After a year of staggering losses and management turmoil in its movie business, Sony Corp. of Japan has begun overhauling its studio operations to prove that it can indeed make money in Hollywood.
And one of the first steps has been to shift much of the oversight of the business out of Southern California and into New York under the direction of Jeff Sagansky, the former president of CBS Entertainment whom Sony hired four months ago.Among other measures, Sony is seeking to reduce its risks on making movies by bringing in financial partners on some films. The company is also focusing on lower-budget movies, hoping to steer away from again making expensive flops like "The Last Action Hero."
All of this comes in response to the financial loss that Sony announced in November, when it said it would write off $3.2 billion to reflect the diminished value and accumulated losses of Columbia Pictures and Tristar Pictures, which the company acquired in 1989.
And while some industry executives wonder if all these moves are sufficient - and note that the first good measure will not come until the box-office results are totaled after the important summer movie season - people close to the company say Sony was compelled to make some big moves.
"Schulhof has no other choice," said one executive close to the company, referring to Michael P. Schulhof, president of Sony Corp. of America.
Sony executives declined to comment for this article.
The decision to oversee the movie division from New York under Sagansky effectively diminishes the role of Alan J. Levine, president of Sony Pictures Entertainment, and Mark Canton, chairman of the Columbia/Tristar Mo-tion Picture Companies, all of whom are based in Los Angeles.
The decision has stirred anxiety and puzzlement at the already troubled Sony studios.
While successful at CBS, Sagansky has had a mixed track record in films. He served as president of production of Tristar and later as the studio's president in the late 1980s, but the studio produced numerous mishaps.
With Sagansky tacitly taking over, Sony's creative efforts have taken another turn with a focus on fewer big-ticket films. Over the past two years, Columbia and Tristar have fumbled badly on $50-million-plus films that have withered at the box office.
These movies, including "I'll Do Anything" and "Mary Shelley's Frankenstein," coupled with numerous less expensive duds like "My Life," "Blankman," "The Road to Wellville," "I Like It Like That," "Cops and Robbersons" and "Wagons East," have led the company to place a lid on the costs of new movies.
With the exception of several costly films, like "Mary Reilly," a drama in which Julia Roberts portrays the maid for Dr. Jekyll (John Malkovich), and "First Knight," with Sean Connery and Richard Gere in a drama based on the King Arthur legend, most of the films in release are in the range of $20 million to $30 million.
To diminish the company's financial risk, Sony, with about 30 films planned for release this year, is following the steps of other studios and is looking for financial partnerships on at least 10 films, Schulhof has said.
Although this would reduce the profit on hit films, it also would cut losses on flops. And with costs rising - an average film costs $30 million, with an additional $15 million for marketing - companies are increasingly trying to hedge their bets.
Paramount Pictures, a division of Viacom Inc., has adopted a similar strategy in recent months.
Sony also seems to be scaling back its expectations. Executives close to the company said it is looking for an 8 percent to 9 percent return on assets, compared with earlier expectations of an 11 percent return.
Moreover, some Hollywood executives say Sony has hardly done enough to solve its difficulties and to change an opulent corporate culture. One top executive at a rival movie company, who spoke on condition of anonymity, said Sony's overhead was still very high.
A spokeswoman for Sony said Tuesday that management controls were "being implemented and part of that is reflected in moves such as the consolidation of marketing and distribution" at Columbia and Tristar.
In recent months, Sony has laid off about 40 people as a result of merging the studios' marketing and distribution arms.
Hollywood executives have increasingly blamed Sony's woes over the past five years on Schulhof, a physicist who rose through Sony's electronics business and was a protege of Sony's founder, Akio Morita.
Schulhof, who does not speak Japanese, is the only American on Sony's board. Associates say he has adopted the nonconfrontational style of his Japanese bosses.
One of Schulhof's first moves as president was the $2 billion purchase in 1988 of CBS Records, a strong business with stars including Mariah Carey, Pearl Jam, Billy Joel and Michael Bolton. But a year later, Sony paid $3.4 billion, and assumed $1.2 billion in debt, to buy Columbia and its sister company, Tristar, both controlled by Coca-Cola Co.
Schulhof then shocked Hollywood by appointing Jon Peters and Peter Guber, two producers who had never run a studio, to head the movie division. Sony paid a staggering $600 million to buy Guber-Peters Entertainment and to pay a rival studio, Warner Brothers, for their contract. Peters resigned from Sony in 1991 and Guber late last year.
Guber had been criticized for buying out executives like Frank Price, chairman of Columbia, and Mike Medavoy, chairman of Tristar, with payments as high as $20 million.
He was also strongly criticized for naming his former lawyer, Levine, as his No.2 executive, despite Levine's lack of experience in the movie business.