Why does Disney get 5% ??

[KNWVIKING]

Just read this at http://www.fool.com/news/mft/2004/m...lnk303100&logvisit=y&npu=y&bounce=y&bounce2=y and it just seemed a little odd.

 

[hopemax]

Originally, Peter Jackson was going to work with Miramax to produce the films. I think they invested like 15 million in it, before things got messy about how many films should be made. Eventually, the project got sold to New Line, and I assume the 5% was part of the deal.

 

[Another Voice]

Ahh…the magic and joy of Hollywood.

Actually, Disney doesn't get 5%. As far as anyone can tell, this is how the story goes:

Peter Jackson first took his concepts for The Lord of the Rings to Miramax because Miramax owned the movie rights (or at least a part of them). Mr. Jackson spent a year and $30 million getting the picture ready – designing sets and costumes, writing the scripts, assembling the cast & crew, building sets. Because it's Miramax, and because Miramax is part of Disney, the only thing that really matters is money. To save costs, they were only going to make two movies out the three books.

The movie had basically already started when Harvey Weinstein went to Michael Eisner to get permission to make the movie. Part of the management agreement between Disney and Miramax is that Harv has to get Eisner's signature on any film costing more than a certain amount of money. At first Harv (who hates Eisner's guts) thought that each of the two movies would come in under that threshold and he'd be okay. But as the scope of the project became clear, Miramax was going to need a note from daddy.

Eisner's reaction – "what the **** , a movie about ****ing short ****ers with big ****ing feet!!!!". He simply didn't get the concept and refused to fund to movies. So he told Miramax they could make one and only if cost less than $100 million (this was after he signed a check for $165 million to that "can't miss" movie, Pearl Harbor*).

Harv went back to Peter Jackson. Mr. Jackson was aghast (most of the New Zealand film industry was already hard at work on the film). Harv knew that Jackson would never go for just one movie and so Harv thought the project was dead. But to be a "nice guy" (Harv loves to play "nice guy" but he's not that good an actor) – he made Jackson a deal. Miramax would give up the rights to The Lord of the Rings if Mr. Jackson could find someone to reimburse Miramax for the money spent and make the Weinstein brothers (co-founders and managers of Miramax) were made "executive producers" and give them a personal cut of 5% and this all had to happen in 30 days. Harv figured that no one in Hollywood would commit to a hundred million dollar film so quickly under these conditions; therefore the rights would be safe with Miramax.

Never underestimate Peter Jackson.

Mr. Jackson put together a twenty minute video tape of his concept for the movies and went around Hollywood looking for a buyer. As Harv expected, everyone turned him down instantly. Everyone expect for New Line. Mr. Jackson actually got a meeting with the executives there just days short do the deadline. He flew to Hollywood, showed the tape and some of the work that had already been done. The New Line executives sat in since, then one of them said something to the affect that Mr. Jackson was stupid.

Peter was crestfallen.

Then the executive said "there are three books, why are you only making two movies?"

And with that New Line agreed to all the Miramax terms. The 5% going to the Weinsteins is, in theory, a payment for them acting as executive producers (a job title that has no meaning) on the early part of the movie and not a direct payment to Miramax (at least that's how Tinseltown understands it). So since it's an "outside job", Disney shouldn't get any part of that. However, the agreement at Disney/Miramx is that Disney and the Weinsteins split all the profits – there may be some other confidential agreement that counts this as well.

But as someone else said, given all the great lengths Eisner has gone to in the last three years to spin out good news, it's kind of interesting that he wouldn't mention 5% of the big movie series of all time. Surely that would have boosted to stock price if Disney did see any of that money. Eisner's silence could be taken as a good sign that the Weinsteins are getting rich while Mikey watches his stock options sink.

And this is how Hollywood does business – monstrous egos stuffed with unimaginable amounts of money playing games with people who just want to make good movies.


* - Someone calculated that Disney spent more money making Pearl Harbor and Treasure Planet than it cost to make the three Rings films. After the release of the first one there was additional production, but those costs were covered by profits from Fellowship. As for Michael Eisner, he learned his lesson about turning down Harv's requests for additional money. He's signed off on two really big budget Miramax films, Gangs of New York and Cold Mountain.

He's still waiting for the payback.