Monsters Inc

When Harvey Weinstein used the film Fahrenheit 9/11 to detonate the relationship between Miramax and its corporate parent, the Walt Disney Company, he may well have gotten more than he bargained for. In Weinstein's hands, Michael Moore's anti-Bush missile became a suicide bomb, just as likely to destroy the Miramax co-chair as to shake up Disney. To Disney CEO Michael Eisner, after harbouring Harvey for over a decade, it must have felt like that classic scene in the original Alien where the creature - its glistening, mucoidal tentacles flailing wildly - bursts through the chest of an unlucky crew member. Now that the thing is loose, the question is: what now?

Ever since Jeffrey Katzenberg, then Disney chairman, put out the first feelers to Miramax on April Fool's Day, 1993, Miramax has been regarded as a foreign body within the Disney organism, always in danger of being rejected. When the deal was consummated a short time later, industry pundits raised their eyebrows. It was hard to imagine two companies whose cultures were less suited to each other. Disney stood for everything the Weinsteins hated, or claimed to hate. Bob Weinstein had been quoted as saying: "We don't want to grow up and be another Walt Disney."

Disney was, after all, the family-friendly, white-bread home of Donald Duck and Mickey Mouse, while Miramax had prospered by fanning the flames of controversy. What would Uncle Walt have made of the wild Jews from Queens, or their films-shockers such as The Cook, the Thief, His Wife and Her Lover, or Reservoir Dogs, with its famous ear-slicing sequence. Or even their huge hit, The Crying Game, with its jaw-dropping anatomical surprise? It seemed clear that this was a marriage of convenience, not affection, and most observers predicted it would end in a messy divorce. But the deal they struck was so advantageous to both companies that the simmering feud between the two took more than a decade to boil over.

Miramax was coming off two lean years. To many Hollywood players it looked as if the company was on the edge of bankruptcy, and the Disney offer was a godsend. Eisner, too, was highly motivated. He had been uneasily watching his competitors get a foothold in television. Says Katzenberg: "Michael did not want to buy cable, he did not want to buy a network, because he felt we were too late. Our strategy was to extend our reach in terms of content. If we had a large enough control of the product being made, these so-called gatekeepers - the Rupert Murdochs, the Viacoms, the Time Warners that did own cable and network - would always have to deal with us. Miramax was the big building block in that strategy." It went beyond that, explains Chris McGurk, who was CFO at the time. "We'd had a couple of years of poor performance and he probably saw Harvey as a backstop."

For Disney, one of the most attractive things about Miramax was its business plan. "The big cost in the movie business, once you've made the movie, is how much you spend on TV advertising, and they just didn't do that," says Joe Roth, who would become chairman of Disney after Katzenberg left in 1994. "What they were brilliant at was not going into the field and spending $20m on TV until they knew it was going to work. So they didn't have movies that lost $30m, $40m, whereas other studios have four or five of them a year. And every year they had some kind of a breakout."

From an economic standpoint, everything seemed to make sense right off the bat. Says McGurk: "We laid out on a piece of paper how we would help Miramax take over the independent world and kill everybody."

The deal was signed in the conference room of the Team Disney building. All told, it was worth something over $100m to Miramax. The Weinsteins were guaranteed autonomy. As Harvey puts it: "If we lived within a cap of $12.5m per picture, nobody could tell us what to do." According to one source, when he returned to his New York office, he told the staff: "I finally found someone to buy this shithole!"

But it wasn't long before the relationship between Disney and Miramax turned rocky. To Miramax, the Disney executives came off as arrogant suits. Jack Foley, the Weinsteins' distribution head recalls: "You had this efficiency machine at Disney coming over into chaosville, saying, 'This is what you should do.' They put an audit on us, and the Disney auditors were truly the most Draconian, Machiavellian, Kafkaesque bureaucrats you'd ever want to meet in your life. They were trying to bash us."

On the Disney side, almost everyone with whom the Weinsteins dealt, especially the middle-level executives, regarded them as little better than dog hair. McGurk says: "Miramax was set up to be an autonomous business that lived outside the rules. To Disney executives they were this outlaw company that leeched off the Disney divisions and made the executives look bad because they were doing so well, so they hated that." Roth adds: "Miramax acted like Disney was just another company, and to [them], it felt like they were being forced to support a competitor."

Not only were Disney forced to piggyback Miramax product on to their own, they disliked the product, so different from what they were used to. Says one former Disney executive: "Their packaging sucked; the trailers sucked; there was no awareness of their pictures, because they were never distributed in the small towns between the coasts. Plus, Bob and Harvey were disagreeable sons of bitches to talk to over the phone. If you're a salesman at Buena Vista Home Video, and your bonus is based on how much you sell, do you want to push The Lion King? Or do you want to push The Cook, the Thief? Their video business was like a booger on your finger that you couldn't flick off!"

At first, Eisner supported Harvey but, says Roth: "They were enough alike to really not get along. They had some pretty big fights." As former Disney CFO Rob Moore puts it: "People who did stuff for them, they liked, and people who didn't do stuff for them, they hated. You were their best friend or they wanted to run you over. There was no grey area with them." The Weinsteins showed up at a corporate retreat one year wearing T-shirts that read "corporately irresponsible", which pretty well summed up their attitude.

In 1995, Miramax acquired a film, Priest, about a gay Catholic priest, which created a firestorm of protest: anti-semitic hate letters, death threats etc. Harvey had planned to release it on Good Friday. Some Disney executives were reportedly furious that Miramax had acquired the film in the first place, knowing they couldn't release an NC-17 movie. They took it personally. As one says: "He was doing it just to fuck with Michael. I believe that they got extreme pleasure out biting the hand that fed them. Psychologically, it makes them think that they're still independent, that they didn't sell out to a large conglomerate. But they did. They traded money for freedom." Adds Roth: "We had a couple of years - 1994, 95 - when it was rough going. The amount of controversy that was connected up to Disney was terrible. There was definitely a conversation about how do you continue a business and make a profit when you are so connected to these two guys."

Nevertheless, despite the spats - the raised voices, thrown dishes, and slammed doors - Miramax was making money, winning Oscars and beefing up its library. As Moore puts it: "Miramax was delivering, and Disney was delivering." Both sides had strong incentives to make the arrangement work. Disney understood that without the Weinsteins, Miramax was just an empty shell. For their part, the brothers knew that Disney owned the ground they stood on, which is to say, the name and the library, and that financing them from scratch would be an expensive proposition for any other studio.

Besides, their deal was structured so that if they were to walk, they would be leaving too much money on the table. They were milking the Disney cow in too many ways. At one point - after Priest, and then Kids, another controversial film - McGurk went to Eisner and asked: "Hey, do you want me to go and sell Miramax? Because I would love to get a multiple of 10 on what we paid for it." Eisner responded: "As long as I'm around, we're never selling that company." McGurk explains: "He thought that they had built one of the best brands in the business, so all that talk of leaving was baloney, on both sides. Look what Disney did with their business. They couldn't get arrested from a profit standpoint before Disney bought them, and now they're making $150m a year."

Cut to the early years of the new millennium, when the uneasy relationship between Eisner and Harvey had exploded into open warfare. What had changed? For one thing, Harvey's success had made him more ambitious. After the run of $100m hits in the middle of the 1990s, such as Pulp Fiction, The English Patient, Good Will Hunting, and Shakespeare in Love, Weinstein was no longer content to make small films that made small profits. He spoke directly about competing with the studios. On the last weekend of January, 1999, Miramax released She's All That, starring Freddie Prinze Jr, and won the weekend. According to director Kevin Smith, "Harvey was incredibly proud" of She's All That. He told Eisner: "I wanted to prove to them that I could make a piece of shit and compete on their level. And I did."

Ironically, it was Eisner who brought him up short, telling him that he should have released it through Dimension, Bob Weinstein's genre label. It was not a Miramax movie. Eisner had a substantial investment in the Miramax name, and he knew that Harvey's ego had committed a crime against the brand that was stupid and potentially costly.

Eisner recognised that Harvey was not only doing the independent world a disservice, he was also sabotaging himself. By virtue of going toe-to-toe with the studios, Harvey began to deny himself the very advantages that had contributed to Miramax's success in the past. As McGurk puts it: "The original business model was founded on them doing movies where the total investment was less than $15m, and generally less than $10m. If they found a diamond in the rough, like The English Patient, they could spend a lot of money on marketing and their overall investment would still be lower than the average. Now the average cost of a Miramax movie has got to be $30m, $40m, $50m. As they've gotten bigger and bigger, the old model might just as well be thrown in the waste basket."

Harvey went on to lose at least $37m on Talk magazine, a venture he started in the face of Eisner's fierce opposition. He also financed a series of substantially budgeted, studio-type movies such as Kate and Leopold at $50-odd million, and Cold Mountain - essentially a story about a man walking home through the woods that could have been shot by the old Miramax for $2m - for more than $80m. Harvey even optioned the Green Hornet comic strip, which he intended as his very own Spider-Man.

Nobody likes a loser, which is what Harvey was fast becoming. He went through a long drought, from Shakespeare in Love in 1998 to Chicago in 2003, producing a series of high-profile duds such as The Shipping News and Gangs of New York. Bob Weinstein was making the money, but even he was running out of steam. Meanwhile, Eisner was having his own troubles: Katzenberg's humiliating lawsuit, launched after he was denied promotion, which Eisner was forced to settle out of court for about $250m; the Mike Ovitz debacle and ensuing suit from stockholders, who were furious that Ovitz was hired and fired at great expense within 14 months; plunging profits at Disney; and a campaign to get rid of Eisner himself, run by Walt's nephew Roy Disney.Eisner and Harvey, like two wounded grizzly bears, turned on each other.

The Weinsteins, who have always thought they could do a better job running Disney than Eisner and his team, became openly critical of the CEO's judgement, starting with his refusal to let Miramax produce Lord of the Rings. "Let's not forget who was the guy who believed in it first," says Harvey, speaking of himself in the third person, "and to his detriment couldn't get his own company to back his vision. With the way they exploit theme parks, that one decision cost the company maybe a billion dollars."

The Weinsteins have been operating within an annual $700m budget cap. According to Harvey, Disney tried to lower the cap to $500m, in part by changing the formula by which foreign sales can be used to offset costs. From the Weinsteins' point of view, Disney started to nickel-and-dime them. "They're in financial trouble, and they're trying to renegotiate the deal," Harvey says. It has always killed the Weinsteins to share the profits with anyone - agents, producers, investors, film-makers or employees - and this must have been doubly true of Disney. As Cassian Elwes, an agent, says: "I'm sure at the back of their minds is that nagging thought that had they managed to remain independent and had the success that they've had over the last eight years, they'd be billionaires as opposed to multi-millionaires."

Eisner ordered an audit of Miramax books in 2002 - such audits are annoying, if fairly common - but the Weinsteins retaliated by hiring two high-powered attorneys, Bert Field and David Boies, to find legal grounds for a counter-audit of the Disney books pertaining to their video and international TV distribution of Miramax product. "They get to see my books all the time, so there's no hiding what we do," says Harvey. "On the flip side, Bob and I's pay is determined by accounting from Disney. I don't get to see everything unless I ask for an audit." Disney claims that Miramax has only been profitable two out of the past five years, which Miramax denies.

The Fahrenheit 9/11 brouhaha (Miramax claimed that Disney refused to allow it to release the film), along with the ensuing success of Michael Moore's film, were pawns in Miramax's ongoing struggle with Disney. Both sides have, of course, been as busy as spiders spinning the story, with Miramax touting unnamed investors who are on the verge of buying their company for them, while Disney, with an eye to the stockholders' suit, maintains that it is ready to entertain legitimate offers. But it has always seemed unlikely that Eisner would sell the Miramax name and library - the company's two biggest assets - back to the hated Weinstein brothers. And for their part, life outside the Disney umbrella seems like a grim prospect. Moreover, raising the kind of equity that would keep them in the lifestyle to which they've become accustomed seems equally questionable. Besides, most of the reports of a Miramax buyout have come from the Weinstein's assets in the New York press. That is, it seems likely that Miramax has planted them to pressure Disney into backing off.

The latest rumour - Bob Weinstein stays at Disney with Miramax, while Harvey becomes an independent producer, releasing through his brother - sounds more plausible. After all, Bob, with his eye on the bottom line, seems more in line with the Disney mentality, while Harvey is very much of a loose cannon. If Harvey can raise enough private equity to set himself up like Joe Roth at Revolution, he might indeed be able to partner with the studios in Dumbo-sized movies.

But we're talking a lot of money here, as much as $500-$700m a year. True, there seems to be an endless supply of billionaires just dying to blow their cash in the film business, so it's conceivable that Harvey can bag his pigeons. Plus, he's on a roll, what with Fahrenheit 9/11 and Zhang Yimou's Hero, which has succeeded in spite of him. (He overpaid for it and then shelved it for two years.) But it won't be easy.

Besides, many studio bosses have seriously mixed feelings about the Miramax co-chairman, and may be reluctant to get in bed with him. MGM, run by old Weinstein friend McGurk, seemed like a likely partner, but that studio has fallen to Sony. Moreover, Harvey won't be putting out 40 pictures a year any more, and with a severely downsized slate of releases - expensive ones at that - he'll be taking a studio-sized risk on every one. In other words, Harvey did manage to embarrass Eisner with Fahrenheit 9/11, but he may yet pay a high price, which may be the reason he now seems to be weighing his options once again. With Eisner announcing his exit from his CEO post in 2006, and under pressure from his enemies to leave sooner, why not hang in and wait him out - although it's far from clear that his successor, whoever it is, will regard Harvey any more favourably. Meanwhile, Miramax has been shedding dead skin like a snake, ostensibly with the object of convincing Disney that it is a for real profitable business. But this may be a case of too little, too late.

For beleaguered New York Mets baseball fans, the best-case scenario has him quitting the film business while he's ahead (he's already got his Oscar and more money than he can spend in a slew of lifetimes), and buying out the team's clueless owners, as he has said he'd love to do. It probably wouldn't take him more than a year or two for him to get them into the World Series, facing George Steinbrenner's Yankees - winners of the title four times in the past 10 years.

· Peter Biskind is the author of Easy Riders, Raging Bulls. His current book, Down and Dirty Pictures, is out now, published by Bloomsbury. He is also a contributing editor to Vanity Fair.