SMALL AND SMALLER; DESTINATION FILM DISTRIBUTION GOES AFTER MARKET SEGMENT STUDIOS ARE IGNORING: THE MIDDLE.

Byline: Dave McNary Daily News Staff Writer

The man who gave the world ``Dumb and Dumber'' has become the latest in a long line of impresarios trying to catch a ride on Hollywood's gravy train.

Steve Stabler's strategy is simple, if not ambitious: produce movies that land between the glut of low-budget independent films and mega-budget star vehicles from major studios. His Destination Film Distribution Co. announced last week plans to release a dozen moderately priced films in 1999 and 20 in 2000.

``We're going to be making mainstream movies with recognizable casts, not French language art-house films,'' said Stabler, whose producer credits also include ``Threesome,'' ``Kingpin'' and ``Beverly Hills Ninja.'' ``If we come in every month with one or two films, the exhibitors have to take us seriously because they won't want to miss out.''

Even though Destination is five months away from taking on the big six - Walt Disney, Paramount, Sony, 20th Century Fox, Universal and Warner Bros. - it has already achieved an impressive level of success. Remarkably, amidst turbulent capital markets and soaring production costs, Stabler and partner Brent Baum have already obtained commitments for $200 million in financing.

Stabler already has proclaimed that Destination will fill a void vacated by the most successful independents - Disney's Miramax and Warner's New Line - that have stepped up in class and now back higher-budget films.

If successful, Destination may become known as the mini-studio built on the back of ``Dumb and Dumber,'' one of those rare films that hit a financial home run. Produced by Stabler's Motion Picture Corp. of America, the 1994 hit not only convinced Hollywood that Jim Carrey was a superstar, it was also enormously profitable, costing under $20 million to make and taking in worldwide box office grosses in the $250 million range.

Stabler was also behind Lara Flynn Boyle's sex drama ``Threesome,'' which received an indifferent critical reception when it was released in 1994 but was also a financial windfall. Made for a paltry $3 million, it grossed $55 million worldwide.

Destination has already obtained North American rights to a trio of projects produced by MDP Worldwide: ``Eye of the Beholder,'' with Ewan McGregor; ``Loved,'' with William Hurt and Robin Wright Penn; and ``Beautiful,'' with Minnie Driver. The start-up, headquartered in Santa Monica, will operate production, marketing and distribution departments with 85 employees during its first year.

That's the good news.

There's plenty of bad news, most notably that there's been a ``for sale'' sign for the past four months on PolyGram Filmed Entertainment's distribution arm but no takers. The operation, which mostly handles films with budgets in the low-to-middle range, was put on the block along with PFE's production units and library for $1 billion in May by Seagram to offset the $10.4 billion cost of buying PFE parent PolyGram NV.

One analyst believes the lack of buyers for PFE is a bearish sign for the industry in general and the low to middle range specifically. ``I think it's very significant that Seagram can't sell PolyGram at anywhere close to what they want,'' said Chris Lanier, head of the Motion Picture Intelligencer forecasting service.

Lanier notes that the riskiness of the business is also underscored by the growing popularity of split-rights deals and by Disney cutting the number of its films by half over the past five years.

There's also history going against Destination. For every DreamWorks that breaks through, there are plenty of ambitious start-ups that crash and burn such as Cannon, Weintraub, Carolco, Savoy and Cinergi over the past decade.

And Stabler knows about studios that fail: He was a senior vice president at Orion Pictures until last year.

At its peak, Orion successfully went head-to-head with the majors and coSpped four Best Picture Academy Awards. But a crushing debt load and a string of box office flops also inflicted $300 million of losses on John Kluge, its major investor and one of the world's richest men, before the stripped-down Orion was sold to MGM last year.

Of Destination, analyst Dan Marks of ACNielsen EDI put it succinctly: ``I hope they succeed, but it's a tough go.''

The bottom line for Destination: The big six have over 88 percent of the market, including subsidiaries like Miramax, New Line and Sony Classics, and ``mini-majors'' DreamWorks and MGM have more than 10 percent. So there's not much left for independents like PolyGram, Artisan, Lion's Gate, Trimark, Gramercy, First Look and Strand.

Why then would anyone take a chance on Hollywood? It's the glamour factor, according to industry tracker Robert Bucksbaum, president of Reel Source.

``Producers have always been able to get financing,'' he said. ``Sometimes, they just throw money at you even if there's just a one in a million shot. It's probably one of the riskiest businesses around, right up there with playing the commodities market, which is why there are so many bad films.''

Destination plans to seek ``first-look'' deals with producers that will give it the right to buy domestic distribution rights to any films with budgets under $40 million. The rest of the budget will be paid by the owner of the foreign rights.

Stabler said the key component of Destination will be distribution. He believes that capability will make Destination an attractive alternative for producers looking to sell the most valuable piece of any movie: North American theatrical rights.

``When I was a producer, I was really a beggar because I'd use my own money to develop and option a script, then take it around and beg for distribution and financing,'' he said. ``The majority of producers are coming up empty-handed when they go into domestic market.''

In such deals, most producers have little leverage and wind up agreeing to let tShe studio charge a distribution fee of as much as 50 percent of the studio's domestic box office cut. That means producers have to scramble to strike foreign, video and cable deals to recoup their investment.

Bucksbaum believes Stabler has a selling point in offering distribution deals. ``It's so hard these days because you can have a great film and the studio backing it will not commit full force to the marketing,'' he noted. ``That's out of your control. If it's not something they produced, they may not be willing to put in a 100 percent effort because they have so many other interests.''

Bucksbaum asserts Disney's recent effort on ``Holy Man'' fell short of taking full advantage of Eddie Murphy's star power. ``The marketing did not have the full Disney effort, and awareness was extremely low,'' he said. `` `Beloved' is their bread and butter until `A Bug's Life' opens.''

Stabler and Baum are bullish at this point. They note that they obtained about $100 million of their funds through an innovative bond issue, sold by Donaldson Lufkin & Jenrette to private investors amid enormous volatility in that market, and guaranteed by insurers AIG and AXA. Destination is also in the process of obtaining a line of credit for another $100 million.

The notes, rated double-A-minus by Standard & Poors, were sold as a fixed-rate instrument with investors receiving a 6.25 percent annual return.

``What the financing means is that investors believe in Steve's ability to make economically successful films, which he's done time and time again, for a relatively small budget,'' said Baum, a former DreamWorks SKG executive who helped raise $2 billion in financing before leaving that start-up last year.

Baum pointed out that the funding has enabled Destination to start up operations right away by buying completed films right off the bat.

Destination plans on self-financing 50 to 60 percent of the films it releases and focusing on films with budgets from $10 million to $20 million - relatively chSeap when the average production budget in 1997 was $53 million.

``We have a better risk profile,'' Baum said. ``For us to make movies with $100 million budgets, we would have had to raise a couple billion, so this was more practical.''

CAPTION(S):

2 Photos, Box

PHOTO (1) (Color) no caption (Jim Carrey and Jeff Daniels from ``Dumb and Dumber.'')

(2) Partners Steve Sabler, left, and Brent Baum hope to release a dozen moderately priced films in 1999.

Berliner Studio

CHART: Tough to crack: Destination Film is attempting to crack an industry well-divided by 10 Hollywood studios.

Source: Entertainment Data Inc.

Dionisio Munoz/Daily News