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Miramax: AVictim of

Interpersonal Conflict?
Introduction
Miramax Filmcorp., a division of Walt Disney (Disney) is headed by the Weinstein brothers, Harvey and Bob. Started
by themin 1979 as a unit to buy and release foreign-language and independent films (indie-film), Miramax was acquired by
Disney in 1993. Miramax built up a steady reputation as a pioneer of the indie-film genre, amassing a record 221 Oscar
nominationsinthepast fifteenyears. But relationsbetweenHarvey andDisneysCEOMichael Eisner havebeendeteriorating
steadily over the past fewyears over issues of compensation, control, accounting and creative independence. Aflare-up
between themin 2004 over the controversial documentary Fahrenheit 9/11 worsened the relations.
Disney and Miramax work on a contractual basis. The current contract between Disney and Miramax will expire in
2009, but anoptiongives Disney theright torenegotiate it in September 2005 andset theterms for thenext four years. While
Eisner wants Disney to have a greater control over Miramaxs operations and the Weinstein brothers to accept lesser
compensation, Harvey andBobhaveannounced that they wouldnot accept anunfair compromise. Talks of a breakup were
getting louder, when Eisner unexpectedly announcedin September 2004 that he would be stepping down as Disneys CEO
in 2006. That was seen to change the equation for the Weinsteins who announced that they would like to stick with Disney.
Whether a mutually agreeable settlement could be reached between the two parties remains to be seen.
Miramax-The Early years
Born in 1952 in Flushing, NewYork, Harvey Weinstein (Harvey), the co-founder of Miramax Studios had been a part
of the entertainment industry sincehis high-school years. He acted as the manager of a music band, Goosemen, started by
his high-school friends. The band was a failure, but Harvey retained the basics of the music-promotion business he learnt
during that stint. He joined the State University of NewYork at Buffalo in 1969. Within months, he teamed up with Corky
Burger, a friend and started a music concert promotion company called Harvey &Corky Presents. The company was at the
center of Buffalos rock music scene for the next three years, during which time Harvey dropped out of college and
persuaded his brother Bob to do the same and join himin his business.
In 1979, the brothers set up Miramax- named after their parents Miriamand Max. According to Harvey, he became a
lover of cinema and was inspired to get into the movie business after watching The 400 Blows, an art movie by Francois
Truffaut. Harvey decided to make a career out of promoting and marketing movies that were away from the mainstream
genres, movies which otherwise would not get the attention he thought they deserved. Miramax distributed its first movie,
The Secret Policemans Other Ball, in 1982, but its first big success came in 1989 with Steven Soderberghs Sex, Lies and
Videotape, an indie filmthat won the Palme dOr at Cannes and grossed more than $100 million in worldwide sales. The
movie brought Miramax and the Weinstein brothers into Hollywoods notice as innovators of cinema.
The brothers followed the films success by buying and promoting off-track and foreign movies like My Left Foot and
Cinema Paradiso, both of which won Oscars in 1990. Harveys business model was based on the lawof large numbers.
1
1
Mason, G., Ian When Harvey met Mickey, www.newstatesman.com, October 11
th
2004
This case study was written by Kalyani Vemuri under the direction of T Phani Madhav, IBSCDC. It is intended to be used as the
basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The case
was compiled from published sources.
2004, IBSCDC.
No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever
without the permission of the copyright owner.
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Hebought andreleasedalargenumber of films, hopingthat profitsfromthefewthat wouldclickwould compensatethosethat
didnt. He reportedly had a contrarian knack of picking up offbeat movies and themes he felt would appeal to American
audiences. According to NewYork writer Peter Biskind,
2
Harvey created the indiewood hybrid, the film that is somewhere
betweencommercial studioproduct andold-fashioned indiemovies. Hewas alsoactive in theediting room, cutting out large
parts of thefilms hebought tomake themmore suitable toAmericanaudiences. Subsequently, critics gavehimthe moniker,
Harvey Scissorhands. Imnot cuttingfor fun, heoncesaidin his defense. Imcutting for the(film) to work. All my life I served
onemaster: thefilm. I lovemovies.
3
Other films he released included x-rated ones like TheCook, TheThief, His Wifeand
Her Lover and Tie Me Up! Tie Me Down!. Harvey ran into problems with the Motion PictureAssociation of America (MPAA)
due to the content of his movies. Harvey fought a lawsuit against the MPAA, resulting in the implementation of the NC-17
rating that helped distinguish between adult-oriented films frompornography.
After Disneys Acquisition
In 1993, Disney wanted to enter the growing indie-filmmarket, of which Miramax was the most visible player. Disneys
competitors were getting into television and Michael Eisner (Eisner), its CEO, didnt want to let Disney enter either cable or
the networks market. He believed that if Disney had a wider control of the content, it would be better positioned to deal with
companies like News Corp., Viacomand Time. Miramaxs business plan, which focused on buying and making low-budget
movies and then marketing them, seemed attractive to Disney. Eisner hoped that by acquiring Miramax, he would have a
unit that would bring in stable returns and a lucrative movie library without too much investment fromDisneys side. And
steadily, Miramax could be developed into the biggest player in the indie-filmcategory. Jeffrey Katzenberg, the then Disney
President (who quit later to co-found Dreamworks SKG) approached the Weinstein brothers with a purchase offer. The
terms were- Miramax wouldbe apart of Disney, but would have its ownbudget andlatitude infilmmaking. Therelation would
be contractual. The terms of working between Miramax and the parent company, Disney and the compensation of the
Weinsteins would be mutually re-negotiated after the lapse of the contract period. Miramax had been going through a lean
phase since 1991
4
and the brothers agreed to the acquisition plan.
TheWeinsteins sold Miramax in 1993 toDisney for $75 million. Harvey remained the headof the division and managed
the companys public front while Bob looked after the backend working. In 1994, Miramax spent $8 million to buy Pulp
Fiction, an indie-filmby up and coming director Quentin Tarantino that had been developed but later rejected by TriStar
Pictures. Themovie went ontogross $100millioninUSalone, becomingthebiggest success intheindie-filmgenrehitherto.
It became a phenomenon, whetting the appetite of American moviegoers for similar art-house movies.
Soon, producers began to bring projects that were rejected or shelved by big studios to Miramax. Fox had refused to
make TheEnglish Patient, Universal Pictures had stalled Shakespeare in Love andCastle Rock Studios hadshelved Good
Will Hunting. Miramax put in its resources to complete all the three movies that later became both Oscar and box-office
successes (Annexure 1). The English Patient won nine Oscars and Shakespeare in Love gathered seven, including the
one for best picture.
Apart fromspottingandencouragingtalented artists likeGwynethPaltrowanddirectors likeTarantino, Robert Rodriguez
and Steven Soderberg, Miramax also built up a reputation for savvy Oscar-marketing. Harvey is fearless with his creative
opinions, and driven by marketing,
5
says Tom Pollock, former chief of Universal Pictures. More than winning, Harvey
believed in getting nominated for as many categories as possible. Harvey wanted to use the Oscars-campaign season to
promotehis movies that were runningin cinemahouses anddrive upsales. Hesaid once, Asuccessful awards season can
make the difference betweena movie grossing $5million at thebox office anda movie grossing $20million.
6
In the past 15
years, Miramax got 221 Oscar nominations across several categories and 15 best-picture nominations.
7
Critics peg
Miramaxs marketing spend on asingle filmanywhere between $25-40 million. In 1999, when Miramax spent $15 million to
promote Shakespeare in Love, which won the best picture Oscar over DreamWorks Saving Private Ryan, industry leaders
felt the need for an Oscar campaign-finance reform. Rick Sands, Miramaxs chief operating officer denied the accusations
2
Author of Down and Dirty Pictures: Miramax, Sundance, and the Rise of Independent Film, Simon & Schuster,January 2004
3
When Harvey met Mickey, op.cit
4
Biskind, Peter Monsters Inc, The Guardian, October 1
st
2004
5
Rickey, Carrie Miramax chiefs heavy-handed tactics spark an Oscar backlash, The Philadelphia Inquirer, March 20
th
2003
6
Gumbel, Andrew How the mogul of Miramax made winning Oscars into a business, The Independent, December 20
th
2003
7
Caulkin, Dave Life Isnt Beautiful, Newsweek, October 11
th
2004
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and said, If you could buy an Oscar, then everyone would do it. But you cant. The academy is a group of professionals
who cant be swayed.
8
Also, Harvey was in the publics eye several times for his strong-arm tactics and misleading marketing efforts.
9
For
example, in 1993, after the NewYork FilmCritics Circle announced that Schindlers List was the winner of the Best Picture
in its annual awards, Harvey ran a newspaper ad for Miramaxs movie, The Piano with the headline Winner! Best Picture
witha disclaimer in fine print saying it was actually the runner-up. Recently, for its 2002 movie, Gangs of NewYork, Miramax
printedaghostwrittentestimonial essay that claimed tobewrittenby former AcademyPresident Robert Wise. TheAcademys
current president, Frank Pierson, was severely displeased and called the whole episode an outright violation of academy
rules.
10
Critics like Tom ONeil, author of the book, MovieAwards, say that Harveys heavy spendingon Oscar campaigns
raised the bar for all the other studios, making the Oscars more of a political affair.
11
Deteriorating Eisner -Weinstein relations
Soon after the acquisition, cracks began to show up in the relationship between Disney and Miramax executives.
According to some sources, the Weinstein brothers were used to acting independently and Miramax did not follow the
stringent accounting procedures that the Disney conglomerate practiced. Paul Webster, former head of production at
Miramax admitted, Harvey doesnt care about budgets until he needs to care, and by then its too late.
12
Also, Disneys
executives admitted to considering Miramax as an outlawcompany and disliking Miramaxs products. The fact that Disney
enjoyed a relatively untainted reputation as a good old-fashioned family entertainment provider was seen as a big reason
for it. One former Disney executive said, Their packaging sucked; the trailers sucked; there was no awareness of their
pictures, because they were never distributed in the small towns between the coasts.
13
In 1995, Miramax bought a film
called Priest, a story about a gay Catholic priest with an NC-17 rating. The movie turned controversial, provoking wide
spread protests frompoliticians and conservative Catholics. Disney was angry with Miramax because the contract didnt
allow Miramax to release an NC-17 rated film. In 1999, one more film, director Kevin Smiths Dogma, angered Catholic
groups on similar grounds. It had to be distributed by another firm, Lions Gate. With reference to this movie, Eisner was
reported to have said, If one person does not go to Disneyland because of this movie, that will be one person too many.
14
Relations betweenEisner andHarvey got strained further duetoHarveys temper outbursts and, as Disneys executives
say, his irreverent attitude towards the parent company.
15
Harvey went on record to say that Eisner blocked him from
several investments that paid off later, including Harveys desire to turn the Lord of the Rings into a movie before Disneys
competitors did. Eisner, in turn, pointed out to Miramaxs 1998 venture- Talk magazine, headed by NewYork editor Tina
Brown, which Eisner opposed, but Harvey went ahead with and had to be shelved in 2002 because it failed. Eisner was
concerned that Miramax had stopped concentrating on low-budget movies and wanted to make risky, expensive movies,
such as Kate and Leopold costing around $50 million and Cold Mountain, which cost about $80 million. Moreover,
Miramaxs releases had been coming down from31 in 2002 to 25 in 2003 and 18 in 2004.
16
Harvey had demanded that
Disney remove the clause, which says that Miramax should get Disneys approval for any movie with a budget exceeding
$35 million. Another long-standing bone of contention was the issue of the Weinstein brothers compensation. Harvey and
Bob got $ 5 million each annually plus an estimated 10%of operating earnings, which amounted to $20 million in 2003.
Harvey was pressing for a bigger compensation package.
The Eisner-Weinstein relations strained further in 2004 due to Fahrenheit 9/11, a controversial documentary directed
by Michael Moore that was highly critical of President George Bush. Miramax approached Disney in 2003 with its proposal
to make Fahrenheit 9/11. Disney did not give its permission, but Harvey went ahead and made the movie with Miramaxs
funds. When it was ready for distribution, Disney refusedto distribute it. Harvey andBobhadto pay $6 millionfromtheir own
pockets and buy the filmback fromDisney. They then formed a separate company, FellowshipAdventure Group and sold
thedocumentary through it toLions Gate andIFCfilmsthat later distributedit. The filmgrossedmorethan$209milliondollars,
8
Miramax chiefs heavy-handed tactics spark an Oscar backlash, op.cit
9
Biography of Harvey Weinstein, http://movies.yahoo.com
10
Grover, Ron And the Oscar for Best Mogul Goes to..., www.businessweek.com, March 20
th
2003
11
Miramax chiefs heavy-handed tactics spark an Oscar backlash, op.cit
12
When Harvey met Mickey, op.cit
13
Monsters Inc, op.cit.
14
When Harvey met Mickey, op.cit
15
Waxman, Sharon and Holson, Laura The Split Between Disney and Miramax Gets a Little Wider, The New York Times, June 7
th
2004
16
Staff cuts point to Miramax break-up, The Guardian, August 26
th
2004
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becoming the most financially successful documentary of all times and one of 2004s most talked-about projects. Miramax
announced that it is ready to finance Moores next film, tentatively titled Sicko, which will be based on the UShealth system.
But during the flare-up between Miramax and Disney over this issue, Eisner suffered on the publicity front. Moore accused
Eisner of stalling the filmbecause he didnt want to anger Republicanleaders and risk not getting the tax breaks it gets onits
theme parks in Florida, where Jeb Bush, President Bushs brother was the governor.
17
Eisner retorted by saying he
objected to the documentary only because he did not want to create a partisan political battle that could affect a large
number of Disneys audience. We werent interested in getting involved in a national conversation that would alienate half
our customers,
18
said Eisner. But media experts opined that the controversy put the Weinstein brothers and Moore in a
positive light while naming Eisner a coward and censor.
Miramax facing an uncertain future
The current contract between Disney and Miramax will expire in 2009, but an option gives Disney the right to
renegotiate it in September 2005 and set the terms for the next four years. Till September 2004, especially after the spat
between Harvey and Eisner over Fahrenheit 9/11, some quarters expected that the Weinstein brothers would not stay at
Disney after 2005. Other issues over which the brothers were expected to leave were compensation and control. Sources
at Disney said that Eisner wants the brothers to accept a lower compensation, which the brothers were not prepared to
accept. Also, till 2004, Miramax worked on an annual budget of $700 million. Though it exceeded that amount sometimes,
Eisner had allowed for the excess. But after Fahrenheit 9/11, Eisner had reportedly tightened the budget and refused
Miramax any freedomto go beyond that. Disney, citing that Miramax was profitable in only two out of the past five years,
proposed changes that would require Miramax to buy or make smaller-budget films. The Weinstein brothers claimed that
Miramax was profitable in four out of the past five years and that its revenues in 2003 were $1 billion with profits of $ 211
million.
Analysts say that Miramax is a small, but acrucial part of Disneys empire. It has proven tobe many times worthDisneys
$75million investment bybringingin revenues andOscar acclaim. At stakearefour important factors. First is Miramaxs 500-
filmlibrary valued at more than $2 billion. Second is Dimension films, the arm of Miramax started and managed by Bob,
which is believed to be a steady revenue generator. Founded in 1994, this sub-division of Miramax has been producing
films in the science fiction, thriller, action and horror categories. Forty five out of Dimensions 54 films that include theScary
Movie, Spy Kids and Screamtrilogies, Others, The Crow, Sin City etc have beenhits and Harvey says that Dimensions rate
of return is between 35-40%. Third is the fact that Disneys competitors like Universal are setting up their own indie-film
divisions and without Miramax, Disney would be at a disadvantage. Finally, Disney had been earning a negative reputation
of not being able to keep their creative talent, especially after Pixar studios, whose animation films had been bringing in at
least 50%of Disneys revenues in the past few years announced in early 2004 that it would be ending its venture with
Disney in 2005. Analysts claimthat the deal was to be terminated because of differences between Eisner and Steve Jobs,
the head of Pixar. ADisney insider, however, says that the management of Disney, as a whole takes an unfavourable view
of the Weinsteins. He says, No one is doubting that Bob and Harvey are very smart, and everyone acknowledges that
theyve done a marvelous job. But enough is enough. The board and other people within Disney figure theyre just not
worth the trouble anymore.
19
Eisner, in mid-2004 announced that he had no intention of selling Miramax. As long as Imaround, were never selling
that company,
20
he said and in response to whether Miramax would be a part of Disney five years hence, answered,
Thats like asking whether Disneyland will still be a part of Disney in five years. We own100%of Miramax. If you areasking
about who will manage Disneyland in five years I am not sure, but Miramax is a 100%owned entity of the Walt Disney
Company and thats the way we treat it, and by the way, we like it.
21
He also reportedly said that in case he decides to sell
it in future, he would not be selling Miramax back to the Weinsteins for anything less than $3 billion.
22
17
Weiss, Steve Disney/Miramax Waist Deep in Politics, www.minutemanmedia.org, May 24
th
2004
18
OBrien, Perry Not Quite A Magical Kingdom, Up & Coming, July 15
th
2004
19
Life Isnt Beautiful, op.cit
20
When Harvey met Mickey, op.cit
21
Hernandez, Eugene The Day After: Eisner Talks About Fahrenheit 9/11 and The Future of Miramax, http://www.indiewire.com, June 4
th
2003
22
Tharp, Paul Weinstein-Disney Brawl Getting Closer to Finale, www.nypost.com, October 4
th
2004
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For a while, industry experts speculated that Miramax would reach a settlement by which Bob would get an annual
budget of $350 million for Dimension and Harvey would move out of Disney to join either Warner or Fox or make movies
of his own. That, they expected, would be favorable to Disney also. But in September 2004, Eisner announced that he
would be stepping down as Disneys CEOby September 2006. The brothers announced soon after that they would not be
separating. And within a week, they announced lay-offs of 13%of Miramaxs workforce. It was believed that the Weinstein
brothers are focusing on making Miramax more profitable, and banking on Eisners successor to work out a mutually
agreeable working relationship. Harvey has been since reducing Miramaxs workforce from490 to 365 employees, citing
that it is a part of ongoing effort to cut overheads and improve efficiency and profitability. We will cut budgets of movies and
we will reach record-high numbers at the endof this year,
23
Harvey announced and added that he hoped for an amicable
negotiation to continue Miramaxs relationship with Disney. Whether it would be possible, given Eisners reputation to let
personal animus
24
affect his decisions is to be seen in September 2005. The Miramax contract is considered to be Eisners
last major business decision.
23
Life Isnt Beautiful, op.cit
24
Eller, Claudia and Verrier, Richard Miramax negotiates future with Disney, Los Angeles Times, July 20
th
2004
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Annexure 1
The 40 top-grossing movies of Miramax (1985 August 2004)
1. 12/27/2002 Chicago $170,684,505
2. 12/5/1997 GoodWill Hunting $138,433,435
3. 10/14/1994 PulpFiction $107,928,762
4. 12/20/1996 Scream $103,046,663
5. 12/12/1997 Scream2 $101,363,301
6. 12/11/1998 Shakespeare in Love $100,317,794
7. 8/10/2001 Others, The $96,471,845
8. 12/25/2003 ColdMountain $95,632,614
9. 2/4/2000 Scream3 $89,138,076
10. 11/15/1996 EnglishPatient, The $78,716,374
11. 12/20/2002 Gangs of NewYork $77,730,500
12. 4/13/2001 Bridget Joness Diary $71,500,556
13. 12/15/2000 Chocolat $71,309,760
14. 10/10/2003 Kill Bill: Volume1 $70,098,138
15. 4/16/2004 Kill Bill: Volume2 $66,207,920
16. 1/29/1999 Shes All That $63,465,522
17. 11/25/1992 Crying Game, The $62,546,695
18. 10/23/1998 Lifeis Beautiful $57,598,247
19. 12/10/1999 Cider House Rules, The $57,547,209
20. 8/5/1998 Halloween: H2O $55,041,738
21. 8/27/2004 Jet Lis Hero $52,199,022
22. 5/11/1994 Crow, The $50,638,075
23. 10/5/2001 Serendipity $50,255,310
24. 12/25/2001 Kate and Leopold $47,095,453
25. 8/15/1997 Cop Land $44,906,632
26. 12/25/1998 Faculty, The $40,283,321
27. 11/12/1993 Piano, The $40,157,856
28. 12/25/1997 JackieBrown $39,673,162
29. 3/1/2002 40 Days and 40 Nights $37,939,782
30. 11/17/2000 Bounce $36,779,296
31. 11/23/2001 In the Bedroom $35,930,604
32. 11/2/2001 Amelie $33,201,661
33. 12/22/2000 Dracula 2000 $33,000,377
34. 10/25/2002 Frida $25,885,000
35. 8/17/2001 CaptainCorellis Mandolin $25,528,495
36. 8/22/1997 Mimic $25,514,166
37. 2/4/1994 My Father the Hero $25,479,000
38. 3/26/2004 Jersey Girl $25,266,129
39. 8/4/1989 Sex, Lies and Videotape $24,741,667
40. 11/20/1996 Sling Blade $24,475,416
Source: www.the-numbers.com