Miramax May Need Disney

Be careful what you wish for, Harvey.

For months, Miramax Film Corp. honcho Harvey Weinstein has been telling his industry friends that he can’t wait to get out from under Walt Disney Co. He has complained that for all of Disney’s resources, the company led by Chief Executive Michael Eisner is too rigid and restrictive to be a good creative partner.

But as talks about extending Miramax’s relationship with its corporate parent have foundered, the prospect of life after Disney may not be as bright as Weinstein and his brother Bob once hoped. Even if they can find private investors to bankroll a new venture, many say, it seems unlikely that life outside the Magic Kingdom will be better than life inside.

“It’s difficult to envision the Weinsteins finding the resources or capital that would give them the same financial flexibility that they’ve had,” said media analyst Jeffrey Logsdon. Though the brothers will surely lure some investors, Logsdon said a recent press report suggesting that they could easily raise $1 billion to create their own production company “defies financial logic.”

To assess what the future might hold, the Weinsteins have engaged in talks with such investment banking houses as Goldman Sachs and Lehman Bros. as well as private equity firm Blackstone Group. Although prohibited from entering into any formal agreements before resolving Miramax’s deal with Disney, Harvey Weinstein has been promoting the idea of an independent start-up with the kind of bravado he uses to wage his Oscar campaigns.

But some analysts and deal makers say that despite the brothers’ track record of award-winning hits, including “Chicago” and “Shakespeare in Love,” the hype is getting ahead of the reality.

In recent weeks, Disney put the Weinsteins on notice that their current employment contracts would not be renewed under the existing financial terms when they expired next September. That leaves open the possibility that a new deal could be struck. But sources close to both parties say the chances are slim.

More likely, they say, is a settlement agreement that would end the Weinsteins’ 11-year partnership with Disney for good.

The Disney board, which has rejected the Weinsteins’ requests to present their case, is expected to address the company’s relationship with Miramax at a meeting this month.

A source close to the board said Disney directors “have grown increasingly unhappy with [the Weinsteins’] financial performance and behavior.”

The Weinsteins and Disney executives declined to comment.

If the Weinsteins end up on their own, their trademark brusque style could make investors wary. Harvey, in particular, is famous for bucking authority.

“They’re not going to get everything they want because people are aware of their reputation,” said Dennis Leibowitz, money manager with Act II Partners in New York.

Another potential turn-off for investors is the fact that the Weinsteins must leave behind not only their famed moniker, which the brothers invented by combining their parents’ names -- Miriam and Max -- when they founded the company 25 years ago, but also Miramax’s 550-title library.

For investors leery of the volatile movie business, film libraries are attractive because they generate steady cash flow, which in turn helps fund overhead and film development, production and marketing. Equity investors who backed Sony Corp.’s recent acquisition of Metro-Goldwyn-Mayer Inc. were attracted to the deal mainly by the legendary studio’s 4,000-film library, which throws off about $400 million a year in cash. Such revenue streams are especially important to new production companies because movies can take years to show a return.

In addition to leaving their library behind, the Weinsteins would be walking away from a guaranteed annual production and marketing budget of $700 million. They’d also have to live without access to Disney’s powerful distribution organization, which releases Miramax’s movies on DVD and packages them with its own more mainstream fare for TV syndication sales. Being part of a well-funded media company has also at times afforded the Weinsteins the kind of flexibility they need to make quick decisions on movie projects that fall outside their financial parameters.

In the mid-1990s, when they wanted to invest in “The English Patient” and the amount exceeded their budget cap, the Weinsteins quickly got the OK from then-Disney studio chief Joe Roth.

That kind of nimble maneuvering is more difficult to pull off with investors less savvy about the movie business and who are not known for making snap decisions. Moreover, investors usually give money with strings attached, which the Weinsteins might find hard to live with.

“Sophisticated financial investors are going to be very careful as to how to structure an investment to rein in Hollywood’s historical spendthrift ways,” said Christopher Dixon, a managing partner at investment firm Gabelli Group Capital Partners.

Sources say Disney executives are not easing Wall Street’s concerns. In recent months, they have portrayed the brothers as fiscally irresponsible, noting that Miramax has been profitable during only two of the last five years. The Weinsteins have argued that Disney’s formula for calculating profit is flawed.

As the Weinsteins continue to talk with investment banking firms, the role they’ve played in revolutionizing the world of independent film gives them undeniable cachet. There is little doubt that the brothers could generate some heat -- and dollars -- on Wall Street. The issue is: How much?

“There’s no question that these are very bankable people,” said Jill Greenthal, a partner at Blackstone Group.

Still, it’s clear that investors will need to be convinced that any new venture will be run with firm fiscal restraints. “It’s going to be tough for Harvey unless he has a business plan that makes sense and can give people around him comfort that he can control his excessive appetite,” said one Weinstein associate.

Since selling their maverick New York-based movie company to Disney in 1993 for about $80 million, the Weinsteins have had a tempestuous relationship with their corporate parent. Harvey Weinstein, a P.T. Barnum-like showman who is known almost as much for his volatility as his creativity, has often feuded with Disney chief Eisner over how much creative and financial autonomy Miramax should have.

For example, Weinstein chafed when Eisner refused to allow him to make the “Lord of the Rings” trilogy, citing its enormous costs. Rival New Line Cinema Corp. produced the three films and has multiple Oscars and huge profit to show for it.

For his part, Eisner bristled at Weinstein’s risky investments in bigger-budget movies such as “Cold Mountain,” which cost $80 million and had disappointing returns. He was also put out when Weinstein embarked on new ventures, including money-losing Talk magazine.

Then, this spring, long-simmering tensions boiled over when Eisner prohibited Miramax from investing in and releasing Michael Moore’s anti-President Bush documentary “Fahrenheit 9/11.” Weinstein defied him, publicly casting Eisner as a cowardly bureaucrat. The brothers bought back the rights to the movie, releasing it through Lions Gate Films.

Nevertheless, as recently as last summer it appeared that Disney and the Weinsteins might find a way to work things out. One proposal was that Harvey Weinstein would leave Miramax to form his own production outfit, while Bob would continue running Miramax’s Dimension Films on Disney’s dime. That option evaporated when Disney offered Bob Weinstein a deal with compensation figures so low, sources say, he was insulted.

Despite their gripes with Disney, some industry insiders say, the Weinsteins may only now be realizing how good they’ve had it. Sources close to them say they still hold out hope that, particularly now that Eisner has announced his retirement in 2006, there may be a chance to make a new beginning with Disney.

Said one Hollywood executive who knows the Weinsteins well: “It’s the classic case of you want what you don’t have and take for granted what you do have.”

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Times staff writers Sallie Hofmeister and Joseph Menn contributed to this report.