Some 40 years after Bob Shaye formed New Line Cinema in his Greenwich Village apartment, the company is a bona fide Hollywood studio, sitting alongside Warner Bros in the Time Warner family. And it has some of the biggest franchise properties in the business under its belt - The Lord Of The Rings, Austin Powers and Rush Hour among them.

Bob Shaye was always crazy about movies. When he was 15, he made a training film for his father's supermarket and soon afterwards shared, with Martin Scorsese, the first prize in the prestigious Rosenthal Competition for best film by a US director under the age of 25.

While he was working at the Museum of Modern Art (Moma) in 1967, he started to explore the world of film distribution for the first time, and set up New Line. Early successes included Reefer Madness, which was a re-release of the 1936 educational film Tell Your Children, a 1978 re-release of Night Of The Living Dead, a host of foreign language titles from directors such as Werner Herzog, Eric Rohmer and Pier Paolo Pasolini and the early films of John Waters, starting out with Pink Flamingos in 1972.

Shaye first met Michael Lynne at Columbia University Law School in 1961. Although the two were acquainted, they did not get back in touch until many years later; Shaye had been running New Line for 15 years or so at this point and Lynne was a partner in the New York law firm Blumenthal & Lynne, specialising in entertainment and media clients.

Screen International: How did you reconnect'

Bob Shaye: I had heard that Michael was prospering extremely well in his chosen profession as a lawyer but he had a particular reputation, a commensurate skill for serving his clients well and I heard that, among other things, he was able to raise money for them. We ran into each other in Greenwich Village and that started the process again.

Michael Lynne: It was one of those fortuitous moments where New Line was in a mode where it needed to move on in order to grow, but in order to move on it needed to do some kind of corporate restructuring which was something I knew a little bit about. Through our two daughters, the gods threw us together because they were in the same class at a school in Manhattan. That's really how we reconnected more than anything else and it turns out there was something symbiotic about that moment - that I had something I knew how to do and Bob had something the company needed and we came together. That was 1984.

Bob, were you looking to raise money at the time'

BS: Well we started off with none, so any was a lot. What I should have known long before I took the leap into distribution was that financing was a very important part of film production and distribution. We had not produced anything, we were just distributors of almost exclusively foreign-made pictures but we certainly didn't have enough money to produce any ourselves and with the small bank financing that we had - which was somewhere around $200,000 or $300,000 - we actually had a prohibition against investing in any productions ourselves because banks were wary of profligate film producers.

So what changed'

BS: We decided to finance A Nightmare On Elm Street. It only cost $300,000 or $400,000 but it took a long time to get the financing together. Guy Collins actually backed out at the last minute of a very key part of the film financing to take the money he had raised and put it with some Australian science-fiction director. That put us into an incredible jam. We finally managed to put it together through a home-video deal and the final piece of the puzzle came from Smart Egg Pictures in London.

That film is generally seen as a turning point in New Line's history.

BS: Well of course every time you get a film financed, it's potentially a major turning point but that film ended up coming out very well, especially compared to the films we had been involved with before. I mean, we'd had our little successes but this was the biggest of those little successes and then we also had the possibility, really for the first time, to explore a franchise potential.

ML: In many respects, the film was the model for how franchises were developed at New Line specifically, but also elsewhere in the industry over the years, and was also a bellwether for how important that would be for film companies in our industry.

Were you already selling foreign rights on the films'

BS: The first film we sold rights on overseas was a film called Stunts (1977). I had been going to Cannes for several years and every time we could get a couple of rights that we could sell, we did so. But Stunts was the very first one we produced ourselves with letters of credit that we had gotten by showing storyboards to international distributors at Cannes the year before. Then we took Nightmare to Mifed when it was finished and had our very first screening. I was shocked and very happy to see the screening room was completely packed. Then we basically sold out in Milan. Our head of sales at the time was Stanley Dudelson.

Were you very ambitious to build the company in scale'

BS: Sure I was, but the first order of business was to keep our heads above water. We were betting on one of two circumstances occurring - either that we had a film or films which were strong enough to support us and give us enough cashflow that we didn't have to live from hand to mouth; the other possibility was to get some kind of investing resource that would give us the same capital.

Did that happen'

BS: It didn't happen as quickly as I hoped it would. A Nightmare On Elm Street really started the ball rolling in terms of getting capital together and when the second Elm Street got started, we began to get approached by real investment bankers such as EF Hutton and Bear Stearns and particularly Drexel Burnham, which was ironic because they were these big-shot financiers and had financed Cannon among other people with a lot of money, all with junk bonds. All we needed to do, and I didn't know that at the time, was to show a little bit of success above our standing to demonstrate that we really could turn entertainment product in to a profit.

ML: And during that period of time, the company was doing a few significant things strategically. One was being in a position through the financings to be able to create a slate of production as opposed to one film at a time, so that it could be in a position of developing and producing product on a predictable basis. Then in addition to that, Bob was augmenting the team at New Line. So for example, over that period of time, New Line established its own theatrical distribution organisation. Previously it had used sub-distributors. So at that time Mitch Goldman came in to set that up and Rolf Mittweg came in to make the international sales operation a more effective and sophisticated operation that could actually deal with a whole slate of films on an ongoing basis. Then, ultimately, Steve Einhorn came in to develop the home-video division.


New Line successfully listed on the American Stock Exchange

When did you go public and was that a success'

ML: The company went public in 1986. I was still advising on the outside. The company really did prosper as an American Stock Exchange company. For one that had started out quite small in terms of market cap and grew from there, it had very significant institutional investment, more than a company that size would normally have. That was because the company maintained the philosophy that Bob created when it was originally founded. It was a company of fiscal prudence and creative risk-taking and that served it very well.

BS: Along the way, we had several financings including secondary stock offerings and convertible debenture offerings that helped nurture and fertilise the skills we had assembled.


1990: Michael Lynne joins New Line as president and COO after a decade as chief legal counsel; New Line establishes Fine Line Features as a specialised arm under Ira Deutchman

1991: New Line has its first $100m-plus grosser in the US with Teenage Mutant Ninja Turtles

What were the key films in this period'

BS: Critters, Nightmare 3 and 4, Teenage Mutant Ninja Turtles. There was still a significant genre aspect to the company, there's no doubt.

Why did you start Fine Line'

ML: Ira Deutchman was the initiator of Fine Line. He had been a consultant on Metropolitan, a film which New Line distributed but which was obviously an art film and that kind of catalysed the thinking around Fine Line.

BS: The Fine Line idea really came about because as our company evolved and we got more involved with bigger films, I felt that our whole organisation didn't really have the finesse to handle a smaller art film any more. I realised this particularly when we ended up not reaching out for sex, lies and videotape. And so we went back to the drawing board and said, "Look, New Line has given up that franchise, but it certainly is a business that we know and we probably should create another organisation to better further it."


Ted Turner's Turner Broadcasting System buys New Line in a deal worth more than $500m

When was the first meeting with Ted Turner' Was it a good match'

BS: I had wanted to meet Ted Turner for a couple of years because he was kind of my role model. I was excited and envious of everything he was doing and I actually asked David Kirschner, who had produced a film for us, to try to introduce me, but nothing ever came out of it. Then one day our investment banker Roy Herman, right after one of our New Line shareholder meetings, came up to me and said, "Ted Turner would love to meet you," so we flew down to Atlanta.

ML: What we didn't know was that it wasn't just a meeting in Ted's mind. For him, it was a meeting to tell us he was going to buy New Line. And it was virtually the first thing he said when we sat down in his office. He said, "OK, we're going to buy New Line and now we just have to figure out the terms." I think Bob was shocked, I was shocked. I'm not sure (the company's investment banker) Roy (Herman) was shocked, I'll never really know.

BS: I just said, "I think we have to step out of the room for a second." And then I said to Roy, "What the fuck is going on'"

ML: And it turned out, that although nothing was literally resolved in that one meeting, we realised that if we were to do what Bob and I wanted to accomplish for the company in a time frame that was more realistic, one of the ways we could do that was through an affiliation with Turner Broadcasting because it certainly had the financial wherewithal. It had an entrepreneur at the head who was passionately interested in our business, and it was an ultimate user of our product through its networks. It was kind of a perfect fit, as we reflected on it.

Were you nervous that you would lose autonomy and independence'

ML: I think the answer is probably no, because if it wasn't Ted it probably never would have happened. I think the fact it was Ted gave us more comfort in the merger and the belief that we could maintain our autonomy.

BS: In fact we almost concluded a deal with Universal to sell them 20% and put one of their key financial executives on our board. But that would have been, in hindsight, a tremendously big mistake. We would have just been consumed and forgotten about. Ted wasn't interested in that. He really knows how to run a company the way (Time Warner's) Steve Ross used to know how. I totally gave him credit for diverting his entrepreneurial excitement and his great idea for a company into making several billion dollars, and I was hoping the same could happen to us.

He had tried his own movie company at the time but it wasn't very successful'

ML: It was kind of a mixed bag. In fairness, he did end up with the MGM library which enabled him to create TNT and to some degree TBS. And he had the Hanna-Barbera library which enabled him to create the Cartoon Network. So although neither one of those put him in the movie business, it gave him the library back-up for the movie business that then if he brought in a company that could create product, he would have all the necessary ingredients for a significant film company.

In 1996, you had a string of big-budget flops such as The Long Kiss Goodnight and The Island Of Dr Moreau. What did you learn from those films'

ML: We don't remember that year.

BS: You can easily make mistakes even though you are trying not to.

ML: I think you learn a little bit from any of those situations and everyone is going to have their share of films that don't work. Part of it was growing pains when we made the arrangement with Turner, because Ted was very ambitious for us to grow in a way maybe beyond our internal capability.


Time Warner buys Turner Broadcasting - and New Line

What were your concerns at the Time Warner deal with Turner'

ML: We were concerned. Obviously Time Warner had one of the most prestigious film companies in the world already under its aegis and it was definitely a concern to Bob and I whether we would be able to maintain New Line's independence and gameplan in that context. We flirted with the idea of Time Warner selling New Line and although Ted was very resistant to the idea, we began to go through a process. I think at the end of the day, we got to know the people at Warner well enough to believe we did more or less complementary stuff and there was probably room for both of us under Time Warner - which turned out to be true.

Who were you going to sell to'

ML: We had a relationship during that period of time with a French company, Havas, which led to their interest in maybe doing this, and they were one of several companies, but, as I say, before the process came to a conclusion, we decided to stay with Time Warner.


2001: Michael Lynne named co-chairman and co-CEO of New Line

2001-03: New Line unleashes The Lord Of The Rings trilogy in consecutive years, grossing $3bn from worldwide theatrical distribution alone, and winning 30 Oscar nominations and 17 Oscars in total

Had The Lord Of The Rings started rolling before Time Warner took over'

ML: It was almost exactly in the transition, 1997. More or less the same time.

Do you agree that the trilogy was the riskiest venture that any film company has tried to date'

BS: We had hedged somewhere between 70%-80% of our investment.

ML: If it had broken even, nobody would have been happy. The company wouldn't have gone out of business, but it definitely would have been a problematic issue for people who had invested with us, and for Time Warner itself.

BS: And then there was the spectre that if the first film broke even or was just mildly successful, then we had two more films that we had to go out and market. And who knows what would have happened' Because at current date, sequels have done better than the primary films, but at that point, sequels were on kind of a downhill curve, which could have presented a certain amount of risk.

What percentage of the trilogy did the international distributors take on'

ML: The foreign distribution rights alone were responsible for close to 70%.

BS: We're extremely proud and grateful that they demonstrated such confidence in us. It wasn't just us, of course. They knew the material and were all excited about the prospects.


New Line winds down Fine Line and teams with HBO to form new specialised distribution outfit Picturehouse under Bob Berney

Even after The Lord Of The Rings, some say your position within Time Warner is still in jeopardy.

RS: We don't pay that much attention to public relations, and everybody's got to have some scapegoat in their lives, so we've had our share of criticism. Fortunately the successes have outnumbered the lack of successes.

ML: Jeff Bewkes (Time Warner president and COO) said the other night, at an event we were all at for New Line's 40th anniversary, that New Line Cinema made more than $1bn from The Lord Of The Rings trilogy and it's more money probably than all the independent film companies have made in history, in the aggregate. That kind of says it all.

Where does New Line go after winning 11 out of 11 Academy Awards on a film'

BS: Well, the heads of New Line went out and had a few drinks, I'm telling you.

ML: You get such excitement and joy out of one of your films working. It's not just exciting if it's The Lord Of The Rings, it's also great if it's Wedding Crashers, Austin Powers or A Nightmare On Elm Street. These are exciting moments in our lives.

Top New Line films at the North American box office, 1986-2007
Rush Hour 3
(Dir: Brett Ratner)
$137.7m to date
Final Destination 3
(Dir: James Wong)
Wedding Crashers
(Dir: David Dobkin)
The Notebook
(Dir: Nick Cassavetes)
The Lord Of The Rings: The Return Of The King
(Dir: Peter Jackson)
The Lord Of The Rings: The Two Towers
(Dir: Peter Jackson)
The Lord Of The Rings: The Fellowship Of The Ring
(Dir: Peter Jackson)
The Cell
(Dir: Tarsem Singh)
Austin Powers: The Spy Who Shagged Me
(Dir: Jay Roach)
Rush Hour
(Dir: Brett Ratner)
(Dir: Mark AZ Dippe)
(Dir: Nora Ephron)
(Dir: David Fincher)
Dumb And Dumber
(Dir: Peter and Bobby Farrelly)
Teenage Mutant Ninja Turtles III
(Dir: Stuart Gillard)
The Lawnmower Man
(Dir: Brett Leonard)
- $32.1m
Teenage Mutant Ninja Turtles II: The Secret Of The Ooze
(Dir: Michael Pressman)
Teenage Mutant Ninja Turtles
(Dir: Steve Barron)
A Nightmare On Elm Street 5: The Dream Child
(Dir: Stephen Hopkins)
A Nightmare On Elm Street 4: The Dream Master
(Dir: Renny Harlin)
A Nightmare On Elm Street 3: Dream Warriors
(Dir: Chuck Russell)
A Nightmare On Elm Street Part 2: Freddy's Revenge
(Dir: Jack Sholder)
The Lord Of The Rings: The Return Of The King
The Lord Of The Rings: The Two Towers
The Lord Of The Rings: The Fellowship Of The Ring
The Mask
Rush Hour 2
Dumb And Dumber
Austin Powers: The Spy Who Shagged Me
Austin Powers In Goldmember
Wedding Crashers