4
Independents, Packaging, and Inflationary Pressure in 1980s Hollywood

Justin Wyatt

The seventy-fifth anniversary edition of Variety, dated 14 January 1981, split its financial page between two different stories: "For Screen or Tube Financing, the Buzz-Word Is Package" set beside "Loss of Control over Film Costs Stressed by Heaven's Gate Fiasco." This match proved to be most prophetic: packaging and spiraling costs were indeed two of the most durable issues in the industry of the decade. While the Heaven's Gate story placed the Michael Cimino film against other high-budget films from the majors (Universal's Flash Gordon and Paramount's Popeye), the statistical summary noted the much more obscure Raise the Titanic, also released in 1980 and budgeted at an identical level to Heaven's Gate ($36 million). Produced by Lord Lew Grade's British company, ITC, Raise the Titanic lacked media hooks such as an Oscar-winning auteur, year-long production schedule, and a beleaguered studio under siege. The film was significant nonetheless as an early example of the ballooning budgets and expectations that were attached to certain high-level independent productions in the 1980s (and that continued to play a significant role in the following decade as well). In this chapter, I consider the influence of independent companies (i.e., those unaffiliated with the major studios) as a force within the industry of the decade and as a factor in shifting mainstream Hollywood filmmaking toward even more fiscally conservative, pre-sold forms of production. The most significant of these companies was Carolco Pictures, although several other independents—including the Cannon Group, De Laurentiis Entertainment Group, and Vestron Pictures—also made valiant attempts to achieve "instant major" status during the brief period of expansion for the independents in the 1980s.

Unraveling Independents in the 1980s: The Case of Carolco: Action Stars and Spiraling Salaries

To describe a company such as Carolco as an "independent" illustrates the complexity of the term within the filmmaking world of the 1980s. In another context, an independent of the period might be constituted by a studio classics division (Columbia, 20th Century-Fox, Universal, United Artists) operating in relative autonomy from the commercial dictates of the larger studio, by a production company attached to a major (Imagine Entertainment and Universal), or by an individual production, without distribution, financed independently of the majors altogether. Admittedly, Carolco Pictures is a separate entity from the major studios and therefore qualifies as an independent—Carolco is independent in operation from the majors. Simultaneously, though, Carolco, as with many other independents, is dependent on the majors, for domestic distribution and occasionally for financing. This relationship, pitched between independence and dependence, characterizes several of the most prominent independent companies of the era. Nevertheless, despite the dependence on the studios, the power and potential freedom of the independents increased markedly for a brief period in the mid-1980s, fueled by the increased opportunities offered by video, cable, and other new markets.

In terms of business formation, these independent companies were distinguished not only by an initial desire to remain limited in scope compared to the major studios but also by an equal need to compete with the majors on their own terms, that is, by producing costly, star-driven vehicles. Carolco Pictures, run by Mario Kassar and Andrew Vajna, might be the paradigm for these ventures. Referred to by Newsweek as "the most successful independent filmmakers," Carolco was formed in 1976 by the two entrepreneurs. Despite a slow start at the beginning of the 1980s, the pair gained momentum with the 1982 release of First Blood and enormous commercial success with the sequel, Rambo: First Blood Part II in 1985. After that time, Carolco focused on large-scale, star-driven action spectaculars (Red Heat [1988], Rambo III [1988], Air America [1990], Total Recall Terminator 2: Judgment Day [1991]) and an eclectic mix of more modestly budgeted action dramas (Extreme Prejudice [1987], Narrow Margin [1990]), historical dramas (Mountains of the Moon [1990]), and thrillers (Angel Heart [1987], Johnny Handsome [1989], Deep Star Six [1989], Jacob's Ladder [1990], Basic Instinct [1992]). Commercially, Carolco achieved blockbuster grosses only with the action spectacles, including worldwide grosses of $490 million for Terminator 2, $300 million for Rambo II, $262 million for Total Recall, $189 million for Rambo III, and $120 million for First Blood. While Carolco remained in existence until filing for bankruptcy protection in 1994, the company deteriorated considerably with each passing year of the 1990s.¹ As one industry veteran commented in 1991, the extravagance and daring of the independent Carolco was "the style of the Eighties," dependent on complex financing and the elaborate exploitation of different interlocking domestic and foreign release markets.²

Before Carolco's inception, both partners had some experience with international film distribution. Vajna segued at age twenty-five from owning the largest wig-making factory in the world to purchasing two Hong Kong movie theaters and making initial plans to enter the world of film production and distribution. In 1973, he produced an uninspired kung fu thriller, The Deadly China Doll, for a bargain basement budget of $100,000. Nevertheless, the film garnered $1.2 million domestically and $2.5 million internationally.³ With a slightly more linear job history, Kassar became a film sales agent for the Middle Eastern market at age eighteen. Realizing that better deals could be negotiated by including both the Far East and the Middle East, Vajna and Kassar joined forces at the Cannes Film Festival in 1975 to form Carolco, a film distribution company. The goal for the company was relatively simple: to buy and resell foreign rights to domestic films and eventually to form partnerships for financing low-budget films.⁴ Vajna and Kassar served as executive producers for two films that received good reviews but poor commercial reception: the George C. Scott ghost thriller The Changeling (1979) and the CIA espionage drama The Amateur (1982). Working as associate producers on Victory (1981), a John Huston film about a soccer rivalry between World War II POWs and their German captors, Vajna and Kassar encountered Victory's star, Sylvester Stallone, destined to be the star of their first breakthrough film, First Blood.⁵ The partners risked much of their capital, $385,000, by acquiring the rights to the novel First Blood, about an unhinged Vietnam War veteran named John Rambo. The marketing assets for the film were bolstered significantly by hiring Stallone to play Rambo, a deal that could be achieved only through Carolco's securing European bank loans for the star's salary. With a worldwide gross of $120 million, the financial success of First Blood established Carolco as a true player in the Hollywood community.

Timing the sequel for First Blood to coincide with the tenth anniversary of the United States' withdrawal from Vietnam, Kassar and Vajna maximized publicity opportunities for the film (including sponsoring a thirty-minute documentary about American soldiers missing in action). By centering the plot on a Green Beret veteran's return to Vietnam to rescue soldiers missing in action, the filmmakers were able to offer a counternarrative on the Vietnam War that erased the largely negative images present in such films as Apocalypse Now, Coming Home, and The Deerhunter. AS Vajna commented about the marketing approach behind the film, "We were hoping the press would pick up on it as a Vietnam controversy, and I think that we were able to accomplish that."⁶

Further enhancing the film's marketing abilities, President Ronald Reagan remarked, on the eve of the release of American hostages hijacked to Lebanon, "I saw Rambo last night, and next time I'll know what to do."⁷ David Rosenfelt, senior vice president of marketing for Rambo's distributor, Tri-Star Pictures, assessed the effect of this coverage by noting that the film "became a kind of rallying point for a new American selfassertiveness invoked by none other than the President of the United States."⁸ Stallone bolstered this interpretation: "People have been waiting for a chance to express their patriotism. Rambo triggered long-suppressed emotions that had been out of vogue. Suddenly, apple pie is an important thing on the menu."⁹ Rambo: First Blood Part II substantially benefited from this media barrage and relatively weak competition in the summer 1985 release schedule.¹⁰ Suddenly, Vajna and Kassar were being lauded in the industry trades, with Variety even referring to the pair as "the Cinderella twins of the motion picture industry."¹¹

With $300 million in worldwide gross for this film, Carolco's strategy became set: rights in some foreign and ancillary markets were pre-sold to offset the initial budget; overhead was limited because the company did not require physical studio space or a distribution outlet for a steady stream of product (Carolco became increasingly focused on a small number of features); and production centered on action, "event" movies driven by star power. Action stars such as Stallone and Arnold Schwarzenegger were attracted to work for Carolco primarily because of the unprecedented salaries offered by the company. As producer David Puttnam describes the phenomenon, "Carolco in particular became an instant 'major' by offering the stars more money than the established studios offered."¹² Losses on other Carolco product, such as Angel Heart, Johnny Handsome, and Extreme Prejudice, were easily offset through the decade by a single breakthrough hit. Crucially, Carolco distributed all their films domestically through agreements with major distributors, such as Tri-Star Pictures.

The big-budget, minimum overhead strategy was engineered partly by the third member of the Carolco management team, tax attorney Peter Hoffman, who was named president of the company in 1986. To secure the lavish budgets, Hoffman ingeniously developed an intricate plan to limit Carolco's tax liability in the United States. Despite the Carolco headquarters in Los Angeles, Carolco retained all its income from foreign sales, at least half of the company's revenue, by funneling it into a subsidiary in the Netherland Antilles. Such funds, valued at $90 million in 1987, were untaxed domestically so long as Carolco did not bring the money back for distribution as dividends.¹³ Of course, the company chose not to pursue such action, leaving the money offshore to fund further movies.

As Carolco narrowed its focus to action epics, the costs began to climb: the third Rambo cost $60 million, far more than the budgets of the first two combined, with Stallone claiming $16 million of that amount for his services. To defray some of these costs, Carolco offered 2.8 million shares of stock, timed to coincide with the opening of Rambo III in May 1988. The third film fell markedly from the box-office measures set by its predecessor, plunging 44 percent to gross $39 million in the first nineteen days, in comparison with Rambo II'S $70 million gross. Citing strong returns from foreign territories such as Puerto Rico, the Virgin Islands, Japan, Thailand, and the Philippines, Peter Hoffman claimed that the disappointing domestic returns would be more than compensated through foreign income. "The U.S. is only half the market for Rambo," Hoffman insisted after Rambo III's domestic release.¹⁴ As an indication of the limited potential for North America, Carolco chose to sell distribution rights domestically to Tri-Star Pictures in return for 35 percent of net revenues from release. To a certain extent, the financial investment in the film was offset by almost $80 million in guarantees from theatrical, foreign, and video rights that had been sold before the film's release.¹⁵

Much of the film's press coverage concerned the extravagant budget for the film, including the $16 million salary for Stallone.¹⁶ The film could indeed serve as a model for future Carolco productions: pre-sold, action-oriented, star-driven, and dependent on a worldwide audience base. Apart from the Rambo series, Carolco also garnered strong returns from the Arnold Schwarzenegger vehicles Red Heat (1988), Total Recall (worldwide gross of $262 million in 1990), and most impressively, Terminator 2 (worldwide gross of $490 million in 1991).

The financial success was accompanied by an inevitable expansion. Hoffman was determined to develop a more stable flow of income for the company, and to this end, Carolco diversified into allied entertainment fields. In 1986, Carolco purchased a 25 percent stake in IVE, a small home video company, which was merged in 1988 with a much larger distributor, Lieberman, in which Carolco had purchased a 52 percent interest a year earlier. Under the direction of Jose Menendez, the new company, dubbed Live Entertainment, also added a 144-store retail music division, including the music chains Strawberries and Waxie Maxie. Live's video division relied on the Carolco releases, and in turn, Live supplied guarantees that helped to fund their future film productions, such as a $10 million investment in Terminator 2. By 1991, Carolco had increased its stake in Live to 6.5 million shares, approximately a 54 percent stake. With strong promotion and marketing, the association proved beneficial for both parties—particularly because Live was able to achieve strong home video shipments for such Carolco commercial disappointments as Narrow Margin, Jacob's Ladder, and Air America.¹⁷ With less auspicious results, Carolco also diversified by purchasing a television syndication company and the film library of the Hemdale Film Corporation.¹⁸

Critically, Hoffman attempted to shift the production focus to some A-pictures (action blockbusters) and "a nice flow of under-$15 million movies." With this production strategy in place, by the late 1980s, Carolco balanced large-scale action movies with eclectic, largely commercially unsuccessful fare such as the courtroom drama Music Box (1989), the period exploration drama Mountains of the Moon (1990), Steve Martin's comedy L.A. Story (1991), and the narratively complex thriller Jacob's Ladder (1990). While Carolco could benefit from the big-selling star-centered action spectacles and sequels, the marketing challenges represented by the mid-tier productions were considerable. Jacob's Ladder, for instance, spins a difficult-to-condense story about a Vietnam veteran, not John Rambo this time, experiencing disturbing nightmares and daytime hallucinations. Falling between the psychological thriller and horror genres in terms of audience appeal, the film also lacks an exploitable premise, stars, and linear storyline. In defense of the mixed schedule of films, Hoffman described the ambitious production plan in terms of vertical integration: "With a balanced program of pictures augmented by our foreign distribution business and our worldwide video arm, Carolco will have the nucleus of a strong, diversified growth company for the '90s."¹⁹

The Carolco management team was fractured eventually by the overspending. In 1987, Vajna attempted to fire Stallone during the filming of Rambo III because excessive budget increases. This move paved the way for Vajna's exodus from the company: in 1989, Hoffman arranged for loans to allow Kassar to purchase Vajna's stock for $108 million.²⁰ With Vajna gone, Kassar's spending on production and on his own compensation jumped considerably. In spite of an annual salary of $1.2 million, Kassar engineered a dubious share buyout: in September 1990, Carolco bought shares from Kassar at $13 per share, an 80 percent premium over the market price and at a nearly 40 percent higher price than Kassar paid for them merely nine months earlier. Some shareholders decided to sue Kassar, leading to an injunction freezing his stock in the company. In addition, cost overruns on production, overhead, percentages to stars, and an extravagant and highly publicized lifestyle (giving Arnold Schwarzenegger an airplane, paying Stallone $1 million per year for bodyguards) contributed to rather erratic stock returns: earnings of $.47 per share in 1987, $1.15 in 1988, and $.46 in 1989."²¹

The stock buyout scandal created another rift, this time between Kassar and Hoffman. Kassar claimed that the deal was designed by Hoffman to weaken Kassar's control of the company and to (further) taint his public image. Hoffman, in defending the deal, assigned the negative publicity to the movement within the media against the excesses of business in the late 1980s: "People tied it to Mike Milken, greed, Hollywood craziness. Nobody cared what the facts were."²² Hollywood financial excess had indeed become synonymous with Carolco, a situation partly due to Kassar running rampant and partly due to the media seizing Carolco as the most visible target for Hollywood overspending.

A marker of Hollywood's response to this adverse publicity was Jeffrey Katzenberg's 1991 twenty-eight-page internal memo to his Disney staff, leaked to the Hollywood trades and reprinted, in part, within Variety as "The Teachings of Chairman Jeff." Katzenberg ranted against the movement toward blockbuster, star-driven projects, believing that Hollywood had lost its focus on simple, well-told stories in the process. Despite Disney's number one position in the previous year, Katzenberg cautioned against optimism within his company, citing to their own reliance on pre-sold blockbuster projects such as Dick Tracy. Instead, he urged his executives to examine the extraordinary popularity of such recent films as Pretty Woman, Ghost, and Home Alone (all 1990), all of which share two attributes, according to Katzenberg: a good story, well executed.²³

Katzenberg mentioned specifically the ballooning of star salaries, especially the setting of new plateaus each time a studio or production company chose to pay a star an exorbitant salary. This statement was perceived as a thinly veiled stab at Carolco. Three months earlier, Carolco's Hoffman had responded to accusations that Carolco had single-handedly driven production and talent costs to new levels by countering that Disney was really to blame. "Disney is driving up costs in the most aggressive and dangerous way. … tell Disney to stop spending at the present levels and we will," exclaimed Hoffman, citing Disney's Dick Tracy for spending $48 million on advertising alone (it should be noted that at that time Disney was partnered with Cinergi Productions, run by Carolco co-founder Vajna).²⁴

In the immediate aftermath of the Katzenberg memo, Carolco seemed to reinforce all of the negative characteristics identified by Katzenberg. Certainly the costs of the Carolco films escalated even further, with Arnold Schwarzenegger receiving $10 million and a percentage for the science fiction/action film Total Recall $14 million for Terminator 2: Judgment Day.²⁵ By 1991, Carolco's financial successes were outweighed by lavish spending on production and the institutional development of the company. Even though Terminator 2 was pre-sold (mainly in foreign territories) to a sum of over $90 million and the film grossed nearly $500 million worldwide, Carolco realized little growth. Dampened also by an ongoing recession within the American economy, Carolco's success with the Schwarzenegger sequel was offset by its inability to complete a deal for the full ownership of the video distributor, Live Entertainment. While the Carolco stock did jump before the film's release, the unconsummated video merger led arbitragers to short-sell the stock, leading to downward pressure on the Carolco stock price. By the time the deal finally dissolved, in December 1991, the stock had fallen to $3 a share, a drop of over 70 percent from only six months earlier.²⁶ Added to the extravagant overhead spending, dubious deals, broken partnerships, and negative publicity, Carolco was heading downward almost as quickly as their miraculous rise in the mid-1980s.

When third-quarter earnings in 1991 revealed that Carolco had lost $91 million in the first nine months of the year, funding sources started to become more scarce. Credit Lyonnais and Bankers Trust reportedly called in loans, and the company was forced to terminate forty-nine employees.²⁷ Three partners—RCS Video International Services B.V., Le Studio Canal+, and Pioneer LDCA, Inc.—did agree to provide Carolco another $45 million, in addition to the $150 million that they had already invested. By 1992, Carolco's precarious financial situation affected their ability to secure a fair distribution deal for their $60 million Stallone epic Cliffhanger: in return for half of the film's budget, Tri-Star Pictures strong-armed Carolco for all North American rights (theatrical, home video, and ancillary rights) and rights in such foreign territories as France, Germany, Australia, New Zealand, and Mexico. As Tri-Star chairman Mike Medavoy commented on the arrangement, "We've got a terrific deal on this picture."²⁸

Even with the outside cash infusion, further overseas business transactions, and structural reorganization, Carolco continued to flounder. With the financial difficulties, Carolco's abilities to green-light star-driven event pictures, their specialty, became more strained; for instance, Crusade, starring Arnold Schwarzenegger, was postponed as a project in 1994 after its budget passed $100 million. To raise additional capital, the company also sold off rights to a number of projects, including Showgirls (1995).²⁹Variety reported the flurry of sales under the appropriate title of "At the Carolco Garage Sale."

The garage sale was needed to fuel a large-scale project that veered from many of Carolco's "rules" for commercial success. On the brink of bankruptcy, Carolco attempted to revive the company with Renny Harlin's pirate movie Cutthroat Island (1995). By this point, Carolco could not secure star power for their film: Michael Douglas departed the project early on, replaced by minor star Matthew Modine, and the film's co-star, Harlin's wife, Geena Davis, had not appeared in a hit film since 1992's A League of Their Own. With a production cost pegged between $90 million and $100 million, Carolco needed a strong showing to reestablish prominence in the international marketplace. Without a star, Carolco and domestic distributor MGM attempted to position the film in terms of spectacle: as one MGM executive commented, "We plan to position this as a big-event movie.…The scope of this film will be the big star."³⁰ Box-office performance was weak, with Carolco estimated to have lost at least $50 million after the completion of the theatrical run.

Before the release of the film, Carolco filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. Such a filing allowed Carolco to sell off most of its assets to 20th Century-Fox for $50 million in November 1995.³¹ Kassar resigned as chairman while the company filed for bankruptcy. By January 1996, Kassar had already secured a three-year deal to produce films for Paramount Pictures. In announcing the deal, Paramount chairman Sherry Lansing cited Kassar's abilities to sell overseas rights to raise production financing, or, in Lansing's terms, his capacity to bring "creative financial arrangements to the films he makes."³²

Within the Wider World of 1980s Independents: Fleeting and Overextended

Despite its presence as an independent, Carolco engaged in an escalating competition with the mainstream studios. In part because of its outsider status, Carolco continued to receive much of the blame for spiraling costs during the late 1980s through the mid-1990s. The effect of Carolco on production costs, above and beyond star salaries, was widely covered in the industry around the time of the Katzenberg memo. With Stallone, Schwarzenegger, and others receiving record salaries from Carolco, the benchmark for salaries was raised higher and higher.³³ As entertainment lawyer Tom Hansen commented in 1990, "It is an industry where everyone looks at what everyone else makes. That creates a type of momentum."³⁴ As their allegiance to the packaged film became stronger, Carolco also influenced salaries for screenwriters: most notoriously with the $3 million paycheck for Joe Eszterhas's Basic Instinct. Following a trickle-down effect, salaries for other creative talent were bid up to match these new levels, as producer Lee Rich explains: "when stars get more, an Oscar-nominated cinematographer who earned $6,000 a week two years ago may make close to $12,000 today."³⁵ Consequently, the negative cost of production rose dramatically in the late 1980s: with average feature production cost jumping 48 percent from $18.1 million in 1988 to $26.78 million in 1990 (marketing—prints and advertising—costs also increased a substantial 38 percent during this period).³⁶

The extent to which Carolco was responsible, both directly and indirectly, for the inflationary trend in Hollywood is debatable. Yet the period of this inflation certainly correlates with the burst of independent companies in the wake of video and cable.³⁷ Carolco's success during the decade should be placed in the wider context of the increased opportunities for independent film initially presented by the video and cable markets. Gauged in terms of the number of independent films receiving MPAA ratings, the market increased substantially during the mid-1980s: 206 independent films were released in 1983, compared to 316 only five years later, in 1988. Despite early hopes, video proved to be an unreliable market for the independents.³⁸ Indeed, both rental and "sell-through" (to the home market) videos have been characterized as an A-title business. Many of the independent companies initially helped by video and cable eventually cut production severely or exited from the market altogether (e.g., Island, Alive, Cannon, FilmDallas, Vestron, Atlantic Releasing, Avenue, MCEG, Weintraub Entertainment Group, DeLaurentiis Entertainment Group).

While Carolco was perhaps the most visible of these independents, several other companies also illustrate the boom period of the 1980s. Joined through strategies seeking to compete with the majors, these independents eventually succumbed by the end of the decade to various institutional and structural factors. The Cannon Group, the De Laurentiis Entertainment Group (DEG), and Vestron Pictures represent a cross-section of these independents, following Carolco in terms of significance (and threat) to the major studios.

Along with Carolco, Cannon was also instrumental in using the pre-sale market. Purchased by Menahem Golan and Yoram Globus in 1979, Cannon specialized in low-budget, English-language exploitation films whose budgets were recouped before production commenced.³⁹ Golan and Globus were known previously as independent Israeli filmmakers: Globus's expertise was primarily in financing and marketing, and four of Golan's films—The House on Chelouche Street (1974), Operation Thunderbolt (1977), I Love You Rosa (1972), and Sallah (1964)—received Academy Award nominations for best foreign film. Globus also had credentials in the world of independent film, having worked as an assistant to Roger Corman and having his films distributed by Samuel Arkoff. The pair became majority stockholders of the financially troubled Cannon responsible for films such as Gas Pump Girls and Slumber Party '57.

Quality and artistic merit were rarely guiding issues for Cannon. International marketability was much more important to the company, which experienced early success with Enter the Ninja (1981) and Death Wish II (1982). A typical sales campaign for Cannon would mix exploitation of all types: teen sex comedies, soft-core pornography, action thrillers, and horror films. Consider the sales pitch in 1981 for a roster of movies such as Lemon Popsicle III: Hot Bubblegum, Lady Chatterly's Lover, and Dr. Heckyl and Mr. Hype. Cannon would generally sell rights to cable television, video, and some foreign markets to cover some or all of the negative costs. Within the industry, comparisons were made to Roger Corman; Corman even chose to describe Menahem Golan as "a master of the pre-sell on the international market."⁴⁰ The product for the pre-sold films fell firmly within the realm of exploitation: from explorations of current trends in dance (Breakin' [1984]) to action star Chuck Norris's Ramboesque Missing in Action (1984). Cannon remained allied with the majors through distribution, most notably through a multiyear deal with MGM/UA, which became the domestic distributor for Cannon.⁴¹

The practice of pre-selling rights to motion pictures before production allowed Cannon to set an aggressive slate of films, shooting twelve films in 1982, compared to eight at Columbia and seven at Paramount. While the strategy may have been able to produce capital for production, the upside potential was also limited: selling off various rights and territories inevitably meant that Cannon would not benefit from a large-scale hit because the rights had already been sold. Consequently, Cannon was not able to realize the full box-office success in the same way as other distributors. Of course, as film after film failed to produce anticipated revenue, the method of pre-selling became increasingly difficult to implement with Cannon's disgruntled client list.

Cannon's bid for major status grew from attempts to break the exploitation mold with art house product, such as an adaptation of the Jason Miller stage play That Championship Season (1982), John Cassavetes's Love Streams (1984), and most improbably, Jean-Luc Godard's King Lear (1987).⁴² All of the highbrow films distributed by Cannon were commercial and mostly critical failures, including the sensitive drama about a disturbed World War II veteran Maria's Lovers (1984), Robert Altman's adaptation of Sam Shepard's Fool for Love (1985), and Julie Andrews as a concert violinist with multiple sclerosis in Duet for One (1986). Only Runaway Train (1985), an action thriller starring Jon Voight, Eric Roberts, and Rebecca DeMornay, achieved both respectable commercial and critical success, including Academy Award nominations for Voight and Roberts.

Parallel to Carolco, Cannon began to reward the action stars with large salaries, paying Stallone a reported $12 million for the Golan-directed arm-wrestling drama Over the Top (1987) to a seven-year deal with Chuck Norris valued at $21 million.⁴³ Combined with no breakthrough box-office hits on the art house front and a production schedule larger than any of the majors, Cannon's aggressive expansion in the mid-1980s was met with an almost equally quick fall. MGM/UA canceled the distribution deal with Cannon after fourteen months, supposedly over the critical and financial embarrassment of the Brooke Shields romantic desert melodrama Sahara (1984). Cannon was sued by the Securities and Exchange Commission in 1987 for fraudulently misrepresenting earnings, and the share price dropped from a high of 45^½ in 1986 to 4 in 1988.⁴⁴ The company was able to remain in business for a short time after this debacle with an investment of $250 million by Italian financiers Giancarlo Parretti and Florio Fiorini. In return, the pair immediately starting liquidating Cannon's assets, including selling a half-interest in a large British exhibition chain and London's Elstree Studios.⁴⁵

Cannon's mixture of too many middle-of-the-road art house and exploitation films generally revealed the company's origins in low-budget exploitation fare. Both DEG and Vestron, the other most visible independents, embarked on more ambitious expansion programs that attempted to position the independents as new majors. Although for different reasons, both companies ultimately fell far short of their goal, losing status and influence by the late 1980s.

DEG was established in 1985 by Dino De Laurentiis, known as the Cecil B. De Mille of Italy for such extravagant dramas as The Bible (1966) and Ulysses (1967), as well as the sci-fi comedy Barbarella (1968).⁴⁶ After moving to America in 1972, De Laurentiis was responsible for some substantial hits in the mid-1970s as an independent producer affiliated with Paramount: Serpico (1973), Death Wish (1974), Three Days of the Condor (1975), and his strongest film commercially, King Kong. After Kong's blockbuster success in 1976, De Laurentiis spent the next decade unsuccessfully attempting to replicate the formulas of Jaws (with a killer whale film, Orca [1977]), and Star Wars (with the remake of Flash Gordon [1980]) before realizing one hit with the Schwarzenegger vehicle Conan the Barbarian in 1982.

Despite this uneven track record in the United States (with the well-publicized, big-budget flops Hurricane [1979], Ragtime [1981], and Dune [1984]), De Laurentiis jumpstarted DEG with considerable aplomb: purchasing Embassy Pictures for its distribution arm, building a thirty-two-acre movie studio in Wilmington, North Carolina, and raising $240 million from stock offerings and bank loans.⁴⁷ De Laurentiis chose to augment big-budget projects ($25 million for Tai-Pan [1986], $21 million for King Kong Lives [1986]) with smaller-budget films, many of which had been discarded as projects by the majors. With a slate even more diverse than those from Cannon and Vestron, DEG failed to break even on their entire roster of 1986 films, which included a thriller about possessed trucks written and directed by Stephen King (Maximum Overdrive), two highly exploitable children's films (My Little Pony, Transformers), a Michael Mann thriller featuring the character of Hannibal Lecter (Manhunter), David Lynch's critically praised dark vision of small-town American life (Blue Velvet), and a sequel to De Laurentiis' greatest hit (King Kong Lives).⁴⁸

De Laurentiis had been known for his lavish spectacles matched with hyperbolic advertising claims; the attempt to offer modestly budgeted fare proved to be more challenging.⁴⁹ Nevertheless, De Laurentiis still attempted to apply his famous showmanship to this product. Perhaps the most striking example of De Laurentiis's marketing audacity can be located in the DEG design for the film Million Dollar Mystery (1987). The film offered one audience member a prize of $1 million for discovering the location of a hidden stash of that amount through clues in the comic plot revolving around the search for $4 million buried somewhere in the United States. Audience members were encouraged to solve the puzzle and write in the location on an entry form. The winner was to be selected by lottery from all the correct entries. As DEG marketing chief Lawrence Gleason commented at the time of the release, "We have a bigger star than Stallone. Greed."⁵⁰ While the gimmick attracted some attention in the press, the lame comic adventure repelled audiences—ironically, the box office take was less than $1 million, so DEG could not even recoup their prize money, let alone the $10 million negative cost of the film.

Lisbeth Barron, an analyst at the investment company Balis, Zorn and Gerrard, linked the problems at DEG to those of other independents: "[DEG], in addition to Cannon Group and several others, fell into kind of a snowballing situation. When they decided to handle their own distribution, they took on a lot of overhead expenses and they had to make a lot of pictures to bring in as much money as possible. They believed that they were safe because they were doing a lot of pre-selling, which covered their production expenses. Except that it's prints and advertising where most money is lost."⁵¹ Despite some critically well received art house films, such as Blue Velvet, Crimes of the Heart (1986), and Weeds (1987), DEG did not realize a single substantial hit; the company's attempts at becoming an instant major failed miserably. De Laurentiis was removed as chairman of his own company in February 1988, and by August, DEG had filed for Chapter 11 bankruptcy proceedings.⁵² At Mario Kassar's request, the DEG studio in Wilmington was purchased in 1989 by the still solvent Carolco Pictures.⁵³

In contrast to DEG, which grew from De Laurentiis's lengthy career and experience in producing, Vestron Pictures was a specific outcome of the surge in video in the early 1980s. Founder Austin O. Furst began purchasing home video rights to films in 1981, starting the Vestron library with the Time-Life feature film collection. This preemptive move helped Vestron establish a secure early foothold in the video market. In addition to the Time-Life films, Vestron was able to purchase the home video rights to recent major films before the studios realized the potential of starting their own video companies. Video sales for Vestron grew to the $200 million mark within a short four-year period. A 1982 deal with Orion Pictures that assigned Vestron video rights to several Orion films for $10 million was crucial to the early success of Vestron.⁵⁴ As the majors began to form their own video arms, Vestron's activities broadened to production and distribution, aided by a stock offering in October 1985. At that time, financial analysts warned that Vestron Pictures was working within an incredibly fragile market niche, vulnerable due to the studios' formation of their own video companies and an overvaluation of the Vestron team's talent in the Merrill Lynch and Smith Barney stock offering.⁵⁵ Despite such premonitions, Vestron was able to sell stock at $13 a share, below the anticipated $16-19 a share but respectable nonetheless.

Soon after the stock offering, Vestron's reputation as a scrappy independent influenced one of its potentially most profitable deals, the video release of the Academy Award winner for best picture, Platoon (1986). With the rights pre-sold to Vestron in 1985 for the modest sum of $2.6 million, producer Hemdale Films, feeling that the deal undervalued the hit film, failed to deliver the negative to Vestron, prompting Vestron to withhold all payment. In the interim, Hemdale negotiated a $11 million deal for the video release with HBO Video.⁵⁶ Analysts estimated that the confusion further dampened Vestron's stock, which dropped from the initial price of 13 to 41/2 by August 1987.⁵⁷ Within the press, journalists cited as reasons for the disagreement both the disadvantageous terms for Hemdale and Vestron's reputation for peddling exploitation fare.

Furst's response to the falling stock price was audacious: he vowed to expand into film production to ensure a steady flow of product for the video arm of the company. With another public stock offering to fund the diversification, Furst hired William Quigley, vice president of Walter Reade Theatres, to run Vestron Pictures. Quigley's distribution choices were a curious mix of art house product (John Huston's adaptation of James Joyce's The Dead [1987]; a fascinating but uncommercial study of a British child's hallucinatory world, Paperhouse [1988], Ettore Scola's multigenerational saga The Family [1987]), horror (The Unholy [1988], Waxwork [1988]), teen comedies and dramas (the post-high school angst drama Promised Land [1988], teen heartthrobs Corey Feldman and Corey Haim in the trendy "body switching" genre film Dream a Little Dream [1989], Howie Mandel in the darkly comic Little Monsters [1989]), and "auteur" movies such as Roger Vadim's American remake of his own And God Created Woman (1987) and four Ken Russell films (Gothic [1986], The Lair of the White Worm [1988], Salome's Last Dance [1988], The Rainbow [1989]). With the budgets kept low and the number of releases high, Vestron followed a route similar to that of both Cannon and DEG by mixing exploitation fare with art house product.

While the quality of Vestron's product was uneven at best, occasionally the extensive release schedule allowed a unique and distinctive film to be produced that would never have been considered by the major studios. Julien Temple's Earth Girls Are Easy (1989) qualifies as one of these curious and worthwhile films. A musical-comedy satire on the aggressively laid-back California lifestyle, Earth Girls details the experience of three furry aliens who crash land in a Valley girl's pool. The owner, played by Geena Davis, and her best friend, comedienne Julie Brown, rather than being frightened by the invaders, attempt to socialize the aliens—Jeff Goldblum, Damon Wayans, and a then-unknown Jim Carrey—to life in Southern California. One of the film's most amusing set pieces offers Julie Brown's musical explanation of the power of "blondeness," '"cause I'm a Blonde," with lyrics beginning, "Because I'm a blonde, I don't have to think/I talk like a baby, and I never pay for drinks." The film was tagged as "an out-of-this-world, down to earth comedy adventure," which fails to convey the film's social satire, music, and romance. From a commercial perspective the film is largely unmarketable, with its mix of genres and quirky charms. Consequently, a studio would certainly not be interested in such a commercially risky project.⁵⁸ Vestron, on the other hand, with its large scale production and distribution schedule fostered the film's development. Similarly, commercially untenable yet artistically interesting and distinctive projects cropped up at DEG (Blue Velvet) and Cannon (Love Streams).

Despite a large number of commercial failures, Vestron managed to achieve one breakthrough hit with Dirty Dancing in 1987.⁵⁹ Grossing over $60 million in a six-month span, Dirty Dancing, a period romance with music, was sold aggressively by the company through the sound-track album (termed "the upset of the year' in pop music, selling 1 million albums in five weeks), a concert tour, and sell-through video release.⁶⁰ As William Quigley, president of Vestron Pictures, commented at the time, "We took out a film as if we were Paramount. And guess what? We beat almost everybody there. All the majors included."⁶¹ Within a two-year period, though, Vestron shut down its production arm after an overly ambitious slate of movies failed to yield an even middling success. Cash flow problems at the end of 1988 led Security Pacific National Bank to cancel a $100 million loan for the company.⁶² After the bank withdrew the loan, Vestron Pictures was dismantled. In a move that illustrates the convoluted world of the independents, in 1990, Live Entertainment, controlled by Carolco Pictures, purchased Vestron, primarily for the Vestron library of twelve hundred films and the remains of Vestron's video infrastructure.⁶³ Several Vestron films waiting for theatrical release, such as the thriller Paint It Black (1989), debuted on home video instead owing to the company's demise.⁶⁴

Cannon, DEG, and Vestron are companies that aspired to majordom during the period of expansion in the mid through late 1980s, seeking to compete directly with the majors through aggressive distribution and diversification. While these companies represented the most serious threat to the majors and helped to encourage the bidding war for talent led by Carolco, several other independent distributors also appeared briefly to be contenders for major status. New World Entertainment is perhaps the most significant, although a single hit for a smaller independent, or "boutique studio," of the period gave each of these companies some credibility and promise in the wider marketplace.

Unlike Cannon, DEG, and Vestron, New Worlds growth (and quick decay) derives as much from an attempt to position the company in broadcast programming and in children's toys and comic books as from motion pictures. As Robert Rehme, chairman of New World, commented in an article calling for more stability in the independent film marketplace: "Diversification, as at New World, is essential so that a company is not dependent on any one stream of revenue. Areas of investment can include theatrical, film, television, video, publishing, children's programming/animation, licensing, and merchandising…. a solid formula is to be a fully integrated distribution company which distributes its product in every medium."⁶⁵ New World Entertainment entered the 1980s as an exploitation company formed by Roger Corman, known for youth-oriented, low-budget horror, action, and sex comedies.⁶⁶ Hollywood lawyers Harry Evans Sloan and Lawrence L. Kuppin purchased the dying company with $2 million and $10 million in bank loans in 1983.⁶⁷ Keeping budgets under $5 million, New World distributed over twenty-five films per year during their boom period in the mid-1980s, enjoying substantial hits with House (1986) and Soul Man (1986). Unlike the other striving independents, New World expanded immediately into broadcast production and station acquisition.⁶⁸ Since first-run television incurs deficits for the producers (with the hope that retaining rights to off-network syndication will compensate in the long run), New World immediately started to feel financial pressure with their shows "Crime Story," "Sledge Hammer," and "Rags to Riches."⁶⁹ In a move that could have easily been cush ioned by a studio operating within a conglomerate, New World acquired Marvel Comics for $50 million in hopes of entering the animation market and made ambitious bids for both Kenner Parker Toys and Mattel, Inc.⁷⁰ Such determined diversification, however, left New World unprotected for the October 1987 stock market crash. With heavy debt after the crash, New World sold Marvel Publishing in January 1989, followed by their agreement in March 1989 to fold the company into Giancarlo Parretti's Pathé Entertainment.⁷¹

The other independents in the 1980s failed to reach the prominence of Cannon, DEG, Vestron, and New World, although several were able to develop a single break-through hit: Atlantic Releasing with Teen Wolf (1985), Cinecom Entertainment Group with A Room With a View (1985), and Hemdale with Platoon. By the end of the decade, Miramax Films and New Line Cinema were developing strategies to compete with the majors during the 1990s.⁷² After its owners' brief career in the concert business and as theater owners in Buffalo, Harvey and Bob Weinstein's company Miramax Films ventured into distribution in 1979 through road-showing a Genesis concert movie. This move was followed in 1983 by the very aggressive release of Erendira, a Brazilian film scripted by Gabriel Garcia Marquez. Discarding the original ad campaign featuring veteran actress Irene Pappas, the Weinsteins focused advertising and publicity on one of the supporting cast members, the seductive Brazilian actress Claudia Ohana—even to the extent of securing an appearance for Ohana in Playboy magazine. Given the effective marketing, the film grossed almost $3 million domestically on an initial investment of $50,000 by the brothers. Subsequently, Miramax was able to employ the same strategy—low pickup costs and calculated niche marketing—to garner small profits on such films as Working Girls (1986), I've Heard the Mermaids Singing (1987), and Pelle the Conqueror (1988). Achieving greater visibility at the end of the decade, the Weinsteins doubled their business from 1988 to 1989, grossing $28 million in 1989.⁷³ Buoyed by this success, the Weinsteins nonetheless refused a quick expansion in the Vestron model. As Bob Weinstein explained, using vocabulary reminiscent of the then-popular Al Ries and Jack Trout volume Marketing Warfare, "The major studios are the big American army. If we went straight up against them, they would nuke us. We're the guerillas. We snipe and we hit and we win a few battles, then we retreat. We're good at being niche players. We don't want to grow up and be another Walt Disney."⁷⁴ By this point, Miramax had perfected their tactic of fostering media contro versies around exploitable, often sexual, subject matters and sometimes disputed Mpaa rating. sex, lies, and videotape; Scandal; and The Cook, The Thief, His Wife, and Her Lover, all released in 1989, suggest Miramax's brilliance at marketing and publicizing controversial content.⁷⁵

New Line Cinema became a market presence in the 1980s through offering franchises, such as the Nightmare on Elm Street series, to ensure a steady flow of income to support more commercially dubious projects. Before the move to franchising, New Line Cinema, formed in 1967, existed on marginal and cult films such as Pink Flamingos (1972), The Texas Chainsaw Massacre (1974), and Smithereens (1982). At the same time as Miramax's ascendancy, New Line also became a force in the independent marketplace through their franchising of the Nightmare series, along with the Teenage Mutant Ninja Turtles and House Party movies.⁷⁶ Both New Line and Miramax are central to the reformed independents of the 1990s, made powerful through their eventual affiliation with studios and larger media conglomerates (Miramax with Disney/Capital Cities/ABC, New Line with Time Warner/Turner).

As the examples of Cannon, DEG, and Vestron illustrate, the market for independent film, which seemed so promising in the middle of the 1980s, proved to be more limited by the end of the decade. In 1989, a Variety article titled "Domestic Market for Indie Pix Soft" illustrates this trajectory: while negative costs doubled in the four-year period of the production boom, domestic film rentals for independent pictures fell by 33 percent.⁷⁷ Independent films tended to perform especially poorly at either end of the cost spectrum: in 1988, 48 of 132 independent films budgeted at under $2 million failed to receive a full theatrical release, with producers choosing to send the films directly to video; in the same year, many higher budgeted ($15 million and over) independent films also stumbled at the box office. The latter phenomenon continued from the previous year, in which all independent releases budgeted at $6 million or more were unqualified commercial failures. Within the box-office gross for independent film, rentals tended to be skewed by a couple of large hits: in 1987, for instance, almost 50 percent of rentals for all independent film were accounted for by two films, Dirty Dancing and A Nightmare on Elm Street 3: Dream Warriors.⁷⁸

Independents in the Second Wave of Global Conglomeration

The fate of Carolco and other independents, such as Cannon, DEG, and Vestron, must be placed within the increasing globalization of media production at the end of the 1980s. As Tino Balio notes, this period was marked by a shift toward horizontal integration: studios partnering with other producers and distributors.⁷⁹ This move reflected both an attempt to operate on a global level by the studios and to become more narrowly focused on media rather than on a vast array of unaffiliated companies. The formation of Time Warner in 1989, the acquisition of CBS Records in 1987 and Columbia Pictures Entertainment in 1989 by the Sony Corporation, and the purchase of MCA (parent of Universal Pictures) by Matsushita in 1990 all evidence this trend to media-oriented global conglomerates.

The implications of this shift for the independents were far-reaching. First, these global conglomerates possessed the resources to create high-budget, packaged (star, concept, genre) movies in the Carolco fashion. The desire by these conglomerates to enter the film business at almost any cost can be seen with Sony's installation of Peter Guber and Jon Peters as chairmen—a deal that created a breach-of-contract suit by Warner Bros. that cost Sony as much as $800 million to settle.⁸⁰ With the global media conglomerates playing a more significant role in Hollywood, the function of independent packagers such as Carolco was largely usurped. Added to the ultimately false hope of a larger market due to video and cable, the independents—Carolco and those companies attempting to be studios, such as DEG and Vestron—withered by the turn of the decade.

Part of this diminution occurred through the foreign takeover of some independent companies as globalization became central to the media industries. Italian financiers Parretti and partner Fiorini began consuming independent film companies in 1987 to build a base for production and distribution in the international market: buying Cannon and France's Pathé Cinema, bidding on DEG, and in 1989, purchasing New World Entertainment.⁸¹ While Parretti would eventually control major MGM/UA, his actions served to consolidate several of the independents who had held such promise only half a decade earlier.

In the early 1990s, these factors—the second wave of media conglomeration and the consolidation of independents—served to constrain the world of independent film. Ultimately the position held by the independents in the 1980s was undone by the hegemony of the studio system: primarily through the majors controlling domestic distribution (even in the heyday of the independents, several companies, including Cannon and Carolco, chose to cut distribution deals with the majors) and through the horizontal integration of the studios with smaller distributors. Ownership ties between Time Warner and independent New Line Cinema, Disney and Miramax Pictures, and Sony and Castle Rock demonstrate the blurred boundaries between the independent and the studio by the 1990s.

These ties between the majors and the independents were rooted in the experience of the 1980s independent distributors. While Carolco achieved a high level of commercial success with "packages," the movement toward focused, star- and genre-driven spectacles made the company compete more and more directly with the studio product. Similarly, smaller companies—DEG, Vestron, Cannon—through expansion attempted to offer product very similar to the majors. By minimizing the differences between the films of the majors and the independents, the independents of the 1980s were, in fact, creating a situation in which they could be easily assimilated within the contemporary studio system. By the mid-1990s, the blurring between independent and mainstream had become complete, and the possibility of independent companies offering a clear commercial and aesthetic challenge to the majors was slight at best.