Tele-Communications Inc. has made it official, announcing on Friday that it will make a $ 90 million investment in Carolco Pictures for pay-per-view programming.

Although exhibitors’ considerable objections must be overcome, it appears TCI has assembled a unique financing arrangement with Carolco for four films in the next four years (Daily Variety, April 21).

According to the companies and sources, the deal is structured in three stages. First, TCI will reportedly lay down as much as $ 12.5 million in production cash for each Carolco picture. In return, say the partners, up to $ 50 million of the giant cable operator’s investment will go toward purchasing Carolco common stock, reportedly at a 10% discount to the current market value.

Second, sources say, Carolco will get a $ 10 million non-refundable, non-recoupable licensing fee when the film is delivered.

Finally, the struggling indie will get a third of TCI’s revenues under the pay-per-view deal up to $ 60 million, plus half of every dollar generated beyond that.

Piracy prevention

TCI, which promises the pix will be encrypted to prevent piracy, also gets to show each film three times, including a “matinee” slot, on the week immediately before theatrical release. The films will be distributed to the big screen by Metro-Goldwyn-Mayer under a new agreement as of 1994.

“We believe the new opportunity created by this historic agreement will enhance all future film distribution media to the benefit of our entire industry ,” said Carolco chairman/CEO Mario Kassar in a statement.

In an effort to quell exhibitors’ fears, a MGM exec added: “None of the films have been selected. Whatever the pictures are, the talent and everyone involved is going to have to agree before the picture is made.”

If the deal clears exhibitors’ objections, TCI would control several key components in the Hollywood food chain — from filmmaking to exhibition.

TCI is already one of the largest owners of the nation’s biggest theater chain, United Artists. And, it has its hand, through Liberty Media Corp., in a wide range of cable properties from American Movie Classics to QVC’s rival Home Shopping Network. TCI is also a major shareholder in Turner Broadcasting.

It certainly will kick-start the nascent pay-per-view business. Moreover, analysts see this accelerating the introduction of addressable set-top boxes needed to make the medium possible.

In 1992, PPV rang up an estimated $ 80 million from cable, hotels and direct broadcast and has a projected growth of 15%-20% in 1993, according to Lou Kerner , at L.A.’s deForest Research.

“It’s a nice move that’s going to help PPV penetration and help with future set-top boxes,” said Ken Goldman, a media analyst with Bear Stearns.

Ultimately, the deal is a boon for TCI, which like other cable companies faces slower growth because of rate regulation.

Adds Goldman, “I view this as one of a myriad of programming streams driven by the need to pursue unregulated businesses.”

Plus, Carolco can reap immediate rewards as well. If a big event film could garner a 10% buy-rate from TCI’s 10 million subscribers at $ 30 apiece, UBS Securities analyst Ed Hatch calculates, three showings would generate $ 30 million. Carolco’s share under the formula would be $ 10 million up front, covering a portion of its negative costs immediately, Hatch said.

Still, TCI and Carolco are playing a risky game creating a new window for film release because it is putting the theater owners in a lather.

Recognizing that exhibitors are loath to permit Carolco and TCI to usurp their supremacy as a film’s first venue, Kassar said in a statement, “We strongly believe, as does TCI, that this limited new window can create incremental revenues for the talent, and the promotion surrounding the release of these event motion pictures will benefit their theatrical release as well as all subsequent distribution windows.”

The exhibitors are clearly anxious. But TCI has plenty of clout of its own with United Artists, the nation’s largest chain. Despite theater owners objections, Wall Street sees an opportunity.

“It should be additive, not cannibalizing. They’re going to find, if it’s properly marketed, it’s going to be free publicity,” said Bear Stearns’ Goldman. “The theater business is mature and any time you shake things up it creates a level of uncertainty.”

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