Keeper of the castle.

Alan Horn scans the horizon for a white knight capable of returning Castle Rock Entertainment to its former glory

If you don't believe Hollywood is a capricious business, you haven't talked to Alan Horn.

Horn, who founded Beverly Hills-based Castle Rock Entertainment in 1986 along with partners Rob Reiner and Martin Shafer, was considered one of the hottest producers in Hollywood in 1992 and 1993. At that time, Castle Rock was flush with the success of such hits as "When Harry Met Sally" and "City Slickers."

Then came 1996.

This year has been a catastrophe for Castle Rock, as it was buffeted by savage reviews of its film "Striptease" and low box-office receipts for such expensive flops as "City Hall" and "Othello."

Things got so bad that its former owner, Turner Broadcasting System, was forced to take a $60 million write-off in May on Castle Rock films.

The company's profile has increased in recent months, following the acquisition of Turner by Time Warner Inc. This spring, Castle Rock was up for sale, but the two prospective suitors - Sony Pictures Entertainment and the former MCA Inc. (now known as Universal Studios Inc.) - both dropped out.

Castle Rock is now part of the Time Warner fold. But its future is highly uncertain.

Q: After the collapse of the talks with MCA and Sony, are you negotiating with anybody else to buy the company?

A: The real motivation to explore a sale of Castle Rock came from the acquisition of Turner Broadcasting by Time Warner.

It became clear as we thought about the proposed new company, Time Warner/Turner, that it would have the film units of Warner Bros., New Line Cinema, Castle Rock and Turner Pictures, and the combined expenditure for motion pictures - without marketing costs, without overhead, without development costs, without television - would be upwards of $2 billion a year.

Even for a company grossing almost $20 billion a year, which Time Warner/Turner does, that represents a formidable, daunting amount of money to be spending on movie production.

After the merger, I got unsolicited calls from my friend (Chairman and CEO) Frank Biondi at MCA. He wanted to explore the idea of acquiring Castle Rock, because he liked our product. And the people at Sony were sitting there thinking, Castle Rock has been a big part of our operation for 10 years.

Sony was going through some management turmoil, and the idea of losing us at the end of 1997 was not a happy thought for them (Castle Rock's distribution deal with Sony-owned Columbia Pictures expires at the end of next year). So they thought, maybe we'll buy Castle Rock.

The champion of that idea was (former Sony Pictures chief) Alan Levine, who found himself in trouble with his bosses at Sony. His boss, (Sony Corp. President Nobuyuki) Idei, basically fired him. So the champion of that deal went away.

Meanwhile, over at MCA, Frank Biondi had wanted to do the deal with the support of a couple of partners. He found that those partners weren't as interested anymore because they couldn't agree on internal fees, like what MCA would charge for its distribution.

So the two buyers went away. Now we're at Time Warner, and the truth is that I'm exploring with them the notion of laying off pieces of our film operation on international partners, on deep-pocketed domestic partners. There are companies out there that might wish to be in the content business.

Q: What do you mean by "laying off pieces" of the company?

A: There are two ways to go. One would be to say to different partners around the world, "You can own pieces of our film program. You can own a 20-picture package, and then you can have distribution rights in your territory for television, you can have pay-per-view rights in your territory, you can have very low distribution fees." Or maybe they're distributors, and you could give them all German distribution rights or something.

The point is, you find some deal that makes sense to them above and beyond a simple return-on-investments look at it. They're not going to say, "I'm better off putting a dollar into Castle Rock than a dollar into, say GE stock." No. In that case, I think you're better off investing into mutual funds.

They'll say, "I'll put a dollar into Castle Rock stock, and I get to sell its product in my territory, which gives me other benefits."

The other strategy is just to sell off pieces of the whole company. So that this entity owns 20 percent, that entity owns 20 percent, and Time Warner ends up with its 20 percent. And a consortium would own our company. We're exploring those things now.

Q: Who is going to finance next year's production slate?

A: We have a budget at Time Warner. I don't feel any pressure to get this financing package put together in January or February because I feel that we have the strength of Time Warner. Over the next six months or so, we'll explore the alternatives that make the most sense for us.

Q: Will your experience over the last year lead to any changes in the kind of film projects you consider?

A: I think our experience has taught us that, if it's appropriate to have a star, or a couple of stars, it's more important than it used to be to try to get them. We do believe that we make good movies, and the most disappointing thing is to make a good movie and then not have it open strongly in the marketplace because you couldn't get anybody's attention. That's pretty frustrating.

The second thing we think about is international appeal. The growth marketplace appears to be, generally, international. There are lots of new services coming in, lots of new vehicles lot distribution. That means we're less likely to make a picture that's very talky, very indigenously American and not easily understandable by people in other countries.

Q: And yet, "City Slickers" was a huge hit, and that's a very American picture.

A: It wasn't a big hit internationally. "When Harry Met Sally" was, not "City Slickers."

"City Hall" was a talky movie. We're proud of it, but in the international marketplace, when they realized Al Pacino wasn't going to shoot a gun at anybody, it didn't do too well. They're not going to sit through a movie about power politics in New York City. It doesn't translate well.

Q: What's going to happen with star salaries, considering the importance of star appeal? Will the $20 million-per-picture barrier be breached?

A: Let's say you have a star, and you have a property that's appropriate for that star - like Arnold Schwarzenegger in a "Terminator"-like action picture - and he'll do it. But instead of $20 million, he wants $25 million. You start running numbers, and do you say, "No"? I don't think so.

Q: And yet, it didn't work with Demi Moore. Castle Rock took a lot of flack for paying her $12.5 million for "Striptease."

A: Thanks to Demi Moore, and the fact that she did get all that publicity, that movie ended up being profitable because of its international appeal. If we had a no-name person in there, I think it would have had a much tougher time. We did over $100 million combined domestic and foreign box office, so we will make money on "Striptease?"

You don't just hire a star like Demi because she's a star. She's a star because she's very good. She's a very good actress, she's very beautiful, she's just simply talented, which is why these people emerge as stars. It's not just that they're pretty faces; there are millions of pretty faces. In the case of "Striptease," we needed someone who could convincingly be a mother fighting for custody of her daughter, convincingly be going through a dramatic struggle, and also be someone sexy enough that men would pay to see them take their clothes off. It's hard to find that combination. I think Demi did a sensational job, and I think she was vilified unfairly in the domestic press.

We thought "Striptease" was a good bet, and in fact, it made money.

Snapshot

Alan F. Horn 

Company: Castle Rock Entertainment

Title: Co-founder, Chairman and Chief Executive Officer

Born: New York City, 1943

Education: B.A. in economics, Union College, Schenectady, N.Y.; M.B.A., Harvard Business School, Boston

Most Admired Person: Gus McCrae, a fictional character in the Larry McMurtry novel "Lonesome Dove."

Hobbies: Karate (third-degree black belt), Western art collecting, tennis, swimming, bicycling.

Career Turning Point: Meeting Norman Lear, Jerry Perenchio and Bud Yorking (who hired him to run Lear's Tandem Productions in 1973).

Personal: Wife, two daughters.