Company Town : Sony’s Schulhof Is Johnny on Spot--Again

At Sony Pictures Entertainment, the latest rumors have its Japanese parent planning a lavish party for the studio’s new management team, complete with guest appearances by Sony Corp. President Norio Ohga and Sony Corp. of America President Michael P. Schulhof.

One source calls the event, which would take place on the studio’s recently restored Culver City lot, “a positive experience” and a chance to boost executive morale. “There’s going to be live music, lots of talent, some announcements,” the source added. “It’s a way of starting over.”

Standing at the starting gate are Sony Pictures President Alan Levine and Columbia TriStar Motion Picture Cos. Chairman Mark Canton, the team that has respectively taken up the business and creative duties of outgoing Chairman Peter Guber. Hollywood, which loves the dramatic implications of new beginnings, has mostly focused on the challenges they face in reviving the studio in short order. But there’s also more than a little pressure on Schulhof, who was responsible for getting the electronics giant into its Hollywood quagmire in the first place.

Schulhof engineered the purchase of Columbia Pictures (later renamed Sony Pictures) five years ago, and it was he who brought in the mismatched management team of Guber and his then-partner Jon Peters--at a cost that will ultimately pencil out at more than $1 billion, sources say. Analysts estimate that Sony now has more than $7 billion tied up in the studio, meaning a dramatic turnaround is required to make it a financial success.

Schulhof also faces challenges in his other business. Sony is still searching for the next big thing in consumer electronics. Like all entertainment companies, it is positioning itself for a place in the new-media world. And Sony Music, his most successful unit, is struggling to hold on to its market share achieved with acts such as Pearl Jam and Mariah Carey.

Schulhof, a former physicist, is supposed to be most comfortable in the realm of science. But he doesn’t do much to inspire confidence when he provides confusing accounts of his own revenue. In an interview last week, he was quoted as saying that Sony of America has grown into a $14.5-billion company. The U.S. division actually took a $42-million loss on sales of $11.2 billion last fiscal year, according to Sony’s annual report. When the discrepancy was raised with the company, a spokesman said Schulhof was alluding to expected sales for the next fiscal year--which indicates that he has more faith in tomorrow than the character “Annie.”

“I don’t think he has any clue about entertainment. His background is in hardware,” said one highly placed critic who asked to remain anonymous.” Asked how much responsibility Schulhof bears, another remarked, “There’s more than enough blame there to go around.”

In Schulhof’s defense, Sony’s American earnings have been battered by the Japanese yen’s rise against the dollar. Friends also portray him as a newcomer to the entertainment world who was taken in and eaten by the Hollywood sharks. “He’s a sweet guy,” said one. “But he’s been screwed.”

If that has shaken Tokyo’s confidence in their man in America, they aren’t letting on publicly. Analyst David M. Benda of Barclays de Zoete Wedd in Tokyo says Sony continues to profess support for Schulhof, even though the “U.S. operation is regarded as a source of weakness.”

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Schulhof seems to have tacitly acknowledged that weakness by bringing in Jeffrey Sagansky, the highly regarded former CBS Entertainment chief, as his second in command last month.

With Sagansky in place, sources expect Schulhof to back off from entertainment and focus on broader issues. Sagansky is expected to take up the continuing search for a 25% investor in Sony Pictures, and may also try to link Sony with a cable, telephone or satellite company.

Some see promising signs for the U.S. division if Sony Pictures gets its act together. Sony Corp.’s annual report points out that sales of electronics rose approximately 13% and music sales approximately 22% for the fiscal year ended March 31.

Schulhof is also working to smooth out a rocky relationship with Sony Music President Thomas D. Mottola. Analysts are watching to see if the division can maintain its strength, with market share off from last year and reports this week that Michael Jackson’s highly touted greatest-hits collection may not be ready in time for the crucial holiday sales season.

In the end, however, most of the attention inevitably focuses on Sony Pictures. Levine and Canton are said to be promising a quick turnaround in both attitude and productivity at the studio in conversations with lawyers, agents and other people they do business with.

Some are still skeptical that they can succeed, given Sony’s recent track record. But the worst scenario for Schulhof is the failure of another regime, since that would bring about even more financial pain and force the company into yet another new beginning. “The future is now,” said one source. “They can’t screw it up again.”