How Diversification Has Helped Hollywood

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Ah, Hollywood...always the darling of the glamour stocks. Take a peak back in time to see how this industry performed a few decades back.

Hollywood is now a financial force and attracts investors from all over the world. Part of the reason it continues to be successful is that it diversifies.

Diversification helps Hollywood, primarily in such fields as oil, real estate, phonograph records, television and electronics. The same game of "to diversify and to be diversified" that is sweeping West Coast electronics is also going full swing in Hollywood.

While movie makers are digging oil on their studio properties, makers of phonograph records (Decca Records, Inc.) are making movies (Universal Pictures). Decca Records owns 87.6 percent of the common stock of Universal Pictures which was described as the "most valuable asset and greatest source of its income" by Milton R. Rackmil, president of both companies.

On the other hand, Loew's Theaters, Inc., uses real estate for diversification. It announced plans to build two big hotels in downtown Manhattan. While some theater-real estate properties are uneconomical for movie exhibition, they become most valuable in development into offices, stores and similar income-producing installations at strategic downtown areas.

A Miami-based theater operation, Womentco Enterprises, Inc., has substantial stakes in television, radio and automatic vending. Republic Corp. (formerly Republic Pictures) is said to be "studying acquisitions that can add sales, additional facilities and, above all, greater profits."

These days, Hollywood is very business-minded. There are few screen stars that are not producers. More actors are said to be producing movies than acting, primarily for reduced income taxes as independent producers. No wonder that United Artists is getting so big!

United Artists originated the concept of independent movie production, which has become an industry-wide trend for the sake of more economical production. United Artists is the leading distributor and financier of motion pictures made by independent producers. It has compete freedom as to format and subject matter. It has no high studio expenses since it owns no production facilities—no fixed payroll of stars-under-contract. It has diversified into music publishing, phonograph recording, and then TV production-distribution fields. Its recent acquisition of Ziv Television Programs, Inc., has considerably broadened its telefilm operations.

Though Hollywood was a little slow in learning to live with its new competitor, television, it embraced its new rival passionately once it realized there was no alternative. Increasingly, every major movie studio has gotten into telefilms. In some cases, profitable operations of a television subsidiary, like Columbia Pictures' Screen Gems, were responsible for the over-all profitable earnings picture.

For instance, while Columbia Pictures has a loss of $1,237,830 in the fiscal year ended June 30, 1960, its Screen Gems television subsidiary had pre-tax earnings of $3,142,417. In the preceding fiscal year, Screen Gems had pre-tax profits of $1,973,757 while Columbia lost $4,419,142. Screen Gems was one of the first companies to enter television activities and is one of the major producers of television film series, distributors of feature motion pictures and producers of commercials.

In January 1961, Columbia Pictures made Screen Gems a separate company by offering 11 percent of the subsidiary's stock to the public, which was believed advantageous to the parent concern in placing a public price on Screen Gems and in giving both companies greater flexibility in financing capital requirements. After the separation, Columbia retained 89 percent interest or 1.8 shares of Screen Gems for each share of Columbia outstanding, giving stockholders that equity plus full participation in Columbia's motion picture activities.

Hollywood continues to glimmer, even in downtimes. People like to escape to the movies and forget their own troubles. Is it a good investment? Do your homework on current situations before you decide.

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