Miramax Chief Channeling Energies Into Cable

Despite shedding 75 employees, dropping $27 million on a failed magazine venture and losing 40 pounds on a crash diet, Miramax Films co-Chairman Harvey Weinstein still has a ferocious appetite to get bigger.

On the heels of the worst financial and personal setback of his professional career--the collapse of Talk magazine--Weinstein already is craving another challenging and costly endeavor: launching a cable television channel.

“In the next two years, there will be a full-court effort on our part to the Miramax Channel,” Weinstein said. “It’s a No. 1 priority.”

Considered one of the most competitive, controversial and, by his own admission, “brusque and arrogant” impresarios on the independent movie scene, Weinstein, 50, has been bent on building a media empire on the back of the maverick art-house movie company he and his younger brother, Bob Weinstein, founded 22 years ago in New York.

For years, Harvey Weinstein--who is as cozy with the Clintons as he is with the Kidmans and Jaggers of the world--has hungered to be more than a movie tycoon. In recent years he has made personal and company investments in Broadway shows and in chic restaurants in New York, Los Angeles and Martha’s Vineyard, Mass., where he has a vacation home.

The menu of choices in the media business is as enticing to the voracious Weinstein as junk food.

“If I can give up M&Ms; and lose 40 pounds, then building a business and going in all these directions is no sweat.”

Even though the Queens, N.Y.-born brothers sold their company to Walt Disney Co. in 1993, they’ve enjoyed the freedom to run their own show. Miramax’s record at the box office has given the Weinsteins the leverage to expand beyond cinema with Disney’s blessing.

Forays into such offshoot businesses as magazine publishing and television production have been busts. One promising enterprise is Talk Miramax Books, which has produced seven bestsellers since its launch three years ago.

“A failure here and there is OK,” said Disney Chairman Michael Eisner, referring to the washout of Talk magazine, Miramax’s ill-fated joint venture with Hearst Magazines. “If you don’t allow creative people like Harvey to spread his wings, you lose the essence of who they are.”

The cable channel is Weinstein’s latest attempt to exploit Miramax’s 500-title library and brand name, which is synonymous with offbeat movies that include last year’s edgy “In the Bedroom” and stylish French import “Amelie” and previous breakout art-house hits such as “Pulp Fiction,” “The Crying Game” and “sex, lies and videotape.”

The company’s 8-year-old mainstream movie label, Dimension Films, has lifted Miramax’s status from strictly art house to major studio with commercial hits such as “Spy Kids,” “The Others” and the “Scary Movie” and “Scream” series.

As Weinstein envisions it, the Miramax Channel would be more than just another independent movie channel joining the ranks of Sundance Channel, a venture of Robert Redford, Viacom Inc.’s Showtime Networks and Universal Studios, and the Independent Film Channel and Bravo, both owned by Rainbow Media Holdings and controlled by Cablevision Systems Corp.

Cable Channel Would Be a Valuable Asset

“It would be different because it would be lifestyle plus movies,” Weinstein said. The channel would target Miramax devotees--a niche audience of affluent 21- to 49-year-olds who are as interested in fashion, travel, news and politics as the latest independent movie hit.

Conceptually, Eisner said, he too is a huge proponent of the idea. “Miramax is the only brand in the movie business other than Disney,” he said. “And, I think the Miramax brand can be even more significant than it is today.”

Lisbeth Barron, a Bear Stearns partner in charge of the entertainment investment banking group, said that if the Miramax Channel is successful it will be a highly valuable asset.

“Cable networks typically have margins of about 40%,” Barron said. “For the past two decades ... the most sought-after assets are music publishing companies and cable networks,” she said, citing such cable sales as Fox Family Channel, which was bought by Disney for $5.2 billion, and BET, for which Viacom paid $2.7 billion.

This is not the first time Weinstein has considered launching his own channel. Eisner proposed the idea about five years ago, but it was nixed after Disney’s strategic planners concluded that a shortage of space on cable systems would make it too difficult and costly to get the new channel carried.

Media analysts say that the challenges of launching a cable channel today are equally as onerous and expensive.

Access to Basic Cable Comes at High Price

“Getting on basic cable is nearly impossible unless you have hundreds of millions of dollars,” said Derek Baine, senior analyst with Kagan World Media.

“You have to pay cable operators roughly $5 or $6 a subscriber. And you need 30 million or 40 million subs to attract advertisers and have a viable business model. So, it would cost at least $150 million to $200 million,” Baine said. And that doesn’t include programming and infrastructure costs, he added.

Eisner, who expressed surprise at learning from a reporter that Weinstein was revisiting plans for the Miramax Channel, said he remains wary of the high cost of entry.

“Access is difficult, therefore it’s very expensive,” Eisner said. Miramax probably would have to rely on Disney’s leverage with cable operators to pull it off, he said.

Disney used its powerful ESPN sports channel to launch SoapNet and Toon Disney and to expand the Disney Channel. A Miramax channel, Eisner said, would have to be a collaboration with ABC’s cable holdings.

But, Baine said, the timing of that might be difficult. “Disney is not in a really great competitive position to launch new cable networks at this juncture....Disney used up a lot of goodwill with cable operators by raising its rates on ESPN.”

Stressing that he is in the exploratory stages, Weinstein said, “A third-party investment we would consider strongly.” One possibility, he said, would be Miramax and Disney forming a joint venture with a cable operator.

The most desirable partner could be Comcast Corp., which will become the nation’s top cable provider if its proposed merger with AT&T; Broadband is approved by federal regulators. Comcast is partners with Disney in the E! Entertainment Television cable channel. Weinstein’s companion at last month’s Academy Awards ceremony was Comcast President Brian Roberts.

Weinstein said there’s no cable outlet that caters entirely to the hip, intelligent crowd he is seeking to serve.

His ideas for a Miramax Channel include a talk show, a news magazine and possibly a Friday night martial arts movie featuring his company’s library of 120 imported Hong Kong flicks starring Jackie Chan, Jet Li and others.

Just as Fox Cable News, owned by News Corp. Chairman Rupert Murdoch, reflects conservative political viewpoints, the Miramax Channel “will be an expression of Harvey’s democratic political philosophy and of a more tolerant lifestyle,” said Hollywood agent Robert Newman, who has known Weinstein since working as his assistant 20 years ago.

“Harvey will have a clear editorial voice that’s underrepresented in the cable universe,” said Newman, noting that the venture is a natural extension of Weinstein’s broad range of ambitions and interest in politics, journalism and philanthropy as well as theater and literature.

The emergence of his lower-profile brother, Bob, who is fast becoming a movie mogul in his own right from the success of Miramax’s Dimension Films division, may be fueling Weinstein’s already ego-charged competitiveness.

A recent interview with the two at the Peninsula Hotel in Beverly Hills revealed their fierce but loving sibling rivalry.

“Over the last six years Dimension has accounted for 65% of the profit of the company,” which last year totaled $161 million, Bob Weinstein said. “I have a staff of 30 people and am putting five or six movies out a year. And we spend a lot less money” than the company’s primary movie division.

It was the costly overhead on the Miramax side of the company, which employs more than 400 and puts out dozens of movies each year, that prompted the Weinsteins to lay off 17% of their work force last month. Only two of those laid off worked at Dimension.

“I also want to tell you something,” Harvey Weinstein said, interrupting his brother. “Thirty-five percent of $161 million isn’t chopped liver.”

Winners and Losers at the Box Office

Miramax’s low-cost acquisitions can be very profitable when they hit. “In the Bedroom,” for which the company paid $1.5 million, and French import “Amelie,” which cost $1 million, each will gross about $40 million domestically. “Bridget Jones’s Diary,” a co-production with Universal Pictures that cost $22 million, has grossed $280million worldwide.

Last year, Miramax also had a string of losers, the biggest being its $35-million screen adaptation of the Pulitzer Prize-winning “The Shipping News,” which sank at the U.S. box office with less than $12million in receipts.

But Weinstein’s biggest financial and personal black eye didn’t happen at the box office. Talk magazine, the pet project he pitched four years ago to then-Editor Tina Brown of New Yorker magazine, became a high-profile casualty less than three years after its much ballyhooed launch.

When they decided to form the joint venture, Miramax and Hearst agreed to cap the total investment at $62 million. After each party lost $27 million, Hearst decided to pull the plug and cut its losses. Weinstein failed to find another partner.

Although Weinstein said the Talk enterprise “is painful now,” he predicted that Talk Miramax Books, which is 100% owned by Miramax, “will be very profitable.” The most valuable lesson he says he learned from the Talk magazine outing was “not to jump in too quickly” when it comes to plunging into a new business.

“I went too far afield with Talk,” said Weinstein. “I didn’t understand the business and still don’t.”

Weinstein said he won’t repeat the mistake as he pursues the Miramax Channel. He plans to spend ample “pre-production” time on the venture just as he would for one of his movies, estimating it could take two years to get the channel launched and five more to claim success.

“I’ve always been a believer in vertical integration,” Weinstein said. “And, at one point, it will be successful.”

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Miramax’s Entertainment Empire

Magazine Publishing

* Talk magazine: After a much-hyped launch in 1999, the joint venture between Miramax and Hearst collapsed less than three years later, losing the partners a combined $54 million plus shutdown costs.

* Niche media: In 2001, Miramax invested $1.5 million in Jason Binn’s slick advertiser-driven magazines, which include Gotham, Hamptons, Ocean Drive and the newly launched Los Angeles Confidential. Its ownership stake is estimated at 10% to 15%.

Broadway/U.K. Theater Productions

* Miramax: Invested $750,000 in Broadway’s “The Real Thing,” which bowed in April 2000 and won three Tony Awards. The Weinsteins won the Tony as co-producers.

* The Weinsteins: Estimated personal investments $10 million to $12 million. Invested $1.5 million in the smash Broadway hit, “The Producers,” which won a record 12 Tonys in 2001. Other investments include Broadway’s “Mamma Mia!” and the dud “Sweet Smell of Success”; and UK productions “Chitty Chitty Bang Bang,” “The Royal Family” and “The Full Monty.”

Restaurants

* Miramax: Part ownerships in Tribeca Grill, New York; Ago, Los Angeles.

* The Weinsteins: Part ownerships in Nobu and ManRay, New York; Dominics, Los Angeles; Balance, Martha’s Vineyard.

In-House Business

* Miramax Films: The Weinsteins founded the New York art house movie company named after their parents, Miriam and Max, in 1979 and sold it to Disney in 1993 for $60 million. Today, some estimates have valued the company at more than $1 billion. The Weinsteins have a contract with Disney that runs through 2007. Sources say the brothers receive a quarter to a third of the company’s annual profit above a certain threshold.

* Dimension Films: Launched as a low-budget horror, sci-fi, action genre label of Miramax in 1994. Under Bob Weinstein it has become a cash cow with such mainstream hits as “Spy Kids” and “The Others.”

* Miramax/Dimension TV: The company’s first three shows-- ABC’s “Wasteland,” animated series “Clerks” and the WB’s “Glory Days”--were canceled in their first season. The only bright spot: HBO series “Project Greenlight.” Upcoming: Planned animated series based on “Spy Kids”; ABC’s “Wonderful World of Disney” miniseries “A Wrinkle In Time,” slated to air in November.

Book Publishing

* Talk Miramax Books: Launched in 1999 and headed by Tina Brown and Jonathan Burnham, it has published seven bestsellers, including Eoin Colfer’s “Artemis Fowl” and Malika Oufkir’s “Stolen Lives.” Future releases: “Leadership” by former New York Mayor Rudy Giuliani and memoirs by Madeleine Albright, Queen Noor and David Boyce. 2001 profit: $500,000. Projected 2002 profit, $1 million to $1.2 million.

Music

* Miramax Records: Released first movie soundtracks in 1994. Miramax puts up 50% of the expenses and jointly owns the soundtracks with record companies. Sony Music paid Miramax a $5-million advance to administer its publishing catalog, which has more than 100 copyrights. The Weinsteins say the divisions is profitable.

Sources: L.A. Times, Miramax