By Sherrie Li
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Propaganda Films‘ untimely demise last week has been demonized by propaganda of its own. Once a haven for such directors as Dominic Sena, Spike Jonze, Simon West, David Fincher and Steven Soderbergh as well as a number of commercial directors ready to take the plunge into features, the company’s dissolution has devolved into a murky morass of blame laying. The 30-plus development and production projects are in limbo. And now it‘s up to Wells Fargo Bank to sort through the mess.
The death of the independent was a stunner to staffers and clients alike. While the company certainly has faced deleterious problems over the last year, it seemed on the verge of a turnaround and had at least five projects headed into production under president Rick Hess and chairman Trevor Macy. It also carried true cachet, creating films with many of the coolest under-40 directors in the biz.
“When a company crashes, everybody points a finger at somebody else,” says Macy, who departed at the end of September as CEO. “Now, people are pointing them at me and at Rick.”
Macy, in turn, gestures to the lack of faith from parent company Safeguard Capital Partners, which had just three weeks before the November 8 layoff allowed Propaganda executives to announce a new influx of cash and a restructuring initiative. Way back then, the company was on the rebound, Macy believed, after a difficult year following the Screen Actors Guild advertising strike of 2000 and the cataclysmic events of September 11.
With Hess, Propaganda was erecting numerous star-driven projects on the independent circuit, some of which will still be completed and distributed. Auto Focus, directed by Paul Schrader and starring Greg Kinnear and Willem Dafoe in the sado-sexual story of Hogan’s Heroes star Bob Crane, has found a home with Sony Pictures Classics. The Billy Bob Thornton film Behind the Sun is set for release from Lions Gate Films next month, and 24 Hours is set for distribution next year by Columbia Pictures. Additionally, Chow Yun Fat has a film in development, and writer-director Stacey Title (The Last Supper) has her Stephen King--based feature, Dolan‘s Cadillac, ready to shoot.
Safeguard executives were not available for comment on their sudden blitzkrieg withdrawal, which resulted in the layoff of some 40 employees. But insiders say the corporation couldn’t stomach a write-down or devaluation on the current asset, which was more than a probability with decreased ad spending of late. It also wasn‘t happy with the fallout with German backer Constantin, which last month had let its overhead deal with Propaganda lapse because of the egregious drop in the German market.
“This one was a disaster,” says a Propaganda executive on Safeguard’s reluctance. “They subsequently moved on to their next fund. They were unprepared to do a valuation that required them to write down the asset. It required them to take a haircut or a risk, rolling their stock into another company.”
Macy finally fell out of grace at Propaganda after soliciting offers from numerous buyers that Safeguard ultimately ignored. Sources say a final offer to buy came from a Minnesota contingent, but that, too, was ignored by the Safeguard board, which one Propaganda executive characterized as “extremely inexperienced to Hollywood.”
One outsider lays Propaganda‘s downfall on the “sky-high overhead” that less-than-expected billings for advertisers were not able to support, especially given the current post--September 11 advertising drought.
“Even though they continued to bill a lot, they weren’t very profitable in their billings,” says the head of one film company that did business with Propaganda. “They were taking jobs and cutting their margins. They had so many convoluted deals with their creditors. Even with high-profile jobs, they weren‘t making a lot of money.”
Insiders admit that deals with high-profile commercial directors like Spike Jonze often required contract wrangling that benefited the director, but not necessarily the company. Production houses like Propaganda often structure deals solely to lure directors to work for them with little regard to the bottom line. In the fat economy, the company would cut advertising deals with these tyros without giving thought to how ridiculous the deal was because they could later use them for feature work.
“In general in the industry, it’s harder and harder for companies to make money,” adds another potential bidder on Propaganda, who points out that top-rung directors share in the budget percentage or fees gleaned by the production company, which translates into less cash for the company.
Propaganda was valued between $15 million and $25 million. Rumors abounded about potential suitors. Universal Studios, which briefly owned the company after it was bought by PolyGram in 1998, had discussed the idea internally of buying it back. The dot-com firm Hypnotic showed interest. Even former PolyGram CEO and founder Steve Golin, who left the company in 1999, considered putting together a patchwork consortium to bring it back under his current Anonymous banner.
Pat Dollard, Soderbergh‘s sole representative, was brought in by Macy and Hess last year to solidify the management division and provided the industry’s hottest client to spearhead the Propaganda name. Dollard did not return calls, but is said to have shifted his duties to his own eponymous shingle.
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