THEY’RE LOWERING THEIR SIGHTS AT CANNON FILMS

On paper, December looked good for Cannon Films.

Chairman Menahem Golan had finished the biggest creative assignment of his career, directing Sylvester Stallone in the $20-million “Over the Top.” At the same time, Cannon also was making the $25-million “Superman IV.” After eight years in Hollywood making movies like “The Last American Virgin” and “Revenge of the Ninja,” Golan, 57, and cousin Yoram Globus, 42, seemed to have finally shed their reputations as schlockmeisters and were penetrating Hollywood’s thick walls of respectability.

As it turned out, though, December was a long-running nightmare. On the first of the month the second installment on the 1986 $275-million buyout of British entertainment conglomerate EMI was due and Cannon, a studio that last year produced about 40 movies, simply did not have the money.

Suddenly, “Hollywood’s Go-Go Boys” (Newsweek) were stalled out. There was talk in the industry that Cannon was a house of cards about to fold. “We slept very little that month,” says Golan, dressed in a nylon “Over the Top” jacket and leaning back in an oversized leather desk chair at his office, which has a view of the Hollywood sign. “There is no denying we went through a crisis in the last two months of the year.”

Some observers wonder if the crisis has ended yet. Last week Cannon announced that about 30 staffers had been let go (one fired staffer insisted the total was closer to 60) and that they would slash production plans in 1987 from an original slate of 30 to 40 pictures down to only 15. A number of pictures set to start in January have not yet begun production and the normally bustling hallways of the company’s Los Angeles offices on San Vicente Boulevard were unusually quiet this week. “We are taking a step back,” says the ever-upbeat Golan, “but we will be here forever. This company will heal its wounds.”

The trouble was initiated by two dangerous forces. First, Wall Street lost confidence in the company, at least partially because of an ongoing SEC investigation into Cannon’s accounting practices. Second, despite more attempts than any of its competitors, Cannon was sorely lacking a box-office hit. Hence, financing for the EMI deal that had been promised verbally, says Golan, suddenly dried up, leaving the company woefully short of cash.

Cannon found a white-knight in Warner Bros., the studio that’s distributing “Over the Top” (it opens Feb. 12). In exchange for a $75-million cash injection, Warner Bros. received the domestic video rights to 21 Cannon movies (some of which have not yet been released) and a share of the company’s exhibition business (Cannon owns theaters in Great Britain, Italy and the Netherlands).

The key questions now: Is the Warner Bros. funding merely a palliative that will tide Cannon over until the final EMI payment is due, and can Cannon return to profitability and win back the respect of the movie community?

“If we were Standard and Poor’s, we’d say they are on a credit watch,” says one powerful agent who insisted on anonymity. “At this time the town has a wait-and-see attitude and no one is doing a lot of business with them.”

For Cannon, this marks a down cycle in what has been a roller-coaster ride of highs and lows.

Golan and Globus came to America in 1979 from their home town of Tiberias, Israel, with a small bankroll (about $500,000) and no connections. They began by churning out inexpensive exploitation fare that earned them monikers like “the Golan Depths” and “Hollywood’s Rug Merchants.” But their strategy of pre-selling ancillary rights (video and foreign distribution) while keeping budgets to under $5 million paid off handsomely. With the advent of the video revolution, there was an enormous demand for product and Cannon found its smaller films could go into profit before they’d even opened in the United States.

In recent years, the company has moved up a notch in quality, making deals with first-class directors like Jean-Luc Godard (an updated “King Lear”) and Franco Zeffirelli (“Otello”) and wooing big-name actors like Al Pacino and John Travolta. They hired Norman Mailer to write and direct his “Tough Guys Don’t Dance” and veteran director John Cassavetes to make “Love Streams.”

Their forays into the A leagues were not always successful, though. A deal that called for Dustin Hoffman to star in Elmore Leonard’s “LaBrava” soured when Cannon violated a contract with Hoffman by using an ad that had not been approved by the actor. Director Ted Kotcheff (“First Blood”) is now suing the company for breach of contract in a long-term deal.

More important, with the classier fare, budgets rose but blockbusters were not being delivered. Ironically, the two most successful films in Cannon’s recent portfolio were returns to their bread and butter: “Breakin’,” a $1.3-million movie on the break-dancing phenomenon, which brought in more than $35 million, and “Missing in Action,” a Chuck Norris action-adventure film, for which figures were unavailable.

Some observers believe that while Cannon has had the resources to buy some of the town’s biggest talent, it hasn’t been able to woo American audiences to their movies in big enough numbers. “They’re good guys who in the end really do not understand the American film market,” says a powerful packaging agent. “They don’t fully understand how to sell to the American audience.”

Golan, of course, disagrees and promises that the company will be back in full swing within the next year. “Without swallowing that huge animal EMI, Cannon would be in fantastic shape today,” he says. “We learned a big and valuable lesson: You don’t buy in a shop unless the cash is in your pocket.”

Now, Golan says, the company will return to its younger and leaner days by making fewer movies and keeping a closer eye on development. “The cutbacks mean we’ll have to watch out on the heavy-budget movies. We can no longer do $20-million movies.”

Still, Golan is bullish about the company’s production plans for 1987. He says Cannon still plans to make “Investigation” for about $12 million to $15 million (“Al Pacino is going over the script, but he’s not signed yet,” says Golan). Next month, he promises, they will start “Death Wish IV.” Golan has already picked out his next directorial assignment: “The Yellow Jersey,” a script on the Tour de France that’s been kicking around at the major studios for the last 12 years.

What is perhaps most interesting about Cannon’s current problems is that others within the movie community were willing to come to its rescue. Had Warner Bros. not put up the $75-million bailout, even Golan admits there’s no telling how long Cannon could have stayed in business. “I felt the community was worried; they did not want us to fail,” says Golan. “They wanted to see us survive.”

For the men from Cannon, that in itself is a kind of progress.