For Hollywood, ’99 May Bring Sweet Cybermusic, Sour Notes

Y2K doesn’t seem to be as big a concern in Hollywood as Y99.

With high costs, tough economics, threats from new technologies and a continuing cooling-off of production activity in Southern California all lurking, 1999 doesn’t bode well for the film, TV and music industries.

There will be some bright spots. The force will be back when George Lucas’ “The Phantom Menace” Star Wars “prequel” is released in May by 20th Century Fox. With audiences already cheering the trailer, it’s a safe bet to be the year’s biggest film and probably will end up as one of the biggest blockbusters of all time.

The longer term still promises growth. Some Wall Street analysts say the proliferation of movie and television outlets worldwide will continue to be a boon for the U.S. entertainment business.

Christopher Dixon, an analyst at PaineWebber Inc., notes that one of every four people on the planet already are able to watch MTV, and its owner, Viacom Corp., is projecting that the cable channel will bring in more money internationally within eight years than it makes domestically.

The popularity of digital videodiscs will also give studios a lift, as will the growth of the Internet. “The Web sites with the highest Internet penetration, after America Online and Yahoo, are Disney’s and Time Warner’s,” Dixon said.

NBC and Disney have been particularly aggressive in acquiring their way into the Internet portal business. Barry Diller’s USA Networks could use his new online currency--stock in Ticketmaster Online--to push further into electronic commerce.

Here are brief takes on the outlook in several areas of the entertainment industry:

Lights, Cameras . . . Less Action? After five heated years, the growth in movie and TV production in Southern California finally flattened in 1998 and faces a cloudy 1999. Any of a number of culprits are blamed, among them the trimming of bloated film slates by studios, soaring costs and bad economics of TV and film as well as Canada’s special tax breaks and soft currency--factors that have made shooting there much cheaper.

Toward the end of this year, suppliers such as camera leasing companies were complaining that business had fallen by as much as half. Sound stages around Southern California, which were booked tight a year ago, were showing some vacancies and location shooting on the streets of Los Angeles has softened.

Tighter Belts: The industrywide contraction and belt-tightening in the movie and TV businesses is having one of the biggest impacts on Hollywood’s talent agencies, which for the first time in years have begun retrenching.

Both International Creative Management and William Morris Agency suffered cutbacks, with rumors of more to come in the new year. The studios are making fewer movies than before, are watching costs more closely and are shelving projects whose budgets climb too high, even those headlined by such superstars as Kevin Costner.

Disney consolidated its production operations into one unit this year and, like other studios, including Warner Bros., has begun shedding unproductive producer deals--taking even more potential business away from the agencies.

With networks producing more of their own shows, there will be fewer and fewer TV package fees for the agencies.

The Big Shrink: Thousands of employees in music will lose their jobs next year as Seagram Co. begins the brutal task of downsizing its music division after its $10.4-billion acquisition of PolyGram. Many of those axed in the blood bath will have trouble finding work again at another record firm as the music industry shrinks from six to five major record conglomerates.

Hundreds of recording acts will also find themselves homeless after Seagram slashes artist rosters at such labels as Geffen, A&M;, Motown, Mercury and Island. But it’s inevitable that some of the poor-selling acts discarded by Seagram will resurface and make a splash at competing record companies.

The consolidation of the music giants could benefit tiny independent labels, which need to sell far fewer albums than the majors to turn a profit.

Little Net in Networks: CBS and NBC signaled just how dire the network broadcasting business has become. CBS, the former Tiffany network, resorted to airing its first-ever infomercials in December during the critical period leading into prime time on its own television stations to give its fourth-quarter revenue a kick.

At a recent cable convention, NBC chief Bob Wright questioned the viability of free television, saying that advertising alone is insufficient to sustain the networks.

Both NBC and Disney’s ABC have said recently that in the face of declining ratings and soaring programming costs for shows such as “ER,” they can no longer afford to pay affiliates to carry their shows and advertising spots. They may turn to cable for distribution if affiliates don’t help shoulder the costs--proving that Time Warner’s WB network, which already collects from affiliates and uses cable for distribution, in the end may have the winning formula.

As the networks continued to lose their audiences, NBC was the only network in 1998 to make serious money. But it will see its fortunes sink by more than half this coming year as ratings fall because of the loss of “Seinfeld” and professional football, and the costs associated with “ER.” The other networks will plunge deeper into the red.

Wired for Change: Cable channels, which collect both advertising and subscriber fees, are today’s most profitable networks--although the earnings of even those cash cows could come under pressure as more choices and the Internet further fragment viewership. Cable operators, meanwhile, face huge challenges in rolling out new services such as high-speed Internet, telephone and digital television.

The industry faces its stiffest competition ever. Lawmakers are expected to push legislation this year that will give digital satellite providers the ability to carry local broadcast signals, removing one of their biggest drawbacks to cable. This could turn DirecTV, the leading satellite service, into a powerhouse as it moves toward profitability in the first half of the year.

AT&T;’s pending acquisition of Tele-Communications Inc., expected to close in March, could spur more consolidation of the cable industry and lead to a national local phone brand that would be sold under the phone giant’s banner over cable wires of Time Warner, Comcast, Cablevision and Century.

Facing the Music: 1999 gives Seagram Chief Executive Edgar Bronfman Jr. a chance--maybe his last--to prove critics wrong and show that his bets on entertainment will work.

Seagram’s takeover of PolyGram puts Bronfman on the spot. His company is now largely an entertainment company in the liquor business instead of the other way around. Among other things, he’ll have to turn around the abysmal performance of its Universal Pictures unit.

Murdoch on the Prowl: Rupert Murdoch raised $2.8 billion on Wall Street in November by spinning off a piece of his Fox Entertainment Group, with proceeds aimed at paying off News Corp. debt.

The mogul now has a strong balance sheet and is poised to make some big deals in 1999. His News Corp. has already looked at music giant EMI. He needs to make a move into the Internet and is antsy to use his growing dominance in sports to surpass Disney’s ESPN as front-runner in cable. Look for a continued push to control pay television abroad--with recent moves in Italy and Germany a harbinger of his aspirations.

He’s Back! 1998 marked the return of former uberagent Michael Ovitz to the world of talent representation.

Even before the doors opened to his newly formed management/production company, Artists Management Group, Ovitz turned Hollywood’s community of agents and managers upside down. He persuaded thirtysomething brother and sister-in-law Rick and Julie Silverman Yorn to leave their management posts at Industry Entertainment to be his partners in the new venture.

They bring such hot young talent as Leonardo DiCaprio, Claire Danes and Cameron Diaz. Every week, the Hollywood trade papers announce yet another young agent or manager who has defected his or her job to join Ovitz.

Ovitz’s entry into the world of management could trigger an all-out war between agents and managers who ordinarily work close together on behalf of their shared clients. Agents are growing tired of being more restricted in their business than managers; under longtime agreements with the labor unions they can charge no more than 10% commissions and are prohibited from producing projects. Managers, on the other hand, are basically unregulated.

Cybermusic: 1999 could be the year cyberspace makes big inroads in music.

The proliferation of MP3 technology--a new compression formula that allows computer users to quickly download pirated CD-quality songs from the Internet--will continue to cause grief for the leaders of the $40-billion global record industry.

As more college students trade in their CD Walkmans for portable Rio MP3 players and more anti-establishment artists begin to release free music on the Internet against the wishes of their own record companies, the giant conglomerates will find it increasingly difficult to retain their lock on global music distribution.

*

Times staff writers Sallie Hofmeister and Chuck Philips contributed to this report.