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The Los Angeles Times from Los Angeles, California • 76

Location:
Los Angeles, California
Issue Date:
Page:
76
Extracted Article Text (OCR)

BUSIN ESS Cos Atificlcs STitncs Sunday, August 30, 1987 Part IV JAMES FLANIGAN Adversity Helps Keep Cigarette Firms Healthy ll VJ DINO IN HOLLYWOOD f'y I 1 V-J J000000000 "King Kong Lives," 1986 vSi'ctt fffw 1 Kk'sr-d I 1 5Sy Major films released in the United States by Dino De Laurentiis Millions of dollars YearTitle Cost Rentals 1914 Serpico $3.3 $23.4 Death Wish 3.7 20.3 Three Days of the Condor 7.8 32.7 192S Buffalo Bill the Indians 7.1 7.2 King Kong 23.0 74.9 1377 Orca 17.5 9.4 1978 The Brinks Job 16.4 14.5 1979 Hurricane 22.0 4.54 1982 Flash Gordon 27.0 15.4 1981 Ragtime 28.3 21.2 1982 Conan the Barbarian 19.4 43.3 Fighting Back 9.0 6.4 198J Dead Zone 7.09 16.3 1984 Firestarter 12.0 18.9 Bounty 20.0 18.3 Conan the Destroyer 16.0 30.1 Dune 42.0 37.9 1985 Cat's Eye NA 3.5 Red Sonja 16.0 2,9 Year of the Dragon 21.5 30.4 Marie 12.0 14.2 Silver Bullet NA 5.4 1986 Raw Deal 12.0 7.3 My Little Pony 5.5 2.8 Maximum Overdrive 9.0 3.5 Transformers 5.0 2.6 Manhunter 14.0 4.0 Blue Velvet 7.0 3.5 Radioactive Dreams 3.0 under 1.0 Trick or Treat 3.5 3.04 Tai-Pan 25.0 2.0 KingKongLives 18.0 2.2 Crimes of the Heart 9.0 7.0 1987 Bedroom Window 8.3 Evil Dead 4.0 From the Hip 7.5 Body Slam NA Million-Dollar Mystery 9.5 'Excluding prints and advertising. 'Receipts of distributors worldwide, except those marked which are for North America only. Sources: Company and industry estimates. Variety. and Gene Simmons in "Trick or Treat," 1986 Tobacco stocks soared last week because recent court decisions in Atlanta and Boston ruled that health notices on cigarette packages one of which currently reads "Smoking causes lung cancer, heart disease, emphysema and may complicate pregnancy" constitute fair warning to smokers of the dangers of the product Talk about the benefits of adversity.

The blunt warnings that the government forced the companies to put on the packages has now reduced the threat that the tobacco industry would be bankrupted by product liability claims from families of deceased smokers. So the stocks of Philip Morris (Marlboro), RJR Nabisco (Winston, Salem, Camel), American Brands (Pall Mall, Carlton) and Loews Corp. (Kent, Newport), rose dramatically, before tailing off as investors took profits late in the week. But that's only the beginning of the story. Now investors must ask what kind of future tobacco can have when cigarette sales are declining and likely to fall further as smoking is restricted in workplaces, restaurants and airplanes.

The answer, however, is that the industry probably has a very substantial future in selling cigarettes abroad, particularly in developing countries, and in acquiring food companies in the United States. Meanwhile, they'll keep up a steady stream of dividends. True enough, U.S. cigarette consumption per person is down 12 in this decade. And it's declining 1 a year in some countries of Europe, according to the World Health Organization.

But in Asia, including Japan, and in the developing countries which contain a majority of the world's populationcigarette consumption is growing more than 2 a year. And that's a rate likely to accelerate, because cigarettes are one of the first luxury purchases people make when they go beyond subsistence farming and enter a cash economy. First they buy single cigarettes, then packs of five or 10, and ultimately the 20-pack familiar to Americans since ready-made cigarettes replaced roll-your-owns following World War I. Huge Profits at Home Smoking's Big Two, Philip Morris and RJR (the old R. J.

Reynolds company), have the U.S. government's support in gaining those growing foreign markets because cigarettes are a $15-billion-a-year export. Meanwhile, the investments needed overseas are supplied by immense profits at home where the companies have decided that, if they cannot grow, they will cash in by raising prices. Cigarette prices have been raised each year of this decade, despite falling tobacco prices that lower cigarette makers' costs. The industry also has savings forced upon it by the ban on television advertising and because it no longer needs to invest in plant expansion.

The result, says analyst Kurt Feuerman of Drexel Burnham Lambert, is that cash flows are enormous. And that has meant higher dividends for shareholdersup more than 20 a year since 1982 for Philip Morris and up 6 a year for RJR, which was held back by spending to convert a a minute cigarette factory into one capable of turning out 8,000 a minute. In diversifying, too, adversity has had its uses. The Surgeon General's 1964 report suggesting a link between smoking and cancer put cigarette makers under pressure to get into other businesses. So they diversified earlier than they otherwise might have, put mistakes behind them before decline speeded up and now have bought major stakes in the food industry.

RJR gets more than half its $16 billion in revenue from Nabisco and Del Monte, while Philip Morris gets 38 of its $20.6 billion in revenue from General Foods (Jell-O, Birds Eye, Maxwell House). Brand-name food is a good fit for the tobacco industry, offering product lines that present no health hazard but, like cigarettes, can be sold in supermarkets all over the world. The cigarette makers are a good bet to buy more food companieswith Philip Morris already said to have its eye on H. J. Heinz.

Quite a record. The Surgeon General helps the industry avoid complacency, a ban on advertising saves it money and now government-required warnings save it from bankruptcy. Is tobacco lucky? Or does it simply enjoy the perverse consequences of having an addictive product? By WILLIAM K. KNOEDELSEDER Times Staff Writer Since he moved to the United States in 1972, Italian-born independent movie producer Dino De Laurentiis has managed to pull off a miracle that raises eyebrows even in miracle-prone Hollywood. He has produced one big-budget box-office bomb after another, yet has always managed to raise money to make more.

The list is a long and expensive one: "Orca" (1977), "Hurricane" (1979), "Flash Gordon" (1980), "Ragtime" (1981), "The Bounty" (1984), "Dune" (1984), "Red Sonja" (1985) and "Tai-pan" (1986), among others. All of those failed to return enough to their distributors to cover the cost of production. In his native country, De Laurentiis son of a Naples pasta maker earned a reputation as the Cecil B. DeMille of Italy by producing high-budget costume dramas such as "The Bible," "Ulysses" and "Barbarella," as well as critically acclaimed films with Federico Fellini including "La Strada" and "Nights of Cabiria." To be sure, there have been occasional critical or commercial successes in the United States, too: "Serpico" (1974), "Death Wish" (1974), "Three Days of the Condor" (1975) and "King Kong" (1976). But the latter movie with a reported $75 million in film rentals against production costs of $23 million ranks as the only bona fide blockbuster in De Laurentiis' 40-year, 500-movie career.

A $55-million disaster (including prints and advertising) such as "Dune" more than cancels out the profits from the moderately successful "Conan the Barbarian" and its United Pros International Judge Harold H. Greene miwM vf -pr From left, Ozzy Osbourne, Tony Fields sequel, "Conan the Destroyer." The record stands as a testament to the 68-year-old producer's reputation as an indefatigable and persuasive promoter, even if he has not been able consistently to produce movies that appeal to American audiences. The long-standing imbalance between hits and flops never seemed to impede his ability to do business in Holly wood until recently, that is. Beginning in 1985, De Laurentiis launched an ambitious plan to establish his Beverly Hills-based company, De Laurentiis Entertainment Group, as a major player in Hollywood. He bought a movie distribution company, Embassy Pictures, and a film library.

Then he ROBERT GABRIEL Lot Angeles Timea FCC Chairman Dennis R. Patrick ment on a proposal it made earlier this month to loosen its regulatory grip over American Telephone Telegraph's profits. Also, U.S. District Judge Harold H. Greene is holding off until this fall on deciding whether to let offspring, including San Francisco-based Pacific Telesis Group, enter such fields as equipment manufacturing, electronic information services and long-distance calling activities prohibited by the antitrust settlement that broke up the Bell System in 1984.

Before long, though, 36-year-old Pat-Please see FCC, Page 4 added a 32-acre movie studio in Wilmington, N.C. Next, he went public, raising a total of $240 million from various banks and stock offerings. Finally, he pronounced it all a bof fo success. "In a remarkably short time, DEG has become a major force in the motion picture industry, competitive with the other major studios," he said in a letter to DEG shareholders printed in the company's 1986 annual report. Unfortunately, like many De Laurentiis movie productions, DEG's performance has not lived up to its publicity.

In the 15 months since it went public, the company has lost a cumulative $16.5 million losses brought Please see PRODUCER, Page 2 Nissan Maneuvers to Regain Inside Track on Its Rivals By DONALD WOUTAT, Times Staff Writer The crunch had to come sooner or later for Japanese auto makers in this country, and the first to feel the squeeze was Nissan Motor Corp. USA. It had quality problems and a muddled image, which put it in a weak position to combat the falling dollar, South Korean competitors and a rally by Detroit auto firms. This month, Nissan is completing a shake-up that has left its U.S. sales and marketing arm with a completely new management face and its employees wondering who they'll report to next.

It is the i latest in a series of actions that dealers and others hope are positioning Nissan for a turnaround in its fortunes. "The class of the Japanese are Toyota and Honda. Nissan has really fallen out of that first tier and into a second category with Mazda and the rest in terms in market presence, new product coming, and so forth," says a market researcher who specializes in Japanese firms. Nissan's executive shuffle took place quietly over 18 months, which was a lot faster than Nissan was able to effect the change of its name from Datsun a few years back. To many, that was the start of the trouble.

After Toyota, Nissan had long been the No. 2 Japanese marketer of cars in the United States, which until lately was a rather pleasant and rewarding market to Please see NISSAN, Page 5 The Human Factor Employees are often overlooked when companies merge. Yet the response of managers and workers can make or break the deal. Viewpoints, Page 3 A Fiendish Idea With all those cookie emporiums sprinkling the nation 's malls, the next thing to do for snack fiends is to declare a National Cookie Day. Southland Business, Page 6 After Brief Respite, Consumers Face More Telephone Upheaval By BRUCE KEPPEL, Times Staff Writer i WASHINGTON A classic Regulator brand clock, its pendulum stilled and its hands perpetually marking 4 o'clock, hangs on the wall of the spacious corner office that Dennis R.

Patrick inherited from Mark S. Fowler this year upon becoming chairman of the Federal Communications Commission. "It said Regulator," Patrick told a visitor, "so I stopped it." The clock seemingly also has stopped but only momentarily in the fast-changing telecommunications industry. The Patrick-led FCC is awaiting com Letters 3 National OTC 6 New York Stock Exchange 8 American Stock Exchange 10 Mutual Funds 13 Bonds 16.

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