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The Reel Thing: Coke’s Brief-Yet-Profitable Foray into Show Business

By:  Jay Moye 06/03/2014
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Film

For most of the 1980s, Coca-Cola quenched the world’s thirst for more than just soft drinks. The company also delighted movie fans around the globe by bringing Ghostbusters, The Karate Kid, Stand By Me and other blockbuster films to screens big and small through its ownership of Columbia Pictures.

Coca-Cola acquired Columbia in June 1982, just a few weeks before making another groundbreaking move with the launch of Diet Coke. At the time, the company was emerging from one of the toughest decades in its nearly 100-year history, and newly elected Chairman and CEO Roberto Goizueta was eager to write a new chapter of growth by pursuing ventures outside the confines of carbonated soft drinks.

“He had a philosophy of no sacred cows,” says Ted Ryan, Chief Archivist at Coke. “Anything that could better position the company to generate profits and create shareowner value needed to be explored.”

Movies and television sat atop a shortlist of investment possibilities. The U.S. entertainment industry was poised for significant growth in the early-‘80s, thanks largely to the emergence of cable television and home video, which created both unprecedented consumer demand for content and lucrative new revenue streams for key players. Columbia Pictures was seen as a rising star.

From Soft Drinks to the Silver Screen

Coca-Cola made a preemptive offer of nearly $750 million, immediately doubling Columbia’s stock price and taking potential counter-offers off the table. While Coca-Cola had previously stretched its legs with equity stakes in everything from shrimp farming to industrial water treatment, the Columbia purchase was seen as the company’s biggest step outside its native business. Analysts and media questioned the deal, suggesting a beverage company had no business in the entertainment business.

Oscar statue

Gandhi won the ‘82 Academy Award for Best Picture. This statue is on display at the World of Coca-Cola in Atlanta.

Soon after the deal went through, Columbia, CBS and Home Box Office (HBO) formed a new studio called TriStar Pictures, which boosted Columbia’s production capacity while offsetting much of the financial risk. The studio got off to a fast start, releasing a string of hits including Tootsie, The Toy and The Big Chill. Gandhi even won the 1982 Academy Award for best picture.

Peter Sealey, a veteran Coke executive, was tapped to run marketing and distribution for Columbia Pictures. “I lobbied for the job,” he says. “They didn’t know it at the time, but I’d always wanted to work in movies and go to Hollywood.”

And that he did. Gaining acceptance among industry insiders didn’t come easy, however. In his first week, Sealey scheduled a 9 a.m. meeting with actor Bill Murray. “I’m sitting behind my desk with a coat and tie on,” he recalls, “and he’s wearing a pair of Bermuda shorts, drinking a Budweiser. He saw me as the suit.”

As the studio, Columbia provided financial backing for each theatrical release. Sealey – who ended up growing a beard, ditching the suit and securing an invite to the Academy of Motion Picture Arts and Sciences – was responsible for hiring a producer for each film, who then hired a director and cast and was responsible for delivering the finished product. He describes his role as part marketer, part psychologist.

“It was the most personality-intensive marketing job in the world,” he adds. “Movies are the only profession where your reputation is on the line every time. My job was holding hands… with directors, producers and actors. Because they’re not loyal to a studio; they're loyal to a series of horizontal relationships.”

For a marketer, opening a movie provided the ultimate rush. “With The Karate Kid, I remember going to Westwood Village in Los Angeles, right next to the UCLA campus, around 3:30 on Friday afternoon of opening weekend and seeing a line starting to form. By the first showing, it was the most exhilarating feeling I’d ever had as a marketing guy… knowing that movies had a powerful cultural impact.”

He continues, “(In the beverage industry), introducing a new brand is a bit of a slow build. After the launch, you grow sales gradually. But in the movie business, on the Friday afternoon of opening weekend, it’s either going to work or it’s not.”

Sealey, who returned to Atlanta years later as head of global marketing, applied what he learned in Hollywood while architecting the now-iconic “Always Coca-Cola” campaign. “I took the movie marketing model and transferred it to advertising -- hiring producers and letting them finish the creative product,” he says. “Instead of making 20 films with 20 producers, I made 26 commercials with about 15 producers.”

Small Screen Success

Television drove much of the profits in the time period Coke owned Columbia Pictures. In 1985, the acquisition of Embassy Communications brought with it a library of established daytime and prime-time series, including Facts of Life, Different Strokes, The Jeffersons, Days of Our Lives and The Young and the Restless, plus a pair of soon-to-be hits in Who’s the Boss? and 227.

A year later, Columbia’s footprint in first-run syndication expanded significantly with the purchase of Merv Griffin Enterprises, which produced several top-rated game shows including Wheel of Fortune and Jeopardy! Before Coca-Cola acquired Columbia Pictures, television accounted for only one-third of the studio’s operating income. By 1986, that number had climbed to 85 percent.

“Television was a very profitable unit for us,” Sealey says. “One year, Wheel of Fortune and Jeopardy! were the second most profitable sector of The Coca-Cola Company other than brand Coke.”

Movies were less of a sure thing. Of the 20 or so films Columbia released each year during Sealey's tenure, only a handful turned a profit. Thankfully for Coke, the hits more than covered for less-successful releases.

“We made money on theatrical distribution during those years, but the real payoff in the movie business comes from your library,” Sealey explains. “We made $5 million a year on Bridge on the River Kwai, a movie released in 1957. It was like an annuity, and we owned it.”

Yet, one notorious big-budget bomb – 1987’s Ishtar – lost more than $40 million and generated a barrage of bad press, much of it maligning Coke. “You would’ve thought The Coca-Cola Company was bankrupted by Ishtar,” Sealey says. “The publicity was unbelievable.”

Return to Fundamentals

The financial dent and subsequent headlines left a scar at Coke. Thanks, in part, to senior leadership’s aversion to the high-profile nature of the entertainment business, the company sold Columbia Pictures to Sony in 1989. And while some were quick to blame Ishtar, the deal – which netted Coke more than $500 million in profits – was fueled moreso by senior leadership’s back-to-basics vision for the enterprise.

“By that point, Roberto Goizueta had come 180 degrees from where he was in the early ’80’s,” Ryan says. “He believed in the power and simplicity of the Coca-Cola system, and saw significant growth opportunities in the  drinks business. The long-term value in soft drinks was much greater than entertainment, so he made the decision to shed a growing business – as well as all other interests that didn’t directly position the company as the world’s leading beverage provider.”

Sealey agrees. “Roberto revolutionized the whole perception of The Coca-Cola Company. It was a bold experiment to set the company on a new direction… and it worked.”