U, Par have big job ahead to fill global pic pipelines

Now that Universal and Paramount have agreed to an amicable divorce, they have to get down to work.

On Sept. 6, the two announced that United Intl. Pictures is being phased out. The question now is whether both studios can generate enough product to guarantee the same clout they enjoyed when their slates were bundled together.

Rivals admit they’re glad to see the 800-pound UIP gorilla going away. But as U and Par go their separate ways, they’re certain to find themselves working harder to ensure that their pics get the best handling and financial terms.

U may be in good shape for the transition. GE has increased Universal’s budget for films; the studio has a slew of filmmaker pacts, including a good source of international production from Working Title and UPI; and it’s been courting DreamWorks.

Given the latter’s track record for UIP — $466 million for “Shrek 2″ overseas, $300 million for “Madagascar” — it’s easy to see why U is so enamored.

U vice chair Marc Shmuger says the studio also plans to beef up local production.

“We think in the long term a Universal presence in most countries around the world can be the magnet for great filmmakers to want to be in business with us,” he adds.

Par’s new regime also has plans. Par’s two main goals: exploiting Viacom brands like MTV and Nick; and improving local acquisition and local production, where Par has been among the least active of the majors in recent years.

Working Title topper Tim Bevan notes, “If I were an independent producer, I would be bashing down Paramount’s door now.”

Rob Moore, Par’s newly minted president of marketing and distribution, asserts the new structure will enable the studio to fully exploit its assets.

“Look at the relationships Paramount has, the relationships Brad Grey brings, with Tom Cruise and Brad Pitt, two of the premier worldwide stars,” Moore notes. “To develop product with and for them is definitely a big part of the strategy of the new distribution company.”

Moore admits that Par’s oversight of international operations were minimal while those functions were managed through UIP. Starting up its own operation will involve a “relatively modest increase in cost,” he notes.

The two studios, along with MGM, began the joint venture in 1981, expecting that by joining forces, they’d enjoy additional clout in overseas territories — and would remove the burden of constantly filling an overseas pipeline with product.

It’s a changed world. Overseas is no longer an afterthought: It’s a primary market and U’s new owner (GE) and Par’s new administration (under Brad Grey) don’t want to share such a key market.

In discussing the transition, Shmuger credits Brit companies PolyGram and Working Title with bringing the worldwide outlook to U over the past six years. “Since then it’s really been an education process for us, to really get that international is not an ancillary business or an afterthought, it’s our core business and our greatest opportunity for growth,” he adds.

Aside from pointing up the growing importance of the global marketplace, the split also hints at artistic changes. Both studios are bullish on the specialty sector — and the dirty secret of UIP is that it was terrific at selling tentpoles abroad, but had less success with specialty pics.

During the Sherry Lansing-Jonathan Dolgen era, Par was often known for either making American-oriented movies that didn’t perform well overseas or for selling off foreign rights. The combined effect has been that Par has been very much the junior partner in UIP even though it was putting up half the overhead.

Despite the benefits of sharing costs, UIP’s performance had long been a sore spot among Paramount execs, who believed their films often got short shrift overseas. Fanning their irritation: After the UIP agreement was renewed in 1999, it became increasingly routine for overseas grosses to double and triple the domestic performance.

Par’s new regime doesn’t want to leave that money on the table anymore. Viacom co-president Tom Freston, who’s overseen Paramount’s massive makeover, told Wall Streeters last month that the days of reducing risk via foreign sales and co-financing are over.

“Distribution is a volume business and Paramount had already de-leveraged itself by selling off territories,” one studio exec asserts. “So if you got the wrong date for your film — when UIP was putting 99% of its resources into a blockbuster — you would be out of luck.”

The marching orders for both studios are likely to be along these lines: find ways to take advantage of the world’s ongoing fascination with U.S. culture and movie stars.

In Paramount’s case, that’s going to mean using the MTV and Nick brands much more, and in particular the 87 of the 109 MTV Networks channels that operate outside the U.S.

Distrib veterans have been perplexed over UIP’s reluctance to spend more money advertising on the MTV foreign channels, which reach 429 million households in 22 languages, with major penetration in the U.K. (15 channels), Germany, Japan, Italy, Mexico and Brazil.

“There’s so much opportunity in foreign markets if you can hit it right,” marvels one distrib. Smart marketing can elevate already successful films — “Troy,” “The Last Samurai,” “Hitch” — or salvage shaky entries like “The Island” and “Kingdom of Heaven.”

The transition is meant to be a gradual one. The new operation will start up in 2007 by divvying up the UIP operations in 15 major markets — U gets eight, Par gets seven — while maintaining the UIP structure in 20 other smaller countries.

By 2009, both U and Par plan to have separate offices in those 15 key territories, which generate an estimated 70% of UIP’s revenues.

Rivals are enthusiastic about the split. BVI, Fox, Sony and Warners have all found themselves at the short end of UIP’s clout while taking advantage of its rule-by-committee.

“What happens at UIP,” one rival says, “is that the non-tentpole films they handle will sometimes fall through the cracks in terms of getting the right release date, trailers and media spend. Taking advantage of opportunities in foreign markets requires constant shepherding.”

Universal has already declared it’s going to base its operation in London under David Kosse, president of international marketing and distribution, shortly after he rejoined U two years ago.

Since Kosse’s return, U has been centralizing its international operations in Blighty, expanding in London while cutting some foreign execs in L.A., including former senior VP Randy Greenberg in early 2004.

Some industry observers interpreted those moves as laying the groundwork for U’s eventual split with UIP, establishing a foreign distrib infrastructure outside its partnership with Par.

Shmuger categorically ruled out combining Universal’s new international distribution arm with its existing home entertainment arm UPI, which is also based in London.

By contrast, Par’s foreign distribution headquarters will be in Hollywood. Moore, who began as prez of marketing and distribution a month ago, is now looking for an executive to carry out the new strategy.

UIP is likely to be distributing the dominant film this winter with U’s “King Kong” and it’s also got potential blockbusters next May from Par with “Mission: Impossible 3″ and from DreamWorks with “Over the Hedge.”

Beyond that, Paramount’s big bets include Oliver Stone’s World Trade Center rescue project; “Transformers” (co-financed with DreamWorks); “The Zodiac” and “Benjamin Button” (both co-financed with Warner).

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