Financing the ‘Next Picture Show’ : When Major Studios Balked, Tiny Cine-Source Put Itself on the Line

In the acclaimed 1971 film “The Last Picture Show,” director Peter Bogdanovich created a bleak portrait of a small Texas town in the 1950s. Now, 19 years later, Bogdanovich, whose up-and-down career has careened downward in recent years, is attempting a comeback with the sequel to “Picture Show” called “Texasville,” which is due out next month.

None of the major studios would touch Bogdanovich’s latest project--possibly because the film might not appeal to mass audiences or because of Bogdanovich’s reputation for disputing studio dictates--even though he lined up original “Picture Show” cast members Cybill Shepherd, Jeff Bridges and Randy Quaid.

So the director turned to an obscure, 2-year-old Universal City company, Cine-Source Inc., to arrange the financing for “Texasville.” Tiny Cine-Source is hoping that “Texasville”--based on a novel by Larry McMurtry, also the author of “The Last Picture Show”--will put it on the Hollywood map.

“How it will do critically and how it will do at the box office, no one can guess,” said Cine-Source President Robert Whitmore. “But it’s a great motion picture and we have every reason to believe it’s going to be an enormous success.”

Bogdanovich said a few other companies, including Carolco Pictures, had expressed interest in “Texasville.” But, he said, “There certainly was some reluctance in this town about this project. I don’t know that it was specifically me, but it was a difficult project.”

Though Bogdanovich’s career seems to be on the upswing again--he now has a Richard Pryor/Gene Wilder movie in development at Tri-Star--he said he’d work with Cine-Source again. “They put themselves on the line,” he said.

As did a lot of other people. Cine-Source spread the film’s risk among a variety of investors including foreign investors, and through the sale of cable and home video rights. By lining up financing for the film’s $24 million in production, promotion and advertising costs from these parties, Cine-Source limits its risk and avoids having to give away a bigger chunk of the picture’s gross revenue to obtain the backing of a major studio, Whitmore said.

Cine-Source will reap 25.5% of the gross of “Texasville” after distribution fees and certain other costs are deducted, Whitmore said.

But even though it’s limiting its risk, Cine-Source is still taking a chance with Bogdanovich’s latest film.

After “Picture Show,” Bogdanovich was glowingly compared to Orson Welles, and he scored subsequent successes with “Paper Moon” and “What’s Up, Doc?” But he also had some celebrated flops such as “At Long Last Love” and “Daisy Miller.”

Bogdanovich became known for pushing the careers of his girlfriends, such as Shepherd, at the expense of his films. The director sealed his reputation as a troublemaker after a bitter dispute with Universal Pictures over the music in his last film, “Mask,” in 1985.

Bogdanovich’s personal life has also had an arguably negative impact on his career. After the 1980 murder of his then-girlfriend, Playboy playmate Dorothy Stratten, Bogdanovich publicly clashed with Playboy founder Hugh Hefner. Last year, the director’s marriage to Stratten’s 20-year-old sister raised eyebrows even in freewheeling Hollywood.

Nonetheless, Whitmore steadfastly defended Bogdanovich: “It’s not easy for a director to always be a rational man in the throes of the creative process.” But, he said, there were no problems on the set of “Texasville,” and the film came in on time and on budget.

Whitmore and his long-time partner, Cine-Source Chairman Henry Weinstein, were first approached with “Texasville” in February, 1989, by agent Martin Baum at Creative Artists Agency. Nelson Entertainment entered as the other production entity and, through an existing distribution agreement, arranged to have the film distributed through Columbia Pictures.

A victory at the box office would not only make money for Cine-Source and its investors, it would also give the company the cachet it needs to continue making films. “If you’ve got a track record, then the big boys will compete for you and they’ll distribute your product,” said Peter Appert, director of research at the New York investment firm C.J. Lawrence, Morgan Grenfell Inc.

But, Appert warned, “The odds are really stacked against the independent producer.”

That’s partly because many independents don’t have the financial wherewithal to wait out the time it takes to start recouping money from the movie’s being shown in foreign markets, and on cable and home video. “The cash return on a theatrical film can often require the funding sources to wait two to four years to see their cash back,” said Jeffrey Logsdon, senior vice president of the Los Angeles investment firm Seidler Amdec Securities Inc.

Several independent production companies, including De Laurentiis Entertainment Group, Cannon Films and Vestron, have collapsed in the past few years after producing movies with studio-sized budgets and disappointing box-office receipts.

But some investors are betting that Cine-Source will beat the odds. The company’s stock trades on the over-the-counter market at about 38 cents a share, giving the company a market value of about $2.24 million. Not bad for a company that took in just $96,000 in revenue--from producer’s fees--and lost $304,077 from its start-up date in July, 1988, to Jan. 31 of this year.

Cine-Source also recently raised $1.5 million--netting about $1.25 million after expenses--from a public offering of 200,000 units. Each unit consists of two shares of preferred stock, which are convertible into six shares of common stock, and two warrants to buy additional stock.

Jay Lutsky, a Denver investor who was one of the first investors in Cine-Source, called the company “a little diamond in the rough.”

Lutsky was particularly impressed with Weinstein’s background. Weinstein once headed production at Cannon Pictures, worked on films at MGM and 20th Century Fox, and--with Whitmore--executive-produced the critically praised 1985 film “Runaway Train.”

Whitmore insists that Cine-Source will avoid the fate of unsuccessful independents by staying small and lean. The company has just seven employees and plans to do no more than three films a year.

“We have no illusions of grandeur,” said Whitmore. “We’re not trying to be a major studio. We don’t have our own art department. We don’t have our own production coordinators. We don’t have an in-house promotion guy.” The typical Cine-Source film will have a production budget of about $10 million, he said.

Gary Matus, senior vice president in charge of Bank of America’s entertainment and media group, said this type of strategy represents a new era among independent production companies--in which the survivors are avoiding the excesses of the past. “Those that remain appear to be very conservatively run companies,” he said.

Cine-Source is also working on four other films: “Black Orpheus,” a remake of the 1959 Oscar winner for best foreign film that will begin shooting in Brazil in February; “Five-O,” a Brooklyn-based drama starring rap musician Kool Moe Dee; “Three Part Harmony,” with Irene Cara; and “Louise,” based on the life of Wells Fargo heiress Louise Hellman.

Cine-Source also recently set up a subsidiary designed to exploit the musical soundtracks of its films--a potential source of profits and a means to promote its films, Whitmore said.

At first glance, the boyish, 42-year-old Whitmore, an attorney who once ran his own music management firm, and the rotund Weinstein, 66, seem an unlikely pair. But they say the partnership strikes a balance between Whitmore’s business acumen and Weinstein’s production skills.

The pair met in New York in the late-1970s and later formed a production company, Skyfield Productions, that worked mostly on TV movies. After “Runaway Train,” which received three Academy Award nominations, Weinstein went to Cannon. But he and Whitmore soon talked about teaming up again. In 1988, they formed Cine-Source, which then merged with Starwood Ventures, a publicly traded shell company, in a stock swap.

Whether or not “Texasville” is a hit at the box office, Whitmore says Cine-Source will keep making movies. “There’s always a market for an intelligently done motion picture,” he said.

But he added that “Texasville” will show that his and Weinstein’s instincts were correct and that “we were right to work with Peter.”