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U, Par extend UIP pact

Studios splitting operating costs

Ending months of speculation about the partnership’s future, Universal Pictures and Paramount Pictures have renewed their ties to United Intl. Pictures for another five years, extending their joint venture until 2006.

The announcement of the studios’ commitment to the international distributor is linked to U’s decision to stick with UIP rather than change over to Universal Pictures Intl., a move also announced Thursday. U’s decision had been expected (Daily Variety, Oct. 8).

U and Par’s existing contract to support UIP was due to expire in 2001, but the renewal seemed in jeopardy at various times in the past year, particularly after MGM chose to withdraw as the third arm of the venture and go through Fox Intl. beginning in November 2000. And after its acquisition of Polygram Filmed Entertainment, U made advances toward building UPI into its sole international theatrical distributor.

Under the new pact, Universal and Paramount will split operating costs for UIP on an approximately equal basis, and though the parties announced a five-year extension, it’s understood that the new agreement has provisions to extend the partnership well beyond 2006.

With its official commitment to UIP, Universal will move quickly to transition UPI’s theatrical distrib operations to UIP. This changeover is expected to be completed by the end of the year, with UIP taking over marketing and releasing of Alan Parker’s “Angela’s Ashes”; Frank Darabont’s “The Green Mile,” starring Tom Hanks; and Joel and Ethan Coen’s “O Brother, Where Art Thou?,” starring George Clooney.

Mob comedy “Mickey Blue Eyes,” which already has been released in the U.K. and will open in November in most other territories, is likely to be the last film released by UPI.

London-based UPI will be scaled down to concentrate solely on homevideo distribution (for U and DreamWorks), acquisitions and foreign sales. It’s unclear how many of UPI’s approximately 100 theatrical distribution staffers will lose their jobs as part of the switch, but Universal co-chairman Brian Mulligan said U will try to find jobs for some UPI talent within its international arm or with UIP.

Euro commitment

And despite the closure of UPI’s theatrical functions, U strongly reaffirmed a commitment to co-producing in its own right and acquiring local films in major European territories. In London, U will have twice the presence on the acquisitions front, retaining much of the UPI acquisitions crew to monitor local production activity along with UIP’s existing group.

UPI senior acquisitions VP Graeme Mason is among the execs who are expected to transition to a similar position with U. It’s up in the air, however, what the future will hold for UPI president Stewart Till. While U brass said they will make a concerted effort to find a place for him within the company, it is widely expected that he will ankle.

‘Long-term partnership’

“The decision to focus the strengths of our two international distribution operations was based on two factors,” said Mulligan, who made the announcement with co-chair Stacey Snider. “Our commitment to UIP as our theatrical distributor is the extension of a long-term partnership that continues to make good business sense and offers strategic value in the changing landscape of international distribution. We have been distributing our films through UIP for almost 30 years, during which time they built their reputation on outstanding service to exhibitors and filmmakers around the world.

“Secondly, our primary motive for running Universal Pictures Intl. has always been its strength in the production and acquisition of European-produced films and video distribution. The new structure allows us to continue these key elements without the additional costs of running two theatrical distributors.”

Mulligan added, “The initial decision to go with UPI was really video-based. They are one of the best video distributors in the world, especially in sell-through. We have a large library that wasn’t being adequately addressed.”

The future of UIP looked dicey just a few months ago, but an aggressive push by topper Paul Oneille and key execs managed to thwart several threats to the distrib’s existence.

Strength comparison

According to U execs, the primary reason the studio decided to stay in the partnership was based on UIP’s existing strength compared with the cost of building UPI into a truly global powerhouse. While UPI had footholds in 11 foreign territories, UIP has branches in 48 territories with approximately 800 employees focused on theatrical distribution. U insiders point out that the cost of building up UPI into a strong competitor abroad would far outweigh the cost of covering half of UIP’s overhead.

One U insider also pointed out that one of the factors working against UPI was that it had eccentric, if not chaotic, systems that had evolved out of a record industry model that seemed to work in the vid business but was disorderly on the theatrical side.

In September, the European Commission further contributed to UIP’s continued existence. After an intense lobbying effort by UIP, the commission decided to renew the exemption from antitrust rules enjoyed by the company, giving the distrib five more years’ operating time in the EU before the exemption comes up for renewal. By snaring the EU exemption, UIP fought off extinction and competitors who argued that the company acted like a cartel in the movie distribution market. This decision by the EU appears also to have held sway with U execs, who until then were leaning toward UPI for international distribution.

“We were in the middle of getting approval from the European Commission (for the continuation of UIP),” Mulligan said. “That didn’t come until a week after we made the UPI decision. We’re sticking with the one that’s been in existence for 30 years, that we helped build — it has excellent marketing systems and the best local distribution.”

In the joint announcement from U and Paramount, Robert Friedman, vice chairman of Paramount Pictures Motion Pictures Group, said, “Universal Pictures has been a valued partner over the past 30 years, and we are equally excited that our relationship with them will continue. The renewed commitment of both studios will make UIP an even greater leader in the international community, and we look forward to the ongoing growth and rewards that this alliance will bring.”

Local strategy

Now that U has committed to UIP, the studio and UIP have to address concerns among the European film community that the distrib does not have the Eurocentric strategy of investment in local production and acquisition that UPI had in the region.

Also of concern to producers, particularly U-based Working Title, are questions surrounding UIP’s handling of smaller, more specialized pics.

The commitment to Working Title is U’s single largest production commitment and WT was understood to be upset that the studio was staying with UIP. However, Mulligan said the concern was not about the bigger WT films like “Bean,” but for smaller pics.

He said these concerns will be alleviated by the retention of UPI’s key talent and with a commitment from UIP to also focus on smaller films, including hiring personnel with this aim. Mulligan also suggested that the partnership might create a division solely devoted to specialized fare.

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