Pix pump profits

Film units a bulwark for battered congloms

NEW YORK — A lot has happened for movie studios to be viewed as the bulwark of corporate profits: recession, the gloomy ad climate and now war.

Media moguls have thus begun to revise their view of film as a lousy business characterized by low margins and high risks. Suddenly, CEOs of newly merged congloms — and the Wall Streeters they serve — are singing the praises of the big-screen trade.

A similar reversal is going on with news divisions. Instead of bellyaching about the cost of news, corporate chiefs are boasting about their coverage and public service.

The shift has revealed itself in recent days as many of the top moguls made their first public assessments of their operations since the Sept. 11 terrorist attacks.

Viacom chief operating officer Mel Karmazin stressed that half the company’s revenue, led by Paramount and Blockbuster, “was not affected by the tragedy.”

News Corp. chief operating officer Peter Chernin praised Fox’s upcoming pics and described in detail just how much money theatrical releases can pull in, from domestic and overseas box office, to ancillary windows like video and pay TV.

While the congloms’ other arms, such as TV divisions, are being hard hit by the decline in ad revenues and all hopes of imminent Internet recovery have dwindled, box office is sturdy and the video market is booming. Universal, for example, brought in more than $90 million in the first week of DVD and vid release of “The Mummy Returns” (Daily Variety, Oct. 11).

Now, when all but MGM have been gobbled up by giants, the concept of an independent Hollywood studio doesn’t seem quite as passe.

A matter of history

Whatever their differences, all of the multinationals share a common history, being forged in the past decade by a series of major mergers. One selling point of these teamings was diversification. In fact, it was obligatory as the good times rolled in the ’90s and companies bulked up on broadcast and cable networks, film studios, publishing and Internet assets.

Newly minted leviathans were supposed to be shockproof, better able to weather storms. That’s being put to the test now by a deep advertising slump, a slow economy and fear of escalating violence at home and abroad.

Media stocks have certainly suffered, and belts are being tightened across divisions. Chernin said News Corp. will cut millions of dollars in costs. AOL Time Warner announced thousands of layoffs even before the Sept. 11 attacks. All the companies are re-examining budgets and studying new ways to save even as they look for a recovery in a not-too-distant future.

Karmazin claims advertising is already back. Chernin and AOL Time Warner chairman Steve Case talk of uncertain times but good fundamentals and growth. Only Walt Disney chief operating officer Bob Iger sees the downturn continuing well into next year with no sign of recovery.

More robust market?

In a market starved for good news, stocks have perked up despite the mixed messages. “By and large, what people heard was that the danger is finite. Mel and Peter didn’t say, ‘This puts us on a negative growth path for 10 years,’ ” said Frank Biondi, a former top exec at Viacom and Universal.

Others are skeptical — especially of comments by Karmazin and Iger about a more robust TV scatter market. “Sure, maybe on (CBS’) ‘Face the Nation’ Sunday morning” or other fringe periods, one fund manager said.

“Advertising is a nightmare,” he added, and unlikely to recover until at least the third quarter of 2002, even if there’s a swift resolution of the current crisis.

War worries

That’s a big assumption. Many in media and other industries wonder if the battle against terrorism will resemble the Gulf War — a contained conflict that ended in victory and ushered in a long boom — or Vietnam, a protracted struggle that eroded confidence and business sentiment.

“For the first time since I can remember, there is a remote possibility that this could spiral into something a lot worse than a three- or four-quarter recession,” one investor said.

Until there’s more visibility, advertising will stay weak. Karmazin estimated a hit to earnings at Viacom of about $500 million through year’s end from lost ads and higher newsgathering costs. Chernin put the figure for Fox at $100 million so far. The numbers will head higher any time costly coverage of breaking news preempts programming and advertising.

Not that execs are complaining. “I believe, as media companies, we have a special opportunity to use our resources to meet this challenge — to connect and inform people as never before,” Case said.

Karmazin thinks the “extraordinary newsgathering cost” born by media companies demonstrates the need for more consolidation in the sector. He urged regulators to move quickly to lift the ban on dual network ownership so CBS could team up with ABC or NBC.

Given the current climate, however, perhaps a better bet would be owning two Hollywood studios.

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