Could 2008 be the year that Hollywood has waited for so long, when that "indestructible cockroach" of independent movies-New York's Harvey Weinstein-finally runs out of luck? Forget about disappointing revenues from movies such as Quentin Tarantino's Grindhouse; one should be looking at the plight of a boring home video distributor which was supposed to be the Weinsteins' salvation.
We've reported on The Weinstein Company's troubles. Whether the film producer's magic gut has left him, or he simply faces more competition for buzzy film projects, Harvey Weinstein's track record of releases has been disappointing since leaving Disney's Miramax, where he shepherded modern classics such as Shakespeare in Love. (The once-bullish film producer doesn't even have the confidence to finance Quentin Tarantino's next project.) The Weinstein Company's own backers, led by Goldman Sachs, are rumored to be reconsidering their support. And the independent mini-conglomerate's forays into media sectors other than movie-making have been mixed at best. (Fashion TV show Project Runway is a money-spinner but social network A Small World has tiny traffic.)
None of that matters, if one was to believe the spin: the Weinsteins' 70% stake in a home video distributor called Genius Products was worth more than $400m, "an asset that could be sold one day if they are strapped for cash," Fortune relayed a year ago. Even in November, Weinstein's CFO told the magazine that Genius had performed "beyond our wildest hopes."
Well, the Weinsteins are certainly behaving as if they're indeed strapped for cash, squeezing every last dollar from cable networks and marketers such as L'Oreal for rights to roles in Project Runway; but it's not clear whether there's any asset that can be sold for cash in an emergency.
The news hasn't really percolated out of the specialist home video press, but Genius Products' share price has declined by 93% in the last 12 months. Genius' DVD business has suffered as online distribution of movies and cable pay-per-view has taken off. A board member and the company's chief financial officer left recently, after the company admitted that it would not meet its aggressive earnings estimates. Last year, company executives forecast $1bn in revenues for 2008.
The public float of the company is worth just $12.85m, which would put the value of the Weinsteins' shareholding at $30m if my math is right. And that won't be enough to shore up the troubled film producers if The Weinstein Company's debt financing is as precarious as Hollywood's rumor mill suggests.
The souring of the Genius investment is uncomfortable in many ways. Not least, the deal was brought to Weinstein by his own backers. Steve Bannon, a buccaneering banker who took over the company in 2004, used to work at investment bank Goldman Sachs and it was his old firm that put him together with the movie maker that they were themselves supporting. Larger-than-life Weinstein, who had long wanted to wheel and deal like a media mogul rather than a penny-pinching movie hustler, thought he was up for a big payday. Everybody was happy. And now they're not.