Making Up, Hollywood Style

There's no business like show business, even when it comes to off-screen commercial disputes. In a settlement that left Hollywood somewhat breathless last week, Warner Bros. and Sony Corp. ended their two-month battle over the services of Peter Guber and Jon Peters, the megahit producers of Batman and Rain Man. Warner agreed to release Guber, 47, and Peters, 44, from a five-year contract, thereby permitting Sony to hire the pair to run Columbia Pictures Entertainment, which the Japanese firm is acquiring for $3.4 billion. In return, Sony ceded entertainment assets to Warner Bros. that analysts estimated could be worth between $400 million and $600 million. "Sony has paid the most extraordinary price in history for management talent," said Alex Ben Block, editor in chief of the industry newsletter Show Biz News.

In a suitably cinematic twist, the deal turned the feuding companies into close business partners. Under terms of the agreement, Sony agreed to sell Warner a 50% interest in Columbia House, the largest U.S. direct-mail club for records, tapes and videocassettes. Warner Bros., which is controlled by Time Warner, also received exclusive cable-TV distribution rights for all Columbia feature films, television movies and mini-series. Included were the 2,700 movies in Columbia's film library. In addition, Warner Bros. will become sole owner of the valuable Burbank Studios -- which the two companies now jointly hold -- by acquiring Columbia's 35% interest in the film lot in exchange for sole title to Warner's smaller Lorimar Studio. And Warner will keep some 50 film projects that Guber and Peters have under development, including Batman and Rain Man sequels.

The dispute erupted in September, when Sony recruited Guber and Peters to head Columbia for $2.75 million in annual salaries plus profit-sharing bonuses. Sony also agreed to pay $200 million for Guber-Peters Entertainment, which the two men operate. Warner Bros. responded with a $1 billion suit against Sony for inducing Guber and Peters to break their Warner contract. Said Ed Atorino, who follows the entertainment industry for the Wall Street firm Salomon Bros.: "Sony didn't read the fine print. Warner made them pay for it."

Nonetheless, the deal will bring Hollywood's two hottest producers to Columbia Pictures. That should help stabilize a struggling studio that has gone through three top management teams since 1978 and had been at a standstill while awaiting the outcome of the Sony-Warner battle. But after paying a spectacular price for admission to the U.S. movie business, Sony will expect its two hitmakers to deliver some true Hollywood miracles.