October
2007
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page has been saved for archive/educational use only and all other rights are
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January 26, 1987
CANNON LOSES SOME LUSTER
By
GERALDINE FABRIKANT
LEAD: The Cannon Group, once
the hottest little film studio in Hollywood, has fallen on hard times. And
Yuram Globus has this to say for himself and his cousin Menahem Golan, who run
the company: 'Our only crime is that we love cinema. You don't see us at the
Polo Lounge, on the tennis court or at parties.
The Cannon Group, once the
hottest little film studio in Hollywood, has fallen on hard times. And Yuram
Globus has this to say for himself and his cousin Menahem Golan, who run the
company: 'Our only crime is that we love cinema. You don't see us at the Polo
Lounge, on the tennis court or at parties. You see us at the office seven days
a week.''
They love cinema so much, in
fact, that they produced 43 movies last year, more than Universal, Paramount or
any other Hollywood studio.
The independent film
production and distribution company is now paying the price. In the third
quarter of last year, earnings tumbled to losses. The Securities and Exchange
Commission began an investigation into Cannon's accounting policies. And to
keep from going bankrupt, Cannon struck a $75 million deal with Warner
Communications, selling a number of assets at what most analysts believe are
bargain prices.
Yet Mr. Globus is optimistic.
Recently the stranglehold the studios once had on financing films has relaxed
somewhat, making it easier for newcomers to get into the business. On Wall
Street there is a market for raising equity as well as junk bonds. And the
ancillary markets from pay television to video cassettes have became more
powerful, permitting movie producers to raise money by pre-selling the rights
to movies before they are even made. Independents Face Struggle
To some degree Cannon's problems
are typical of those faced by small film companies trying to make a place for
themselves in Hollywood.
Cannon's ascent was
remarkable. In 1979 Mr. Globus and Mr. Golan, Israelis and cousins, bought all
of the company's stock when it was 20 cents a share. By 1986, it had risen to a
high of $45.50. What made Cannon unique was that it started with inexpensive
films typical of the small independent companies. It then branched out into
more expensive, star-studded films. It developed an aggressive program of
pre-selling home video, theatrical and cassette rights to its films overseas.
It even manged to churn out such hits as ''Breakin' '' and ''Missing in
Action'' in 1984 and ''Death Wish III'' in 1985.
It is not easy for an
independent film studio to survive in Hollywood. Only a handful - Orion, New
World and Tri-Star - have made it. The power of the major studios to finance
and market films is still so strong that smaller companies often have problems
getting good properites and getting them into top theaters.
But as Cannon's star rose, it
attracted enormous publicity, luring such stars as Charles Bronson and Roy
Scheider by offering them huge salaries, and dramatically increasing
production. Appetite Is Sated
At the same time, Cannon went on
an acquisition binge. It bought movie theater chains and video cassette
libraries. ''Both are very capital intensive, and Cannon did not have the
capital to fuel its appetite,'' said one analyst who asked not to be named.
Ultimately, Cannon failed to come
up with enough hits to finance its dreams. Its 1986 releases earned a paltry
2.7 percent of the market share in domestic film rentals. Its list of 1986
disappointments was long. It is now cutting back production. It will only
produce 15 films next year.
For the third quarter of 1986,
Cannon reported a loss of $14.6 million on revenues of $77 million, in contrast
to a profit of $3.3 million on revenues of $34.3 million a year earlier. The
investigation by the Securities and Exchange Commission into Cannon's
accounting practices will look at the enormous flexibility film companies have
in how they write off the cost of films.
They are permitted to project
a film's revenues and then write off proportionate costs in a manner relating
to its earnings projections. If a company believes its films will make
substantial money in secondary markets such as pay television and video
cassette sales, it can write off a larger percentage of its costs in later
years, when the company receives the revenues from video cassette and pay
television sales for example. That strategy reduces current expenses and boosts
near-term profits. Pace of Write-Offs Studied
The question investigators are
looking into is whether Cannon's management was too slow in writing off costs.
If so, Cannon could be forced to amortize a larger proportion of its production
costs now, which would reduce near-term earnings.
Even without its S.E.C.
problems, Cannon was virtually forced into a deal with Warner late last year
because its acquisitions had left it so saddled with debt.
As part of a $75 million deal,
Warner gave Cannon a check for $25 million for which it got home video rights
in North America to 21 Cannon films. Warner also got a $25 million note
collateralized by Cannon's European theater chain. If Warner converts the note,
it would hold a 25 percent interest in the chain. The remaining $25 million is
put into convertible preferred stock, convertible at Warner's option into
either another 25 percent stake in the chain or two million shares of Cannon's
stock, which would represent about 15 percent of the company. Warner also
received warrants to purchase the stock.
Mr. Globus called the deal
with Warner ''a seal of confidence,'' adding: ''Warner passed through terrible
times with Atari and went out of it, and we will go out of it.'' Easier to Book
Theaters
If Cannon recovers, it will be
in part because of the growing number of movie theaters, which make it easier
for independents to book their films into well-located multiple theaters.
Nevertheless the risks of the
business are still enormous. Small film companies, unlike the studios, remain
primarily dependent on their film operations. MCA, the parent company of
Universal, also runs a highly successful television production company and
Warner also has powerful television and record businesses. Cannon is solely
dependent on churning out hits.
''Like the dress business,
Cannon thought it could produce dozens of cheap dresses, hoping to make at
least a small profit on each one,'' said one executive familiar with the
company. ''But the film industry does not work that way. You have to work hard
and come up with hits. That is the only way to succeed.'' AT CANNON, MANY FILMS
BUT FEW BLOCKBUSTERS Movies released in 1986 by the Cannon Group, in order of
opening. Box office gross in thousands.
|
Box
Office |
||
|
Title |
Type |
Gross* |
|
Delta
Force |
Action |
$17,006 |
|
Thunder
Alley |
Drama |
N.A. |
|
The
Naked Cage |
Action |
2,736 |
|
America
3000 |
ScienceN.A. |
|
|
|
Fiction |
|
|
P.O.W.
The Escape |
Action |
2,497 |
|
Murphy's
Law |
Action |
9,948 |
|
Dangerously
Close |
Action |
2,391 |
|
Thunder
Run |
Action |
145 |
|
Invaders
From Mars |
Remake |
4,885 |
|
Pirates |
Adventure |
1,642 |
|
Robotech:
The Movie |
Animated |
N.A. |
|
Detective
School Dropouts |
Comedy |
N.A. |
|
Corleone |
Action |
N.A. |
|
Texas
ChainsawSequel |
8,026 |
|
|
Massacre
2 |
|
|
|
Lightning
- TheAdventure |
N.A. |
|
|
White
Stallion |
|
|
|
Psycho
Girls |
Horror |
N.A. |
|
Salome |
Drama |
N.A. |
|
Avenging
Force |
Action |
4,680 |
|
Otello |
Opera |
189 |
|
Link |
Action |
1,720 |
|
The
Assault |
Action |
N.A. |
|
The
Berlin Affair |
Suspense |
N.A. |
|
Camorra |
Action |
N.A. |
|
Baby
Cat |
Comedy |
N.A. |
|
Hollywood
Harry |
Comedy |
N.A. |
|
52
Pick-Up |
Suspense |
4,844 |
|
Firewalker |
Action |
11,949 |
*As
of January. Studio normally keeps about 50% of gross.
N.A. Figures not available
(Source: Entertainment Data Inc.)
© 2007 The New York Times Company
October
2007
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page has been saved for archive/educational use only and all other rights are
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