Sony Corp., which stunned Hollywood in 1989 by buying Columbia Pictures, stunned Wall Street yesterday by all but conceding that it paid far too much for the movie and television studio. Sony thus became the latest Japanese company to see an expensive American investment shrivel.
Dogged by a series of box office flops, such as "City Slickers II" and "Last Action Hero," the giant Japanese electronics company said it would rewrite its books to value Columbia and its sister studio, Tri-Star Pictures, at $3.1 billion. It had been valuing them at $5.8 billion.
The write-down of Columbia's value contributed to a $3.2 billion loss that Sony reported for the first six months of the year.
Sony's movie business fiasco is only the latest debacle for the Japanese, whose overheated economic growth in the 1980s propelled a huge wave of investment in American land, factories and securities. Many of those investments, including several high-profile deals involving Hollywood studios, have gone bad.
On Wednesday, for example, the company that owns New York's Rockefeller Center disclosed that it doesn't have enough cash to meet the payments on its $1.3 billion mortgage, raising doubts about its ability to survive. The majority owner of the company is Mitsubishi Estate Co., a large Japanese investment concern.
According to Nomura Research Co., Japanese investors have lost $320 billion on their investments in the United States since 1986, primarily in the bond market as the dollar has lost value against the yen.
At the same time, the Japanese have slowed their new long-term investments in the United States; new direct Japanese investment in American corporate assets hit $12 billion in 1990, but has declined to less than $500 million so far this year, according to Ulmer Brothers Inc., a New York investment banking firm.
The original outflow of capital from Japan was fueled by that nation's "bubble" economy, the rapidly appreciating value of Japanese land and corporate stock, said David Hale, chief economist at Kemper Financial Cos. in Chicago. The rising value of these assets could be used as collateral for loans, some with interest rates of no more than 1 percent, he said.
Now, however, the bubble has burst and investors have retrenched.
Sony, which bought Columbia for $3.4 billion in 1989, recorded an operating loss of $508.9 million in its movie unit yesterday for the six months that ended Sept. 30. That mainly reflected the cost of closing down some productions and settling unspecified lawsuits.
"They were hoping for a cash cow and instead they got some money-losing operations," said Harold Vogel, an analyst with Merrill Lynch & Co. "It's the understatement of the last five years to say this is not what they expected. But the movie business is fickle and difficult."
After the purchase, Sony poured hundreds of millions of dollars more into production, studio renovations and management contracts. Its free-spending ways raised eyebrows even in Hollywood, especially when it paid an estimated $600 million to settle a contract dispute with Time Warner Inc. for the services of studio heads Peter Guber and Jon Peters, both of whom have left the company.
But Sony wasn't the only Japanese company to find Hollywood inhospitable. The American management team at MCA Inc., parent of Universal Pictures, has recently demanded more control of that company from its Japanese owners, Matsushita Electric Industrial Co.
Vogel said Matsushita showed three years of losses on its MCA purchase, but the studio has swung into the black with such hits as "Schindler's List," "The Flintstones" and "Jurassic Park," the biggest-grossing film ever.
Another Japanese company, Pioneer Electronic Corp., bought 41 percent of Carolco Pictures in 1990, and has been scrambling to find ways to keep the ailing maker of the "Terminator" and "Rambo" movies afloat since then. Carolco recently ran out of cash and had to turn to Pioneer for an infusion last month.
Japan Victor Co., another Japanese electronics company, has meanwhile reorganized its Hollywood subsidiary, Largo Entertainment, eliminating many of Largo's movie production operations.