Volker Schloendorff is still in Berlin. Two and a half years ago, when he was installed along with Pierre Couveinhes as managing director of Studio Babelsberg, a lot of people here didn’t think he or the studio would last that long.

Most film insiders paid lip service to the idea of restoring Germany’s oldest movie studio, home of classics like “The Blue Angel” and “Metropolis.” Privately, they believed Germany already had too much studio capacity, and no future in film anyway.

Nowadays, not many weeks go by at Studio Babelsberg without a cornerstone being laid or new technology installed. In the past two years, the studio has invested more than DM100 million ($73 million) in taking a neglected Eastern Bloc studio (previously known as DEFA) and making it into one of the most modern, high-tech production centers in Europe, for both TV and film.

ZDF recently opened office and studio space there and is expected to be followed by other TV stations. The studio is already a base for several indie producers, like CineVox and CineMagic. Production combine UFA is planning to consolidate all of its Berlin operations at the studio, which nestles southwest of Berlin in Brandenburg state.

The studio now has its own production arm, Babelsberg Film & Fernsehen, and by this summer the first of a set of new studios will be ready for production of soaps and sitcoms.

In addition, a so-called Media City, which began construction in Dec. ’93, will offer AV companies 430,000 square meters of services, from studios and hotels to production technology and manpower.

Last year, the studio’s turnover was $25 million, with investment totalling $14.5 million.

International co-productions filmed and co-financed by Babelsberg include “The Never- Ending Story III,” Margarethe von Trotta’s Berlin fest opener “The Promise,” Roger Spottiswoode’s costumer “Mesmer,” with Alan Rickman in the title role, the Gerard Depardieu starrer “La Machine,” and “Victory” with Willem Dafoe.

Dani Levy’s German comedy “Silent Night,” the William Hurt-Juliette Binoche starrer “A Couch in New York,” and the pilot to the Paramount/UFA sci-fi co-production “Star Command” all recently wrapped at Babelsberg.

“For the first two years,” says Schloendorff, “Berlin’s TV community avoided us. They were strongly supported in that by (the competing cities of) Munich, Hamburg and Cologne. But thanks to our sheer love of movies, and a desire to maintain the old tradition, we managed to muster enough energy to pull it off.”

Even Berlin’s media-ites were a major obstacle. Says Schloendorff, “We had to communicate to the Berlin production scene that if we developed a studio here in a different dimension from what they were used to, they shouldn’t see it as a threat.”

Studio Babelsberg wasn’t able to produce its own product overnight. Instead, it learned to make money as a service center and co-financer of international productions.

The presence of international film productions at Babelsberg gives it a status that studios in Munich and Hamburg lack. “I think Babelsberg is the only movie studio left in Germany,” says Schloendorff. “Bavaria Studios and the others are entirely devoted to TV. For any major motion picture coming to Germany, Babelsberg is the only place to go.”

That doesn’t mean the complex is neglecting TV. “There’s a flourishing TV scene in Germany, with ($1.5 billion) a year in production orders,” says Schloendorff. “In the movie scene, there’s almost nothing – maybe 8 million marks ($5.8 million).

“Our media landscape is 95% television. That’s why we had to change our original plan and build studios for sitcoms and soaps.” Instead of converting film studio space to TV needs, Schloendorff opted to build new space for small-screen productions.

He reckons it is the combination of know-how, facilities and money that attracted international co-productions to Babelsberg. “We can offer actual money,” says Schloendorff. “Whether you sell us your German distribution rights, or whether we co-produce your picture, we can get double or triple the price you’d normally get in Germany.

Babelsberg’s next two-and-a-half years – as the studio’s launch phase is completed – still promise to be bumpy.

“I see another two years, maybe three, of tough times – for both the studio and Berlin as a metropolis. But there’s no question in my mind that we and the region will then succeed. The studio has gotten over the hump; there’s no longer any question it will survive.

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