The
Hollywood Economist
The numbers behind the industry.
How
Disney and Michael Moore cleaned up on Fahrenheit 9/11
Michael Moore had a problem. By the end of April 2004, he'd
finished making Fahrenheit 9/11 but had no American distributor.
Mel Gibson's Icon Productions rejected the project back
in April 2003. (Moore claims he had a signed contract before
Gibson acquiesced to White House pressure. Icon executives
deny any such contract existed.) Moore then went to Harvey
Weinstein at Miramax. Weinstein agreed to back the movie
and signed a contract with Moore to acquire the rights.
But in order to distribute the movie, Weinstein still needed
the approval of his superiors at Disney. Although he does
not discuss this publicly, Weinstein's contract explicitly
prohibits Miramax, a wholly owned subsidiary of Disney,
from distributing any film that's vetoed by the Disney CEO.
When then-CEO Michael Eisner exercised his veto in May 2003,
Miramax, though it still held the rights to the film, could
not distribute Fahrenheit 9/11.
By the time Eisner told Weinstein of his decision, the Miramax
head had already given Moore $6 million from Miramax's loan
account. Weinstein agreed that this advance was to be "bridge
financing" that he would recover when he sold off the
film's distribution rights. To make sure there was no misunderstanding,
Disney's Senior Executive Vice President Peter Murphy, who
was also at the meeting, wrote Weinstein a letter on May
12, 2003, affirming that this money was "bridge financing"
and that Weinstein had agreed to dispose of Miramax's interest
in the film.
For Moore, this $6 million in "bridge financing"
was more than enough to make Fahrenheit 9/11. He acquired
most of the footage from television film libraries at little,
if any, cost and did not pay any of the on-camera talent
(except for himself). On April 13, 2004, after Weinstein
saw a rough cut, he went back to Eisner and asked him to
reconsider his year-old decision not to distribute Fahrenheit
9/11. After getting a report on the content, which included
footage from such sources as Al Jazeera and Al-Arabiya television,
Eisner saw no reason to change his position. He again declared
that Disney wouldn't have anything to do with the movie.
With the presidential election heating up, Moore needed
to get his movie into theaters. Although Weinstein had told
Eisner and Murphy that he planned to sell the film's distribution
rights after it was screened at the Cannes Film Festival,
Moore had a more expedient strategem. On the Fahrenheit
9/11 DVD, Moore says he resolved to get the film seen in
America "by hook or by crook." His hook was censorship.
On May 5, 2004, the New York Times ran a front-page article
headlined "Disney Is Blocking Distribution of Film
That Criticizes Bush." The story included the sensational
charge that Eisner "expressed particular concern that
[choosing to distribute Fahrenheit 9/11] would endanger
tax breaks Disney receives for its theme park, hotels and
other ventures in Florida, where Mr. Bush's brother, Jeb,
is governor." The source for this allegation was Moore's
agent, Ari Emanuel. Two days later, Moore claimed on his
Web site that Disney's board of directors rejected Fahrenheit
9/11 "last week." In fact, the Disney board had
not made such a decision in 2004—the project had been
vetoed in 2003.
Moore's excursion from reality proved a boon at Cannes.
On May 22, 2004, the Cannes jury defied putative efforts
to censor Moore by awarding Fahrenheit 9/11 the prestigious
Palme d'Or. Moore now had a golden palm in his hand and
the media at his feet—with more free publicity than
any Hollywood studio could afford to buy, Fahrenheit 9/11
now stood to rake in a fortune. And Disney, which still
controlled the movie's rights through its subsidiary Miramax,
now got to decide who was going to profit from it.
Disney
had some experience dealing with Miramax's hot potatoes.
Rather than distributing the controversial Kids and Dogma,
Disney allowed Miramax founders Harvey and Bob Weinstein
to buy the films back and set up short-lived companies to
distribute them. But those potatoes were as small as they
were hot. In the case of Fahrenheit 9/11, Eisner wasn't
about to let the windfall escape into the Weinstein brothers'
pockets. Nor could Disney take the PR hit that would result
from backtracking and distributing the movie itself.
Eisner's
solution: Generate the illusion of outside distribution
while orchestrating a deal that allowed Disney to reap most
of the profits. Here's how the dazzling deal worked. On
paper, the Weinstein brothers bought the rights to Fahrenheit
9/11 from Miramax. The Weinsteins then transferred the rights
to a corporate front called Fellowship Adventure Group.
In turn, that company outsourced the documentary's theatrical
distribution rights (principally to Lions Gate Films, IFC
Films, and Alliance Atlantis Vivafilms) and video distribution
rights (to Columbia Tristar Home Entertainment).
Because of the buzz and prestige attached to Fahrenheit
9/11, Harvey Weinstein extracted extremely favorable terms
from these distributors, about one-third of what distributors
typically charge. Their cut amounted to slightly more than
12 percent of the total they collected from the theaters.
As a result, Fahrenheit 9/11's net receipts—what remains
after the distributors deduct their percentage and their
out-of-pocket expenses (mounting an ad campaign, making
prints, dubbing the film)—would be much higher than
those of a typical Hollywood film.
Fahrenheit
9/11, now an event, took in more than $228 million
in ticket sales worldwide, a record for a documentary, and
sold 3 million DVDs, which brought in another $30 million
in royalties. After the theaters took their share of the
movie's gross (roughly 50 percent) and distributors deducted
the marketing expenses (including prints, advertising, dubbing,
and custom clearance) and took their own cut, the net receipts
returned to Disney were $78 million.
Disney
now had to pay Michael Moore's profit participation. Under
normal circumstances, documentaries rarely, if ever, make
profits (especially if distributors charge the usual 33
percent fee). So, when Miramax made the deal for Fahrenheit
9/11, it allowed Moore a generous profit participation—which
turned out to be 27 percent of the film's net receipts.
Disney, in honoring this deal, paid Moore a stunning $21
million. Moore never disclosed the amount of his profit
participation. When asked about it, the proletarian Moore
joked to reporters on a conference call, "I don't read
the contracts."
What
of Disney? After repaying itself $11 million for acquisition
costs, it booked a $46 million net profit, which Eisner
split between two subsidiaries, the Disney Foundation and
Miramax. While it was far less than Disney made on children's
fare such as Finding Nemo, it was not a bad outcome. The
Weinstein brothers also made a multimillion-dollar profit.
They had a deal with Disney that contractually entitled
them to a bonus of between 30 percent and 40 percent of
the net profits on any film that they produced—in
this case, that came out to about $8 million per brother.
(The Weinsteins are now in the process of leaving Miramax.)
But Michael Moore had perhaps the happiest ending of all.
Not only had he made $21 million, he already had a sequel
in preproduction—Fahrenheit 9/11 ½.
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