The Kushner-Locke Company History

Company Perspectives:

The Kushner-Locke Company produces and distributes theatrical, television and video entertainment software, including infomercials and related product sales, throughout the world in all genres and budget ranges. As one of the few surviving independent production companies, we move quickly to seize opportunities in the changing market place, while simultaneously managing our resources in a conservative and prudent manner. Our considerable library of film and television products, which we continue to actively license throughout the world, provides a stable anchor for our continued growth.

Company History:

The Kushner-Locke Company is an independent entertainment company based in Los Angeles. The company's primary business is the production and distribution of television programs and feature films for an international market. Kushner-Locke's television programs include series, mini-series, movies, animation, reality, and game show programs for the major networks, cable TV, first-run syndication, and international markets. Feature films are produced for the motion picture, cable, and video markets.

Beginnings in Television Production

The company was founded in 1980 by Peter Locke and Donald Kushner, who had been fraternity brothers at Syracuse University. At first, Kushner-Locke's primary business was syndicated television programs (such as its early production of the five-year series "Divorce Court") and movies, specials and series for cable and network TV. These types of programs generally break even domestically, with potential profits based on international distribution. Kushner-Locke soon developed a reputation for providing reliable, low-budget programming on time. Managerial decisions exhibited a low-risk philosophy, aimed at reliable niche markets which produced predictably safe returns but few major hits. This conservative strategy contrasted sharply with the excesses of the production industry as a whole, making the company attractive to investors.

For a decade and a half, the company acted as a "producer for hire," by releasing its productions to major networks for a fee. This strategy helped keep risks low, but also deprived the company of its rightful earnings after syndication or resale of its productions. In 1995, to retain more of the financial pot, the company created a joint venture and distribution subsidiary with New City Releasing, Inc.: KLC/New City Ventures (later KLC/New City Televentures), widening its profit margins. Under the auspices of KLC/New City, the company would acquire or produce 107 films between 1996 and 1998, filling the growing cable and pay-per-view markets. KLC productions included many HBO originals and world premieres for pay cable networks (including Oliver Stone's Freeway and Last Time I Committed Suicide with Keanu Reeves).

Financial Struggles and Feature Films

In 1993, strategically moving beyond TV to increase potential profits, Kushner-Locke had begun producing feature films. The next year, an international distribution subsidiary was established. The company put into place a 12-person foreign distribution staff to bolster international sales, but the results were slow. By 1996, feature films comprised 32 percent of the company's revenues, but none of its earnings. That year, the company produced what it hoped would be its first blockbuster film: The Legend of Pinocchio, starring Martin Landau and animatronic puppets. Pinocchio was a disappointment, grossing $16 million at the domestic box office (with costs of $29 million). By 1997, Pinocchio had made some money for the company through foreign sales, and André the Seal (another family title) also showed a slight profit. Deals with directors Oliver Stone and Robert Altman and producer Joel Silver (Lethal Weapon) were made, in hopes of producing the successful film Pinocchio was to have been. With Altman's production company (Sandcastle 5), Kushner-Locke coproduced "The Gun," an ABC TV series.

Between 1992 and 1996, Kushner-Locke incurred annual losses, which it supported in part by selling stock--five secondary offerings. To finance its losses, the company almost doubled its capitalization by authorizing 70 million new shares of stock. Earnings during this period fluctuated, reflecting changing strategies and activities. In 1993, revenues were $42.5 million, but two years later, in 1995, sales dropped to $20.4 million. In addition to the meager profit margin of TV programs, the company encountered financial problems linked to its amortization strategies. A prime example was the company's decision to take a $7 million write-off in 1994 on a distribution contract to syndicate a 1984 HBO sitcom starring O. J. Simpson. Normally, three-quarters of the company's film production costs were spread over three years, a practice accountants considered with skepticism. In August 1997, with no capital to fund production, the company borrowed $37.7 million on an existing $40 million credit line through Chase Manhattan. By the next month, the credit line was increased to $60 million, causing rumors that Kushner-Locke was preparing for a sell-off. To make the company more attractive to investors, a 1-for-6 reverse stock split was instituted. The company hired Allen & Co., an entertainment investment banking firm, to help assess business strategies, including financing, relationships, and mergers and acquisitions. Again, fluctuating revenue reflected changing strategies. In 1996, revenues reached a record $80.2 million. The next year, sales dropped to $56.9 million, but management of unconsolidated joint ventures resulted in an additional $24.7 million.

Diversification in the Late 1990s

In the late 1990s, Kushner-Locke moved in several directions to raise its profile with major broadcast networks and film studios. The company's initiatives resulted in high Wall Street ratings. Coproduction deals were the rage in 1997, with European companies seeking helping hands to ease their transition into the competitive U.S. market. Granada, Europe's most prolific TV production company, launched a partnership with Kushner-Locke around the release of its British drama "Cracker." The show would air in an extremely competitive time slot on ABC: Thursdays at 9 p.m., opposite NBC's outrageously popular "Seinfeld" and the new, eagerly awaited "Veronica's Closet." International coproduction continued to be a priority with the elaborate filming of Beowulf, a big-budget (estimated at $18-$20 million) Christopher Lambert film shot in Romania and coproduced with Threshold Entertainment and Capitol Films. Post-communist Romania was an extremely cost-effective place to shoot films, and the elaborate sets of Beowulf would not have been possible in Los Angeles within budgetary constraints. A castle was created in Romania, combining aspects of many existing castles.

Filming in Romania was not unusual for Kushner-Locke. Between 1993 and 1998, the company had explored numerous international settings, shooting films in Canada, Mexico, Costa Rica, Australia, New Zealand, England, Scotland, Wales, the Czech Republic, Romania, Estonia, Bulgaria, Israel, South Africa, and Mauritius.

The company began to employ a two-tiered approach to the feature film market, producing major releases and low to moderate budget films. The Adventures of Pinocchio (1996) and Basil (1997) were major releases. Four films in the lower tier premiered at the Sundance Film Festival in 1996-97. In October 1997, K-L International implemented a MIFED slate of five films to expand the company's feature film presence and create more international appeal. These films included: Susan's Plan, directed by Blues Brothers creator John Landis and featuring Titanic star Billy Zane; Girl, starring Dominique Swain (of Lolita); A New Life, with Tom Berenger and directed by John Flynn; The Point Men, a Christopher Lambert action film; and Tax Man, a Joseph Pantoliano action thriller. Other projects in 1997 included a $20 million action film (One Man's Hero), the $4 million comedy Denial, and an $8 million period drama (Basil). An agreement was made giving Kushner-Locke International foreign rights to Ted Demme's $10 million Noose, and another deal was made to cofinance and distribute Beowulf and Mercy with UK-based Capital Films. Kushner-Locke International also launched a three-year, 15-film agreement with Disney Channel in the United Kingdom. In all, Kushner-Locke's network and studio partners included ABC, NBC, CBS, HBO, Showtime, Disney, Twentieth Century Fox, and Universal. In 1997, the company hired Pascal Borno as president of international distribution operations. Borno's Conquistador Films provided a number of films--including Basil and Double Tap--which generated over 35 percent of revenues that year.

TV programs generated 40 percent of revenues in fiscal 1997. Major TV sellers were Robert Altman's "Gun," "Cracker" (starring Robert Pastorelli), and "Hammer" (starring Stacy Keach). The company also produced a made-for-TV movie detective series with Brian Dennehy playing Jack Reed. Building upon an existing partnership, Kushner-Locke extended a one-year housing agreement with Robert Altman's Sandcastle 5 Productions. Altman and "Doonesbury" creator Garry Trudeau joined forces to develop a one-hour pilot soap, "Silicon Valley," produced through Kushner-Locke for ABC. The pilot led to a series entitled "Killer App."

Family programming was identified as a lucrative growth area. With Hyperion, Kushner-Locke produced an animated hit called "Brave Little Toaster," which would generate two sequels produced by the company's BLT Ventures for the Disney channel. Between 1996 and 1998, the company produced or acquired 25 family films, including Pinocchio and André. A highly successful 1998 production was the television series "Mowgli: The New Adventures of the Jungle Book," which accounted for 44 percent of first quarter revenues. "Mowgli" premiered in February 1998 on the Fox Kids Network, and was the highest rated show in its time slot.

Launching an exploration of new media and interactive television, the company began to distribute Christian music. Through TV First, a Kushner-Locke joint venture, the company produced an infomercial entitled "Keep the Faith," marketing Christian CDs and tapes. A 40-city concert tour took place to support "Keep the Faith" in 1997, and Kushner-Locke oversaw the mass marketing of Christian music in Wal-Mart and other retail stores. In 1998, Kushner-Locke acquired the company 800-US-SEARCH, which provides professional search assistance for friends or relatives.

Looking Backward: A Rerun Library

In addition to successes in the diversified production of new movies and television programs, what really turned the financial picture around for Kushner-Locke in 1997 was its 200-title library of film and TV reruns, valued at approximately $65 million. Library titles included the five-year "Divorce Court" program, the game show "Conniption," and the HBO football comedy "First and Ten." Local and international television station buyers began to patronize the company's library for their reruns, representing between $10 and $13 million in annual sales. At the same time, Hollywood was experiencing a rash of mergers. With most independent companies purchased by larger production houses. Kushner-Locke stood out as one of the only independent companies to sustain its independence.

Looking Forward: New Movies and the Latin Market

In 1998, the company launched a three-year coproduction and foreign distribution deal with Universal Pictures. Under the agreement, Kushner-Locke and Universal would jointly produce, finance, and distribute nine pictures with $35 million or less budgets between 1998 and 2001. The company also premiered Gran Canal Latino, a movie satellite channel aimed at Latin America and Spanish-speaking U.S. markets, and a joint venture with Enrique Cerezo, a company with one of the largest catalogues of classic and contemporary Spanish language feature films. Through Gran Canal Latino, the company planned to air a minimum of 400 movies annually for five years. In January 1998, Air Bud was released throughout Latin America, and Freeway was shown in Mexico. In April 1998, Kushner-Locke announced that it had closed over $5 million in television deals in Latin America, with library titles licensed to Diprom (Argentina), Cine Canal and Multivision (pan Latin America), Televisa (Mexico), Caracol (Colombia), and HBO-Olé.

Having survived as one of the few remaining independent production companies in Hollywood, Kushner-Locke managed its longevity by minimizing risk and maximizing effective partnership relationships. Known for its careful, conservative philosophy, the company, despite a lack of blockbusters, remained balanced by its reliable, steady flow of products for an ever-changing media market.

Principal Subsidiaries: Kushner-Locke International; 800-US-SEARCH; TV First; KLC/New City Televentures (82.5%).

Further Reading:

• Bacal, Simon, "Transylvania Gives Good Grit," Variety, February 20, 1998.
• Carver, Benedict, "Kushner-Locke Boosts Credit Line," Screen International, September 19, 1997.
• ------, "Landis Joins Kushner-Locke Family," Screen International, October 17, 1997.
• Chetwynd, Josh, "Zane Makes Post-'Titanic' 'Plan'," Hollywood Reporter, April 15, 1998.
• De Moraes, Lisa, "Altman's Chips Put on 'Silicon'," Hollywood Reporter, November 20, 1997.
• Hindes, Andrew, and Benedict Carver, "Kushner Locked Up: U Inks Co-Prod'n, Distrib Deal for up to 9 Pix," Variety, May 14, 1998.
• Jamgocyan, Nik, "Kushner-Locke Speaks Spanish: Outfit Pacts with Enrique Cerezo to Launch Spanish-Only Channel for Americas," Screen International, June 5, 1998.
• "The Kushner-Locke Company Reports Results of First Quarter of Fiscal 1998," Los Angeles: Kushner-Locke Company, February 17, 1998.
• "The Kushner-Locke Company Sets Strategic Alliances in Latin America with More Than $5 Million in Television Deals," Los Angeles: Kushner-Locke Company, April 1, 1998.
• Le Franco, Robert, "Coming to a Stockbroker Near You," Forbes, December 30, 1996, pp. 68-69.
• Sharkey, Betsy, "Indie on a Fast Track," Mediaweek, January 5, 1998.
• Stanley, T. L., "Spread the Risk, Share the Riches?", Mediaweek, June 2, 1997, pp. 522-24.
• Veverka, Mark, "Kushner-Locke Shareholders May Have a Hit on Their Hands," Wall Street Journal/California, November 26, 1997.
• "What We Do," Los Angeles: Kushner-Locke Company, 1998.

Source: International Directory of Company Histories, Vol. 25. St. James Press, 1999.

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