The end of the New Line

The 'mini-major' that gave us Freddy Krueger and <i>The Lord of the Rings</i> has been swallowed up. James Mottram reports

Last May, New Line Cinema threw a 40th-anniversary gala party in Cannes. Tied in with a promotional push for the company's big 2007 movie, The Golden Compass – an adaptation of the first of Philip Pullman's His Dark Materials novel trilogy – it was a suitably lavish affair. As guests consumed champagne and oysters, admiring the ice sculptures dotted around the lush Villa Rothschild, little did they guess this was more like a last hurrah than a birthday bash. For within the last month it has been announced by its parent company Time Warner that New Line Cinema is to be drastically downsized and folded into the conglomerate's studio outfit, Warner Brothers. As Hollywood trade paper Variety put it, the surviving entity will be "a shell of its former self".

While nothing new in Hollywood, this latest butchering is particularly shocking. Just four years ago, The Return of the King, the final chapter in New Line's adaptation of JRR Tolkien's The Lord of the Rings, took 11 Oscars, tying with the all-time record set by Ben-Hur and equalled by Titanic. The film had already grossed $1bn worldwide, only the second to do so after Titanic. And that's even before you take into account the millions accumulated by the previous two films in the trilogy, as well as the money generated by merchandise. The Hollywood success story of the new millennium, it was made all the more so by the fact that all three films were shot back-to-back in New Zealand for a total budget of $280m, an unprecedented gamble.

At the time, it was as if New Line had finally graduated to the big league. After years of distributing and producing genre pictures – most famously the Nightmare on Elm Street series, featuring horror icon Freddy Krueger – the company was finally receiving recognition for artistic achievement. It's doubtful that any of the 600 New Line staff – most of whom are set to lose their jobs – were giving this much thought as they were told the news by Time Warner chief executive Jeff Bewkes on 29 February. With employees crowding into Pacific Design Center's Silver Screen Theatre in Los Angeles, the New York-based Bewkes relayed the news via satellite – just to add insult to injury. With Bewkes under pressure to save $50m a year, it was as if the Time Warner board decided New Line needed its wings clipped.

One man who will no longer be part of the set-up is Bob Shaye, who co-founded the company with Michael Lynne in 1967. The Detroit-born Shaye graduated from Columbia Law School and worked in the Museum of Modern Art's film archives department before setting up New Line. He swiftly established himself as a genuine industry maverick. Initially, he specialised in distributing fringe films, like Reefer Madness and the Jean-Luc Godard documentary Sympathy for the Devil, to college campuses. But in 1972 Shaye took a step further, as New Line released John Waters' notorious Pink Flamingos.

After New Line became the House that Freddy Built in the 1980s, Shaye paid for the maintenance with a series of smart moves. He shelled out just $3m for the original Teenage Mutant Ninja Turtles film in 1990 and it went on to make $135m. The Jim Carrey films Dumb and Dumber and The Mask made more than $550m combined, while the Mike Myers-created Austin Powers movies boosted the company even further. There was even time to cultivate kudos, courtesy of Paul Thomas Anderson's admired Boogie Nights and Magnolia.

Even though New Line had been acquired as far back as 1993 – initially by Turner Broadcasting Systems and then Time Warner two years later, which merged with Ted Turner's company – Shaye still saw the company as "solidly independent", to quote its old maxim.

I met Shaye one year ago, when he was promoting his directorial effort, the fantasy/ sci-fi film The Last Mimzy – a risible vanity project. It's remarkable to think that, two years previously, the spirited 67-year-old had been struck down by streptococcal pneumonia that almost killed him. I asked him then how he built New Line up from scratch.

"It was just plugging along every day," he replied. "What's kept me doing it, is not because I have some kind of vision about being big or small... I did have a vision and I still have a vision about trying to entertain people. But the thing I care the most about... I'm asking people to invest with me the most precious thing any of us have, which is two hours. Invest your time and trust that we're going to make your time worthwhile."

The problem is, since The Lord of the Rings, there have been too few films like that coming out of the New Line stable. The only major breakout hit since then has been the Vince Vaughn and Owen Wilson comedy The Wedding Crashers, which took $209m back in 2005. After that, aside from the relative success of the remake of John Waters' Hairspray and franchise property Rush Hour 3, it has been a dismal run of flops for the company.

Most recently, the Will Ferrell basketball comedy Semi-Pro took just $32m, barely covering the star's salary. Worse still was The Golden Compass, at a budget of $180m, "the most expensive movie we've ever made", as Shaye told me. Despite a cast that included Nicole Kidman and Daniel Craig, it was evident he was nervous, even then. "It's a big, big, bloody investment!" he shuddered.

After footage was shown in Cannes last May, the company line was that it would only be a matter of time before the second and third instalments of Pullman's series were greenlit. Yet when it was released last December, the film was perceived as a failure – because it only grossed $70m during its US release. In actual fact, it took a further $260m around the rest of the world – but New Line's common practice of selling off international rights (in the UK, to Entertainment Films) to help raise production funds meant that the figures still came up short as far as Time Warner were concerned.

Arguably, it was not as if New Line hadn't suffered the slings and arrows of Hollywood before. In one disastrous quarter in 1996, the company cumulatively lost more than $100m on The Long Kiss Goodnight, Walter Hill's Last Man Standing and the infamous John Frankenheimer debacle, The Island of Dr Moreau. Likewise, just before The Lord of the Rings arrived, the company suffered the double hit taken by massive losses on the Adam Sandler comedy Little Nicky and the Warren Beatty vanity project Town and Country.

But The Golden Compass was far more expensive and laden with expectation. And the fact that the film-makers watered down some of the more contentious religious material in Pullman's story inevitably alienated fans. Added to this, it hardly helped that Shaye was a volatile figure at the best of times, frequently clashing with his directors. Everyone from Robert Altman (he forced him to take 20 minutes out of Short Cuts) to Brett Ratner (they argued over back-end deals on Rush Hour 3) has felt his wrath. But the highest profile clash was with Jackson, who filed a lawsuit against New Line over profits he believed he was owed from The Lord of the Rings.

"I no longer care about Peter Jackson", Shaye later told Sci-Fi Wire, adding that hiring the director for proposed Rings prequel The Hobbit "will never happen during my watch".

Following on from the way Miramax was consumed by Disney once the Weinstein brothers left the company, it seems that the whale has swallowed Jonah. If anything, the days of the so-called Hollywood mini-major are over.

New Line films due for release this year – including the much-anticipated Sex and the City: The Movie and the adaptation of Audrey Niffenegger's novel The Time Traveler's Wife – will now be handled through Warner Brothers in the US. As for what's left of New Line, it retains its name but not much else. Set to focus on producing a handful of modest genre pictures a year, it's being demoted to little more than what it started out as – punished, you might say, for its ambition.