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