COLUMBIA TRIES TO FIND ITS WAY OUT OF THE DARK : FLOPS, RUMORS OF SALE FAIL TO DAMPEN MOOD OF FILM GIANT’S NEW MANAGEMENT

At 52, Sanford Lieberson is no Hollywood neophyte. The London-based film maker had a brief stint as head of 20th Century Fox Film’s movie production in 1979, and he knows projects are imperiled when studios change hands. Yet Lieberson was stung by his experience this year with Columbia Pictures, when new managers inherited his $7-million “Stars & Bars.” For the film’s opening, Columbia bought a 5-inch by 5-inch ad in the New York Times instead of the full page typically bought by a major studio. The film bombed, despite a favorable review in the New York Times.

“If they’re going to open a film in New York, they have to spend a professional amount of money (to promote it),” Lieberson complains. “They should have given us an opportunity to find another distributor.”

The story is fodder for critics who say that the 64-year-old studio has been placed in inexperienced hands with a crushing task: to regain box-office dominance while rumors swirl that it may be sold, scarcely 10 months after its merger with Tri-Star Pictures and Loews Theaters. Burdened with a legacy of rapid management turnover and box-office flops, Columbia is laboring to reestablish itself--while fighting a relentless undertow of rumor.

The new corporation--named Columbia Pictures Entertainment--is 49% owned by Coca-Cola Co., which entered the entertainment business by acquiring Columbia in 1982. Coke helped found Tri-Star Pictures that year, then purchased two valuable television companies: Embassy Communications and Merv Griffin Enterprises. By combining all the businesses in the 1987 merger and reducing its 80% stake, Coke fueled talk that it seeks a graceful exit from show business, much as it quit the California wine business five years ago.

The combined box-office share of the Columbia and Tri-Star movie units has been sinking steadily for five years, according to data compiled by Daily Variety box-office analyst A. D. Murphy. For the first 10 months of this year, the companies claimed a combined 9.9% share of the U.S. and Canadian movie ticket sales, down from 10.7% for all of last year and 20.3% in 1984.

Published reports have speculated that Coke will sell its holdings or alternately find a buyer for the Tri-Star or Columbia movie unit. If a sale fails to materialize, pundits predict that Coca-Cola will combine all or parts of the movie studio operations.

The rumors are unsettling to independent film makers who shop for a strong, stable studio to finance and distribute their movies. “Who’s going to be there when your movie comes out? It’s a two-year process,” asks Dale Pollock, an executive at independent A&M; Films who was dismayed by his own experience with Columbia’s new management team--its fifth in as many years.

By any measure, the 10 months since the merger have been difficult. The combined companies fired 750 employees--or 27% of the payroll--and suffered a series of disappointments at the box office.

As of late October, Columbia had a paltry 3.5% share of the 1988 box-office sales, ranking ninth among the major distributors in the United States and Canada. Tri-Star Pictures ranked eighth with a 6.4% share. Even with the shares combined, the company still trailed five other studios. And neither Columbia nor Tri-Star has a movie ready for the Christmas season, considered second only to summer for its box-office potential.

Meanwhile, the company reported negative cash flow of $168 million for the six months ended Aug. 31. (Cash flow is a measurement of the amount of money coming into a company minus the amount going out, and is considered a crucial index of financial health.)

Wall Street Worried

That figure, which ballooned from $19 million in the first quarter, worries Wall Street analysts who now wonder what the full year will hold. The analysts had been admonished by the company just this spring to use cash flow, instead of earnings, as a yardstick to measure the new Columbia’s performance.

“If the films do lousy, then cash flow will be lousy. Period,” says Richard P. Simon, an analyst with the investment firm Goldman Sachs in New York who earlier this month recommended that clients sell the stock at $12.50 unless an investor is “totally willing to speculate” that the company will be sold. (On Friday, Columbia shares closed at $11.375, up 12.5 cents on the New York Stock Exchange. The company’s shares have traded as high as $12.50 and as low as $6.75 in the last 52 weeks.)

Victor A. Kaufman, the former Tri-Star chairman chosen by Coke to become the new Columbia’s president and chief executive, insists that Wall Street has been adequately warned about the cash flow situation. “The negative cash flow will be between $150 million and $200 million for this year; we think that we will come close to breaking even next year and will be positive the year after, in the range of $250 million to $300 million,” he says.

Kaufman told Wall Street analysts 10 days ago that he wouldn’t comment on takeover rumors, which have become uncommonly specific: Earlier this month, for example, Daily Variety said Columbia sources reported seeing an interoffice memo outlining a sale of the Columbia movie unit to Sony and a Tri-Star sale to a group led by producer Ray Stark. (Stark, who has been out of the country filming a new movie, was not available for comment. Sony apparently did have contact with Columbia earlier this year but the conversations are not believed to have been substantive, according to one industry source familiar with the two companies.)

Michael P. Schulhof, vice chairman of Sony’s American operations, says: “Our acquisition of CBS Records has gone exceedingly well. . . . We would be willing to give some consideration to a movie company, but at the present time there is nothing that we are in a position to comment on.”

Coca-Cola, yielding to the pressure, recently broke its own policy of not commenting on rumors to say it “is very satisfied with its investment in Columbia Pictures Entertainment. We have no intention of changing our ownership in that company.”

Despite the fuss on Wall Street and in Hollywood, spirits appear ebullient at the Manhattan offices of Columbia Pictures Entertainment. The top executives’ suites were just redecorated and a swank kitchen was added, underscoring Kaufman’s insistence that New York will remain the company headquarters, even though Los Angeles is home for its creative subsidiaries.

When asked to account for the good mood, Chief Operating Officer Lewis J. Korman says: “We’re seeing (that) we’re accomplishing things. . . . And the company’s moving again. The lethargy and the hardening of the arteries are really breaking.”

Korman and Kaufman speak proudly of the company’s move into theater ownership, for example, citing a $500-million investment in Loews and smaller movie house chains. “We anticipate cash flow of $55 million to $60 million this year (from theaters), so that’s a 12% or 13% return in less than two years of operating the business,” Kaufman says.

In television, Columbia “may have the biggest library of comedy series of any company in the industry,” Kaufman says, and it has a “significant number of shows” maturing on the networks that will be available for lucrative syndicated sales, beginning in September, 1989, with “Who’s the Boss.” Reruns of the half-hour comedy on ABC-TV have already been sold for more than $2 million an episode to individual stations.

In the movie business, Kaufman continues to seek market-share domination by operating Tri-Star and Columbia as autonomous studios, with separate distribution and marketing. The goal, he told analysts this month, is to have each studio seize 8% to 11% of the annual box-office receipts.

Kaufman has not wavered in his commitment to the idea that two separate studios will ultimately produce more hits and more profits. He has shown equal loyalty to the team he installed at Tri-Star Pictures nearly four years ago, even though it has yet to produce a blockbuster (a film that earns more than $50 million in box-office rentals). To date, Tri-Star’s most successful in-house production remains “The Natural,” a 1984 film that garnered $25 million in domestic film rentals.

The 45-year-old Kaufman appears on excellent terms with a pivotal shareholder, Herbert A. Allen, whose investment banking firm is headquartered in the same Manhattan building.

Allen first invested in Columbia in 1973 and became one of Coca-Cola’s largest shareholders when Coke acquired the movie company for stock and cash in 1982. He is a director of both companies and a member of the three-man Columbia executive committee. He stirred speculation this summer by nearly quadrupling his Columbia stake to 2.9 million shares, or 2.6%.

Allen refuses to discuss the reasons for increasing his Columbia stake, worth $34 million at current market prices. But some Wall Street sages contend that his firm would profit by finding Columbia a suitable buyer. Last year alone, Allen & Co. collected $9.5 million from Coca-Cola and Columbia for advisory and banking services.

In a brief interview, the investment banker brushed off rumors and press reports about Columbia. “How accurate have the members of the press been over the last two months?” he asked pointedly.

Steel Attracts Attention

Indeed, many predictions in trade publications and daily newspapers have not come true. Columbia has not acquired the giant General Cinema theater chain, for example, and Columbia movie unit President Dawn Steel has not been replaced.

Steel, who became studio head a year ago, has yet to release a film made under her regime. Yet, as a high-ranking woman in a male-dominated industry, she attracts attention--from cocktail party chatter to a recent profile on the front page of the Wall Street Journal. (See related story in Calendar.)

With her quick humor and salty talk, Steel alternately disarms or offends some in Hollywood. She says her detractors consider her “tough,” and adds guardedly: “I’m a woman, and (‘tough’) seems to translate differently for me.”

But she does not see herself as volatile. “There are times when I scream,” she says. “It’s not something I enjoy, although I have no ulcer; my back’s in great shape. Physically I’m fine, so I scream and seem to get it out and then I go on to the next thing.”

One of her defenders is Jeffrey Katzenberg, a former Paramount boss who now chairs Walt Disney Studios. “You spend the first year trying to develop new projects, and Dawn is superb at it,” Katzenberg says. “I kind of feel like everyone ought to be quiet and give the lady a break. Give her a shot.”

Now 42, Steel came to Hollywood from her native New York exactly 10 years ago, starting out as a Paramount Pictures marketing director, then moving to production in 1980. She had decided to quit Paramount to become an independent producer when Kaufman recruited her for the top Columbia studio post.

She had no entourage, unlike Hollywood’s veteran male executives who often bring colleagues with them when they change jobs. Steel brought just one production executive, Terry Hyman, from Paramount. As her second in command, she hired a Tri-Star business affairs executive, Roger Faxon, to whom she was introduced just weeks before taking Columbia’s helm. Dan Michel, an ad agency executive with no prior studio experience, was brought in to run film marketing. Veteran distribution President James R. Spitz stayed on.

Puttnam Legacy

Both Steel and Faxon concede their inexperience in some aspects of the business--such as movie distribution. But a five-month writer’s strike provided time to study marketing and distribution, Steel says.

Steel’s predecessor, British film maker David Puttnam, had antagonized Hollywood’s Establishment by eschewing expensive deals with big-name talent. That legacy still affects Columbia as it releases the movies commissioned by him. Columbia has written off at least $100 million in losses from the Puttnam era, but Steel insists that her team has been giving Puttnam’s movies every opportunity to succeed.

However, film makers Lieberson and Pollock, whose films were commissioned under Puttnam, are smarting from their encounters with the new Columbia. Pollock, who found his production of “The Beast” distributed to only 21 theaters, says Columbia’s marketing unit devised a “good campaign for our film, but they never followed through on it.”

Pollock was offended by Steel’s refusal to meet with the film makers to discuss the release of “The Beast.” To be fair, the producer said, any studio might have treated his project cavalierly after a change in command. “The only thing that was egregious was that she wouldn’t meet with us.”

Meanwhile, feathers have been ruffled at Columbia Pictures Television, under Chairman and Chief Executive Gary Lieberthal, who came from a background in television programming sales at Embassy. Lieberthal so alienated “Facts of Life” star Nancy McKeon last year that she took her next series to 20th Century Fox Film, according to her manager, Greg H. Sims.

“He has no clue about handling creative talent, nor does he seem to recognize their importance,” Sims says. Among his complaints: a deaf ear to McKeon’s suggestions in the show’s ninth and final season, and a meager tribute at the end, with “wrap” party fare of “beer and chips.”

Lieberthal’s retort: “We were not interested in Nancy McKeon’s next series because it required us hiring her manager--a price we were not prepared to pay.”

The Columbia television chief cites good relations with the producers and stars of “Who’s the Boss,” the hit comedy now in its fifth season. To celebrate the show’s 100th episode, Lieberthal arranged to have Spago, the celebrity restaurant, closed on a Friday night for a private party for cast and crew.

Martin Cohan, an executive producer and co-creator of the show, notes that Lieberthal has attended every taping of “Who’s the Boss” for the past two years. And actor Tony Danza credits Lieberthal for approving costly location shoots and intervening to keep the show’s engineering crew when it faced reassignment.

As for attracting talented writers, Columbia Television recently signed Ed. Weinberger (“Taxi,” “Amen”) and Hugh Wilson (“WKRP in Cincinnati” and “Frank’s Place”), although competitors say Columbia outspent at least three other studios to cement the deals.

“The best comes dear,” Lieberthal responds, praising his corporate boss, Executive Vice President Arnold W. Messer, and Kaufman for swiftly approving the expenditures.

“I’ve read a number of times that Victor is not interested in television. That he’s only interested in motion pictures. I think that’s a bum rap,” Lieberthal says.

The television subsidiary is the result of not one but three mergers: Coca-Cola’s purchase of Embassy in 1985; a merger of Embassy and Columbia Television in 1986, and the absorption of Tri-Star Television last year. (Merv Griffin Enterprises operates separately, reporting directly to Kaufman.)

Preoccupation with the mergers at Columbia TV may be one reason why it trailed industry leaders Universal Television and Lorimar in the sale of new shows this year.

“We could have had a better selling season,” says Scott Siegler, Tri-Star’s former TV president who now performs the same job for the merged companies. “I think it was a situation that was very complicated by the fact that the Columbia-Embassy merger had occurred the previous year. It was their first development season together as a company and then Tri-Star came into the mix.”

Nevertheless, Lieberthal boasts that Columbia has “more comedies (renewed) than any other company. We have five comedies returning to the network schedule this year,” ticking off “Designing Women,” “227,” “My Two Dads,” “Who’s the Boss?” and “Married With Children.”

“Even if we never put another show on the air, we currently have more shows on the air to sell in syndication than any other studio in town has sold in the last couple of years,” he concludes.

The two divisions least affected by last December’s merger were Loews Theaters and Tri-Star Pictures.

Loews, acquired two years ago by Tri-Star for about $300 million, has continued to operate under the firm hand of Bernard Myerson, the 70-year-old executive who has run the movie-theater chain since 1962.

Through acquisitions, the theater chain has grown to 790 screens--much as the parent company predicted 18 months ago when it said it would double the 300-screen circuit. It is adding another 200 screens through construction.

“We’re one of the few . . . who have actually done what we said we were going to do, right?” says Korman, who oversees the theater operation.

The Tri-Star movie unit lost none of its employees as a result of the combination, according to David Matalon, the division president. Jeffrey Sagansky has continued as president of production. Kaufman no longer reads every single Tri-Star script, but he does retain sole power to “green light” a Tri-Star film, just as he does for Columbia’s films.

Learning on the Job

Tri-Star has kept its movie production costs down to an average of $12 million this year, but the 6-year-old company hasn’t produced as many of its own movies as hoped.

“The second year we made eight; then seven; this year we only made five; next year we’ll probably make 12,” says Sagansky. “Next year, I think, will be the first year that we have a full schedule of releases that are primarily ours.”

Developing scripts and relationships with directors and actors “for me . . . took longer because I hadn’t been in the movie business before,” says the 36-year-old production president, who came to Tri-Star in 1985 from a television network job.

Tri-Star’s future will include more costly movies with big-name stars: Dustin Hoffman, Sean Connery and Matthew Broderick in “Family Business;” Richard Pryor and Gene Wilder in “See No Evil,” and Marlon Brando and Matthew Broderick in “The Freshman,” to name three.

“We haven’t made a lot of money, we haven’t lost a lot of money,” Sagansky says. “But really, for a studio to work, you have to have some big hits.”