ROCKY ROAD

THEY EPITOMIZED the entrepreneurial spirit of the 1980s, riding a wave of optimism about the economy and what has been called “the Hollywood glitz factor” to overnight prosperity. Between 1985 and 1986, more than half a dozen small film-makers, including Dino De Laurentiis and the Israeli cousins Golam and Globus, collectively raised tens of millions of dollars for their production companies by selling stock on Wall Street. They presented themselves as dynamic alternatives to the major studios, promising blockbuster movies, quick profits, and the chance to own a piece of a mini-Hollywood dream factory.

But their fund-raising success created unanticipated problems. With millions more dollars suddenly injected into the industry, the number of movies grew far more rapidly than theater space. Independents soon found themselves fighting each other for the same handful of distributors and the attentions of ever-pickier theater owners. And unlike the well-capitalized studios, which can afford a few bombs between hits, the tiny independents can be devastated by the failures of even two or three movies in a row.

Many have been devastated. The Cannon Group, the De Laurentiis Entertainment Group and New World Entertainment collectively lost more than $110 million in 1987, for instance. To make matters worse, many independents have spent the money they earned from their big stock sales, and the Wall Street crash has cut them off from further funds. Says Harold Vogel, entertainment analyst for Merrill Lynch: “The window of opportunity has been nailed shut.”

The experiences of Stephen J. Friedman, the 50-year-old founder of Kings Road Entertainment, epitomize the independents’ rise and struggle. What follows, pieced together from interviews and public financial records, is the story of how one studio’s exciting debut fizzled into a cautionary tale of great expectations and harsh reality in Hollywood.

IN THE EARLY 1960s, Steve Friedman was an entertainment lawyer at Columbia Pictures in Manhattan. But his ambition was to make movies, and he got his first opportunity in 1969, when he found himself inspired by a Larry McMurtry novel about coming of age in Texas--a novel called “The Last Picture Show.”

“McMurtry had had a prior hit called ‘Hud’ but nobody wanted this book,” Friedman recalls, sitting in his Kings Road office overlooking Avenue of the Stars in Century City. “I optioned it for $5,000 a year, got a legal job at Paramount Pictures in Hollywood and tried to talk the studios into financing the movie. It took two years.”

The persistent Friedman reminded film producer Gordon Carroll of “a classic hustler--except with Steve there was a sense of absolute faith and trust in what he was selling.” Harry Colomby, a screenwriter and producer who later worked with Friedman, says: “He was a lot like that Zero Mostel character in ‘The Producers’. He was a little disorganized and comically hysterical, but he was making something he loved.”

Friedman’s commitment paid off in 1971, when he persuaded Columbia to put up $1 million to make “The Last Picture Show.” Directed by Peter Bogdanovich, the spare, black-and-white drama earned Academy Awards for best supporting actress and supporting actor, critical acclaim and more than $30 million at the box office.

Friedman was able to set up shop as a full-time producer with a tiny staff, reading hundreds of scripts and books a year in search of material to film. His string of successes in subsequent years included “Slap Shot” in 1977, “Little Darlings” in 1980 and “Eye of the Needle” in 1981. Almost all his movies were financed by the studios, with Friedman taking a standard producer’s fee and a percentage of the profits. But he craved greater independence. If he could come up with production money himself, he reasoned, he could not only exert complete creative control but also keep some of the so-called “ancillary rights”--home video, pay television, TV syndication--and sell them to the highest bidder. They weren’t worth much at the time, but Friedman, with his lawyer’s background, sensed that they could be.

Still, he acknowledged the impossibility of achieving total self-reliance. The big problem was distribution, which the major studios dominated. They had the multipicture deals with theater chains such as Loew’s, General Cinema, and U.A. Communications. They had regional offices around the country feeding movies to 1,000 theaters simultaneously. They had huge marketing staffs plotting multimillion-dollar TV and newspaper campaigns. Against such a juggernaut, an independent such as Friedman had to make a deal with a major studio to get his movies into the theaters. Otherwise, his work might be condemned to languish on a shelf or find itelf condemned to art-house purgatory.

But there was a flip side to the equation. The studios constantly needed movies made by independents. Their biggest profits came not from movies they financed themselves but from the so-called “distribution fees” they charged indies to get their films into the theaters. So Friedman had some leverage, and he used it in 1982 to hammer out a deal with Universal Studios that was the envy of most other producers in Hollywood.

“It was extraordinary,” recalls Gordon Crawford, a director of The Capital Group, a money-management firm in Los Angeles, which was so impressed that it invested about $500,000 in Friedman’s company. In a business in which many independents have to take their finished movie all over Hollywood in search of a distributor, Friedman got a contractual obligation from Universal to release as many as 12 of his movies over three years. Universal also agreed to pass on all ancillary rights--apparently oblivious to the potential of videocassettes and pay TV.

The agreement was so impressive that several large private investors, in addition to Capital Group Research, the investment-research division of The Capital Group, gave him more than $7 million in 1983 to help him get his mini-production line rolling. And tiny Kings Road Entertainment--Friedman named the company after a West Hollywood street near where he used to live--began courting some of the top talent in Hollywood.

In the spring of 1983, he was able to entice Steve Martin, Lily Tomlin and Carl Reiner to work on a slapstick comedy called “All of Me.” “It took about 15 months to put it together,” Friedman remembers. “We found this unpublished manuscript, we got a young writer named Phil Robinson for the screenplay, we got Carl Reiner to commit himself to direct--then Steve and Lily came on.”

“All of Me,” the story of a yuppie lawyer who suddenly finds himself sharing his body with the spirit of a deceased woman, earned $35 million at the box office, placing it in the top 20 films of 1984.

ALL THE WHILE, Friedman was acquiring a reputation as one of Hollywood’s more difficult producers. Indeed, he sparred with his directors so frequently that several reportedly threatened to quit unless he kept away from the set.

To some colleagues, it seemed that his movies were a kind of substitute for the children he never had. (Friedman was a bachelor who lived alone in Brentwood.) He noodged and cajoled his underlings, colleagues say, seemingly unwilling to entrust his films to anyone but himself. An engaging man with an intelligent face and a rapid-fire sense of humor, Friedman could pass for the older brother of Woody Allen. They share the same off-center features and the same pervasive air of angst .

“Almost every day on the set of ‘All of Me’ I would get the same desperate phone messages,” says screenwriter Robinson, one of the few writers or directors who has worked with Friedman on more than one project. “ ‘Urgent. Immediate. Call Steve Friedman.’ I’d phone him at the office. ‘What is it?’ ‘Oh, nothing--I just wanted to find out how it was going.’ ”

In story meetings, Robinson says, “I had to defend everything on practically a line-by-line basis.” Huddled inside Friedman’s office, the two men fought for hours and sometimes days over choices in the script. Friedman, Robinson recalls, was eloquent, abusive, hysterical and flattering.

To Robinson and others, the constant fretting and tinkering could be annoying. But friends say they were evidence of Friedman’s passion. “Steve really has no other interests besides film--his work is his family and his life,” says Divina Belling, a producer and longtime friend. Friedman was the quintessential hands-on producer, and his prime mission seemed to be to communicate a sense of optimism about the human spirit. “Steve always wanted his movies to show something lovely,” Robinson says. “He’s got a warm heart and it shows in ‘All of Me.’ ”

UNFORTUNATELY, FRIEDMAN had barely begun counting the profits from that film when he was given a crash course in the shifting and fickle world of Hollywood. In the spring of 1985, Sidney Sheinberg, working with Universal’s third president since Friedman had signed the distribution contract with them, took a closer look at the agreement and decided that it was financially disastrous for the studio. “It was a bad deal for Universal,” says Crawford of The Capital Group, who, as a member of the Kings Road board, quickly became Friedman’s confidante and adviser. “The economics of the business had changed. Pay TV and videocassette sales were rising, and Universal didn’t have a piece of it.”

In a series of meetings and phone calls, Sheinberg told the stunned Friedman that Universal wanted out. Sheinberg wanted some ancillary rights. Furthermore, he didn’t like being locked into releasing all of Kings Road’s movies--he insisted on having the option to say no to some. In Kings Road’s ninth-floor conference room, as the eight members of the board of directors gathered around a rectangular oak table for daylong discussions, Friedman, the chairman, clearly felt he had been betrayed. He talked about suing Universal for breach of contract. Crawford and Roy Furman, head of the New York investment bank Furman Selz Mager Dietz & Birney, tried to calm him down. Universal was a Goliath, they pointed out, and taking the studio to court would be a financial and political disaster. So, over the next few months, Friedman hammered out a new contract with Universal. Kings Road reluctantly surrendered all the plums it had enjoyed.

No longer did Universal have an obligation to distribute Kings Road’s movies. Now, the studio merely agreed to consider releasing them. Friedman signed away the coveted right to sell movies to pay TV, then worth as much as $2 million a picture. If Universal rejected the script, Friedman would be forced to either drop the project or seek another, less influential distributor. How did Friedman feel when the marathon negotiations had ended? “Let’s just say,” says one ex-Kings Road board member, “that he and Sid Sheinberg weren’t exactly the best of friends.”

NONE OF THAT antagonism, however, came to the attention of Wall Street as Friedman traversed the country in the fall of 1985, the star of a monthlong “road show” to promote Kings Road. The Brooklyn-born impresario had dreamed throughout the 1980s of expanding his privately owned production company into a small-scale studio, one that would compete with the majors for big-name talent and finance five, six, perhaps even seven medium-budget ($5 million to $10 million) movies a year. The stock market was on the rise, entertainment stocks were hot, Friedman’s profits had risen 1,000% in two years, and the business pages were filled with Horatio Alger tales about energetic movie makers making killings selling shares in their companies.

The time was right to go public. So, in September of 1985, Friedman traveled up and down the West Coast, from the Mark Hopkins Hotel in San Francisco to the Jonathan Club in downtown Los Angeles, selling Kings Road to conference rooms full of stock analysts and investors. His credentials were superlative: a Harvard law degree, a flair for discovering creative talent, his track record, his Universal Studios deal, which still seemed to guarantee his movies widespread distribution. And with his New York accent, his thick horn-rimmed glasses, and his professorial mien, Friedman had an appealingly unpretentious demeanor. The stock sale late that month was a huge success: Thousands of investors snapped up 1.5 million shares of Kings Road Entertainment at $10 a share.

YET THE moneymen were strangely uncritical of the “first look” deal between Kings Road and Universal. It looked like a privileged relationship, says an analyst with Wedbush, Noble, Cooke Inc. in Los Angeles, one of the underwriters of the stock offering. “But nobody bothered to ask, ‘ What happens if Universal doesn’t want Friedman’s movies ?’ ”

They were about to find out. In the fall of 1985, Friedman was gearing up for the release by Universal of “Creator,” with Peter O’Toole and Mariel Hemingway, and “The Best of Times,” featuring Robin Williams and Kurt Russell as two ex-high-school football players who replay a crucial game 10 years later. Friedman had nearly $20 million tied up in the projects, money he had pieced together from loans, private investments, rights sales, and advances from Universal.

Then, back-to-back disasters. “Creator” received mediocre reviews and was yanked from the theaters after a couple of weeks. It had barely earned $4 million. “The Best of Times” received some favorable reviews (“Ragged but sometimes lovely,” Newsweek said) but earned barely $5 million before fizzling into oblivion.

Friedman was stunned. Friends say he ran through his usual gamut of emotions: anxiety, despair, rage and the certainty that he had been betrayed. The release date was wrong, the poster was awful, the publicity was non-existent, he told colleagues. Many industry observers agreed. But Universal’s William Soady, president of Universal Pictures Distribution, says the studio released the film “well.”

Universal, Friedman charged, was sabotaging his films. “He did his number on the people in the advertising department at Universal,” one insider says. “He yelled at them. It didn’t make them want to help him out.”

By now, not only had the relationship between Friedman and Sheinberg degenerated into mutual antipathy, but the studio was convinced that none of Kings Road’s movies were marketable. Month after month, Friedman would bring the studio scripts for proposed projects-- Jim McBride’s police-in-New-Orleans film noir “The Big Easy,” a Burt Reynolds/Liza Minnelli comedy called “Rent-A-Cop,” a Tom Eberhardt teen comedy “The Night Before”--with a fatalistic sense of what was about to happen. “I remember Steve telling (Kings Road President) Clive Parsons, ‘I’m taking this film down to Universal, but I know they’re going to pass on it,’ ” one ex-colleague says. “And they always did.”

But Friedman was stubborn. Invariably, he elected to make the movies anyway, financing them with his dwindling bank loans, rights sales and money raised from private investors. Then he would take the finished films and look for a distributor. But the competition among independents for the studios’ attention had grown intense: The number of independently financed releases rose from 65 in 1980 to 276 in 1986, an increase of more than 300%, according to the International Motion Picture Almanac. And Friedman hadn’t exactly convinced people of his commercial instincts after the “Creator” and “The Best of Times” debacles.

Suddenly, Friedman had put himself in a position he had dreaded: a lonely independent, forced to peddle his movies to distributors.

“He must have shopped ‘The Big Easy’ around to every studio in Hollywood,” one ex-Kings Roader remembers. “Everybody knew we still had a deal with Universal,” says another ex-Kings Roader. “The question then became, ‘Why isn’t Universal picking up your movie?’ They played hardball with us.”

By the summer of 1986, Kings Road was in deep trouble. Film after film sat on the shelf awaiting a distributor. The stock price had fallen from $10 to barely $3, as thousands of disgruntled investors ditched their holdings. Losses were piling up (the company ended up $7.3 million in the red in fiscal 1987, after losing $4.8 million in 1986), and cash was in short supply. Meanwhile, a conflict was developing between Friedman and half of the King’s Road board members. It would ultimately tear the board apart and put the headstrong producer to his most severe test.

THE DISPUTE centered on Friedman’s management style. Although he had transformed Kings Road from a mom-and-pop store into a public company, he had little patience for board meetings and seldom communicated with the Wall Street mavens whose job it was to make recommendations about his stock. The financial community was protesting that Kings Road couldn’t afford to have its movies sit on the shelf, but Friedman kept holding out for better distribution deals. Indeed, he was still running Kings Road as he had in the old days. “Steve was an entrepreneur, an optimist, a very decent producer,” one ex-board member says. “But he wasn’t a chief executive. He didn’t inspire confidence.”

Repeatedly, Friedman would clash with four of the board members over what one called his “ad-hoc methods of raising money.” Crawford, a stolid, cautious man who knew the pulse of Wall Street, was appalled, for instance, by Friedman’s stubborn refusal to get his movies into the theaters. Make a distribution deal--any deal , he and his allies urged the chairman.

Meanwhile, in late summer, Friedman marched into production on “Rent-A-Cop,” the Burt Reynolds movie, even though his chief financial officer repeatedly warned him that the company would be exhausting its last cash reserves.

What finally broke the board apart was Friedman’s decision to abandon the studios completely. In what some saw as a rash declaration of independence, Friedman announced that he would distribute his movies himself. It would be simple, he said. All he needed would be a few regional offices, a sales staff and several million dollars.

But the board’s dissenters were convinced that Friedman’s strategy was suicidal. You’ll be competing against the major studios for theater space, they argued. A lot of theater owners won’t give independents’ movies the nurturing they need. Virtually every single independent who has tried this has failed.

The four began working to unseat Friedman, phoning Friedman’s three allies on the board in an effort to break the 4-to-4 deadlock. Friedman is wrecking the company, they argued. He can retain creative control, but he has to surrender day-to-day management. But Friedman’s three allies, including President Parsons, voted to retain him.

Finally, Crawford had had enough. At a board meeting at the New York City accounting firm of Ernst & Whinney in the winter of 1987, the venture capitalist cut short another interminable argument over distribution. Standing up and facing Friedman, he announced, “I quit” and marched out.

Weeks later, faced with the realization that Friedman’s supremacy was now assured, Crawford’s three allies also tendered their resignations from Kings Road’s board.

THE BOARD’S collapse was a public-relations blow to Friedman, but it also relieved him of the internal dissension that crippled morale. He began putting his distribution system into place, and signed a lucrative cable and home-video deal with Home Box Office. The biggest short-term boost to Kings Road was the success of “The Big Easy.” After offering it all over Hollywood without a taker, Friedman got a lucky break that winter. David Puttnam, during his brief reign as Columbia Pictures’ chairman and chief executive officer, liked the movie so much when he saw it at the Utah Film Festival that he agreed on the spot to distribute it. (Ironically, Columbia had turned down the picture when Friedman screened it for the studio in 1986.)

Columbia then proceeded to demonstrate exactly why studio distribution can be such a boon to the independent: It gave “The Big Easy” a 1,200-theater release and a sophisticated advertising campaign. The film earned a respectable $15.4 million at the box office. That was probably not enough to generate profits for Kings Road, but it gave a needed boost to Friedman’s credibility. Partly on the basis of the success of “The Big Easy,” Home Box Office in March announced that it had extended its deal with Kings Road, acquiring cable and home-video rights to 10 future films, including the $13 million “Jack Knife,” starring Robert DeNiro and Ed Harris, and a James Belushi-Whoopi Goldberg feature called “Homer and Eddie.” Dave Pritchard, HBO’s vice president for corporate affairs, says that his company is in constant need of movies and that independents such as Kings Road are a significant source of supply.

“Pay television is still the largest source of the independents’ financing,” he says. “If you add into that home-video rights, it can cover as much as 80% of a film’s production costs.”

However, Pritchard acknowledges, that is still not enough to take away an independent’s risk. “It’s a hit-driven business. You can overextend yourself very easily. You’re very dependent on hits, release schedules, and getting exhibition space.” But, he adds, “we’re very optimistic about Kings Road.”

Still, the company, like a host of other independents, continues to lose money--$3.6 million between April, 1987, and January, 1988. “Rent-A-Cop,” which Friedman had hoped would provide an auspicious debut to his distribution network, disappeared from theaters after earning barely $500,000. And the company recently dismantled its short-lived distribution system.

Harold Vogel of Merrill Lynch says that Kings Road is using the independents’ usual tactics to stay afloat: “They attract private investors, they get bank loans, do all sorts of things like that to stay alive,” he says. “But ultimately a lot of these guys will be merging with others to survive.”

Many in Hollywood and Wall Street contrast the lean, controlled quality of Steve Friedman’s early efforts--”Eye of the Needle,” “Last Picture Show”--with the messiness that marked his many box-office failures since taking his company public. “Steve’s best work has always been done with a studio looking over his shoulder,” one friend says.

It may be that Kings Road’s difficulties will force Friedman back into the role in which he achieved some of his greatest successes--the independent producer, searching for scripts and working with the studios to bring them to fruition. Whatever happens, nobody doubts that Friedman will emerge with his passion for his craft undimmed. “Steve’s a survivor,” one ex-colleague says. “Even if Kings Road falls apart tomorrow, he’ll always find a way to keep making films.”