Harvey and Bob hone their act

In choppy waters, Weinsteins navigate a new course

NEW YORK -- As far as Harvey Weinstein is concerned, he and his brother Bob have been battling naysayers for 25 years. Although they proved their critics wrong more than once during their long run at Miramax, when they walked away from the company they founded, they inevitably faced a chorus of skeptics who doubted their ability to create a new, independent entertainment company on a grand scale.

Nearly three years since the creation of the Weinstein Co., the duo insist they've finally got all the elements in place to do justice to a full slate of films, some already shooting, others ready to go before the cameras.

Still, like everyone else in the indie film sector, the Weinsteins face a tightening credit market and a glut of films that have made scoring a hit ever harder. As a result, there are doubters who question how the Weinstein Co. is financing its many projects.

Insisted one Wall Street observer, "They are running relatively low on capital right now," though he quickly added that "their house is getting in order." Pointing to a precipitous drop in the stock of Genius Products -- the Weinstein Co. has a 70% stake in Genius' home video company -- Merriman Curhan Ford & Co. analyst Eric Wold said, "What's impacted the Genius stock since last November, when it started a freefall from $2.50 down to 20 cents a share, has been fear about the Weinsteins' financial situation."

"Nonsense" is Harvey Weinstein's response to such aspersions. "People have been writing negative stuff about us for the longest time, and it never pans out."

If the Weinstein Co. is under such financial pressure, how has it managed to ready a string of big-budget productions, not to mention shepherding a new season of "Project Runway" onto the air, he pointed out. "Perhaps we're too active," he sarcastically interjected.

If anything, Weinstein said he's "bullish" about the company's current prospects. "We're well financed, and every one of these new productions has been budgeted out."

Trumpeting the Weinstein Co.'s new pay TV deal with Showtime that was announced this week, Weinstein termed it "a game-changer." Finally, the fledgling multimedia company could claim it's got its building blocks in place: As its theatrical distribution deal with MGM draws to a close, it says it will begin releasing all its films itself; it's got a pay TV deal of its own; home video distribution through Genius and Blockbuster, and free and pay TV deals throughout Europe. (On Thursday, the Weinstein Co. announced an exclusive deal with satcaster Sky Italia, for example.)

Reviewing the current state of his company, Weinstein said, "It took us two and a half years to build an infrastructure." Added Bob, "It was a harder load than we thought it would be."

Since setting up their privately held company in 2005 with $490 million in equity and a $500 million debt facility, the Weinsteins haven't reached the same highs they enjoyed at Miramax. Boxoffice high points like 2006's "Scary Movie 4" (which grossed $178 million worldwide) and 2007's "1408" ($131 million) lacked the cultural sizzle and awards validation of "Pulp Fiction" or "Shakespeare in Love."

But while their theatrical track record has been decidedly mixed, the Weinsteins say they've been busy building a 600-title library and tending to ancillary business. "The press only see the theatrical side of the business," Harvey said. "But you folks don't see a movie like 'The Reef,' selling three or four hundred thousand DVDs and doing big business at Blockbuster."

The Weinsteins are currently embarking on several deals where they've taken on partners, which will limit their financial exposure.

They have found one ally in Ryan Kavanaugh's Relativity Media, which has taken a 25% stake in the all-star $80 million adaptation of the Broadway musical "Nine," and could well invest in further productions. Noting there are a number of studios making use of Relativity's capital, Harvey Weinstein said, "Any time we can be in business with Relativity and do equity financing deals, we're all for it."

The Weinstein Co. also is looking for a studio willing to step up to share the costs of producing Quentin Tarantino's World War II tale "Inglorious Bastards" in exchange for foreign rights.

"It's not so much about the money as about having a good partner who can press the button," Harvey said. Saying that it's just coincidental that the two high-profile films are designed as co-productions, he added that "70%-80% of our slate has no partnerships."

At the same time, the Weinstein Co. has stepped away from a string of film acquisitions.

"Outlander," a $30 million sci-fi fantasy starring Jim Caviezel that has spent more than a year in post, is quietly being shopped to other distributors; "Virgin Territory," one of three films whose domestic release the Weinstein Co. was handling for producers Dino and Martha De Laurentiis and Weinstein Co. investor Tarak Ben Ammar, is going straight to video through Starz/Anchor Bay Entertainment.

The Weinstein Co. has let several of its film festival buys, including "Vince Vaughn's Wild West Comedy Show" and "All the Boys Love Mandy Lane," go to other distributors. Two $4 million pick-ups, "Dedication" (purchased with First Look) and the Oscar-hyped "Grace Is Gone," grossed a poor $93,000 and $51,000 respectively at U.S. theaters.

Although not addressing those films specifically, Harvey Weinstein said, "We don't believe in spending the P&A on a movie that's just not going to work."

In fact, the Weinstein Co. has created a new distribution label, Third Rail Releasing, to handle films like the recent Catherine Zeta-Jones vehicle "Death Defying Acts." Acquired primarily for the home video market, the Weinstein Co. released it in just two theaters to fulfill contractual obligations. "We should have had Third Rail two years ago, because it's a good way of differentiating between what we really believe in, and what has been for ancillary value," Harvey said.

Ancillary value is also one reason the Weinsteins took a 70% stake in Genius. Since last summer, Genius stock has taken a hit: Some on Wall Street feared the Weinsteins might be readying to sell part of their stake, while others pointed to the disappointing boxoffice performance of several of the Weinstein Co.'s movies heading for the Genius pipeline.

The Weinstein Co., however, has been able to distribute its films through Genius at far less than what it would have cost to pay a distribution fee to a major. "This has been a home run from the get-go," Bob Weinstein said. "No matter what their stock -- Genius' price could be a penny -- it wouldn't matter."

As for the Showtime deal, some observers saw the Weinstein Co.'s willingness to pay an advance fee of as much as $100 million against future payments from Showtime as a sort of Hail Mary pass on the part of both the Weinstein Co. and Showtime. (The Weinstein Co. disputes that figure, but citing a confidentiality agreement, did not offer a counter-number.) The Weinstein Co. needed an output deal; Showtime needed movies now that former suppliers Paramount, MGM and Lionsgate have banded together to set up their own pay cable service. Showtime CEO Matt Blank said the cabler is paying only "half as much" for pay rights to the Weinstein Co. movies as traditional deals commanded in the past.

But Harvey Weinstein said, "There are real incentives in the Showtime deal for us to produce more." The 95-film deal even includes slots for 15 animated movies, which, following the success the Weinstein Co. had in 2006 with "Hoodwinked," is another area into which the Weinstein Co. is now expanding with movies like "Igor."

With its network of output deals now in place, Weinstein added, "How many ways can you protect yourself on a movie? What we are doing is cushioning the blows everywhere. If things don't work, we're protected. If things do work, we have an upside."

Still, even as the Weinstein Co. resolves its distribution issues, challenges remain.

At the moment, at least three top Weinstein Co. execs are headed for the door. One of the Weinstein Co.'s most consistently profitable areas has been international sales, but that division's president, Glen Basner, is departing once his contract expires this month. Production president Michael Cole will be leaving within a few months; his likely replacements are less experienced senior vps Kelly Carmichael and Eric Robinson. And exec vp business and legal affairs Eric Roth, whose contract extension just expired, is expected to leave as well.

According to the Weinsteins, though, the 240-strong staff isn't short on executive talent.

Earlier this year, Lee Solomon, an experienced hand at film financing, joined the Weinstein Co. as its COO to run its day-to-day operations with an eye to making the business more efficient and controlling costs. (Several Wall Street observers suggested the appointment was encouraged by Weinstein Co. investor Goldman Sachs.)

Additionally, former New Line exec David Spiegelman has joined the Weinstein Co. as president of domestic TV distribution, while John Miller, previously with MTV, has come aboard as exec vp to develop programming as, building beyond its success with "Project Runway," the Weinstein Co. ramps up TV operations.

With the Weinstein Co.'s other operations settling into place, could this be the year Harvey Weinstein stages a major return to the Oscar battleground?

Several titles pose that possibility, among them Woody Allen's romantic comedy "Vicky Cristina Barcelona," which drew warm applause at Cannes, and Dimension's "The Road," starring Viggo Mortensen. Two others, however, may not be completed in time: Mikael Hafstrom's "Shanghai," starring John Cusack, from the Weinstein Co. Asian Film Fund, and Stephen Daldry's "The Reader," starring Kate Winslet.

"We'll just have to go ahead and do what we do," said Harvey Weinstein. "So we will be in the race."

Georg Szalai contributed to this report.