Foursome join forces on premium channel

There is officially trouble in Sumner-ville.

Capping a tense period when CBS and Viacom have acted more like rivals than corporate cousins with a common chairman in Sumner Redstone, Viacom announced Sunday a pay-TV joint venture with Lionsgate, MGM and Paramount Pictures.

The as-yet-unnamed channel, which will have a robust online and on-screen video on demand component, will launch in fall 2009 and be based in Viacom’s Times Square headquarters. A chief exec has been hired but that announcement will be made in the coming days once the ink is dry.

Given that Par, Lionsgate and MGM all have output deals at CBS-run Showtime that were due to expire, the venture is a direct blow to the pay cable net, which has been gaining traction with shows like “Dexter” and “Weeds.” In recent interviews, Showtime CEO Matt Blank has spoken of the “diminished value” of firstrun films and has said library titles and new series would continue to be his main focus.

In an interview Sunday, Blank told Daily Variety that Showtime had been unwilling to pay the price the three studios were asking for their pics.

“We’re not willing to sell our network down the river for product that’s not as valuable as it used to be,” he said. “We wish them well.

It’s a tough business. But we don’t feel movies are worth anywhere near what they used to be.”

Exec said Showtime needed to “allocate our resources to what what people are writing about and watching,” namely original series.

“We’ve been having unbelievable success with our original programming,” Blank said. “Can you name one movie Showtime has aired in the last three years? But people sure do know ‘The Tudors’ and ‘Californication’ and ‘Dexter’ and ‘Weeds’.”

Blank wouldn’t discuss how much money the three studios were looking to get paid for their pics. Pay TV insiders, however, indicated that Showtime had an offer on the table to pay out “hundreds of millions” for the films, but that the studios balked at what they apparently felt was an insulting offer.

As for the new joint venture, it pools classic library titles with new series and movies. It will draw from Par and Par Vantage theatricals released on or after Jan. 1 of this year and MGM, United Artists and Lionsgate titles released on or after Jan. 1, 2009. That means titles such as “Iron Man,” “Star Trek,” “Shutter Island” and “Valkyrie.”

The libraries of the companies involved also bring in the James Bond, Indiana Jones and “Saw” franchises, “Dirty Dancing” and Oscar-winning classics such as “Titanic,” “Sunset Boulevard” and “Breakfast at Tiffany’s.” The channel will also be a venue for new series created by the five studios involved.

Not part of the package: Films released by DreamWorks. HBO has rights to those pics picked up for at least a few more years.

The three parent companies involved are equal in terms of equity investment, according to sources, but Viacom will get an extra stake because of its pledge to support the venture with marketing and other resources of MTV Networks.

It wasn’t immediately clear what the new network would mean for profit participants and other production parties that get paid according to how much coin a film brings in– including money from output deals. Because the studios will now be putting pics on their own network, a significant source of revenue for participants may disappear.

CBS and Viacom, which were split from one another in early 2006, have had divergent paths. Wall Street believed Leslie Moonves had the stronger– if slower-growing– hand to play, with the Eye net dominating broadcast, while battered Paramount was struggling to cope with dysfunctional talent deals and years of B.O. mediocrity.

It has turned out that Viacom has made more strides more quickly, while CBS has faced numerous challenges, including ratings erosion and Katie Couric’s pricey and unproductive news contract.

Relations between the companies have been oddly competitive, with CBS announcing a specialty film arm and Redstone advancing the theory that both companies should feel free to compete.

The Showtime output deals represented a fulcrum for all of those corporate pressures. “This was for me an important juncture to think about what we’re doing in this area,” Viacom chief exec Philippe Dauman said Sunday. “Since these output deals are long term, I wanted to make sure we made the right decision and would not get locked into something that might not make sense.”

He said the new channel was not intended as a shot at CBS. “Leslie, who’s my good friend and I, it’s our responsibility to look out for our shareholders’ interests. Sumner has been very supportive of us doing that. That was the reason the split occurred.”

The other partners had their own reasons to join in. “There’s a great diversification play here for us, as well as the chance to have an equity position in a multi-billion-dollar business,” said Paramount Pictures chairman and chief exec Brad Gray.

MGM chairman and chief exec Harry Sloan, whose company has had a 20-year history with Showtime via series such as “Stargate: SG1″ and “The Outer Limits,” said the relationship with Showtime remains “excellent.”

But the new venture represented a “compelling business opportunity” too good to pass up.

Other pay TV insiders suggested the new channel wasn’t so much a new opportunity as it is a last-ditch effort to wring some sort of value out the rapidly-diminishing pay cable window. Services such as Netflix have made it easier than ever for consumers to watch pics well before they hit HBO or Showtime. “And as bad as it is now, can you imagine three years from now when there are 10,000 more internet sites offering streaming or downloading of movies?” one pay TV insider said.

Dauman said the channel was not designed as a competitor to Starz, HBO or Showtime, but rather as a 21st century vehicle for the thousands of titles the partners control. Details of online and VOD strategy will be spelled out in the coming weeks, he said, but the Web offering would likely not be ad-supported (like Hulu.com) and would aim to make every title available as soon as is contractually possible.

Typically, that means when a film enters its seventh month after initial release. “But now, on HBO, they space it out,” Dauman said.

“They might keep consumers waiting three months before they deliver.

We’re not going to do that.”

Showtime insiders indicated that the cabler wouldn’t be entirely without feature content three years from now, when the last of its output deals expire. Nearly a dozen production entities have talked to Showtime about doing deals.

“There’s plenty of product out there,” one Showtime partisan said.

(John Dempsey in New York and Josef Adalian and Diane Garrett in Los Angeles contributed to this report.)

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