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MONEY

Try Harder, Part II: FilmStar Inc.'s Surprise Ending
 

Filmstar Inc. set out to change the market for independent-film financing and distribution. All didn't go as planned.
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If Filmstar Inc. were a movie, it might be rated two and a half stars. Its performance hasn't been overwhelming -- but it hasn't been terrible, either.

The Los Angeles company set out to do two things: it would help be a one-stop supermarket service for independent filmmakers, arranging for financing, distribution, merchandising, marketing, or whatever else was needed. The independent filmmakers could buy single services or the whole package for set fees, thereby giving Filmstar a stable, predictable income that wasn't dependent on the success of the films it worked on. The company also planned to acquire foreign distribution rights to independent production. The foreign-rights business would be risky and capital intensive, balancing a potentially huge upside against the possibility that a Filmstar-backed movie could flop.

Filmstar founder and chairman Harlan Kleiman projected $9.7 million in revenues for 1990 and instead had about $6 million; he projected half a million in profits and instead came in somewhere under break-even. Filmstar has evolved as it's grown and has grown more slowly than was forecasted -- rewriting its own script, so to speak, in the middle of a shoot.

There were headaches that Kleiman didn't predict -- such as its first big film being delivered 16 months late, tying up substantial resources. Just as bad, too: the company's underwriter went out of business back in April.

"The biggest problem was [the underwriter] didn't tell us it was happening," says Kleiman, "until all of a sudden one day it had happened." The company's stock, traded on NASDAQ, has dipped to less than $1 a share from $2 a year ago. With all that going on, the company scrubbed its planned search for $5 million in straight or convertible debt. "We didn't want the dilution," Kleiman says. "Although we didn't have a great deal of cash, we were waiting for a more opportune time." That's the reason growth was slow, he says -- the extra cash was needed for growth. One option will be to turn to the company's directors. Kleiman says they have agreed to help back up letters of credit for Filmstar clients on a project-by-project basis.

"We're very close to seeing two extremely healthy companies," he stresses. "We feel comfortable in the service-company niche and see tremendous growth potential with the consolidation and globalization of the film industry. Especially the globalization -- we understand the worldwide marketplace, and we're selling in 30 or 40 countries already."

Kleiman's biggest pain in the past year, though, has been managing a public company. Though he'd managed 6,000 employees and had stints as a senior executive at both HBO and Warner Communications, "I was new at this whole investment-banking area, and I'm still new at it," Kleiman says. "What I've learned is one thing: that you do your job and notice will follow. Probably six months to a year behind you, but people will discover it." -- Leslie Brokaw

THE COMPANY

Filmstar Inc., a public company offering financial and marketing services to independent film producers ("So You Wanna Be in Pictures," November 1989, [Article link])


EXPERTS' CONCERNS

* Financing: Will the company have enough money to acquire lucrative foreign-distribution rights and back letters of credit for clients?

* Savvy: Will the company invest in films that make a profit?

Results to Date 1990: Projected Actual*

Revenues $9,703,000 $6,000,000

Net income 520,000 (loss)

Cash at year-end 2,680,000 650,000

* fiscal year extended one month; final year-end numbers not available at press time

Last updated: Oct 1, 1990




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