FROM THE BIG PICTURE
Edgar Bronfman Jr., CEO of Universal Studios’ parent the Seagram Co., called on the movie industry Tuesday to tier its ticket prices while beseeching the investment community to reassess Seagram’s entertainment assets.
In a keynote address to the annual Variety/Schroders Big Picture media conference, Bronfman also laid down a challenge to Disney in the theme park business.
Bronfman urged moviemakers to rethink everything relevant to making “an acceptable return,” including a ticket pricing model he decried as archaic.
When panelist Howard Stringer complained facetiously that drinking water was not provided for the panelists at this year’s conference, Bronfman jumped up to the dais from the second row of the audience and poured a glass of water for the Sony prexy.
Stringer jokingly asked Bronfman, “Can I work for you?,” to which Barry Diller quipped, “You will some day.”
“We, as an industry, charge consumers the same amount to see a movie that costs $2 million as we do for one that costs $200 million,” he said. “This a pricing model which makes no sense, and I believe the entire industry should and must revisit it.”
But when later asked about specific tactics his studio was taking, Bronfman admitted Universal’s current releases lacked the power of a “Titanic,” say, to break rank from the industry’s one-price-for-all-shows standard. “But let me assure you,” he quickly added, “when we have the ability to price up, we will.”
Later in the day during the film panel, a group of film industry execs dismissed the proposal (see story, page 15).
To Wall Street, Bronfman’s appeal was for a multiple greater than the current four times estimated 1998 EBITDA (earnings before interest, taxes, depreciation and amortization) that he estimated the market currently places on Universal assets. Bronfman, who teased out this multiple by using industry standards to discount the value of Seagram’s beverage businesses, said: “I’m not suggesting I know what the right number is, but I am suggesting four times seems low.”
This is especially the case, he said, given Universal’s ability “to deliver earnings growth at or around 20% annually through the year 2000.” Hence it’s not all that surprising that Seagram elected to repurchase more than $1 billion of its own stock last year.
Bronfman, who appeared most bullish about Universal’s theme park business, elaborated on plans to double the size of Universal Studios Escape in Florida by opening a second theme park called Islands of Adventure. The new park will be supported by three new hotels to be managed by Loews. And though Universal’s equity in the addition will be less than 20%, its share of the cash flow will be 50%.
In Japan, a Universal theme park will serve as the centerpiece of a $15 billion rehabilitation of Osaka’s waterfront. Slated to open in 2001, the Osakan Universal City will require only a 6% equity stake but deliver to Universal 39% of its total cash flow.
Then, after boasting that kids 8 and older prefer Universal’s parks to Disney’s, Bronfman summarized their importance to both entertainment conglomerates: “The window on the Disney brand is the theme park. And we believe the window on the Universal brand will also be theme parks.”