Stars of the screen try to salvage the plot

Edward Helmore reports from Idaho on a meeting of the moguls

Last week the tell-tale vapour trails of Gulfstream jets in the huge blue sky above Sun Valley, Idaho, signalled the arrival of 130 of America's most powerful media moguls and corporate giants to the highly coveted annual networking jamboree held by pre-eminent media banker Herbert J Allen Jr.

Guests such as Rupert Murdoch, Disney chief executive Michael Eisner, Viacom's Sumner Redstone, Microsoft co-founders Bill Gates and Paul Allen, Dreamworks' David Geffen and Time-Warner's Gerald Levin make the five- day retreat the ultimate in A-list events. With families in tow, the moguls come to swap ideas, ride the rapids and clinch deals.

Last year, a chance meeting between Mr Eisner and Berkshire Hathaway's Warren Buffett in the woods that surround the tiny resort produced the $19bn (pounds 12m) Disney Capital Cities/ ABC deal. This year, though, the mood is downbeat, despite the record-breaking box-office success of the sci-fi yarn Independence Day.

Threatened by telephone and satellite delivery systems, new networks, the Internet and weak markets, entertainment stocks have flopped, and many companies that borrowed billions of dollars in pursuit of "synergistic" mergers are now straining under heavy debt, poor returns and management problems.

The Salomon Brothers index of six entertainment stocks has risen just 12 per cent in the last year, lagging the market by half. Analysts warn that the corpulent business culture used to years of growth must now be trimmed if the sector is to regain its lustre.

Even the party's host - whose Wall Street-based firm, Allen & Co, has brokered most of Hollywood's biggest deals, including Seagram's $5.7bn purchase of MCA and Sony's ill-fated buy-out of Columbia/Tristar in 1989 - admits his clients are in a mess. "It's a combination of movies that cost too much, executives who cost too much and marketing costs going into orbit," Mr Allen said last week. "The film business is uneconomic today."

In a reflection of the changes, Mr Allen invited more hi-tech, telecoms and international media concerns than ever before."This is Allen's principal marketing vehicle," said one investment rival."The event is totally promotional."

All the attendees at the Sun Valley Lodge conference are sworn to secrecy. Anyone who dares breathe a word will not be invited back. Guests who want a return invitation should also be reminded not to lose their high- powered jobs. Absentees this year included Michael Schulhof, Sony's deposed chairman, Michael Fuchs, who lost his job in a Time-Warner power struggle, and Savoy Pictures' founders Victor Kaufman and Lew Korman, who lost a fortune for Mr Allen's investors.

Nowhere is the industry's dilemma more acute than at Disney, which recently decided to halve film production and write off many programmes under development for ABC.

Disney's summer showpiece, The Hunchback of Notre Dame, has fared badly against the animated blockbusters of previous years, and insiders report a feud between Mr Eisner and Mike Ovitz, the talent agent who joined as Mr Eisner's number two last summer. Meanwhile the $7.5bn merger of Time- Warner and Turner Broadcasting has yet to clear regulators, the company has not begun to reduce its $16bn debt, and internal feuding has cost more than $300m in redundancy pay-offs.

CNN's Ted Turner turned his back this year, preferring to hang out at his ranch rather than vie for centre stage with dozens of competitors.

In another sign of wilting investor appetite, Viacom recently withdrew Spelling Entertainment, which produces hit TV shows like Melrose Place and Beverly Hills 90210, from sale after offers failed to reach $1bn.

Even the star of last year's get-together, Edgar Bronfmann Jr, who had just divvied up billions for MCA, has told shareholders it may take two or three years before the company is on track. Another item of hot gossip last week was whether PolyGram could finally close a deal for trouble- ridden MGM films.

As the wives went shopping, locals babysat the next generation of Hollywood heirs, and world-class ice skaters practised in the 85-degree heat for Mr Allen's ice show, the titans themselves kept a close eye on who was talking to whom.

The event climaxed with a banquet on Friday night: the traditional "roast", where Mr Allen's managing director, John Schneider, ribs the guests and hands out boxing gloves as a take-home jibe. Last year, QVC's Barry Diller and Mr Redstone, losing and winning protagonists for Paramount, took the awards.

The betting for this year's "winners" is on Sony Picture's Mark Canton. Last year he caused an earthquake by going "outside" the Hollywood club to sign the comic actor Jim Carrey for $20m to star in Cable Guy; a move that caused other stars to demand more money and drive movie-making costs even higher.

In June, the film's dull box-office performance brought glee from rivals that have chosen to cut the number of films they produce rather than tackle the awkward problem of chopping both their own salaries and those of the "talent pool".

"How do you say to a Tom Cruise or a Mel Gibson that they are not worth it?" asked Robert Daly, co-chairman of Warner Bros Pictures.

Hostility toward Sony has only been compounded by the publication of Hit & Run: How Jon Peters and Peter Guber Took Sony for a Ride in Hollywood; a book that details the poor judgement and extravagance of the studio's former heads that ultimately led to a $2.7bn write-off. But observers agree that pointing fingers at Sony is like the pot calling the kettle black.

"Change only comes with real pain and there hasn't been enough yet," said Mr Diller, who warned that there would have to be big losses before the entertainment business became efficient."There will have to be blood on the floor."

Not that any of this meant much to Sun Valley locals, as the event ended late our time yesterday. "Celebrities are no big deal," said Shannon Beall, owner of a local bar that Ernest Hemingway and Gary Cooper used to frequent."Watching Murdoch and a bunch of investors walking down the street doesn't really do much for us."