Hollywood bracing for dramatic change as properties shuffle.

A massive reshuffling of the decks by far-flung media and entertainment giants is expected to hit home over the next year or two, in some cases sooner.

Through years of empire building, media conglomerates such as Vivendi-Universal SA and AOL Time Warner Inc. ran up mountains of debt buying assets whose values have fallen drastically in price.

Now, many of those assets are for sale -- a fair portion in Los Angeles, a longtime hub for film, television and music, and more recently film exhibition and digital convergence technologies. More sales are expected.

"We are going to see a lot of continued divestitures, restructuring and rationalization within this industry," said Joseph C. Sherwood, director of investment banking at the Seidler Cos.

The pending realignment, with its epicenter in New York, is poised to dramatically alter the ownership landscape in Hollywood. It's spurred local investment bankers to gear up their entertainment activities, and it's. left thousands of employees at operations ranging from Universal Studios to DirecTV unsure who will be signing their paychecks one year from now.

"Invariably it will look different. (Hollywood) will continue to change and reshape itself. The question is whether forces are going to accelerate that re-shapement, at which point it could be really excruciating said Peter Cuber, Chairman of Mandalay Entertainment and former head of Sony Pictures Entertainment.

Already, Vivendi Universal's theme parks and movie studios, both based locally, are being considered for sale as the French-owned company grapples with billions in debt incurred transforming itself into a media giant from a water company. Vivendi Universal has 8,000 locally based employees.

Also up for sale: the Dodgers, the Angels, and General Motors Corp.-owned Hughes Electronics Corp, operator of the DirecTV service.

It's all part of an effort by large media companies to reassess the strategy of marrying content, distribution and new media into one theoretically synergistic whole.

"The rush to acquire assets in the mid-to-late '90s, to get those all under one roof, that model gave rise to some inefficiencies," Sherwood said. "But that's not necessarily a model that's discarded and thrown out the window."

Where balance sheets permit, the process will be one of refinement, rather than abandoning the '90s wholesale.

Case in point: baseball.

When Australia's News Corp. purchased the Dodgers, the media giant sought a sports franchise to boost viewership on its sports cable outlets, Fox Sports West and Fox Sports West 2. Walt Disney Co. also sought to enhance its media properties through ownership of the Anaheim Angels. But in a tough economy, the tens of millions of dollars lost each year operating the teams is taking away from the benefits they provide.

Jettisoning the Dodgers will be tricky, however, because News Corp. wants to keep the broadcast rights to the games.

Because of the high price it's seeking, Disney has also had trouble finding a buyer.

"The value isn't in owning the teams, it's in controlling the broadcast rights," said Jeffrey Logsdon, equity analyst with Gerard Klauer Mattison & Co. "The economics of the business don't warrant paying a high cost."

News Corp. has hired investment bank Allen & Co. to sell the Dodgers, and bids as high as $650 million (including broadcast rights) have been suggested.

Vivendi's reported talks to sell its video game unit to Microsoft Corp. point up another area for consolidation.

Michael Pachter, an equity analyst covering Activision for Wedbush Morgan Securities, offered a hypothetical scenario where Microsoft buys gamemaker Electronic Arts Inc., which makes the popular Madden football game, and limits its distribution to its X-Box platform.

That could send smaller, locally based game makers Activision Inc. and THQ Inc. looking for their own white knight, perhaps from among the major entertainment companies. Video game makers, he said, are dependent on entertainment licenses to market their games.

"The only way a video game can be a sure fire success is to brand it. Take 'Lord of the Rings.' If that game were called 'Ancient Sword Fighting,' nobody would care," Pachter said.

For investment bankers, the potential for deals offers a ray of hope in an otherwise bleak M&A landscape.

Recently, Los Angeles-based Seidler shifted one equity analyst, David Bain, into the entertainment sector, from a broader leisure portfolio. That's partly due to the expectation of further middle-market opportunities in the sector, analyzing assets for possible sale or acquisition, or consultation on how to best position a business, Sherwood said.

With so much in flux, L.A.-based figures loom large, not only as targets but as buyers - setting the stage for the possible repatriation of local assets that were once sold to owners based anywhere on the globe. A lot depends on which buyer wins out.

At Vivendi Universal, for example, locally based assets include Universal Pictures, Universal Studios and the group's theme park division. Universal Music Group, the largest record company in the world, has a large presence here.

Locally based oil tycoon Marvin Davis has already bid $20 billion for those assets. But he's in competition with Barry Diller, the entertainment entrepreneur who now serves as chairman of Vivendi Universal Entertainment and is owed debts by Vivendi.

Diller is reported to be in talks for a joint bid for Universal with John Malone, chairman of Liberty Media Corp. Other Vivendi suitors include locally based Metro-Goldwyn-Mayer Inc. and General Electric Co.'s NBC network.

A deal with either Diller or Davis would most likely keep the business intact, whereas NBC and MGM would probably shed the music assets.

Universal and Liberty Media declined comment. Officials from MOM did not return calls.

Still another reported scenario has Vivendi spinning off all the entertainment assets in an initial public offering. MGM is said to be most interested in Vivendi's cable operations, which would provide a distribution arm for its significant film library.

Such a pairing would almost certainly result in local layoffs, said David Davis, a senior vice president at investment bank Houlilian Lokey Howard & Zukin - particularly among the two companies' film production and distribution operations, which have significant overlap.

Hampering any sale is the declining value of Universal's music assets. Music, once a bedrock of cash flow in any entertainment conglomerate's portfolio, has struggled across the board as online piracy places a question mark on its future.

Normally, vulture investors such as private equity shops would be the ones to step in and purchase distressed assets. But the tight capital markets environment, coupled with still-tight lending standards among commercial banks, will make such a disposal that much harder.

But if the prices go down far enough, there's always someone who will step up and buy.

"There are a couple of sources, individuals that have either sold or merged their (entertainment) companies, and I'm sure they would look at this as an opportunity to get back into the game," Sherwood said.

Up in the Air

Juggling of media assets will have impact in L.A.


Asset                          Current Owner

Hughes Electronics/DirecTV     General Motors Corp.
Vivendi Universal assets       Vivendi Universal SA
 (Universal Pictures,
 Universal Studios. Universal
 Music Group, cable units)
Anaheim Angels                 Walt Disney Co.


L.A. Dodgers                   News Corp.

KFWB                           Viacom Inc.

KirchMedia                     Creditors
New Times Los Angeles assets   Village Voice Media

Digital Coast Reporter         Rising Tide Studios


Asset                          Reason

Hughes Electronics/DirecTV     Pay down debt
Vivendi Universal assets       Pay down debt
 (Universal Pictures,
 Universal Studios. Universal
 Music Group, cable units)
Anaheim Angels                 Losing money


L.A. Dodgers                   Losing money

KFWB                           Overconcentration in
                                market
KirchMedia                     Bankruptcy sale
New Times Los Angeles assets   Justice Dept. consent
                                decree
Digital Coast Reporter         Company in debt

                               Possible
Asset                          Buyers

Hughes Electronics/DirecTV     News Corp.; Liberty Media
Vivendi Universal assets       Marvin Davis; Barry Diller; Liberty
 (Universal Pictures,           Media (cable); Metro-Goldwyn-Mayer
 Universal Studios. Universal   (movies, cable); News Corp.
 Music Group, cable units)
Anaheim Angels                 Carlos Peralta (Mexico); James &
                                Robert Nederlander; Peter
                                Ueberroth
L.A. Dodgers                   David Checketts; Peter Ueberroth;
                                Alan Casden
KFWB                           None named

KirchMedia                     Haim Saban; Heinrich Bauer Verlag
New Times Los Angeles assets   Richard Riordan/L.A. Examiner

Digital Coast Reporter         None named

                               Price
Asset                          Talk

Hughes Electronics/DirecTV     $16-18 billion
Vivendi Universal assets       $20 billion
 (Universal Pictures,
 Universal Studios. Universal
 Music Group, cable units)
Anaheim Angels                 $200 million


L.A. Dodgers                   $400 million

KFWB

KirchMedia                     $2 billion
New Times Los Angeles assets

Digital Coast Reporter         None

Bolded entities are based in L.A. region.