Artisan loses ‘Witch’ doctor

Hegeman ankles as indie preps IPO

NEW YORK — As Artisan Entertainment readies itself for an initial public offering, the company is losing marketing chief John Hegeman (Daily Variety, Feb. 18).

He’s ankling the indie to launch a new Web site in partnership with former Walt Disney Studios topper Joe Roth, who will be the primary investor (Artisan will own about 14% of the new venture but declined to bankroll it further). Hegeman joins Roth on the job next Monday.

Hegeman has been widely credited with the phenomenal success of “The Blair Witch Project,” although the Web site that drew so many young fans to the film was already up and running before Artisan came into the picture. Amorette Jones, recently upped to exec VP of marketing, was also a key player in the “Blair” bonanza.

One insider described the genre-based site, called Distant Corners, as “the ultimate experience in horror, sci-fi and fantasy.” Hegeman will continue to serve as an adviser to Artisan while also consulting on projects that Roth is putting together. According to a report in the L.A. Times this week, disagreements within Artisan over its Internet strategy led to the board stripping Artisan chief exec Mark Curcio of sole responsibility for the firm’s online business. Head of strategic planning Nicolas van Dyk, co-president Amir Malin and co-president Bill Block now split duties overseeing the Internet ventures.

Meanwhile, the company has other things to think about — like convincing investors to jump on board its IPO. Ironically, to that end it would just as soon have people forget “Blair Witch.” As the 2-year-old company tries to raise $140 million from Wall Street, the last thing it wants is for people to think it’s a one-hit wonder or to focus on the defection of a key player in that record-breaking success.

Past decades are littered with the bodies of indies — Savoy, Cinergi, Orion, Vestron, Carolco, Weintraub, Cannon and New World — that crashed and burned, leaving many Wall Streeters ready to run for the exits whenever the terms “film production” and “public offering” are uttered in the same breath.

“These companies have been impossible to play in the stock market,” said one entertainment fund manager. “They almost always go bankrupt or merge into somebody else for the value of the film library, with insiders getting good contracts and the rest of us very little,”

“Almost as a matter of religion, I will not be investing in this kind of proposition,” another insisted.

Less than two years ago, Artisan itself was a financially strapped opera-tion called Live Entertainment.

So in the offering, Artisan execs must walk a fine line: justifiably proud of “Blair Witch” — which garnered $140 million domestic on its $100,000 budget — but quick to let investors know that they know one mega-hit does not a movie company make.

Artisan managing partners Malin, Block and Curcio, along with Hegeman, declined comment for this story due to an SEC-mandated “quiet period.” But in months leading up to the filing, the company has touted its large library, impressive distribution and burgeoning home entertainment business, as well as its TV deals, brands and growing presence in merchandising, licensing, publishing and the Internet. Revenue in home entertainment, for example, was $232 million last year — nearly triple the $80 million from theatrical.

The idea is that these businesses, as opposed to the hit-or-miss game of filmmaking, promise the strong and growing cash flow so dear to investors’ hearts.

Company also sports one of the most incongruously efficient triumvirates in Malin, Curcio and Block. Malin, 46, came to Artisan from October Films and his partnership with Bingham Ray, John Schmidt and Scott Greenstein.

Curcio, 40, hails from the financial world of Bain Capital, where he served as VP and worldwide leader of the firm’s mergers and acquisitions prac-tice and headed the Los Angeles office. He played a key role in Bain’s purchase of Live in 1997. Prior to Bain, Curcio was director of strategic planning at Walt Disney Studios.

Block, 46, helped negotiate the original deal with Live and segued into an executive slot after more than a decade as an agent at ICM.

All three vote on greenlighting films.

Artisan as a public company may indeed have a better shot than others did: Its huge library is a sterling advantage that most of its smaller peers didn’t enjoy.

Points in the company’s favor:

  • Artisan has raised its indie profile with its slate of edgy genre pics like Oscar-nominated docu “Buena Vista Social Club,” “Pi” and the Steven Soderbergh-helmed “The Limey.” Many laudatory pieces have been written about the company as a hipper new version of a now more staid and establishment-oriented Miramax. But profile aside, about one half of the pictures the studio has released have grossed under $1 million each.

    Usually, the company buys or makes films on the cheap and then leverages video and pay TV deals that end in a small profit. Even “The Ninth Gate,” which got rotten reviews, was fully paid for in foreign sales and will likely make a small profit on the domestic side through its $6.6 million opening weekend, as well as its video and Showtime deals. Artisan was on the hook only for prints and advertising, which topped out at about $15 million.

  • As Live, the company was a debt-ridden wreck. Managing partners Malin, Curcio and Block and the rest of the Artisan team jumped in, stream-lined and then expanded the operation, and turned financial goose eggs into gold through video exploitation of the ever-growing library. They rapidly started turning a profit and created a company with cash flow of $40 million and significant financial resources.

  • Artisan has maintained an ambitious slate of pics, including a sequel and prequel to “Blair Witch.” Sequel will be helmed by docu director Joe Berlinger (“Brother’s Keeper”) with a budget of $12 million. The prequel, to be shot in 2001, will be back under the pic’s original helmers, Daniel Myrick and Eduardo Sanchez.

    Slate also includes “Novocaine,” a comedy starring Steve Martin and Helena Bonham Carter; “Sideways,” directed by Alexander Payne; “Made,” reteaming Vince Vaughan and Jon Favreau; and Darren Aronofsky’s “Requiem for a Dream.”

Reasons for caution:

  • Questions persist about Artisan’s library, which contains more than 6,500 titles, though the company has full rights to just some of them. Many of the rights are sewn up through deals that lapse in the next five to 10 years and offer complex configurations regarding TV, feature, video and Internet rights.

  • It appears likely from the filing that a public Artisan will have two separate classes of stock: regular common stock for outside shareholders and super-voting stock for insiders, who control the company.

    Artisan’s majority shareholder is Audax Entertainment, a limited partnership headed by Geoffrey Rehnert and Marc Wolpow, formerly from Bain Capital. The three principals own a piece of the company as well. Chicago investment fund Richland Gordon is a sizable shareholder and New York investment boutique Allen & Co. owns a stake as well.

  • Artisan may be wary about billing itself as a movie producer, but, in the time-honored studio tradition, its financial statement is hard to decipher. For instance, an impressive $383 million in revenue in 1999 — more than doubled from the year before, due largely to “Blair Witch” — yielded just $15.7 million in net profits. That still seems slim when held up against the revenue.

What eats the number is $314 million in so-called cost of sales, according to the filing. That number isn’t broken out but very likely includes writedowns for some 1999 pics such as “Felicia’s Journey” and “The Limey.” Latter pic chewed up an estimated $10 million in production costs, sported a pricey P&A campaign (including Cannes) and grossed a nonstellar $3.2 million.

(Jonathan Bing in Los Angeles contributed to this report.)

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