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Financing Movies the Home Video Way

April 19, 1987|James Lardner

A decade ago, an independent producer with a $10-million project would almost certainly have tried to strike a theatrical-distribution deal with one of the major studios, and a group of executives hardly larger than a courtroom jury could have delivered a death sentence to his project. Today, he might decide to bypass the studios altogether and try to piece together his budget by selling domestic home video rights, foreign theatrical rights and cable-TV and syndication rights. "That scenario is taking place 52 weeks a year," says Jon Peisinger, president of Vestron Video, "and it is probably the most significant result of the home video revolution in terms of financing films."

The emergence of companies such as Vestron is another significant result. Based in Stamford, Conn., and founded by Austin Furst Jr., a former executive of Time Inc., Vestron became a force in the movie industry after buying the rights to "Making Michael Jackson's 'Thriller,' " a home video original that proceeded to sell nearly a million copies at $30 each, although it had been turned down by CBS / Fox because no previous music video had sold more than 70,000 copies. From that success, Vestron graduated to buying video rights to independently produced films. During the last two years, the company has gone public, raised $200 million from the sale of stock and debentures and branched out into the field of theatrical distribution--becoming, in effect, a mini-studio.

A number of movie companies--including Disney, New World, Dino De Laurentiis, Island Pictures, HBO, Fox, Vista and TriStar--have raised large sums of money in the last few years by selling stock or limited partnerships, and the video market has been a big lure in many of these offerings. "There's no doubt that the growth of home video, layered on top of pay television, has transformed motion-picture financing," says Steven Rosenberg, a senior analyst with the media research and investment firm of Paul Kagan Associates. Rosenberg says that in today's market, a home video company might sell 70,000 cassettes of a regular, first-release B movie, and the profit per cassette could run as high as $40, yielding a gross profit of $2.8 million. Such numbers have led to what James Bouras, a former vice president for home video of the Motion Picture Assn. of America, calls a "can't-lose mentality" among producers of low-budget features--which, he adds, "is always dangerous."

Some industry observers believe that the competition for product among video companies has already gotten out of hand. To hear them tell it, Embassy's $8-million purchase of the home video rights to the George Lucas / Jim Henson movie "Labyrinth" and International Video Entertainment's $6-million purchase of Roman Polanski's "Pirates" could be home video's answer to "Heaven's Gate"--wretched excesses that will usher in an era of sobriety.

With more movies being made, it has become easier to finance titles as far-flung, aesthetically, as "Monster in the Closet" and "A Room With a View." Home video has even raised a few movies from the dead, as illustrated by the case of Oliver Stone's "Salvador," which--propelled by Stone's sudden success and James Woods' Oscar nomination--has generated about six times as much revenue in its video afterlife as in its theatrical release.

"A lot of the independents are saying, 'To hell with theatrical!' " says video-store pioneer George Atkinson. "Theatrical is nothing more than a launching pad for video. If you can make a picture for under $2 million and give it some kind of legitimate send-off theatrically and then tie the video onto the tail winds of the publicity for the theatrical, that's where the cream is."

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