Remodeling under way as established player is taken over by rookie

Distribs in the U.K. are coming off a record year at the local box office, but the 2013 landscape continues to change as the arrival of new players and the consolidation of established ones creates a growing competition not only for local films, but also for screens, which are growing in importance as the DVD sector continues to lag.

January saw significant changes in the indie landscape as eOne completed its acquisition of Alliance, leading to the merger of Alliance’s Momentum Pictures and eOne’s U.K. operation, while Koch Media announced plans to launch a U.K. distrib arm, and now looks to tie up with a U.S. partner to help it gain traction.

“Consolidation is a sign of the times both in distribution and exhibition, with companies joining up to increase bargaining power,” says Niels Swinkels, managing director of U.K. & Ireland for Universal Pictures Intl. “EOne is becoming a bigger (player).”

Koch intends to work its way up to releasing a slate of 12 to 25 films by next year, according to Thomas Hedman, Koch’s business development director for film in Northern Europe. Hedman expects the company to release approximately eight films theatrically in 2013, with new acquisitions to be announced soon.

That puts Koch, with distribution ops in Germany, Italy, Scandinavia and Benelux, in direct competition with Lionsgate, Entertainment Film Distributors, Studiocanal and the beefed-up eOne. As part of its long-term plans, Koch will look to establish a partnership with a U.S. company. Koch makes its U.S. theatrical debut March 1 with Nicholas Jarecki’s “Arbitrage.”

“We need to secure a steady flow of good product,” says Hedman, highlighting some U.K. independents’ deals with Stateside distribs, such as Entertainment Film Distributor’s with New Line Cinema and eOne’s with Summit Entertainment as key to the indies’ success.

However, even with Momentum subsumed into eOne and the U.K. distribution operations of Pathe and Icon having shuttered in 2009 and 2011, respectively, some local players are not convinced that there’s space in the market for another player of Koch’s intended size; exhibs already are complaining there are too many films in the marketplace.

Hedman remains unconcerned. “It’s a very crowded market,” he allows. “But at the end of the day, it’s the quality of the films that counts. If you have good quality, you will get films placed on screens, and secure a life for DVD and ancillary.”

Meanwhile, eOne, fresh off its merger with Momentum, will demonstrate its new muscle immediately, releasing more films than the two companies did individually. Currently, 42 titles are on the slate, although that number is expected to dip to 35, according to Patrice Theroux, eOne’s prexy of filmed entertainment.

“In Canada we (release) multiple movies on a (single) date,” Theroux says, adding: “It’s easier to control the release outside of North America, where a film doesn’t need to go day-and-date with the U.S. We might do two of our own movies on the same week, but we don’t want that every week; that might raise some real estate issues with theater owners. Thirty-five should be manageable.”

In 2012, eOne was the No. 1 independent distrib in Blighty, with a 6.9% market share, even finishing ahead of Paramount. Alex Hamilton, who’s been heading eOne’s U.K./Ireland operation since its 2008 launch, was recently tapped managing director of the merged U.K. operations. Theroux expects a full structure for the U.K. operation to be in place within 90 days.

Overall, with a growing number of productions contributing to a more crowded market, local pics, which have played an increasing role in Brit distribs’ success, figure to be even more crucial.

Momentum recently delivered U.K. hits “The King’s Speech” ($70.8 million) and “The Woman in Black” ($33.7 million), while eOne scored with “Nativity 2″ in late 2012 ($14.6 million). Theroux says a highlight of this year’s slate is upcoming Irish co-production “The F Word,” starring Daniel Radcliffe, for which eOne handles international sales and will distrib in certain markets.

Lionsgate U.K. released five British films in 2012, and enjoyed its best-ever overall local box office ($108 million). The company’s chief executive, Zygi Kamasa, notes Lionsgate U.K. was the most successful distributor of Britpics for the year, thanks to diverse titles including “Salmon Fishing in the Yemen,” “Coriolanus” and “Keith Lemon: The Movie.” In 2013, the distrib has seven British films on its docket.

Koch, meanwhile, is looking to build its rep with U.K. producers. Hedman says the distrib is “very open to local productions,” and intends to get involved early in the life of a film to help with financing.

Offering an overall assessment, Universal’s Swinkels sees strong slates among studios and independents, and no reason the U.K. can’t deliver another boffo box office year, particularly considering last year’s third-quarter drag due to the Olympics and, to a lesser extent, Euro Cup soccer.

But distribs need to remain upbeat about box office, with the double-digit decline in the DVD market placing that much more pressure on theatrical performance.

Further complicating matters, in January, leading entertainment retailer HMV Group and rental company Blockbuster U.K. went into administration — the U.K. equivalent of Chapter 11 bankruptcy — within 24 hours of each other, sending a wave of concern through the distrib community.

Danny Perkins, CEO of Studiocanal U.K., says that with HMV likely on the way out, the U.K. distribution sector is facing as tough a time as he can remember. “HMV is a big piece of the market,” he says. “Catalog is a big part of our business. The way we model our numbers has to change. DVD and home entertainment was the engine that drove acquisition decisions, but we can’t count on that anymore.”

Lionsgate U.K.’s Kamasa says the withering of DVD has changed the way distribs are evaluating projects. “If it doesn’t work theatrically, no one wants to buy it, except perhaps for certain genre titles,” he says. Kamasa is also concerned that a gap has opened up in the midsize theatrical biz.

“Consumers are being more selective about what they see in theaters. The movies that work tend to really work, but there’s a real split now. There used to be lots of films in the $3 million-$5 million (grosses) area. Now they tend to be $1.5 million-$3 million or $8 million.”

U’s Swinkels maintains that increased development of digital media is needed to compensate for the loss in physical sales. But Rupert Preston, managing director of Vertigo Films, while agreeing with that assessment, notes that younger generations are not used to paying for digital content.

“That’s a big problem that needs to be solved by the whole industry,” he says, adding that the loss of HMV cost Vertigo 10% in sales on “The Sweeney.”

However things ultimately shake out, U.K. distribs are already rethinking overall strategies. “The market is changing, and we’re changing the way we calculate what we can invest both in production and acquisitions,” Perkins says.

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