Budgets Got Bigger and so Did the Deals

It was a year of unconventional wisdom.

Sony Pictures, which had been the industry’s joke, ran away with the box office. Hollywood’s bastion of stability, Warner Bros., was the industry’s most turbulent studio. Its powerhouse music unit had its troubles as well.

In television, the cable industry, nearly given up for dead, became hot again. Barry Diller, missing in action on the Home Shopping Network, returned to prime time with a deal to acquire most of the TV assets of Seagram’s Universal Studios. Rugby fan Rupert Murdoch is poised to buy the Los Angeles Dodgers from the O’Malley family.

Here are some of the highs, and lows, of 1997 in the entertainment business:

FILM

Men (and Women) Finally in the Black: After a disastrous few years in Hollywood, Sony nearly made “synergy” a trendy word again.

With such hits as “Men in Black,” “My Best Friend’s Wedding” and “I Know What You Did Last Summer,” the studio won the race for market share in a laugher and nearly led wire to wire.

The reward for Sony’s executives? In one of the quirks of Hollywood, virtually every top manager involved in getting the projects to the screen had already been fired by the time the films started hitting theaters.

Sony’s new management team, led by President John Calley, was criticized as being too cautious in launching a new slate of movies. Sony will be hard-pressed to match 1997, although the studio should have a monster hit in May with “Godzilla.”

*

That Sinking Feeling: The concerns over Hollywood’s big budgets reached a peak with the $200-million (original budget: $125 million) production of James Cameron’s “Titanic.”

Despite a record overall box office, plenty of films that just a few years ago would have seemed like sure bets on paper instead belly-flopped. Among them: “Speed 2” and “Father’s Day.” And studios continued to release scores of movies, most of which disappeared faster than ever.

Hollywood has always talked a good game when it comes to restraining budgets and releasing fewer movies, but it rarely follows through.

*

Where’s the Brotherly Love? The studio with the reputation as the most stable was anything but this year. Warner Bros. production executives fought. The studio fired its marketing chief less than a year after he was hired.

Robert Daly and Terry Semel, co-chiefs of both the film and music business, had their hands full in both arenas.

In film, the studio’s big-star formula began to wear thin with moviegoers. “Batman and Robin” didn’t live up to expectations, and “Father’s Day,” starring Billy Crystal and Robin Williams, was among the projects that flopped. Critics said the studio was relying too much on aging stars and failing to develop the kind of material younger audiences want.

Similar problems have hurt the Warner Music empire, which has seen a lethargic performance by flagship Warner Bros. Records. Warner Bros. is hoping that such aging superstars as Van Halen, Eric Clapton and Madonna will deliver hits in 1998 while its new management team retools the label and streamlines the staff, sources say.

Making matters worse is the heat that Warner and parent Time Warner have been taking from women’s groups for releasing the song “Smack My Bitch Up” by the electronic-rock act Prodigy.

What’s ahead? Daly and Semel are under pressure to revamp the executive ranks, possibly appointing an executive to oversee the day-to-day studio operation.

*

Days in Court: After a lengthy game of chicken, Walt Disney and former studio chief Jeffrey Katzenberg agreed to settle Katzenberg’s breach-of-contract claim, although the amount Katzenberg gets won’t be determined for months.

Meanwhile, Steven Spielberg’s “Amistad,” released by DreamWorks, came under fire from author Barbara Chase-Riboud, who claimed it lifted material from her novel “Echo of Lions.” Spielberg and DreamWorks denied her allegation.

*

Miramax Reaps Awards, Rewards: The maverick distributor of independent projects, now owned by Disney, took home the Oscars with “The English Patient” and also proved it can turn out hugely profitable movies. “Scream,” released at the end of last year, and “Scream 2,” released this month, have established the distributor’s first “franchise.”

Miramax’s success has already prompted studios to look at independently made films not only as potential award winners, but as potentially huge profit makers, because the cost of making them is so (relatively) low. Witness the international success of “The Full Monty.”

*

DreamWorks Gets Off the Ground: The studio’s first live-action films--”Peacemaker,” “Amistad” and “Mouse Hunt”--were released this year. None have set the box office on fire. DreamWorks’ record in television is lackluster. But the biggest test lies ahead, when it releases its first animated film, “Prince of Egypt,” at the end of 1998, against what undoubtedly will be intense competition from Disney and other studios.

Tooning In: “Anastasia,” 20th Century Fox’s venture into animation, didn’t get “Lion King”-size numbers, but it didn’t belly-flop, either, signaling that Disney’s near-monopoly on animation may be vulnerable to competition.

That will be tested again in ’98 when DreamWorks’ “Prince of Egypt” and Warner Bros.’ “Quest for Camelot” are released.

TELEVISION

Must-Leave TV: Jerry Seinfeld announced that this will be the last season for his hit sitcom, signaling trouble for NBC’s Thursday night ratings juggernaut.

There may be other bad news for NBC. “ER” producer Warner Bros. may soon be shopping the Thursday night hit drama to the network’s rivals.

*

Must-Buy TV: Telecommunications deregulation in 1996 continued to spur consolidation in the television business, with radio and TV stations concentrating into fewer hands. One company to watch is the Dallas investment firm Hicks, Muse, Tate & Furst, which is emerging as the nation’s largest radio group, with designs on television as well.

*

Diller Time: Seagram’s Edgar Bronfman Jr., whose empire includes Universal Studios, finally got his hands completely around a distribution channel when Universal Studios gained total control of USA Network from co-owner Viacom, in the settlement of a nasty court battle.

No sooner did Bronfman gain the channel than he agreed to turn the keys over to mogul Barry Diller in a proposed $4-billion deal in which Diller’s Home Shopping Network is acquiring most of Universal’s TV assets.

The deal moves Diller from Silver King obscurity back into the big leagues. And Seagram, which has taken heat for dumping its DuPont stock and getting into entertainment, can mollify shareholders a bit with the sale proceeds.

But it was a vote of no confidence in Universal’s existing management, throwing into question the staying power of Chief Executive Frank Biondi.

*

Must-See Cable TV: A handful of media conglomerates with the means to both create content and distribute it to viewers are increasingly calling the shots, making it more difficult for independents. News Corp. was perhaps the biggest spender this year, buying sports networks with its partner Liberty Media, purchasing the Family Channel, completing the purchase of the New World station group and agreeing to buy the Los Angeles Dodgers. While bigger has not proven to be better, investors expect the trend to continue because of the clout needed to do battle against these behemoths.

*

The Sporting Life: The growing rivalry in sports between Disney and Fox erupted into open warfare early in the year, boosting prices for regional sports assets in New York, Texas and Detroit, as Disney sought to protect ESPN’s stronghold and Fox looked to assemble a national challenger with an assemblage of regional networks.

Fox’s bid for the Dodgers was an attempt to shore up its presence in Southern California, where Disney owns two pro teams and just announced plans to use them to launch a regional sports network.

*

Investors Plug Cable: After a four-year slide, cable stocks hit record highs in 1997, with Tele-Communications shares jumping 115%, Cablevision Systems climbing 190%, Comcast gaining 86% for the year and Time Warner up 62%. The latter’s gain rescued beleaguered Chairman Gerald Levin. Ted Turner got richer, and so did the United Nations, recipient of a $1-billion pledge from the mogul.

Threats to cable’s long-standing monopoly subsided, as telephone companies, including Pacific Bell, retreated from video delivery to defend their core businesses and as the growth of digital satellite services such as DirecTV tapered. The cable wire was validated as the preferred pipeline into the home with Microsoft’s $1-billion investment in Comcast, a move designed to accelerate the upgrade of cable facilities for delivery of high-speed Internet access, digital TV and its hundreds of channels, pay-per-view movies and even phone service.

*

Must-Buy Cable: The surge in cable viewership, combined with the difficulty of launching new channels, set off an acquisition frenzy, causing prices to soar. Bidding wars drove up values of all cable channels, enabling the Family Channel, USA Network, Classic Sports Network, the Nashville Network, Country Music Channel, E! Entertainment Television and a host of regional sports networks to fetch top dollar in sales this year. The value of the USA Network and the Sci-Fi Channel soared from an initial $2.8 billion, when partners Viacom and Universal first talked about splitting up their joint ownership, to $3.8 billion, when Barry Diller’s Home Shopping Network bought the channels from Universal.

*

Not as Easy as ABC: Walt Disney-owned ABC came up with plenty of entertainment off-screen.

The soap opera surrounding the job status of Jamie Tarses, president of ABC Entertainment, reached a peak when Stu Bloomberg was installed above her. That and other turmoil embarrassed Disney chief Michael Eisner and reflected poorly on ABC head Robert Iger, who already was under pressure because of crumbling prime-time network ratings.

*

The Eye Has It: While Michael Jordan has done much of the re-engineering of Westinghouse Electric into a pure-play media company under the new name of CBS, Mel Karmazin gets most of the credit for the big bump in the stock price.

Karmazin--who built arguably the nation’s most successful radio group, Infinity Broadcasting, and merged it into CBS to become the company’s largest single shareholder--added the troubled television station group to his responsibilities last year after Peter Lund departed as president of CBS. Wall Street rewarded the choice, and Karmazin has been trying to squeeze costs from the station group since.

MUSIC

Sour Notes: Record corporations face a challenge in trying to expand the $39-billion global music business in such potentially lucrative markets as Latin America and Southeast Asia, where piracy runs rampant.

With sales soft and the domestic retail sector still struggling, the smart record corporations are likely to release fewer albums in 1998 and better focus their resources on marketing each project directly to young consumers.

Dutch-owned PolyGram dismissed Motown chief Andre Harrell for poor performance and ousted Island founder Chris Blackwell for criticizing the corporation in an interview published in The Times.

In addition, a top PolyGram official was demoted after suggesting in a court deposition that if record companies were prevented from hiring people with criminal records, no African Americans would be working in the music industry. PolyGram chief Alain Levy removed Eric Kronfeld, president and chief operating officer of the company’s domestic music sector, from his seat on PolyGram’s international board and also stripped Kronfeld of his title as head of the company’s human relations division.

PolyGram’s A&M; division shook things up when A&M; chief Al Cafaro made the unprecedented decision to drop its annual contract with Hits magazine, which promotes records for virtually all the major labels.

Disney made another music world splash in 1997 when it yanked a potentially offensive album by rock-rap duo Insane Clown Posse just six hours after the record went on sale. The company coughed up big bucks for rock label Mammoth Records only to find out that Mammoth’s top act, Squirrel Nut Zippers, wanted to break its contract.

EMI Music stunned the industry in May when it took a $192-million write-down to restructure its domestic division. Executive Ken Berry took the reins of the company, shut down two labels and fired 150 employees, including industry veteran Charles Koppelman. EMI increased its U.S. market share with hits by the Spice Girls and Garth Brooks and beefed up its presence in the rap arena by buying half of Priority Records, which distributes music by controversial rappers Master P, N.W.A. and Death Row’s Daz Dillinger.

Sony skated by this year thanks to soundtrack hits from “Men in Black” and “My Best Friend’s Wedding,” as well as strong sellers from pop stars Mariah Carey, Celine Dion and Barbra Streisand. The company’s Work division delivered breakthroughs from newcomers Jamiroquai and Fiona Apple. It also attempted to raise its profile in the black music field by signing deals with TrackMasters and Untertainment. The company is nearing a deal with Andre Harrell--although most insiders are still shaking their heads as to why Sony is willing to take a chance on Harrell after the mess he made at Motown.

*

The Exceptions: Bertelsmann had a phenomenal year, thanks primarily to Puffy Combs’ Bad Boy label, which dominated the pop and R&B; charts throughout much of 1997.

Seagram’s long-suffering Universal Music continued its phenomenal comeback under new record chief Doug Morris. The company had to deal with controversy around shock rocker Marilyn Manson, which is tied to Interscope Records, whose founders moved into hawking sacred music this year with the hit gospel act God’s Property.

Also contributing to this report were Times staff writers Claudia Eller, Chuck Philips and Sallie Hofmeister.