PolyGram Still Wants to Be Big Player

What now, PolyGram?

Michael Kuhn, head of Dutch-owned PolyGram Filmed Entertainment, says management may be disappointed but is hardly daunted by losing its bid for Metro-Goldwyn-Mayer studio, something that would have helped fulfill the company’s desire to be a major Hollywood player.

Earlier this year, PolyGram was trumped in the eleventh hour by John Kluge’s Metromedia in its effort to acquire Samuel Goldwyn Co. PolyGram had also had its eyes on Spelling Entertainment, which Viacom subsequently took off the market when it couldn’t fetch its desired price.

Perhaps more significant, last year Seagram Co. made off with 80% of MCA, which owns Universal Pictures, for $5.7 billion before the studio-hungry PolyGram, or anyone else for that matter, had a shot at it.

Kuhn says that despite those missed opportunities and losing MGM to a management-led buyout backed by billionaire Kirk Kerkorian, PolyGram “will go on with our plan to grow organically and look out for the acquisition that will speed us into the major leagues quickly.”

Let’s face it: With the same $1.3 billion in its pocket that the company’s majority owner Philips Electronics had sanctioned for the MGM buy, PolyGram is ready to pounce on the right opportunity.

But Wall Street analysts say that unfortunately for PolyGram, there’s no other major acquisition opportunity like MGM on the horizon. “There’s nothing left to buy. All the big deals have been done for right now,” analyst Harold Vogel of Cowen & Co. says, noting that what’s left “is small stuff--relatively speaking.” Sony Pictures Entertainment, which is not presently on the block, “is always an open question,” says Vogel.

Vogel and other experts agree that the only significant movie business acquisitions out there at the moment are New Line Cinema and, to a lesser extent, Castle Rock.

Many industry observers believe New Line, which is essentially in play now that the government has given a tentative blessing to the Time Warner-Turner merger, would be a natural fit for PolyGram. Turner is said to be looking to get more than $1 billion for the production and distribution company, whose hits include “The Mask” and “Dumb and Dumber.”

Kuhn said PolyGram is “absolutely” interested in New Line, though it hadn’t pursued talks both because of the MGM distraction and because New Line hasn’t officially been put up for sale.

“Once the Time Warner situation is resolved, we’ll look,” said Kuhn, noting that although he’s familiar with New Line’s production and distribution side, he knows little about the company’s film library and other aspects of the operation.

Turner-owned Castle Rock, also up for grabs in light of the Time Warner-Turner merger, is also of interest to PolyGram, though serious talks with suitors Sony and MCA/NBC have been underway for some time. “They’re on my list along with a dozen others,” Kuhn said.

But because it’s a distributor as well as a producer, New Line, which releases around 25 movies a year through its main pipeline and a dozen more under Fine Line, its New York-based specialty film banner, would give PolyGram more product and an instant distribution capability.

For years, PolyGram has planned to launch its own U.S. distribution operation next year, and, according to Kuhn, the plan is still on, unless of course PolyGram acquires an existing releasing company. PolyGram has its own specialty film distributor, Gramercy Pictures, which releases films to as many as 1,000 screens. PolyGram’s bigger movies go out through the major studios. PolyGram already directly distributes its product in various foreign territories, including Britain, Germany, Australia, Spain, France, Belgium, the Netherlands and Luxembourg; and it plans to consider going into the tougher markets of Italy and Japan.

As for its U.S. distribution plans, PolyGram needs to somehow increase its movie output to feed such a costly operation. Presently, each of the company’s three major film labels--Interscope Communications, Propaganda Films and Working Title--releases about four movies a year.

Kuhn hopes to increase the total number of releases to 20 by 1999. The way to get there, he says, is either to boost the output of the existing labels or add production units.

Ever since it launched its current film operation in 1992, PolyGram has been struggling to make as big a splash in movies as it has in music, where it’s the largest record company in the world and third-biggest in the U.S.

Although PolyGram has amassed a film library of more than 400 titles from the various labels it’s bought, essentially the company has had one breakout box-office hit since its inception, 1994’s “Four Weddings and a Funeral.” The British comedy, produced by Working Title and released by Gramercy, cost $5 million to make and grossed $260 million worldwide.

A number of the company’s other low-budget movies, including “Fargo,” “Dead Man Walking,” “The Usual Suspects” and “The Adventures of Priscilla, Queen of the Desert” have been very profitable relative to their costs and have received wide critical acclaim. PolyGram also reaped revenues from films such as “Nell,” “French Kiss” and the current British release “Trainspotting” in territories outside the U.S. where it holds the rights. Nonetheless, PolyGram Filmed Entertainment lost $42.5 million for 1995, compared with $26.3 million for the year before. The company attributed much of that loss to distribution start-up costs overseas. The parent company will announce its latest earnings next week, on which Kuhn refused to comment.

For the immediate future, PolyGram is looking for its first big-budget movie, “Sleepers,” starring Brad Pitt and Robert DeNiro and directed by Barry Levinson and to be released domestically this fall by Warner Bros., to be the big commercial hit it needs both financially and psychologically.

And in the larger sense, the company is still looking for that one big acquisition to legitimize it as a serious Hollywood player.

“Another bus will be along in a minute,” says Kuhn, using a favorite British expression alluding to the fact that “these kind of [big business] opportunities come along very frequently.” Maybe next time, notes Kuhn, “it will be at the right price and we’ll be clever enough to land it.”

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MGM tidbits: Sources say not only did Kirk Kerkorian do zero due diligence on MGM’s books before agreeing to back a management buyout of the studio, but also that the Las Vegas billionaire didn’t initially have the confidence of everyone on the MGM team, who apparently shared critics’ concerns that he’s a raider not a builder. As for Kerkorian’s motivation, Hollywood insiders say he’s out to prove he’s not a bad guy after all. As for MGM’s? Well, money talks.

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Sir Sid Ganis?: As a marketing veteran, no one should know more about positioning than Sid Ganis. Now he’s applied what he knows about positioning movies to positioning himself. Days before Sony is to announce it’s hired Bob Levin as its new marketing chief and has made a producer deal with Ganis, the executive sent out a personal memo to friends in the business saying how much he’s always wanted to make movies. He quotes the late director Sir David Lean: “David Lean once said, ‘People who make movies are in a very privileged position.’ I feel the same way. And have always wanted to produce films . . . . From the very beginning of my career, making movies has been quite a dream of mine. In recent weeks, while rumors [which he vehemently denied] flew around the lot and even in the press, I’ve been negotiating and crystallizing my dream. And now it’s in place.”

The note ends: “See You at the Oscars.” And we say, good luck.