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.

Macy and Hess are biding their time handling the last of the productions on the Propaganda slate. Meanwhile, a feeding frenzy has erupted over current directors that the company helped create, including Dante Ariola, Kuntz Maguire, Brian Beletic, Training Day‘s Antoine Fuqua, and Jonze. Unfortunately, said frenzy will not be enjoyed by Propaganda, which goes down as one of the last great independents. In this age of newly realized corporate management of studio marketing and filmmaking, it’s sad to see another authentic indie, not unlike the much-heralded October Films, bite the dust.

With Harry Potter and the Sorcerer‘s Stone garnering a record $93.5 million in its first weekend (from millions of half-price kid tix, no less), it’s already igniting the debate over children‘s fare. Small internal studio factions, which seem to grow with each dominant kids’-film weekend, argue that children‘s films are the key commercial ventures studios should engage. No issues over ratings. No outrageous star participations. Plenty of return business. And millions upon millions in video rentals. It’s hard to argue with a return on investment like that. Clearly, Disney has given up on most non–children‘s fare in favor of the Monsters, Inc.s of the world. And other studios like Fox and DreamWorks are capitalizing on the little tykes in their own inimitable fashion. (Did anyone mention Shrek?) Does that mean other studios will also drop their overabundance of intelligent, mature and interesting films in favor of material made for swaddling-clothes wearers? Perhaps not wholly, but the power of the onslaught of kids’ films is vaguely reminiscent of life in that Twilight Zone episode with the snarky kid who dominates adults with mind control. It‘s bound to have a shivering effect.

Producer Lynda Obst’s defense of Hollywood‘s unlikely patriotism published in Slate last week pointed out a salient fact: Studios aren’t jumping into any anti-terrorist or pro-terrorist films largely because it takes time in Hollywood to make things happen. No studio chief wants to make political decisions about the country‘s temperature for terrorism 12 or 24 months from now. They’d rather avoid it until they can figure out how to capitalize on it. Rather than risk irritating President Bush, much less the American public, they just burrow their heads and pledge to join the fight. Hence the overflow of studio executives clamoring to meet with Bush emissaries last week regarding “war effort” contributions. Had such an essay come from an action mongrel like Jerry Bruckheimer, it might have carried some weight. Instead, Obst, whose next film up is called How To Lose a Guy in 10 Days, decided to weigh in on matters political. True Hollywood bravado.

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