porno/17″/1stjc/mark2nd By DAN TURNER Staff Reporter The porno industry thinks the latest tax proposal from the state Senate majority leader is obscene. Sen. Charles Calderon, a Democrat from Whittier, plans to introduce legislation that would impose a 5 percent tax on the sale of X-rated entertainment in California. The tax would apply to videos, CD-ROMs, pay-per-view movies, phone sex lines, magazines, and any other medium transmitting pornographic materials. Proceeds from the proposed tax would fund women’s services, such as rape crisis centers, battered women’s shelters and counseling for victims of sexual crimes. The tax, if approved, would hit particularly hard in the San Fernando Valley the world capital of the adult film business. About 70 percent of the adult videos made in the United States are produced in the Valley; of the $8 billion U.S. pornography industry, approximately $2 billion annually is generated by the region’s adult film production and distribution companies, estimates Paul Fishbein, publisher of the Adult Video News trade magazine based in Van Nuys. “This is an industry that has a lot of low-capitalized, small entrepreneurs. You can’t say there wouldn’t be businesses wrecked by a 5 percent tax,” said Jeffrey Douglas, a Santa Monica criminal defense attorney who serves as chairman of the Free Speech Coalition, an adult entertainment trade and lobbying group headquartered in Van Nuys. On April 1, the Free Speech Coalition marched on Calderon’s office in Sacramento with hundreds of cardboard covers for X-rated videotapes; the original plan was to give him the actual videos to demonstrate that pornography does not portray violence to women, but the Coalition decided to withhold the tapes so as not to violate the $50 ceiling on gifts to state legislators. They also presented the senator with a certificate giving him free admission to a strip club. Calderon was not present for the demonstration. Calderon believes that pornography is degrading to women, and that it regularly depicts scenes of rape and battery. Although the U.S. Supreme Court has generally forbidden special taxes against certain forms of speech, Calderon likens his tax proposal to the “sin taxes” imposed against cigarettes and alcohol and says it will pass constitutional muster once the final language is developed. “We’re doing the legal research now to try to hone our definition of pornography, because we’re not trying to censor or ban it,” said Pilar Onate, Calderon’s spokeswoman. “We’re just trying to tax it.” Onate said the Free Speech Coalition has not tried to contact Calderon’s office for a “reasonable, rational meeting” over the issue. Douglas argues that the proposed bill is unconstitutional, and based on a false concept that pornography promotes, or even portrays, violence to women. Because prosecutors around the country tend to bring obscenity charges against distributors of materials that portray rape, bondage and other forms of violence, it is now nearly impossible to find such content in adult entertainment, Douglas said. He added that studies have never proven a correlation between watching pornography and committing rape or other violent acts. “If you could bend the constitution to allow this kind of abuse, there would be no reason you couldn’t put a tax, say, on all the news stations that showed and romanticized the (Feb. 28) North Hollywood bank robbery,” Douglas said. “Not only that, but 40 percent of X-rated material has nothing to do with women. It’s all men, it’s gay. How do you justify taxing that in order to prevent violence to women?” he added. Outside the legal and moral arguments, few believe the proposed tax would have a serious negative economic impact. Economists consider the sex trade to be “non-elastic,” meaning that slight increases in price have little effect on demand. Fishbein of Adult Video News agrees with Douglas that a 5 percent tax would be both unconstitutional and wrong-headed. But it probably won’t have a big affect on the sex industry, including an estimated 3,200 California workers in production and distribution of adult videos (many of whom can be found in the Valley). “Just like a smoker is going to pay whatever kind of tax you put on cigarettes, a man who wants this kind of entertainment is going to pay the tax,” Fishbein said. The brunt of the tax impact will likely be borne not by producers and distributors, but consumers. In 1995, sales and rentals of adult videos generated $92 million worth of sales taxes in California, Douglas said, and the addition of another 5 percent tax would cost Calfornia consumers about $10 million a year for videos alone.

letter/smith/1stjc Supporters of plans for a new football stadium should keep one thing in mind: We may need new stadiums, but let the owners of the teams that wish to play in them, and make money from them, build them. We the taxpayers do not need to put our money out so that a small group of team owners can make many millions of dollars and pay millions of dollars in salaries, while we invest in their teams and regain nothing. According to the press, no new stadium is making money with the way their lease is structured. I have to pay for my buildings necessary for me to do business so should the team owners. There is no difference we are both out to make money. If a team owner realizes this, like the Los Angeles Dodgers, they will build their own stadium, not rely on the taxpayer to do so. GILBERT SMITH Encino

forum/jb/1stjc/mark2nd PHOTOS WITH NASH, HAZZARD. Launched in 1994 in the aftermath of the Northridge earthquake, the Valley Economic Alliance is charged with attracting and retaining business in the San Fernando Valley. One of its missions under new executive director Bill Allen is to change the public perception of the Valley. The Business Journal asks: What must the Valley Economic Alliance do to improve the Valley’s image? Larry Hazzard Senior Vice President Carter-Burgess “The implementation of light-rail transit through the Valley right down Ventura Boulevard would really do a lot to enhance the image. It would encourage redevelopment and businesses. And, most importantly, it would encourage people to work and shop in the Valley.” William A. Shroeder Bank of Granada Hills “They need to cut some red tape. In particular, zoning requirements are extremely stringent within the city of Los Angeles. We’ve had a problem trying to sell one of our properties. We’re selling a property that was formerly an auto repair center, and the buyers we have lined up want to keep the same use on the property. But at the last minute we found out that (the city) wants a completely different use there. There are other examples, but the end result is that the city needs to make things easier to understand and communicate more. (And that’s) one way to change the image.” James Kellingsworth Senior Vice President All-Pro Sports Inc. “I think a number of things need to get across in order to reshape the Valley’s image. I’ve lived here 28 years, and consider this to be my home even though I wasn’t born here. First off, we need a better airport either in Burbank or Van Nuys. This will right off the bat establish the Valley as its own entity, its own center of commerce. I also think that government should come to the help of the small businessman we’re already burdened with more rules and regulations than we know what to do with. I’d also like to see the Lakers move here, but I don’t think that’s about to happen.” Sandra Dropple Vice President Tunster/Lloyd Associates “Just drive around some of the streets in the San Fernando Valley and it becomes pretty obvious the VEA should push for more redevelopment. Los Angeles is the major government out here, but there are also smaller cities like Burbank. I think redeveloping some of our neighborhoods and shopping districts will go a long way in convincing people to visit the Valley. They are already making Ventura Boulevard better, but why should it stop there? I think even taxpayers would foot some of the bill if they knew it was going to directly impact the way their neighborhood looks.” Gela Nash Co-Owner Juicy “We work out of a business park in Arleta. What I’d like to see in these areas is more restaurants. People that come out here to work do it because they are close to their customers, and because space is cheap. But, we need a Starbucks or a Coco’s or anything out here. So, business groups should really focus on something like that.”

VALLEYTALK/1stjc/mark2nd Valley Helps Hollywood For decades, insiders have known that the real Hollywood or a good portion of it at least is located in the San Fernando Valley. With studios including Warner Bros. Pictures and Walt Disney Co. based here, the Valley has helped create the Hollywood myth. And now the Valley is helping to create Hollywood’s revitalization. The Valley Economic Development Center Inc. played a key role in developing an economic revitalization plan for Hollywood that is being released this month. The group was chosen because of its experience developing a similar plan for the Valley following the 1994 Northridge quake. A Different Kind of Fugitive It’s fast, dirty and invisible and if approval is given to Cal State Northridge’s University MarketCenter, it will be everywhere. It’s fugitive dust – technically known as PM10. What’s that, you wonder? According to the environmental impact report on the university’s proposed MarketCenter project, “fugitive dust” is the dirt that will be kicked up by construction. University officials aren’t planning to call in the FBI to deal with the problem, according to Frank Wein, the university’s consultant on the project. But they will cover the dirt mounds and water down the site twice daily. Down on the Farm Los Angeles may be the nation’s second largest city, but elements of the country life persist and, in fact, even constitute a public nuisance. City Councilman Richard Alarcon is pushing legislation aimed at regulating and controlling the noise generated from “farm animals, livestock and poultry.” According to staffer Annette Castro, Alarcon receives about 12 calls a month from residents of his Northeast Valley district complaining about animal noise mostly roosters and turkeys and has instructed the city’s Department of Animal Regulation to come back with recommendations on how to control the problem. That’s sparked some opposition from a group calling itself Stop Nasty Animal Regulation Laws, or SNARL. Headed by longtime Valley politico Walter Prince, the group’s motto is “Let the Animals Speak.” War of the Mayors Burbank city officials took their fight against expansion at Burbank-Glendale-Pasadena Airport to the grass roots last month, with a letter-writing campaign aimed at turning Glendale residents against the expansion. Burbank sent out 36,000 letters to Glendale residents asking them to “help end the stalemate” over the airport expansion by supporting Burbank’s scaled-back expansion plan. The letters, signed by five Burbank council members and one member elect, received nearly 2,000 positive responses within eight days of the March 20 mailing, according to a press release from the Burbank City Council. Not ones to be out-grassrooted, however, four former Burbank mayors and two former airport commissioners sent a letter to the Burbank City Council on March 25, objecting to the council’s ploys to “scuttle” the expansion and berating the council for misusing an estimated $27,000 to conduct the mailing. “They felt the time had come to assert themselves, and they decided to take the action,” said Airport Commission spokesman Victor Gill. Ovitz Watch The future of former super-agent Michael Ovitz, whose gigantic severance package following his resignation from Walt Disney Co. after only 14 months on the job infuriated Disney stockholders, has been a big question mark ever since he left the company in December. But scuttlebutt is building that Ovitz is planning to launch his own multimedia company, perhaps using some of the proceeds from his package of cash and Disney stock options worth an estimated $90 million or more. The Hollywood trade papers reported last month that Ovitz has hired David Maisel, former director of strategic planning and development at Disney, to act as his investment advisor.

valleytalk/24″/mike1st/mark2nd Valley marathon Another year for the L.A. Marathon and another chance for Valley residents to feel slighted. But don’t blame Councilwoman Laura Chick, who wrote a letter urging L.A Marathon Inc. the company that puts on the annual race to re-route the course into the Valley. “Why not run the L.A Marathon in the Valley the Valley is a wonderful place and has the same blue sky that other parts of the city have,” said Chick. She suggested the Valley, with its wide avenues, as a place that could easily accommodate a large number of runners. Chick says she doesn’t remember receiving any response to her request, but promises not to give up. “I plan to put it out there again,” said Chick. “There’s a tradition that big events don’t take place in the Valley. I can’t imagine that there’s one thing about the Valley that would make it any different than any other place in L.A.” Voice mail gatekeeper The days of getting anyone of consequence on the phone on the first try are pretty much gone, thanks to the ubiquity of voice mail. But Pasadena Mayor Bill Paparian recently took voice-mail snubbing to a new high (or low). Burbank Mayor Bill Wiggins recently put in a call to Paparian to tell him about a press conference Burbank was holding that day to announce a new compromise proposal for expanding the Burbank-Glendale-Pasadena Airport. (Glendale and Pasadena want a much bigger airport expansion, and have been squabbling with Burbank over the issue.) Upon receiving Wiggins’ call, Paparian’s secretary informed him that the Pasadena mayor would be in court all day and would not be back at the office. To this, Wiggins asked to be put into Paparian’s voice mail. The secretary asked what the nature of Wiggins’ message would be. He said his call was about the Burbank Airport. “She said, ‘I’m not sure if that’s enough information to give you his voice mail,'” related Wiggins, who ultimately was refused access to Paparian’s voice mail and only allowed to leave a message with the secretary. Chilly reception The annual shareholders’ meeting of Burbank-based Walt Disney Co. last month was an unusually frosty occasion for more reasons than one. There was a wide variety of questions from the floor for Chairman and CEO Michael Eisner, with many shareholders expressing anger and frustration over the high severence package paid to former President Michael Ovitz and over the lucrative compensation package for Eisner himself. But one shareholder toward the end of the meeting expressed the feelings of many of its 14,000 attendees when she asked Eisner, “Why is it so cold in here?” The meeting was held at the Arrowhead Pond in Anaheim, where a temporary floor was placed over the ice skating rink at the center of the arena (home of the Mighty Ducks hockey franchise). Eisner explained that the ice was causing the cold conditions, to which the shareholder responded that she was sitting in the stands several tiers above the ice. “Well, we also want to get this meeting over with,” joked Eisner, who by that time had been fielding uncomfortable questions for about a half hour. Mayoral courage Mayor Richard Riordan gave his all, or at least an unprotected forearm, last week in his never-ending support of the sciences. Students at Chatsworth High School invited the mayor to help test a robot they had built for a national engineering competition in April. The students directed the electronic critter to place a rubber inner tube over Riordan’s prone arm, which it accomplished with faultless accuracy. Though Riordan was “quite brave,” according to Assistant Principal Donna Wyatt, “the robot was under perfect control at all times. No one was in danger.” The mayor did not offer the students a tax break for developing the robot within city limits. Taking charge California Assemblyman Scott Wildman (D-Burbank) has purchased (with his own money) a dark green General Motors EV1 electric car, for use in district duties. Wildman will be taking advantage of the public recharging station behind Burbank City Hall, when making the rounds of his district. The city has moved to provide free recharging to all EV drivers within the city. In the future, Wildman predicted, recharging stations will be “as numerous as fire hydrants.” He added that his grandchildren would be “shocked” to learn that people ever drove cars that weren’t electric-powered. Hopefully, Wildman’s grandchildren will find EVs with greater range than the 60 to 80 miles per charge that Wildman will get from his new EV.

SMALLBIZ/VALLEY/1STJC/mark2nd Family-owned businesses contribute one-half of the gross national product and create one half of the jobs in this country. Most of the founders of these enterprises have worked long and hard to build an empire that supports a large number of family members and numerous employees, all of whom have depended on his drive, skill, instinct and creativity since the doors were first opened for business. In many cases, one important ingredient has been lacking the development of a plan for an effective leadership succession. This is critical to the survival of the family business as it moves through the transition of ownership and management from one generation to the next. It is interesting to note that less than 30 percent of all family businesses make it to the third generation. The founder is most often an optimistic and dynamic person, either male or female (for the purpose of this article, I will refer to the founder as a male), who has the ability to work with complicated ideas, create novel solutions to problems, has great intuition, is well-disciplined and focused, and has a clear vision of future possibilities. He works seven days a week, sacrifices family time when necessary to support the business and takes seriously his responsibility for providing for his family and the employees who trust and follow him. His employees know him as The Boss, and he knows everybody’s job and how it should be done. He can walk through the environment he has created and smell trouble before it is discernible to anyone else. He is the benevolent dictator of all he surveys. His employees feel close to him as he walks through the office or factory and speaks the workers’ language. The management style he projects is friendly and stern. A typical description of a family that is struggling with leadership succession is as follows: The founder (father) who is in his 70s and wants to slow down but doesn’t want to let go. He has an impatient wife who wants to spend the years left to them travelling together and spending some of the hard earned money they have accumulated. They have two sons and two daughters. One son is drawn to the business and has spent Saturdays and school vacations working in the company, while the other son and two daughters have created separate careers. The business-oriented son has learned the family business by osmosis but has also received the best education possible as he was smart enough to be accepted by one of the finest schools in the country. His MBA has thoroughbred quality. Now he is working full time for The Boss. The son has the ability to take charge, but a problem is brewing. The father will not relinquish authority but at the same time he gives the double message that the son should take charge. The Boss walks around slapping employees’ backs and collecting gossip, which he turns into critical attacks on his son’s management style. The son sees he can’t please the “old man.” They argue constantly with no resolution. Eventually the son becomes so discouraged he sees no other way but to leave the family business. Very often, the differences are a matter of style. The founder is a hands-on manager. He believes you come to work before anyone else and leave after everyone has gone home. He has no interests outside of the business. The son, in contrast, is involved in a variety of activities and takes an active role in parenting. He has no desire to make work his only endeavor. He believes strongly in delegating responsibility to employees and trusting that technology will replace hands-on management to a certain extent. Although his management style may be different from his father’s, his goals and dedication are the same. The first call made to me usually occurs when an argument between The Boss and the son has created a crisis. Upon close examination, the two protagonists have the same goals in mind and agree on their mission but have differing means of achieving them. Because this is a family relationship, other issues often emerge, and it becomes clear that taking a narrow view of correcting the business issues alone will not solve the underlying problem. The father and son have established a pattern of relating as parent and child, which complicates their day-to-day business relationship. If they were to seek therapy, there might be a series of individual and group meetings that could reveal unrealistic demands the father places on the son, and the son’s burden of living up to his father’s ideal of him. Or, in some cases, the original financial agreement may no longer be acceptable to the son as he steps into The Boss’s role. Or, simply, the father is unable to let go of the reins, wondering what he will do with his time and where he will get the emotional rewards he has received from being at the helm. Some of these problems can be resolved by counseling to clarify the father/son style of communication and relationship. The bonus, often, is a closer relationship between family members as an effective leadership process is established, which is so critical to the survival of the family-owned business. Lew Richfield, Ph.D., is a licensed family therapist in Los Angeles.

apparel/kanter/21 inches/mike1st/mark2nd LARRY KANTER Staff Reporter When people think of high-fashion meccas, the Northeast San Fernando Valley isn’t exactly the first place that leaps to mind. But a growing number of clothing designers, manufacturers and contractors have been fleeing the downtown L.A. garment district to set up shop in less-glamorous environs, such as Arleta, Pacoima, Sylmar and Van Nuys, turning the area into L.A.’s newest apparel center. “There’s a mini-fashion hub happening here,” said Gela Nash, co-owner of the Pacoima-based women’s apparel company Juicy. “It’s definitely growing.” What’s luring apparel firms away from the region’s traditional garment center downtown? Companies cite such advantages as a large manufacturing work force, an easier commute and fewer parking hassles, as well as the opportunity to lease or purchase more-modern, user-friendly digs. And there are other, less-tangible perks, as well. “There’s a different vibe here,” said Linda Meltzer, owner of Tease Tees Inc., another women’s casualwear firm in Arleta. “Going to the garment district is like going into a dark abyss. It’s noisy, it’s sweaty. Here, you see open space, hills, horses. “Downtown, I feel the pressures of all the garment companies around me,” said Meltzer, whose clothing is sold in Fred Segal and Urban Outfitters stores and scores of small, high-fashion boutiques around the country. “Here, it’s just me designing my own stuff.” It’s not just Meltzer. Apparel firms have been in the Northeast Valley for years. And while no one is keeping an exact count, apparel industry and real estate sources say that there are even more of them sprouting up in the industrial and business parks scattered throughout communities like Pacoima, Arleta and Sylmar. “There’s been a lot of garment deals in that area,” said Mike Daven, an industrial properties broker in the Sherman Oaks office of Grubb & Ellis Co. While lease rates in the area are about the same as they are downtown, Daven said that companies often can find newer, more spacious sites in the Valley than they can in the garment district. The move of apparel firms away from the downtown garment district is part of a long-standing, nationwide trend that has seen all manner of companies move away from deteriorating downtown areas and into new headquarters in the suburbs. Many of L.A.’s jewelry manufacturers, for example, also have been slowly migrating away from their traditional center downtown and into areas such as Glendale, Daven said. “There’s a limited inventory (of industrial space) downtown,” Daven said. “What is available is verging on functionally obsolete. Central business districts all over the country are falling off.” Downtown L.A. is in no danger of losing its status as the region’s preeminent fashion center. Both of the area’s wholesale markets CaliforniaMart and New Mart are located downtown, as are hundreds of designers and contracting shops. Indeed, the vast majority of L.A.’s garment industry continues to make its home in or near downtown. As a result, companies that locate outside the garment district often find themselves making a trade-off, said Ilse Metchek, executive director of the California Fashion Association. “All of the support services the buttons, the belts, the pleating are downtown,” said Metchek. “If they want to see new fabric, they either have to come downtown or have somebody come to them. You’re weighing being close to the market against the ease of being away from downtown.” That’s a trade-off most of the Valley’s apparel companies seem more than willing to make. “I’ll never work downtown,” said Angela Torti, whose sewing contracting shop, Angela Torti Fashions, has been in Pacoima for more than a decade and services many of the area’s designers. Most of her contracting peers in L.A.’s garment district ply their trade in old, dank, multi-story buildings, where they often lug merchandise up and down flights of stairs. In Pacoima, Torti leases a 13,000-square-foot modern, ground-floor factory. There is ample parking and most of her 85 employees live nearby, she said. “There’s a good supply of skilled machine operators in this part of the Valley,” said Paul Faris, owner of Faris Brothers of California Inc., a lingerie manufacturer in Sylmar. Besides, he added, most of his employees (most of whom live in the Valley or on the Westside) find that commuting to the Valley is quite a bit easier than driving to the garment district every day. “It’s a little nicer to be here,” Fares said. “It’s less of a trip to go to the Valley than to go to the downtown area.” Few of the area’s apparel firms have been able to completely sever their ties to downtown. Both Juicy and Tease Tees, for example, keep showrooms in the trendy New Mart building. But Meltzer said it’s always good to return to Arleta, far from the fashion industry buzz downtown. “I like to be away from it all, where I can do my own thing,” she said. “Downtown, it feels like people are always looking over my shoulder. It doesn’t feel as rat-racy over here.”

vestar/SFVMar3/bb/25 inches/mike1st/mark2nd BRAD BERTON Staff Reporter By the end of March, Burbank development officials expect to select a consultant to oversee the environmental review of a huge project slated for 103 vacant acres just east of Burbank Airport. But it’s not certain that they’ll have a project to review. The development, being envisioned to include a major media-oriented business campus along with retail stores, is expected to play a crucial role in launching the city’s envisioned Media District North business community. But work on the project’s environmental impact report can’t go forward until the developer, Phoenix-based Vestar Development Co., submits a detailed development proposal. Officials at Vestar did not return phone calls last week. Burbank Community Development Director Bob Tague and Special Assistant to the Director Jim O’Neill said the city expects to receive a “pretty well-defined” development proposal from Vestar by the end of the month. In December, Vestar had proposed developing about 800,000 square feet of retail space and 750,000 square feet of offices. But city officials have given a cool reception to Vestar’s original proposal for the property. City Manager Robert “Bud” Ovrom, Councilman Ted McConkey and others indicated they would prefer a project with substantially more emphasis on media-entertainment facilities. Tenants from that industry have filled Burbank’s existing Media District to capacity and need more room to grow. Not only would media-related tenants bring higher-wage jobs than retail stores, the city has already made substantial investments in creating a shopping district near the Vestar site. So a huge amount of additional space is not needed, city officials said. Ovrom said the city supports development of about 64 acres of business park facilities and 39 acres of retail including the 14 acres just south of the Metrolink track and west of Victory Place. Vestar is in discussions with prospective media-industry tenants “to see what the demand is for various uses” of the property, Tague said. “We’re hoping they’ll put a concept for the site together that would also meet the demands of the community,” he added. “We are desperately pinched for space in the Media District proper, so we see (the project site) as a golden opportunity to extend our media-related business” to the airport area, McConkey said last week. He said executives at the company “are reconsidering” the earlier plans and “coming around to our view.” The property for decades housed Lockheed Corp. aerospace research and manufacturing operations, and is currently undergoing a controversial “vapor extraction” toxic remediation program. It has been the subject of extensive litigation from parties affected by contaminants left behind by six decades of aircraft manufacturing. (see story, page 1) Burbank officials hope the property can be redeveloped to help replace some of the jobs the city lost when Lockheed relocated its operations to Palmdale and elsewhere. Several plans have been proposed for the site over the last few years including a “power” retail center Vestar had considered developing. Warner Bros. had looked at the site for a sports/entertainment arena; the former Price Club (now Price Costco) operation and the Wal-Mart chain had proposed shopping centers. Now the city is about to issue a request for proposals from consultants interested in helping compile an environmental impact report for the property. Meanwhile, a smaller but nevertheless substantial new Media District North project has just secured a key financial commitment. Union Labor Life Insurance Co. just provided $28.5 million in construction financing for Santa Monica-based M. David Paul Development LLC’s redevelopment of a 196,000-square-foot former Lockheed “Skunk Works” office building. That entire building, at 3100 Thornton Ave., has been preleased by Walt Disney Co.’s feature animation division. The property also includes a new 22,000-square-foot gym/restaurant building, an 11,000-square-foot screening theater and a 650-stall garage. Washington, D.C.-based ULLICO, which invests union pension fund capital into projects that create union jobs, is also a key member of the investment team negotiating to become the majority owner of the Playa Vista planned community near Marina del Rey. DreamWorks has identified Playa Vista as its preferred headquarters campus location. ULLICO Senior Vice President Mike Steed said the California Public Employees Retirement System is expected to “take out” about $18.9 million of the ULLICO construction financing through a permanent mortgage once the project is completed.

filmroman/30″/mike1st/mark2nd DAN TURNER Staff Reporter Film Roman Inc., the North Hollywood-based animation company that churns out “The Simpsons,” has a dubious distinction: It launched the most disastrous initial public offering in L.A. County last year. While most other 1996 local IPOs have appreciated in value since their initial offering, Film Roman stock has gone from its initial $10 a share to between $2.50 and $3 in recent trading. Analysts say investors were lured into buying a very risky stock at a price that didn’t accurately reflect the company’s true value. The offering price was pegged to the value of future assets that may never materialize. “Animation is a hot area right now, but what makes it hot is companies like Disney that constantly churn out ‘Lion King’ characters. This is Film Roman, not Disney. There’s a big difference,” said Lloyd Greif, president of downtown L.A. investment bank Greif & Co. Besides “The Simpsons,” the longest-running animated show on television, Film Roman produces “Garfield & Friends,” “The Mask,” “Bobby’s World,” “The Critic” and the recently launched “King of the Hill.” Founded in 1984 by animator Phil Roman, Film Roman was a rare success story for most of its history, one of the few independent producers able to carve out a substantial niche in an industry dominated by firms owned by such giant entertainment companies as Walt Disney Co. and Time Warner Inc. But even before Film Roman launched its IPO last fall, there were signs of trouble. After steadily gaining in profits between 1991 and 1994, the company lost $1.7 million in 1995, according to documents filed with the Securities and Exchange Commission. It lost another $850,453 in the nine-month period ended Sept. 30, 1996. The losses were caused by the same factor that prompted company officials to go public in the first place a desire to change the way Film Roman does business. Since its founding, the company was a “fee-for-services” TV producer, meaning it was essentially an independent contractor for the various broadcast and cable networks that aired its shows. In fee-for-service deals, producers sell shows usually for about 110 to 115 percent of production cost, according to Film Roman Executive Vice President Bill Schultz. As part of those deals, Film Roman sold the rights to the shows and characters to the networks giving up potentially lucrative merchandising rights. In recent years, however, networks have begun to offer less money for fee-for-service deals. Although there are many more outlets for animated TV shows today than there were only a decade ago, the audience is fragmenting and decreasing. Fewer kids are watching cartoons, lured away by interactive CD-ROM games and the Internet. Meanwhile, the launch of such outlets as the Cartoon Network and Nickelodeon on cable has fragmented the audience, lowering market share and thus advertising revenues for the broadcast networks. Film Roman officials decided that, in order to expand, they had to own the rights to their own creations, Schultz said. Studios such as Disney have made a fortune by exploiting proprietary characters in consumer products, video games, theme park attractions, books and other media. Film Roman wants to do the same. But that process is expensive. Networks pay a licensing fee that only represents about 60 percent of production costs for shows they don’t own, Schultz said, and Film Roman began losing money in 1995 when it started working on proprietary shows. The $33 million in proceeds from the IPO are being used to pay down debt and finance production of proprietary cartoons. Wall Street got a taste of the strategy’s riskiness early this month. One of Film Roman’s first proprietary programs, “C-Bear and Jamal,” was not renewed for next season by the Fox network, even though it was the top-rated show in its Saturday morning time slot. Film Roman’s share price plunged 39 percent after that decision, which sources say may have been based on Fox’s desire to air a show to which it owns all licensing rights. Film Roman subsequently announced it would report lower-than-expected results for 1996 and reduced its goals for 1997. The final 1996 figures are due to be reported this month. Schultz said the lowered expectations are due mainly to the company’s efforts to build an infrastructure for proprietary productions, not to the cancellation of “C-Bear.” “Any time a show is dropped like that, the property owners have the right to find another shelf for it somewhere else,” Schultz said. “We are aggressively looking for other opportunities for ‘C-Bear,’ and people are interested. The program doesn’t go away just because it’s rejected by one network.” According to Schultz, Film Roman has already signed licensing deals to exploit the C-Bear characters in consumer products, and he’s confident the show will find another home. But analysts remain troubled that Film Roman has yet to develop its own proprietary hit show. Complicating matters is the fact that many giant studios are buying up cable and broadcast networks and will likely give preference to shows produced by companies they own or have a partnership with. For example, Fox has a joint venture with West L.A.-based animation producer Saban Entertainment, and Disney, owner of the ABC network and the Disney Channel, has a majority stake in Burbank-based animator DIC Entertainment L.P. Most analysts seemed unsurprised at the drop in Film Roman’s share price, saying the stock was overpriced from the outset. One local analyst blamed investment bank Donaldson, Lufkin & Jenrette, the lead underwriter on the IPO, for downplaying the risks when pitching the stock to institutional investors. “They exaggerated the story on this stock, and shortly afterward, when the numbers didn’t materialize, people lost patience,” the analyst said. Bankers Brian McLoughlin and Paul D’Addario, who handled the deal for DLJ, did not return calls from the Business Journal. Despite the problems at Film Roman, analysts said it’s far too early to tell whether its new strategy will ultimately prove successful. “Film Roman has to make this big leap from being a job shop to being a Disney, and that kind of change doesn’t happen overnight,” said Greif. “I’m not saying I would bet against Phil Roman. It’s just going to be a hard row to hoe for a while.”

burbank/dy/19″/mike1st/mark2nd DOUGLAS YOUNG Staff Reporter A lawsuit over the size and scope of a planned expansion at the Burbank Airport is expected to go to trial this month, following the rejection of a compromise proposal by the Burbank City Council. Burbank surprised the Burbank-Glendale-Pasadena Airport Authority last month by floating a proposal to expand the number of airline gates by two to 16 and to put a 10 percent cap on future flights. Burbank also wants a mandatory curfew on flights between 10 p.m. and 7 a.m. But after reviewing the proposal at its Feb. 18 meeting, the Airport Authority which supports a much larger proposal appeared to reject the proposal. The impasse means that a lawsuit over the issue will likely proceed to court, where a Federal District Court judge could determine the airport’s future. In the trial, the judge will hear what’s become the central issue in the ongoing battle over expanding Burbank Airport: How much power do local jurisdictions have in determining the size of an airport. The Airport Authority supports a plan to build a new terminal with up to 27 gates, and that would put no limits on growth in passenger traffic and no curfew on flights. Burbank officials have held up the Airport Authority’s envisioned expansion so far, citing a California law that requires any expansions on non-airport land to be approved by the airport’s host city. The project site is now owned by Lockheed Martin Corp., and the Airport Authority has been trying to secure the property through eminent domain. Those efforts so far have been stymied by the City of Burbank. The Airport Authority sued Burbank over the issue, claiming federal laws override the state law on any airport development matters. The two sides have also filed four other lawsuits against each other over the airport, covering issues ranging from the constitutionality of an airport parking tax to a challenge of the environmental impact statement that was conducted for the new terminal. Lawyers involved with the critical case involving land use say a full trial following a March 31 hearing is unlikely, and a summary judgment from Judge Lourdes Baird could be handed down by the end of April. But each side says it will appeal any decision that favors the other, and both have vowed to appeal all the way to the U.S. Supreme Court if necessary. “This is clearly one of the most important issues facing the city,” said Burbank City Manager Bud Ovrom. “We’re prepared to spend $2 million a year for the next decade.” Airport Authority representatives also appear to be digging in for a potentially long, protracted battle. “Unless there’s some give, we probably will see there’s no choice according to my clients, it will go to the Supreme Court,” said Richard Simon, a partner in the L.A. office of McDermott Will & Emery and chief counsel to the Airport Authority. But neither side appears ready to give any ground. In its Feb. 11 proposal to the Airport Authority, the Burbank City Council spelled out the conditions under which Burbank would be willing to support an expansion of the airport. In response to those conditions, Airport Authority President Joyce Streator said in a Feb. 18 letter to Burbank Mayor Bill Wiggins that the airport commissioners were “disappointed in the tone of your proposal which favors the City (of Burbank)’s position while putting the Authority in a position of appearing uncooperative if it doesn’t accept your offer.” Streator also rejected Burbank’s insistence that “the Authority be bound to deliver measures that are beyond its ability to guarantee” a reference to the curfew and cap on passenger traffic sought by Burbank, which are both illegal under federal law. Meanwhile, airlines serving Burbank Airport have come down squarely behind the Airport Authority’s larger expansion plan and are generally opposed to the way Burbank is handling the situation, said John Ek, spokesman for the Air Transport Association, which represents the airline industry. “What gets lost in this issue is that this is not the Burbank Airport. This is the Burbank-Glendale-Pasadena Airport,” said Ek. “It would be our hope that the City of Burbank lives up to the contract it signed with the other two cities” to run the airport under a joint authority. Meanwhile, Ovrom maintained that Burbank’s primary goal is not to stop the building of a new terminal. Rather, he said, Burbank wants to limit the airport’s growth so it benefits the local economy while avoiding a noise and traffic nightmare for local residents. “We’d like to see a new terminal built. But why do we have to build this big Taj Mahal of 27 gates? We think that when an airport gets that big, it stops being an asset and starts being a liability.” Both sides have yet to rule out a compromise on the impasse before the trial date, though a mediated settlement seemed unlikely following the Airport Authority’s rejection of the Burbank proposal. Simon pointed out that the Airport Authority will be able to draw from its own revenues to pay its litigation fees, while Burbank taxpayers will have to shell out up to $2 million in litigation fees for each year the lawsuits drag on. “We don’t want to spend $2 million a year on this, but we’ll do it if that’s what we have to do,” said Ovrom. “It’s that important to us.”