June 7, 2004
The Split Between Disney and Miramax Gets a Little Wider
OS ANGELES, June 6 - For the first time since buying the art-house studio Miramax in 1993, Michael D. Eisner, the chief executive of the Walt Disney Company, is willing to consider selling the division back to it founders and co-chairmen, Harvey and Bob Weinstein, according to close associates.
Although the working relationship between Mr. Eisner and the independent-minded Weinstein brothers has never been particularly smooth, that Mr. Eisner is entertaining such an option represents a shift in his and the company's thinking. Mr. Eisner, according to friends and executives who have discussed the issue with him, has reached this point because of accumulated aggravation with the Weinstein brothers, most recently a dispute over whether Miramax could distribute "Fahrenheit 9/11," the Michael Moore documentary strongly critical of President Bush.
Miramax's future came up at a recent two-day retreat of Disney directors where, as part of a review of the various divisions, the board discussed several alternatives, which included selling or keeping the unit, said two people who attended the meeting.
And on a recent trip to New York, Mr. Eisner discussed the idea over dinner with friends, saying he might be willing to sell Miramax but did not think the Weinsteins could raise the money, said a person who attended the dinner. A senior Disney executive said: "The business is not for sale. We own 100 percent of it. At the same time, we do have a fiduciary duty to act in the best interest of shareholders and to consider bona fide, credible proposals."
The latest twist in the strained relationship between Mr. Eisner and the Weinstein brothers comes amid a backdrop of contract negotiations and disputes over compensation and profits. The Weinsteins have increasingly chafed against working within Disney's corporate structure and in the last year have been trying to raise financing in an attempt to find ways to work outside it.
But Disney does not have to make a decision any time soon about what to do with Miramax and the Weinsteins, analysts said. The Weinsteins's contracts do not expire until next year. And this latest contretemps could pass and a new deal worked out. Another alternative, according to analysts, could be for Disney to sell Miramax to the Weinsteins without its film library, which includes "Shakespeare in Love" and "Chicago."
"The question is whether they want to continue the relationship with the Weinsteins and what price that is worth," Tom Wolzein, an analyst with Sanford C. Bernstein, said. Disney maintains that Miramax has not been as profitable as in the past. In a recent earnings call, Mr. Eisner said Miramax had been profitable in two of the last five years. A senior Disney executive, without disclosing specific figures, said Miramax showed a profit in 2003, but would lose money in 2004. Miramax disagrees, saying it had a $211 million profit in 2003.
A Miramax spokesman, Matthew Hiltzik, said: "Bob and Harvey only receive their bonuses if the company is profitable. They have received those bonuses every single year."
"If the company thinks Miramax is so unprofitable," Mr. Hiltzik said, "Bob and Harvey would be happy to buy it back if Disney names the price."
What is not in dispute is that Miramax has brought Disney prestige and numerous Academy Awards. Because of that track record and a library of films growing in value in the DVD age, Miramax is worth much more than the $80 million Disney paid the Weinsteins for it just over a decade ago. Analysts have speculated that Miramax could be worth more than $2 billion.
It is unclear whether the Weinsteins could raise that money. But last year, they provisionally raised a $450 million fund with Goldman Sachs to bolster the $700 million they get from Disney to produce films; Disney rejected Miramax's attempt to bring in independent financing.
Asked whether he thought the Weinsteins could raise as much as $2 billion, James L. Dolan, the chief executive ofCablevision Systems Corporation, a friend of the Weinsteins, said, "I do.''
"There are many people interested in investing with them,'' Mr. Dolan said. "I would definitely be interested."
Despite the differences over how much Miramax makes, it is the worsening personal relations between Mr. Eisner and the Weinsteins, rather than business considerations, that could lead to a possible sale.
Since 1993, the Weinsteins have maintained a large measure of independence within Disney, with the ability to make movies up to a certain budget. But after the first couple of years, the freewheeling, New York-based Weinsteins began to clash with the more staid culture of the Burbank-based Disney. Harvey Weinstein has been annoyed that Mr. Eisner blocked him from various investments that later paid off.
For his part, Mr. Eisner finds it frustrating to deal with the headstrong Harvey Weinstein, who Disney executives say often acts as if he does not have a boss, according to Disney executives. Mr. Weinstein now rarely talks to Mr. Eisner or to Richard Cook, chairman of the Walt Disney Studios, dealing instead with the chief strategic officer for Disney, Peter E. Murphy.
Mr. Murphy negotiated the deal permitting the Weinsteins to privately buy "Fahrenheit 9/11" and find an independent distributor. (Mr. Dolan of Cablevision, whose IFC Films last week put up a quarter of the distribution cost of Mr. Moore's "Fahrenheit 9/11," said, despite the Weinsteins' reputations, he has had no trouble working with them.)
For the last year, the Weinsteins have been negotiating a compensation dispute with Disney as part of contract renewal talks, with the Weinsteins saying they deserve more than they are earning and demanding an audit of Disney's books, according to executives. After Mr. Eisner came under attack by former directors and investors last year, the two executives made attempts to patch things up, at least publicly.
The uproar over "Fahrenheit 9/11'' reignited the long-simmering issues. Although Disney told Miramax executives more than a year ago it could not distribute the film, Miramax executives thought they would eventually be able to change the company's mind. When the dispute became public and Disney was portrayed as censoring the film, Mr. Eisner was said to be upset.
At Disney's annual review of its operating divisions in late April, the board talked about Disney's relationship with the Weinsteins. Mr. Eisner told board members that he wanted to resolve longstanding frustrations in dealing with the Weinsteins, and discussed selling Miramax in that context.
However theoretical at the moment, Mr. Eisner and the board's discussion over selling Miramax represents a significant change in attitude. Two years ago the executive told colleagues and peers that he would never sell Miramax, an investment that had risen in value far beyond his expectations. On a call last week with investors Mr. Eisner appeared to rule out a sale when asked whether Miramax would be part of Disney in five years. "That's like asking whether Disneyland will be part of Disney in five years," he said.
But when asked who would be running Miramax in five years, he said, "I'm not sure."
Much of Miramax's value is in its library of more than 500 titles, from "The English Patient" to the "Scream" series in the Dimension division. Studios have found new cash flows in their libraries with the explosion of the DVD market.
Analysts and Hollywood experts also say that a large part of Miramax's value comes from the Weinstein's ability to identify new cinematic talent (like the directors Quentin Tarantino and Robert Rodriguez and the actors Gwyneth Paltrow and Ben Affleck) and to promote their movies to huge news media attention and glory at the Academy Awards.
On their own, the Weinsteins will lose some of the benefits that come with being part of a conglomerate, and will have to spend their own money to promote their movies. "The problem for anyone buying one of these things is you have to have the economics better than they are getting from Disney and that is hard to do," said Chris Dixon, a managing director at Gabelli Capital Partners.
He said the bellwether for any valuation of Miramax could be at what price Dreamworks SKG is able to take its animation division public.