Up From Shady Ladies All The Way To Snow White

Even by Hollywood standards, it's an improbable tale. A decade ago, Image Entertainment Inc. got its start in videodisks with Saddle Tramp Women, a nudie Western. But that was before Martin W. Greenwald met Mickey Mouse. Now, Image is Walt Disney Co.'s exclusive laser-disk distributor, and sales of Fantasia, the best-selling laser disk ever, have put Greenwald's company in the black for the first time.

Disney legitimized Image last December when its Buena Vista Home Video unit granted it sole rights to distribute laser disks for all Disney pictures for the next four years. Disney also got an option to buy up to 10% of the company. The endorsement set off a stampede. In March, Mitsubishi Corp. picked up 3.4% of Image for $4 million. And on Apr. 28, Mitsui & Co. invested $2 million. Says R. Mark Matheson, an analyst for Crittenden & Co., an Irvine (Calif.) investment banker: "I think Sony will be next."

Could be. Through last year, Image's only real competitor, Pioneer LDCA Inc., distributed the output of Sony Corp.'s Columbia Pictures Entertainment Inc. and Tri-Star Pictures Inc. film units, under a deal cut before Sony bought the studios. But analysts say that Sony, whose laser-disk players compete against Pioneer's, is reluctant to renew. And Sony's Terre Haute (Ind.) disk factory gets 90% of its business from Image. "Columbia is the plum," admits Greenwald, Image's chairman and CEO, who will say only that the two companies are "in negotiation." Exclusive rights to Sony disks would give Image a lock on over half of the $300 million U.S. videodisk market.

It's a far cry from the company's roots. In 1981, Greenwald and a partner put up $150,000 for 90% of an ailing porn-film distributor and pushed the company into laser disks. Hyped as the replacement for the VCR, laser-disk players instead carved out a tiny but growing niche among videophiles, who prize their superior picture and sound. By the end of 1991, only 650,000 U.S. homes had a laser-disk player, while three-quarters of U.S. homes had VCRs. But in the first quarter of 1992, player sales were nearly 50% ahead of last year.

OSCAR POWER. In 1987, Image figured that the only way to exploit the niche was to represent studios on an exclusive basis. To raise cash to buy those rights, it sold a 38% stake to billionaire John W. Kluge, majority shareholder of Orion Pictures Corp. Kluge steered Orion's films to Image, bringing it back-to-back Oscar winners Dances with Wolves and The Silence of the Lambs.

The Disney films sent revenues up 20%, to at least $58 million for the year ended Mar. 31, analysts estimate, enough for a tiny profit. "These guys achieved profitability on a household penetration of half a percent," says Paul C. Marsh, an analyst at Kemper Securities Group Inc. "Imagine what they could do with 2% or 3%." Those numbers could be reached by the mid-1990s. Until then, Greenwald has his studio partners to keep the dream machine going.

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