Struggle for Independents : Hollywood: The days of the low-budget "B" movie king are over. To survive, small filmmakers are spending more on each film and allying with big studios.

By PAUL RICHTER

March 4, 1990 12 AM PT

TIMES STAFF WRITER

James G. Robinson heads an independent film company called Morgan Creek Productions, but don’t confuse him with some of the other studio bosses you may have read about.

Robinson, who made his first fortune as a big-time Subaru dealer, is more comfortable in the preppy garb of his native Baltimore than the flashy livery of the film community. He wants to make it clear that he has never dated any of his stars, and, he adds, waggling a forefinger, “You won’t catch me spending a lot of time doing lunchy-poo with the agents.”

Morgan Creek is also different from some of the independent film companies that you’ve read about.

Robinson started it with his own money rather than with capital from limited partnerships, common stock or junk bonds. He avoided the risks of setting up his own domestic theatrical distribution system by cutting deals with the major studios.

And rather than pump out a supply of inexpensive “B” titles, Morgan Creek tries to make movies with the proven box-office talent that is needed to interest home-video and foreign film distributors. “What worked a couple years ago for independents isn’t likely to work today,” Robinson says.

Robinson’s strategy is the kind of carefully hedged battle plan that many small film producers and distributors have adopted after two years of industry turmoil that forced the demise of a long list of independents.

As sources of financing dry up, these filmmakers are turning to new ones, including the Japanese. They’re trying to contain overhead while increasing film production budgets to improve their odds with home-video, pay TV and foreign markets.

They’re often allying themselves with the major studios or at least finding new ways to work around their ever-expanding big competitors.

The key, of course, is to avoid the mistakes that led their predecessors from boom to bust in the ‘80s.

Only three years ago, Wall Street was still pumping money into a variety of new movie ventures. And a booming home-video market made it appear that the independents could predictably cover their production costs through advance sales of home-video rights.

The independents’ ascendancy was clear to all in 1987, when independently produced films collected 42% of the Oscar nominations, including those awarded to “Platoon” and “A Room With a View.”

But more recently, home-video distributors and foreign theater owners began to choke on an oversupply of inexpensive, independently produced “B” titles. Many independents had taken on too much debt, spent too much on films and overhead, and yet weren’t coming up with the hits that they needed.

As De Laurentiis Entertainment Group, Cannon Group and Vestron joined the disabled list, Wall Street lost its taste for new ventures. Such major lenders to the industry as Credit Lyonnais Bank Nederland and First Minneapolis Bank pulled back sharply.

One sign of the harsher new environment was producer Mel Brooks’ inability to take his production house public. Brooksfilms disclosed plans to sell about $15 million in stock last November, but by mid-February, word was quietly circulating that the offering had been postponed indefinitely.

Brooks’ retreat underscored a growing split among independent “haves,” whose winning track record gives them ready access to capital, and “have-nots,” who must struggle for financing as they try to establish their credibility. Among those in the former category are Carolco Pictures, the “Rambo” movie maker that is by far the biggest independent; Ron Howard’s Imagine Films; Castle Rock Entertainment, and Robinson’s Morgan Creek.

Morgan Creek started out with a decided edge because of the start-up capital that Robinson brought from his earlier moneymaking ventures.

In the 1970s, when U.S. demand for smaller Japanese cars began to get hot, Robinson built a six-state, 93-dealership territory in the Midwest. When he sold it back to Subaru of America in January, 1988, he claimed a windfall that allowed him to contribute $80 million to his new film venture.

Robinson teamed up with producer Joe Roth and began commuting alternate weeks from his Baltimore home. The partners began their venture working out of a 20-foot-long truck, with a skeleton staff of six.

Last summer, Roth was lured away to head 20th Century Fox’s film operations, but in the meantime, Morgan Creek had assembled a series of successes that gave it further momentum.

Among them were “Young Guns,” which made $45 million at U.S. box offices; “Major League,” which grossed $49 million, and David Cronenberg’s “Dead Ringers,” which turned a modest profit but won points with the critics.

More recently, Morgan Creek won bouquets for Paul Mazursky’s “Enemies: A Love Story,” which the company backed after a dozen others rejected it. Last year, the private company generated about $140 million in revenue, Robinson says.

Its credibility established, Morgan Creek last December signed a deal for up to $100 million in film finance capital from Nomura Babcock, a partnership of the world’s biggest investment firm, Nomura Securities of Japan, and Babock & Brown Co., a San Francisco venture capital firm.

To help ensure broader acceptance of their films, Morgan Creek sets production budgets at a middle range of $10 million to $16 million. Another $8 million to $16 million is budgeted for advertising and film prints.

By comparison, independents have typically tried to keep production budgets to $5 million or less. These days, major studio production costs often exceed $30 million.

Robinson believes that it was a fatal mistake for some of his predecessors to assume that they could handle their own distribution to American theaters.

The independents’ interest in U.S. distribution is understandable, since that’s the source of much film industry profit. Distributors sometimes claim 30% of box-office receipts.

But the six major studios have a grip on the business that independents can’t easily overcome, because the majors have great influence over which movies get into theaters, when they appear and how long they remain.

Although Morgan Creek has set up a separate unit to handle foreign distribution, it works entirely through major studios to bring its films to U.S. theaters. 20th Century Fox has handled most of the company’s films, and Roth’s move to Fox is expected to further cement the relationship.

Other independents have reached similar conclusions about the need for a powerful big brother. Indeed, some entertainment executives believe with Glen Shipley, former chief financial officer of the independent filmmaker Management Co. Entertainment Group, that “there’s no such thing as an independent. You’ve got to have an affiliation to survive.”

Imagine Films, the production house launched by director Ron Howard and producer Brian Grazer, has become a close affiliate of Universal Pictures. The company is 20% owned by Universal, and the studio has distributed all of Imagine’s films to date, which include “Parenthood” and “The Dream Team.”

Castle Rock Entertainment, a movie and TV production company founded by studio executive Alan Horn, director Rob Reiner and three other partners, has allied itself with Columbia. Columbia owns 34% of Castle Rock and has distributed all of its films, which include Reiner’s “When Harry Met Sally.”

Horn, former chairman of Embassy Pictures and president of 20th Century Fox Film Corp., said Castle Rock’s business plan was shaped by what the five principals found when they set out on their own. “The environment for financing was cold, indeed,” Horn says.

They recognized that they would need to put to rest investors’ fears that they would be another heavy-spending independent, in the style of De Laurentiis Entertainment Group, Cannon and others. The executives agreed to limit their salaries for the first 2 1/2 years and to contain their overhead by, for example, filling their Beverly Hills offices with their own furniture.

“Everybody had heard the horror stories, and we had to allay fears,” Horn says.

The partners knew, too, that they would have an easier time raising capital if they emphasized Castle Rock’s TV production operations, since TV is a more reliable moneymaker than the hit-or-miss film business.

Castle Rock, which started out with $30 million in capital, raised another $18.7 million in January by selling a 15% ownership stake to Westinghouse Broadcasting.

While some independents have allied themselves with major studios, others have had to change their strategies because of a shift in the direction of their bigger competitors. Such an adjustment is under way at Samuel Goldwyn Co., which has faced new competitive pressures because of the major studios’ moves into so-called specialty, or art house, films.

Such movies have long been a mainstay for Goldwyn and other independents. But recently, the major studios, noticing the aging of the population, have decided to move more heavily into films that focus on human relationships and carry lighter doses of sex, violence and special effects.

“We’re talking about films that the independents had as their exclusive dominion a few years ago,” says Meyer Gottlieb, president of Goldwyn, which is owned by the son of the former Metro-Goldwyn-Mayer studio boss.

“A Room With a View,” from the E. M. Forster novel, grossed about $20 million at the box office in 1987, an impressive amount for a movie of its type. Now, “it wouldn’t do nearly that much, because the audience for a film like that has so many more choices,” said Tom Rothman, Goldwyn’s senior vice president for worldwide production.

Recently, the moviegoer who bought a ticket for Goldwyn’s “Henry V” would, in many parts of the country, also have had the choice of “Driving Miss Daisy,” “Enemies: A Love Story” and “Roger & Me.”

In the past, Goldwyn acquired most of its films. Now executives have concluded that increased competition to buy those films would make it necessary for the company to produce four to six films of its own each year, at budgets of $5 million to $15 million.

Goldwyn Co. hopes to acquire three to five more a year, though it recognizes that it will face tougher bidding contests for better movies. Bidding was spirited for director David Lynch’s latest film, “Wild at Heart,” which Goldwyn will release later this year, Rothman says.

“We’re now competing with the whole industry for material,” he says.

As often happens, the economic changes that have threatened some may offer opportunity for others.

Officials of New Line Cinema, known for its five-part “Nightmare on Elm Street” series, are scouting merger or joint venture partners and believe that the industry’s travails may have made others more willing to do such a deal.

Robert Shaye, chief executive of the public company, says he has hired an investment banker to look over TV production companies and home-video and foreign film distributors. “I’m sure there are a lot of opportunities that weren’t out there a couple of years ago,” Shaye says.