Advertising Age Bonanza Comment

The following appeared in Advertising Age on January 23, 1995. The citation is Greising, David (1995-01-23). Ted's dream-factory is running flat-out. Advertising Age: MEDIA; Movies; Number 3408; Pg. 79.

TED'S DREAM FACTORY IS RUNNING FLAT-OUT

Dumb people are making a fortune for smart media moguls these days. First it was Tom Hanks' charming simpleton Forrest Gump, which has earned at least $ 200 million for Sumner Redstone's Paramount Pictures Corp. Now, Jim Carrey's dim-witted antics are minting money for Ted Turner. The elastic-lipped comedian's latest film, Dumb and Dumber, stands to make more than $ 100 million for Turner's New Line Cinema Corp.

Coming from the man who invented CNN, Dumb and Dumber's sophomoric gags and scatological jokes look awfully low-rent. But Ted Turner has made it plain that he wants to be a heavy hitter in Hollywood, and 106 minutes of extravagant stupidity seems a small price to pay. After spending $ 1 billion in 1993 to buy two major production companies, Turner Broadcasting System Inc. is ponying up $ 750 million more to produce 39 feature films this year.

Like many of its megamedia rivals, Turner is seeking lively product to fill its various distribution channels: the TBS and TNT cable networks; a growing licensing and merchandising division; and -- someday, perhaps -- a broadcast network. Turner also needs to freshen up the list of 3,400 titles it picked up in its 1986 acquisition of the MGM film library.

But if Turner's strategic reasons for plunging into filmmaking are clear, some observers say the company risks running into the same problems that have bedeviled Japan's Sony Corp. and other babes in the Hollywoods. For one thing, Turner's three production companies -- New Line and Castle Rock Entertainment plus homegrown Turner Pictures -- are making their big push just as Tinseltown faces a deluge of new titles. Under new management, MGM and Paramount are also ramping up their production schedules. FAUSTIAN DEAL. What's more, Turner is tinkering with the successful recipes of his studios by boosting their film budgets and changing their development slates. New Line Chairman Robert K. Shaye, who built his company on horror films and other low-budget flicks, has already plunked down $ 4 million each for scripts by screenwriters Joe Eszterhas and Shane Black. Castle Rock, which nurtured a reputation for producing a small number of high-quality films, is expanding its annual output from 6 to 12 films. You can go broke in this town asking people to go against what made them famous in the first place, says one producer.

That comes on top of other unavoid- able hurdles. Buying Castle Rock gave Turner access to the prodigious filmmaking talents of Rob Reiner, one of the company's founders. But Columbia Pictures retains home-video rights to Castle Rock's films until 1996 and will continue to distribute the films until at least 1997. So Turner's revenues are severely limited. That's part of the Faustian deal we made to get Castle Rock, admits Scott M. Sassa, the 35-year-old president of Turner Entertainment Group. It's a weakness. Meanwhile, New Line is riding high with Carrey's The Mask and Dumb and Dumber. But the company hasn't proven it can turn out non-Carrey hits to justify its growing budgets. Turner Pictures, which produced the money-losing historical epic Gettysburg, hopes to do better through a six-picture deal with producer Dawn Steel. LICENSING QUEST. Then, too, the mercurial Turner has to contend with a clutch of formerly independent egos. We've got a bunch of proud peacocks all thrown into the same barnyard, says New Line's Shaye. So far, the pecking is at a minimum. Sassa concedes ego clashes are inevitable. But he hopes to work them out in monthly meetings with the heads of the film units at Atlanta headquarters.

Turner's film business is still a small piece of his empire. The three movie units turned in an operating profit of $ 57.5 million last year, estimates Seidler Cos. analyst Jeffrey B. Logsdon. That's a skimpy 6% return on Turner's $ 1 billion investment. Logsdon believes movie production will log a $ 100 million profit this year, hardly a blockbuster performance. By contrast, Logsdon predicts that Turner's entertainment networks will generate $ 238 million, while his news operation will make $ 245 million.

Clearly, though, Turner has grander ambitions. His $ 750 million production budget exceeds the company's total projected 1995 cash flow of $ 550 million. Turner executives say they will finance that cost by taking on some additional bank debt. At $ 2.4 billion, Turner's debt is six times its 1994 cash flow -- putting it in the same leverage league as such heavily-indebted media giants as Time Warner and Viacom.

Turner is spending big to crank out the celluloid because the rest of the Turner empire is poised to capitalize once the movie studios go into full production. Consider Turner Pictures' upcoming film Jonny Quest, which it plans to release in the summer of 1996. Tur-ner's publishing, interactive-media, merchandising, and licensing executives will also unleash a raft of products based on the cartoon hero. Jonny Quest will be a consumer-products bonanza, says Philip Kent, president of Turner Home Entertainment.

But to make this synergy really happen, Turner's studios are going to have to turn out winning films. Sassa notes that keeping the three studios separate allows each to troll for talent. And Turner's well-publicized higher budgets should draw top names. I don't think there's anyone in town who would say that they wouldn't come work for us, declares Castle Rock chief Alan F. Horn. Indeed, stars such as Al Pacino, Susan Sarandon, Billy Crystal, Sigourney Weaver, Marlon Brando, and Morgan Freeman will all appear in Turner titles this year. PEACOCK HUNTING. Turner is forgoing some other expensive Hollywood trappings, though. His three production companies all lease studio space. Too many people want to sit in Irving Thalberg's office and own a studio lot, says Terence F. McGuirk, executive vice-president of TBS. We don't have that intention. We're in the movie business for strictly strategic reasons. There's one final element to Turner's multimedia strategy: broadcast television. Turner is angling to acquire part or all of NBC from General Electric Co. Combining CNN with an existing TV network's news division would save TBS $ 100 million in production costs. NBC would also boost Turner's muscle in bidding for sports properties such as National Football League telecasts. And it would enable Turner to tap directly into the big advertising money that comes along with premier and repeat airing of feature films on TV. We've got a unique mix that bodes well for us if it ever gets into a bidding war, says one source close to Turner.

Before Turner can even enlist in any such battle, though, he will have to overcome objections from Time Warner, which, along with Tele-Communications Inc., bailed out a cash-strapped TBS in 1987. The two now control 20.5% of the company's voting shares and can veto any major acquisition or sale.

Turner's network aspirations may look like a long shot now. But they're alive enough that the GE board discussed the Turner bid at its December meeting. If Turner ever does end up owning NBC or another network, his Hollywood strategy may end up looking as smart as his current films look dumb.

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