Writeoffs on several loss-making pictures offset profits on “Jurassic Park: The Lost World” and helped flatten Universal Studios’ earnings in the September quarter, Universal’s parent, Seagram Co. Ltd., said Wednesday.
Meanwhile at Seagram’s annual shareholder meeting in Montreal, Seagram CEO Edgar Bronfman Jr. strongly defended Universal’s sale of its TV interests to Barry Diller’s HSN Inc. Bronfman insisted the deal represented a renewed commitment to TV production and distribution rather than an exit from the industry.
Universal’s earnings before interest, taxes, depreciation and amortization — cash flow — rose just 1% in the quarter to $239 million. Filmed entertainment cash flow rose 3.9% to $158 million on 16% higher revenue of $1.03 billion, while music cash flow more than doubled to $18 million.
But the theme park division suffered a 16% drop in cash flow to $63 million. Part of the reason for the decline was the absence of the Putnam Berkley book publishing business, which was included in the divisional earnings a year ago, but the theme parks also suffered attendance declines.
Universal’s flat result contributed to a sluggish performance for Seagram as a whole. With the company’s liquor and beverages division included, operating income rose 7% to $305 million, while Seagram’s net profit rose 4% to $133 million. The result was largely in line with Wall Street expectations and Seagram stock fell 12¢ to $34.12.
Analysts said the unimpressive performance highlighted why Seagram stock has been in the doldrums for several months. “There is no upside momentum” in the company’s businesses, said Cowen & Co. analyst Harold Vogel.
He said the current quarter’s film earnings should get a lift from homevideo sales of “The Lost World.” So far, the big-grossing picture has soaked up losses on other releases.
In the June quarter, which included “Lost World’s” May opening, film earnings were depressed by writedowns on the Bubble Factory deal and by U’s decision to write off marketing expenses on “The Lost World” immediately. At the time, the profits from “The Lost World” were expected to inflate the September quarter’s result.
Instead, U had to cope with losses on three pics: “Simple Wish,” “Kull the Conqueror” and “Leave It to Beaver.” Writedowns on these pictures hurt film earnings in the quarter, Seagram execs told Wall Street analysts on a conference call. Seagram execs were not available for comment Wednesday.
At the Seagram annual meeting, Bronfman countered critics of his decision to sell Universal’s TV interests to HSN. He pointed out that, under the terms of the deal, Universal has the right to increase its 45% stake in the new company, to be called USA Networks, and eventually get control.
“Vertical integration has become a fact of life in the television industry,” Bronfman says. “More and more alliances are being forged between production and distribution companies, and we were concerned that Universal’s television production capabilities would be increasingly constrained by a lack of access to distribution outlets. Now we have resolved that issue.”
Rather than sell out of TV, as suggested by “some press accounts” Bronfman said, “we have formed a strategic alliance that deepens and broadens our involvement in television in the United States and around the world.”
In spite of the disappointing quarter and Seagram’s poor performance on Wall Street in recent months, there was little shareholder discontent voiced at the meeting. Shareholders asked only two questions, and Bronfman and his fellow execs — including chairman Edgar Bronfman, co-chairman Charles Bronfman, and Universal Studios chairman and CEO Frank Biondi — were whisked swiftly from the hall by Seagram handlers to ensure they didn’t have to respond to journalists’ queries.
The only contentious point of the day was raised by William Tucker, husband of vocal anti-gangsta-rap activist C. Delores Tucker. He said his wife was too ill to travel to the Seagram meeting and then read a prepared statement from her, virulently attacking Bronfman Jr. for his refusal to sell off Universal’s 50% stake in Interscope Records, which distributes a number of the top gangsta-rap artists, including Snoop Doggy Dogg.
Earlier in his speech, Bronfman had addressed the Interscope issue, mentioning that the Universal Music Group has a comprehensive review process in place for controversial albums, and that the company is a supporter of the voluntary stickering program developed by the record industry.