Will The "Blair Witch" Sequel Be An Ipo?

Artisan Entertainment wants to turn buzz into cash

After snagging The Blair Witch Project at last year's Sundance Film Festival, there's pressure on Artisan Entertainment Inc. to keep up its reputation for spotting indie blockbusters. So it wasn't at all surprising that Artisan President Amir Malin was up till 2 a.m. one January morning during this year's festival, sealing a deal to pay a couple of twentysomething filmmakers $1 million for the distribution rights to their offbeat comedy Chuck & Buck.

Of course, Malin would love for Chuck & Buck, about onetime high school chums, to be another Blair Witch. Artisan paid $1.1 million for that low-budget supernatural thriller, which went on to bring in $140 million at the box office. And nearly three-year-old Artisan is wasting little time cashing in on its current buzz. By the time Chuck & Buck hits theaters this July, Artisan is likely to have filed for an initial public offering. Artisan won't comment, but industry sources say that it signed up Merrill Lynch & Co. in January as lead underwriter.

UP-AND-COMER. To make the IPO work, Artisan will have to persuade investors that it's not just another one-hit-wonder production house. Rather, it wants to be known as an up-and-coming content provider tapped into the cultural zeitgeist and the Web-savvy ways of its youthful target audience. It already owns the video rights to some 6,600 titles, including Terminator 2: Judgment Day and Dirty Dancing. And with much of Hollywood enthralled with anything that passes for "content" to fill all the new digital pipelines, even a studio with scant operating history and only a few hits may be able to tap the public markets. "It's called striking while the iron is hot," says Marcus Hu, co-president of independent film company Strand Releasing Co. "And no one blames them."

Otherwise, an Artisan offering might stir up unhappy memories of other IPOs among independent studios. In the 1980s, houses such as DeLaurentiis Entertainment Group, Carolco Pictures, and Cannon Group all raised prodigious sums on Wall Street--only to fail amid bloated budgets, soaring overhead, and box-office flops. Oddly enough, Artisan itself is an amalgam of several failed independents. Based in Santa Monica, Calif., the company was created in 1997 when investors at Bain Capital Inc. and Richland Gordon & Co. paid $125 million for money-losing Live Entertainment, which owned the video rights to nearly 2,000 titles from many of the indies. To run the company for them, the investors hired onetime entertainment consultant Mark A. Curcio as Artisan's chief executive, along with former talent agent Bill Block as co-president with Malin, a former president of independent film company October Films (now USA Films).

The trio quickly scooped up the video and digital video disk (DVD) rights to a further 4,600 titles, including TV movies from Hallmark Hall of Fame, nature titles from the Discovery Channel, and vintage releases from Republic Pictures, including the Jimmy Stewart classic It's a Wonderful Life and the John Wayne flick Highlander. In 1999, Artisan generated cash flow of about $40 million, on $380 million in revenue, says Curcio, up from $22 million on $180 million in 1998. "We've managed to double every year we've been in business, and we might just do that again this year," he says.

Much of that gain will come as films from its library come out on the DVD format and the company collects video and TV revenues from The Blair Witch Project. In the short term, unfortunately, the rights to nearly half the company's titles--the Republic library--expire in 2003. The tough question is: Then what? Artisan has a Blair Witch sequel and "prequel" in the works. But those are also a bit of a question mark: The film's two directors, Eduardo Sanchez and Daniel Myrick, took a pass on the first sequel and decided instead to direct a comedy for the studio.

GHOULISH. The Artisan strategy calls for releasing as many as 12 new films a year, up from seven in 1998. The majority will be cheaper movies, such as last year's Buena Vista Social Club, that others make and Artisan releases in the U.S. But the company also intends to ramp up its own slate of in-house productions, typically spending between $15 million and $25 million on its own films and sharing the costs with foreign distributors. Last year it had a small hit with Stir of Echoes, a movie about ghouls starring Kevin Bacon, which cost about $11 million and grossed a respectable $21 million. And this year, it is rolling the dice with its largest production to date, the $35 million Roman Polanski-directed supernatural mystery The Ninth Gate, starring Johnny Depp, to be released Mar. 17.

To differentiate its films from the pack, Malin says Artisan's new releases cater to the "15-to-25-year-old audience that is a little bit hip, left of center," and likely knows its way around the Internet. The studio initially screened portions of its 1998 film, Pi, a black-and-white mystery about a tormented mathematical genius on Wall Street, through Internet site sightsound.com. Artisan also broke new ground by launching marketing for The Blair Witch Project on the Web--complete with fabricated police reports that helped create an urban mythology that the "witch" existed 200 years ago.

Like Artisan, other independent film studios have moved into the big time on the backs of cult hits. New Line Cinema, now a unit of Time Warner Inc., went from the Nightmare on Elm Street series with Freddy Krueger to make such mainstream hits as The Wedding Singer and Austin Powers: International Man of Mystery. Artisan hopes its macabre tale of a witch in the hills of Maryland, secured at a film fest in Park City, Utah, may turn out to be a secret portal leading to a vault of riches on Wall Street.