Video's Bonanza for the Entertainment Industry

An article subtitled Video's bonanza for big and small screens, published by The Philadelphia Inquirer on September 8 1987 -- a couple weeks after the release of the movie Dirty Dancing -- discusses the growing impact of video rentals on the entertainment industry.

The article includes the following passages:

... Perhaps no one know that [the growing impact of video rentals] than Jon Peisinger, president of Vestron Pictures, the first and now the largest company releasing movies on videotape.

"Theatrical box office this year will be in the $4 billion range, an of that, about $1.6 billion will come back to the distributors," says Peisinger. "That compares to $2 to $2.5 billion that will come back from home video.

"In only five years, we have a revenue stream that is larger than any of the existing ones, including box office. And we have eclipsed every other form of entertainment, bigger than records and the book industry, and any of the previously existing revenue streams for motion pictures.

"So you can get a picture of why this has had such a dramatic impact on the industry. The consumer has expressed an enormous appetitite for the product, and the industry is responding by creating more product."

In addition to the increase in the number of films, the advent of home video has caused a realignment in the way movies are financed.

Whereas movies were once financed by studios or wealthy investors, producers now almost always find themselves approaching video companies -- or being approached by them -- to pre-sell the home-video rights to raise additional capital.

This is a curious development, considering that only a few years ago the major studios feared that having weathered the onslaught of television, they would now meet their demise at the hands of home video. They hated the VCR, fearing, among other things, that the convenience of watching movies at home wojuld keep movie buffs out of the theaters.

But the opposite has been true -- video has apparently whetted Americans' appetitites for going to the movies. If the current trend holds true, box-office receipts will be higher this year than ever before.

Moreover, major studios and distributors have joined the home-video game themselves, creating their own home-video division to compete with such independents as Peisinger's Vestron. Now, instead of selling video rights to companies such as Vestron, most major film companies market their movies no videocassettes bearing their own labels.

Indeed, says movie industry analyst A.D. "Art" Murphy, many film producers now consider the theatrical release of a film, with its attendant advertising and film reviews, as the launching pad for the future revenues from home video. And just as movie executives once worried exclusively about how long a movie would last in the theaters, they now fret over how long it can command shelf space in video stores. ....

Perhaps nothing illustrates the transformation within the [movie] industry than the development of Vestron.

In the past, Vestron did business by buying the video rights from major studios and independent producers. But now, because of the competition, Vestron also has been forced to get into the actual financing and making of movies (the company has helped finance "a few hundred" movies according to Peisinger). In the past couple of years, Vestron has learned that it may be wiser to totally finance movies itself -- a lesson the company learned the hard way, through the success of the mega-hit Platoon.

As most film buffs know, Oliver Stone bounced around Hollywood for ten years without success, trying to get financing for Platoon. Eventually he approached a company named Hemdale, which in turn was able to get much of its backing for the film by selling the future video rights to Vestron.

But that was while Platoon was still merely a script, long before anybody had any idea it would win last year's [1986] Oscar for Best Picture. When Platoon became a runaway success, Hemdale resold the video rights to HBO. The result has been a long and complicated lawsuit -- still in litigation -- over who will get the home-video profits from the still-unreleased-in-video Platoon.

In addition, Vestron has just theatrically released the $6 million film Dirty Dancing -- its first totally financed theatrical offering -- to encouraging reviews and good box-office action. Small wonder that Vestron recently has drastically reduced its video-rights acquisition division and dramatically beefed up its movie-production division. Vestron, based in Connecticut, will partially underwrite 30 films within the next year and totally underwrite about 40 during the next two years, Peisinger says. ....

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Vestron bites the dust

An article titled Another Indie Bites the Dust, written by Anne Thompson, was published by the LA Weekly on August 10, 1989 -- almost two years after the movie Dirty Dancing was released.

The article includes the following passages:

Back in the summer of 1987, Vestron Pictures president William Quigley, anticipating the company's first major opening, Dirty Dancing, told this column: "Dirty Dancing's wide release may be foolhardy. We're playing with our own money. If it doesn't work it will be very hard to ramp up another one."

Dirty Dancing turned out to be the biggest independent hit of its year, earning $25 million in domestic theatrical rentals (the share of the gross returned to the distributor), plus $36 million in domestic video revenues. It was also probably the worst thing that could have happened to the fledgling production-distribution company.

"After Dirty Dancing it was easy to think that lightning would strike again," observes Universal acquisitions director Sam Kitt. "It didn't."

Vestron has followed the pattern of success breeding failure that has struck so many independent companies in past decades, from American International Pictures to Island, Alive and Atlantic. The companies start small, raise money, have a success or two -- and begin to think too highly of themselves. They abandon caution, overreach and overspend, betray the canny strategy or blind luck that got them where they are, and go under.

The companies that survive tend to stick to their original game plan (Skouras Pictures), have libraries or subsidiaries (the Goldwin Company) or a lucrative franchise (New Line Cinema's Nightmare on Elm Street sequels) to buttress their risks.

Industry veterans recognize that the business is cyclical and dangerous: boom periods yield to recessions. they don't risk capital they can't afford to lose. But many novices, after a hit or two, think they can compete with the majors.

In February 1988, Quigley hosted a lavish, studio-style presentation of upcoming product for 4,000 or so attendees of Las Vegas' ShoWest exhibitor convention. He told the theater owners that the company that brought them Dirty Dancing would not only deliver a sequel (applause), but would provide a constant stream of top-notch product to their theaters. ....

The exhibitors were ... impressed by a personal appearance by Patrick Swayze.

Industry watchers wonder why Vestron didn't go into production on Dirty Dancing II right away. (It still has no start date.)

"Vestron went too quickly," says Kitt. "They didn't develop properly and, except in budget terms, they lacked a vision of the kind of movies they wanted to make. Their films ere off-center and review-dependent. A promsing movie like Parents just didn't get the reviews."

After ten unsuccessful released in 1987, another 16 in 1988 and eight in 1989, on June 30 [1989] the entire Vestron company was up for sale. Yet another indie had lost the gamble on trying to produce and distribute its own movies.

Vestron was unique in that it was a home-video company first and went into production in order to feed its video pipeline, hungry for A-titles.

"If you want to go bankrupt," states Skouras president Jeff Lipsky, "go into production. You can't produce movies as an independent. There is this mythical belief that making movies for $3 million to $5 million is safe and secure. But if you're spending seven figures, you're competing with the majors. And you can't risk money on projects shepherded by less than top, experienced production talent." ....

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The "Dirty Dancing" Sequel and Security Pacific National Bank

An article titled Vestron strapped for cash was published by The Hartford Courant newspaper in Connecticut (where Vestron was headquartered) on June 30, 1989 -- almost two years after the movie Dirty Dancing was released (August 21, 1987).

The article's text:

Vestron Inc., running out of cash after losing a $100 million line of credit, said Thursday that it had severely curtailed its film production and distribution business and laid off about 140 employees.

"This is a cash squeeze put on by Security Pacific National Bank revoking their loan," said Stephen Einhorn, executive vice president and chief financial officer of Stamford [Connecticut]-based Vestron. He said the layoffs were effective immediately.

Vestron has been working to establish new sources of financing by Monday, the day its short-term credit line from Wells Fargo Bank expires.

The eight-year-old company's domestic home-video business will not be changed and some motion-picture projects will continue, Einhorn said. ...

Despite the cutbacks, the company will continue to push forward with production of Dirty Dancing II, the sequel to Dirty Dancing, Einhorn said.

Dirty Dancing grossed $60 million in 1987 and was Vestron Pictures' sole major success.

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An article titled Vestron Sues Security Pacific Over the Loss of Its Credit Line, written by Kathryn Harris, was published by the The Los Angeles Times newspaper on August 18, 1989 -- two years after the movie Dirty Dancing was released.

The article's text:

In an unusual move, financially ailing Vestron Inc. has filed suit against Security Pacific National Bank because the bank last year [1988] pulled out of a deal to provide a six-year $100-million line of credit to the entertainment company.

The bank's action last October [1988] forced Vestron -- the producer of the hit film Dirty Dancing -- to withdraw a $50-million public offering of debt securities and sent the company scrambling for short-term financing. The company fired one-fourth of its employees this summer [1989] and is currently trying to liquidate its assets.

The suit, filed in U.S. District Court in Los Angeles, contends that the bank's abrupt cancellation led directly to Vestron's current woes. Vestron is seeking unspecified damages for allegations that range from breach of contract and business defamation to fraud.

According to court documents, Security Pacific pulled the line of credit because it decided there had been a "material adverse change" in the company's financial condition in the two months following its August [1988] offer to extend $100 million in credit. Vestron's suit contends that the bank's excuse was false.

The situation is unusual because, as one banking industry source observed, "banks will generally do anything not to withdraw a commitment." The same executive noted that lawyers would generally advise a client not to sue a bank as powerful and prestigious as Security Pacific unless they believed that the suit was well founded.

Security Pacific Executive Vice President Richard A. Warner said: "The Vestron lawsuit is absolutely without merit, and we will defend against it vigorously and successfully.

Vestron, based in Stamford, Connecticut, got its start eight years ago as a videocassette company but branched into other entertainment fields after most film studios decided to retain control of the video rights of the movies they were distributing in theaters and television networks.

One of the bones of contention with Security Pacific appears to have been Vestron's purchase of video stores, although in its court filings, Vestron said the bank had initially applauded the move.

Earlier this week, Vestron finalized a short-term $65 million borrowing arrangement with Chemical Bank and Credit Lyonnais Bank Nederland. The company promptly used $25 million to pay off a Wells Fargo loan on which it had missed a payment last month.

"We're providing them with working capital while they arrange to liquidate assets," said John W. Miller, a Chemical Bank managing director.

Vestron shared closed Thursday at $3 on the New York Stock Exchange, up 12.5 cents. When the company went public four years ago, its shares were priced at $13.

The company's founder, Austin Furst, received a $4.3-million dividend after Vestron went public, and also kept about 85% of the company's shares for his family. ...

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The Cross-Promotion of Vestron and Nestle

An article titled Tapes hear a word from the sponsor, written by Mary Stevens, was published by The Chicago Tribune on August 5, 1988 -- about one year after the movie Dirty Dancing was released in movie theaters.

The article in The Chicago Tribune on August 5, 1988

The article includes the following passages:

.... Paramount Home Video broke new ground last summer [1987] when it included a special, lushly produced commercial for Diet Pepsi on the blockbuster hit Top Gun. Pepsi-Cola's sponsorship involvement (which involved collaborative advertising on network TV) enabled Paramount to release Top Gun at the then-unheard-of low price of $26.95 (most brand-new titles sell for $80 to $90 and are not marked down to an affordable sell-through price until months or years later).

Consumers were happy because they got to own Top Gun at a bargain price. Paramount was hapy because consumers bought more than two million copies of Top Gun. And, of course, Diet Pepsi got more exposure in every household that rented or purchased the Top Gun video.

When Vestron Video released its smash hit Dirty Dancing, the tape included a commercial for Nestle Alpine White candy bars. But this time, there was no bargain price tag -- the video was released at $89.95. ....

Video dealers responded with considerable grumbling many thought they and consumers were being shortchanged. Apparently, nearly everyone had assumed that advertising on videos would automatically mean pricing at the sell-through level, simply because that had been the case with Top Gun.

Al Reuben, senior vice president of marketing and sales at Vestron Video, says the public shouldn't jump to conclusions about commercials on videos and how they will or won't affect pricing.

"There are many different ways that commercials and cross-promotions are going to be used by Vestron and other video companies. Right now, it's a whole new, relatively unexplored territory, and there isn't a lot of data yet available," he says. ... But Reuben predicts that as video companies learn more about the potential of this new medium, we'll see a variety of approaches that will be beneficial for everyone, including consumers.

Rather than trying to sell Dirty Dancing with a lower price tag from the start, Reuben says, Vestron concentrated on getting maximum mileage in the rental market first. An aggressive Nestle promotional campaign (using TV spots and store displays) began in the sixth week after Dirty Dancing's debut on video, a time when rentals of new titles traditionally taper off. The promotional boos succeeded in giving Dirty Dancing a second wind on the rental scene.

On September 14 [1988], consumers will get their chance to add Dirty Dancing to their video libraries at a low price ($24.98). Vestron is launching its Dirty Dancing sell-through attack with an ambitious holiday sale program called "Stars and Bars VideoGift Promotion, Act I." Reuben notes, "The 'Stars' are the stars in our hit videos; the "Bars" are Nestle candy bars."

Seventeen more popular Vestron titles will be reduced to $19.98 each. When consumers mail in proof-of-purchase seals and cash register receipts from any two of the 18 selected titles, along with 10 wrappers from Nestle candy bars, they'' get a third VideoGift title of their choice free. ...

[The article lists the other 17 movies.]

Reuben comments: "This is the first time a major packaged goods company has put its marketing power behind a total feature film promotion such as Vestron VideoGift. The combined marketing expertise of Vestron and Nestle, along with the desire to drive consumers to purchase videos during the peak holiday season, will create the most exciting video cross-promotion to date."

The "Stars and Bars VideoGift" campaign has a $10 million budget. There will be national TV advertising during the prime holiday period, ads in major Sunday newspapers, and point-of-purchase materials wherever Vestron and Nestle products are sold, and so on. Nestle candy commercials will be included on approximately ten of the featured titles. Reuben expects Vestron to sell more than two million videos through the campaign.

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"Dirty Dancing" struts its stuff on videotape

An article titled Dirty Dancing struts its stuff on videotape, written by Joe Logan, was published by The Orlando Sentinel on January 17, 1988 -- about five months after the movie was released in movie theaters.

The article published by The Orlando Sentinel on January 17, 1988

The article's text:

Dirty Dancing, the highest-grossing independently distributed movie in history, landed in video stores recently, and plenty of people were glad of it.

Kathy Linus, 45, a Philadelphia office manager, said she had seen the steamy blockbuster twice and clearly plans to see it a lot more. "It is absolutely great, the best movie I have seen in a long time. I had no idea he danced like that, and he is so sexy. I mean, he is really good."

"He" is Patrick Swayze, star of the relatively low-budget film, who brought a professional ballet background and hunky good looks to the story of a hot young couple at a Catskills resort in 1963.

And what Swayze does for many women, his co-star and dance partner, Jennifer Grey, does for many men. In the movie, she is doctor's daughter joining her family on vacation before heading off to college; he is a wrong-side-of-the-tracks dance instructor from South Philadelphia.

Together -- with the help of a soundtrack that shot past Michael Jackson's Bad and Bruce Springsteen's Tunnel of Love to claim the top Billboard spot -- they make beautiful music. It's not raw sex that the movie offers, but romance and sensual delights.

"It is very romantic, and Patrick Swayze is not hard to watch," said Oliva Lombardi, 26, a customer-service coordinator for a Philadelphia company, who has seen the film five times. "It's not erotic; it's more sensual. Their relationship comes through in their dancing, like Fred and Ginger."

Linus and Lombardi are far from alone in their praise of the film. According to Newsweek magazine, since Dirty Dancing opened to overwhelmingly positive reviews on August 21, it has achieved near-cult status -- with audience members, most of them female, who have seen the movie 30, 40 and even 50 times.

Dirty Dancing certainly has been a boon for Vestron Pictures, a branch of the company that also owns Vestron Video, a once-foundering video-distribution company. The film marked Vestron Pictures' entry into producing, a move that the parent company hoped would provide quality products for Vestron Video to distribute.

The movie, made for the relatively low cost of $6 million, has grossed more than $55 million. Its soundtrack, released by RCA Records, has sold more than 3 million copies.

Two songs from the album have emerged as hit singles: Jennifer Warnes and Bill Medley's "The Time of My Life," which reached the No. 1 spot, and Eric Carmen's "Hungry Eyes". And Swayze recently did a video for "She's Like the Wind," a number he sings on the soundtrack and the album's most recent single.

With this kind of momentum behind the film, video stores moved quickly to stock their shelves.

"There's been tremendous interest in this move. We've been getting calls for a month," said Harvey Dossick, director of movie purchasing for West Coast Video, which has almost 200 stores.

At Movies Unlimited, which does a large business through its national mail-order sales division, officials said they expect Dirty Dancing to be among the top 10 rentals of 1988.

If anything keeps Dirty Dancing off the shelves of your neighborhood video store, it likely will be the price. These days, video outlets can buy most movies wholesale for about $30, but Vestron, convince of Dirty Dancing's pulling power, already has sold dealers 300,000 copies for a whopping $64 each. If it weren't for that, said Dossick of West Coast Video, he would have ordered en more copies. The movie will list of $89.95 -- even thought the video includes a 30-second commercial for Nestle's Alpine White chocolate candy bar. Many commercial outlets already are offering at a discount, though.

Meanwhile, the folks at Vestron Pictures, which also financed and is distributing the highly praised John Huston film The Dead, are sitting back and smiling.

However, the success of Dirty Dancing, which has exceeded even the dreams of Vestron, doesn't mean that the Stamford, Connecticut, company intends to rush a raft of pictures into production. "That's the easiest way to fail, to get over-confident," said a Vestron spokeswoman.

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The Vestron Test

An article titled The Vestron Test, written by Anne Thompson, was published by the LA Weekly newspaper on July 2, 1987 -- about seven weeks before the movie Dirty Dancing opened in theaters.

Article in LA Weekly, July 1987

The article's text:

The biggest news in the film industry right now is the impending Directors Guild strike, which has everything to do with the radical shifts in the film business caused by home video. Now that ancillary revenues have outstripped theatrical box office, the producers want directors to take their money up front and give up residuals -- which, of course, the directors are refusing to do.

The expanding video market has created many changes in the industry. Largely due to video dollars, more independent movies (277) were produced over the past year than in any year since 1977, accounting for 66 percent of the year's 419 total. "A lot of marginal projects, mostly video-driven, are getting made," says one studio acquisitions executive. "A lot of art movies, and a lot of trash."

Two kinds of movies regularly sell in video: full-fledged hits and widely promoted flops. Companies such a New World and Cannon account for 25 percent of the pictures, mostly action and horror features that that receive saturation theatrical release for one or two weeks, then go right into the cassette racks. Wanted Dead or Alive, starring Rutger Hauer, is the perfect New World success: dead at the box office, alive on video.

Video giant Vestron Inc.'s recent entry into film production and distribution underscores this revolution in the movie business. Vestron boasts a line of super-low-budget exploitation fare, along with higher-budgeted ($2 million to $6 million) movies, which are riskier to produce.

"There is an area between the majors and the classics divisions," says Vestron Pictures president William Quigley, "where there's room for more English-language, quality-oriented product that can stand broader distribution. We can learn from people at Orion Classics and from studios like Warners and Paramount."

It has become clear to all the independents that they can't compete with big-budget studio B-genre pictures like Lethal Weapon and Predator. "We have to do something else," says Atlantic Releasing president Jonathan Dana. "In the aftermath of Room With a View, Platoon and Nothing in Common, we're making pictures targeting a certain adult audience."

So is Vestron, which has been investing (often too much) in movies for years putting up from 35 percent to 50 percent of a film's budget (as with the Taviani brothers' Good Morning, Babylon) in exchange for video rights. Video dollars are increasingly more important to independent producers, who might not be able to make marginal (read, "adult") audience films without them.

"The advent of video is like an insurance policy," says Island production chief Jesse Beaton. "Without home video, we couldn't do what we're doing."

Filmmakers such as Paul Bartel (Eating Raoul) describe a radical shift in who calls the production shots: "Video represents such a large part of any film now. As an independent filmmaker, if I go to one of the smaller theatrical companies, one of their first concerns will be 'Can we sell foreign?' and 'Will our video people like this?' The decision of what pictures are mad is increasingly influenced by the people who are in charge of video sales."

This doesn't mean that companies like Vestron aren't producing and acquiring good movies. Vestron's roster is promising, with Good Morning, Babylon (a specialized July release); such fully financed features as Abel Ferrara's $4-million China Girl, a West Side story set in New York's Little Italy and Chinatown, and John Huston's adaptation of James Joyce's story The Dead; plus such acquisitions as Anna, an All About Eve story, and the overtly commercial horror film The Unholy.

Many analysts think Vestron faces a very tough road ahead. The risks of production, even at low-budget level, are high. And the upcoming boom in independent features competing for a limited adult audience necessitates sophisticated marketing and distribution finesse. Although Vestron has hired an experienced and talented staff, a full-fledged distribution mechanism still takes time to evolve.

"Can they and will they support a long theatrical run?" asks analyst A.D. Murphy. "They may be able to make a film for less, but the media and print costs are the same as for a major."

Although a recent survey by Paul Kagan and Associates shows that a whopping 68 percent of all films budgeted under $5 million are profitable, Cannon's troubles demonstrate the theatrical success is the only way to survive. Video and other ancillaries can pay back the costs of making a picture, but they don't always cover overhead and distribution costs ($2 million to $5 million in prints and advertising). Only theatrical success can do that.

This is Vestron's real test. Small-scale specialty films are difficult enough to distribute, but pushing moderately budgeted crossover films into the broader marketplace is even tougher. The rapid expansion in theater screens and the success of movies like Kiss of the Spider Woman have helped independents find play dates, but a wider release still requires obtaining key theaters in the most important markets. That's where clout and reliable pipeline of product comes in. Many exhibitors mistrust video-driven companies that may not support their films over the long haul. (Vestron insists that they will use the same six-to-nine-month video window as the majors do.)

Vestron recently pushed back the planned release of its $6 million dance romance Dirty Dancing from July 24 to August 21, possibly because it wasn't able to obtain the kinds of theaters it was looking for.

"Dirty Dancing's wide release may be foolhardy," admits Quigley. "We're playing with our own money. This is serious stuff. If it doesn't work, it will be very hard to ramp up another one."

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"Dirty Dancing" -- Vestron's First Production

An article titled Dancing Vestron's first production, written by David Schwartz, was published by The Boston Globe newspaper on August 9, 1987 -- twelve days before the movie Dirty Dancing opened in movie theaters.

The article published on August 9, 1987 in The Boston Globe

The article's text:

Dirty Dancing marks the entry of Vestron, one of the largest home-video companies, into the wold of feature film production.

Formed in 1981, Vestron built its riches by acquiring home video rights to ore than 600 movies. But now the company is in trouble because of a changing marketplace. Video stores have stocked their libraries and only need to buy the latest releases. With movie studios forming their own home-video divisions, Vestron's supply of these titles has dried up.

The company has responded with a bold gable, forming a division that will produce its own movies and acquire new independent movies. Vestron will release the movies in theaters, and later on home video.

As William Quigley, president of Vestron Pictures, explained in a recent phone interview, "This company was a volume player, and that strategy has changed. The rental market now is driven by the big hits. The top of the market is going higher and higher, and the bottom is falling apart. Vestron anticipated this change in the marketplace by creating Vestron Pictures."

Vestron Pictures will release a diverse blend of movies, ranging from specialty films by renowned international directors to thrillers and adventure films aimed at a mass audience. Among Vestron's upcoming films are: John Huston's adaptation of James Joyce's The Dead, starring his daughter Anjelica Huston; Anna, an independent American film featuring model Paulina Porizkova's screen debut; Desert Warrior, a post-apocalyptic action adventure; and The Promised Land, a life-after-high school drama starring Kiefer Suteherland from Stand By Me.

Vestron has already released a number of art-house films, including Ken Russell's Gothic, Terry Jones' Personal Services, and The Taviani Brothers' Good Morning, Babylon. But Dirty Dancing is the first movie solely produced by Vestron, and it first nationwide release.

Vestron hopes to create a homegrown stable of hits to bolster sagging revenues. The company's earnings dropped 54 percent n 1986. The stock price, established at 13 when the company went public in late 1985, hit a low of 3½ last month. In May this year, 25 of the company's 400 employees were laid off.

Vestron has also been hurt recently by a battle over video rights to Platoon. Vestron helped finance the movie by guaranteeing Hemdale films $2.6 million of the $6 million budget in exchange for video rights. But on the day Stone was thanking Vestron in his Oscar acceptance speech, the company was in court because Hemdale had not yet delivered a print of the film to Vestron. Hemdale backed out if its deal with Vestron, later signing an $11 million deal with HBO. Vestron has sued Hemdale, and a trial will begin in September.

The industry is skeptical about Vestron Pictures, due largely to the failure of such maverick companies as Cannon Films and the DeLaurentiis Entertainment Group in a marketplace dominated by studios. But adventurous moviegoers may be rooting for Vestron's success, for the company has already helped finance a number of interesting, low-budget films.

As Quigley points out, the final verdict will be provided by the public. "Basically, the word will be on us by the end of the year. Judge us by what happens. Judge us by the product."

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The Collapse of Video Prices and Vestron's Collapse

In June 1989, Vestron laid off 140 employees, effectively shutting down its film production and distribution business.

A major cause of Vestron's financial problems was that retain prices for videocassettes -- Vestron's main product -- were collapsing.

The collapse was reported in an article titled Movie prices get cheaper, written by Stephen Advokat and published by The Record newspaper on June 9, 1989.

The article provides the example of Dirty Dancing videocassettes. When Vestron began selling the videocassettes in 1988, the retail price for one videocassette was about $90. Vestron sold about 1.8 million of the videocassettes. If the price had remained at $90, then the gross sales would have been about $162 million.

However, by the time the article was published in June 1989, Vestron had reduced the retail price to about $30 a videocassette. Furthermore, the article reported that Vestron was planning to reduce its retail prices to $15 a videocassette in the near future.

Keep in mind that Vestron's basic business was selling videocassettes. Vestron's main reason for financing the movie Dirty Dancing was to sell the movie's videocassettes. During the years 1988-1989, the retail price for videocassettes collapsed from about $90 to $15 apiece. That collapse was the basic cause of Vestron's financial problems.

In that situation, Vestron was not able to come up with the huge payment necessary to convince Patrick Swayze to act in a Dirty Dancing sequel -- and he never wanted to do sequels of of his movies anyway.

Selling "Dirty Dancing II"

On August 8, 1989 -- about two years after the release of the movie Dirty Dancing -- The Daily News newspaper in New York, NY, published an article titled They're having the time of their life selling 'Dirty II', written by David Hinckley.

He reported that Vestron intended to begin filming a Dirty Dancing -- called Dirty Dancing II in the article -- within a few weeks and to release the finished movie in the summer of 1990. Vestron already was planning various licensing projects in relation to that sequel.

Although Dirty Dancing had earned huge profits during the two years since its release, however, Vestron was in financial trouble.

The article in The Daily News, published on August 8, 1989

Excerpts from the article:

The first time around, Dirty Dancing caught everyone by surprise.

"We couldn't give the licensing rights away," says Blaise Noto. "Who knew who Patrick Swayze or Jennifer Grey was? Who wanted to be associated with a movie called Dirty Dancing?

Noto smiles. He can afford to. He's vice president of marketing for Vestron pictures, which made Dirty Dancing, and once it became clear what was happening, marketing caught up fast. Furthermore, Dirty Dancing II is scheduled to start this summer, once Swayze and Grey agree to get rich, and this time marketing will be under way before the first dance at Kellerman's.

Of course, this time there's also a secondary plot: financial insolvency, which Vestron is facing and would dearly love to stave off until it can make DD II, which it trusts will clear that little problem up for good.

Even before this little life-or-death drama, however, it was fairly clear that Dirty Dancing II, like its parent or like Batman, is no more "just a movie" than Moby Dick was just a whale.

Dirty Dancing has become much more than a film, a soundtrack album, a concert tour," Vestron says. "It has become a fashion statement, an attitude ... It is a phenomenon that has become lifestyle sparking the imaginations of millions of people all over the world."

And gosh, you say, how did it do all this? Well, after the movie came the video, the soundtrack album, the Dirty Dancing jewelry, the posters, the instructional book, the T-shirts and the Dirty Dancing bicycle.

The coffee mugs and door magnets aren't far behind, nor are the Dirty Dancing clothes soon to be available at 2,00 K-Mart outlets.

"We wanted to go with a mass-market retailer," explains Noto. "Nothing against Bloomingdale's, but I'm not sure our audience shots there. Also, people might not pay $500 for a Dirty Dancing dress, but they'll pay $24.95.

Besides, Vestron's projections say America has barely begun to Dirty Dance.

After the clothing line, which includes Dirty Dancing outfits for toddlers, there will be another push on the video. In February 1990, CBS will show Dirty Dancing on broadcast TV. In March 1990, there will be a national Dirty Dancing competition at 25 to 30 shopping malls. Next summer, Dirty Dancing II comes out, with soundtrack, etc. In early 1991, the home video of "II" arrives. You get the idea.

And did we mention Vestron is negotiating with Arthur Murray?

"That's ow far we've come," says Noto with a laugh. ...

Now Noto readily admits Dirty Dancing took off all by itself the first time. "Our first audience was women over 25," he says. "Which is why our campaign was soft and romantic. The as the ages spread, it got sexier. And since it was a PG-13 it kept going all the way down to the 8 and 9-year olds. ....

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On August 18 -- eleven days after the above article was published -- the Hartford Courant newspaper in Connecticut (where Vestron was headquartered) reported that Vestron was going through a management shakeup.

Vestron official quits

The president and chief operating officer of Vestron Inc., Strauss Zelnick, has left the ailiing film maker and distributor to head the Fox Film Corp., a division of Fox Inc.

Austin O. Furst Jr., Vestron's chairman and chief executive officer, will assume Zelnick's responsibilities at the company, which produced Dirty Dancing, Vestron said in a statement ...

In June [1989], ... Vestron laid off about 140 employees, effectively shutting down its film production and distribution business. The company said the layoffs were necessitated by Vestron's loss of a $100 million line of credit.

It seems to me that at the beginning of August 1989, Vestron thought that Swayze and Grey would agree to do a sequel movie. When the agreement did not happen, however, Zelnick was removed from the company's top management, and Vestron continued its decline toward bankruptcy..

=======

I found both articles on Newspapers.com

"Dirty Dancing" was structured as a negative pickup

In my previous article, Vestron's Gamble, I pointed out the following passages (emphasis added):

.... independents like Vestron depend on acquiring other people's movies. They have been forced to pay more and more money to grab the remaining few independent "A" titles, laying out huge up-front guarantees against future royalties of (usually) 20 percent.

[.....]

Vestron's first fully financed picture (structured as a negative pickup), the $6 million Dirty Dancing, turned out so well that ....

I have only a pedestrian understanding of movie financing.

======

I do not know if the royalties are on the gross or on the net. However, since the production costs have become only a tiny part of the movie's gross earnings, the gross and net are essentially the same.

For the sake of easy arithmetic, let's suppose that Dirty Dancing has earned $100 million. If so, then Vestron (or whoever bought Vestron) earned $20 million in royalties. Then someone else -- mostly Linda Gottlieb? -- earned the other $80 million.

======

The Lawyers.com website defines a "negative pickup" in entertainment law as follows:

Negative pickup means a distributor’s guarantee or agreement to pay a specified amount for distribution rights upon delivery of a completed film negative by a stipulated date. The distributor has no obligation to license the film if the picture is not delivered on time and in accordance with the terms of the agreement. A negative pickup guarantee may be used as a collateral security to obtain a bank loan in order to meet the production expenses of a movie.

The Wikipedia article about a negative pickup includes the following passages.

In film production, a negative pickup is a contract entered into by an independent producer and a movie studio conglomerate wherein the studio agrees to purchase the movie from the producer at a given date and for a fixed sum. Depending on whether the studio pays part or all of the cost of the film, the studio will receive the rights (theatrical, television, home entertainment) domestic and/or international to the film, with net profits split between the producer and the studio.

In the case of Dirty Dancing, I suppose that Gottlieb fits the above definition as the "independent producer" and Vestron fits as the "movie studio conglomerate". (However, maybe it's just the opposite.)

If I am supposing correctly, the split of net profits was 80% for Gottlieb and 20% for Vestron.

The Wikipedia article continues.

The word "negative" in this context can be confusing because it does not relate to a numerical value (where negative means less than zero), but instead comes from the pre-digital era in which a motion picture was embodied in physical film negatives.

By selling the rights to distribute the film in territories not covered in the negative pickup ("pre-selling") or making other deals collateral to the production, a producer will usually cover all their costs and make a small profit before production has begun. But financing of the production up to its completion date is the responsibility of the producer—if the film goes over budget, the producer must pay the difference themselves or go back to the studio and renegotiate the deal. This happened on the films Superman, The Empire Strikes Back, Never Say Never Again, The Thief and the Cobbler, and Lone Survivor.

Most negative pickup contracts, either from motion picture studios or television networks, are bankable at pretty much dollar for dollar (less fees); if one holds a negative pickup contract, one essentially holds a cheque from the studio for the cost of the film, post-dated to the day one delivers the film to them. So, while the studio technically does not pay the producer until the film negative is officially delivered (thus "negative pickup"), the producer can nonetheless get a bank loan against a negative pickup contract, which helps them to pay for production of the film.

Studios, on the other hand, typically do not like their contracts being factored at banks or shopped around to independent investors and financiers, as this ultimately gives the producer significant creative latitude over the production. With the money assured, a producer has a free hand to make the film however they please, and they are only answerable to their investors, which in this scenario are unknown to the studio at the time of the contract. If creative disagreements arise between the studio and the producer, the studio has little contractual recourse as long as the film meets certain general contractual requirements, such as duration and technical quality.

An example of this is Terry Gilliam's Brazil, a negative pickup for Universal Pictures produced by Arnon Milchan. In this particular case, the studio had creative disagreements with the director over choice of star, content, and duration, and failed to resolve these issues to its satisfaction, because the negative pickup had essentially granted Milchan final cut.

The studios and distributors will contain this risk by offering the negative pickup contract only to a production that has financiers, a script, and key creative personnel, particularly the director and stars, already attached. Thus the conundrum: unless a film has U.S. distribution, a lot of investors and foreign buyers will not pre-buy a film, and unless the film is already financed, the studios do not want to guarantee distribution. This catch-22 is often resolved by attaching a major actor to the film; the mere appearance of an American movie star's name on a film's poster is often enough to drive box office to cover distribution in many foreign markets.

If someone can explain these clues about the financing of Dirty Dancing, then please do so.

Vestron's Gamble

Excerpts from an article titled Vestron's Gamble, written by Anne Thompson and published by the LA Weekly on June 25, 1987 -- about two months before the movie Dirty Dancing was released.

Vestron's Gamble  published
by LA Weekly on June 25, 1986

The article mentions (emphasized below) that Vestron normally advanced a movie's production costs against 20% of future royalties. If Vestron did so for the movie Dirty Dancing, then someone else received 80% of the royalties.

I speculate that Linda Gottlieb earned most of that 80%.  

The article states also (emphasized below) that Vestron structured the movie as a negative pickup.

The article's text:

The outlook for Vestron Inc. has been bleak for the past year. After founder Austin Furst's home video company rose from the ashes of Time/Life Films in 1981, it reaped record profits in the burgeoning home video market, reaching sales of $200 million in 1985 (up 120 percent from 1984) and a No. 2 market share, based on a volume business in feature film cassettes and music videos such as Michael Jackson's "Thriller." In October 1985 Furst made himself rich by going public with a controversial stock offering. But Vestron's market share plummeted to seventh place in 1986 when its earnings declined 90 percent. In the first quarter of 1987 the company actually lost $2 million and laid off 50 employees.

What happened?

In a way, video pioneer Furst created his own monster: the booming home video market. When it was new, curious video consumers would buy anything, gobbling up Verstron's wide inventory of "B," "C" and "D" titles. As the market grew more profitable, other -- studio -- players became increasingly involved. And, gradually, customers and video outlets began buying more recognizable "A" titles that had already been established by substantial theatrical release.

Whereas the major release their own films via such home video subsidiaries as CBS/Fox Video or Paramount, independents like Vestron depend on acquiring other people's movies. They have been forced to pay more and more money to grab the remaining few independent "A" titles, laying out huge up-front guarantees against future royalties of (usually) 20 percent.

Last year, Vestron paid $25 million to DEG for six movies (including the dud Taipan), and $50 million for 10 Taft-Barish titles. A dangerous business: When a $5-million acquisition like Shanghai Surprise fails to sell more than 100,000 cassettes, Vestron faces big losses; in fact, it lost $1 million on the Madonaa/Penn starrer. ...

The so-called "captives" -- cassette producers that are also arms of major theatrical suppliers -- now dominate the video industry just as much as they do the theatrical business. ....

To cope with these changing forces, Vestron made a significant survival move. If home video depended in theatrical box office, then Vestron needed to produce and distribute its own titles. In January 1986 Vestron formed a motion picture division to create the movies it was paying too much to acquire; later, it created a new TV arm, plus a foreign sales operation from the remains of the defunct Producer's Sales Organization. Vestron is a budding entertainment conglomerate -- if it survives.

Vestron Pictures is the first production/distributor formed by a video company. It started small by acquiring such English-language specialty films as Rebel and Malcolm (two Australian disappointments_ and the current, more popular British released Personal Services and Gothic (scooped up when Atlantic Releasing pronounced the Ken Russell film "unmarketable").

But the company is also financing pictures in the $2 to $6 million range under the direction of recently promoted Vestron Pictures president Bill Quigley and production senior vice president Ruth Vitale.

"We're looking under the radar of the majors and over the gunsights of the specialized film distributors," says Quigley. Before producing a movie, Quigley and Vitale canvas the other Vestron division for market viability. "It's silly to make these decision ins vacuum," says Vitale.

Vestron's gamble is that Quigley and Vitale's pictures will provide its video division with the theatrically driven "A" titles it so desperately craves. Viatale insists that a $6-million budget is sufficient to produce an "A" movie.

Vestron's first fully financed picture (structured as a negative pickup), the $6 million Dirty Dancing, turned out so well that the neophyte distributor is taking the huge gamble of releasing it wide during one of the most competitive summer seasons in recent memory. A highly commercial feel-good dance romance set in the Catskills n 1963, Dirty Dancing (which stars Patrick Swayze and Jennifer Grey) was discovered in turnaround from MGM.

"For a larger studio it would have been a little picture," says producer Linda Gottlieb. "For Vestron it was a big deal, it was their $25 million musical." Vestron is going all the way with Dirty Dancing: Sales chief M.J. Peckos hopes to book it in as many as 800 theaters August 21, when it will compete against all the other hot summer-season box-office performers. If the picture can grab enough audiences without laying out studio-level big bucks for promotion, and hold on to theaters, Dirty Dancing could hit in a big way -- and save the company.

I found this article on Newspapers.com

Vestron to produce movies for video

An article titled Vestron to produce movies for video, published by The Times Leader on January 10, 1986.

An article in The Times Leader on January 10, 1986

The article's text:

Vestron Inc., the nation's second-largest distributor of videocassettes, has announced the formation of a new division that will produce and distribute low-budget movies.

The move was seen as an attempt by Vestron, based in Stamford [Conn], to shake itself of its reliance on major motion picture companies for video rights.

Many of Vestron's initial agreements with studios are about to expire, and video rights have become increasingly expensive since Vestron first signed thos agreements several years ago.

"The idea is to have a little bit more control over our own destiny," Ramond Berstein, Vestron's vice president for business affairs, said Tuesday in announcing the formation of Vestron Pictures.

The new division plans to produce or acquire 10 to 12 films this year [1986], all with budgets under $5 million, the company said. The films will be released in theaters first but will be followed soon thereafter by release on videotape for home market.

The new unit's first film is Rebel, starring Matt Dillon., and company offiicals said it has agreemtns to work with producers Steve Tisch (Risky Business) and Gene Kirkwood (Rocky).

Vestron President Jon R. Peisinger said the venture into movie production simply extends the company's involvement with studios.

Vestron, the No. 2 player in the videocassette industry behind CBS-20th Century Fox, started business in a Stamford warehouse in 1981. It has grown into an international corporation with more than 150 employees and projected 1985 sales of nearly $200 million.

I found this article on Newspapers.com

Dieter samples "Dirty Dancing" 145 times

Excerpts from an article titled Dieter samples Dirty Dancing 145 times, written by Neat Rubin and published by The Arizona Republic newspaper on January 9, 1988.

An article in The Arizona Republic on January 9, 1988 

The article's text

Not till about the 100th time she sat through Dirty Dancing did Mallory Longworth notice the pickles.

On the surface, this is a fairly simple movie. Boy meets girl, boy and girl mambo, boy and girl mambo all night (nudge, wink).

But subtleties are at work here, Longworth says. Nuances. Undercurrents. Things that could draw her to Dirty Dancing 145 times -- and counting. The kinds of thinks that could help her lose 50 pounds -- and counting.

The kinds of things that turned Longworth, a resident of Ann Arbor, Mich., into the unofficial mascot of Dirty Dancing, which got her featured in Newsweek, which prompted the maker of the new Dirty Dancing videocassette, which was released Wednesday, to send her a fruit basket and free tape this week in appreciation.

Things like kosher dills.

Patrick Swayze, dance instructor and mambo macho man at a Castkills resort in New York, is catching an earful from Mr. Kellerman, the camp commandant. Robbie .... chips in something snippy of his own.

"You just put your pickle on everybody's plate, college boy," Swayze sneers, "and leave the hard stuff to me."

Cut to Longworth, Diet Coke in hand, sitting side-eyed in a theater. "It took me probably 100 times before I realized there was a plate of pickles sitting there," she says. "I thought he was just being obscene."

Which is not necessarily a bad thing. Dirty Dancing became a surprise hit largely because Swayze became a surprise hunk. Lesli Rotenberg of Vestron, producer of the movie and video, calls her telephone the "Patrick Swayze hot line." All 25,0000 copies of a Swayze poster sold out in about the time it takes to pin one to a wall.

Dirty Dancing certainly has been a boon for Vestron Pictures, a branch of the company that owns Vestron Video, a once-foundering video-distribution company. The film marked Vestron Pictures' entry into producing, a move that the parent company hoped would provide quality products for Vestron Video to distribute. ....

The movie opened in August [1987]. Twenty weeks later, it's still n the top ten nationally.

Suzanne Jamroz, manager of an AMC theater in suburban Detroit, said, "Most of the people coming to see it now have already seen it a couple of times."

Longworth, "in my 30s," has beaten that mark in one day, sitting through a morning show, coming back around six and returning again at midnight.

The immediate attraction was Swayze, said Longworth, finance manager for WIHT-TV, an Ann Arbor station. Then the entire movie became a companion and a caloric substitute. Se saw Steel Dawn, Swayze's next picture, but only once: "It was the most awful movie I ever saw in my life."

Her loyalty is reserved for Dirty Dancing. "I go when I get depressed," she said. "If I don't have anything to do, whatever, I'll go. I leave the theater feeling so up. It's just a postive statement about being in love."

Longworth, 5-foot-2, began a diet shortly before the movie's release. "I found that being at home made me want to eat. So I decided I had to get out." With theater concessions less tempting than leftovers, she was dropped to a size 16.

Longworth's father has not quite understood. Years ago, he kept her away from Elvis Presley movies because "anybody who could move like that had to be an evil influence on a young girl." Now his daughter has become semi-famous for watching dancers whose moves would make Elvis' sideburns curl.

I found this article on Newspapers.com

I have not lost any weight by writing this blog.