Miramax’s Indie Streak

Like a proud parent, Walt Disney Co. has been eager to tout the extraordinary 40 Oscar nominations garnered last month by its unit, Miramax Film Corp., the industry’s leading distributor of independent movies.

But as Disney publicly crows about the achievements of Miramax, which received a remarkable three best-picture nods for “Chicago,” “The Hours” and “Gangs of New York,” the two companies are locked in a family feud over the fundamental terms of their business relationship.

Tensions between Disney Chief Executive Michael Eisner and Miramax Co-Chairmen Harvey and Bob Weinstein have escalated of late as Miramax has evolved into a more mainstream studio with big-budget films and ambitious new ventures. Conflicts about money and control are souring a partnership that for nearly a decade has been one of the most successful, albeit uneasy, alliances in Hollywood, according to sources close to both companies.

“There are just a whole panoply of issues between them,” said a source close to the dispute. “There are some very serious problems.”

Specifically, the two sides are at odds over how much Disney allocates each year to Miramax to finance its movies, how Miramax accounts for its profit and how much goes to the Weinsteins.

The fiercely autonomous Weinstein brothers also resent what they perceive as Disney’s meddling in decisions that should be theirs to make, sources close to the Weinsteins say.

Adding to the friction is an audit of Miramax’s books that Disney launched last year. The Burbank-based entertainment giant insists that it is just a routine review of the company, which it purchased in 1993.

But the Weinsteins view it as an attempt to intrude on their business and are said to be responding with their own audit of Disney, sources close to the brothers said.

To represent them in their fractious dealings with Disney, the Weinsteins have taken the provocative step of hiring Bert Fields, the Los Angeles attorney who has been a thorn in Disney’s side for years. Fields, who declined to comment, is currently representing a family suing Disney for hundreds of millions of dollars in Winnie the Pooh royalties.

The Weinsteins declined to be interviewed for this report, but a Miramax spokesman said in a statement: “We’ve enjoyed a decade of profitability and success with Disney and look forward to continued success in the future.”

Eisner also declined to comment. Disney Studios Chairman Dick Cook downplayed any conflict, saying every business relationship has its ups and downs.

“This is a classic case of somebody who’s had his own business and becomes part of a corporation,” Cook said. “They’ve become a much bigger player; they have growing pains.” He also praised Harvey Weinstein: “Harvey is the consummate entrepreneur. He’s an absolute original in a sea of mediocrity among a bunch of dull suits.... He’s constantly pushing the envelope.”

The deteriorating relationship comes at a delicate time for Disney, which also has been at odds with another key longtime partner, Pixar Animation Studios. In addition, Disney faces shareholder pressure to bolster its earnings amid a slowdown at its theme parks and struggles at its ABC television network.

The Weinsteins believe that Disney, because of these financial challenges, is seeking to change the terms of its deal with Miramax, sources said.

Disney currently allocates about $700 million a year for Miramax’s production and marketing. The two sides, however, disagree over which expenses should be deducted from that allocation. Sources say, for example, that Disney recently began counting expenses that it previously had not, leaving Miramax with less money to finance its movies.

The Weinsteins also differ with Disney over how their annual compensation is calculated, those familiar with the matter say. The brothers currently receive about 20% of Miramax’s overall profit, but they disagree with Disney on how to measure those earnings.

Tighter Reins

Disney historically has given the Weinsteins a wide berth to operate on their own. But in the last year, Miramax has come under greater scrutiny from its corporate parent as it has struggled with high overhead costs and -- its Academy Award success not withstanding -- fewer box-office hits.

Eisner, sources said, voiced objections last year about the escalating budget for Martin Scorsese’s “Gangs of New York,” which Miramax says cost $100 million and predicts will be profitable. He also complained about “Cold Mountain,” an $84-million Civil War drama scheduled to open in December, sources familiar with the project say. Miramax has been searching for a partner to help cover the cost of “Cold Mountain” after MGM Inc. last fall withdrew its co-funding of the movie. Disney has declined to invest in it, citing other commitments.

What’s more, sources said, Eisner for the most part has refused the Weinsteins’ requests to pour money into projects that have been close to the brothers’ hearts.

They failed, for instance, to persuade Disney to invest in what would become the hit Broadway play “The Producers.” The Weinsteins, as a result, ponied up money themselves, profiting handsomely. A Disney source said that as a matter of policy the company does not take a minority investment position in theatrical productions.

Miramax, which originally developed “The Lord of the Rings,” also was unable to get Disney to underwrite the movie series. AOL Time Warner Inc.’s New Line Cinema eventually produced the blockbuster project. The Weinsteins were given executive producer credit and retain 5% of the gross receipts. In turn, half of that 5% goes to Disney. Had Disney bankrolled “Rings,” it would have reaped hundreds of millions.

Cook said all divisions at Disney have faced fiscal constraints over the last two years, pointing out that Disney Studios has reduced its costs by hundreds of millions. “We’re all butting up against living within our means,” he said.

Cook said any refusal to partner with the Weinsteins on a particular project should not be interpreted as a slight.

“[Harvey] has more ideas per day than an industry has in a year,” Cook said. “No one could ever afford to do all of his ideas.”

And not all of them have been winners.

Miramax has stumbled recently with such box-office duds as “Pinocchio,” “The Shipping News” and “Texas Rangers.” Miramax also closed its much ballyhooed Talk magazine, which was edited by Tina Brown and lost $27 million for Disney. Miramax last spring also was forced to lay off 75 staffers in the biggest downsizing in its 23-year history.

The current tensions are in stark contrast to the more convivial climate in 1993, when the Weinstein brothers sold their New York art house business to the more conservative and publicly held Disney for about $75 million.

Although a seemingly odd pairing, the partnership has provided benefits to both.

Promising Beginnings

For its part, Miramax has gained greatly from Disney’s financial backing, its global home entertainment network and its international distribution clout.

For Disney, Miramax hits such as “Shakespeare in Love and “Good Will Hunting” have delivered solid profit and added a certain prestige to the studio. Disney also has cashed in on Miramax’s film library; the company is able to package its movies with those of Miramax for foreign sales.

As part of the contract between the two, Miramax cannot release an NC-17 or X-rated movie. Miramax also must receive Disney’s blessing for any movie that costs more than $20 million.

Despite the promising beginnings, tensions quickly arose.

Part of the problem has been the clash of two strong personalities. Harvey Weinstein is a brusque, larger-than-life figure who does not compromise easily. Eisner is equally tough-minded and tenacious and also likes to be in control.

At the same time, the cultures of the companies that each man heads have clashed.

Disney prides itself on being the premier family brand, while Miramax sees itself as an edgy distributor of provocative films.

That difference has prompted conflicts over such controversial Miramax movies as “Priest” and “Dogma,” both of which sparked outrage among Christian groups.

As the bad feelings between Disney and Miramax have persisted, some have started to speculate about a divorce.

“I suspect that over time Miramax would like to be independent again,” said Dave Davis, a Los Angeles-based investment banker with Houlihan, Lokey, Howard & Zukin. “Harvey’s the kind of person who is so powerful now and has such a track record he would really like not to be handcuffed.”

Yet as much as the Weinsteins might like to buy back their company, Disney is unlikely to sell, sources say.

The brothers could exercise some leverage should they opt not to renew their employment contract with Disney, which runs through 2007.

But Disney has leverage of its own. It would get to keep the rights to Miramax’s lucrative library of about 500 film titles.

In the end, some believe Eisner and the Weinsteins will continue to live with their differences.

“It’s a business relationship that serves both companies and makes a great deal of sense for both companies,” said Joe Roth, former Disney Studios chairman and founder of Revolution Studios.

“As strong as their personalities are, they recognize how valuable they are to each other. They have too much good history to let it go awry.”

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Hit makers

A sampling of recent releases, domestic gross, in millions:

Miramax and its Dimension Films label have delivered solid profit for Walt Disney Co. for the last decade. Co-founding brothers Harvey and Bob Weinstein, who sold Miramax to Disney in 1993, get about 20% of Miramax’s overall annual profit.

“Scary Movie”: $157.0 (Dimension, 2000)

“Spy Kids”: $112.7 (Dimension, 2001)

“Shakespeare in Love”: $100.3 (Miramax/Universal, 1998)

“The Others”: $96.5 (Dimension, 2001)

“Chicago”* (Academy Award nomination for best picture.): $96.2 (Miramax, 2002)

“Scream 3”: $89.0 (Dimension, 2000)

“Spy Kids 2: Island of Lost Dreams”: $85.6 (Dimension, 2002)

“Gangs of New York”* (Academy Award nomination for best picture.): $73.9 (Miramax, 2002)

“Bridget Jones’s Diary”: $71.5 (Miramax/Universal, 2001)

“She’s All That”: $63.3 (Miramax, 1999)

“The Hours”* (Academy Award nomination for best picture.): $30.0 (Miramax/Paramount, 2002)

*Still in theaters.

Source: Times research