Behind The Scenes of the Big Deal

When Sony bought Columbia Pictures, the shock wave rolled across America--the Japanese had finally made the move into Hollywood. And the bitter legal fight with Warner for producers Guber and Peters sent aftershocks through the film industry for months. A look behind the scenes of this epic deal provides insight into how Sony will do business in Hollywood and what’s in store for the ‘90s.

Emotions were already running high that October day in New York when Walter Yetnikoff, chief executive of Sony’s CBS Records, brought up the Quincy Jones documentary.

The Warner Communications advisers sitting across from Yetnikoff had other things on their minds, like settling the fierce dispute that had arisen between their company and Sony Corp. after Sony’s Sept. 28 announcement of plans to hire Peter Guber and Jon Peters to run its newly purchased Columbia Pictures Entertainment.

The Quincy Jones film had nothing to do with Guber and Peters, who had produced “Batman” for Warner and were under contract to the studio. But when Yetnikoff raised the issue, it landed with the palliative effect of a Molotov cocktail.

Although the Jones documentary was being co-produced and co-directed by the wife of Warner Communications chief Steven J. Ross, and was set for distribution by Warner, Yetnikoff had final say over whether video clips featuring CBS artist and Jones protege Michael Jackson could be used in the film. In bringing it up, Yetnikoff was dropping a none-too-subtle reminder that Sony was prepared to use whatever leverage it had, too.

Sources close to Sony-Warner negotiators say Yetnikoff left the Warner executives with the impression that he would not prevent Courtney Sale Ross from using the Michael Jackson clips. But when the Warner emissary arrived the next day at Sony’s CBS Records division in New York to retrieve the material, he was rebuffed.

Walter Yetnikoff had changed his mind.

This bitter internecine warfare was more than Sony bargained for when it decided to take Japan’s biggest plunge ever into Hollywood by buying Columbia Pictures for $3.4 billion.

Acrimonious corporate battles are anathema in Japan. In his autobiography, the 69-year-old Sony chairman and founder, Akio Morita, criticized the encroachment of lawyers and lawsuits into American business life as a drain on productivity. But within a month of announcing the Columbia purchase, Sony was embroiled in one of the most bitter legal disputes in Hollywood history.

With its financial muscle and commitment to long-term goals, Sony stands to become a major Hollywood player in the 1990s. But the story behind its fight for Guber and Peters--drawn from court documents and interviews with key participants--suggests that the Japanese firm has a lot to learn about the nature of power relationships in Hollywood.

To many industry veterans, Sony’s long-anticipated foray into American film and television production was executed with unprecedented naivete. Some analysts believe that Sony, in its haste to hire two hot producers with no experience at running a major studio, paid hundreds of millions of dollars more than necessary to get quality leadership at Columbia. Some expressed shock at the fact that Sony did not fully understand Guber-Peters’ contract with Warner, or anticipate the stridency with which Warner would react to the raid.

“This is a bigger event than ‘Indecent Exposure,’ ” says a major Hollywood producer, referring to David McClintick’s 1982 best seller about the David Begelman check-forging scandal and subsequent power struggle at Columbia in the late ‘70s. “The best-known Japanese company shot itself in the foot.”

Sony’s Americans

It was on Nov. 16, several weeks after Yetnikoff vetoed the use of Michael Jackson tapes in the Quincy Jones documentary, that Sony and Warner came to an agreement that analysts say may eventually cost Sony as much as $500 million. Add to that the $200 million Sony paid to buy out the Guber-Peters company, and the sum approaches three-quarters of a billion dollars.

Sony representatives acknowledge paying a small premium for Guber and Peters, but insist that the $500-million estimate is absurdly high. They attribute the media’s acceptance of the figure to a public relations coup by a more experienced American competitor.

Michael P. Schulhof, Sony Corp. of America vice chairman, calls the $500-million figure “totally wrong” and says the eventual terms of the settlement will give the Japanese company a substantial leg up in its overall entertainment agenda.

Sony was guided into this thicket of corporate warfare by a handful of Americans, particularly Yetnikoff, who had been instrumental in Sony’s acquisition of CBS Records two years ago. These same Americans will continue to have a hand in the direction of Columbia in the 1990s. Yetnikoff chairs Sony’s newly formed entertainment committee, which will oversee both the studio and the record company.

But the story behind the battle for Guber and Peters also reveals Sony’s strong potential for influence and success as it takes its seat among Hollywood’s major studios. This is no ordinary Japanese company: Over the course of just three months, Sony showed that it has the stomach to play hardball, even if it means adopting the kind of rough-and-tumble legal tactics that Morita shuns.

“In the United States, we act by U.S. rules,” says Schulhof. “We are more willing to take risks. We are more willing to act in the U.S. like a U.S. company, in Europe like a European company and in Japan like a Japanese company. That’s the only way a global company like Sony can truly become a significant player in each of the world’s major markets.”

Even if it did pay an exorbitant fee for its Hollywood membership, Sony was compelled by internal economic interests to venture into the software (recordings, TV and film productions) of a business that it has come to dominate in hardware (electronics equipment).

Moreover, Sony believes its pace-setting high-definition TV and video technology could have a dramatic impact on film production during the next decade, substantially lowering the cost of big-time Hollywood movie making. Most experts acknowledge the inevitability of high-definition’s impact on television, but many are dubious about its potential for the film industry.

Into the Quicksand

Sony’s executives didn’t realize it at the time, but when they recruited Guber and Peters to run Columbia they stepped into a quagmire of complex personal relationships--professional rivalries, close friendships, and long-held trusts. By the time the dealing ended, many of the friendships would be strained and most of the trusts betrayed. “It was worse than a divorce,” one participant said of the Sony-Warner battle. “It was like coming home and finding your wife in bed with someone.”

The greatest professional rivalry existed between the 56-year-old Yetnikoff and Steve Ross, who is 62. Sony’s CBS Records and Warner are fierce competitors in the music business, where Warner has begun cutting into Yetnikoff’s hard-won market share. More than once the flamboyant CBS Records chief has compared himself to Ross, telling reporters, for example, that he deserved a fleet of corporate jets at least as lavish as the Warner chief’s. Yetnikoff’s stand on the Michael Jackson clips was viewed by negotiators as a surgical strike against Ross, one that heightened the emotional pitch of the dispute.

“I have no negative personal feelings about Ross, but yes, there is a competitive feeling between the two companies,” says Yetnikoff.

Among the friendships that took a pounding from the Sony-Warner battle include those between two top Warner executives--studio president Terry Semel and production chief Mark Canton--and producers Guber and Peters. Semel and Guber had been close friends for years. Canton, who had worked for Peters briefly in 1979 before joining Warner, had been close to both producers. In fact, it was Canton’s brother, Neil, who was brought in by Guber and Peters to produce “The Witches of Eastwick” for Warner three years ago.

Despite those ties, Semel and Canton stood by their company--and against Guber and Peters--when Warner sued Sony in federal court.

The feelings of betrayal were evident on both sides of the dispute. According to people close to both producers, Guber and Peters believed that Ross reneged on assurances they had from Semel and Canton that they would be free to accept an offer to run a major studio. According to Sony advisers, Guber and Peters never expressed any doubt that Warner would release them from their contract.

Ross said he believed the pair had cut a deal behind his back, at a time when his professional and personal relationships with them were at a peak. Lately, Warner had reaped a windfall from its relationship with them. “Batman” was the highest-grossing film in Warner history, bringing in more than $450 million worldwide and turning around a two-year studio box-office slump. But Warner had also paid the pair generous production and overhead fees during years when they were churning out such flops as “Caddyshack 2” and “The Clan of the Cave Bear,” or producing films like “Rain Man” for competing studios.

“I was personally betrayed by two individuals, one of whom (Peters), the relationship goes back 12 years,” Ross says. Next to him in his personal conference room in New York sits a prominently displayed photograph of Barbra Streisand, a close friend through whom he first met Peters, the singer’s then personal manager and romantic companion.

A Strange Mix

Somehow, it’s hard to picture the colorful, volatile Walter Yetnikoff working closely with staid Japanese executives. But that is exactly what he has done for more than two decades. It was Yetnikoff, then a 34-year-old lawyer at CBS, who handled the legal work on a joint venture record company, called CBS/Sony Group Inc., that the two companies formed in 1967 in Japan. It was Yetnikoff, 20 years later, who convinced Sony to buy CBS Records and, just months after that deal was done, who encouraged the company to buy a Hollywood studio. And it was Yetnikoff who suggested Guber and Peters as co-studio heads once Sony had decided to buy Columbia.

Yetnikoff’s style better suited the recording industry than the gray-suited corporate atmosphere at CBS. Almost inevitably, those who know Yetnikoff roll their eyes when asked to describe him. He has a reputation for being vociferous and crude, unpredictable and full of bluster. Even he admits that his behavior at the October meeting where he dropped his Quincy Jones bomb was less than exemplary. “I guess I got mad and behaved a little immaturely,” he says. “This happens.”

Since the agreement with Warner, Yetnikoff has changed his mind and agreed to let Courtney Ross use some of the Michael Jackson video clips. But, he quickly adds, “That doesn’t mean Courtney gets whatever she wants. . . . Who cares about a documentary on Quincy Jones anyway?”

Yetnikoff plays by his own rules and keeps the kinds of hours more suited to rock ‘n’ rollers than corporate executives, often not arriving at the office until noon. (“I don’t keep WASP hours,” Yetnikoff once said when he showed up at a morning board meeting more than an hour late, according to one stunned executive who was there.) At CBS, his personality clashes with chief executive Laurence A. Tisch became the stuff of legend.

Despite these quirks, Yetnikoff was generally given free rein to pursue his own formula for success at CBS Records. The gray suits down the hall were acutely aware of the cultural differences between CBS and the record business. If Yetnikoff could hold the hands of temperamental artists and make plenty of money at the same time--which his division almost routinely did--why rock the boat? Moreover, Yetnikoff flaunted his friendships with singers like Michael Jackson often enough that it became “an article of faith that if anything bad happened to Walter that the leading recording artists would walk out,” recalled one former CBS executive.

Whether this was true or not didn’t matter; CBS honchos believed it.

A Fateful Letter

To understand Yetnikoff’s relationship with Sony, it’s important to understand that the company’s president and chief executive, Norio Ohga, is no ordinary Japanese executive. Ohga, 59, began his career as an opera singer, but gave his own destiny a quirky spin when he wrote a letter in the 1950s to Sony founder Morita complaining about the quality of Sony’s tape recorders.

Morita was so impressed with the singer’s comments that he offered to subsidize his musical training in Europe. In return, Ohga was asked to test the technologically advanced German tape recorders and report back to Sony. Two years after graduating from Berlin’s Kunst Universitaet in 1957, Ohga was persuaded by Morita to join the company.

One of Ohga’s first major projects was to start CBS/Sony in Japan, which launched his long friendship with Yetnikoff. The joint venture was a huge success--today it ranks among the world’s largest record companies--and Ohga gained plenty of experience handling artists. “Ohga is extremely comfortable with creative personalities,” says Sony investment banker Stephen A. Schwarzman, co-founder of The Blackstone Group, a New York merchant-banking firm that advised Sony on the acquisitions of CBS Records and Columbia Pictures.

Other sources close to Sony say that Ohga’s rise to the top of Sony was central to advancing Yetnikoff’s own standing with the Japanese company. In contrast to CBS executives, Ohga wasn’t put off by Yetnikoff’s tempestuous personality; he trusted him.

Sony didn’t need much convincing when the subject of investing in American movie and TV production came up. The electronics giant had wanted a software component to complement its already extensive array of hardware. By buying CBS Records, Sony captured part of the software market--records, compact discs, tapes--that consumers play on equipment most often manufactured by Sony or other Japanese companies. Many industry observers still believe that if Sony had bought into the software end of the film business in the 1970s and controlled the release of its own films on videocassette, its superior Betamax recorder would now be the VCR standard, not VHS.

In mid-1988, Sony began exploring options for acquiring movie product. Yetnikoff and the other key American player, Michael Schulhof, introduced Morita and Ohga to top Hollywood executives. “We met the heads of virtually every major movie company, either the corporate head or the operating head,” says Schulhof, a 15-year Sony veteran who has become the company’s point man on U.S. acquisitions.

While Yetnikoff encouraged Sony to buy a Hollywood studio, it was Schulhof who first met with Columbia chief executive Victor A. Kaufman. The 47-year-old Schulhof is as measured and cautious as Yetnikoff is outrageous. Schulhof, like Morita, was educated as a physicist.

Once the decision was made to go shopping in Hollywood, Sony entertained a variety of options, ranging from joint ventures to outright studio purchases. “We were open to consider any possibility,” Schulhof says. “The fundamental ground rule was that we didn’t want to do anything unfriendly (such as a hostile takeover).”

When the search for a studio began in earnest in late 1988, Sony brought in The Blackstone Group, headed by Schwarzman and former U.S. Commerce Secretary Peter G. Peterson. The company also hired Creative Artists Agency and its president, Michael Ovitz, as consultants.

According to sources close to Sony, the company’s executives were impressed, not only with Ovitz’s knowledge and standing in Hollywood, but also by his very early predictions of box-office success for “Rain Man,” a film that starred CAA clients Dustin Hoffman and Tom Cruise and was directed by CAA client Barry Levinson. Ovitz provided Sony with insights into the quality of TV production and movie slates at studios the company was considering buying, particularly at MGM/UA.

Sony renewed negotiations with MGM/UA after confirming to reporters that, in November, 1988, it had dropped plans to buy the studio because the price was too steep. Published reports of the new discussions suggested that no deal could be struck because of renegotiating by MGM/UA major shareholder Kirk Kerkorian.

“When a Japanese company commits in public to doing something, that is their word, and they will close,” says one American adviser to Japanese companies. “It’s not like in the U.S., where you announce something and you start working on it: Hopefully it will work, maybe it won’t.” That cultural difference in negotiating style also helps in part to explain Sony’s later decision to stand by plans to hire Guber and Peters after Warner refused to free them from their contract.

Sony executives also discussed various joint business combinations with Paramount Communications chief Martin Davis. And it kicked the tires over at MCA/Universal, which wasn’t exactly for sale, and which had other disadvantages--principally the company’s high market value compared to its earnings and the difficulty of accurately assessing its large real estate holdings.

Unlike MCA, Columbia did have a “for sale” sign up. Coca-Cola, which had owned a stake in the studio during much of its nearly decade-long slump and still held 49% of its stock, had made it clear it was willing to sell for the right price and to the right buyer. And after his meeting with Schulhof, Columbia chief executive Kaufman was willing to recommend Sony.

None of the options that Sony explored was ideal. Buying Columbia was no exception. “Columbia met our minimum criteria of an excellent library,” says Schulhof, “and we felt their television and theater sides (consisting of 820 Loews screens) were all in very excellent shape. The one negative part of the company--which was current box-office share--was something that could be changed by the addition of good people.”

Once Sony and Coca-Cola agreed to the outlines of a deal during the summer of 1989, Sony began its search for management to replace Kaufman and chief operating officer Lew Korman, both of whom had made clear their plans to leave after the studio was sold.

Sony’s most serious discussions were with Ovitz. According to industry sources, one scenario had Coca-Cola buying out at least Ovitz’s majority stake in CAA, and then selling it back to the agency’s senior partners in a long-term leveraged buyout. That would have meant a tidy profit for Ovitz, as well as freeing him to run Columbia.

It is unclear whether these talks broke down over price or over Ovitz’s reported demand for more control of the Columbia board than Sony was willing to cede. Sony officials won’t talk about the episode. CAA agent Ray Kurtzman, a spokesman for Ovitz, declined comment on the details of the negotiations. But, he said, “we were consultants for Sony, and there were discussions about a number of things . . . In looking at the takeover of Columbia, they had conversations with us, but these conversations never did go any place. Michael never accepted anything.”

According to court documents, Schulhof then approached a former studio chief and the president of a “multibillion-dollar entertainment company.” Neither of those discussions went anywhere and the names of the candidates have never been revealed, although former Columbia and Universal head Frank Price was often mentioned by industry insiders as one of Sony’s early choices.

Unlikely Pairing

During the course of these weeks-long discussions late last summer, Yetnikoff was out of the picture, “undergoing resident treatment at a health facility in Minnesota,” according to Yetnikoff’s own statement in court documents. When he returned in mid-September, about a month before the Quincy Jones meeting in New York, one of his first phone calls was to his close friend, Peter Guber.

“Guber, Peters and I have long shared a hope of working together,” Yetnikoff said in court papers. “In fact, Guber told me more than a year ago that if Sony ever bought a movie studio, he would be interested in heading up the company.”

Guber, 50, and Peters, 42, had for years talked to friends of their desire to run a studio. “I want to build another MCA,” Peters told the Times in 1987. Both producers declined to be interviewed for this story.

In 1987, they had turned down a chance to run Columbia’s film operations because they wanted broader control over the company. In 1988, they came close to accepting top posts--and equity positions--at MGM. But plans to spin off 25% of MGM/UA to Guber, Peters and investor Burt Sugarman fell apart two weeks after the deal was announced.

Guber and Peters had gone into business with Sugarman in 1987, when they swapped their company’s assets for a 28% stake in Sugarman’s small TV production company, Barris Industries, later renamed Guber-Peters Entertainment Co.

In a business where one box-office hit can erase the memory of a dozen flops, Guber and Peters are considered among Hollywood’s most successful producers. Their names are attached to half a dozen hit films, and they are the team of the hour.

Before hooking up with Guber, Jon Peters had produced “A Star Is Born” (in partnership with Streisand), “Caddyshack” and “The Eyes of Laura Mars.” Guber had produced “The Deep” and “Midnight Express.” As partners for nine years, they have produced such hits as “Witches of Eastwick” and “Batman,” while receiving credits on other successes--”Rain Man” and “Flashdance,” for instance--that they had much less to do with. Among the memories erased by those hits were the failed Guber-Peters productions of “Caddyshack 2,” “Who’s That Girl,” “D.C. Cab” and “The Clan of the Cave Bear.”

On paper, this pair couldn’t be more different. Guber, who has advanced degrees in law and business, has an agile mind and an uncanny facility for deal-making, and is considered the intellectual engine of the partnership. As Michael Apted, director of Guber’s “Gorillas in the Mist,” puts it: “You dismiss Peter at great peril.”

Peters, a high school dropout and one-time hairdresser who was introduced to Hollywood through Streisand, is more often dismissed by Hollywood insiders. He is considered to be more a creative person than a Hollywood deal maker and businessman. He is known for his bursts of inspiration, but has also created enemies with his aggressive personality.

It was Guber, not Peters, who was out front in the negotiations with Sony, and later with Warner. Within two days of Yetnikoff’s phone call, Guber was on a plane to New York to meet the company’s representatives. On Sunday, Sept. 17, Schulhof and Schwarzman arrived at the Regency Hotel in New York to meet Guber who--clad in blue jeans and a flannel shirt, white socks and moccasins--was sitting yoga-style on a couch, his head bent forward, revealing a shiny black pony tail.

Guber’s iconoclastic looks were deceptive. The Sony men were awed by his range of knowledge and drive. Says Schwarzman, using the kind of language that often ends up in movie ads: “He really is one of the most captivating, bright, driven, creative, charismatic, intuitive people I’ve ever met.”

With Guber and Peters represented by Los Angeles attorney Terry Christensen, intensive negotiations with Sony began. Within days Sony had agreed to buy out the Guber-Peters company for $200 million--nearly 40% above assessed market value--and to provide a generous compensation package for the pair that included $2.7-million annual salaries and a share of any increase in the studio’s market value.

Although Sony’s price for Guber-Peters was considered by analysts as too high, Sony executives say the company will soon be sitting on a pot of $100 million in cash, part of which will include future revenues from “Batman” and “Rain Man.”

Courtroom Poker

The divorce of Guber and Peters from Warner began gently enough when, after a Sept. 25 meeting, Warner studio president Semel hugged and congratulated his friend Guber on hearing the news of the Sony deal. Within 24 hours, Semel may have been wishing he could have his hug back.

By then, Semel’s boss, Steve Ross, had made clear his unwillingness to let Guber and Peters out of their contract. Warner Bros. chief executive Robert A. Daly--known among insiders for his “North Hollywood rule” that contracts are inviolable--told Guber and Peters that Warner would sue Sony for “tons of money,” according to court documents.

Peters called Ross on Sept. 26, hoping to change his mind, but to no avail. At an American Film Institute dinner that night in Washington, Ross found himself sitting at the same table as Schulhof. In court documents, Ross says he warned Schulhof about interfering with the Guber-Peters contract. Schulhof recalls only a “vague comment about contracts.”

The dispute caught Warner at a sensitive time. The company had just merged with Time Inc. and there was some speculation that Ross was concerned about how his new business partner would view the loss of producers whose current blockbuster had turned them into bigger heroes than Batman himself. According to Guber, Semel had told both him and Peters that Ross was “crazy because of the Time deal.” Warner executives deny that the Time-Warner merger entered into their thinking on Guber and Peters.

Negotiations between Warner and Sony to settle the dispute began in early October. At one of the first meetings, Warner put three demands on the table:

* Columbia must move off the jointly owned Warner-Columbia Burbank Studios lot.

* Sony must give Warner an equity position in CBS Records’ lucrative mail-order business.

* Warner must be given the right to distribute Columbia’s library on basic-cable television.

Two months and thousands of dollars in legal fees later, a final settlement between the two would broadly cover those same three demands.

Sony didn’t respond to the first offer immediately, and tensions began to grow. According to a source close to the negotiations, Guber and Peters were concerned about being left out in the cold if the deal fell through, and asked Sony to consider waiving its earlier requirement that their employment at Columbia was contingent on their release from the Warner contract. Sony advisers opposed such a waiver.

At a meeting in early October between Sony advisers and Peter Guber, Yetnikoff made a dramatic speech in which he urged Sony to not only grant Guber and Peters their waiver, but also to indemnify them against any damages Warner might extract in court. It was a decisive moment for the Japanese, and Yetnikoff’s relationships with Ohga and Morita were strong enough to carry the motion. On Oct. 10, Sony announced that it planned to go ahead and hire Guber and Peters, regardless of their Warner contract.

In effect, the waiver turned Warner’s contract with Guber-Peters into a wild card in a high-stakes game of courtroom poker. Many insiders argue that the decision reduced Sony’s leverage in settlement negotiations with Warner and virtually dared the studio to sue.

“They put themselves in a box and then worked very hard at making that box smaller and smaller,” says Oded Aboodi, a close investment-banking adviser to Ross. Adds Warner attorney Stuart Robinowitz: “It was the ultimate act of inducing breach of contract.”

Yetnikoff, however, disagrees. “I don’t think it put Sony in a worse position.” Beyond that, the CBS Records chief declined comment.

Sure enough, three days after the Sony announcement, Warner filed a $1 billion breach-of-contract suit against Sony. The Japanese firm countersued the same day, saying Warner was interfering with Sony’s acquisition plans.

After that, the dispute had the gentleness of a sumo wrestling match. Threats were made by both sides that information damaging to individual reputations would be revealed in court. Name-calling surfaced in sworn declarations filed in support of the beefy combatants. After Yetnikoff bellied into Ross with accusations of “anti-Japanese bias,” Ross rebounded with the charge that Yetnikoff was reverting to “McCarthy-like tactics.”

It was at the height of this emotional bellywhopping that Yetnikoff brought up the Quincy Jones documentary, then snubbed Ross’s wife by refusing to free up the Michael Jackson tapes.

“I’ve never worked on something where the emotions were so personalized and sustainable at such a high pitch for so long,” says Sony investment banker Schwarzman. “It was more than hostility: Both sides felt that their fundamental principles had been violated.” It was also more than a question of money, although Warner appeared to be anxious to use the opportunity to extract as much as it could from Sony.

Settlement talks broke off after the lawsuits were filed. Warner then filed a motion for a preliminary injunction that, if granted, would have prevented Sony from hiring Guber and Peters while the other litigation proceeded. A hearing date of Nov. 2 was set, and the clock began running.

The prospect of sworn depositions being made public may have been the single factor mitigating against the kind of showdown Hollywood is famous for creating on the screen. “It was not in anyone’s interest--neither Warner nor ours--to see the kinds of things that would have come out,” says Schulhof. He added: “Those are things I can’t discuss.”

Sony, meanwhile, was becoming acutely aware of Warner’s potential influence with Congress, where Sony’s bid for Columbia had already renewed concerns about the level of Japanese investment in the United States. It was conceivable that, with protracted litigation in the offing, Congress might slip a gremlin in the Sony works.

When discussions began again in late October, Yetnikoff was on the sidelines. So were Guber and Peters. Schulhof and Schwarzman headed the Sony delegation, while Warner chief negotiator Aboodi and general counsel Martin D. Payson headed the other side of the table. There were also calls between Ross and Ohga, as well as Morita. Tempers began to cool.

Warner’s earlier demands provided the starting point for the final settlement. None of those demands had come as a surprise to Sony. A year earlier, Columbia and Warner discussed swapping lots to allow Warner to consolidate its operations in Burbank and Columbia to have its own property at the old MGM lot in Culver City, which Warner had acquired two years ago in its purchase of Lorimar Telepictures.

Sony also had previously considered selling Warner an equity position in the CBS Records club, called Columbia House, as a way to preempt Warner from starting its own club or joining forces with a European club. Warner records accounted for a large portion of Columbia House revenue, yet a licensing arrangement between the two was set to expire in June.

But some critics of the deal say that because Sony had publicly and legally committed to hiring Guber and Peters, regardless of the cost, it was forced to accept terms it wouldn’t have even considered in earlier discussions. Before the dispute over the two producers broke out, the sticking point in negotiations over the record club was simply the price Warner would pay. Now, Sony was willing to give Warner a 50% equity position in the club for no price at all. The concession provided Warner with an asset that analysts estimate is worth $300 million and no doubt made a lot of Ross’ hurt go away.

Two days before the Nov. 2 court hearing on Warner’s injunction request, a tentative settlement was reached and on Nov. 16, the two companies settled. Guber and Peters, whose offices were on the Burbank Studios lot that Warner now owns, were free to begin packing for Sony’s new property in Culver City.

No Second Thoughts

Sony’s Schulhof rejects analysts’ opinions that Sony gave up too much in going after Guber and Peters. The MGM lot, he says, is a “gem” with an ideal location and sound stages that are in excellent condition. On Columbia House, Sony had wanted a partnership with Warner all along, he says, and while the arrangement “may have been made under difficult circumstances, the end result was just fine. . . . We placed a very high monetary value on getting a perpetual license for the Warner catalogue.”

The basic-cable arrangement, he adds, will enable Sony--for a small distribution fee to Warner--to collect revenues from a market largely untapped by the Hollywood studios. And Warner, with its wide array of cable interests, is in a good position to distribute Columbia films, he says.

Schulhof says he never had any second thoughts about fighting for Guber and Peters.

“Once we decide we like people, we stick by them,” he says. “If it had gone through litigation rather than settlement, that’s OK, too. We felt that (they were) worth fighting for. We made a decision that we wanted to support them. If you get married to someone and then have problems with an outsider, you don’t therefore divorce your wife.”

Whether that tenacity was brilliant or foolhardy will become apparent in the coming years as Sony’s first motion picture and television studio chiefs, Peter Guber and Jon Peters, try writing their own Hollywood success story by turning Columbia Pictures around.