Nightmares, Turtles And Profits

Times are tough in Hollywood, with profits tumbling, ticket sales dropping, and movie financing drying up. Yet there is a small studio, New Line Cinema Corp., that's going like gangbusters. A onetime distributor of such cult movies as The Texas Chainsaw Massacre and Reefer Madness, New Line has grown into Hollywood's strongest independent studio through its horror series, A Nightmare on Elm Street, and last year's phenomenally successful Teenage Mutant Ninja Turtles. Indeed, with $135 million in ticket sales, Turtles, based on a comic book about crusading radioactive reptiles, was the highest-grossing film ever distributed by an independent studio.

So profitable was the film that even though New Line's share of ticket sales came to only 15%, it was enough to fuel an expansion drive that has transformed the company from its B-movie roots into a studio with impressive products to sell in the film, home video, and TV markets. "We're no one-pony circus anymore," stresses New Line President Michael Lynne, 50, who was the studio's longtime lawyer before becoming its chairman last September.

Since late last year, New Line has been busily picking over the bones of troubled independent film companies. In November, it paid $8.7 million in a complex deal to acquire 52% of Robert Halmi's TV production company, RHI Entertainment Inc. Halmi had sold out to Australian financier Christopher C. Skase, who, in turn, went bust. New Line helped Halmi buy his company out of bankruptcy, and as part of the deal, it received the rights to such highly rated TV films as Lonesome Dove and The Josephine Baker Story. For a comparatively modest sum, New Line not only got Halmi's hits but also picked up a new syndication arm to sell its own movies to TV stations.

Later, in May, 1991, in another convoluted deal brokered by French bank Credit Lyonnais involving debt-ridden Nelson Entertainment Group, New Line paid $15 million for home video and foreign rights for 600 movies, including three recent hits: Misery, City Slickers, and When Harry Met Sally. Produced by Rob Reiner, the movies are part of an arrangement that also gives New Line 17.5% of the revenues generated by Reiner's next 11 films. As an added sweetener to make the deal, Credit Lyonnais continues to pay the majority of the production costs for Reiner's films, leaving New Line with little risk.

JUNK WARY. "When I first took a look at the deals, I worried that they were moving too rapidly, making the same mistakes other independents had made," says Douglas L. Lowell, entertainment analyst for San Francisco-based L. H. Alton & Co. "But they've managed to make all of the deals without adding hardly any risk."

Avoiding risk has been a guiding principle for New Line Chairman Bob Shaye, the 51-year-old lawyer who launched the company 24 years ago by distributing cult films such as Pink Flamingos to college campuses from his fifth-floor walkup in New York City's East Village. Since then, Shaye, who owns nearly 30% of the company, has avoided the fancy financing that has hurt many studios in Hollywood. "We had Drexel and the others talking to us about junk bonds," says Shaye. "But I didn't want to owe anybody that kind of money."

Even today, the company operates on a shoestring, producing films for $5 million to $10 million, compared with the average $27 million major-studio budget. Frugality was the watchword even during the company's recent buying spree.

So conservative are Shaye and Lynne that when RCA/Columbia Pictures gave New Line a $40 million advance to help launch its new video unit, the studio used most of the money to pay off the company's debt. As a result, the studio is one of the few film companies in Hollywood today with no debt. How thrifty is New Line? The Sept. 13 release of the sixth of the Nightmare series, Freddy's Dead: The Final Nightmare, cost only $9.5 million to make and $9 million to promote. Early box-office sales for Freddy's Dead hit $13 million--allowing New Line to recoup more than half its investment in just three days. So far, the Elm Street series has generated $500 million in worldwide sales.

RENT-A-DISTRIBUTOR. New Line makes the most of its limited resources by renting out its 32-person distribution team to market and promote other studios' films. It takes in as much as 15% of ticket sales while putting up little money itself. So far, NewLine's rent-a-distributor has been used to market and promote such films as Metropolitan and Chicago Joe andthe Showgirl.

Is there a downside for New Line Cinema? If there is, it's that the company still relies so heavily on a slate of films that aim for niches and usually produce modest profits. In the industry, New Line is better known for such low-voltage fare as Babar: The Movie, 976-Evil, and Repossess than it is for the mass-market Ninja Turtles. Next month, New Line will offer Suburban Commando, which stars wrestler Hulk Hogan as a gun-toting alien lost on Earth, and Stepkids, a comedy about a divorced couple who remarries.

Shaye and Lynn remain committed to small-budget projects. They did make an exception when they shelled out a hefty $20 million for Mutant Ninja Turtles 2, but they walked away from A Few Good Men, budgeted at $50 million, which Reiner is making with Tom Cruise and Jack Nicholson.

So far at least, New Line's strategy is working. In its two-decade history, the studio has never failed to turn a profit. Last year, it earned $6.3 million on sales of $133 million--earnings that Mark Manson, entertainment analyst for Donaldson, Lufkin & Jenrette Securities Corp., recently projected will increase to $13 million this year and to $16 million in 1992. In the free-spending `80s, Dino De Laurentiis went bust trying to make a big splash. In the tightfisted `90s, New Line Cinema could set an example for some of Hollywood's more profligate studios.

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