Nippon houses nix output pacts

U.S. pix unpredictable in risky Japanese market

This article was corrected on Apr. 21, 2003.

TOKYO — Japanese major Toho-Towa’s decisions to end its output deals with Revolution Studios and Spyglass Entertainment may signal the demise of such arrangements in Japan’s high-risk market.

It’s clear Toho-Towa took a hit from Revolution titles such as “American Sweethearts” and “Black Hawk Down” (it had theatrical and TV rights, Pony Canyon had video) and has opted not to be shackled to such pacts.

“Output deals don’t make sense because there’s so much U.S. product which doesn’t work in Japan,” says Rolf Mittweg, New Line president of worldwide marketing and distribution. Mittweg, whose company uses several distribs, points to U.S. comedies as being especially problematic in Japan.

Spyglass co-chairman Gary Barber opines, “The Japanese market is very tough; it’s very rewarding and very risky.” Barber says it was a mutual decision not to renew the Toho-Towa deal, which began when Spyglass launched. Pony Canyon continues as its video distrib, and Spyglass handles TV sales.

UIP will release Spyglass’ “Seabiscuit” and “Bruce Almighty” theatrically in Japan, and Barber says he’s talking to other majors as well as Japanese companies on upcoming films that fall outside Spyglass’ new deal with DreamWorks, which includes Japan.

Toho-Towa officials declined to be interviewed, and execs at other Japanese distribs did not want to comment on the record. But buyers continue to grumble about the steep minimum guarantees being demanded by U.S. producers and studios, which typically rep 9%-12% of production budgets.

“Of course we always have the option to say ‘no’ (to any film) if we don’t believe in its potential in Japan,” says one buyer. “But the pressure to perform big time has increased at companies which went public recently.”

Gaga Communications and Nippon Herald listed on the stock market in the past two years. Nippon Herald recently announced it expects a consolidated pre-tax loss of ¥62 million ($517,000) for the year ended March 31.

Although it enjoyed strong sales of the first “Lord of the Rings” (jointly distributed with Shochiku), its rights payments to Hollywood increased accordingly. Late last year “K-19: The Widowmaker” and to a lesser extent “Gangs of New York” (the latter also with Shochiku) were B.O. disappointments for Nippon Herald.

Another Tokyo exec says the budget-percentage yardstick can be misleading, noting: “What really matters are stars, the screenplay and then directors, and how those play in the Japanese market. Thus (minimum guarantees) can vary between $4 million and $20 million for films with much less difference in their production costs.” Adding to the risks, ad-pub costs for big films can go as high as $15 million to $20 million.

In place of its Toho-Towa deal, Revolution has sold Japanese theatrical and TV rights for six films to Universal Pictures and three to BVI; Sony has video.

One U.S. seller sees a positive in Toho-Towa’s apparent switch in buying strategy. “We hope Toho-Towa will be more open to one- or two-picture deals now that their acquisition appetite is not taken up by output deals,” says Robert Hayward, a partner at Summit Entertainment.

“If you have the right project, Japanese buyers will move quickly,” adds Hayward, whose banner has dealt “Racing Stripes” to Shochiku, “Around the World in 80 Days” to Nippon Herald and “Sahara” to Gaga.

The bottom line, one Japanese buyer admits ruefully, is that “we can complain as much as we want (about high minimum guarantees). Fact is, we need blockbusters, and Hollywood knows that.”

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