Arnold's campaign: the new Planet Hollywood.

Arnold's campaign: the new Planet Hollywood.

Arnold's campaign: the new Planet Hollywood.

Moneybox
Commentary about business and finance.
Aug. 11 2003 6:26 PM

Arnold's Bad Business

Is his campaign the new Planet Hollywood?

Care for some fries with that candidacy?
Care for some fries with that candidacy?

The most celebrated business venture of Arnold Schwarzenegger's career was his involvement in Planet Hollywood. Planet Hollywood, you may have forgotten, was the gaudiest avatar of the '90s idiotic theme-restaurant trend, which also spawned the Rainforest Café, the Official All-Star Café, and, most absurdly, the Fashion Café. ("What's on the menu," David Letterman asked. "A stick of gum?") Founded in 1991 by producer Keith Barish (The Fugitive, Sophie's Choice, The Running Man) and restaurant impresario Robert Earl (Hard Rock Café), the profitable Planet Hollywood chain had 34 units when it went splashily public in 1996.

It turns out there's a lot of similarity between the business plan of Planet Hollywood and the business plan of Arnold's gubernatorial campaign.

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1. Allow celebrities to cash in on the sweat and equity of unglamorous moneymen. Planet Hollywood's capital was provided by Barish and Earl, and by the not-so-fabulous Singapore billionaire Ong Beng Seng. Schwarzenegger and fellow A-listers like Sylvester Stallone were regarded as "founding celebrities," but the only equity they provided was their Actors' Equity card. They made noisy public appearances on Planet Hollywood's behalf. In exchange, options representing 20 percent of the company's stock were set aside for "celebrity investors."  

A similar dynamic has defined the recall campaign. Republican car-alarm magnate Rep. Darrell Issa, a backbencher from an unglamorous patch of Southern California, took on virtually all the risk. Issa put up the venture capital money to bankroll the recall and endured immense flak during the pre-campaign road show. Arnold did nothing to put the recall on the ballot. But once the election was set, Arnold hurled his helmet into the ring, Issa disappeared into a supporting role, and Arnold hogged all the glory.

2. Rely on cheap celebrity-fueled free media instead of expensive advertising. Name recognition is the great desideratum of a nascent restaurant chain (or political candidate). After all, you're entering a field in which fierce incumbents have already invested hundreds of millions of dollars to entrench market position and build brands. But Planet Hollywood didn't have to embark upon an expensive TV advertising campaign to do battle with Chili's and T.G.I. Fridays. As the prospectus noted, Planet Hollywood could rely upon "the active involvement of some of the world's most famous movie stars, including Arnold Schwarzenegger, Sylvester Stallone, Bruce Willis, Demi Moore and Whoopi Goldberg, all of whom are stockholders." (Schwarzenegger was always first among equals on Planet Hollywood's A-list.) By attending openings and other events, these celebrities would generate "significant media attention and publicity for the Planet Hollywood brand." In 1995 the company spent less than 5 percent of revenues on advertising and marketing—a low sum for an expanding startup.

Just so, Schwarzenegger's candidacy so far has been an orgy of free media. Unlike recall rival Lt. Gov. Cruz Bustamante, Schwarzenegger won't have to spend heavily on 30-second spots. Campaign Arnold has been the subject of coverage in outlets ranging from the Wall Street Journal to Access Hollywood, which lavished the same attention on his gubernatorial announcement as it did on T3'slaunch.

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3. Create synergies by cross-promoting the venture with Arnold's latest big-budget movie.In its prospectus, Planet Hollywood proudly noted that because of its celebrity alliances, "the motion picture community frequently uses the units as sites for well-publicized movie promotions and other celebrity-sponsored events." This helped bring even more attention to the restaurants. Schwarzenegger's campaign is coinciding with the wide release of T3. He seamlessly rode the promotional wave: One day he was chatting up co-star Kristanna Loken's assets, the next he was discussing California's deficit. Schwarzenegger even managed to plug the film in his announcement speech.

4. Attract customers with a broad menu of blandly appealing fare. Planet Hollywood, in the great American tradition, offered food that appealed a little to every taste and offended no one: burgers and fries, salads, fajitas, and pizza—all mediocre. Schwarzenegger's political platform, which is long on platitudes but short on specifics, tries to do the same. It's got items for the left (he's pro-gay rights), for moms (he successfully lobbied for expanded after-school programs), for populists (he rails against "special interests"), and for small-government types (he won't raise taxes).

Republicans must hope Schwarzenegger's campaign is more durable than Planet Hollywood. The company raised $196 million in its IPO and plowed the proceeds into expansion. But its celebrity cachet dissipated once outlets opened in London's Gatwick Airport and Edmonton, Alberta. In October 1999 the chain, which peaked at 95 restaurants, filed for Chapter 11. Schwarzenegger severed his ties with the company in 2000. Planet Hollywood exited bankruptcy in 2000 but then earned membership in the Chapter 22 club by going bust again.

So far, the recall campaign has been very much like a meal at Planet Hollywood. There's plenty of ruckus and shouting and fake smiles. A lot of celebrities are hanging around—for no apparent reason. The fare is insipid. And when the experience is over and the bill comes, nausea may follow.