Atlantic Entertainment struggles under debt load.

Atlantic Entertainment struggles under debt load

Founder, other executives leave 15-year-old company

Tom Coleman may be feeling like he's just been rescued from the Titanic.

But actually, it's the Atlantic he's been rescued from.

The Atlantic Entertainment Group, the Hollywood-based movie production-and-distribution company Coleman founded in 1974, is struggling to keep afloat these days.

Seven of its top executives, including president Jonathan Dana, jumped ship last month. And the company fired 31 employees, reportedly to appease a disgruntled creditor's cost-cutting demands.

But Coleman has escaped Atlantic's sinking relatively unscathed, having sold the company to Indianapolis-based Kartes Video Communications in January for $55 million.

While he has received very little cash from the deal, due to the apparent financial difficulties of Kartes' principal shareholder Alan Saffron, Coleman did get out from under Atlantic's $45 million debt load.

He accepted about $10 million in commercial paper for the balance. But that paper now appears to be of dubious value.

"I can't believe someone would get into this venture so undercapitalized," Coleman laments. "(Saffron and his investor group) convinced me to take some paper over a relatively long period of time. Should they fail to meet their obligations, no one will be more damaged than I will."

However, Saffron's group already appears to be having trouble meeting certain obligations.

Atlantic officials refused to comment on any of its reported difficulties last week, stating that a major announcement would be made this week about Atlantic's current state and future fate.

The company is reported to have recently sold its four adjacent Sunset Boulevard office buildings to Alan J. Sternberg, one of the Atlantic execs who resigned last month, after having missed both the first- and second-mortgage payments on the buildings.

Sternberg resigned after getting into a brawl June 26 at Atlantic's Hollywood headquarters. During a dispute about Sternberg pulling his capital out of the sinking company, he reportedly punched fellow Atlantic exec Francis Mechner in the chest.

On another front, Atlantic reportedly cancelled all three of its recently signed distribution deals last month. Those deals involved the upcoming films "Strapless," "Venus Peter" and "Wired," the controversial film about comedian John Belushi's life.

Saffron and his group have reportedly not been making timely payments to Atlantic's creditors and employees either, according to Hollywood trade papers.

While Coleman expresses some distress over seeing his former company floundering, he apparently has no regrets about selling out.

"Making modestly budgeted movies that you have to distribute yourself is not a good business to be in now," says Coleman. "I had to sell (Atlantic) to finance all those movies I was losing money on."

While Coleman refuses to blame Atlantic's troubles on the failure of any particular movies, some recent Atlantic releases include the less-than-successful "Teen Wolf Too," "1969" and "Patty Hearst."

After years of producing low-budget movies in the $2 million range, including the highly successful Michael J. Fox film "Teen Wolf," Atlantic began increasing its production budgets, much like The Cannon Group did in the mid-1980s.

Established stars, such as James Woods, Melanie Griffith and Barbara Hershey, were hired and the company's per-picture budgets began creeping into the $6 million range.

At that time, Atlantic had a three-year pact with Paramount Pictures Corp. in which Paramount distributed all Atlantic movies in non-theatrical markets (video, pay-per-view, cable).

In exchange, Atlantic got a flat, guaranteed amount.

"We'd get $2 million when we had a hit and $2 million when we had a stiff," Coleman explains. "There's no way you can give away your video rights and continue carrying theatrical distribution costs."

Atlantic distributes its own movies theatrically, which is a high-overhead operation.

To solve this problem, Coleman decided to merge Atlantic with publicly traded Prism Entertainment Corp., a Century City-based video distribution company.

Once Atlantic's deal with Paramount expired in 1988, and its merger with Prism went through, the combined Atlantic-Prism company would have its fingers in the lucrative video pie. And this, Coleman reasoned, would offset Atlantic's higher movie budgets.

But the merger fell apart last September.

"I was nine months in a lock-up with that deal," Coleman remembers. "When it failed, I was caught with my pants down."

But Coleman regained his composure quickly.

Selling off Atlantic, he formed Independent Releasing Corp.

Then, just last month, he acquired the pay-per-view firm Choice Entertainment and video concern Video Publications Inc.

To gain access to public finance markets, Coleman is now merging his Independent Releasing Corp. with publicly traded Independent Entertainment Group, an over-the-counter movie production company owned by his brothers, William and Dan Coleman.

The merger, which Coleman expects to be complete in two months, would combine Coleman's three companies with his brothers' production company, Vision Pictures Inc., under the Independent Entertainment Group banner.

In the non-cash deal, Tom Coleman would emerge as majority shareholder of the new company.

A 100-for-one reverse stock split is planned as soon as the merger closes, Coleman says, to raise the per-share price enough to get the company's stock on the national listing of the National Association of Securities Dealers Automated Quotation system. NASDAQ has several levels, with the most prominent over-the-counter stocks being on the national listing.

The company is also planning a $5 million to $8 million secondary stock offering in August, he says.

While Coleman's operations are diversified, his focus is clearly on Choice Entertainment and the pay-per-view market.

"I am very enamored with pay-per-view," Coleman says. "I think it will be the most dramatic new ancillary market the entertainment industry has ever seen, bigger than video or pay TV."

Pay-per-view involves pre-payment by viewers wanting to see a particular program, usually a concert or sports event.

Industry analysts estimate pay-per-view now generates about $500 million in annual revenues, and that these annual revenues will grow to $4.1 billion by 1997.

Unlike regular pay TV, where viewers are supplied with a continuous stream of programming, pay-per-view involves the delivery of one specific program.

"The (Sugar Ray) Leonard-(Thomas) Hearns fight did $60 million in one night," effuses Coleman.

Choice, Coleman's company, distributed the fight regionally -- to California and Hawaii -- and grossed about $6 million on it.

"We did $5.5 million in Southern California alone; not bad for one night," Coleman says. "You get a few of those things going a month, and you're in pretty good shape."

Pay-per-view programming is currently available only to cable subscribers. And that total market is now about 12.5 million homes, Coleman estimated.

In addition, subscribers can only see those pay-per-view programs being offered by the cable service to which they subscribe.

"We're at the mercy of the cable operators right now," Coleman laments, "which means we (Choice) have to give them (cable operators) a significant piece of the pay-per-view pie."

While pay-per-view may still be in its infancy, with cable operators firmly in control, Coleman says he is now bidding on a new technology that could change all that.

"It involves a technology that makes any TV set addressable (capable of receiving pay-per-view), even those not hooked up to cable," he says. "The possibilities are immense."

Coleman's new company is also launching the Independent Pay-Per-View Movie Network, which will begin distributing pay-per-view movies in September.