How Could Orion Win Oscars and Lose Its Shirt? : Film industry: ‘Silence of the Lambs’ sweep rings hollow for firm that ended up in Chapter 11.

It was late afternoon Monday, and the bi-coastal committee of bankruptcy creditors had to cut short its conversation. The co-chairman had an appointment.

“We were having a conference call, and we had to end it because Ed had to go to the Academy Awards,” said Wilbur L. Ross, a Manhattan investment banker who advises people on how to recoup their money from distressed companies.

Ed is Edward Saxon, one of the producers of “The Silence of the Lambs.” The company in bankruptcy is Orion Pictures. And just a few hours after ringing off with Ross, Saxon was hoisting an Oscar, as “Lambs” swept the most distinguished categories of the 64th annual Academy Awards.

Rarely has victory rung so hollow. Orion, which made a string of the world’s most acclaimed movies, including three other Best Picture winners--”Amadeus” in 1984, “Platoon” in 1986 and “Dances With Wolves” a year ago--still could not stay ahead of the bill collectors.

How could this happen? It’s a question Hollywood and Wall Street continue to ponder.

Facing debts approaching $1 billion, Orion filed for Chapter 11 bankruptcy protection in December. Its unsecured creditors--those most at risk--include Jodie Foster and Jonathan Demme, who won Oscars on Monday as best actress and best director for “The Silence of the Lambs.”

So critical is Orion’s financial condition that not even the Oscar sweep is expected to generate more than a blip on its balance sheet. Representatives of the company acknowledged that, because “Lambs” has already segued to the home video market, little revenue is likely to flow to the firm from a possible re-release of the film in selected theaters.

“Unfortunately, I think it came a little bit too late in their financial crisis,” said Lisbeth R. Barron, an analyst with S.G. Warburg Securities in New York.

“It’s not an irony at all,” Demme said in an interview, reflecting on the Oscars his film won and the demise of the studio that gave him his biggest opportunity. “It’s a tragedy.”

Most of Orion’s gifted creative staff already has left--including top executives Arthur B. Krim, Mike Medavoy, William Bernstein and Eric Pleskow. The company is now in an escrow of sorts, as a rival independent production company, New Line Cinema, seeks to purchase Orion in collaboration with John Kluge, the billionaire who since 1987 has been Orion’s majority shareholder.

A lawyer for New Line told a U.S. bankruptcy judge in New York on Tuesday that within two weeks the firm would file a formal proposal for purchasing and restructuring Orion. Len White, the newly installed chairman of Orion, did not return calls seeking comment.

In their televised acceptance speeches Monday night and more private comments afterward, Foster, Demme and the handful of others who shared the success of “Lambs” lauded Orion’s legacy of excellence.

They paid homage to Orion as a director’s studio, a place that took chances, a place where the bean counters not long ago approved a three-hour Western, “Dances With Wolves”--a Western with subtitles.

“You know, Orion no longer exists, for all intents and purposes, because it was the people who made Orion what it became,” said Medavoy, the former executive vice president of the studio. Medavoy left in 1990 to become chairman of rival Tri-Star Pictures--but not before authorizing Demme to shape the film that would become “Silence.”

Explanations of Orion’s collapse depend on who’s talking.

Demme is among those who think that Orion lost its last chance to survive by selling Paramount Pictures the distribution rights to “The Addams Family,” a film that became a huge popular success.

“In a nutshell, when Orion made (some of its most acclaimed) films, they were in serious financial straits,” said Steven R. Hill, an entertainment analyst with the securities firm Sutro & Co. “In order to make these films, they had to raise a lot of additional capital and, to do that, they had to sell off a lot of distribution rights.”

Others, including some securities analysts, criticized Orion in the 1980s for using aggressive accounting practices that made the company appear to be in better shape than it truly was.

If Monday’s Oscars were Orion’s swan song, the company certainly went out in style. Its Oscar night party at downtown’s Rex Il Ristorante exuded opulence, from the five-foot-high ice rendering of the “Lambs” insignia to the free-flowing champagne and menu of lobster, salmon--and roast lamb.

Indeed, the studio’s elan may have contributed to its downfall. Orion maintained costly offices in Manhattan and Los Angeles--expenditures that some critics attributed to executive ego.

And Charles R. Meeker, president of MGM-Pathe Communications Co.--another Hollywood studio trying to regain its lost stature--said that Orion did not have enough mid-grade, “meat and potatoes” films to offset ambitious projects that flopped.

Medavoy added: “Orion, unfortunately, was always undercapitalized. It did not have enough money to start with.” So there was too little margin for error. “A company like that has to be able to fail (occasionally), to have a year or two where things are not working.”

Meeker also noted that Orion was founded in 1978 partly with junk-bond financing. That high-interest debt, Meeker said, “affects everything you do. I don’t think they were ever able to operate in a normal business sense.”

But at least one lawyer familiar with Orion’s operations said Tuesday that the reason for Orion’s financial misfortune is not so mysterious.

“They spent more than they took in,” said the lawyer, who spoke on condition of anonymity.

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