misterchimpy

An interesting article, too many bombs at the box office may be leading to big changes at the Weinstein Company. Sorry for the length, lol. I thought it was interesting that Bob's numbers were so much better than Harvey's. It is also interesting that they are depending on Michael Moore, ha, to turn things around for them...also that Harvey blames Grindhouse on his brother as well as Tarantino and Rodriguez...

Meet the new Harvey Weinstein
Since Harvey and his brother, Bob, launched the Weinstein Co. 20 months ago, he has focused on deals, not movies. Now investors want him to change, reports Fortune's Tim Arango.
FORTUNE Magazine
By Tim Arango, Fortune writer
June 25 2007: 5:47 AM EDT

(Fortune Magazine) -- Wait until you see what is about to happen to you," says Harvey Weinstein, sitting in the back seat of a midnight-blue Peugeot, car No. 3 in a nine-vehicle motorcade. The procession is inching down La Croisette, the seaside boulevard that meanders through Cannes on the French Riviera. Tonight it is lined on both sides with fans hoping to catch a glimpse of celebrities en route to the premiere of Michael Moore's "Sicko."

There is perhaps no more high-wattage event in the movie business than the Cannes Film Festival. During the 25 years Harvey and his brother, Bob, were building Miramax Films, they were fixtures here - and at the Academy Awards. Their movies picked up 60 Oscars, including Best Picture wins for "The English Patient," "Shakespeare in Love," and "Chicago." But the last time Harvey made a big splash in Cannes was three years ago with the premiere of "Fahrenheit 9/11." Since then the brothers have endured a nasty divorce from their former corporate parent, Walt Disney Co. (Charts, Fortune 500) , and then put up their own shingle, the Weinstein Co., with $1.2 billion of Wall Street's money. But they've yet to replicate their past success at wringing large profits from small movies, in part because Harvey had ambitions of conquering worlds beyond film. Therein lies the trouble.

Harvey wanted to be a media titan, the next Rupert Murdoch, staking claims to the Internet, cable television, and fashion. As the acquisitions piled up - aSmallworld (a MySpace for the jet set), a piece of the cable network Ovation, the remnants of the Halston fashion house - box office suffered. During that time the 55-year-old lost weight (cardio-boxing) and quit smoking (with the Allen Carr method).

Now Fortune has learned that the Weinstein Co. board of directors has stepped up its oversight. The board is meeting nearly every month - as it did by teleconference on May 18 during the Cannes festival - and is searching for a top executive to run day-to-day operations.

"This fiscal year has been a disappointing one," says Tarak Ben Ammar, the Franco-Tunisian dealmaker and film producer who sits on the Weinstein Co.'s board of directors and whose firm, Quinta Communications, owns 3.3% of the 20-month-old company. "But a company is not built in one fiscal year ... Maybe we need to bring in a high-level CEO, but we'd need somebody who would be compatible with the market and investors and the brothers."

Several months ago Bob, who keeps a lower public profile and focuses on moviemaking, finally sat his older brother down for a heart-to-heart meant to nudge him back to the core business. "Bob just said, 'Come on, we can't, like, do this,'" Harvey says of the chat. "I said, 'I'm having a good time.' Bob said, 'Okay, Halston and all that sounds cool and everything, but you're a filmmaker, and people expect that of you.' I said, 'Bob, let me see someone break my [Oscar] record. I'll be the first to give them the cup. I'll be Bobby Hull passing the baton to Wayne Gretzky.'"

So as the midnight-blue Peugeot stops at the edge of the red carpet, Harvey alights amid the staccato click-clack and flash bursts of hundreds of cameras. This is his chance to show Hollywood he can still be the agent provocateur of art-house film. It is his Michael Corleone moment: Just when I thought that I was out, they pull me back in. "I wanted to do something to challenge myself," he says. "I know how to make movies, and people think I know how to make movies, but I wanted to do something different."

And now the gloves are off. Later in the week he walks into the premiere of Quentin Tarantino's "Death Proof" with a cellphone to his ear, sniping to a New York City gossip columnist about one of his directors, Luc Besson, who had publicly blamed the Weinsteins for the failure of his movie Arthur and the Invisibles. (Harvey's quote in the following day's Daily News about the French filmmaker was that "he's out of his mind " and is a "has-been.") Later that night in Cannes, Harvey comes barreling into the "Sicko" after-party. "I'm back," he announces.

A month earlier, on Tuesday, April 10, the Weinstein Co.'s eight-member board of directors convened in the third-floor conference room at the company's headquarters in the New York City neighborhood of Tribeca for a regularly scheduled board meeting. It was the first time the full board had met in about six months, and it should have been a moment to crack open the champagne. "Grindhouse," the highly anticipated Quentin Tarantino-Robert Rodriguez double feature, had debuted the previous Friday. But then the weekend box office numbers came in: a paltry $11.6 million.

For nearly ten hours the board scrutinized the company's disappointing box office and implored Harvey to turn his full attention to filmmaking. Ben Ammar says, "It was never a nasty board [meeting]. It was, 'Okay, Harvey, let's not let this get out of hand.' He immediately took the blame." In fact, so far the board has been forgiving, perhaps because when Goldman Sachs (Charts, Fortune 500) raised the equity, it doled out only relatively small chunks. The largest minority shareholders are the investment firms Fidelity and Wellington, which put in just $50 million each, for a 5.5% stake. The upshot is that the brothers, who hold 51% of the equity, are the ones with the most skin in the game.

It wasn't just "Grindhouse" that came up short. The Billy Bob Thornton comedy "School for Scoundrels," a title produced by Bob Weinstein, was released last September and has brought in just $17.8 million at the domestic box office. The movie cost about $35 million to produce. "School for Scoundrels," according to one source close to the company, is projected never to make money. Most of the new company's movies have been profitable, even if they've failed to light up the box office. The film "Hannibal Rising," released by the Weinsteins through a deal with MGM, will make roughly $9 million in profit - profitable but below the $20 million originally expected.

Not every movie has underperformed. One of the high points has been the animated feature "Hoodwinked," which generated about $51 million at the domestic box office. The Weinstein Co. paid nothing upfront for the North American distribution rights and expects to make a profit of $19 million. Others that might not look like big hits at the box office but proved profitable for the company were "Clerks II" and "Lucky Number Slevin." Each brought in slightly more than $20 million at the box office, yet both cost less than $10 million to make.

But even those small victories couldn't erase, at least as far as the board was concerned, the disappointment of "Grindhouse." No two directors are more closely associated with Harvey and Miramax's success than Tarantino and Rodriguez. Miramax was often referred to as the "House That Quentin Built," but Rodriguez has been the highest-grossing director for the brothers - his movies, such as "Dusk Till Dawn" and the Spy Kids franchise, brought in more than $400 million in box-office receipts for Miramax, mainly through Bob's low-budget horror and comedy division, Dimension.

In an interview in Cannes, Harvey said that it was his brother, Tarantino, and Rodriguez who all insisted that "Grindhouse" be released as a double feature rather than as two separate releases (as they are doing internationally). "I said, 'Guys, 'Grindhouse' is a great concept, but nobody wants to sit for 3 1/2 hours or four hours.' At the end of the day, one of the things you do in this business is support your directors, especially ones who have made as much money as these guys have over the last 16 years."

Harvey continued: "So on the face of it, 'Grindhouse' looks like a flop. But like everything else I do, it's not quite what it seems. Not only is it not a flop, it will make a modest profit. The shame of it is, we should have made a fortune."

In the misty world of movie accounting, the estimated profits of a film are based on projections of how much revenue a title will bring in years down the road from sources such as DVD sales and pay television. The industry term is "income ultimates" - and Harvey saying "Grindhouse" will be profitable is a hopeful expression based on how much revenue the company estimates the film will bring in over ten years. (The film cost close to $83 million to make and market. So far it has brought in about $25 million from the domestic box office and $46 million from sales to foreign distributors.)

The Weinstein brothers' current doldrums stand out when compared with their past success at Miramax. Founded in the 1970s in Buffalo, where Harvey and Bob beat the bushes to find music acts to promote, Miramax became a New York beachhead where a generation of independent filmmakers waged war on the Hollywood establishment. The duo eventually sold Miramax to Disney in 1993 for $70 million. They lived large for the next decade on an annual operating budget of $700 million and built a film library worth an estimated $2 billion by the time of their exit.

When Goldman Sachs set out to raise money for the brothers in the summer of 2005 - as their association with Disney was coming to a close - the bankers crunched the numbers for every movie Miramax and Dimension had ever made and compared their profit margins with the Hollywood average. According to Goldman Sachs, Harvey's movies averaged margins of 12% to 13%, and Bob's averaged in the 22% to 24% range. The Hollywood average is close to 8%, about the average margin that the Weinstein Co.'s slate has posted so far. In other words, so far the brothers are merely ... average.

"Give these guys enough at-bats and they'll get it right," says Joe Ravitch, the banker at Goldman Sachs who arranged the Weinstein Co.'s original financing and remains a close advisor. "No one works harder than these guys."

In the business plan the company presented to prospective investors, the brothers and Goldman Sachs projected revenue of close to $500 million in 2006 and $1 billion in 2007. By 2010 the company projects revenue of $1.8 billion. Being privately held, the Weinstein Co. does not release financial data, but several sources confirmed that the actual revenues are far from their targets. A Weinstein Co. executive said the company is estimating that its revenue will be off about 12% at the end of 2007, compared with the original projections. (This is not an apples-to-apples comparison, since the 12% figure includes revenue from its home distribution arm, Genius, that was not included in the original projections but nevertheless boosts sales.)

Operating losses - the company is hoping to be profitable in 2008 - are smaller than projected because the brothers have been adept at managing costs. (The overhead for the entire operation is about $50 million a year.) That's perhaps comforting, because some prospective backers were hesitant to invest, given the perception that the Weinsteins were wild spenders. "[Harvey said] 'Richard, that's just not the case, and certainly will not be the case with the Weinstein Co.,'" says Richard Perry, the hedge fund heavyweight whose Perry Capital is an investor. "I think they've proven that they are businessmen and have really managed the budget."

Interviews with several people who have direct knowledge of the company's finances make clear that the next six months are crucial. If the remainder of the company's 2007 slate of movies does not perform well in theatrical release, the company could be forced back to the debt markets to raise additional capital. "We have more than enough capital on our balance sheet to operate the business today," says a company executive. This person said the company's plan was always to "fully utilize" the capital it raised and to "opportunistically seek capital opportunities when and if it makes sense."

Some investors blame Harvey's hanging with hedgies and honchos rather than filmmakers for the box-office shortfall. "We raised our money to make a film company. We need to make our money on that, then diversify when we have profits," says Ben Ammar. Some of Harvey's diversions have included broaching the idea of a Lions Gate merger with Carl Icahn (the Wall Street heavyweight is a big shareholder in Lions Gate (Charts)), paying for a dinner in New York to honor Wal-Mart (Charts, Fortune 500) CEO Lee Scott's environmental initiatives, and scouting out vodka brands to buy. (Harvey himself rarely drinks - a Diet Coke is usually within arm's reach.)

Then there are the company's three aforementioned nonfilm investments: the social-networking website aSmallworld, a stake in the arts cable channel Ovation, and Halston. All told, the cash outlay for the investments was about $5 million, and it is unclear when any of them will make a significant contribution to the company's bottom line. In the case of aSmallworld, former AOL executive Bob Pittman, who is also an investor in the website, says, "What Harvey is really good at is understanding audiences and audience segments. By understanding segments, he can go in to other businesses [such as aSmallworld]."

Halston could have upside. The fashion house is a venerable - although beaten down - brand name, and the Weinstein Co. didn't put any money upfront, gaining equity from Neema Clothing, a New York apparel manufacturer, through a commitment to use the Halston name in Weinstein movies. The Weinsteins immediately brought onboard Jimmy Choo president Tamara Mellon to consult. The inspiration for the deal, per Harvey, was Israeli producer Arnon Milchan's investment in the sportswear company Puma. Milchan began buying Puma shares in 1996, and when he sold out in 2003, he made hundreds of millions of dollars.

Even though Harvey is spending more time on movies, he hasn't abandoned the multimedia game. Fortune has learned that the Weinstein brothers and hip-hop moguls Jay-Z and P. Diddy are partners in an as-yet-to-be-announced cable and Internet venture focused on music, movies, and fashion called Channel Zero. Also, the company plans to announce a deal to publish a Profiles in Courage-style tome by Britain's incoming Prime Minister, Gordon Brown.

The most significant deal for the Weinstein Co. to date is a pact with the publicly traded home video distributor Genius Products. The Weinsteins took a 70% stake in the company, which is traded on the over-the-counter market, and Genius distributes Weinstein movies in exchange for a 5% fee - much lower than the industry average of closer to 10%. Genius has been able to capitalize on the cachet of the Weinsteins, bringing in clients such as ESPN. But more important for the Weinsteins, the value of the company's equity in Genius is now worth close to $400 million - an asset that could be sold one day if they are strapped for cash.

In the industry Harvey's competitors love to privately say he's lost his clout. But several nights after the premiere of "Sicko," Harvey looked ever the Hollywood impresario while playing emcee at the annual Amfar benefit. The centerpiece of the AIDS benefit is an auction in a tent beside a 16th-century windmill just outside Cannes. He's been hosting the event for 14 years. At one point he cajoles Australian pop star Kylie Minogue onstage for a performance that netted $100,000. The cast of "Ocean's 13" is on hand, and a kiss from George Clooney sells for $350,000. Here it feels as if not much has changed for Harvey, except that he now works for himself and investors as opposed to Michael Eisner. So which does he prefer?

"Goldman Sachs are great partners because they believe in one thing - profits," he says. "We're organically built to make money, Bob and I. And if we're not going to make money, we'll cut overhead to make money. So that's a good partner. Michael Eisner is a bad partner, because right now if I had "Sicko," Michael Eisner would be shutting me down."

He's referring to the way that Disney balked at releasing "Fahrenheit 9/11" in a presidential election year. The Weinsteins set up a separate company to buy the rights back from Disney - and the movie ended up winning the Palme d'Or, the Cannes festival's top honor. It became the top-grossing documentary of all time, bringing in more than $222 million in worldwide box office. But the episode was a coffin nail in the Weinsteins' strained relationship with Disney. Tensions flared after a December 2003 New York Times article in which Harvey was quoted criticizing Disney management. In fact, Weinstein gave the interview thinking it was for a Times writer's book and never expected to see it in the newspaper. (Eisner declined to comment for this article.)

The brothers never wanted to leave Disney. Sure, they had issues with Disney's thwarting them when they tried to expand Miramax's purview beyond films. Harvey even enlisted Al Gore to lobby George Mitchell, then Disney's chairman, to intervene with Eisner, but the Weinsteins' employment contract was eventually terminated in 2005. As recently as the New York premiere of "Sicko" on June 18, Harvey was still badmouthing Eisner, praising Michael Moore's agent Ari Emanuel for saying back in 2004 that Eisner was "full of shit." The company expects "Sicko," which cost just $9 million to make, to generate roughly $20 million in domestic box office.

If the film is wildly successful, it could mark a turning point for the Weinstein Co., so Harvey can be forgiven for playing the controversy-equals-marketing strategy he mastered at Miramax. In 1983, Harvey made a stink over the refusal of the State Department to grant Nobel Prize-winning author Gabriel García Márquez a visa to attend the premiere of a Miramax movie based on one of his short stories. In 1995 he set a Good Friday release date for a film about a gay Catholic priest. This time the hubbub is over Michael Moore's trip to Cuba to shoot scenes for "Sicko," and Harvey was handed a gift when the U.S. Treasury Department said it was investigating the visit as a possible violation of the trade embargo. On June 11 he held a press conference in the Manhattan office of his lawyer David Boies to tell the world he was considering taking the U.S. government to court.

The remainder of the Weinstein Co.'s slate for 2007 has a back-to-the-future feel. Bob has three horror flicks, two of them based on Stephen King stories: "1408," starring John Cusack and Samuel L. Jackson, and "The Mist," based on a 1985 short story about a small town engulfed in a deadly mist. The third is a new Halloween movie. Among Harvey's films are "Sicko;" "Grace Is Gone," picked up at the Sundance Film Festival and starring John Cusack as a father whose wife dies in Iraq; and "The Hunting Party," about several journalists searching for a war criminal in the Balkans. In Cannes, Harvey snapped up "Cassandra's Dream," a Woody Allen movie starring Ewan McGregor and Colin Farrell.

The brothers have been counted out before. In the early 1990s they had a string of flops and faced serious cash flow issues. Then came "The Crying Game," a film that had bombed in Britain. Miramax bought the rights and turned it into a $62.5 million blockbuster in North America. "I have huge admiration for the Weinsteins. My advice would be to bet against them at your own peril," says Brad Grey, the chairman of Paramount Pictures, who got his start in the business as an assistant to Harvey in the 1970s. "They have huge skills and great taste in movies."

As the Amfar benefit wound down, Harvey, sans tuxedo jacket, his tie askew, and sweating through his shirt, sat down and snatched a few chocolates from a platter on the table. He seemed exhausted, but happy to be back in the thick of it. "You know what the best part of being back in the movie business is?" he asks. "George [Clooney] and Matty [Damon], on their way out, said, 'Harvey, let's go make some movies together.'"

PopcornTreeCt

Need bolding.

BravesMG

Well, it looks like 1408 (which was excellent) is performing very well and should be very profitable when all is said and done. I thought I read somewhere that production costs were $25m and it grossed almost $21m opening weekend. Combined with the expected relative success of Sicko and it's at least looking like a very mild short-term turn around, but those Harvey movies (other than Sicko) don't sound very promising.

comanche_doyle

what about money on dvd's? are they the ones releasing the kill bill bloody affair later this year, because that seems like it would be a big seller.

chris_sc77

I have been wondering if they have been losing money on DVD rental's since they started that "Blockbuster exclusive" shit a while back.
It looks like stuff like Hannibal Rising did well in DVD sales but when it came to rentals it seems to be significantly less than what it should be making.

Seantn

Hannibal Rising made a lot of money overseas though.

veloce

Nothing's really exclusive, though. You can find those titles at Netflix and elsewhere, so I would guess if a Weinstein title isn't renting well, it's because people don't care to rent it.

Jazzbutcher

A buddy of mine is the Prez there so I am rooting for the Weinstein Co.

Giles

they need to spend better time and money on acquiring quality foreign films none of this hack and slash genre pics

lotsofdvds

I want to kiss you. I couldn't care less about the team struggling.

chris_sc77

I use Netflix and I have to say that they must not get a very large quantity of Weinstien titles though...Same with all my local video stores. For example my local video store has only about 7 copies of hannibal Rising whwn a title like this would normally have about 30 to 50 coopies. Also every time I have a put a Weinstien title to my Queue it takes months for me to get one (and so far all i received is School for Scoundrels) and IT has been saying "very long wait" for each title i have ever added to queue that is a genius/Weinstein title (any Dragon Dynasty DVD, Hannibal Rising School for Scoundrels Breaking and Entering etc....) Also an the School for Scoundrels DVD I did eventually get from Netflix it said something along the lines of "
This DVD is Intended for Sale Only"
Anyways this pisses me off because it seems like If Weinstien/Genius does let other video chains and online rental services rent out their DVD's they do so in extremely limited no. when compared with releases from other studios.

wendersfan

You mean like they did with Though the Olive Trees, where they bought the rights for the US and then never released it? Or should they release them only after recutting them to suit their own vision of the film, and not the director's, like they did with Farewell My Concubine? I think the best thing might be for the Weinsteins to go bankrupt and never work in the industry again.

Jericho

I've always wondered what's the deal with the Blockbuster exclusive renting. Nothing stops a competitor from going down to Walmart or Best Buy and buying a ton of copies. I guess it's all about price discounts offered by the company for sales.

Giles

let's not forget Malena

true, after the infamy/boffo partnership with Disney-Miramax, the fame and prestige is gone, sad really, but even if the Weinstein company were to be dissolved, I wouldn't miss it either.

slop101

What an idiot - how does he explain away the fact that the two halves of Grindhouse did even worse when separated in foreign markets?

The Bus

They should keep their filthy mitts off foreign films. For domestic stuff, they can keep working on that. That's fine.