How Big Is Universal's Problem?


By Ron Grover A giant poster for Universal Pictures' 1930 classic All Quiet on the Western Front hangs prominently in the lobby of the Hollywood studio's headquarters. The winner of the Academy Award for Best Picture that year, it's a reminder of Universal's golden days. But lately, things aren't so sanguine. Rumors of discord among the ranks have been circulating for months. Folks are said to be complaining of reduced bonuses, some talk of leaving, and still others claim that any producers worth their salt are taking choice projects elsewhere.

Hollywood studios live and die on their buzz, and these days it isn't so great for Universal. That's mostly because no one knows what the future holds for the studio that has churned out such recent blockbusters as the Mummy franchise and The Fast and the Furious. For months, Universal's French parent, Vivendi Universal (V), has been taking bids for the studio, along with its theme park, music, and cable-channel assets.

Paris-based Vivendi is struggling with more than $13 billion in debt remaining from the nearly $30 billion rung up in a wild buying spree by the since-dispatched Jean-Marie Messier. Among those who have expressed interest in the Universal properties are Viacom (VIA), News Corp. (NWS), GE-owned NBC (GE), and Los Angeles billionaire Marvin Davis, who has an offer on the table for $15 billion for majority control of the entire set of assets.

SCHMOOZE AND SANITY. All this makes things a little tough on Ron Meyer, the one-time Hollywood talent agent who has run Universal Studios since Edgar Bronfman hired him in August, 1995. Meyer is considered one of Hollywood's good guys, with the ability to schmooze stars and white-hot directors, and maintain sanity when things turn nutty. The buzz has Meyer at odds with USA Interactive (USAI) Chairman Barry Diller, who serves as co-CEO of Vivendi's Hollywood assets. Sources say Diller has slashed budgets and reined in expenses, and more than a few top executives are rumored to be on the way out.

Meyer says not so. Dressed in black jeans, an oversized black sweater, and white Keds, Universal's top guy tries his best to downplay any notion of unrest at the studio. He says there's no truth to the rumor -- which he just heard himself -- that he was headed to Sony (SNE) to head its film unit.

Also, Meyer says "there's no mass exodus" and he and Diller are getting along just fine. "Barry and I have been friends for 20-odd years, and we're still friends," he says, adding that the two men often lunch together and jointly hosted a dinner when Vivendi Universal Chairman Jean-Rene Fourtou was in town several weeks back. As for producers with hot projects steering clear of the studio, Meyer says he hasn't seen any evidence of it.

25% LESS MONEY. Still, Meyer admits that Universal will be forced to cut back on how much it spends to make films. He won't comment on how much money was removed from his 2003 budget, but knowledgeable insiders say he has $225 million less this year to spend on making and marketing movies, a reduction of about 25%. This despite Universal churning out such outsize hits last year as The Bourne Identity and 8 Mile, which had a combined worldwide gross of about $410 million.

For 2003, Vivendi Universal Entertainment's overall operating income increased by only 2%, to $7.5 billion, the company said when it announced its numbers on Mar. 6. "We didn't have as good a year as the year before," says Meyer. "It's appropriate to cut back."

Moreover, Meyer says he made the budget cuts with Diller and didn't have them imposed on him. Those reductions, say knowledgeable sources, also include a 25% drop in the $56 million that Universal spent on bonuses last year. Meyer says he doesn't expect many layoffs among his 5,000-person workforce and intends to make cuts by "combining functions" in departments rather than slashing the amounts that Universal spends to make and market its films. "There are ways to economize," he says, without elaborating. "We intend to be smarter about how we do business."

LINING UP PARTNERS. Still, Meyer says the studio plans to distribute the same number of films -- 15 to 18 per year -- that it typically does. To help maintain that pace, Meyer is being forced to sell off the foreign rights to some future films -- a practice that other cash-strapped studios have resorted to in the past.

He has already done so for Universal's upcoming Helldorado, starring wrestler The Rock, to Sony. He brought in Dreamworks and Spyglass Films to help finance the Jim Carrey comedy Bruce Almighty. Meyer even contemplated getting a partner for Universal's big summer film The Hulk but decided against it, he says. To strengthen its lineup, the studio is spending some money -- it bought an interest in Peter Pan from Sony Pictures. "We want to make films as intelligently as possible," he says.

Lowering its risk profile will no doubt help keep Universal in the filmmaking business, but it won't stop the rumor mill from churning. "Everyone is anxious to know what the future is for this company. We read about it all the time," he says. "We know that there are some buyers circling, and sooner or later one of them may buy us." But despite Meyer's insistance that all is well, it's hardly all quiet on the Universal front. Grover is Los Angeles bureau chief for BusinessWeek. Follow his weekly Power Lunch column, only on BusinessWeek Online


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