The European market has long been dominated by the international arms of the U.S. studios, while national distribs have eked out a living from local movies and whatever foreign indie product they can lay their hands on.
But that indie landscape is going through a seismic reshaping, as deep-pocketed players have begun building their own multinational distribution networks. Not since the demise of Polygram Filmed Entertainment have the Hollywood majors faced such a challenge to their dominance of foreign distribution.
Just as U.S. majors are increasingly diving into local production and acquisition, companies such as StudioCanal, Alliance, Tarak Ben Ammar, Entertainment One and Wild Bunch are clubbing together into larger groupings.
These companies have embarked on an expansionist spree that is breaking down borders and creating greater financial stability — and the muscle to acquire and produce bigger movies for the international market.
That should be good news for European producers with ambitions beyond their own borders; and for U.S. players such as Summit and New Line, which need strong partners to co-finance and distribute their product around the world.
The U.S. studios could also benefit from the emergence of multinational indies with which to split rights on riskier projects.
But multiterritory distribution is easier said than done across Europe’s patchwork quilt of languages, cultures and business practices, let alone in the wider international marketplace. Beyond the biggest Hollywood blockbusters, the number of movies that work equally well in all territories is remarkably small.
As Wild Bunch topper Vincent Grimond puts it, “Let’s not kid ourselves: Movies like ‘The Lives of Others’ are far and few between.”
Buying companies across borders is fraught with risk — as Alliance found when it acquired Spanish distrib Aurum in 2004, and spent the next three years clearing up the mess left behind by the previous owners. And while there’s a lot to be said for achieving financial scale, the synergies aren’t as great as they might first appear.
“Taking a small number of movies in a single territory is a pretty scary business strategy. Having several territories with experienced management and financial scale is much more sensible,” says James Corsellis of Marwyn, the U.K. hedge fund and the main shareholder of E1. “But acquisition is difficult to centralize. You can overstate how much of the slate will be made up of something you buy in every single territory.”
Comments one British financier who has acted as a consultant on some of these recent consolidations: “Buying films together sounds like a good idea on paper, but when you start peering into the rationale, it doesn’t always add up. All indie distributors in the same group would be happy to take product from the likes of New Line or Summit, but outside that, they will all want to carry on buying independently.”
A skeptical sales agent says: “Alliance, Momentum, Scanbox — these are good companies. But whether consolidation makes them stronger rather than weaker, I don’t know. Whether the sum is greater than the parts is open to question.”
Each player has its own strategy. StudioCanal is focusing on the three major territories of France, the U.K. and Germany, with a strong commitment to production; Canada’s Alliance, now owned by Goldman Sachs, and Ben Ammar are combining their distrib operations across a wider range of countries; E1 is pushing rapidly into the theatrical biz from a base in Canadian and U.K. DVD; and France’s Wild Bunch is opting for joint ventures rather than outright acquisitions.
So is the concept of a “European major” no longer such an oxymoron?
“We will be the first big major European movie company,” boasts Ben Ammar, a savvy dealmaker with close ties to Rupert Murdoch and Silvio Berlusconi.
“What do the majors do? They produce in more than one territory, and they cover their losses. I’m not looking to do more than 15 movies a year, but I want to do them in six territories,” he says.
“People sometimes end up overpaying for a film for one territory. Imagine, they buy the film for $4 million, it doesn’t do well and you end up losing your shirt. It’s easier to buy the picture for five territories for $20 million, cross-collateralize your investment, which is what the majors do,” he says. He admits that the seller might not make as much money this way — “but at least with us, you get all the money up front.”
StudioCanal topper Olivier Courson says, “Our strategy is to be in the three biggest markets and in parallel — and this is central to our strategy — to develop international production. We believe that it is easier to have access to international films, to finance and produce them, if we are able to exploit them in major territories. We must be able to show that we are very, very good in those key territories that are key players.”
Adds Wild Bunch’s Grimond, “In France it will be all the major studios, plus four international, European-based players fighting for the local production, plus acquisition of international movies.”
But is there really room for everyone?
“It’s a real land-grab. They are all chasing the holy grail,” notes the British financier-consultant. “But in each major territory, there are only one or two companies of the right size and reputation that are fit for the purpose. We ran the rule over Kinowelt, and there was a lot there you wouldn’t touch with a bargepole. But because it’s a sellers market, you find people overpaying for assets, but they are likely to end up without a complete hand, with some territories missing.”
Patrice Theroux, the former Alliance exec who now heads Entertainment One’s Filmed Entertainment division, disagrees. “These are not new entrants, but a consolidation of existing companies, and there are many different ways to enter a territory. I don’t think everyone is looking in the same place, and I don’t feel we are all butting heads over the same companies. I’ve seen a lot of financial discipline, and even with the Kinowelt deal, I cannot say that anyone is being rash.”
In the medium term, however, some further consolidation between these multinational wannabes seems likely.
Marwyn’s Corsellis describes such an outcome as “commercially logical.”
“It makes sense to be in as many territories with as much financial scale as possible,” he says. “The natural thing is that some or more of those people would end up working together. All the management teams are very bright, and share the same view of the opportunity in the market. I look at Tarak Ben Ammar, Alliance, Wild Bunch and StudioCanal, and we would more likely consider them as partners than as competitors. After all, we are all trying to compete with the U.S. studios, which are considerably bigger businesses than all of us put together.”
However, despite the recent flurry of dealmaking, it’s still very early in the effort to build a viable multiterritory business. Even the studios find it difficult to make management teams work together across territories with a common style and purpose.
Conditions in each territory are so divergent — notably exhib relations, rental terms, structure of the DVD market, the nature of TV deals, how marketing is done and what it costs. Local solutions are almost always necessary to every issue.
Witness the recent release of “Asterix and the Olympic Games,” the most expensive French movie ever, which pushed “Cloverfield” off the top spot at the international box office over the past fortnight. Pic was backed by Gallic major Pathe; it was released via local indies in 16 territories, the nearest thing Europe gets to a day-and-date release. Yet two-thirds of its gross came from its home country, France, where it has taken $23 million in 12 days. Pathe’s own U.K. distribution arm released the movie a week later on just three prints, earning a mere $20,000 in its first weekend.
Alliance recently bought Constantin’s German thriller “The Wave” for Canada, the U.K. and Spain. But its president of distribution, Xavier Marchand, suggests such multiterritory deals are more likely to be the exception than the rule. For all the emerging international distribs, the strategy is to allow considerable local autonomy to select movies in each country, enhanced by a small number of bigger multiterritory buys.
“If you look at what works across Europe, it tends to be upmarket movies like ‘Downfall,’ ‘Vera Drake’ and ‘Pan’s Labyrinth,'” Marchand says. He points out that independent American product is hit and miss, with films like “Just Friends” or “Next” doing well in some countries and failing even to get released in others.
Here’s how the latest rounds of acquistitions and partnerships could play out across Europe:
- France’s Studio Canal, which owns Gallic distrib Mars, bought Germany’s Kinowelt late last year, to add to the U.K.’s Optimum Releasing which it acquired in 2006.
- Franco-Tunisian entrepreneur Tarak Ben Ammar bought Italy’s Eagle Pictures in November to add to his French distribution boutique Quinta. He’s now in the process of merging his interests with Canada’s top indie Alliance Films, backed by Goldman Sachs, which also owns Momentum in the U.K. and Aurum in Spain. Together, they are in talks to add Scandinavia’s Scanbox to the combined operation, and are scouting for ways to enter the German market
- Entertainment One, originally a Canadian DVD distrib that floated on London’s Alternative Investment Market a year ago with backing from U.K. hedge fund Marwyn, has since bought Contender in the U.K., a DVD outfit with a small theatrical arm; leading Benelux indie RCV; and Seville Pictures in Canada, a niche theatrical distrib. It signed an output deal with Summit Entertainment for the U.K. and Canada, and plans to be equally acquisitive, both for companies and product, in the year ahead. n In the past year, French sales outfit Wild Bunch has entered joint ventures with A Film in Benelux, Bim in Italy and Senator in Germany. n Another Gallic major, Pathe, has long been entrenched in France and the U.K., but historically, these companies have been virtually autonomous. Last year, it promoted U.K. topper Francois Ivernel to run both operations, and to try and bring its French and British arms into greater coordination.