Cultural shoguns come to grief on Main Street

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in London and

PHIL REEVES in Los Angeles

The likely sale by the electronics giant Matsushita of 80 per cent of MCA ends a turbulent five-year marriage that foundered as much on the vast cultural gaps between Hollywood and Japanese big business as on faulty business strategy.

Matsushita, with sales last year of $79.9bn (£50bn), believed it had made the perfect match when it spent $6.5bn in1990 to buy MCA, the studio, recording, theme park and cinema chain conglomerate. The Japanese maker of some of the world's best-known brands of home entertainment equipment - Technics, Panasonic, Quasar - would secure a steady flow of movies and music. No longer content to be just a hardware manufacturer, it would be a "software" producer too.

It was not alone in thinking that vertical integration was the best avenue to follow in the midst of a communications revolution. Sony, a year before, had aroused nationalist indignation in America by spending $3.4bn to buy Columbia.

Hollywood and Main Street echoed with complaints that the Japanese were colonising the movie business. In MCA the Japanese had acquired a Hollywood institution, a studio that handled movies made by Steven Spielberg, the world's most commercially successful director.

Neither Matsushita nor Sony were prepared for the rocky ride. MCA, responsible for 1993's mega-hit Jurassic Park and last year's Schindler's List, has been in the money in recent years, earning $400m for Matsushita in 1993 and providing a significant share of a final-quarter profit of $411m in 1994. But the early 1990s were far less profitable, and the expected synergies between hardware and software failed to materialise.

Sony fared worse. Last year, it took the embarrassing step of writing off $2.7bn because its Hollywood investments were performing so indifferently.

The likely sale price for 80 per cent of MCA reveals the extent of Matsushita's miscalculation. In 1995 dollars, the Japanese company spent more than $10bn to win MCA, and is apparently prepared to sell out at $7bn, keeping only 20 per cent.

Some analysts expected the Japanese company to hold on longer. But there were other forces at work, not least the battle to engineer a new generation of entertainment equipment, which will cost Matsushita and its Japanese, US and European rivals millions in research and development. Matsushita has decided to stick to its knitting.

Enter Seagram. The driving force behind its entertainment push is Edgar Bronfman Jr, grandson of the rum-running Bronfman founder, Samuel, who made his fortune selling liquor during Prohibition.

Seagram's strengths lie in distribution, branding, and marketing - all useful skills in movie-making. As well, MCA's new owners may get along better with Hollywood executives. But there is concern about the risks of movie-making, the potential for regulatory problems in light of Seagram's 15 per cent Time Warner stake, and the lack of an entertainment business track record at Seagram.

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