Some Independents Face Leaner Dollar Diet : Major Film Companies Will Survive, but Myriad Smaller Firms Can Expect Less Certain Future

The movie business will survive this week’s turmoil in the financial markets.

But the future is less certain for Hollywood’s myriad publicly traded independent film companies, some of which were already in distress when the stock market collapsed Monday.

Blue chip stocks and those of the major studios may be snapping back. But many film companies outside the small circle of majors--although they enjoyed heavy financial backing when Wall Street was hot and investors used their pocket money to dabble in the movies--nonetheless could face a prolonged period of capital starvation, according to entertainment industry executives and analysts.

“You’re going to see more independents in trouble,” said Jeffrey Logsdon, an entertainment industry analyst with Los Angeles-based Crowell, Weedon & Co. “A lot of these guys are not going to have money to make films.”

In the last two years, investment bankers force-fed independent movie makers on a rich diet of stock offerings, bond offerings and film partnerships. The movie and TV industry raised at least $1.5 billion in such offerings last year, according to Logsdon.

New or newly expanded film companies that relied on Wall Street cash range from so-called “mini-majors,” such as De Laurentiis Entertainment Group, Lorimar-Telepictures and New World Entertainment, to smaller concerns, including New Line Cinema, New Century Entertainment and Imagine Films Entertainment.

Several such companies saw their already weakened market values nearly obliterated in this week’s crash.

New World shares fell as low as $3 on the American Stock Exchange, before rebounding to $4.25 on Thursday--still disastrously below a 52-week high of $15.375. Imagine Films sold over-the-counter for about $3.75 on Thursday, after trading as high as $19 in the last year, and after being quoted as low as $3.25 on Tuesday.

De Laurentiis, which had peaked at $15 on the American Exchange, skidded to $3 before rebounding to $3.875 at midweek. Meanwhile, a film partnership that has funded De Laurentiis movies was trading for about $2.50, off from a high of $10.50.

One immediate effect of the market plunge was to slash even further the already depleted paper fortunes that Hollywood entrepreneurs had reaped by taking their companies public during the boom.

To choose just one example, director Ron Howard and writer Brian Grazer, who own a majority of Imagine, have watched their holdings drop 79%, from a high of about $30.4 million each at the peak to about $6.4 million apiece on Wednesday.

“It’s nothing I’ve lost sleep over,” Grazer said of the market’s impact on his personal wealth.

Contending that Imagine is in better shape than other independents, because it pursues movie funding in partnership with the well-capitalized major studios, Grazer added: “I guess (the collapse) is supposed to make me feel bad, but it really doesn’t. Ron and I never intended on selling any stock for years.”

Wall Street had actually turned cold on the smaller companies months before the market collapse, largely because a glut of movies--fueled by easy money--had led to crippling competition at the box office.

According to Exhibitor Relations, a Los Angeles consulting firm, independent film distributors expect to release about 130 films this fall, compared to just 58 in the same period last year. Independently released films are expected to account for roughly two-thirds of U.S. movie releases this year. But independent releases have accounted for less than 15% of total U.S. box-office receipts in 1987. (Some independent-made films are distributed by major studios and are counted in the majors’ share of box-office receipts.)

Now the independents will have to come up with some money-generating hits fast--or they will be forced to compete with the majors for new financing from investors who will probably be far more cautious than they were before the crash.

“Big companies like Warner Communications (Warner Bros.’s parent), MCA (Universal’s parent), and Gulf & Western (Paramount’s parent) are profitable and well-funded,” said David Londoner, a Wertheim & Co. entertainment analyst. “But independents that relied on Wall Street money are probably going to find that it’s dried up.”

Top executives of several film companies agreed that prospects have suddenly become bleaker for the independents as a group--although none said that his own company was immediately endangered by the weakened financial markets.

“I’m probably somewhat more optimistic than I was (before the market dropped),” said James Parsons, financial vice president for De Laurentiis, which had already announced that it was seeking new capital before the market plunge because it had suffered a string of box-office failures in the last year.

Parsons argued that his company--its stock already severely weakened by earlier woes--might find it easier to compete for capital now that a falling market had placed “more realistic” values on other independents and major studios alike.

“If you have to raise money, you’re in trouble,” conceded Robert Shaye, president of New York-based New Line Cinema, which propped up its stock price somewhat by announcing a plan to repurchase company shares, which had traded at $7.875 before the debacle and dropped as low as $4.625 this week.

“Fortunately, we’re fully financed through our next eight or nine productions,” Shaye added.

Harry Evans Sloan, New World co-chairman, said his company is unusually secure because it still has about $150 million of $200 million it raised in the financial markets last year. But, he said, “This business eats cash like no business I’ve ever seen. I’m concerned for other independents. With the markets weak, and people expect them to stay weak for a long time, there’s cause for concern.”

Samuel Schulman, chairman of New Century Entertainment, agreed that investor funds will be excruciatingly tough to find in the wake of the stock market collapse. But he quickly added that his own company--its shares trading for less than a dollar on Thursday, down from a 52-week high of $3.125--had already received assurances that it would receive $25 million in bank credit next week.

“This surely will pass,” Schulman, 76, said of the market turmoil. But he added: “It might be tougher this time around. I just don’t know.”