Will Japanese Bend to Lew and Sid?

In Japan, where pride is everything, how much do you sacrifice for the sake of Lew R. Wasserman and Sidney J. Sheinberg? That’s the cosmic question confronting Matsushita Electric Industrial Co. this week as it decides whether to bend to the demands of the veteran MCA Inc. executives.

Wasserman and Sheinberg appear to have stunned the conservative Japanese manufacturing giant by threatening to walk away from MCA unless they can negotiate a deal to buy back control or wield more strategic authority. Joining them in the moving van would be director Steven Spielberg and record mogul David Geffen--arguably two of MCA’s biggest assets.

That’s a serious incentive for any company to compromise, as the two sides begin discussions across a bargaining table today. But sources warn that the MCA duo’s brinkmanship could still backfire, given the 81-year-old Wasserman’s advancing age and MCA’s mixed record of success since Matsushita bought it for $6.59 billion four years ago.

“Matsushita may feel that it’s better to save face than to cave in to an aging and angry management team,” said one knowledgeable source. “They may also feel they can succeed without them.”

Matsushita’s relations with MCA have been periodically strained since the firm landed in Hollywood in 1990, when Japan’s fervor for entertainment investments was at its peak. The early awkwardness of melding disparate corporate cultures has given way to more substantive problems, such as Matsushita’s repeated resistance to MCA growing through major acquisitions.

Frustrated hopes for buying Virgin Records, a disagreement over theme parks and, more recently, acquiring a stake in NBC added to a tense situation between MCA point man Sheinberg and the home office in Osaka. “The Japanese don’t like Sid,” one source said flatly. “They find him irritating.”

Says another source, in Sheinberg’s defense: “Lew and Sid made the deal with Matsushita because it was known as a passive investor. By and large (Matsushita has) fulfilled that. But they also thought Matsushita would use its capital resources to help MCA compete against global companies like Time Warner. That has been the sore point . . . and what has driven them crazy. Every year money has flown from Universal City to Osaka--not the other way.”

MCA was a rare bright spot on Matsushita’s ledger last year. It posted a 14% gain in revenue, to $4.1 billion, and operating margins of 7.5% at a time when Matsushita’s core manufacturing business was in decline. Morgan Stanley in New York reported in September that MCA’s revenue will be slightly higher--about $4.3 billion--for fiscal 1994.

Still, many industry competitors see MCA as an average performer at best.

Its Universal Pictures unit ranks fourth among the seven major studios in market share so far this year, with 13.8%. It produced last summer’s smash “The Flintstones” and has had modest success with two recent movies, “Timecop” and “The River Wild.” “Junior,” the holiday comedy starring Arnold Schwarzenegger and Danny DeVito, has strong expectations. That’s blunted some of the criticism leveled its way last year, when the studio went through a dry spell.

Universal finished 1993 with roughly $670 million in revenue. But analysts point out that close to half that came from Spielberg’s “Jurassic Park” and “Schindler’s List.” When Spielberg is removed from the equation, MCA drops from third to sixth in 1993 market share.

MCA Music is another mixed bag. The company is the industry powerhouse in country and youth-oriented rhythm and blues, but it still suffers from a reputation as a rock graveyard, apart from the acts signed to its independently managed Geffen Records subsidiary. It placed last among the six major distributors for domestic market share last year.

In the television arena, MCA ranks a strong second this fall among suppliers of prime-time network TV series. Its shows include “Coach,” “seaQuest” and “Northern Exposure.” Universal is weak, however, in the lucrative first-run syndication market of talk shows and game shows.

Theme parks are another problem area for MCA and its competitors. Analyst Jeffrey Logsdon of Seidler Cos. in Los Angeles estimates that revenue from its parks in Universal City and Orlando is down 5% to 10% this year--because of a soft international travel market and other changes. Locally, Universal Studios attendance was hurt by the January earthquake. One bright spot: the City Walk complex of restaurants and shops adjacent to Universal Studios Hollywood.

Analysts say it’s too early to judge the company’s new media initiatives. MCA is an investor in 3DO, the creator of an advanced video game system that has yet to make its mark. Its Universal Interactive Studios also has an equity stake in Interplay, a respected video game firm based in Irvine, and MCA recently released a game based on “Jurassic Park.”

On a management basis, people close to the company say Wasserman and Sheinberg still run MCA much the same as always. The dour-looking Sheinberg, at 59, has most of the day-to-day responsibility for the company, which operates with a small group of senior executives. Sources say Sheinberg’s main frustration is having his hands tied strategically. “Sid sees his legacy in building MCA, but they won’t give him those tools,” says one colleague.

The silver-maned Wasserman still spends full days on the job, and can usually be found holding court at his corner table at the MCA commissary in Universal City. He continues to be a force in Motion Picture Assn. of America activities and routinely calls to check on the company’s film grosses at 5:30 a.m. Besides all that, he remains active in national political fund raising, hosting as many as two events each month at his Beverly Hills home.

“With the sole exception of the fact that Lew is five years older and probably walks 5% slower, I dare you to find any 81-year-old keeping that pace,” said one MCA source close to Wasserman.

Yet sources say Wasserman’s age could become a factor in the contract negotiations, since Matsushita may be willing to bend only so far for an executive 16 years past traditional retirement age. For that reason, many people are focusing on Sheinberg. But executives close to the company say it’s a given that if Wasserman leaves, Sheinberg--his loyal lieutenant for 30 years--would leave with him.

Alienating Spielberg, who is in the midst of forming a company with Geffen and former Walt Disney Studios Chairman Jeffrey Katzenberg, is something the Japanese take more seriously. But sources say Matsushita won’t necessarily roll over for him, either. They point out that Spielberg must still fulfill several commitments to the studio, including a “Jurassic Park” sequel. In addition, they say he would probably depart within a few years anyway--when the company he’s starting with Katzenberg and Geffen forms its own distribution and marketing system.

All the talk of possible change has left many executives in the MCA complex unsettled and angry, with some complaining that they can’t believe they’re confronting an uncertain future again only four years after the company’s sale.

The most sensible solution in many people minds is a compromise that would keep Wasserman and Sheinberg on board at least a couple more years, since Wasserman and Sheinberg aren’t really looking to walk away from their lives’ work.

MCA has never had a clear succession plan. And with Hollywood’s infamously thin executive ranks, replacing Wasserman and Sheinberg would be a daunting task. But skeptical sources warn that it should not be precluded, even though everyone would prefer to reach an accord.

“This is Hollywood,” said one. “Crazier things happen here all the time.”