February 7 : 2008
Is a shake-up of New Line Cinema by Time Warner coming?
On February 6, Variety posted a major story about an hour-long conference call that Time Warner’s new CEO Jeff Bewkes held with Wall Street analysts today.* One of the biggest pieces of news that resulted is that “New Line will be the focus of budget cuts and layoffs.” New Line Cinema, of course, produced The Lord of the Rings and has announced that, along with MGM, it will co-produce The Hobbit.
[*Added February 7: That link is now dead, but the same story has been re-posted under a new title here.]
Bewkes entered the entertainment industry via HBO, which he joined as an accountant in 1979. HBO was a subsidiary of Time, Inc., so when that company merged with Warner Bros. in 1989, Bewkes became an employee of the new Time Warner. He rose to prominence in part by creating The Sopranos and Sex and the City. He was named chair of the conglomerate’s entertainment and networks division in 2002. In December, 2004, he became president and COO of Time Warner, which put him in a strong position to eventually replace the conglomerate’s CEO Richard Parsons. Parsons retired at the end of 2007, and Bewkes replaced him on January 1, 2008, with a five-year contract. Among his areas of day-to-day oversight are the main film-production company, Warner Bros., and the independently operating New Line.
(A Rings six-degrees-of-separation factoid: Bewkes was the head of HBO when it made its 1993 AIDS mini-series And the Band Played On, among whose cast was future wizard Ian McKellen.)
During the conference call, Bewkes reportedly said relatively little about other parts of Time Warner, focusing on New Line. He spoke of budget cuts and layoffs that would save Time Warner $50 million a year: “There’s real value in New Line as an independent label and brand with its own slate of movies, and New Line’s had great success with certain genres of films that are not historically in the sweet spot of large studios. But with the recent trend toward fewer movie releases across the industry and given the greater importance of overseas revenues, there’s the obvious question about whether it still makes sense for us to have two completely separate studio infrastructures and Warner and New Line.”
(The “certain genres of films” to which Bewkes refers probably means the low-budget horror and superhero genres that have traditionally been New Line’s mainstay, such as the Nightmare on Elm Street and Final Destination series.)
Variety spoke to a New Line insider who said that, although the staff is not pleased by the news, there is a hope that the budget cuts might just be a downsizing of the existing firm, similar to that in 2000. Then Time Warner forced New Line to fire about 100 New Line employees, about one fifth of its staff. (I discuss those layoffs and New Line’s situation in relation to Time Warner on pp. 48-50 of The Frodo Franchise.)
According to Variety, “New Line toppers Bob Shaye and Michael Lynne have had talks with Bewkes in recent weeks as they reach the end of their contracts, and have met with deep-pocketed investors to explore their options should they want to leave the conglom[erate]. But Wednesday’s earning call did nothing to support rumors of their setting up a new company, and even the folding in of certain New Line op[eration]s into Warners remains, for the moment at least, a theoretical scenario.”
The New Line insider said, “They only thing they’re asking for is that the movie operation overall make more money and be more efficient. That leaves open a lot of possibilities.”
A brief UPI story on the Bewkes conference call specified that Time Warner wants to eliminate 100 jobs and save $50 million in expenses. “Part of the savings would come from selling assets, possibly including New Line Cinema.” It quotes Bewkes as saying, “We’re reviewing how to operate New Line more efficiently, and we expect to take action fairly soon.”
The Editorials
On January 27, I discussed an editorial by L.A. Weekly columnist Nikki Finke on her “Deadline Hollywood Daily” blog. There she predicted that Shaye and Lynne would probably be dropped by Time Warner at the expiration of their contracts later this year. She also opined that New Line would be folded into Warner Bros. Finke very much favored such an outcome and indeed had been essentially campaigning for Shaye’s retirement.
The Bewkes conference call seems to indicate that Finke had accurate inside information. Whether, however, Shaye and Lynne will be let go and New Line absorbed by Warner Bros. remains to be seen. Finke today posted a brief entry on the current situation, saying, “My latest info is that when Bewkes met with the New Line pair to deliver the bad news, the twosome pushed back and told Bewkes they would put together a plan for reorganization that would save the company a lot of money in exchange for a contract extension that leaves them as co-heads of the studio. But Bewkes isn’t interested in that scenario.” Some sort of shake-up does seem to be in the works.
Coincidentally or not, on February 5, the day before the conference call, Ron Grover,
Grove refers to Finke’s claim that after forty years heading New Line, co-founders Shaye and Lynne need to leave. (Grove perpetuates Finke’s erroneous statement that Lynne co-founded the studio alongside Shaye in 1967; he in fact joined it in 1980 and is now co-president and co-CEO.) He doesn’t agree that the pair in fact needs to leave, but he does feel that New Line needs to be folded into Warner Bros. as a cost-saving measure.
Grove points to the fact that one of the firm’s two successes of last year, Rush Hour 3, grossed $140 million—as opposed to the $226 million of Rush Hour 2 (2001). Moreover, the cost of the second film was about $90 million, while last year’s installment cost $140 million (mainly due to the skyrocketing salaries for Chris Tucker and Jackie Chan.) In contrast, he says, Warner Bros. continues to make hefty profits with its own main franchises, Batman and Harry Potter.
By the way, on January 27, Finke reacted to a rumor that ex-Warner Bros. co-chairman Terry Semel was possibly looking to buy New Line. In her opinion, “I’d be surprised if Bewkes jettisoned New Line since there are some profitable upcoming projects, especially The Hobbit 1 and The Hobbit 2 produced by Lord of the Rings-meister Peter Jackson. On the other hand, if Time Warner can get as much as $2 billion for the studio, well, anything’s possible.”
The Current Situation
The commencement of the Hobbit project, which probably will happen soon, comes at an unhappy juncture for Time Warner. The conglomerate’s woes are laid out in a lengthy profile of Bewkes by Lloyd Groves on New York Magazine.com–significantly entitled “Lord of the Things” (January 13). The conglomerate’s stock price was already low when Bewkes’s promotion was announced in early November, at $18 a share. On his first week on the job, in early January, it dipped below $16.
How will Bewkes instill confidence in the world of high finance? Don Logan, who recently retired from Time Warner after having been the co-deputy to Parsons alongside Bewkes, was quoted: “It’s not clear there’s any simple solution available. But Jeff is going to have to make some kind of a decision just to demonstrate to Wall Street that he’s doing something. He’s probably facing a ‘first 100 days’ scenario to show he’s willing to take things up and change things, whatever those things happen to be.”
Reinforcing that opinion, a “longtime executive from a rival media company” is quoted in the same profile: “Making the company smaller, in my mind, wouldn’t be a bad thing. Also cutting corporate overhead. They run heavy-duty. Time Warner is a place that has built up a lot of bodies … He knows he’s doomed if he doesn’t do something.”
It would be a pity if Bewkes’s difficult position and the pressure for him to make some dramatic decision were to lead to New Line’s demise. Just thinking in terms of the good of the Hobbit project, as I said in my previous entry, I think Peter Jackson and his team would enjoy a greater creative freedom under New Line than under Time Warner.
On the other hand, Bewkes does seem to share some of Shaye’s willingness to get behind a costly and seemingly iffy project. He did it with the Steven Spielberg mini-series Band of Brothers and with The Sopranos. In fact, Bewkes and Shaye are friends, and both have lost a great deal of money personally by hanging onto their shares of the company when the prices plummeted after the merger of Time Warner with AOL. Quoted in “Lord of the Things,” Shaye said, “Jeff is very anxious to be a creative businessman in the sense of exploiting and energizing the real assets of Time Warner. He’s going to do things that are going to be recognized as astute and clever moves to fortify the best assets of this company and to rid itself of operations that he feels–certainly with the board’s cooperation–are not in the best interests of the corporation.”
That statement, published in a January 13 article, might have sinister overtones in the light of today’s news about New Line’s apparently prominent place in Bewkes’s planned efficiency measures. It all comes at a complicated moment, when hopes for the end of the Writers Guild of America strike suggest that the long-delayed Hobbit project might finally get moving. I personally hope that New Line survives as a distinct production entity and is able to make the two new films on much the same basis as it did the trilogy.
[Added Feb. 28: For the outcome of the Time Warner downsizing plans, see this new entry.]
