MCA Inc.

views updated

MCA Inc.

100 Universal City Plaza
Universal City, California 91608
U.S.A.
(818) 777-1000

Public Company
Incorporated: 1958
Employees: 17,700
Sales: $1.5 billion
Stock Index: New York Pacific

MCA, once known in the entertainment industry as “The Octopus,” was for many years the largest talent agency in the United States. It controlled over half of the big-name stars in the country and, according to Fortune, by 1960 represented 60% of Hollywood’s “bankable talent”—actors whose names alone could secure a bank loan to make a movie. MCA’s list included such clients as Kirk Douglas, Gregory Peck, Clark Gable, Marilyn Monroe, Jimmy Stewart, Tony Curtis, Jack Benny, Ed Sullivan, Alfred Hitchcock, John Ford, Tennessee Williams, Betty Davis, Marlon Brando, and Tommy Dorsey.

The Music Corporation of America was founded in 1924 by Jules C. Stein. In the early 1920s Stein worked his way through medical school at the University of Chicago by playing violin and saxophone with a band. When Stein’s band began to generate more bookings than it could handle, Stein began booking other bands. Booking bands on commission was very profitable and Stein soon made a name for himself. In 1924, with $1,000, Stein and William Goodheart, a pianist he had hired to help with the business, started the Music Corporation of America and Stein gave up his budding career in ophthalmology.

MCA, which grossed more than $30,000 in its first year, began to revolutionize the booking business. At the time MCA was founded, most bands played under their bookers’ names rather than their own. In return for exclusive rights to represent a band, Stein began to bill bands under their leaders’ names. By 1927 MCA represented about 40 bands. In 1930 the company persuaded Lucky Strike to sponsor a radio program that featured a different MCA band every night. The show caused bands to flock to MCA; by the late 1930s the company had attracted some 65% of the major bands in the country. This predominance in booking bands gave MCA such recognition that it was soon able to begin to book other entertainers as well.

In 1936 Stein hired Lew Wasserman to run the company’s advertising and publicity departments in Chicago. Wasserman, though only 22 years old, developed rapidly into MCA’s top agent. When Stein decided to move MCA to California in 1937, Wasserman became the first agent to negotiate a percentage of a movie’s earnings rather than a straight salary for screen stars. These contracts made millionaires of many actors.

At first the company purchased talent agencies, which brought whole stables of stars under MCA’s control. When agencies refused to sell, MCA bought individual contracts. In 1945, MCA made its most important acquisition—the Hayward-Deverich Agency in New York City, for $4 million. Hayward-Deverich was the most prestigious firm in the business, and brought clients such as Henry Fonda, Greta Garbo, and Joseph Cotton to MCA, making it the premier talent agency in the United States.

Goodheart retired in 1943. Three years later Stein appointed Wasserman president of MCA, at the age of 33. Wasserman was, by Stein’s account, “the student who surpassed the teacher.” Highly regarded as a salesman, Wasserman maintained no interests outside his job. He worked seven days a week, sixteen hours a day and required the same commitment from his top executives. Respected for his integrity, Wasserman was also known as a ruthless negotiator.

Wasserman’s appointment was a turning point for MCA. Although Stein still influenced policy, Wasserman ran the company. It was he who decided, in 1949, that MCA should become a producer of television shows. MCA formed a subsidiary to film a show named “Stars over Hollywood.” This production in turn would provide jobs for MCA’s clients. Wasserman soon realized that the filmed shows would become a TV staple. Initially MCA concentrated on selling shows to major networks, but in 1952 it began selling reruns to local stations across the United States. Then MCA produced its first syndicated show, “Chevron Theatre.” Two years later the company purchased United Television Programs, a TV syndicator that owned mostly reruns. For the first time, MCA’s agency commissions ($6 million) were exceeded by its income from television film rentals (almost $9 million).

In the late 1950s MCA derived revenues from over 45% of all the network evening shows. It produced and coproduced more series than any competitor, including “Riverboat,” “Wagon Train,” and “General Electric Theater.” MCA also acted as selling agent for about 15 other series, including “Alfred Hitchcock Presents,” “Ford Startime,” and “Wells Fargo.”

In 1958 MCA purchased the TV rights to Paramount’s pre-1948 library of 750 feature films for $10 million in cash and an additional $25 million in annual installments of $2 million, and in 1959 MCA paid Universal Studios over $11 million for its 420-acre back lot, complete with facilities and equipment. Wasserman regarded the Universal acquisition as a long-term investment.

MCA first offered its stock for sale to the public in 1959, and that year a new parent company, MCA Inc., was organized to replace Music Corporation of America. The new organization had 20 subsidiaries or divisions, of which the most important were Revue Productions, the division that made television film series for MCA; MCA Artists, a subsidiary that handled the firm’s theatrical talent; MCA TV, a subsidiary that functioned as a sales agent for television films; and Music Corporation of America, a subsidiary that represented nightclub and variety performers.

By then MCA was both the largest employer of show-business talent and the largest show-business agent. As a result, the company often hired its own clients, a practice deplored by other industry members. In 1962, when MCA bought Decca Records, Inc., the company that owned Universal Pictures, Inc., the Justice Department forced it to choose whether to operate as a talent agency or a film-production concern. The company decided to divest itself of its talent agency, concentrate on feature-film production under the Universal Pictures name, and branch out into non-entertainment fields to compensate for the loss in agency revenue. Shortly after that, MCA purchased Columbia Savings & Loan in Denver, Colorado, and in 1968 the company bought Spencer Gifts, a small retail chain and mail-order operation.

Until 1970 MCA depended on television production for much of its profit; the company had been unable to transfer its success from the small screen to major motion pictures. But the release of movies like Airport, The Sting, and Jaws, began a long string of successes. Jaws made box office history in 1975 by grossing more than $81 million in less than two months, and in 1979 MCA’s The Deer Hunter won five Academy Awards. In the mid-1970s, for the first time in company history, film revenues surpassed television revenues, though MCA produced some of the most popular shows on TV, including “Kojak,” “Quincy,” “The Six Million Dollar Man,” “The Incredible Hulk,” and “The Rockford Files.”

In 1973 Wasserman appointed Sidney J. Sheinberg president and chief operating officer of MCA; Wasserman himself became chairman of the board. Hired in 1959, Sheinberg had worked in the television division until he was noticed by Wasserman and made head of that division in 1968. Although Wasserman continued to make major policy decisions and personally supervised the production of theatrical films, Sheinberg assumed responsibility for the firm’s day-to-day operations.

MCA purchased Yosemite Park & Curry Company in 1973 and gained exclusive concession rights in Yosemite National Park. In 1974 the company circulated a brochure describing the park as “nature’s eloquent answer to a convention city.” Environmental groups such as the Sierra Club were infuriated by MCA’s proposal for hotels, tennis courts, and glitzy restaurants. The brochure was withdrawn and by 1978 the Department of the Interior had restricted development in the national parks.

By the mid-1970s MCA had transformed the back lot of Universal Studios into one of America’s largest tourist attractions, with over four million visitors a year. The complex includes company offices, a hotel, restaurants, an amphitheater, and the sets and sound stages of Universal City Studios, where much of MCA’s filming takes place.

With earnings growing at an annual rate of 46% in the early 1970s, MCA’s financial position seemed secure. By 1975 the theatrical films and Universal Television operations reported a combined revenue of $364 million, MCA Records tallied $127 million, MCA Recreation’s revenues amounted to $10 million, and MCA Financial took in $44 million. Four years later total revenue had reached $1.1 billion.

Much of MCA’s success can be attributed to the company’s diversification program. Spencer Gifts brought in about 15% of the company’s revenue, while the acquisition of G.P. Putnam’s Sons and Grosset & Dunlap, Inc. (both publishing houses), ABC Records, and Jove Publications promised even greater income.

In 1980 MCA had more than 20 films, 11 hours of television a week, 90 record albums, and nearly 700 books scheduled for production. But MCA lost this momentum in the first quarter of 1981, when operating income dropped 37%. Cost overruns on The Blue Brothers, and unsuccessful releases such as The Jerk, Flash Gordon, The Great Muppet Caper, The Four Seasons, and Endless Love led to takeover rumors. In order to avert any such attempt, Wasserman and Sheinberg reduced Universal’s film budget by 30% and implemented tighter controls on the firm’s television-production operations (whose revenues had fallen 30% in 1980).

Wasserman also saw to it that MCA’s by-laws were amended in 1979 to require that 75% of the company’s stockholders approve any proposed takeover. Since Wasserman controls about 20% of that stock, he is in a strong position to reject any unwanted bids.

In 1981 MCA also purchased 423 acres of undeveloped land in Orlando, Florida for $173 million, where by the end of the decade the company had built a second studio-tour theme park to compete with the Disney/MGM Studio there.

Besides the income from its tourist attractions, the production of several successful TV series, such as “Murder, She Wrote” and “Magnum, P.I.,” along with the release of movies like ET, Mask, and Back to the Future helped set MCA back on firmer ground in the early 1980s. In addition, in 1985 MCA booked more than $750 million in future TV syndication contracts.

The late 1980s, however, brought fewer successes. MCA’s TV lineup was aging, and film-division head Frank Price was forced to leave after hatching several costly and disappointing films, including Moon Over Parador, The Milagro Beanfield War, and the $42 million Howard the Duck. Price was replaced in 1986 with entertainment lawyer Thomas Pollock, who brought with him clients like Tom Hanks and directors Steven Spielberg, Ron Howard, and George Lucas.

MCA also began to push to lower production costs. Long considered the most lavish spender in Hollywood, MCA began to limit costly action scenes in shows like “Miami Vice” to one per episode. Universal, which spent an average of $31 million on a film—$5 million more than the industry average—vowed to cut expenses in half. More than 30% of the unit’s full-time staff was eliminated by 1988 and technical departments were cut or eliminated in favor of outside contractors.

Meanwhile, MCA continued to add to its assets. In 1986 the company acquired 50% of Cineplex Odeon Corporation, a fast-growing chain of movie theaters; in 1987 the company bought New York television station WWOR for $387 million; and in 1988 it purchased a substantial share in Motown Records.

Not withstanding MCA’s attempts to lower costs, the company was still performing below expectations at the end of the decade, and Chairman Wasserman was even reported to be seeking potential buyers. A number of companies showed some interest in various parts of MCA, following the trend in the entertainment industry toward consolidation and reorganization. But a few TV or film successes could easily put the company back on track. Quick turnarounds are not uncommon in the volatile entertainment business, as MCA itself has proven before.

Principal Subsidiaries

Universal Films Exchanges, Inc.; Universal International Films, Inc.; MCA Records, Inc.; MCA Distribution Corp.; Merchandising Corp. of America; Universal City Studios, Inc.; MCA Television Ltd.; Yosemite Park & Curry Co.; MCA Home Video, Inc.; Spencer Gifts, Inc.; MCA Videodisc Inc.; Putnam Publishing Group, Inc.; Berkley Publishing Corp.; Coward-McCann Inc.; Richard Marek Publishers, Inc.; Grosset & Dunlap, Inc.; MCA Charter Communications, Inc.; Duchess Music Corp.; Leeds Music Corp.; MCA Cable Services, Inc.; MCA Concerts, Inc.; MCA Corporate Films, Inc.; MCA Whitney Recording Studio, Inc.; L.J.N. Toys, Ltd.; Universal City Consultants, Ltd.; Universal City Property Management Co.; Universal Pay Television, Inc.; Walter Lantz Productions, Inc.; Womps Restaurant Bar & Grill; Universal Station; Jove Publications, Inc; Disco-Vision Assn. (50%).