The stunning news of last week’s bankruptcy filing by Colt’s parent company Prowest Media, as well as that of it’s owners, partners John Rutherford and Tom Settle, put into perspective the impossibility of the Colt deal, and the on-going effects of the Great Recession on the gay porn business. Combine that with the other trend-setting events of the week, and the gay porn business has been rocked like the San Francisco earthquake.
Faced with the imminent trial from the Jim French breech-of-contract lawsuit against Prowest et al, Rutherford and Settle made a last bid effort to try and retain control over their company, get relief from their debts, and give them some hope of salvaging their business. Prowest was placed into Chapter 11 (typically a re-structuring) while Rutherford and Settle filed for Chapter 7 (liquidation).
However, salvaging Colt is not going be an easy task by any means, as Jim French is not only the largest creditor with a listed debt of $1.45 million, but the only secured creditor for Prowest. Since Rutherford and Settle personally guaranteed the money owed to French, he is also the major secured creditor for their personal bankruptcies as well. The only other major secured creditor is Wamu-Chase which holds the mortage on their house in Sonoma, which tragically will likely be sold in this whole process. French will certainly try to do one of two things
1) Get everything liquidated immediately including the Colt name, stock, and library and stock both old and new
2) Attempt to take back any and all assets, and sell them at some point in the future.
Either way, French has a good deal of leverage, although he certainly will have to negotiate with whomever the Court names as the trustee, and may have to give up a few things to get what he wants. In addition to some significant inventory, and works in progress Ruthorford/Settle have about $250,000 equity in the Sonoma home, so that’s where French will likely go. Part of the problem is that the Colt intellectual property is affixed to the substantial inventory of DVDs, toys, lube, clothing, calenders, etc. A liquidation of which could also damage the Colt brand. Maybe a “white knight” could swoop in and payoff French, but I wouldn’t count on it.
But unfortunately for Prowest that’s just the beginning. For the uninitiated in the arcane rules of bankruptcy, creditors are lined up according to their priority to collect what’s left of a debtor’s assets. Secured creditors come first, and after they have been satisfied, unsecured priority creditors come next, and then regular unsecured creditors come after that. So whose next after Jim French and Wamu-Chase? That would be the government. Prowest owes the IRS over $600,000 in payroll taxes, and the State of CA EDD over $100,000. Things that make you go hmmmm? Any reasonable business person might say “how the fuck does that happen?” In a Chapter 11 bankruptcy the IRS still expects to be paid, and you only got six years to do it. So for Prowest to continue, they’ll have to cough up about $11,000 per month every month for the next six years. That’s like leasing a fleet of Bentleys. Ouch!
After that come the great unwashed of unsecured creditors who service the porn biz (Paladin, A Bright, Breen, Fedex, Mansion, FutureWorks, Marty Stevens) which adds up to another $600,000, the majority of which is owed to Paladin and its owner Stan Loeb in the form of advances on product, and a seven year old personal loan of $130,000.
Add all that up together, and despite releasing a new movie last week, the company will have a very difficult time continuing as a going concern. In 2008 Colt had sales of $2.2 million. In 2009 sales dropped 28%, and the run rate for 2010 indicated a drop of 36% for this year.
All in all a very difficult situation.
What went wrong for Prowest et al? Often one bad decision can sabotage an entire effort. Rutherford and Settle simply wanted Colt so badly that they way overpaid for it. Then because French held the note with Prowest’s and their personal guarantees, they ended up building a house on land they didn’t really own.
Colt was never worth the $2.2 million they promised to pay French. Colt was a moribund brand which did have a storied history, but came with a library more about still photography than video tape. The movies in the Colt library were either softcore, or shot with an eye towards projection. A vastly different style than what handheld cameras and flat screen TVs provide today. Prowest tried to revive a brand whose customers had mostly died off, and build on an aesthetic that no longer exists. Maybe 40 years ago a Colt belt buckle or hat was hot, today’s gay boys would rather hock everything they own to get a Dolce & Gabanna wife beater to wear to the club.
Also, “New Colt” just didn’t taste anything like “Classic Colt.” Rutherford’s initial films were basically carbon copies of his Falcon work, and Falcon was all about pretty boys. Sure some of the guys were muscly, but who ever thought of a midget Asian as a “Colt Man?” The Colt mystique was all about super-masculinity, best summed up as muscles and fur (in all the right places of course). Titan and Raging Stallion had already been killing each other over that segment for five years when New Colt arrived. In fact, to die-hard Colt fans (what’s left of them), the body shaving scene in Muscle Heads is practically sacreligious. (http://www.coltstudiogroup.com/scene.php?clip_id=15852).
Rutherford’s ultimate goal was to create a gay mega-brand. Colt was a good fit for the strategy, but a poor fit for the filmmaker. But even discounting that the strategy was fatally flawed. There’s no such thing as a gay mega-brand. Gays have become assimilated, and with that they want the same brands and to shop at the same places as everyone else. Last year a 20-something gay friend asked me about the hanky code and what they meant; when I sent him a link with the definitions he said “wow, how did you remember all this.” Whether it’s hankies or green carnations, gay men no longer have to signal in code with a belt buckle or shirt. They just put it all out there on Xtube, or Manhunt, or DudesNude. Also, you want lube or a sex toy? Amazon will happily ship it for free.
Rutherford was a name director when he exited Falcon, he should have saved himself a lot of money and used it. Clearly he thought he could avoid the years of work of building a company by affixing a well known name to his product. But the product wasn’t really Colt, and it wasn’t much different then Falcon, Hot House, or Chi Chi LaRue. Combine that with downward pricing pressure, piracy, and the competition from online, bareback studios, and traditional retailers and there was really no way for Colt to successfully execute.
Good Luck fellas, you’re going to need it.