Posted on 03/05/2005 11:32:06 PM PST by nickcarraway
LOS ANGELES, March 5 - Partygoers in elegant evening wear scurried to take their seats at tables decorated with delicate white orchids in the grand hall of the Pacific Design Center here. It was the night before the Academy Awards, and perhaps the last affair that Harvey and Bob Weinstein would throw for the 25-year-old Miramax Films.
"No event or person will ever break up the brothers Weinstein," Bob Weinstein declared to the assembled glitterati, dismissing critics, he said, who now believe that the Weinstein era is over. Sitting in somber silence, among the nearly 600 guests, were Leonardo DiCaprio, Cate Blanchett and Martin Scorsese.
It did not go unnoticed that Michael D. Eisner, the chief executive of the Walt Disney Company, was not among them. The Weinsteins, who are based in New York, were in Hollywood negotiating the final points of a separation agreement from Disney, which had acquired their film studio in 1993 for $80 million. What is clear is that the Weinsteins will have to leave behind the Miramax name and the company they founded.
While with Disney, Miramax released more than 300 movies that generated $4.5 billion in American ticket sales and tallied 220 Academy Award nominations and 53 wins, including best picture Oscars for "Shakespeare in Love," "The English Patient" and "Chicago."
But the Weinsteins had many low moments at Disney, too. They argued bitterly over huge losses from Talk magazine, now defunct, as well as over the ballooning size of movie budgets and Disney's refusal to release what would prove to be one of the Weinsteins' most profitable acquisitions, "Fahrenheit 9/11."
The story behind the Disney-Miramax breakup, on one level, is about money and ego. The 12-year relationship went the way of many famous Hollywood marriages: infatuation, then betrayal and, expected soon, a divorce with a rich settlement.
But it is also a morality play with important lessons. It was not enough for the Weinsteins to make great movies - Disney wanted those movies to reap lots of money, too. What bothered Mr. Eisner most, said representatives from both sides, was that Disney had unwittingly put together a deal that, in later years, so richly compensated the Weinsteins at Disney's expense.
Disney and Miramax had other substantive disagreements, including over how much autonomy the brothers would have. And in the tug-of-war between art and commerce, Mr. Eisner's seeming inability to manage creative, sometimes temperamental, moviemakers was just as important as mastering the bottom line. At one point, Disney offered Bob Weinstein a contract that, in essence, would have treated him almost like any other Disney employee. He considered it an insult, a negotiator involved in the discussions said.
The terms of the breakup are expected to be revealed in the coming week, though with the volatile nature of the talks, either side could yet walk away from the table. When a breakup is finalized, both Disney and Weinsteins are sure to claim victory.
Neither, though, will emerge as a clear winner. The Weinsteins will be leaving behind the comfort of a corporate parent with deep financial pockets. For Mr. Eisner, whose brusque management style has been widely chronicled, the departure will be viewed, rightly or wrongly, as yet another incident where he clashed with associates who were then compelled to leave.
People who know both Mr. Eisner and the Weinsteins say it did not have to end this way.
"It should never have reached the level of acrimony and bitterness that it did," said Hal Vogel, a media analyst who has followed the careers of both parties. "Both sides benefited. The Weinsteins earned a lot of money and a reputation bordering on legendary. Disney got a lot of movies it would not have otherwise had."
Contentious Personalities
Representatives for Disney and Miramax declined to comment on the split. But several people involved in the negotiations between the companies agreed to be interviewed, while insisting on anonymity because of the delicate nature of the talks and the contentious personalities involved.
Few in Hollywood know that the breakdown can be traced to simmering tensions following the Sept. 11 terrorist attacks, according to those involved in the negotiations.
Disney's fortunes were in a tailspin then, brought on by a lingering recession and a decline in attendance at its theme parks as potential visitors were reluctant to travel. The company's ABC network was lagging in the ratings. And investors were beginning to pressure Mr. Eisner to improve Disney's financial performance. As a result, all of Disney's divisions were forced to cut costs.
The lone exception was Miramax, which had a strict autonomy provision that shielded it from corporate interference. In 2000, the Weinsteins renegotiated their contract with Disney and were guaranteed a yearly budget of $700 million along with a promise that they would run Miramax until September 2005, with an option to extend until 2007.
They quickly flexed their newfound muscle, expanding into books, television and Talk magazine. Miramax began making big-budget movies, too, drifting from its independent roots, although Disney capped Miramax's per-movie investment at $35 million.
But Miramax's expansion delivered mixed results, causing resentment at Disney's headquarters in Burbank as other divisions were cutting back, according to current and former Disney executives. Two expensive movies produced by Miramax that were released in December 2001, "Kate and Leopold" and the Oscar hopeful "The Shipping News," bombed at the box office.
Talk magazine was a bust; publishing executives estimate it lost $54 million, half of which came out of Miramax's pocket. Miramax's staff had ballooned to more than 450 employees. And in fiscal 2001, according to the executive who reviewed Miramax's finances, the division lost $37 million, although some at Disney suggest it was more than twice that.
That gave Mr. Eisner pause. In early 2002, Peter Murphy, Disney's chief of strategic planning who negotiated the Weinsteins' contract in 2000 and who often carried out Mr. Eisner's plans, told the Weinsteins that Disney was losing money on their deal, another executive involved in the negotiations said. The Weinsteins' bonuses were not tied to their operating profit and Mr. Eisner wanted Miramax to show more restraint, the executive said. That year, Miramax laid off 15 percent of its staff, the first layoffs in its history, and closed Talk magazine.
Mr. Eisner's criticism stung. "They went out of their minds," said a Hollywood executive who talked to the Weinsteins then. The brothers saw their successes a different way: They believed they were building a valuable library with films like "Pulp Fiction," "The Piano" and "Good Will Hunting."
And the Weinsteins believed Miramax's movies were generally more financially successful than Disney's own live-action movies, according to the executive who reviewed Miramax's finances. But what upset them the most was that Mr. Eisner criticized them after he rejected some ideas that turned out to be huge hits. Among the projects Mr. Eisner had vetoed financing was "The Lord of The Rings" series, which made New Line Cinema a fortune. Instead of cutting back, the Weinsteins sought money elsewhere with Disney's permission, said several people close to Disney and Miramax. Mr. Murphy told the brothers in May 2003 that Disney would consider increasing Miramax's budget if they could attract outside investors. The Weinsteins immediately contacted Goldman Sachs, and, within a matter of weeks, investment bankers there proposed raising $450 million to $500 million in an equity offering that gave a financial edge to Disney because its return would not be limited.
'A Fundamental Lack of Trust'
But after several presentations, Mr. Murphy rejected the proposal, saying it had a debt component that made the cost of capital too high, according to a negotiator involved in those discussions. (Disney had nixed a similar financing for its Touchstone division.)
The decision was not without consequence. After that, the negotiator said, "there was a fundamental lack of trust between the Weinsteins and Disney."
That summer, a Hollywood lawyer, Bertram Fields, who represented former Disney executive Jeffrey Katzenberg in a contract dispute with Disney in the 1990's, sought an audit on behalf of the Weinsteins of Disney's records related to charges Miramax paid for home video distribution.
The situation deteriorated the next year. In May 2004, it emerged that Disney had refused to distribute "Fahrenheit 9/11," the Michael Moore political documentary financed by Miramax, fueling a controversy that Mr. Moore and others at Miramax fanned to generate publicity for the film. (The movie, which cost $7 million to make and was distributed by Lions Gate, earned $119 million at the domestic box office.)
At the time, Disney executives said the controversy was embarrassing to Mr. Eisner, who was coming off a shareholder revolt that cost him his chairman's title. And it was ill-timed for the Weinsteins, who were in the midst of contentious negotiations over whether Disney would extend their employment contracts past September 2005.
As one Disney executive explained, "The relationship could have been salvaged up until then."
In a quarterly earnings call on May 12, Mr. Eisner lobbed a grenade at Miramax, telling analysts that the unit had made money only two out of the last five years.
"Can you believe this?" a negotiator close to Miramax recalled Harvey Weinstein saying after hearing Mr. Eisner's comment. According to the executive who reviewed Miramax's finances, the studio had an operating profit every fiscal year from 1999 to 2003, except in 2001. The total profit over the period was $395 million.
Those yearly numbers, though, according to Disney, did not include the cost of overhead it charged Miramax. In fiscal 2002, for example, Miramax showed operating income of $48 million. But with a $50 million charge for overhead, Miramax showed a loss of $2 million.
The Weinsteins disputed Mr. Eisner's numbers. Miramax, in its own accounting under its agreement with Disney, already included overhead costs, and what Disney charged was additional, according to the executive who reviewed Miramax's finances. But even after subtracting Disney's numbers, Miramax still showed an operating profit of $154 million for the five years, the executive said.
In Mr. Eisner's view, however, that amount was unacceptable because it was less than the $162 million bonus the Weinsteins were paid under their contract from 1999 to 2003.
"The bottom line is, deals that are too good to be true usually don't last," said a Hollywood executive who knows both the Weinsteins and Mr. Eisner.
At a dinner in New York in late May, Mr. Eisner told friends he was ready to sever the relationship, according to a person who was there. By June, relations between the two sides were at a low. At a star-studded Los Angeles screening of "Fahrenheit 9/11," Harvey Weinstein joked that he and his brother had taken out newspaper ads: "Two executives looking for a company to run. Resumes on request."
Even the most mundane exchanges took an air of pettiness. On a trip Harvey Weinstein made to Disney's headquarters in Burbank last summer, an employee called Disney's fire marshal, who asked Mr. Weinstein to stop smoking after seeing his lighted cigarette, a Disney executive said.
Miramax had bigger troubles, though, as it had by then spent most of its $700 million for the year. Mr. Eisner was not inclined to give the Weinsteins more.
While many at Disney were happy to sever ties to Harvey Weinstein, others wanted to keep his brother Bob and his family-friendly, highly profitable Dimension Films in the Disney fold.
So in early August, the Weinsteins sought a compromise. Under terms proposed by Skip Brittenham, the Weinsteins' negotiator, Bob Weinstein would stay and have an annual budget of $300 million and a small development staff. He agreed to cut his profit sharing in half. Harvey Weinstein, for his part, would become an independent producer and secure financing for movies to be distributed by Dimension.
Disney declined, one negotiator said, because the terms were too similar to the previous deal. ("Half a bad deal is still a bad deal," the negotiator argued.)
But the counter offer was dismissed as insulting by the Miramax team. Mr. Murphy offered Bob Weinstein a cut of a movie's profits only after all other costs, including distribution, were taken out. (Other successful Hollywood producers earn as much as 5 percent of a movie's revenue upfront.)
On Aug. 24, 2004, Mr. Murphy informed the Weinsteins in a letter that their contract would not be extended past September 2005. Two months later, the Weinsteins threatened to take Disney to arbitration. According to two negotiators, David Boies, the famed litigator hired by the Weinsteins, called Mr. Murphy and told him the brothers were prepared to file a preliminary injunction against Disney if Mr. Eisner or others interfered before the contract expired.
Any court battle was sure to be as embarrassing for each party as the lawsuit over the 1995 hiring and firing of former Disney president Michael Ovitz, which was then being played out in a Delaware courtroom. With the two sides at a standstill, Richard Cook, chairman of the Walt Disney Studios, agreed to meet with Harvey Weinstein two days before Thanksgiving in a conference room on the second floor of Disney corporate headquarters in Burbank.
"It would be in the best interest of all us to settle this amicably," Mr. Cook told Mr. Weinstein as Mr. Cook settled into a chair at the head of the table, according to a person who attended.
Mr. Weinstein, who friends say only days earlier came to grips with the relationship's demise, calmly agreed. And during the next several hours - without tantrums, threats or the glare of public scrutiny - the two men hammered out the general framework of an agreement.
Looking forward to another 25 years in the business, the brothers have already sought backing from several Wall Street firms. Of course, they will have to find a new name, as Miramax, which is derived from those of their parents, Miriam and Max, is being kept by Disney. But the often-volatile Harvey Weinstein is again thinking big. At the pre-Oscar party, he ended the evening by saying, "We've just begun to fight."
Take a couple guys from Brooklyn who love movies. Put them in business with a guy who grew up on Park Avenue. Hilarity ensues.
Ah, here's the kicker. It's a variant on the classic "Hollywood Math." Where summer blockbusters that rake in hundreds of millions somehow "lose" money.
A classic example (so I've been told) was the first Michael Keaton Batman movie. Some folks negotiated payment as a percentage of the net of the movie, rather than the gross, and received no payment.
Sounds like a good concept... for a movie.
How about, Citizen Eisner.
Mickey should have sat and shat Miramax years ago. That creepy Weinstein crew from NYC only invited embargo and boycott.
Of course, with Gwyneth Paltrow as Marion Davies.
Eisner's father was an old Hollywood blacklistee.
Okay, you hooked me in as I was about to go to work...I didn't know that about Eisner. What was the father?
Note to self: Always, ALWAYS, get the gross....the worldwide, all-media gross, with trailing royalties in perpetuity
It would be a great concept if the brothers were more -- uh -- presentable.
I think he was a writer,but I could go check,if you need to know this minute.
No, no problem. I've got to get to work. I can stay here all night and end up on the street, broke and wearing express mail tyvek envelopes on my feet...
"RADICAL HOLLYWOOD" is by Paul Buhle and Dave Wagner.They also wrote "TENDER COMRADES: A BACK STORY OF THE HOLLYWOOD BLACKLIST". I think that they're lefties,but they name names and really don't pull any punches.
Sheeeeeeeeeeeeeeeesh...GO TO WORK ALREADY! LOL
That ugly untalented skank Gwyneth Paltrow (a Jew/WASP mix, the one ethnic mix I advise against) actually was Weinstein's mistress.
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