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The Best Laid Dreams

If a serious economist ever tried to analyze the arcane ways of Hollywood, a nervous breakdown might quickly overtake him. Examine the inverse relationship between profitability and capital investment, for example. In the “real world,” new investment tends to decline in response to shrinking margins. In Hollywood, on the other hand, when times get tough, new investors always seem to rush into the fray, as though they were thinking, “Everyone else is losing his shirt, so this is a good time to lose mine!”

One need only examine recent pages of Variety for ample evidence. Polygram, the Anglo-Dutch giant, has decided to commit as much as $1 billion to start a vast new global production and distribution mechanism – the first major European company to become a true player in Hollywood.

Ted Turner, having already pumped easily a billion dollars into New Line and Castle Rock, is priming both Turner Pictures and New Line for an important – and expensive – upsurge in activity. And then there’s the case of DreamWorks SKG. the high-profile brainchild of Steven Spielberg, Jeffrey Katzenberg and David Geffen. As Daily Variety revealed Jan. 26, the business plan evolved by the troika envisions an investment of $800 million in live-action films, $200 million in animation, $25 million in music, $190 million in TV and $75 million in interactive games and software by the year 2000. And Samsung, Korea’s answer to Matsushita, may be prepared to help finance this venture.

What’s fascinating about all these schemes is not only their sheer magnitude but also their timing. The two most pervasive words in Hollywood these days are “profit squeeze.” While the size of the filmgoing population remains fairly stagnant, the output of the studios keeps rising, costs continue to spiral and the “majors” have to look to theme parks, merchandising and other remote sectors of the income stream to recoup investment.

“This is as tough a time as I can remember in the motion picture industry,” said the CEO of one entertainment company last week.

But, once again, in showbiz, economic indicators do not necessarily determine corporate strategy. Decisions are predicated on other esoterica, such as personal career arcs or cycles of the moon.

Take Ted Turner, for example. According to veteran Turner watchers, one key reason he suddenly ramped up his movie activity was that he felt hemmed in by Time Warner and singularly frustrated by his inability to acquire a television network. Several years earlier, Turner tried to buy MGM/UA, but settled for its library instead – a fortunate decision given the fact that he was paying too much for the total package.

Like a Vegas high-roller, Turner’s luck has been both great and not so great. New Line has hit a hot streak, Castle Rock a cold one. Undaunted, Turner now is determined to reinvent Fine Line so that it can do battle with the hyperactive mavens of Miramax. He also would like to jumpstart Turner Pictures, especially in the area of animation.

As Adam Dawtrey spells out in his Variety piece on Polygram, that company also has had a bumpy ride in the movie business. Through its myriad boutiques, Polygram has backed 35 films over the last three years, has scored a spectacular hit with “Four Weddings and a Funeral” and a formidable flop in the $40 million “The Hudsucker Proxy,” and has spawned a lot of arty mini-mistakes. Polygram has placed its big bucks on its Interscope label for main-stream Hollywood movies, but Interscope, too, after a long run of successes, has had a cold hand lately. As Dawtrey describes it, there were forces at Polygram that favored shutting down filmmaking activity completely, but in the end, a billion-dollar commitment was agreed to, calling for the introduction of a worldwide distribution mechanism.

Skeptics raise the usual questions: Can a new distributor command prime tracks and playdates? Can a company whose activities have been a bit “arty,” and whose movements somewhat languid, generate the spark to produce 15 or so major movies a year?

Lastly, can a company with a distinctly European sensibility play the Hollywood game while avoiding the potholes that all but consumed the likes of Penta, Canal Plus and Ciby 2000?

Clearly Polygram’s top executives, led by Michael Kuhn, are firmly committed to answer “yes” to all these queries.

The DreamWorks troika, on the other hand, certainly have no need to prove their credentials to the Hollywood establishment; they are the establishment. But there are those who express concern about the timeline that the new venture has set itself to get up to speed.

According to DreamWorks’ purported business plan, the new entity projects that, by the year 2003, its pre-tax earnings will be at the $665 million level. The troika wants to release three films in 1996, five the next year, building up to nine a year beyond 1999. Through its joint venture with Capital Cities/ABC, DreamWorks aims to have five primetime series on the air and four firstrun syndication shows by 2002.

The principals in the troika bring a lot to the table in the way of capital and goodwill – but most of all in manic dedication. Hollywood understands manic.

With all the analysis and number-crunching that have gone into these game plans, however, not one has addressed the following: How will the newcomers avoid the pitfalls that have befallen existing majors? What’s their plan to combat the spiraling costs or circumvent the profit squeeze?

In true Hollywood tradition, they are setting sail without even acknowledging the troubled waters. Perhaps that’s just as well. Showbiz has always been fueled by the presumption of success, not failure. And maybe that, indeed, is why the troika chose its company name, thus reminding everyone that dreams work, not business plans.

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