Vivendi Yells ‘Cut’ on Universal Studios’ Budget

From the corner office that legendary mogul Lew Wasserman occupied when he built one of Hollywood’s great movie companies, Universal Studios executives are engaged in a much more sober pursuit: slashing costs to prepare the company for a likely spinoff or sale.

The pressure to undertake a wide array of cuts, including possible layoffs and the sale of the company’s 38-story Universal City Plaza tower, was made clear Tuesday as top Universal officials were summoned to a budget meeting in New York with the chief executive of parent company Vivendi Universal, Jean-Rene Fourtou.

The Universal contingent offered up a number of alternatives for cutting expenses in the coming year, a prospect that is spreading unease throughout the movie studio, theme parks, music and television divisions. Studio Chief Ron Meyer outlined various scenarios, including one that would involve an unspecified number of job cuts across the entertainment divisions.

Entertainment executives are waiting to see whether Fourtou will buy their plans of budget cuts of up to 10% next year or whether he’ll demand more.

On Tuesday, Fourtou gave no indication of how he’s leaning as the cash-strapped company seeks to overcome hefty debt by leveraging its U.S. assets either through a stock offering or an outright sale.

Last week, Fourtou told analysts in a conference call that “we think there are a lot of cost-cutting possibilities, particularly in Los Angeles, and we are working at a plan of reducing costs in those assets.” Words like those have given people on the Universal lot the jitters.

“People are as nervous as they would be before a TV show or a movie debut; they just don’t know.... There’s a lot of anxiety,” said one Universal executive.

Universal already had been feeling the squeeze in recent months as Barry Diller, now co-chief of the newly reorganized entertainment group, began taking cost-cutting steps.

Diller’s lieutenant, Victor Kaufman, who had earned a reputation as a hard-nosed budget cutter when he headed Columbia Pictures in the late 1980s, has been scrutinizing Universal’s cost structure from Wasserman’s old office. And for months now, Diller has been forcing Universal Pictures Chairwoman Stacey Snider to justify expensive movie budgets, sources inside and outside the company said.

One such project that sources say has come under recent scrutiny is “Van Helsing,” an ambitious action-adventure movie set to reunite Dracula, Frankenstein and the Wolf Man from early Universal horror films and budgeted at just under $160 million.

A source said its director, Stephen Sommers, who also directed “The Mummy” and its equally successful sequel, has offered to cut his upfront fee to help hold down costs. Sommers did not return calls.

“The studio is insisting on making lower-budget movies, and they’re making everybody take less money,” said one producer on the lot.

Nothing escapes Diller’s legendary scrutiny and temper, sources said.

Diller dressed down executives in a meeting with production and marketing personnel for the poor opening of Jonathan Demme’s “The Truth About Charlie,” an expensive remake of Stanley Donen’s classic “Charade,” sources familiar with the episode said.

The movie debuted with a three-day gross of just $2.3 million and to date has sold $5.3 million worth of tickets domestically.

In recent months, Universal also has been seeking out financial partners on many of its bigger-budget movies.

Cuts at Universal’s theme parks, which already had been cutting back, would be complicated by the company’s union contracts as well as its partnerships in Florida with investment firm Blackstone Group. To reduce its costs and raise additional cash, Vivendi is looking for additional investment partners for the business.

At the meeting in New York, Fourtou also met with senior U.S. executive Diller, music chief Doug Morris and computer and video games chief Kenneth Cron.

At Tuesday’s meeting, Universal Music Group, the world’s largest music company, was asked to come up with a strategy for further cuts if the music industry continues its downward slide, said sources familiar with the meeting.

Those sources said that what primarily was discussed were the cost-cutting measures that the music division already had undertaken since the beginning of the year, which included consolidating its two Nashville-based country labels into one, cutting Motown down to a skeleton staff, slashing independent promotion by 50%, reducing trade publication advertising and cutting overhead in its overseas operations.

Diller and Fourtou also were said to have groused at the New York meeting about the executive pay packages in the music group.

Meyer declined to comment on the specifics of proposed cuts and potential layoffs within the studio division.

But sources said they would be concentrated on the studio’s corporate divisions, such as marketing, finance and computer systems.

The cuts are part of Fourtou’s ongoing effort to restore Vivendi to financial health.

Since he took the helm of Vivendi this summer, Fourtou has rescued the firm from near-bankruptcy caused by crippling debt from a three-year buying spree that transformed Vivendi from a 150-year-old water utility into the owner of Universal Studios and leading record labels with such acts as Eminem and U2.

*

(BEGIN TEXT OF INFOBOX)

Seeking trims

Vivendi Universal would like to cut expenses in its U.S. entertainment operations.

Vivendi Universal revenue and operating expenses* by unit (for the first six months of 2002, in billions)

Television and film**

Operating expenses: $4.6

Revenue: $5.4

Publishing

Operating expenses: $1.9

Revenue: $2.1

Music

Operating expenses: $2.5

Revenue: $2.8

*Operating expenses exclude depreciation.

**Includes theme parks, and European film and TV operations.

Note: Data reported under French accounting procedures.

Source: Company reports

*

Times staff writer Chuck Philips contributed to this report.