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The big squeeze
Our seventh annual list of the top 50 entertainment companies around the world features familiar players, some in new combos -- such as Vivendi and Universal -- and some in more elevated positions -- such as Viacom and Clear Channel, both of which bulked up on lucrative assets in the last year.
Cablers and satcasters rallied on the revenue side but continue to take major profit hits as enormous investments in infrastructure and hardware mount.
In the face of the worst advertising market downturn in a decade and the deflation of the dot-com bubble, corporate strategies across the G50 board called for belt-tightening. If 1999 was all about convergence and Internet synergy, 2000 (and the first half of 2001) was about layoffs and cost-cutting.
There's a sense that things can only get better, but the question is: When? Be it later in the year or in early 2002, entertainment congloms remain cautious.
Meanwhile, a couple of Euro giants are pondering public life. Following the lead of smaller Teutonic distributors and media companies, behemoths such as Bertelsmann and Kirch Group are eyeing stock market flotations.
Stateside, look for more buyouts and mergers under the Bush administration. The Republican-controlled Federal Communications Commission, for example, is likely to further relax ownership rules and bless more deals than did the previous incarnation.
-- Sharon Swart, European Editor, Variety Special Reports
NO. 1 AOL TIME WARNER
Revenue: $36.2 billion
Loss: $4.4 billion
A media behemoth forged early this year from a merger of two well-known names, AOL Time Warner shows no sign of curbing its expansion in the U.S. and overseas.
Its assets range from the Turner cable networks, Warner Bros.' the WB network, HBO and Time Inc. to sprawling cable systems and the world's largest Internet service provider -- making it a dominant force in content and distribution. Its size has made it a conspicuous target for complaints from media watchers fearful that media assets are concentrated in ever fewer hands.
Conglom laid off 2,400 workers earlier this year and another 1,700 at AOL and Netcape recently. It also failed to meet second-quarter revenue targets in a weak ad environment. But its breadth and management makes it a Wall Street favorite. It's been busy retooling CNN, trying to turn around sluggish Warner Music, celebrating hit factory HBO ("The Sopranos"), promoting its movies on service portal America Online and seeking other synergies to make its merger profitable. It recently bought big U.K. magazine group IPC. Chairman Steve Case and CEO Gerald Levin have prioritized international expansion.
Some say conglom's latest gambit may well be a play for AT&T Broadband, the telco's giant cable division that's for sale -- at the right price. AOL Time Warner certainly has the cash but could face a tough time from regulators. -- Jill Goldsmith
NO. 2 WALT DISNEY
Revenue: $25.4 billion
Profit: $832 million
If the Mouse House hasn't been the Happiest Place on Earth this past financial year, take note that executives hope that 4,000 job cuts made this spring is going to help shape up the company's bottom line and bring back smiles -- at least, in the board room.
Pro forma profit was up in 2000 after the shuttering of Disney's costly Go.com Internet portal. But in comparison, fiscal 2000 repped a 71% profit drop from the previous 12 months -- to $920 million -- due to a big noncash charge for Netco losses.
"The year ended better than we expected but not better than what we knew was possible," chief Michael Eisner summarized.
Meanwhile, Disney's consumer products division was still waiting for the benefits of its ongoing turnaround campaign, homevid operations continued to struggle, and ABC was socked by ratings woes and an economy-driven downturn in ad sales.
As a result, the entertainment and media behemoth in March offered voluntary layoffs to employees throughout its studio operations, ABC, theme parks and elsewhere in the Magic Kingdom. But by June it became apparent 1,000 forced furloughs would be needed to reach the targeted 4,000 job cuts.
Looking ahead, Disney is expected to make some selected acquisitions, as the Mouse House still has ample cash resources despite operational sluggishness. Targets include TV stations and cable webs, as well as the Jim Henson film and TV company. -- Carl DiOrio
NO. 3 VIACOM
Revenue: $23.4 billion
Loss: $364 million
Viacom is bigger and, execs insist, better than ever as the proud owner of CBS -- the pickup of which added the Eye network and stations, massive syndication assets, and a giant radio and outdoor advertising business to Viacom's hefty entertainment holdings.
Merged company is running smoothly as its cable networks and studio, Paramount, steam along, this despite a slowed economy that has shriveled advertising this year. Viacom, which possesses about the most ad exposure of all the big media congloms, also lowered its revenue guidance for the full year. Eternal optimist and chief operating officer Mel Karmazin sees a turnaround in the fourth quarter.
MTV, Viacom's core engine of growth for many years, celebrates its 20th anniversary this month. MTV Networks, which includes Nickelodeon and VH1, has been joined by CBS' channels TNN and CMT. And over the past year, Viacom moved aggressively to snap up BET, boosting distribution and revenue at the niche cable net.
UPN, which now has a sister broadcast network in CBS, snatched WWF wrestling from USA Networks and lured over "Buffy the Vampire Slayer" from the WB. At the Eye net, cultural phenom "Survivor" and its followup has helped propel ratings.
Paramount, with its stringent cost controls and revenue sharing, continues as one of the steadiest financial performers in Hollywood.
Karmazin and chairman-CEO Sumner Redstone, whose working relationship is a constant source of speculation, stress international expansion. Karmazin said in no uncertain terms last month that Viacom has cash burning a hole in its pockets and is looking for acquisitions in the company's core businesses. He's always looking at content, major market radio stations and TV.
Like many of its rivals, Viacom is waiting and hoping a Republican-dominated Federal Communications Commission will relax or eliminate rules that limit cross-ownership of same-market media properties. -- Jill Goldsmith
NO. 4 VIVENDI UNIVERSAL
Revenue: $22.09 billion
Profit: $1 billion
A Franco-Hollywood fusion, this conglom was created last year by the combination of Paris-based Vivendi and Seagram, parent of Universal Studios, Universal Music and a mammoth liquor biz that was sold off postmerger.
Vivendi, which owns film and pay TV giant Canal Plus along with other entertainment, publishing and wireless assets, spun off its big water and waste management unit into a separately company and is focusing on media.
Biggest challenge has been getting U.S. investors to pay heed to what's now one of the biggest showbiz congloms in the world. A strong second quarter created an upbeat buzz in August and chairman-CEO Jean-Marie Messier is moving to New York in September to help speed Viv U's acceptance.
Company's long-term strategy of hawking video and music content via cell phones seems pie in the sky to some Stateside but none can dispute the success of Universal Music, the world's biggest tune label, and the hit factory called Universal Pictures, which released blockbusters such as "The Mummy Returns" and "The Fast and the Furious" this year.
Universal and Sony have teamed up to launch a service for digitally downloading music from the Internet, one of the hot-button issues of the day that has labels linking up and investing heavily.
Viv U's latest big deal was the purchase this summer of venerable Boston publisher Houghton Mifflin. -- Jill Goldsmith
NO. 5 BERTELSMANN
Revenue: $19.07 billion
Profit: $3.26 billion
Going public was previously unthinkable at Bertelsmann AG, the owner of such media properties as publisher Random House and BMG Music. Now, after 166 years in the biz, the flotation date is all but set. Bertelsmann already has instigated various strategies, including a high-profile image campaign aimed at whipping the company into IPO shape.
A 10% increase in return on sales and a move to become the majority owner in more of its subsidiaries are high on the priority list, as is increased synergy between its various divisions -- newly restructured into three distinct areas: services, content and direct customer businesses.
Performing well is television unit RTL Group, in which Bertelsmann became the majority shareholder this year by swapping a 25.1% stake in Bertelsmann proper for 30% of RTL with Groupe Bruxelles Lambert in an unprecedented move that opened up the parent company to outside investors. In the last financial year, Random House upped earnings by 7% while, for the first time in its 15-year history, music division BMG is predicting losses of around $300 million for the year.
Bertelsmann CEO Thomas Middelhoff blames the red ink on Internet activities. As a result, Web investment companywide will be reduced by nearly 60% from a current DM1.37 billion ($637 million) by next year. -- Liza Foreman
NO. 6 NEWS CORP.
Revenue: $13.8 billion
Loss: $445 million
It's been a heady summer for Rupert Murdoch's News Corp. The conglomerate just closed on its purchase of TV station group Chris-Craft, a deal that gives it 32 TV stations and duopolies in some major markets. It sold Fox Family, a money-losing cabler co-owned by HaimSaban, to Disney for more than $5 billion. That gives it an extra cash infusion to pursue the mother of all deals, a thus-far elusive merger with satcaster DirecTV.
News Corp. has been in talks with DirecTV/Hughes Electronics parent GM for nearly two years, but new suitors for the satcaster, such as EchoStar, continue to gum up the negotiations. If a deal closes, DirecTV would become the crucial U.S. platform in a company that folds together News Corp.'s giant intl. satellite operations, including BSkyB in the U.K. and Star TV in Asia.
Cable net Fox News has been steadily encroaching on CNN. News Corp. also owns a FX cable net and Fox Sports regional sports networks.
Twentieth Century Fox is having a nice run with "Planet of the Apes" and its TV production factory continues to rule in primetime. Publishing assets include HarperCollins in the U.S. and a stable of newspapers in Australia and the U.K. After its buy of Chris-Craft, which gives it two Gotham stations, company may be forced to sell the New York Post. Current regs forbid ownership of a broadcast and newspaper property in the same market. The Federal Communication Commission gave News two years to comply, but many think the rule will be history by then.
A tantalizing issue is succession. Murdoch's son Lachlan, the elder and considered heir apparent, was promoted to vice chair this year. And son James reigns over Star. For now, News chief operating officer Peter Chernin has things well in hand. -- Jill Goldsmith
NO. 7 SONY (Entertainment assets)
Revenue: $9.3 billion
Operating profit: $199 million
Sony Corp. of America, which houses the bulk of its Japanese parent's entertainment assets, is still grappling with the challenge of developing lucrative synergies between its content and the sister electronics business that sets it apart from its peers in Hollywood.
With no major mergers or acquisitions under its belt (although the market continues to speculate on a spinoff and a deal with NBC), Sony seems focused on smaller steps and alliances. The company just inked a multiyear pact with Yahoo! to create a new portal that can be accessed by Sony devices. The agreement also involves branding, promotion and e-commerce. Sony Pictures will feature several upcoming pictures on Yahoo!, as Warner Bros. does with America Online.
After a ho-hum first half, Sony Pictures is anticipating a blockbuster year in 2002 with "Spider Man" and sequels to "Men in Black" and "Stuart Little." Studio topper John Calley is set to retire this fall, and it's still far from clear who will succeed him. Sony's ties to Joe Roth's Revolution Studios fuels speculation that the former Walt Disney studio head might take the job.
Sony Music, like Warner Music, had a slow year so far amid a general decline in the biz. Label blames the release schedule and a downturn in key markets. Some industryites say the biz finally hit the end of the CD revolution, which boosted sales for years, with no new technology taking its place. -- Jill Goldsmith
NO. 8 COMCAST
Revenue: $8.37 billion
Cash flow: $2.528 billion
With or without AT&T Broadband, Comcast remains a darling of Wall Street for its crisp margins and operational efficiencies.
Comcast CEO Brian Roberts says the AT&T system would boost cash flow by 6%-9% in three years. But if it fails to get AT&T, where does that leave Comcast? It would remain among the top cable operators, with almost 8 million customers, but without a major vehicle to drive growth even faster.
In the past year, Comcast has continued to roll out advanced services, concentrating largely on digital cable, high-speed Internet and video-on-demand.
The company projects it will have 2.2 million digital and 950,000 high-speed customers by year's end. Operating cash flow grew by 13% in the first half of 2001 even as the company swallowed 2 …