Weintraub’s Worries : Box-Office Flops Add to Woes of Flashy ‘Mini-Major’
The Rolls-Royce Convertible in two tones of tan belongs to Jerry Weintraub--with some help from an automobile “allowance” paid by Weintraub Entertainment Group, of which he is chairman, chief executive officer and a major stockholder.
The blue Rolls next to it belongs to Weintraub’s company and is reserved for Kenneth Kleinberg, president and chief operating officer.
Such perks have been the sweeter side of running a movie and television company with big-league financial backing and a yen to beat the major studios at their own game. Yet perks may be harder to come by at Hollywood’s flashiest remaining “mini-major” movie studio if it doesn’t deliver a major hit--and soon.
Weintraub Entertainment, which claimed almost half a billion dollars in financing from Columbia Pictures, Cineplex Odeon and others when it was formed two years ago, is now bruised and battered from the box-office failure of its first three movie releases.
“The Big Blue,” a European-produced film to which Weintraub Entertainment bought distribution rights, sold just $3 million in tickets last August. Then “Fresh Horses,” the studio’s first original production, which starred Molly Ringwald and Andrew McCarthy, grossed only $7 million at Thanksgiving.
But the biggest shocker was “My Stepmother Is an Alien,” a Christmas comedy that matched up sexy Kim Basinger with funny Dan Aykroyd. The film cost at least $26 million to make and market, and was supposed to carve $50 million or more out of the Christmas box office, according to pre-release estimates by Columbia and Weintraub Entertainment executives.
Instead, “Stepmother"--despite a Washington premiere that included President-elect George Bush, a Weintraub friend, along with much of the inaugural and transition teams--was buried by Universal’s “Twins” and Paramount’s “The Naked Gun.”
It grossed just $10 million in the United States during its first four weeks, leaving the 51-year-old movie mogul and former pop star manager (whose film production credits include, among others, “The Karate Kid” and “Diner”) to wonder what hit him.
“It has personally knocked me for a loop,” Weintraub said during an interview at the company’s cream-colored, art-bedecked headquarters in West Los Angeles.
“Are the results of ‘Stepmother’ damaging to us? Absolutely. Are they insurmountable? No,” he insisted.
“But it’s going to slow me down. I’m re-examining the kind of pictures we’re doing.”
Though jolted by the setbacks, Weintraub said he still finds “Stepmother” a “terrific” film (reviews were mixed) and hopes it may eventually turn a profit on foreign, videocassette and cable TV sales. Company executives noted that the movie has already opened to good business in Australia and French-speaking Canada.
But Weintraub and Kleinberg acknowledged that they may consider at least slight cuts in the company’s 170-member staff and might for the time being slow their pace somewhat from the seven or eight films a year they had previously planned to release under a 20-year distribution agreement with Columbia.
The company currently has four films in the can and may complete a fifth for release in 1989, according to Kleinberg. It plans to release “The Gods Must Be Crazy II,” a sequel to the 1984 art-house hit, and “Daddy’s Little Girl,” which stars TV’s Tony Danza (“Who’s the Boss?”), this winter.
According to Kleinberg, the studio also expects to shoot “Evita” with director Oliver Stone, its showiest project to date, in Buenos Aires before the end of the year.
But at Weintraub, the mood of the moment is clearly one of shock, which, notwithstanding the three flops, seems strange when you consider the apparent size of the company’s bankroll. After all, when the studio was formed in February, 1987, Weintraub called it “the most highly financed entertainment company that’s come down the pike,” a reference to the dazzling $461 million in securities, bank loans and advances it had garnered from Columbia and others.
So where did all that money go?
According to filings with the Securities and Exchange Commission and other sources, the studio has actually been scrambling for capital ever since July, when the Bank of America terminated its commitment for a $145-million, 7-year credit line, wiping out almost a third of the company’s expected war chest.
Peter Geiger, vice president of entertainment lending for the bank, declined to discuss reasons for the termination. According to Kleinberg, however, the bank had difficulty in syndicating portions of the loan to other banks after Weintraub Entertainment separately borrowed $50 million to help with its $85-million purchase of the 2,100-film Thorn-EMI Screen Entertainment film library from Cannon Group Inc.
The bank and the company say they are now close to finalizing a reduced, $95-million credit line, which will run for just two years and will include funds from Credit Lyonnais, a European lender.
According to the studio’s securities filings, Weintraub Entertainment doesn’t expect to need additional money again for the next six months. But Kleinberg acknowledged that the company has been looking for new equity investors and recently hired Nomura Securities “to explore both financing and business opportunities in Japan.”
According to Weintraub’s latest 10-Q quarterly earnings report, the studio posted a 9-month loss of $11.7 million on $36.4 million revenue, much of which came from film library sales, and was down to $6.4 million cash and some interim borrowings from the banks as of Sept. 30.
That cash position could seem puzzlingly low, given $300 million or so in start-up capital that was supposed to be available, even without the bank loan.
But movie finance is a tricky business. A theoretical $156 million in advances from Columbia and RCA/Columbia Home Video, for instance, is actually spread over 20 movies and only comes in dribs and drabs as the films are produced--subject to some stiff conditions.
Thus Weintraub Entertainment can typically tap Columbia for $3 million per film in advances against the studio’s foreign distribution rights to Weintraub movies, and it can tap RCA/Columbia for $4.25 million against RCA’s purchase of video rights to the films. But the mini-studio has to spend at least $4.5 million on prints and ads for each movie in order to qualify for the advances. That is, it must spend money to get money.
According to Kleinberg, Weintraub has actually spent closer to $7 million promoting each of its first three films, and some individuals associated with “Stepmother” say the cost of marketing that movie will ultimately be about $9 million, in addition to its $19 million production cost. That makes it tough to turn a profit on the films without some success at the box office, even though advances against video, foreign and cable TV sales cover much of their production cost.
As for the initial $143 million raised in debt and equity from several dozen private investors, including $11.5 million contributed by Weintraub himself--well, there was no shortage of folks with a call on the cash. Among the expenditures covered by the original investment or cash flow from the library:
--More than $100 million to produce and market movies and TV shows. (The TV division, under “Cagney & Lacey” creator Barney Rosenzweig, used only a small fraction of the investment but has shown some promise. NBC has agreed to take 13 episodes of a half-hour comedy for next spring, and “The Karen Carpenter Story,” a TV movie, performed well for CBS recently.)
--About $35 million cash toward the film library’s purchase price.
--$9.2 million in interest payments for the nine months ended Sept. 30. (All that borrowed money can get expensive.)
--$6.6 million in salaries for the nine months, including $1.5 million a year for Weintraub, the company’s top-paid employee, under a 7-year employment contract. According to the filings, the studio also expects to purchase from Weintraub seven film projects, including sequel rights to “Nashville,” which he helped produce in 1975, and some assets of his privately owned promotion company, Concerts West. Kleinberg said those deals are pending, but no price has been set.
--$1.8 million for 2.5 million shares of Hoyt’s Entertainment Ltd., the parent company of Australian-based Hoyt’s Distribution Ltd., which had previously bought $11.5 million in Weintraub stock through various affiliates. (“It was an investment opportunity for us,” Kleinberg said, without elaboration, of the decision to plow back money into Hoyt’s, which distributes Weintraub’s movies in Australia and New Zealand.)
--Roughly $30 million promised to Cineplex Odeon, affiliates of which invested $7 million in Weintraub securities. Weintraub has a contract to pay for 24,000 movie prints from Cineplex’s film lab, whether or not it ever makes enough movies, about 40, to complete the order. (“We got a favorable price,” explained Kleinberg.)
Despite the heavy outlays, Kleinberg said the company remains stable, thanks to the restructured bank line and its library income--and nobody’s turning in keys to a Rolls just yet.
“We set out realizing how difficult it is to build a company that will last and tough it out in a marketplace of big players. Everybody’s had product that didn’t perform,” Kleinberg said.
But a hit or two clearly wouldn’t hurt.