1996-96 REVIEW AND OUTLOOK : Company Town : Hollywood’s Wildest Ride : No Year Can Match 1995 for Cataclysmic Activity

To say that 1995 was the wildest ride for the entertainment business in decades would be no understatement.

Never in such a concentrated period has there been such cataclysmic activity in this crazy place called Hollywood.

A liquor company bought a studio. A major studio and a big industrial company each acquired a broadcast network. A media giant merged with a leading cable programmer. And some of the last independent movie companies lost their independence or simply disappeared.

Both the talent agency and record businesses were turned upside-down by seismic executive shake-ups in what one industry mogul characterized as “the year that heads rolled.”

At year-end, $40 billion in mergers had been transacted and more than $200 million in severance packages went out to those who lost their jobs.

If there was one mantra among media moguls this year, it was that bigger is better. Global distribution operations have insatiable appetites for movies and TV shows. That makes content more valuable and makes global conglomerates like Time Warner Inc. and Walt Disney Co. eager to have more. The trick is to find novel ways to repackage existing products to keep distribution channels humming, offset rising production costs and add to revenue and leverage potential.

Television network audiences continued to be splintered by niche programming provided by the growing array of cable channels. Taking pity on the networks and their fading monopoly, federal regulators relaxed laws restricting their ownership of programming, which in turn made studios that create the bulk of those shows suddenly vulnerable and defensive.

With a new argument for vertical integration, the mighty Disney took the first plunge. Its $19-billion bid for Capital Cities/ABC Inc. was largely viewed as a brilliant move that would create unlimited possibilities for cross-promotion, protect its TV business and provide a powerful entry into developing global markets through ABC’s cable ventures, particularly ESPN. Nothing travels better across cultural borders than sports and kids programming.

The international appeal of sports was also the driving force behind News Corp.’s plan for a new sports cable channel with Tele-Communications Inc., designed to rival ESPN using Rupert Murdoch’s unrivaled global distribution reach.

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ABC and NBC are trying to turn existing news resources into cable news channels. Disney wants to leverage its family brand name into a bevy of new cable networks under newly appointed kids whiz Geraldine Laybourne, the mastermind at Viacom’s successful Nickelodeon.

Ted Turner perfected the art of transforming idle libraries into moneymaking cable networks, and that made his company perhaps the most sought-after of 1995. Winning Turner’s hand won big points for Time Warner Chairman Gerald Levin, who had seemed on the verge of losing his job.

Size also figured into Westinghouse Electric Corp.’s bid for CBS Inc. Combining the station groups of the two companies gives CBS more reach than any other network, providing it with a bigger launch pad for new shows. But its lead could be short-lived with the expected passage of telecommunications reform, which would lift station ownership limits and accelerate station acquisitions.

“If you’re not one of the big six global providers, you’re out of the big game,” says one industry executive.

But is it a certainty that bigger is better and synergy between such companies as Time Warner-Turner and Disney-ABC will produce great results?

The complex management issues that these mergers can create are enough to cause industry skeptics to think that bigger will simply mean bigger troubles. Some believe that the entertainment industry could repeat the performance of the automotive, computer and appliance businesses.

“These big companies will be shedding their skin because you can’t run companies at these sizes--they’re too big to manage,” says one mogul. The individuals driving the mega-mergers, he says, “are caught in a disease of ‘mine is bigger than yours.’ ”

Others argue that the bigger the company, the further it moves from its creative roots. “The pipes become more important than the product,” says one Hollywood insider.

That preoccupation could be exploited by such newly managed companies as Seagram-owned MCA Inc. Seagram chief Edgar Bronfman Jr. and MCA President and former agent Ron Meyer are betting that talent-friendliness and creative nurturing will expedite the growth of their malnourished film and TV units.

Others intent on exploiting their quick-footedness are new entrepreneurial ventures. After embarrassing failures to take over Paramount Communications Inc. and CBS, Barry Diller is aiming to shatter the sameness of the networks by building a distinct version on the back of a dozen small TV stations under the Silver King Communications banner.

Former Disney Studios President Rich Frank and ex-William Morris agent Bob Cristani hope to build a new studio paradigm from the distribution leverage of their cable partner, Comcast Corp., and MCA’s longtime president, Sid Sheinberg, and his two sons launched their own production company, bearing the unlikely moniker the Bubble Factory.

Early in the year, Microsoft Corp. co-founder Paul Allen invested $500 million in DreamWorks SKG, the entrepreneurial studio of the future launched by Steven Spielberg, Jeffrey Katzenberg and David Geffen. And DreamWorks recently committed to making its permanent home at the planned $7-billion mixed-use community of Playa Vista, promising Los Angeles the first studio to be built in the last 60 years and affirming the dominance of the entertainment industry in Hollywood.

New opportunities also arose this year in music, thanks to the continued management turmoil at the leading record company, Warner Music Group. More than a dozen top executives lost their jobs in a bizarre series of corporate shake-ups at Time Warner, MCA and Sony Corp.

Warner Music, the nation’s most successful and respected record company, was virtually dismantled, and executive severance could cost Time Warner shareholders an estimated $120 million.

DreamWorks was one beneficiary, picking up former Warner Bros. record executives Mo Ostin and Lenny Waronker. MCA lured Warner Music’s Doug Morris to head its record business. And PolyGram snapped up Warner’s Danny Goldberg to run its Mercury label.

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But even as several major entertainment companies, including Viacom Inc., Disney and Fox Broadcasting Co., indicated their interests in entering the music business, a troubling trend emerged: After three years of dramatic growth, a dearth of commercial blockbusters in 1995 caused sales to flatten at $11 billion domestically.

In addition, price wars with discount houses and record clubs forced several big record retail chains to file for bankruptcy protection. Record chiefs worry that stores will be unable to pay their bills in January and fear truckloads of potential returns.

Despite ominous predictions about Sony Music’s demise in some quarters, the Japanese firm finished the year’s market share race where it started: in second place ahead of PolyGram.

Music wasn’t the only sector struck by management upheavals. Two long-standing management teams who ran their respective businesses for more than two decades split up. At MCA, Lew Wasserman and Sid Sheinberg made way for Bronfman and Meyer. The split of Creative Artists Agency founders Meyer, Michael Ovitz and Bill Haber ushered in a new generation of 12 agent-owners at CAA, including a power-hungry quintet known as the Young Turks.

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The departures at CAA threw the agency business into a major tizzy. The once-almighty CAA, which had dominated the agency business for a decade, was humbled by the internal instability and a major exodus of clients like Kevin Costner, Sylvester Stallone and Barbra Streisand.

CAA’s losses leveled the playing field for agencies like International Creative Management, William Morris Agency, United Talent Agency and newcomer Endeavor.

Teetering on the brink of breakup, another longtime management team, Warner Bros. co-Chairmen Robert Daly and Terry Semel, solidified after Time Warner top brass ousted their archenemy, Michael Fuchs, and restructured the company to give them more management responsibilities, including control of the music group.

And finally, just when everyone in Hollywood thought it was safe to call it a year and go to Bora Bora, Sony dropped the other shoe this month and ousted the head of its U.S. operations, Mickey Schulhof. The heave-ho came a year after Sony Pictures Entertainment wrote off a staggering $3.2-billion loss at its Columbia and TriStar studios.

As an added kicker to a spirited year, Congress prepared the final touches on telecommunications reform that could make 1996 just as exciting. If you haven’t already, fasten your seat belts.

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Times staff writer Chuck Philips contributed to this report.

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An Amazing Year in the Entertainment Induatry

February

* Howard Stringer leaves as president of CBS Broadcast Group to run interactive video venture Tele-TV.

March

* Microsoft Corp. co-founder Paul Allen invests $500 million in DreamWorks SKG, bringing the capitalization of the studio formed by Steven Spielberg, Jeffrey Katzenberg and David Geffen to more than $2 billion. Microsoft later becomes a smaller investor.

* Sony Corp. names Noboyuki Idei president and heir apparent to the chairmanship.

April

* Seagram Co. signs a deal to buy 80% of MCA Inc. from Matsushita Electric Industrial Co. for $5.7 billion.

May

* Robert Morgado is fired as head of the world’s largest music company after pushing out top Warner Music Group label executives, including Mo Ostin, the head of the Warner Bros. label. Michael Fuchs, the chairman of Home Box Office, is given additional responsibilities for music. Within a month, Fuchs fires Doug Morris, the head of the domestic labels.

* MCI Communications Corp. agrees to invest $2 billion in Rupert Murdoch’s News Corp.

June

* Superagent Michael Ovitz, co-founder of Creative Artists Agency, considers taking the top job at MCA but gets cold feet at the last minute.

* The Justice Department pulls the plug on an investigation into antitrust practices by Ticketmaster. Rock group Pearl Jam gives up its attempt to sell tickets for its concert tour without Ticketmaster, conceding that such an undertaking is impossible.

July

* Walt Disney Co. bids $19 billion to buy Capital Cities/ABC Inc.

* Seagram names Creative Artists Agency President Ron Meyer as president and chief operating officer of MCA.

August

* Westinghouse Electric Corp. bids $5.4 billion to buy ailing CBS Inc.

* Michael Ovitz is named president of Disney. CAA names a board of 10 agents, who struggle to keep clients and the agency intact.

* Barry Diller vows to build a new type of television network using a forlorn group of UHF television stations called Silver King Communications.

September

* Time Warner announces plans to merge with Turner Broadcasting System Inc. for about $7.4 billion in stock, a deal that would reaffirm Time Warner as the world’s biggest entertainment conglomerate.

* Time Warner unloads Interscope, the music label that had come under sharp political fire for distributing gangsta rap lyrics that critics said glorify violence and abuse of women. Just months before, Time Warner had doubled its stake in the label to 50% for about $100 million. It sold the label back to Jimmy Iovine and Ted Field for the same amount.

November

* Time Warner ousts Fuchs only six months after expanding his responsibilities. The music division is moved under studio chiefs Robert Daly and Terry Semel.

* Barry Diller takes control of Home Shopping Network and Savoy Pictures.

* Westinghouse takes control of CBS.

December

* Sony ousts the head of its U.S. operations, Michael Schulhof, after a falling-out with Idei.

* DreamWorks announces plans to build the first studio in Los Angeles in 60 years at the Playa Vista site where Howard Hughes once made movies.