Orion Pictures Corporation Business Information, Profile, and History

History of Orion Pictures Corporation

Orion Pictures Corporation is a small motion picture producer with a large reputation. Founded by five men who were well known in the world of filmmaking, Orion gained fame for its alliances with such artists as Woody Allen and for its high quality films. Although the company scored a number of Oscar-winning pictures, it ultimately released too many box office bombs and was forced into bankruptcy in the early 1990s.

Orion got its start in January 1978, when three disgruntled officers of United Artists (UA)--a motion picture distributor owned by the conglomerate Transamerica--quit their jobs. Arthur B. Krim, chairman; Eric Pleskow, president and chief executive officer; and Robert S. Benjamin, chairman of the finance committee, had become frustrated with the degree of control their corporate parent exerted over the operation of UA, particularly with regard to salaries and other forms of executive compensation.

Transamerica's chairman and UA's Krim began to publicly insult each other, and the final break came when Transamerica refused to provide an expensive car for one of United Artists' Hollywood executives. After twice suggesting that Transamerica loosen its grip on the company, the three abandoned ship on Friday, January 13, 1978. The following Monday two more UA executives--William Bernstein, senior vice president for business affairs, and Mike Medavoy, senior vice president for production--joined the defectors. One week after the resignations, 63 important Hollywood figures took out an ad in a trade paper warning UA that it had made a fatal mistake in letting the five men leave.

In March 1978 the five executives formed Orion Pictures, taking as their corporate symbol a constellation with five main stars. The company--holding a $100 million line of credit--set out to finance films that would be made by independent producers and distributed by another studio, Warner Brothers, with Orion maintaining full control over distribution and advertising. The new company's greatest asset was the expertise of its leaders, who had won three Academy Awards for best picture in the last three years while at UA--an unprecedented feat. Dozens of former UA employees joined their old bosses at Orion, a testament to the high esteem in which the company's management was held.

With a management team made up entirely of longtime movie industry insiders, Orion was off to a lightning-fast start. In late March 1978 Orion announced that it had signed its first contract, an agreement with actor John Travolta's newly formed production company to film two movies. Contracts with actress/director Barbra Streisand, actor James Caan, director Francis Ford Coppola, and writer John Milius quickly followed. In mid-April the company announced a two-picture deal with actor Jon Voigt and, more importantly, arranged to finance and distribute films for British entertainment giant EMI. By the end of its first year, the company had put 15 films into production and had an additional 12 directors, producers, and actors set to sign on, making Orion a major Hollywood studio from its very inception.

Orion also began snatching up novels before publication at hefty prices in order to develop them as motion pictures. In 1979 the company paid $1 million for Sphinx, a book by Coma author Robin Cook, and purchased Wolfen, the story of a group of supernatural wolves advancing on New York City. In line with its leaders' reputation for developing quirky, more sophisticated, and less commercial movies, the company also bought the rights to Final Payments, an acclaimed first novel by Mary Gordon.

In April 1979, the same year it lost one of its original founders, Robert Benjamin, Orion's first film opened in theaters. By April 1980 Orion's first set of movie releases had yielded one hit--10, starring Dudley Moore and Bo Derek--and a host of also-rans, including The Great Santini, based on a Pat Conroy novel about a southern family, A Little Romance, and Promises in the Dark. With the studio failing to make the splash that had been anticipated, Orion and left-behind UA executives fell to trading slams in the press. UA got a shot in the arm at the end of 1980, when Woody Allen announced upon the expiration of his contract that he would be leaving UA; he planned to make three movies with his longtime collaborators at Orion.

By the end of 1981, Orion had grown unhappy with its film distribution arrangement with Warner Communications and began looking to expand its distribution capabilities by acquiring the assets of a failing Hollywood studio called Filmways, Inc. Founded in 1952, Filmways had never quite made it into the big leagues of filmmaking and had lost nearly $20 million during the nine months ending in November 1981. In February 1982 Orion announced that it would take control of the company. Orion's partners in the $26 million deal to purchase Filmways were E. M. Warburg Pincus & Company, a New York investment house, and Home Box Office, Inc. (HBO), a subsidiary of Time, Inc., that acquired pay and cable television rights to future movies produced by the studio in the deal.

Orion's interest in Filmways stemmed from the company's library of 500 films as well as its distribution operation. Once in power, the new management of Filmways moved to divest the company of its holdings outside the entertainment industry. Accordingly, its unprofitable publishing arm, Grosset & Dunlap, was sold, and Broadcast Electronics, a subsidiary that manufactured radio equipment, was spun off at the end of 1982 under the leadership of the unit's president.

A month after the takeover, Filmways' new owners announced their intentions to make the studio a major player in Hollywood within the next two years. As a first step in this process, Orion dismissed more than 80 Filmways employees from their jobs and brought in 40 of their own people, including 15 executives. In June 1982 Filmways announced that its name would become Orion Pictures Corporation and that the company had been 'quasi-reorganized' to put it on a sound financial footing. With films slated to be released through the end of 1983, Filmways was now able to proceed with a full schedule of operations.

In mid-1984 the newly revamped Orion became involved in a legal battle over control of the film Cotton Club; Orion had invested $15 million in return for distribution rights. In a late June judgement, the studio suffered a partial defeat: the court confirmed the Cotton Club producer's license to negotiate television rights for the film. After an additional Orion investment of $10 million for prints of the movie and for advertising, the studio suffered a loss of $3 million on the project.

By July 1984 Orion had yet to generate a big hit since taking over Filmways and announced intentions to invest $100 million in order to release 12 to 16 movies a year. Of the first 18 movies the company had released as Orion Pictures Corporation, ten had been profitable, five had broken even, and three had notched losses of less than $2 million. 'We've had some singles and doubles,' but haven't 'had any home runs,' chairman Arthur Krim admitted at the company's 1984 annual meeting, according to the Wall Street Journal.

In early 1985 Orion's investor HBO extended its contract with the studio to purchase rights to its films for cable television broadcast; the deal was valued at $50 to $75 million. Included in the agreement were such Orion products as a Woody Allen film entitled Three Amigos, starring Steve Martin, and a Dino DeLaurentis epic, Taipan. The company released 11 movies altogether in 1985, only one of which earned more than $10 million in United States ticket sales. Despite the high expectations that had greeted Orion's founding, the company had not produced a major hit since the release of 10 nearly six years before. The studio's efforts to do so were hampered by an unwieldy distribution system inherited from Filmways as well as its less-than-successful advertising campaigns.

The financially unstable Orion ventured into perilous waters when E. M. Warburg Pincus & Company, one of the studio's original investors, became impatient with the low rate of return on its 20 percent stake in the enterprise. Worried that control of the company would fall into unfriendly hands, Orion's leaders began an urgent search for benevolent investors. In January 1986 Warburg Pincus sold 15 percent of the studio's stock to Viacom International, a cable and broadcasting company. This was a relief to Orion's leaders, since, unlike proposed arrangements with other buyers, the deal with Viacom allowed Orion's managers to retain their positions. At this time, Orion also borrowed heavily to create a wholly owned subsidiary, Orion Home Entertainment Corporation, to distribute the studio's movies as videos.

Orion gained a second set of new investors five months later, when Metromedia, a television and communications concern, purchased a 6.5 percent share in the studio. Metromedia was owned by John W. Kluge, a billionaire reputed to be the richest man in America, and an old friend of Orion Chairman Arthur B. Krim. At the time of the Metromedia purchase, Orion announced that its quarterly income had fallen by more than a third. During the summer of 1986, however, the studio's luck began to change, as Back to School, an aggressively advertised film starring comedian Rodney Dangerfield, fared well at the box office. The movie would go on to become one of the year's biggest money-earners, taking in $90 million.

In December 1986 Metromedia owner Kluge and his partner Stuart Sabotnick spent $20.4 million to increase their stake to 9.3 percent, and eventually to 12.6 percent. Orion got a fourth major shareholder one month later, when National Amusements, Inc., a Massachusetts-based chain of movie theaters, purchased 6.42 percent of the company's stock. These moves fueled speculation that the company might be the target of takeover attempts.

Overall, despite the success of the Back to School, Orion's revenues for fiscal year 1986 dropped dramatically from those of the previous year. The company reported a loss of $32 million, after releasing such expensive flops as Bounty. By March 1987, however, the situation had improved, and the company was able to bask in the glow of a string of critically acclaimed hits, including Platoon, which would go on to win an Academy Award for best picture, Woody Allen's Hannah and Her Sisters, and the basketball epic Hoosiers. With a total of 18 Academy Award nominations, Orion's revenues soared to a level substantially higher than that of any other studio, and the studio had the second-highest revenues from ticket sales at the start of the year. Though by the end of 1987 Orion had slipped to fourth overall in box office receipts, the company had won seven Oscars and scored box office hits with Platoon, Robocop, and No Way Out.

In light of these positive results, Metromedia's John W. Kluge raised his stake in Orion even further in 1987, to nearly 20 percent of the company's stock. Soon Kluge was engaged in a full-scale bidding war with Orion's other major stockholder, Sumner M. Redstone of National Amusement Corporation. National Amusement had purchased all of Orion investor Viacom International, bringing its share of Orion to 21 percent, and then added an additional 5 percent of the company's stock to its holdings for a total of 26 percent. Shortly thereafter, Kluge raised his stake to 31 percent. In February 1988 Redstone filed for permission to increase his share to 36 percent, and Kluge responded by proposing to raise his stake to 57 percent. Outsiders wondered at the wisdom of such a duel. Orion's stock price was driven to perhaps unjustified heights, given the studio's high rate of long-term debt, which had reached 64 percent of capitalization.

Finally, Kluge triumphed on May 20, 1988, when he bought out Redstone's share in Orion for $78 million. Holding nearly 67 percent of Orion, Kluge became the owner of what was, in effect, a private company. Given that Orion's assets did not seem to merit the price paid for its stock, and that control of the company would have remained in friendly hands even without the buyout of Redstone, Wall Street observers were puzzled by the $78 million expenditure by Kluge. 'This amount is probably so small to Kluge it doesn't matter,' one analyst suggested to the Wall Street Journal. 'He probably burns that up in a weekend.'

Orion had reason to hope that this was the case, as the studio released a series of box office bombs in 1989. Orion's offerings that year included Erik the Viking, Heart of Dixie, and The Package. The company came in last in market share among major Hollywood studios, after the 17 films it released notched less than five percent of domestic box office revenues, pulling in just $60 million. Among its most expensive flops were Great Balls of Fire, starring Dennis Quaid as Jerry Lee Lewis and Winona Ryder as his teenage bride; She-Devil, a domestic horror featuring Meryl Streep and Roseanne Arnold; and Valmont, a remake of Les Liaisons Dangereuses, a play that already had been released as a movie in a different version just a few months earlier.

Coming off this awful year, Orion announced a distribution agreement with Columbia Pictures Entertainment in February 1990, in which the much larger studio would release Orion's movies overseas. Columbia paid the studio $175 million as an advance against future earnings from all the films the company produced in the next six years, its next 50 videocassette releases, and some Orion television properties. Orion had previously relied on a patchwork quilt of distribution deals to get its movies into theaters in lucrative overseas markets, and the arrangement with Columbia allowed it to streamline and consolidate its distribution operations.

A week after the Columbia deal was closed, rumors began circulating that Metromedia would sell its share of Orion. Adding to this uncertainty, 1990 soon developed into another bad year for the studio. After releasing such disasters as Hot Spot, State of Grace, and Eve of Destruction, Orion racked up losses of $15.6 million on revenues of $134.9 million. In addition, creative accounting, which had allowed the company to postpone acknowledgement of its losses, began catching up with Orion.

The studio was in dire financial straits when it got a big break in December 1990 with the release Kevin Costner's Western epic Dances with Wolves. The film became a hit, generating well over $100 million at the box office. Orion followed this up in early 1991 with the release of The Silence of the Lambs, a thriller starring Jodie Foster and Anthony Hopkins that also did very well in ticket sales.

Despite these two bright spots, the bulk of Orion's offerings fared poorly at the box office, and Kluge, who had kept the studio afloat through periodic injections of cash, announced that his stake in the company was up for sale. With little to offer, Orion began actively seeking a willing investor.

In March 1991 Dances with Wolves won seven Academy Awards. That brief moment of glory for Orion was only slightly marred by the fact that the Academy Award ceremony's host had joked, according to the Wall Street Journal, that 'Awakenings is a film about people coming out of a coma; Reversal of Fortune is about someone going into a coma, and Dances with Wolves was made by a studio in a coma.'

Indeed, signs of financial life at Orion were growing faint. Two high-profile hits were not enough to redeem several years of money-losing projects. In addition, the company had spent large sums in an attempt to begin producing shows for television, raising its long-term debt to $509 million and accepting the attendant heavy interest payments. The television unit never turned a profit, and it was closed in early 1991. Strapped for cash, Orion began selling off promising film projects, such as The Addams Family, at fire-sale prices in an attempt to stay in business.

In April 1991 Kluge, who still owned the bulk of the company, removed Orion's two top executives, including his friend Arthur B. Krim, and appointed younger executives from within the company to try to turn the studio around. One month later Orion reported a loss of $48 million on its last year of operations ceased interest payments on its debts, and entered negotiations with its unhappy bondholders. As Orion disclosed that legal but questionable accounting practices had hidden the full extent of its losses for much of its time in business, the company was stung by a series of lawsuits from angry shareholders.

By November 1991 Orion's losses had continued to mount, and its debt had reached $690 million. Although the company was trying desperately to reach an agreement with its creditors that would allow it to release films it had finished producing, talks broke down early in the next month. On December 11, 1991, Orion filed for bankruptcy and protection from its creditors in federal court. Planning to reorganize under Chapter 11 of the federal bankruptcy code, it continued to operate as 'debtor in possession' of its business, according to the legal papers.

Later in December 1991, New Line Cinema Corporation, a company that had grown successful with its Nightmare on Elm Street series and the film Teenage Mutant Ninja Turtles, put forward a plan to take over Orion. In February 1992 Orion reported that it had worked out a deal with New Line Cinema, but talks foundered on the issue of price and were finally called off in April.

Studio employees with a taste for irony could have enjoyed the sweep of all five major Academy Awards by Silence of the Lambs, an Orion film, in March 1992, when the doomed negotiations were still in progress. By the time of Orion's posthumous triumph at the Oscars, however, most of its top executives, as well as the actors and producers with whom it had done business, had left the company. In their absence, Orion struggled to come up with a way to renew itself by releasing movies it had already produced. Hollywood observers held scant hope that Orion could be resurrected in anything resembling its previous form. At the time of the collapse of the New Line Cinema deal, one executive told the New York Times, 'the only other plans I'm aware of ... are tantamount to liquidation.' At the end of the summer of 1992, it was uncertain whether Orion would ultimately survive its crisis.

Principal Subsidiaries: Orion Home Entertainment Corporation.