NEW YORK — The poor performance of “EDtv” and “Virus” helped produce a stunning $97 million loss for Universal Studios’ film group in the March quarter, U’s parent Seagram Co. said Thursday, and the company warned that the studio was expected to lose about the same amount in the June quarter.
The film loss translated to a $199 million net loss for Seagram, compared with a loss of $21 million a year earlier, despite better than expected contributions from Universal’s music and theme park divisions, and a sharp improvement in its spirits and wine side. Investors focused on the bright spots and pushed Seagram stock up 81¢ to $59.75.
The studio’s March quarter $97 million cash-flow loss (before interest, taxes, depreciation and amortization), compared with positive cash flow of $3 million a year earlier (adjusted for the timing of last year’s sale of USA Networks and acquisition of Polygram Filmed Entertainment in December).
The loss brought the studio’s cash-flow loss for the fiscal year to date to $131 million, compared with positive cash flow of $133 million a year earlier.
Another $100 million loss for the studio in the June quarter, which concludes Seagram’s 1999 fiscal year, would bring the year’s film division loss to almost $230 million, which would be much worse than previous expectations.
In December, shortly after “Babe: Pig in the City” had opened disastrously and Universal Pictures chairman Casey Silver had quit, Seagram warned that the studio would show a “modest loss” for the full fiscal year. Wall Street analysts had estimated a loss for the full year of up to $30 million.
“The film loss is much higher” than expected, said Merrill Lynch analyst Jessica Reif Cohen.
Seagram said Universal Pictures’ box office results “were down significantly” in the latest quarter, despite the strong performances of “Shakespeare in Love” (on which Universal partnered with Miramax), “Patch Adams” and “Elizabeth.”
Revenues, adjusted for the timing of asset sales and acquisitions, rose just 1% to $786 million at the studio.
Imagine’s “EDtv” was clearly a big factor as the highly anticipated pic, released in late March, is estimated to have cost between $50 million and $60 million but so far has grossed only $21 million to date (and most of that since the end of the quarter).
Not only did the pic hurt Seagram’s third fiscal year quarter, but Seagram topper Edgar Bronfman Jr. noted in a prepared statement Thursday that “the poor response to ‘EDtv’ materially diminished our outlook for the fourth quarter and the year.”
While he said U’s box office performance likely would improve given the success of “Life,” and hoped-for success of pics like “The Mummy” and “Notting Hill,” “it will be several quarters before our film business returns to profitability.”
Part of the reason for the likely continued losses is that the disastrous box office performance of last fall’s releases such as “Babe” and “Meet Joe Black” means these pics are not producing much in ancillary revenues in video and TV sales. This is expected to be true of “EDtv” in coming months.
These ancillary markets are more important for Universal than many studios because it follows the conservative accounting policy of writing off all marketing expenses at the time of release, so even if a pic does well at the box office, it shows little in the way of profits.
This is also likely the reason why Bronfman doesn’t expect U will return to profit anytime soon, despite his hopes for upcoming pics.
Film aside, Bronfman had a lot to be happy about with Thursday’s numbers. Music, the core of Universal since last December’s Polygram acquisition, increased cash flow 25% to $106 million on 4% higher revenues of $1.26 billion.
Bronfman said Universal Music has a “solid release schedule next quarter,” including new albums from Jimmy Buffett, the Cranberries, K-Ci & JoJo, Limp Bizkit and Texas.
For the fiscal year to date, Universal’s music group boosted cash flow 22% to $722 million on 7% higher revenue of $4.9 billion.
Islands of expectation
U’s theme park business also had a good quarter, doubling its cash flow to $22 million on 34% higher revenues of $188 million. Universal attributed the improvement to “the success of the Crash Bandicoot and Spyro videogames.”
U’s new Florida park, Islands of Adventure, is scheduled to preview next week. Wall Street analysts who have visited the park on organized tours recently have given enthusiastic reviews.
The opening of the park means Seagram should start “reaping cash” from the huge investments made there over the past couple of years, Merrill Lynch analyst Reif Cohen said.
“I am very pleased that three out of our four key businesses turned in strong operating results,” Bronfman said in the statement.
Seagram’s spirits and wine business increased cash flow 25% to $104 million on 14% higher revenue of $979 million.