So Many Dreams So Many Losses

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The Sony Corporation of America did Hollywood better than Hollywood. In the company's postmodern Manhattan headquarters, designed for AT&T by architect Philip Johnson, the sushi bar in a private corporate dining room had a tiny stream running through its marble counter. The $100 million makeover of Sony's Culver City studio lot included pillars adorned with elaborate murals. A fleet of corporate jets sat in the hangar, and fresh cut flowers were delivered daily to executives. The corporate culture seemed to say that to pamper is to prosper.

Sony invested $5 billion to buy Columbia and TriStar Pictures back in 1989, propelled by a romantic notion that constructors of compact discs and , television sets could marry makers of music and movies. Last week Sony sobered up. The firm took a $2.7 billion write-off -- one of the steepest in Hollywood history -- on its money-losing film studio and reported a second-quarter loss of $3.2 billion. "If we didn't do it once and for all now, we would continue to face losses in our entertainment business," said Tsunao Hashimoto, Sony's executive deputy president. That was the practical assessment. Hollywood's goes something like this: "It is a Japanese failure of judgment and an American failure of management," says a major Sony investor.

But while Sony's disaster drew the harshest verdicts, other Japanese giants have been proving recently that their American investments have suffered from bad oversight, bad calls and bad timing. Last week Mitsubishi, which has an 80% stake in the Rockefeller Group, owner of New York's Rockefeller Center, threatened to default on its $1.3 billion mortgage, taken out five years ago when borrowing was easy. Matsushita, meanwhile, is locked in a struggle with the American executives who run MCA -- the film studio it bought for $6.1 billion in 1990 -- over the Americans' demand for more authority and investment capital. Last week the company reportedly hired Hollywood agent Michael Ovitz and media dealmaker Herbert Allen to help make peace and to "re-evaluate" MCA's assets; one option would be to sell a stake in the company.

Like their American counterparts, Japanese executives cheerfully overpaid for their late-'80s acquisitions. But the Japanese made another fundamental miscalculation, says Gary Saxonhouse, an economics professor at the University of Michigan: "They had a faith in American landmarks, a faith in American blue-chip names."

Sony's Hollywood foray began, as so many sour business deals do, with bold rhetoric and grand strategies. Norio Ohga, the part-time symphony orchestra conductor who has been Sony's CEO since 1989, believed in a "synergy" between Sony's core business, producing "hardware" such as VCRS and camcorders, and Hollywood's "software" -- movies. Owning a studio, Sony thought, would help give the company the clout to set the industry standard for the next generation of digital video technology. In the early 1980s Sony's Betamax format of analog videotapes lost out to VHS, so Sony was determined not be left behind again. But Sony's strategy turned out to be a mistake when the industry agreed last year to an open standard that no single company could monopolize.