A Disgraced Harvey Weinstein and a Business Empire in Tatters

Harvey Weinstein with Steven Gaetjen at the Zurich Film Festival in 2013. Photo by Zff2012. Licensed under Creative Commons CC-BY-SA 3.0.

It was only a brief time ago that Harvey Weinstein was seen as someone with an aggressive management style, but one that got results for the actors and actresses in his movies and the investors in the companies that he has run, including the one that now bears his last name, The Weinstein Company. A recent analysis by Quartz showed that he was personally thanked in Oscar acceptance speeches 34 times between 1993 and 2016, the same number as “God.”

Exposes by The New York Times and The New Yorker have shattered that influence. For years, Harvey Weinstein has used the power he accumulated, the power that could make or break the careers of aspiring actresses, to pressure women into providing sexual favors. Most commonly, he would invite women to his hotel room under the pretense of a business meeting, but be dressed in only a bathrobe when they arrived. Among the women who have made claims against Weinstein include Ashley Judd, Angelina Jolie, Gwyneth Paltrow, Rose McGowan, Lysette Anthony, Kate Beckinsale, Angie Everhart, Heather Graham, and Mira Sorvino. Altogether, close to 40 women have come forward – with 3 accusing Weinstein of rape. Authorities in New York and London are continuing to investigate and it is possible that criminal charges could still be filed.

Weinstein has been estimated to have a net worth of as much as $300 million. The fortune, and his Hollywood power, were amassed from the building of two separate companies, Miramax and The Weinstein Company. 

Weinstein founded Miramax with his brother Bob in 1979, who named the company after their parents, Miriam and Max. The Weinsteins grew up in Queens, NY but first entered into business in Buffalo, where they first had a concert production company before founding Miramax. 

For years Hollywood had been controlled by a handful of major studios. The 1970s saw the rise of the Hollywood blockbuster, with films like Jaws and Star Wars. Over many years, the blockbuster concept became refined into a business model that allowed for enormous production and marketing budgets, but only on films with a very high probability of success. These days, a high probability of success requires a sequel to a successful movie or a broader “cinematic universe,” such as Marvel or D.C. Comics, or Star Wars or Harry Potter. That model is one business approach to the achilles heel of film production: films are expensive to produce and notoriously difficult to predict their success.

But 1978 also saw the debut of the predecessor of The Sundance Film Festival in Utah and at the time the Weinstein’s founded Miramax, the seeds of an explosion in independent cinema were being planted. But, the company initially grew out of the brothers’ music business. They had purchased a theater in downtown Buffalo in which they began showing movies when concerts weren’t booked. The first films that Miramax was involved in were concert films as well. Independent films continued to struggle during Miramax’s early years. Often they were distributed in urban cineplexes, which struggled along with the decline of urban areas themselves.

Throughout the 1980s, Miramax slowly developed a template that would garner it great financial and cultural success in the years to come. The Weinstein’s borrowed extensively from how “B” movies were marketed in the 1950s and 1960s – as edgy, sexy, taboo productions – and combined it with more high brow sensibilities, simultaneously marketing independent films to high and low brow audiences and expanding the potential markets as VHS was altering the financial structure of the movie business. Miramax also provided an alternative to financial success in the film industry to the Hollywood blockbuster: making low budget films allowed investors to spread the bets as a means of hedging undpredictable audiences. Rather than produce the films themselves, Miramax shopped around to purchase the rights of promising films or foreign and art-house successes.

The breakthrough came in 1989 when sex, lies, and videotapes introduced Director Steven Soderbergh to audiences. The movie grossed about $25 million despite costing little more than $1 million. The movie was simultaneously marketed as too risque for large production houses and a groundbreaking critical darling. The success of sex, lies, and videotape was followed later with distribution of the British film The Crying Game in 1992, which earned more than $60 million and six Academy Award nominations.

Miramax’s burgeoning success soon attracted the interest of one of Hollywood’s biggest players: The Walt Disney Company. Disney had been enjoying a kind of renaissance since Michael Eisner took over the company in 1984. The parks were revitalized and Disney had expanded into making live-action adult films. A new brand had been developed called Touchstone Pictures that found immediate success under the leadership of Jeffrey Katzenberg with films such as Splash, Down and Out in Beverly Hills, The Color of Money, Three Men and a Baby, Good Morning Vietnam, Who Framed Roger Rabbit, Cocktail, Dead Poets Society, and Pretty Woman. Disney acquired the company from the Weinsteins for $80 million in 1993. The move was a shrewd one for Disney: it expanded its live-action film business, propelled it into the lead in the burgeoning independent film business, and gave it a fast-growing subsidiary for what was a small amount of money to a giant like Disney.

The Weinsteins’ also gained much in the deal. For one, they solidified their fortune with the $80 million sale. They also gained access to the deeper pockets of Disney and contractually kept control in their own hands.

During the fat 1990s, Harvey Weinstein went from success to success. The influx of cash allowed Miramax to shift from a distributor that purchased promising films, but producing the films themselves. He also perfected the Academy Award campaign, something normally only done by big studios, what Weinstein called a “guerilla campaign.” Weinstein made sure the actors in his films were known to Academy voters and arranged screenings so that the voters would be familiar with the film itself.

The studio’s success and influence skyrocketed under Disney, releasing films such as Pulp Fiction, Clerks, The English Patient, Good Will Hunting, Life is Beautiful, Shakespeare in Love, The Talented Mr. Ripley, Bridget Jones’s Diary, and Chicago. Miramax garnered 300 nominations and 81 wins during this period. It also became extremely lucrative. Miramax’s box office take jumped from about $100 million at the time of the acquisition to a peak of more than $600 million in 2001.

Miramax’s box office gross by year. Chart by Economics Wire.

Disney, though, fell into a funk in the late 1990s and early 2000s. Eisner had increasing difficulty building relationships. The ABC network was failing to produce hits, the box office hits dwindled and investors were pressuring Eisner to boost performance. He went about seeking to cut the bloated expenses in the company. Miramax’s agreement with Disney gave it control over operations, subject only to an annual budget of around $700 million and a cap on a budget of $35 million per movie. Disney also had veto power over releases. Nevertheless, spending at Miramax seemed out of control to Eisner.

A magazine called “Talk” was started by Miramax in 1998 with Tina Brown, but it ultimately folded after several years of losses. It also was spending much more per picture than the small amounts for indie releases it once had. Eisner, who had once said that Disney would never part with Miramax, considered selling the division, which was now valued at about $2 billion – a compounded 34% rate of return for Disney since 1993.

Tensions came to a head when Eisner refused to release Michael Moore’s Fahrenheit 911 after Miramax purchased rights to the documentary. The Weinstein’s left Disney, and Disney would eventually shut down production and sell the film library for more than $600 million.

The Weinstein’s then launched the company that bears their name in 2005. Since launching, The Weinstein Company’s films have grossed $2.4 billion at the box office. It is 20% owned by each of The Weinsteins.

The Weinstein Company’s box office gross by year. Chart by Economics Wire.

As rape, assault, and harassment allegations sent Harvey Weinstein’s career into a tailspin, the company he ran until recently has struggled to determine how best to adapt. Initially, only the name of the company was going to change. Now, it is negotiating to sell itself altogether, with Colony Capital in the driver’s seat.

Whether or not the company can find success under a new owner may depend on who knew of Weinstein’s behavior over the years. The Board has stated that they were largely unaware and condemned Weinstein’s conduct, yet it would be surprising if they did not know of the many financial settlements made to the victims over the years.

Whatever the outcome, quite a few people in Hollywood are simply grateful that they will never again have to work with Mr. Weinstein.


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