Sony exec to movie makers: look globally, act locally.

Hollywood warned not to ignore international market

Globalization and rapidly changing technology are transforming the entertainment industry and large companies must adapt or they won't survive in the 21st century, according to Michael Schulhof, vice chairman of Sony USA and president of Sony Software Corp.

Schulhof oversees Sony's growing film and music businesses and said movie makers have been slower than the music industry in pursuing overseas markets and is mildly critical of Hollywood for that.

"We can see the handwriting on the box office wall -- in the not too distant future, the total international market will be greater than the domestic market," he said. "With some apologies to Hollywood, motion pictures are still the most parochial area of entertainment. For years the major studios have clung to an exporter's mentality. They make movies for American audiences, and the rest of the world is treated as a secondary market."

In coming years, he said, companies can't just push out a stream of exports from their home market to the rest of the world. "If you try that one-way export mentality it will virtually guarantee a protectionist backlash," he said.

Schulhof's remarks before the Los Angeles World Affairs Council last week were preceded by a press conference at which Schulhof defended Sony's entry into the entertainment business during the 1980s when the Japanese electronics giant spent more than $5 billion to acquire CBS Records and Columbia Pictures Entertainment in separate deals. Schulhof was the architect of both acquisitions.

He described Sony Music as a "wild home run," while Sony Pictures Entertainment (which oversees Columbia and TriStar Pictures) has seen substantial revenue and market share growth this year with earnings also improving. The weakness of the dollar against the yen has a negative impact on Sony's U.S. performance, Schulhof added.

Despite success at Columbia and TriStar, which recently garnered 30 Oscar nominations, and Sony Music's recent rash of Michael Jackson publicity and record sales, there has been increasing speculation in the financial community that Sony is considering a public offering of its entertainment division to raise cash.

Schulhof didn't rule out the possibility when he told reporters, "In November 1991 there was a public offering of Sony Music in Japan and the results were much stronger than expected when the issues were completely subscribed. We continuously look at the possibility of raising money through the public equity market. However, we have no plans at this time (to take Sony Software public)."

Sony and Schulhof have championed technology and the marriage of hardware/software strategies. Other Hollywood studios have been more cautious, preferring strategic alliances rather than synergy.

Schulhof said the term synergy is artificial and doesn't accurately describe the creative interaction within Sony that is starting to pay big dividends.

"Through the cross promotion of our film 'My Girl' with our record division, we sold over $1 million copies of the album," Schulhof said. "We have started the preparation of video games based on our motion pictures through the use of electronic previsualization techniques. We are preparing to release a host of games that draw upon our movies and it will be most dramatic when the 'Dracula' video game is released."

During the filming of "Dracula," Sony's video game makers worked alongside director Francis Ford Coppola's team.

Sony's video game division is two years old but Schulhof predicted it would produce $100 million in revenues next year.

"Video games are only just starting to surface. Five years from now you will look upon the current video games as old fashioned as the 78 records compared to the compact disc," he said.

The most difficult area for synergy has been on the electronic side but that is changing, Schulhof said, with movie and music input increasing in the marketing of electronic products.

For example, in international markets the film "Hook" has been used in cross promotions to sell television sets.

Electronic innovations will dramatically transform the movie business, Schulhof predicted.

"Going to a movie will be like visiting an electronic theme park. The entertainment experience will be significantly enhanced for everyone," he said.

He added what he called "this expanded experience" will come through in interactive video games, electronic rides and video products.