Foreign divisions cut despite market-share growth

NEW YORK — The studios are enjoying their biggest box office take from the international market ever — yet some of the Hollywood majors seem to be rethinking their overseas strategies.

The six studios’ collective international box office was up 20% in 2010 over 2009, putting Hollywood’s share of the $20 billion in overseas ticket sales at $12.69 billion. During the same period, domestic B.O. stayed flat.

Yet the majors’ move to add local-language productions and foreign territory acquisitions to their plates over the past few years arrived alongside conflicting corporate goals. Studios and their parents see obvious opportunities for growth and income in commercial foreign-language fare; with rising middle-classes creating bigger box office in many territories, the potential for growth is far greater overseas. But they’re also fixated on the downside of too much production, continuing to work toward smaller slates centering on bigger tentpoles at home.

“On paper, (the move toward producing local films is) a business that makes sense,” notes William Morris Endeavor’s international division co-head Elia Infascelli. “You can make more money from releasing local-language productions, grow local talent, find projects for remakes and feed overseas distribution pipelines. And in a world where 70% of box office is now overseas, you get to cast more stars from international territories, have a relationship with them earlier and a higher chance of putting them in your movies.”

International box office leader Warner Bros. ($2.93 billion) seems to be holding strong with its local-language strategy and well-established “country manager” system in six territories and counting. Relative upstart Fox ran a close second ($2.90 billion), and its Fox Intl. Prods. scored several big hits that will help feed its parent company’s many ancillary outlets. Both had record years in the arena.

Nonetheless, others appear to be becoming more cautious in the arena. The output of Sony Pictures Intl. Motion Pictures Production Group — a pioneer in the late 1990s in studios’ local language efforts — slowed to a relative trickle after its onetime co-head, the late Gareth Wigan, stepped back from day-to-day business in 2008. And while still active on the domestic front, Sony Pictures Worldwide Acquisitions’ last big buy for overseas territories was the 2010 Cannes pickup “Hanna.”

Layoffs and exec shakeups have hit Paramount and Universal, despite success, and there’s talk of possible changes in international production at Disney coming from inside the Mouse House.

In early June, Paramount laid off almost every employee in its local-language production and acquisition arm, Paramount Worldwide Acquisitions Group (PWAG). Within a month, news broke that Universal’s Intl. Prods. & Acquisitions prexy Christian Grass would be ankling, with no replacement for his position, and staffers aligning under his former boss, international head David Kosse.

Both PWAG and Universal Pictures Intl. Prod. (UPIP) formed to supply product for new studio-owned overseas distribution arms created after the joint Par/U distribution venture, United Intl. Pictures, was restructured some four years ago.

Each unit has scored numerous hits — PWAG with its Spanish pickup “Cell 211″ and Aussie co-production “Tomorrow When the War Began,” UPIP with its French co-production “Heartbreaker” and German pickup “Hanni & Nanni,” among others. In addition, UPIP forged promising partnerships with Australia’s Hopscotch Films, Hong Kong’s Edko Films, Germany’s UFA Cinema and Italy’s Cattleya. PWAG partnered with Australia’s Transmission, and both teamed with various local outfits for co-productions.

The reasons for the changes appear to be as different as the severity of the shifts. Grass initially reported to Universal co-chairman David Linde, but began reporting to Kosse following Linde’s departure in 2009. Since the recent Comcast takeover, several company execs have ankled, including NBC Universal Intl. prexy Peter Smith in March.

Grass took a pivotal role in overseeing several big hits and some disappointments during his tenure, with annual overseas B.O. holding steady at $1.2 billion in 2009 and 2010. His upcoming slate of a dozen-plus films includes such promising titles as David Cronenberg’s “A Dangerous Method” (with Keira Knightley and Viggo Mortensen) and Jalil Lespert’s “Des vents contraires” (with Audrey Tautou).

U declined comment for this story. The studio had an active Cannes, and its extensive overseas operations (including productions with sister outfit Focus Features Intl.) led industry observers to say the organization — despite its executive changes — remains committed to international efforts.

Now that cost-conscious Comcast is in the picture, however, UPIP is likely to come under more internal scrutiny.

The seven-staffer Par cut was far more severe and unexpected, since at least five PWAG features have yet to be released (including the Jean-Claude Van Damme-toplined “Beur sur la ville” and the now-filming “Shadow Dancer” starring Clive Owen). The Par cuts come as the studio’s overseas box office jumped to $1.98 billion last year from $1.31 billion in 2009.

According to an insider familiar with the situation, Paramount is shifting focus, with fewer local language co-productions and acquisitions, and “more identifiable properties with the best potential to break out on a global basis.” PWAG operations will now be overseen by Paramount Film Group prexy Adam Goodman.

The studio seemed cautious with initial plans to fill its new distribution arms the year before PWAG’s launch. “In the short term, we won’t put money into development,” said Paramount Pictures Intl. prexy Andrew Cripps at the time. “That’s a slippery slope, and it has to do with the personnel we have on the ground.”

Several sources who have had extensive dealings with PWAG say the division remained cautious throughout its first three years. Those sources question the studio’s commitment to the arm, noting it made only piecemeal territory acquisitions and seldom bid aggressively on hot properties that most or all of the other majors pursued.

“What they’re basically saying without saying it is, we’re going to take a look at where we can cut payroll, overhead and expenses,” says NYU Stern’s Entertainment, Media and Technology Program head Al Lieberman, who specializes in global entertainment issues.

Like Universal, PWAG also had its share of misses, and most of the studio’s foreign territory hits — while sizable for each country they were in, offering substantial market-share increases and an important stake in the ground for future efforts — may look modest at first glance next to U.S. hits on the corporate balance sheet.

“Because it’s a long-term business that doesn’t have immediate revenue or an immediate advantage you can point to, it’s very susceptible to being cut,” explains WME’s Infascelli, “whether that’s because of corporate agendas, a regime change or if studio financing goes down for a year.”

Next week, Variety looks at other major studios’ efforts in the arena.

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