Disney’s Miramax Unit to Get a Makeover

A few months back, a top Walt Disney Co. executive asked Fox Searchlight chief Peter Rice a question that once would have seemed inconceivable.

The executive wanted to know how Rice was having so much success with his red-hot independent film label, which produced this year’s Oscar-nominated “Sideways.” The answer: by taking creative risks, not financial ones.

In other words, by operating the way Disney’s own pioneering specialty label Miramax Films used to.

That an executive of the Burbank entertainment giant would seek a competitor’s counsel says much about the gulf between Disney and Miramax’s co-founders, whose relationship -- long viewed with envy in the industry -- is in its final days.

Much has been said and written about the personal animus between Disney Chief Executive Michael Eisner and Miramax co-founder Harvey Weinstein, whose ambitions set the maverick studio on a collision course with its parent company. But the breakup is about more than clashing egos. It’s also about the evolving nature of specialty film companies in Hollywood today.

Despite the huge sums Disney has reaped since its 1993 acquisition of Miramax from brothers Harvey and Bob Weinstein, the company is eager for a return to the past.

Disney executives and industry analysts say Miramax’s business model has shifted so radically in recent years that the company is no longer a good fit with its corporate parent.

“Miramax became another big-spending subsidiary of Disney, which they don’t need,” veteran industry analyst Harold Vogel said. “The Miramax style drifted from its original roots as an indie hotshot that made low-budget, offbeat films which supplemented Disney’s mainstream lineup.”

Even before the split is final, Disney has quietly been making plans to reshape Miramax into a financially restrained subsidiary more in sync with specialty units owned by other media conglomerates. The division will bear little resemblance to the Miramax that in recent years grew to nearly 500 staffers with an annual $700-million allotment from Disney to produce, acquire and market movies.

The new Miramax, said a high-level Disney source, will operate “lean and mean,” with a staff of fewer than 50 and an annual budget of about $300 million, a figure more in line with other specialty film units. Disney sources said they expected the division to produce six to 10 low-budget movies a year.

But cost containment is easy compared with duplicating Miramax’s artistic success, box- office record and innovative marketing.

Disney’s biggest challenge will be to find a new Miramax chief with the creative instincts of Harvey Weinstein and the business savvy of younger brother Bob, whose hugely profitable Dimension Films label produced such valuable franchises as “Spy Kids,” “Scary Movie” and “Scream.”

No studio in Hollywood comes close to matching Miramax’s Academy Awards track record of 249 nominations and 54 wins since 1988, including best picture Oscars for “Chicago,” “Shakespeare in Love” and “The English Patient.” In this year’s race, Miramax has amassed 20 nominations, including two for best picture, “The Aviator” and “Finding Neverland.”

“They proved you can create audience allegiance for specialty films and literally become part of the popular vernacular,” said former Miramax executive David Linde, who now co-heads NBC Universal’s Focus Features, the label behind such Oscar-nominated films as “The Motorcycle Diaries.”

As the Weinsteins depart Disney to start a new operation, they leave behind a library of more than 800 titles, which some analysts value at as much as $2 billion, along with the Miramax moniker, an amalgamation of their parents’ names, Miriam and Max.

Neither Disney nor the Weinsteins would comment for this report, citing the continuing divorce negotiations.

The Partnership Begins

The Queens, N.Y.-born brothers founded Miramax in 1979, making a name for themselves by skillfully marketing low-cost art house movies, such as “sex, lies and videotape” and “The Crying Game,” that became mainstream hits.

But like all independent studios, Miramax had limited access to capital. When Disney offered to buy their company for about $70 million, the Weinsteins jumped. Disney guaranteed the brothers enormous autonomy with the caveat that they limit their investment on each film to $12.5 million.

The partnership began with a bang as Quentin Tarantino’s “Pulp Fiction,” which cost only $8 million, grossed more than $200 million worldwide. Even as their budgets nudged higher, the Weinsteins limited their financial risk by selling foreign rights before production.

In the mid-1990s, when Anthony Minghella’s $27-million epic, “The English Patient,” exceeded the mandated cap, the Weinsteins got approval from then-Disney Studios chief Joe Roth to press ahead. After the film grossed around $80 million domestically and landed an Oscar, Disney raised Miramax’s budget limit to $20 million.

Harvey Weinstein’s entrepreneurial urges, meanwhile, began growing beyond the world of art house films. Many say he aspired to be a media titan -- a cross between News Corp. Chairman Rupert Murdoch and legendary movie mogul Louis B. Mayer. He would branch out beyond films to create an ill-fated magazine, Talk, and a more successful book-publishing arm.

In 2000, the Weinsteins renegotiated their employment contracts, demanding more money to make and market movies. Disney, not wanting to risk losing the pair, raised Miramax’s annual budget to $700 million from $450 million.

Costly Disappointments

Flush with funds, Harvey Weinstein began gambling -- and losing -- with such costly movies as the $65-million Ben Stiller comedy “Duplex” and the $45-million drama “All the Pretty Horses,” starring Matt Damon. Disney executives were not happy.

But the big chill set in two years ago with Miramax’s most expensive bet, the $80-million Civil War epic “Cold Mountain.” When Weinstein’s original financing partner, MGM, pulled out and no other studio -- including Disney -- would step in, Miramax paid the full amount. The film flopped and is still $16 million in the red. Making matters worse, another costly Weinstein project, Martin Scorsese’s “Gangs of New York,” also failed to cover Miramax’s investment.

Weinstein’s defenders say that whatever misses Miramax has suffered have been more than offset by “Chicago,” which cost $46 million and grossed $170 million domestically, and by other moneymakers, including Tarantino’s two “Kill Bill” films.

Some insiders also argue that Disney is not without blame as Weinstein pushed the financial envelope.

“He kept getting more and more aggressive and was getting managed less and less,” a former Disney executive said.

Whatever the case, as problems mounted between Miramax and Disney, the independent film scene around them was changing dramatically. Miramax was no longer the only shining star. Other specialty movie companies such as News Corp.’s Fox Searchlight, Sony Pictures Classics and Newmarket Films broke out with their respective hits, “The Full Monty,” “Crouching Tiger, Hidden Dragon” and “The Passion of the Christ.”

By 2003, every major studio, including latecomer Warner Bros., was operating a specialty film division, all keeping the creativity factor high and the financial risk low.

“The key to the specialized business has always been to protect your downside and never overextend,” said 20th Century Fox co-chief Tom Rothman, who started Fox Searchlight 10 years ago and now helps oversee the unit. “The more fiscally conservative you are, the more boldly and radically creative you can be.”

Fox Searchlight generally limits its production investment to $15 million a picture, although there are exceptions, including the $16-million “Sideways.”

There’s no question that the Weinsteins have never considered themselves part of “Team Disney.” But company executives say the remake will be different. Unlike the Weinsteins, who in recent years reported to Disney’s corporate hierarchy, Miramax’s yet-to-be-selected chief will answer directly to Disney Studios.

Said one executive: “This time we’ll be kept in the loop, not out of the loop.”