Michael Ovitz, DreamWorks SKG founder David Geffen and actor Michael Douglas. Bronfman had dabbled as a movie producer and songwriter.

But Bronfman has learned that Hollywood is unpredictable and capital-intensive. In recent weeks, he’s also learned that you can pay billions for a movie studio and still be at the mercy of a single director who wants his movie overly long, as in the case of Martin Brest’s “Meet Joe Black,” or who wants to tinker with it until the last moment, as with George Miller’s “Babe: Pig in the City.”

Bronfman’s journey through Hollywood also has been marred by constant management upheaval. He is entering his second generation of Universal managers, having fired nearly all of the new team he brought in when he got the keys to the studio in 1995. It has cost Seagram tens of millions of dollars in severance deals, including a whopping payout of nearly $30 million to ex-Chief Executive Frank J. Biondi Jr., who had to learn he was being fired last month by reading it in The Times.

Bronfman demoralized the executive ranks by going behind their backs on major deals and stumbled clumsily through some embarrassing moments, such as when he suggested publicly that movie patrons be charged more when they want to see a more expensive film. Once self-effacing, the highly polished Bronfman became testy and embattled, calling Hollywood “a dumb town” in one interview. After trying hard to dispel an image that he is a star-struck Hollywood wannabe, Bronfman then allowed a song he co-wrote to be featured in a Sylvester Stallone movie.

No doubt, Bronfman still has the opportunity to prove his detractors wrong. He has bet another $10.6 billion of his family’s fortune that he can mold Universal into the world’s premier music company by buying global giant PolyGram. Bronfman and other Seagram executives say Universal’s re-engineering will save more than it cost. Universal’s music unit is performing well, and the company enjoys ties to top creative companies such as Imagine Entertainment. Seagram also is investing heavily in theme parks in Florida, Spain and Japan.

Seagram insiders say that the focus on film failures overshadows the company’s transformation from a slow-growth spirits business into an entertainment concern with strong growth potential. They say Universal has been profitable since 1996, with pretax earnings growing at an 18% annual rate.

Nonetheless, Bronfman clearly misjudged how easy it would be to transform Universal--a company he perceived as a sleeping giant stuck in the dark ages. Led for decades by industry legend Lew Wasserman and his chief lieutenant Sheinberg, Universal had suffered for five years under the stingy corporate ownership of Japanese electronics maker Matsushita when Bronfman came on the scene.

More than three years later, Universal is a company in search of itself, and in fact resembles none of its competitors such as Walt Disney Co., Fox, Paramount or Warner Bros.

“Universal is now perceived as a second-tier company on Wall Street and by the big investors,” said one prominent industry player. “Whereas other companies like Time Warner, Disney and Fox are expanding and building for the future--making deals with telephone companies, buying TV stations, launching networks--Universal is the lowest on the scale of evolution.”

Bronfman contends that his sale of Universal’s TV assets to Diller, widely ridiculed in Hollywood as a bad deal, is a bet on a proven talent, is producing earnings now and includes a big financial upside for Seagram down the line. He also argues that music will prove to be a huge cash machine that requires relatively little capital to sustain.

Still, Hollywood has come to the firm conclusion that Bronfman isn’t in the same league with such media moguls as Rupert Murdoch, Sumner Redstone, Ted Turner, Diller, Geffen and Michael Eisner.

Each of those moguls spent years either building or rebuilding businesses. As heir to a Canadian liquor empire, Bronfman was virtually handed one--a central reason he lacks the respect other moguls command.

Bronfman also reports to a family-controlled board that, as Wall Street analyst Christopher Dixon says, “may not have the same commitment to the entertainment industry as Edgar does.”

Bronfman’s family, especially his uncle, was skeptical about Seagram’s financially risky plunge into Hollywood. That decision coincided with his move to divest Seagram of a highly lucrative, but far less sexy, investment in industrial giant DuPont Inc.

Meanwhile, as Bronfman has focused the company’s energies on building an entertainment empire, Seagram’s spirits business is suffering, largely because of the Asian economic crisis.

It’s only in the last few weeks, after firing his top entertainment officer, Universal Chief Executive Biondi, that Bronfman said he will take a more direct role in managing his entertainment assets.

“I think the ultimate ‘fire-e’ will be Edgar,” Sheinberg said. “There comes a time when there’s nobody else to blame.”

Once one of the top film companies, Universal’s market share is a little more than 4%, less than one-third of what it was earlier in the decade. Its most recent box-office bombs, “Meet Joe Black” and “Babe: Pig in the City,” could lose more than $100 million combined.

With the firing of movie chief Casey Silver this week, Bronfman put Universal Studios President Meyer--who already had been overseeing the movie division--in direct charge.

From the beginning, Bronfman relied heavily on outsiders and consultants. It seemed particularly odd that Bronfman--who recently told the Wall Street Journal that the most important people in his decision-making are his father, his uncle and his second-in-command at Seagram, Vice Chairman Robert Matschullat--chose not to seek the opinion of his top entertainment lieutenant, Biondi, when considering such huge transactions as selling Universal’s core TV business last year to Diller and buying PolyGram earlier this year.

A Universal insider said the decision to sell controlling interest in Universal’s TV operations to Diller not only came out of left field for Biondi but also “ . . . ripped the guts out of the place and was a total abandonment of a strategy.”

To many observers, Universal no longer seems a whole or fully integrated company, but rather one that’s chopped up into pieces.

Sheinberg said, “The thing that hurts me the most is there is no MCA. I don’t know where to find it. It doesn’t exist. The culture that [founder] Jules Stein started, Lew Wasserman built and I worked on has been replaced by I know not what.”

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