Part III – a – Universal Studios history, resources and capabilities

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Part III – A – Universal Studios history, resources and capabilities

A first look at Universal Studios’ century of history is enough to understand that this firm has not always been a very successful one, its most significant milestones are a series of takeovers almost longer than the number of golden statues brought back from the Oscars ceremonies [JG17]. One hundred years ago Carl Laemmle founded the Yankee Film Company, becoming IMP and then the Universal Film Manufacturing Company after he merged his business with a few other production firms [JG18]. During its first years the studio produced all its movies without taking on any debt, with Laemmle controlling closely all expenses. The company was focusing on non expensive features that would appeal to a large audience in small towns; however there were a few big hits like “The Phantom of the Opera” in 1925.

When Carl Laemmle Jr. succeeded to his father 1928 he took some strategic decisions for the studio. First he started building and buying theatres to better control the distribution of the movies produced by Universal and because its main competitors already operated theatres chains. Second, he upgraded the studios’ capabilities by investing in sound and then color technologies so he could be competitive with other major studios. Third he identified a niche market and Universal soon became very famous for its horror movies thanks to “Dracula” and “Frankenstein”, both released in 1931 [JG17]. Now that Universal was able to compete against the other main studios Carl Laemmle Jr. was pushing for bigger productions and finally had to ask for a $750,000 production loan to the Standard Capital Corporation in 1935. Although Universal’s “Show Boat” was a big hit at the time its production ran over budget and Carl Laemmle Jr. was not able to repay the loan, thus giving up his stake of the studio founded by his father [JG18]. After a period of great ambitions followed by one of financial distress, the new management team cut production budgets and forced the studio to focus on low-budget movies. This process started again and again, making the history of Universal far different the classical success story. The studio’s lack of resources or bad management made it an easy prey for entrepreneurs willing to acquire a piece of Hollywood’s world of stars and shiny lights!

J. Arthur Rank was one of them who came from the UK and organized a four-way merger which failed within one year in 1945, but the studio ended acquired and became part of Universal-International Pictures. After a few years Rank, deceived, would turn to the music group Decca Records which took over the company in 1952 before being acquired itself by the Music Corporation of America in 1962.

MCA was first a talent agency which had become a television producer [JG18]. Lew Wasserman, CEO of the new structure, contributed greatly to the success of Universal. First he remains famous for negotiating a percentage deal between Universal and actor Jimmy Stewart, ten years prior to the MCA-Universal merger. While the main asset of Universal was its studio facilities in Hollywood, MCA and its new CEO had crucial relationships with famous actors and directors and signed them with their new studio. Investing a lot of money, Universal Pictures was then able to produce some great movies, from “The Sting” to “Out of Africa” or “E.T. the Extra Terrestrial” [JG17]. However all movies were not hits and revenues were irregular, even when the firm started distributing its films internationally through a venture with Paramount (Cinema International Corporation [JG18]). But MCA had identified the potential of television, appearing rapidly in every US household, and already served national networks demanders of content. MCA’s ownership of the studio allowed the company to produce more and more TV shows which represented a much more regular stream of revenues. With the invention of the made-for-TV movie format it is believed that MCA delivered up to half of all NBC’s prime time shows for several seasons during the early 1970’s [JG18]. After the videocassette appeared the company created MCA Home Entertainment Group in 1980 to start selling videos of previously released movies [JG17].

Feeling that television was the future of the industry and ambitious to distribute shows through more networks and cables MCA’s management decided to look for a rich partner. The Japanese Matsushita Electric Industrial Company had the cash and was interested in the deal. At the time Matsushita’s CEO Akio Tanii was pushing the company toward a more global strategy [JG19]. Besides he assessed that Japanese “hardware” like cameras, videocassettes and recorders produced by Matsushita, and American “software” consisting of music, movies and TV programs all represented in MCA’s portfolio, were like “two wheels of the same car” [JG20]. Finally there was probably a question of pride since Matsushita’s main competitor, although only half its size, Sony, had already acquired CBS Records and Columbia Pictures in the USA. Nonetheless it is hard to imagine what synergies can be found between the manufacturing of electronic consumer goods in Japan and the production of video content in Hollywood. The two companies had very different cultures with Matsushita relying on long-term business plans and MCA needing to be extremely reactive to any change in customers’ tastes. At the same time the Japanese economy entered in recession, Tanii’s strategy shifted from expanding internationally to cutting costs everywhere. He was replaced and Matsushita’s new CEO decided to sell 80% of its stake in MCA to the Canadian liquor family business Joseph Seagram Ltd [JG19].

Succeeding to his father Edgar Bronfman Jr. decided to sell the company’s 25% share of Du Pont stock for approximately $10 billion and invest in the media industry, believing that the potential for growth was much higher. He acquired MCA in 1995 and Polygram NV, pooled all music assets under Universal Music Group and started looking for a new partner pretty soon!

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