If ever a mogul epitomized the moneyed largesse of Hollywood, it has been Peter Guber. After five years as head of Sony Pictures Entertainment, the charismatic studio boss resigned last week-tapping what is widely considered to be one of the most expensive chapters in the history of the entertainment industry. Guber is the Billion Dollar Man–the total amount of money many in the business figure he has cost. To his credit, he built Columbia into a leading player, after years of moribundity. Yet his successes have more recently been overshadowed by his failures: a string of bad movies, and hints of mismanagement. As Sony Corp. steps in to clean up the mess, possibly with an eye to selling a stake in the troubled studio, the rest of Hollywood might do well to step back and consider the moral of this cautionary tale. Beware, outsiders who would break into Hollywood. Money doesn’t solve all problems.
It’s not a lesson mighty Sony Corp. expected to learn. When the Japanese electronics giant bought venerable Columbia Pictures in 1989, alarm bells sounded all over Tinseltown. There was talk of blue-suited Japanese coming to pitch Godzilla flicks, warnings that Japan would take over the movie industry, as it had cars and VCRs. Sony had paid Coca-Cola $3.4 billion (and assumed an additional $1.5 billion in debt) for Columbia. Its brass immediately set out to find and buy the best management talent and restore its new studio to glory. Scarcely batting an eye, it forked out an additional half billion or more for Guber and his partner, Jon Peters. The publicity-loving producers (the latter a former hair-dresser–and beau–to Barbra Streisand) could lay claim to major hits like “Rain Man” and “Batman.” But success didn’t follow. In fact, improbable as it would have seemed at the time, Sony Pictures has proven to be a drag on its parent’s corporate purse–and no small blow to its pride.
Guber’s brief was to make Sony the biggest and best, and he cut no corners. Shortly after being hired, he decided that if Sony was to become a force in the industry, it needed more modern digs. So Guber plunged $100 million (some estimate $200 million) into remodeling the historic but crumbling MGM lot. His Japanese owners voiced no objections; after all, Columbia hadn’t owned a lot in years, let alone modern moviemaking facilities. But Guber’s style did raise eyebrows, especially among the Japanese. Instead of making do with one corporate jet, he bought two. Guber and Peters each had his own chef, each with his own corporate dining room. So that Sony execs would have fresh flowers every day, there was an in-house florist. Execs with a taste for the opulent seemed to think nothing of paying $100,000, say, for an office credenza. Guber and his team spared no expense in recruiting talent, either. Screenwriters, actors, directors and producers got top dollar, as long as they were megastars. And Guber needed megastars if he was to make big-time films. Before long, industry analysts report, Sony’s overhead had risen to twice the industry average. Says one, outraged at Guber’s extravagance: “These guys were just pouring money down the drain.”
If they were producing hits, none of that might have mattered. Hollywood is full of big spenders, and as Guber himself puts it: “You can’t play the U.S. Open on a ping-pong table.” And initially, at least, Sony’s Columbia and TriStar units enjoyed a run of successes: “The Prince of Tides,” “A League of Their Own,” “Bram Stoker’s Dracula.” But the last two years, with the exception of a few films like “Philadelphia” and “Sleepless in Seattle,” produced mostly bombs. The biggest–maybe the biggest in history–was Arnold Schwarzenegger’s relentlessly hyped “Last Action Hero,” which reportedly lost bazillions. “City Slickers II” and “North,” more recently, also fared poorly. Only one of this year’s movies, “Mary Shelley’s Frankenstein,” is expected to do well. By some reports, Sony’s movie divisions will lose $250 million in 1994. Its share of the U.S. box office has fallen by half to less than 10 percent. Revenues have declined proportionately.
To be sure, the movie business is cyclical. This year’s fizzles could give way to next year’s fireworks–assuming Sony has good stuff in the pipe-line. But the signs are not good. The studio’s top managers are “paralyzed by indecision,” reports one Hollywood producer. New movies aren’t being “green-lighted,” or put into development. Hot directors and writers may soon take their work else-where–to Paramount. Universal or Warner Bros. If that translates to a weaker slate of movies next year. Sony will be in even deeper trouble. Clearly, Sony’s Japanese owners are worried. Earlier this year they hired Furman Selz, an investment bank, to find an investor willing to pay some $3 billion for a quarter interest in the studio. So far, no takers. “Sell it to who?” asks an analyst in New York. No one will pay that price, he adds, until the studio is “cleaned up,” top to bottom.
That housecleaning seems to be well underway. Just last month Michael Schulhof, the president of Sony Corp, of America, hired a new executive vice president: Jeff Sagansky, a former CBS boss. His mandate: to help oversee the company’s U.S. holdings–including Guber’s studio, an implication not lost on Hollywood. Guber resigned voluntarily, but his departure had been expected for weeks. “The handwriting is not just on the wall,” said one of Guber’s friends recently. “It’s in neon!”
All doubts ended when Schulhof personally piloted a company jet to Los Angeles, where he and Guber conducted a series of briefings with the press and stunned staffers. Publicly, Sony dressed up Guber’s exit as the usual lifestyle choice, a chance to follow his “dreams” and find new challenges. But in an interview with NEWSWEEK, Sehulhof hinted at what everyone suspected – a more deliberate parting of the ways. “Peter’s strength as a builder and visionary brought with it a certain style,” he said delicately. “That part of our growth is over.” Almost, anyway. Sony will clasp Guber with its golden handshake-reputed to be worth some $40 million, plus a $200 million investment in his own production company. Aaah, parting is such sweet sorrow.
If anything is to be expected in the new era, it’s more change. For now, Guber will be succeeded by the studio’s chief operating officer, Alan Levine. Affable but quiet, even unprepossessing, he’s a stark contrast to his former boss. Hollywooders doubt he will head Sony for long despite Schulhof’s insistence that he’s the boss. “This has got to be a temporary situation,” says one rival studio chief, almost shaking his head in disbelief at the appointment. Most industry insiders believe Schulhof and Sagansky will bring in someone new to run the studio. Sagansky has already approached Brian Grazer, at Imagine Films Entertainment, according to one source. Another rumor dismissed by those involved: that music mogul David Geffen might team up with Jeffrey Katzenberg, until recently head of the Wait Disney Studios, and Barry Diller, the former Fox TV chairman, to make a bid for Sony Pictures. This much is certain: if Sony gets the studio back in shape and finds a partner, more money will be on the table than Peter Guber ever dreamed about.
Guber’s five years at the helm of Sony Pictures Entertainment were expensive ones –even by Hollywood standards. The following are industry estimates of what the flamboyant studio boss cost Sony before resigning last week:
Sony pays $200 million to buy Guber’s and Jon Peters’s production house and $500 million to settle a lawsuit with Warner Bros. Guber orders a $100 million renovation of Columbia’s new lot.
Peters, Barbra Streisand’s former hairdresser and boy-friend, is bought out by Sony’s management after less than two years on the job. Sony pays him a reported $25 million.
Guber lures Mark Canton, a former Warner Bros. executive, to become chairman of Columbia Pictures. He pays chairman Frank Price an estimated $15 million to make room for Canton.
The revolving door continues with yet another buyout. A management restructuring leaves Mike Medavoy, chairman of TriStar, out of the Sony picture. Medavoy reportedly gets $10 million.
Guber’s most visible flop: Arnold Schwarzenegger’s “Last Action Hero.” Guber resigns and gets a reported $40 million golden handshake. Sony agrees to invest some $200 million in his new company.
