Hurt by drop in ad biz, firm shutters today

Propaganda Films shut down Thursday, another victim of the downturn faced by the media business. All 40 employees, including president Rick Hess, lost their jobs and will have to vacate the firm’s Hollywood offices by the end of the day today.

A representative of Safeguard Capital Partners, the venture capital group that was Propaganda’s corporate parent, made the announcement at a brief staff meeting Thursday afternoon that took even top execs by surprise.

“He dropped it in our laps,” said one employee.

Propaganda included film and commercial production as well as literary management. The company also served as home base for the production companies of helmers Spike Jonze, Simon West and Dominic Sena.

Although Propaganda Management prexy Pat Dollard is the sole representative of writer-director Steven Soderbergh, it was the company’s commercial representation and production business that acted as the firm’s financial engine. However, that engine has sputtered badly of late.

Difficult climate

On Tuesday, Merrill Lynch & Co. analysts said ad spending forecasts were in their worst decline since the Great Depression and described the current climate created by the Internet bust, the lack of political and Olympic ads and the Sept. 11 disaster as a “100-year flood” event.

Company also was affected last month by Germany’s Constantin Film ending its joint venture with Propaganda Films.

While Thursday’s shutdown came as a shock to its employees, the company saw its share of harbingers. In October, Propaganda missed a payroll, stopped making contributions to its health plan, laid off 30 staffers and reduced the salaries of those who remained by 20%.

Propaganda is currently in post on “24 Hours,” which will be released next summer by Columbia Pictures, and the Billy Bob Thornton starrer “Behind the Sun,” due to be released by Lions Gate Films.

Schrader project safe

The company also was preparing to go into production on the Paul Schrader-directed “Auto-Focus,” which stars Greg Kinnear and Willem Dafoe and will be distributed by Sony Pictures Classics. That project will be unaffected by the shutdown, with Dollard continuing to act as producer.

In the last year, Propaganda produced two other films, “Bark” starring Lisa Kudrow and Vincent D’Onofrio, and “Southlander.”

Propaganda was founded in 1986 by producers Steve Golin and Sigurjon “Joni” Sighvatsson and directors David Fincher and Sena, with the goal of becoming a full-scale film, commercial and musicvideo production compnay.

Polygram bought Propaganda in early 1992, but when Dutch parent Phillips pulled the plug on Polygram, Propaganda’s fate was uncertain. Universal then acquired the company as part of its Polygram purchase in 1998 and Propaganda’s film division was absorbed by USA Films.

In May 1999, board members Gary Beer, Winston Churchill and Jack Crosby purchased Propaganda from U. Shortly afterwards, Golin and chief operating officer Jim Tauber exited to form production-management company Anonymous, taking with them manager Scott Bankston and helmers Fincher, Gore Verbinski and David Kellogg.

Hess and chief financial officer Trevor Macy were installed in October 1999 to get the company out of the talent management biz and to sort through its development projects.

Under the Propaganda banner, company housed a management division headed by Dollard, a feature film arm overseen by Paul Schiff, a commercial arm headed by Colin Hickson, musicvids overseen by Tony Maxwell, Extension Films, Satellite Films and Propaganda Independent, headed by Marshall Rawlings.

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