‘Blair Witch’ Spell Losing Its Magic for Artisan’s IPO Plans

For a flash, Artisan Entertainment was the hottest, most promising young independent movie company, with a knack for releasing smart, edgy genre fare.

But hot flashes pass. More than a year after the phenomenal success of its low-cost horror flick, “The Blair Witch Project,” the New York-based distributor’s fear of being viewed as a one-hit wonder may be a self-fulfilling prophecy.

A cold reception to its recently released “Blair Witch” sequel capped off an already lackluster year at the box office that produced no breakout hits.

Artisan’s long-planned initial public offering to raise more than $100 million remains frozen, leading many to wonder about the company’s future. Artisan shelved plans to go public early this year when the market went south. With no market rebound, the company’s hope of taking an IPO to market in late fall after the release of “Blair Witch 2” died with that movie’s box-office prospects.

At the same time, an internal power struggle and management shake-up at the 3-year-old company--which saw Chairman Mark Curcio elbowed out and “Blair Witch” marketing whiz John Hegeman jump ship--has raised questions about the company’s stability and strategic direction.

Artisan Chief Executive Amir Malin conceded that “the glow of ‘Blair Witch’ has diminished,” but said, “We were a terrific business before ‘Blair Witch’ and we’re a terrific business today.”

The IPO, underwritten by Merrill Lynch & Co. and Bear Stearns Cos., remains on file with the Securities and Exchange Commission and will be revived when the market rebounds, Malin said.

Brian Maier, managing director of Merrill Lynch’s global media group, predicted Artisan will be attractive to investors because of its steady financial performance and its management’s ability to exercise fiscal control.

“This is a viable company with relatively predictable cash flow from its libraries, combined with a discipline of not having big financial exposure on its production slate,” he said.

Still, even in a bullish market, Artisan would be a hard sell to investors today, say two Wall Street analysts who requested anonymity.

Historically, entertainment companies with small market caps don’t interest investors. And Artisan has the added handicaps of a ho-hum record at the box office and a muddled identity. The disappointing showing of “Book of Shadows: Blair Witch 2,” which will be lucky to gross more than $30 million at the domestic box office, only adds to its problems.

Three years ago, Artisan grew from the ashes of its financially ailing predecessor company, Live Entertainment, a library and video distributor acquired by Bain Capital and other investors in 1997. The managing partners, including the now-departed Curcio, Malin and former talent agent Bill Block, who heads Artisan’s Los Angeles office, expanded operations and made the company profitable mostly by exploiting its vast libraries and video distribution deals.

Malin said theatrical revenue accounts for only a “fraction of our overall business,” around 10%. Most of the company’s revenue comes from exploiting the company’s 3,330-title library, which contains hits like “Terminator 2,” “Rambo” and “Basic Instinct.” However, the company owns only domestic home-video rights to the vast majority of those titles. Additional revenue comes from its Family Home Entertainment banner.

Malin is changing the company’s movie strategy, cutting back on the capital-intensive production side of the business and playing to its strength as a marketer and distributor of films financed by others.

Many industry pundits wonder why the once-fiery independent didn’t launch its public offering on the heat of “Blair Witch,” its summer 1999 hit that it acquired for $1 million and turned into a “must-see event” with a revolutionary Internet marketing campaign.

The film grossed $142 million in the United States alone and could turn a profit of $85 million to $100 million, making Artisan a force in Hollywood and on the New York independent movie scene.

Since then, the hit’s filmmakers and its outside investors have hired powerhouse entertainment attorney Bertram Fields to look into the size and distribution of the film’s profit. Neither Fields nor Malin would comment on the situation. An Artisan source said that writers-directors Daniel Myrick and Eduardo Sanchez and their Haxan Films’ producers, along with the limited partners who invested $100,000 in the film, are questioning whether Artisan’s decision to launch the video version as a sell-through rather than as a rental video deprived them of some net profit.

Worse for Artisan, the threat of legal action puts great strain on its relationship with the filmmakers, who are developing other projects for the company, including a “Blair Witch” prequel.

“Some mistakes were made along the way that we have to take some responsibility for,” said Malin, not the least of which, he readily admits, was rushing the sequel out without the involvement of the original filmmakers.

Myrick and Sanchez told Artisan they wanted to wait on another “Blair Witch” until after making their high-priority project “Heart of Love,” a comedy they’re developing for the company.

Malin said Artisan was concerned that in two years the “Blair” phenomenon would be “yesterday’s news.” Artisan management decided instead to jump and make the sequel without Myrick and Sanchez. Now, Malin acknowledges that probably hurt the picture.

Meanwhile, Malin said his mandate is to figure out “how to diversify the asset base of this company since we can’t live or die on the next theatrical film.”

Malin is scaling back Artisan’s in-house productions to three or four a year and will fill out its annual release slate of 15 films with acquisitions and movies fully financed outside the company.

“I believe production is sort of a necessary evil,” Malin said.

Ah, the Blair Witch curse.