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Miramax: a Victim of Interpersonal Conflict?

Miramax: a Victim of Interpersonal Conflict?

304-596-1

Miramax: A Victim of Interpersonal Conflict?

Introduction corp., a division of (Disney) is headed by the Weinstein brothers, and Bob. Started by them in 1979 as a unit to buy and release foreign-language and independent (indie-film), Miramax was acquired by Disney in 1993. Miramax built up a steady reputation as a pioneer of the indie-film genre, amassing a record 221 Oscar nominationsin the pastfifteen years. But relationsbetweenHarvey and Disney’sCEO MichaelEisner havebeendeteriorating steadily over the past few years over issues of compensation, control, accounting and creative independence. A flare-up between them in 2004 over the controversial documentary Fahrenheit 9/11 worsened the relations. Disney and Miramax work on a contractual basis. The current contract between Disney and Miramax will expire in 2009, but an option gives Disney the right to renegotiate it in September 2005 and set the terms for the next four years. While Eisner wants Disney to have a greater control over Miramax’s operations and the Weinstein brothers to accept lesser compensation, Harvey and Bob have announced that they would not accept an unfair compromise. Talks of a breakup were getting louder, when Eisner unexpectedly announced in September 2004 that he would be stepping down as Disney’s CEO in 2006. That was seen to change the equation for the Weinsteins who announced that they would like to stick with Disney. Whether a mutually agreeable settlement could be reached between the two parties remains to be seen.

Miramax-The Early years Born in 1952 in Flushing, New York, (Harvey), the co-founder of Miramax Studios had been a part of the entertainment industry since his high-school years. He acted as the manager of a music band, Goosemen, started by his high-school friends. The band was a failure, but Harvey retained the basics of the music-promotion business he learnt during that stint. He joined the State University of New York at Buffalo in 1969. Within months, he teamed up with Corky Burger, a friend and started a music concert promotion company called Harvey & Corky Presents. The company was at the center of Buffalo’s rock music scene for the next three years, during which time Harvey dropped out of college and persuaded his brother Bob to do the same and join him in his business. In 1979, the brothers set up Miramax- named after their parents Miriam and Max.According to Harvey, he became a lover of cinema and was inspired to get into the movie business after watching The 400 Blows, an art movie by Francois Truffaut. Harvey decided to make a career out of promoting and marketing movies that were away from the mainstream genres, movies which otherwise would not get the attention he thought they deserved. Miramax distributed its first movie, Policeman’s Other Ball, in 1982, but its first big success came in 1989 with ’s Sex, Lies and Videotape, an indie film that won the Palme d’Or at Cannes and grossed more than $100 million in worldwide sales. The movie brought Miramax and the Weinstein brothers into ’s notice as innovators of cinema. The brothers followed the film’s success by buying and promoting off-track and foreign movies like My Left Foot and Cinema Paradiso, both of which won Oscars in 1990. Harvey’s business model was based on the law of large numbers.1

1 Mason, G., Ian “When Harvey met Mickey”, www.newstatesman.com, October 11th 2004

This case study was written by Kalyani Vemuri under the direction of T Phani Madhav, IBSCDC. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The case was compiled from published sources.

© 2004, IBSCDC. No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the permission of the copyright owner.

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Miramax: A Victim of Interpersonal Conflict?

He bought and released alargenumber offilms,hopingthat profitsfrom the few that wouldclickwould compensatethosethat didn’t. He reportedly had a contrarian knack of picking up offbeat movies and themes he felt would appeal to American audiences.According to New York writer Peter Biskind,2 Harvey created the indiewood hybrid, the film that is somewhere between commercial studio product and old-fashioned indie movies. He was also active in the editing room, cutting out large parts of the films he bought to make them more suitable toAmerican audiences. Subsequently, critics gave him the moniker, Harvey Scissorhands. “I’m not cutting for fun,” he once saidin his defense. “I’m cutting for the (film) to work. All my life I served one master: the film. I love movies.”3 Other films he released included x-rated ones like The Cook, The Thief, His Wife and Her Lover and Tie Me Up! Tie Me Down!. Harvey ran into problems with the Motion PictureAssociation ofAmerica (MPAA) due to the content of his movies. Harvey fought a lawsuit against the MPAA, resulting in the implementation of the NC-17 rating that helped distinguish between adult-oriented films from pornography.

After Disney’s Acquisition In 1993, Disney wanted to enter the growing indie-film market, of which Miramax was the most visible player. Disney’s competitors were getting into television and Michael Eisner (Eisner), its CEO, didn’t want to let Disney enter either cable or the networks market. He believed that if Disney had a wider control of the content, it would be better positioned to deal with companies like News Corp., and Time. Miramax’s business plan, which focused on buying and making low-budget movies and then marketing them, seemed attractive to Disney. Eisner hoped that by acquiring Miramax, he would have a unit that would bring in stable returns and a lucrative movie library without too much investment from Disney’s side. And steadily, Miramax could be developed into the biggest player in the indie-film category. , the then Disney President (who quit later to co-found Dreamworks SKG) approached the Weinstein brothers with a purchase offer. The terms were- Miramax would be a part of Disney,but would have its own budget and latitude in filmmaking. The relation would be contractual. The terms of working between Miramax and the parent company, Disney and the compensation of the Weinsteins would be mutually re-negotiated after the lapse of the contract period. Miramax had been going through a lean phase since 19914 and the brothers agreed to the acquisition plan. The Weinsteins sold Miramax in 1993 to Disney for $75 million. Harvey remained the head of the division and managed the company’s public front while Bob looked after the backend working. In 1994, Miramax spent $8 million to buy Pulp Fiction, an indie-film by up and coming director that had been developed but later rejected by TriStar Pictures. The movie went on to gross $100 million in US alone, becoming the biggest success in the indie-film genre hitherto. It became a phenomenon, whetting the appetite of American moviegoers for similar art-house movies. Soon, producers began to bring projects that were rejected or shelved by big studios to Miramax. Fox had refused to make The English Patient, had stalled and Castle Rock Studios had shelved Good Will Hunting. Miramax put in its resources to complete all the three movies that later became both Oscar and box-office successes (Annexure 1). The English Patient won nine Oscars and Shakespeare in Love gathered seven, including the one for best picture. Apart from spotting andencouraging talented artists like Gwyneth Paltrow and directors likeTarantino, and Steven Soderberg, Miramax also built up a reputation for savvy Oscar-marketing. “Harvey is fearless with his creative opinions, and driven by marketing,”5 says , former chief of Universal Pictures. More than winning, Harvey believed in getting nominated for as many categories as possible. Harvey wanted to use the Oscars-campaign season to promote his movies that were running in cinema houses and drive up sales. He said once, “A successful awards season can make the difference between a movie grossing $5 million at the box office and a movie grossing $20 million.”6 In the past 15 years, Miramax got 221 Oscar nominations across several categories and 15 best-picture nominations.7 Critics peg Miramax’s marketing spend on a single film anywhere between $25-40 million. In 1999, when Miramax spent $15 million to promote Shakespeare in Love, which won the best picture Oscar over DreamWorks’ Saving Private Ryan, industry leaders felt the need for an Oscar campaign-finance reform. Rick Sands, Miramax’s denied the accusations

2 Author of “Down and Dirty Pictures: Miramax, Sundance, and the Rise of ”, Simon & Schuster,January 2004 3 “When Harvey met Mickey”, op.cit 4 Biskind, Peter “ Inc”, The Guardian, October 1st 2004 5 Rickey, Carrie “Miramax chief’s heavy-handed tactics spark an Oscar backlash”, The Philadelphia Inquirer, March 20th 2003 6 Gumbel, Andrew “How the mogul of Miramax made winning Oscars into a business”, The Independent, December 20th 2003 7 Caulkin, Dave “Life Isn’t Beautiful”, Newsweek, October 11th 2004

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and said, “If you could buy an Oscar, then everyone would do it. But you can’t. The academy is a group of professionals who can’t be swayed.”8 Also, Harvey was in the public’s eye several times for his strong-arm tactics and misleading marketing efforts.9 For example, in 1993, after the New York Film Critics Circle announced that Schindler’s List was the winner of the Best Picture in its annual awards, Harvey ran a newspaper ad for Miramax’s movie, The Piano with the headline “Winner! Best Picture” with a disclaimer in fine print saying it was actually the runner-up. Recently,for its 2002 movie, Gangs of New York, Miramax printed aghostwritten testimonial essay that claimed tobe written by former AcademyPresident Robert Wise.TheAcademy’s current president, Frank Pierson, was severely displeased and called the whole episode “an outright violation of academy rules.”10 Critics like Tom O’Neil, author of the book, MovieAwards, say that Harvey’s heavy spending on Oscar campaigns raised the bar for all the other studios, making the Oscars more of a political affair.11

Deteriorating Eisner -Weinstein relations Soon after the acquisition, cracks began to show up in the relationship between Disney and Miramax executives. According to some sources, the Weinstein brothers were used to acting independently and Miramax did not follow the stringent accounting procedures that the Disney conglomerate practiced. Paul Webster, former head of production at Miramax admitted, “Harvey doesn’t care about budgets – until he needs to care, and by then it’s too late.”12 Also, Disney’s executives admitted to considering Miramax as an outlaw company and disliking Miramax’s products. The fact that Disney enjoyed a relatively untainted reputation as a “good old-fashioned family entertainment” provider was seen as a big reason for it. One former Disney executive said, “Their packaging sucked; the trailers sucked; there was no awareness of their pictures, because they were never distributed in the small towns between the coasts.”13 In 1995, Miramax bought a film called Priest, a story about a gay Catholic priest with an NC-17 rating. The movie turned controversial, provoking wide spread protests from politicians and conservative Catholics. Disney was angry with Miramax because the contract didn’t allow Miramax to release an NC-17 rated film. In 1999, one more film, director ’s Dogma, angered Catholic groups on similar grounds. It had to be distributed by another firm, Lions Gate. With reference to this movie, Eisner was reported to have said, “If one person does not go to because of this movie, that will be one person too many.”14 Relations between Eisner and Harvey got strained further due to Harvey’s temper outbursts and, as Disney’s executives say, his irreverent attitude towards the parent company.15 Harvey went on record to say that Eisner blocked him from several investments that paid off later, including Harvey’s desire to turn the Lord of the Rings into a movie before Disney’s competitors did. Eisner, in turn, pointed out to Miramax’s 1998 venture- Talk magazine,headedby NewYorkeditorTina Brown, which Eisner opposed, but Harvey went ahead with and had to be shelved in 2002 because it failed. Eisner was concerned that Miramax had stopped concentrating on low-budget movies and wanted to make risky, expensive movies, such as Kate and Leopold costing around $50 million and Cold Mountain, which cost about $80 million. Moreover, Miramax’sreleaseshadbeencomingdown from31in2002to25 in2003and18 in2004.16 Harvey had demanded that Disney remove the clause, which says that Miramax should get Disney’s approval for any movie with a budget exceeding $35 million. Another long-standing bone of contention was the issue of the Weinstein brothers’ compensation. Harvey and Bob got $ 5 million each annually plus an estimated 10% of operating earnings, which amounted to $20 million in 2003. Harvey was pressing for a bigger compensation package. The Eisner-Weinstein relations strained further in 2004 due to Fahrenheit 9/11, a controversial documentary directed by Michael Moore that was highly critical of President George Bush. Miramax approached Disney in 2003 with its proposal to make Fahrenheit 9/11. Disney did not give its permission, but Harvey went ahead and made the movie with Miramax’s funds. When it was ready for distribution, Disney refused to distribute it. Harvey and Bob had to pay $6 million from their own pockets and buy the film back from Disney. They then formed a separate company, FellowshipAdventure Group and sold the documentary through ittoLions Gate and IFC filmsthat later distributed it. The film grossed morethan $209milliondollars, 8 “Miramax chief’s heavy-handed tactics spark an Oscar backlash”, op.cit 9 “Biography of Harvey Weinstein”, http://movies.yahoo.com 10 Grover, Ron “And the Oscar for Best Mogul Goes to...”, www.businessweek.com, March 20th 2003 11 “Miramax chief’s heavy-handed tactics spark an Oscar backlash”, op.cit 12 “When Harvey met Mickey”, op.cit 13 “Monsters Inc”, op.cit. 14 When Harvey met Mickey”, op.cit 15 Waxman, Sharon and Holson, Laura “The Split Between Disney and Miramax Gets a Little Wider”, , June 7th 2004 16 “Staff cuts point to Miramax break-up”, The Guardian, August 26th 2004

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becoming the most financially successful documentary of all times and one of 2004’s most talked-about projects. Miramax announced that it is ready to finance Moore’s next film, tentatively titled Sicko, which will be based on the US health system. But during the flare-up between Miramax and Disney over this issue, Eisner suffered on the publicity front. Moore accused Eisner of stalling the film because he didn’t want to anger Republican leaders and risk not getting the tax breaks it gets on its theme parks in Florida, where Jeb Bush, President Bush’s brother was the governor.17 Eisner retorted by saying he objected to the documentary only because he did not want to create a “partisan political battle” that could affect a large number of Disney’s audience. “We weren’t interested in getting involved in a national conversation that would alienate half our customers,”18 said Eisner. But media experts opined that the controversy put the Weinstein brothers and Moore in a positive light while naming Eisner a coward and censor.

Miramax facing an uncertain future The current contract between Disney and Miramax will expire in 2009, but an option gives Disney the right to renegotiate it in September 2005 and set the terms for the next four years. Till September 2004, especially after the spat between Harvey and Eisner over Fahrenheit 9/11, some quarters expected that the Weinstein brothers would not stay at Disney after 2005. Other issues over which the brothers were expected to leave were compensation and control. Sources at Disney said that Eisner wants the brothers to accept a lower compensation, which the brothers were not prepared to accept. Also, till 2004, Miramax worked on an annual budget of $700 million. Though it exceeded that amount sometimes, Eisner had allowed for the excess. But after Fahrenheit 9/11, Eisner had reportedly tightened the budget and refused Miramax any freedom to go beyond that. Disney, citing that Miramax was profitable in only two out of the past five years, proposed changes that would require Miramax to buy or make smaller-budget films. The Weinstein brothers claimed that Miramax was profitable in four out of the past five years and that its revenues in 2003 were $1 billion with profits of $ 211 million. Analysts say that Miramax is a small, but a crucial part of Disney’s empire. It has proven to be many times worth Disney’s $75 million investment bybringing in revenues andOscar acclaim. At stake are four important factors. First is Miramax’s 500- film library valued at more than $2 billion. Second is , the arm of Miramax started and managed by Bob, which is believed to be a steady revenue generator. Founded in 1994, this sub-division of Miramax has been producing films in the , thriller, action and horror categories. Forty five out of Dimension’s 54 films that include the , and trilogies, Others, , Sin City etc have been hits and Harvey says that Dimension’s rate of return is between 35-40%. Third is the fact that Disney’s competitors like Universal are setting up their own indie-film divisions and without Miramax, Disney would be at a disadvantage. Finally, Disney had been earning a negative reputation of not being able to keep their creative talent, especially after studios, whose animation films had been bringing in at least 50% of Disney’s revenues in the past few years announced in early 2004 that it would be ending its venture with Disney in 2005. Analysts claim that the deal was to be terminated because of differences between Eisner and Jobs, the head of Pixar.ADisney insider, however, says that the management of Disney, as a whole takes an unfavourable view of the Weinsteins. He says, “No one is doubting that Bob and Harvey are very smart, and everyone acknowledges that they’ve done a marvelous job. But enough is enough. The board and other people within Disney figure they’re just not worth the trouble anymore.”19 Eisner, in mid-2004 announced that he had no intention of selling Miramax. “As long as I’m around, we’re never selling that company,”20 he said and in response to whether Miramax would be a part of Disney five years hence, answered, “That’s like asking whether Disneyland will still be a part of Disney in five years. We own 100%of Miramax. If you are asking about who will manage Disneyland in five years I am not sure, but Miramax is a 100% owned entity of and that’s the way we treat it, and by the way, we like it.”21 He also reportedly said that in case he decides to sell it in future, he would not be selling Miramax back to the Weinsteins for anything less than $3 billion.22

17 Weiss, Steve “Disney/Miramax — Waist Deep in Politics”, www.minutemanmedia.org, May 24th 2004 18 O’Brien, Perry “Not Quite A Magical Kingdom”, Up & Coming, July 15th 2004 19 “Life Isn’t Beautiful”, op.cit 20 “When Harvey met Mickey”, op.cit 21 Hernandez, Eugene “The Day After: Eisner Talks About “Fahrenheit 9/11” and The Future of Miramax”, http://www.indiewire.com, June 4th 2003 22 Tharp, Paul “Weinstein-Disney Brawl Getting Closer to Finale”, www.nypost.com, October 4th 2004

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For a while, industry experts speculated that Miramax would reach a settlement by which Bob would get an annual budgetof$350millionforDimensionandHarveywouldmoveout ofDisneytojoineitherWarnerorFoxormakemovies of his own. That, they expected, would be favorable to Disney also. But in September 2004, Eisner announced that he would be stepping down as Disney’s CEO by September 2006. The brothers announced soon after that they would not be separating. And within a week, they announced lay-offs of 13%of Miramax’s workforce. It was believed that the Weinstein brothers are focusing on making Miramax more profitable, and banking on Eisner’s successor to work out a mutually agreeable working relationship. Harvey has been since reducing Miramax’s workforce from 490 to 365 employees, citing that it is a part of ongoing effort to cut overheads and improve efficiency and profitability. “We will cut budgets of movies and we will reach record-high numbers at the end of this year,”23 Harvey announced and added that he hoped for an amicable negotiation to continue Miramax’s relationship with Disney. Whether it would be possible, given Eisner’s reputation to let personal animus24 affect his decisions is to be seen in September 2005. The Miramax contract is considered to be Eisner’s last major business decision.

23 “Life Isn’t Beautiful”, op.cit 24 Eller, Claudia and Verrier, Richard “Miramax negotiates future with Disney”, , July 20th 2004

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Annexure 1 The 40 top-grossing movies of Miramax (1985 – August 2004) 1. 12/27/2002 Chicago $170,684,505 2. 12/5/1997 Good Will Hunting $138,433,435 3. 10/14/1994 PulpFiction $107,928,762 4. 12/20/1996 Scream $103,046,663 5. 12/12/1997 $101,363,301 6. 12/11/1998 Shakespeare in Love $100,317,794 7. 8/10/2001 Others, The $96,471,845 8. 12/25/2003 Cold Mountain $95,632,614 9. 2/4/2000 $89,138,076 10. 11/15/1996 English Patient, The $78,716,374 11. 12/20/2002 Gangs of New York $77,730,500 12. 4/13/2001 Bridget Jones’s Diary $71,500,556 13. 12/15/2000 Chocolat $71,309,760 14. 10/10/2003 KillBill: Volume1 $70,098,138 15. 4/16/2004 KillBill: Volume2 $66,207,920 16. 1/29/1999 She’s All That $63,465,522 17. 11/25/1992 Crying Game, The $62,546,695 18. 10/23/1998 Lifeis Beautiful $57,598,247 19. 12/10/1999 Cider House Rules, The $57,547,209 20. 8/5/1998 : H2O $55,041,738 21. 8/27/2004 Jet Li’s Hero $52,199,022 22. 5/11/1994 Crow, The $50,638,075 23. 10/5/2001 Serendipity $50,255,310 24. 12/25/2001 Kate and Leopold $47,095,453 25. 8/15/1997 Cop Land $44,906,632 26. 12/25/1998 Faculty, The $40,283,321 27. 11/12/1993 Piano, The $40,157,856 28. 12/25/1997 $39,673,162 29. 3/1/2002 $37,939,782 30. 11/17/2000 Bounce $36,779,296 31. 11/23/2001 In the Bedroom $35,930,604 32. 11/2/2001 Amelie $33,201,661 33. 12/22/2000 2000 $33,000,377 34. 10/25/2002 Frida $25,885,000 35. 8/17/2001 Captain Corelli’s Mandolin $25,528,495 36. 8/22/1997 Mimic $25,514,166 37. 2/4/1994 My Father the Hero $25,479,000 38. 3/26/2004 Jersey Girl $25,266,129 39. 8/4/1989 Sex, Lies and Videotape $24,741,667 40. 11/20/1996 Sling Blade $24,475,416

Source: www.the-numbers.com

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