There's no business like show business

My better half just finished producing an indie movie. I’m hoping it wins one of the coveted film awards in Cannes or Toronto, which could be a ticket to the big leagues. Some investments (preferably very few!) are like lottery tickets. You put in a little with the speculative hope of winning big. If not, you can charge it to experience. Pinoys call this “consuelo de bobo.”

Hollywood’s powerhouse list this year is topped by James Cameron, who pulled in estimated earnings of US$257 million. Johnny Depp, who raked in a cool $100 million, follows at a distant second. You then have Spielberg at $80 million, Christopher Nolan (who happened to direct my favorite film, Dark Knight) at $71.5 million, and Leonardo Di Caprio (who arguably has the best-managed career) with $62 million. To put things in perspective, these people earn as much as the top 25 corporations in the Philippines. It is an incredible number that most of us mere mortals can only dream of but perhaps never reach.

The new kids on the block from the Twilight series earned in 2010 an average of $30 million each. You can only imagine what this is like for this newly minted, certifiable celeb-royalty. Success, earnings and youth are an intoxicating journey. Someone once said “youth is wasted on the young.” How true those words may be when looking back on one’s life, but it’s certainly not true for the Twilight trio! I guess everything is 20/20 in hindsight. Steve Jobs referred to it as “connecting the dots.”

I do think anything is possible. Some of the right plays at the right times can create that perfect storm that whips up explosive valuations that can withstand the test of time.

The mind-boggling earnings of Hollywood’s powerhouse list, however, is not just there to show us what stars are made of, but perhaps can give us an insight into how these stars were made. I thought it would be interesting to analyze and appreciate the comeback of well-known producer Harvey Weinstein. This story demonstrates you can be down and out, and come back bigger than ever. Entrepreneurs should never lose hope. Losing money is okay, but losing hope means you’ve lost the game before it has begun. For now-super producer Harvey Weinstein, the path back to stardom is a story in itself.

For those of you who don’t know Weinstein, he is the producer behind some of the best films of our time, including Trainspotting and Good Will Hunting. Weinstein was a kid from Queens who started as an indie filmmaker. He gained notoriety when his studio Miramax (named after his parents) produced at least one Best Picture nomination every year from 1992 to 2003. During his term, Miramax got 249 Academy Award nominations, 86 wins, and three Oscars for Best Picture.

Not all ended well, though. Although Weinstein sold Miramax to Disney in 1993, it was only in 2005 that he left after a well-publicized feud with Disney CEO Michael Eisner.

With an award-winning track record Harvey started The Weinstein Company in 2005, which quickly raised $1 billion from Goldman Sachs. With a billion dollars in the bank, it’s easy to lose focus and gain a bit of hubris. From 2006 to 2009 The Weinstein Company produced over 70 movies, most of which were flops. Weinstein himself wasn’t hands-on during the filmmaking process as he was busy investing the excess cash in non-film-related ventures such as a web enterprise called A Small World (I’ve been invited to that many times), and a fashion house. A billion dollars can seem like a godly amount of money to have, but it goes very quickly when you put good money after bad.

By mid-2008 his company was on the edge, with $450 million in debt and interest payments of $40 million per year. The party was over and the hangover had just begun. This kind of situation is “the wakeup call.” In late 2008, Weinstein quickly restructured his debt with Goldman Sachs by giving them ownership of his film titles until the rentals paid back the debt. He slashed the workforce by half and in 2009 began focusing on the hands-on production of films.

The result of this has been three of the best-produced indie films of 2010, namely The Fighter, Blue Valentine, and The King’s Speech. It’s good to be back.

Then the most unexpected opportunity turned up. Disney decided to sell Miramax, the company Weinstein founded. A long bidding war ensued with Weinstein in the lead, only to realize at the end of the process that Disney would “leave him at the altar.” They did, selling Miramax to Tudor. Weinstein, of course, isn’t doing bad at all. He owns the leading independent studio in Hollywood and will likely continue producing hits.

There are many lessons to learn from the Weinstein saga, which I thought I would enumerate:

1. Do not build an empire by acquiring lifestyle businesses.

2. Only leverage if cash flows are absolutely certain. Even then use extremely conservative debt service coverage ratios of two to three times.

3. Focus over diversification. It is better to be one-inch wide but one-mile deep, rather than spread out thinly. Specialization breeds innovation, which makes it difficult for competitors to follow.

4. You can’t fall in love with a business, especially when you’re bidding for it.

5. As cheesy as it sounds, it is darkest before dawn. After every fall is a rebound. All nosedives can be turned around. History has proven this. For entrepreneurs, do not despair and remain calm and focused to maintain clarity when times get tough.

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Any questions? E-mail me at egtheplayer@gmail.com.