gm biomed/health care/mike1st/mark2nd DANIEL TAUB Staff Reporter VAN NUYS As early as March, construction could begin on a biomedical complex being planned for the site of a razed General Motors auto plant here. Although negotiations with potential biomed tenants are still pending, local officials say there is a good chance that some of the seven companies that have expressed an interest in the facility could move in within a year. Three local universities with students studying biomedicine also have expressed an interest in occupying space in the industrial back side of the proposed facility, said John Slifko, special assistant for technology policy to Rep. Howard L. Berman, D-Panorama City. The front side of the 68-acre site, located off Van Nuys Boulevard where the GM auto plant once stood, is being developed by Selleck Properties and Voit Cos. as a retail center with a movie theater. The 37-acre industrial back side is expected to include a section dedicated to biomedicine. “Most of the companies are willing to move into the facility now. It’s a matter of how long it is until the site is up and running and ready,” Slifko said. Slifko declined to identify the companies, saying he does not want to jeopardize negotiations on their relocations. The developers are planning to build a biomedical incubator, in which small start-up firms, researchers and university students would share space and resources to rapidly commercialize new technologies. UCLA, USC and Caltech all have expressed interest in being a part of the incubator, Slifko said. UCLA wants to launch a graduate program in biomedicine this year. But not everyone in the biomedical community is optimistic about the GM site’s prospects for success. David G. Anast, publisher of the Costa Mesa-based Biomedical Market Newsletter, said that while development of biomedical parks and incubators is positive, he remains skeptical about what kind of growth such developments bring. “The question in situations like this is whether it constitutes just shifting companies around, or actually creating new jobs. And that remains to be seen both in this case and in other cases on drawing boards across the country,” Anast said. Some potential participants in the biomedical park also say that their involvement is dependent on things outside of the control of the park’s developers or local government officials. For example, UCLA’s involvement could be dependent on whether its biomedical graduate program which would offer master’s degrees and doctorates in biomedicine receives approval for the next academic year. “When we’ve got approval, we hopefully will officially do something about it,” said John Mackenzie, associate dean at UCLA’s school of engineering and applied sciences. The GM site’s developers want to use biomedicine as a draw for the industrial park’s two other industries advanced materials development and information technology, both of which have ties to the biomed industry. Barney Smith, vice president of development for Century City-based Wou & Partners Inc., a development firm that is working on the facility, said that he has seen a lot of interest from biomedical companies, but that financial assistance might be needed to convince them to move into the park. “We’re looking for funds from public sources to help companies move in there,” Smith said, adding that publicity about the project from government officials would be helpful. “The biggest challenge is to generate the interest among the scientific community to locate facilities there,” he said. One possible source of both funding and publicity is Mayor Richard Riordan’s office, Smith said. Gary Mendoza, Riordan’s deputy mayor for economic development, said that he has met with both Berman’s office and representatives of City Councilman Richard Alarcon, whose district includes the GM site. “I think there is an opportunity to capitalize on the biomedical research done in this region. If we can pull it together, it has great potential,” Mendoza said. As far as economic incentives for companies go, Mendoza said one possible funding source is from a federal Economic Development Administration grant, which could provide construction money for biomedical companies. But Mendoza also said that money for the project could come from elsewhere within the city government if the mayor’s office decides that the project is economically viable. “If it makes sense, we might be willing to put some seed money into that,” he said. Outside of economic incentives, one draw for many of the companies is the facility’s close proximity to a new Metrolink station, the San Diego Freeway (405) and the Ventura Freeway (101). “The nice thing about it is that it’s centrally located near transportation corridors,” Smith said. Slifko pointed out that the site also is located near several well-known research facilities, including UCLA, USC, Caltech, UC Santa Barbara, Jet Propulsion Labs and Cedars-Sinai Medical Center. “Other parts of the country would just be exuberant that a high tech park could be so near so many prestigious research institutions,” Slifko said.

realestate/kanter/19inches/1stjc/mark2nd LARRY KANTER Staff Reporter After a number of lackluster years, industrial real estate development is on the rebound. With rapidly expanding entertainment companies gobbling up nearly every bit of available space in the East Valley, demand for high-quality industrial sites is reaching levels not seen since the late 1980s. In response, developers have begun embarking upon a number of build-to-suit, and even some speculative, developments not just in ultra-hot Burbank and Glendale, but in other regions of the San Fernando Valley, as well. “It’s back,” said an enthusiastic Barbara Emmons, vice president in the Glendale office of CB Commercial Real Estate Group Inc. “There is a lot more tenant activity than there are buildings.” That activity can be seen in tightening industrial vacancy rates. In the fourth quarter of 1996, the rate dipped to 6.8 percent, down from 10 percent for the like period last year, according to Grubb & Ellis Co. The shrinking supply of modern, industrial facilities has sparked a number of new developments, including the Valley’s first speculative industrial project in recent memory the Flower Street Business Park in Burbank. The five-acre development currently under construction at the former Andrew Jergens soap manufacturing plant near Verdugo Road and Olive Avenue consists of five buildings, each in the 13,000-to-15,000-square-foot range. Two of those buildings are in escrow with a pair of entertainment companies, said Mike Daven, an industrial properties broker in the Sherman Oaks office of Grubb & Ellis. The project’s second phase, meanwhile, will feature a 50,000-square-foot build-to-suit facility for “a major telecommunications company,” which Daven declined to name. It’s not just Burbank that’s seeing new development. Mounting demand in the East Valley is spilling over into neighboring locales. An example of that is a speculative development in Pacoima scheduled to break ground next month. The development consists of two buildings one 25,000 square feet and the other 38,000 square feet – in Pacoima’s enterprise zone. They are likely to be snapped up by warehousing, distribution or entertainment companies, said Chris Sullivan, vice president of Daum Commercial Real Estate Services in Woodland Hills, which is handling the project’s leasing and sales. “There’s a lot of pent-up demand for that kind of space,” said Sullivan. A number of factors besides the voracious appetites of entertainment firms are driving the new developments. For one, developers had been converting industrial properties into offices in response to an earlier demand for office space. That has helped create a serious shortage of industrial facilities, according to Daven. At the same time, much of the Valley’s existing industrial stock consists of 10,000- to 20,000-square-foot buildings built in the 1960s and 1970s that have substandard parking, loading and other facilities. “Today’s tenant wants newer construction,” Daven said. The shortage of large, modern facilities is prompting developments such as the Cascade Business Park, which broke ground in Sylmar last November. Located near the junction of the 5 and 210 freeways on land that has never before been used for industrial purposes, the 88-acre business park is zoned for both industrial and commercial use and is surrounded by an 18-hole, championship golf course. Frito-Lay Inc. has purchased 8.65 acres for a warehousing and distribution center. And several other deals are pending, according to Emmons, of CB Commercial. Also contributing to new industrial development is the region’s mounting economic recovery. “Developers are getting the courage to start getting into the speculative market,” said Ross Thomas, a partner with Delphi Business Properties in Van Nuys. “The banks also are getting more comfortable.” The growing prominence of Wall Street money and REITs also is paving the way for new development, real estate sources said. “It’s a very different market than it was a year ago,” said Thomas.

msa/mike1st BEN SULLIVAN Staff Reporter Medical savings accounts are being touted by proponents as the hottest thing to hit the health insurance industry in years. But so far, most local managed care companies are keeping their distance from the novel payment method. In Woodland Hills, the hub of Los Angeles’ managed care industry, only Blue Cross of California has attempted to market a medical savings account, or MSA, and that effort earned the company a $100,000 fine last month from the California Department of Corporations. Blue Cross had run a half-page advertisement in the Wall Street Journal in December promoting its MSA, but did so before receiving final regulatory approval from the department. Blue Cross’ MSA license now hangs in limbo as the company negotiates a settlement with the department. Indeed, since MSAs went into effect Jan. 1, only San Francisco-based Blue Shield of California has received approval from the Department of Corporations to market a plan. In part, the managed care industry’s reluctance to pursue MSAs is because the products undermine existing HMOs, according to Peter Lee, director of the HMO Consumer Protection Project at the Los Angeles-based Center for Health Care Rights. HMOs rely on the concept of shared risk, in which all enrollees contribute a little each month, Lee said. For every person who opts out of an HMO in favor of an MSA plan, the burden on those left behind increases. Also, HMOs tend to emphasize preventive care, Lee said, while MSAs focus on catastrophic coverage. “The theories of the two definitely go against each other,” said Daniel Meracle, vice president of Seabury & Smith, a broker and administrator of employee benefit plans in Glendale. Managed care has also been slow to act because it is unclear how popular the plans will be with consumers. “We need to do more research,” explained David Olson, a spokesman for Woodland Hills-based Health Systems International. “We don’t have anything in the product development pipeline at this time, but we’ll continue to watch them with a great deal of interest.” Similarly, Woodland Hills-based CareAmerica Health Plans said it has been exploring the possibility of launching an MSA plan, but has yet to get one off the drawing board. Kaiser Permanente said it has no plans to offer an MSA. Still, both Lee and Meracle noted, if MSAs do catch on, the managed care industry will be unable to ignore them. Warren Blumberg, executive director Centerstone Insurance & Financial Services in Woodland Hills, said that’s just what is likely to happen. “Carriers are not jumping on the bandwagon to provide these yet,” Blumberg acknowledged. “But when they take off, (the groups) will want a piece of the action.” MSAs come out of last year’s Health Insurance Portability and Accountability Act of 1996, which sanctioned the creation of an MSA pilot program of 750,000 accounts nationally to help small companies, self-employed and uninsured individuals attain affordable health care coverage. The plans let people set aside money in tax-exempt, interest-earning bank accounts, for the exclusive purpose of covering health care expenses. Not only does the holder not pay taxes on the interest earned, but he or she can deduct the amount deposited in a given year from their taxable income. However, to qualify for an MSA, consumers must purchase a high-deductible catastrophic health insurance policy. When a medical cost arises, account holders pay the first several thousand dollars of expense out of the account, after which insurance picks up the rest. For its part, Blue Shield remains bullish on the products. “We’re very positive about the opportunity on this thing,” said Jim English, Blue Shield’s vice president of sales and marketing. “Clearly, this is new ground that we’re exploring, but it’s really exciting stuff.” we’re brokers and adminsitrators of employee benefit programs We act as general agents for MSA hard to get employers interested until after the 1st of the year. just received People like kaiser cant get a handle on the expenses. outpatient costs The theory of it def go against each other. its a defensive mechanism. the premium’s going to come down so our commison’s going Glendale, The theory of it def go against each other.Daniel Meracle, vice president and Western US area head , marsh and maclenen

partners/jan20/bb/6 inches/mike1st/mark2nd Payroll processing specialist Entertainment Partners is planning to develop a 90,000-square-foot Burbank office building into which it will consolidate operations from several Burbank-area sites, according to City of Burbank development officials. The company, which primarily serves the entertainment production industry, is currently headquartered on Olive Avenue in Burbank’s Media District. Entertainment Partners officials didn’t return phone calls for comment. But Jim O’Neil, special assistant to Burbank’s community development director, said he expects the city this week to approve the company’s plans to develop a new headquarters building on the vacant lot at 2835 Naomi St., near Glenoaks Boulevard. The site, formerly occupied by Ocean Technology Industries, is just east of the Golden State (5) Freeway near Woodbury University. O’Neil added that Entertainment Partners is expected to break ground on the proposed three-story building shortly after plans get final approval. Demand from the entertainment industry has filled nearly all the office space in the Media District and throughout the Burbank area. That has left companies wishing to expand or consolidate with little choice but to commit to new developments or leave the city. Brad Berton –30–

REColSFVFeb/bb/21 inches/mark2nd A response management company that’s been a fixture in the San Fernando Valley for 30 years is growing under new ownership and is headed for expanded (and expandable) new digs in the next valley to the north. The firm, Harte-Hanks Response Management, has preleased an entire 115,220-square-foot industrial building (plus 20,000-square-foot mezzanine office) in Valencia. The company, formerly known as Inquiry Handling Service, has been based in the City of San Fernando for three decades. It was purchased last June by NYSE-traded media firm Harte-Hanks Communications. So what exactly does the response management group do? It helps the sales and marketing divisions of its clients particularly big in the computer, electronics and software fields increase sales by handling functions such as telemarketing, literature distribution, sales-lead management and seminar coordination. The parent company, headquartered in San Antonio, also publishes newspapers, owns television stations and offers direct-mail services. Harte-Hanks Response Management signed the long-term relocation lease just after Newhall Land & Farming Co. began developing the building on a speculative basis (i.e., without a pre-construction tenant commitment) in its high-momentum Valencia Commerce Center business park just off the Golden State Freeway (I-5). Scott Knight, the response management group’s general manager, noted that the division will double the size of its current facility, on Parkside Drive San Fernando, when 140 to 150 employees make the move to Valencia. Harte-Hanks can expand its future home, at Franklin Parkway and Commerce Center Drive, up to about 175,000 square feet as is needed, he added. Besides preferring a modern new facility in a prestige area like Valencia, Knight also said the growing company wanted to make sure its facility would include 500 parking spots within five years. After Harte-Hanks bought Inquiry Handling from the local owners last June, Knight explained, the new owner signed a short-term lease with the sellers who continue to own the San Fernando property. Ross Thomas of Delphi Business Properties negotiated the lease transaction, terms of which weren’t disclosed, on behalf of Harte-Hanks. CB Commercial Real Estate Group’s Doug Sonderegger and Craig Peters, who handle leasing at Valencia Commerce Center, noted that industrial vacancy in the area has dipped to a scant 1.8 percent. Harte-Hanks is the latest of several expanding companies seeking modern facilities in a master-planned environment that have relocated from the bigger Valley to the south. The Valencia Commerce Center is within the 3,200-acre master-planned Valencia Gateway commercial/industrial complex being developed by Newhall Land, the NYSE-traded master limited partnership that has long been Santa Clarita Valley’s dominant developer. Plastics firm to expand The fact that Harte-Hanks snatched up the entire building just after construction commenced illustrates the level of tenant demand in Valencia. During the same week that Harte-Hanks signed its lease, another fast-expanding tenant already in the Valencia Gateway development committed to a Valencia Commerce Center “spec” building just after construction started. Cosmic Plastics Inc., which makes plastic resins used for injection molding, preleased the entire 71,750-square-foot industrial building on Industry Drive. The company owned by Lillian Luh will relocate from about 32,000 square feet in two buildings it now occupies in Newhall Land’s nearby Valencia Industrial Center, the other big business park at Valencia Gateway. CB’s Peters and Sonderegger represented both landlord and tenant in negotiating that long-term lease transaction, terms of which, again, weren’t disclosed at Newhall Land’s request. But the veteran brokers did specify that Valencia Gateway ended 1996 with just over 1 million more square feet occupied than at the beginning of the year. In addition to the Harte-Hanks and Cosmic Plastics buildings, the brokers said they’re getting “good activity” from tenants interested in the other two speculative buildings now under construction, totaling just over 76,000 square feet, at Valencia Commerce Center. Next up: Another Valencia Commerce Center phase including eight buildings totaling 435,000 square feet are in planning. Not surprisingly, investors have just purchased some of the buildings Newhall Land developed and leased at Valencia Gateway. During the last two months of 1996, musical drum maker Remo Inc. purchased the 216,000-square-foot building it occupies, and Beverly Hills-based Crown Associates Realty Inc. bought the 93,000-footer occupied by Ultra Violet Devices Inc.

econowatch/dy/12″/mike1st/mark2nd The December apartment vacancy rate for the San Fernando Valley fell substantially from the like period a year ago, according to this month’s Valley Econowatch. The 9.3 percent rate was unchanged from November, but down from 11.7 percent for December, 1995. Industry specialists point out that apartment vacancies moved steadily downward for much of 1996, and that trend should continue in 1997, as the local economy improves. “You don’t see a lot of construction and haven’t had a lot of construction (of new Valley apartments) in the last five years. So with the economy gaining momentum, we see these occupancies going up,” said Raffi Krikorian, managing regional partner in the Encino office of Sperry Van Ness. Valley apartment vacancies either held steady or dropped in every month since the middle of last year, going from 10.4 percent in May 1996 to the current 9.3 percent. Submarkets with the lowest vacancy rates as of December included Encino-Tarzana (6.0 percent), Sherman Oaks-Studio City (6.2 percent) and North Hollywood (8.0 percent). The weakest submarkets were in areas hit hardest by the Northridge earthquake of 1994, including Reseda-West Van Nuys (14.4 percent), Northridge (12.9 percent) and Mission Hills-Panorama City (11.9 percent). Zeke Logan, a senior associate with brokerage firm Lee & Associates of Sherman Oaks, said that Valley apartment vacancies could drop as low as 6 percent before the decreases taper off. The falling vacancy rates have already caused rents to level off in many Valley submarkets and rents could even start to rise in the strongest submarkets as early as mid-1997, said Logan and Krikorian. Rising rents and falling vacancies could start to push up building prices, which ultimately would result in a sellers’ market for the first time in five years, Krikorian said. Areas where rents have firmed up include Sherman Oaks, Woodland Hills, Studio City, Tarzana and Encino. The move to a sellers’ market could even spark the first development of new Valley apartment buildings in recent years, Krikorian said. “At this point in time, you can buy buildings at or below replacement cost, so new construction isn’t justified. But we could see some new construction beginning as early as the end of this year” if building prices and rents rise, he said. Douglas Young

hyatt/dy/13″/mike1st/mark2nd DOUGLAS YOUNG Staff Reporter A flurry of commercial development activity is taking place in Valencia, as developer Newhall Land and Farming Co. transforms Town Center Drive into a retail district extending westward from the Valencia Town Center mall. Upon completion, Town Center Drive is designed to be an upscale retail/office district reminiscent of Colorado Boulevard in Old Town Pasadena, according to Newhall Land spokeswoman Marlee Lauffer. On parcels along the drive, which begins at the Valencia Town Center mall and stretches about half a mile to the west, are planned a 250-room Hyatt hotel, an entertainment center with a 3-D IMAX theater, a sports club and several buildings with retail and restaurant space. Newhall Land is financing and developing most of the buildings through its own internal resources, Lauffer said. Four projects on Town Center Drive have either been completed, are under construction or are slated to break ground in the near future. The lone completed project is a three-story mixed-use building with retail and restaurant space on the ground floor and offices on the two upper floors. The building was finished last September and is currently 55 percent leased, with Dean Witter as its largest office tenant, Lauffer said. Meanwhile, both the Hyatt and a 55,000-square-foot sports club are currently under construction. The sports club, with an expected completion date in May, will be operated by Spectrum Health Clubs, which plans to market the facility as a high-end sports facility, Lauffer said. The Hyatt is tentatively scheduled to open in the spring or summer of 1998, according to Cheryl Phelps, the Hyatt vice president in charge of the project. One factor attracting Hyatt to the area is the hotel chain’s relative lack of presence in the San Fernando Valley area, Phelps said. “We don’t have a presence in that part of Los Angeles. This would be the farthest north we have until you hit the one in Monterey,” she said, noting that the two closest Hyatts to Valencia are located in Westlake Village to the west and Century City to the south. Both Newhall Land and Hyatt are plugging the new hotel as Valencia’s first full-service inn catering to an upscale clientele. Aside from the three projects either finished or under construction, Newhall is also scheduled to soon break ground on a 60,000-square-foot entertainment complex. The complex, slated for completion in the spring of 1998, will feature an IMAX theater and 12 additional screens to be operated by Edwards Cinemas, said Lauffer. As early as this fall, Newhall also plans to break ground on two more mixed-use retail/office buildings. All the recent activity on Town Center Drive comes after a period of relative quiet for Newhall Land in the Valencia area. Lauffer explained that Newhall Land has spent much of the last four years developing infrastructure for Town Center Drive so it would be ready to build actual commercial projects as soon as the Southern California real estate market started to come back. “We’re creating this traditional street, but from the ground up. It was designed to be reminiscent of downtown main streets,” she said.

FASTTRACK/1stjc/mark2nd BENJAMIN MARK COLE Senior Reporter Making the new look old and turning tin into “gold” has proven the Midas touch for Burbank-based costume jewelry maker 1928 Inc. Started 27 years ago, 1928 today has a workforce of between 600 and 1,500, depending on the season, and ships out an average of 10,000 filigreed baubles each working day. Most pieces are reproductions of pins, pendants and earrings originally manufactured in the 1700s through early 1900s. 1928’s niche is “antique” costume jewelry, sold nationwide and globally, in the mid-point price range generally, well under $30 a piece. By picking out a market and largely sticking to it, 1928 has grown to about $100 million in sales, says David Sukonik, senior vice president. “Over the years, we’ve tried to get into other markets, and we’ve had our brains kicked in,” says Sukonick, a gruff, native Philadelphian who joined the company in 1976. “This is not a forgiving business.” Now, instead of trying new looks deco or modern, for example 1928 has broadened its line within the antique look. Today, in addition to rings, bracelets and pins, 1928 offers bookmarks, letter-openers, watches, small boxes, pens, picture frames, handheld magnifying glasses, scissors and even copies of Faberge eggs. But whatever the product, the look is consistent usually antiqued gold, sometimes silver, with filigree, around an enamel figurine or semi-precious stone. Changes in the domestic retailing market may have forced 1928’s hand towards diversification among products, if not style, relates Sukonick. Heavy mergering among mid- and upper-market retailers and booming discount chains has meant far fewer wholesale buyers for 1928’s wares. “Federated bought Macy’s which bought Broadway and Bullocks and Bloomingdale’s,” says Sukonik, in a shorthand rendition of department store mergers. “Now, instead of five buyers, you have one. Overall, you’ve gone from 1,000 to 1,500 department stores in the country, to maybe 100 or 80 today.” But with the additional product lines, 1928 no longer appeals only to the jewelry wholesale buyer. “We have a lot of different things out there, so we sell not only to the jewelry buyer from Federated, but the gift buyer, the watch buyer, the kids’ buyer. We have a lot more chances,” says Sukonik. Also, two years ago 1928 inked a contract with the Vatican to produce jewelry primarily pendants and pins and boxes based upon art and religious artifacts in the church’s vast Roman library. “They have to approve all designs,” notes Sukonik. For each piece sold, 1928 pays a royalty to the Vatican. “The Vatican Collection now makes up 15 percent to 18 percent of sales,” says Sukonik. In general, 1928 sells the Vatican iconography to much the same wholesale buyers as its other wares, but reaches a different retail buyer, says Sukonick. “We are reaching a new market with the Vatican Library. Our antique line sells most heavily in the Midwest, while the Vatican lines sell most heavily on the coasts, particularly ” he says. “I don’t want to reveal details, but we are looking at other religious lines as well,” he said. 1928 was founded by Melvin Bernie, the company’s original designer, as well as inventor of the proprietary antiquing process and some of the production equipment and processes used by the company. Burnie does not grant media interviews, according to Sukonik. The company was relatively small in its first seven years, reaching $3 million in sales. Sukonick, with marketing and distribution experience gained at the old Max Factor cosmetic company in Hollywood, joined two decades ago. “I already knew the buyers from the major department stores, so I had an in,” he says. “You have to make good stuff, but I could at least get them to try it.” In 1928’s 100,000-square-foot warrens near the Burbank airport, the alchemy of turning tin into gold begins with casting. First, tin (mixed with 4 percent bismuth) is made molten at 726 degrees, and poured into centrifigul molds, explains Norman Miles, production engineer. “In season (the summer-time peak manufacturing season) we pour about 2 million pieces a month,” says Miles. After a de-burring process, cast pieces are then gold- or silver-plated, and then set with stones or enamel. Sometimes a decal is placed onto the enamel, such as images of flowers or cherubs. Almost all work is done by hand. Small production runs are the reason, says Miles. “You can set up machines, when you have long production runs. But here, we are changing styles and models every day, every season. A human being can change in a heartbeat,” he says. At the heart of the 1928 operation is the antique-ing room. In an inner santuary, craftsworkers make new gold-plated castings look old, through a proprietary process. In minutes, maybe 100 years is added to the visual look of a piece. A visitor is sworn to secrecy before gaining admittance. For the future, 1928 will try to broaden its market in the antique look, and keep production in the United States. Importers of costume jewelry present ferocious, low-price competition, which 1928 tries to counter by offering quicker turnarounds, higher quality and better design, says Sukonick. “The customer right now is very pricey (price-sensitive). Our concept is to give them higher quality, something they can keep. But things are very competitive right now,” he says.

entcol/turner/23″/mike1st/mark2nd Who would have thought, when we were growing up watching Elmer Fudd chasing Bugs around with a shotgun or Daffy Duck making those wacky whooping noises, that someday people would be willing to shell out $25,000 for a Looney Tunes chess set? The David Krakov-designed chess set is the most expensive item at the Fifth Avenue flagship of the Warner Bros. Studio Store, which expanded to nine stories in a building on New York’s equivalent of Rodeo Drive in October. Excessive? Maybe. But the retail chains launched by Warner Bros. and Walt Disney Co. have proven to be cash cows for both studios, and both chains have somehow managed to elevate their parent companies’ famous brands into high-end fashion icons. For many years, the studio stores run by Disney and Warner Bros. were ignored by analysts because, while they were believed to be profitable, their overall income and revenues represented barely a trickle of the torrential revenue streams of companies as big as Disney and Time Warner Inc. But both chains have grown so quickly that the trickle is turning into a veritable gusher. “In 1988, we started as a small division with annual revenues of $20 million,” said Dan Romanelli, president of the Warner Bros. worldwide consumer products division, which manages the studio stores, the licensing of the studio’s creative properties, interactive entertainment, publishing and toys. “Our growth has been at a compounded annual rate of 30 percent. Over the next four years, we will exceed $1 billion a year in revenues. That is clearly a considerable achievement,” he said. Romanelli is referring to overall revenues for the consumer products division financial information on the stores alone is not revealed in Time Warner’s public filings. But the majority of those revenues come from the retail and licensing sides. Warner Bros., which opened 22 new stores around the world in 1995, opened 30 more last year, bringing its total to 161. Disney, meanwhile, opened 101 new stores in 1996, bringing its total to 530. Like Time Warner, Disney doesn’t break out financial information for its stores division, but we do learn from its fiscal 1996 year-end earnings report that revenues from the Disney Stores increased $197 million in 1996 over 1995. If that’s the sales increase, the total sales figure must be in the neighborhood of $1 billion a year. Sales at the Disney and Warner stores aren’t necessarily brisk in the traditional retail sense usually, a retailer’s success is measured on how well its stores perform versus the previous year. From that standpoint, the Disney Store is nothing to write home about. According to Disney’s earnings report, same-store sales were down 2 percent in 1996, after rising 4 percent in 1995 on the popularity of merchandise based on “The Lion King.” As for Warner well, there’s no telling, but it would be surprising if its stores were doing substantially better than those of the merchandising master, the Mouse. The stores are nonetheless generating terrific profits for the studios, according to analysts, for two reasons: One, the continual opening of new stores generates a great deal of extra cash (that $197 million generated at Disney in 1996 came from its new stores), and two, the markup on that merchandise is monstrous. Arthur Rockwell, research director with L.A.-based Yaeger Capital Markets, says it’s relatively inexpensive for Disney and Warner Bros. to open new stores. And the better ones can generate a profit within three to six months. So a strategy of continual expansion is almost guaranteed to keep adding large sums to the studios’ balance sheets. Of course, this strategy has been tried by retail chains before, and inevitably a saturation point is reached. That’s when the market is too flooded with stores, the new stores stop generating profits and the old ones start losing money. But neither Disney nor Warner Bros. appears to have reached that point yet. “There is a critical mass, but what it is for studio stores, I don’t know,” said Rockwell. In addition, by establishing their entertainment properties into respected apparel and even houseware brands, the studios can charge a huge markup on their merchandise. Thus, Disney or Warner Bros. can slap a picture of Mickey Mouse or Wile E. Coyote on the pocket of a polo shirt made in Asia and charge the same price as a Ralph Lauren or an Izod. “When you go into one of these stores and pick up a Bugs Bunny or Daffy Duck keychain for $3.95, you don’t care if it only cost 5 cents to make it overseas. You’re paying for the brand,” said Steve Cesinger, entertainment analyst with downtown L.A.-based Greif & Co. Disney, of course, took some flack last year when activists accused the company of using underpaid child laborers in Asia to make its licensed products. But the protests appear to have done little damage to the studio’s sales or image, Cesinger said. With all the success these two Burbank-based giants have had with their retail divisions, it might seem odd that other studios haven’t jumped into the game. They haven’t, analysts say, simply because they can’t. The overwhelming majority of the merchandise in Disney and Warner Bros. stores is based on both studios’ animated character franchises. And nobody else but Disney and Warner has such well-established animated characters. That does, however, help explain why studios such as 20th Century Fox and DreamWorks SKG are spending so much money to build feature animation divisions.

universal/dy/17″/mike1st/mark2nd DOUGLAS YOUNG Staff Reporter Opponents of Universal Studios Inc.’s plan to expand its Universal City development plan say they will recruit a larger contingent to turn out for the next public hearing on ther project, slated for March 3. They are seeking to bolster their ranks to offset a massive public relations campaign Universal has been mounting. The March session will be a follow-up to the Jan. 21 meeting, a standing-room-only affair that involved lengthy testimony from both opponents and supporters. Supporters of the plan say the expansion would bring jobs and growth to the local economy, while opponents argue the proposed expansion would create a traffic-and-noise nightmare in nearby communities. L.A. city and county planning commissioners listened for five hours at the Jan. 21 hearing, as supporters and opponents gave their opinions on a plan that could add up to 5.9 million square feet of additional hotel, studio, office and theme park development to the Universal City lot over the next 25 years. The hearing marked the first time commissioners heard what Valley residents had to say about the proposed expansion, which would add 13,000 jobs to the area and increase state and local tax revenues by $25 million a year, according to Universal’s estimates. Some 43 supporters and 70 opponents signed up to publicly voice their opinions, though only a fraction of those had time to address officials, leading to the decision for a continuance on March 3. Many of the plan’s supporters are members of a Universal-backed group called Universal City Tomorrow, comprised of homeowners from various Valley communities near the Universal lot. Meanwhile, homeowner groups from Toluca Lake, Studio City and the Cahuenga Pass area turned out the largest contingents for the opposition. Cahuenga Pass Property Owners Association President Krysta Michaels was among those who didn’t have a chance to speak at the January hearing because of time constraints. “I think it’s important for people to get up and have enough time to say everything they want to say. It’s important for (the planning commissioners) to hear how frustrated and desperate homeowners are,” she said. Michaels and other opponents of the plan pointed out that they are not particularly opposed to Universal’s plan to expand its studio operations. The strong opposition is actually to Universal’s plan to expand its theme park and build a resort district, which opponents claim would make noise and traffic levels unacceptable. To drive home its point, the Studio City Residents Association say they will try to get more of its members out for the March meeting, said association President Tony Lucente. He said his group was caught off guard by the large turnout of Universal City Tomorrow members on Jan. 21. “It’s very apparent that Universal has a well-orchestrated public relations campaign to give the impression that they have a lot of support in adjacent communities,” said Lucente. “Given that, I think we’ll also play the same game, to some extent, in ensuring the proper numbers (of opponents) are there and that’s visible to the commissioners,” he said. Specifically, Lucente said he expects to get a Studio City crowd of about 50 opponents out for next month’s hearing, compared with only about half that number that came out in January. Universal officials previously made a presentation to city and county commissioners detailing their expansion plans on Jan. 13. The company spent the Jan. 21 hearing on the sidelines, listening to feedback from supporters and opponents.