More Malice In Wonderland

Can Disney keep the Weinstein brothers from bailing out? The Miramax chiefs are unhappy

At Walt Disney Co. (DIS ), the glow of good news doesn't seem to linger long. Back in February, as Disney was preparing to announce strong first-quarter earnings, Comcast Corp. launched a hostile bid. CEO Michael D. Eisner beat back the attack, of course, and on May 12, Disney posted a 71% second-quarter hike in earnings. So, clear sailing for Eisner? Nope. Harvey Weinstein, the irascible co-chairman of Disney's wholly owned unit Miramax Films, is maneuvering to take a hike when his contract expires in 2005.

If Weinstein and his Miramax co-chairman, brother Bob, leave, Eisner would be losing crucial rainmakers just as he struggles with the likely departure of Pixar Animation Studios (PIXR ) from Disney's stable as well. Miramax raked in movie revenues of $695 million last year, thanks to hits like Chicago and Spy Kids 3-D, according to Nielsen EDI. That's 31% of Disney's box-office take. Miramax posted about $200 million in operating profits, say knowledgeable sources, or about a third of Disney's $620 million in studio operating earnings.

A showdown could get nasty. Disney has the option to renew the Weinsteins' contract through 2009. But the brothers claim Disney wants to change the terms without their approval, including the formula for figuring bonuses. The sides appeared to be narrowing their differences until Eisner blocked the Weinsteins from releasing Michael Moore's anti-Bush documentary, Fahrenheit 911. Now the Weinsteins are buying back that film and looking for a distributor. Disney isn't talking, and Miramax says it wants "an amicable resolution." But Weinstein lawyer Bertram Fields hints the troubles aren't over. "We don't want a battle," he says. "But neither side is afraid of a fight."

It will be hard to argue that the Weinsteins, who sold their company to Disney for $80 million in 1993, are underpaid. Each gets an estimated $5 million to run Miramax and its B-film Dimension label. And together they share in an estimated 10% of operating earnings -- as much as $20 million in 2003. The Miramax boys could simply be using the Pixar situation to pick a fight. One big issue: They want to loosen Disney's requirement that it sign off on film budgets above $35 million.

OH SO BANKABLE. The dispute led the Weinsteins to offer $450 million to buy Miramax back from Disney four months ago. But with one banker valuing Miramax at $2 billion, it's little wonder Disney never responded.

Considering their reputation for making hit movies, the Weinsteins could easily raise money to start a new company if they leave. But without the library of 500-odd Miramax films to provide cash flow through DVD sales, they would be starting from scratch. "It won't be easy to set up a company with the resources they have now with Disney," says producer Tom Pollock, a former Universal Studios Inc. chief. No doubt Eisner hopes that's true. With Pixar heading out the door, Eisner hardly needs another big name defection.

By Ronald Grover in Los Angeles, with Tom Lowry in New York

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