Peace Arch Entertainment Group has spun off its U.S. and Canadian DVD distribution arm to Phase 4 Films, a new entity founded by Peace Arch homevid prexy Berry Meyerowitz.

Peace Arch will hold an 8.8% stake in Phase 4, which will continue to distribute Peace Arch titles for homevid under a long-term deal.

Move will allow Peace Arch to reduce expenses while narrowing its focus to TV production and film licensing.

Under the deal terms, Phase 4 assumes $7.75 million in debt and relieves Peace Arch of a $2.95 million loan guarantee.

The deal comes as industrywide DVD sales are declining faster than the Blu-ray format is ramping up. Standard DVD sales fell in the mid-double digits for the fourth quarter of 2008 and again for the first quarter of this year.

“Although home entertainment has been a major contributor to our revenues, the capital required to further grow this division did not align with our overall plans for reorganizing and rebuilding Peace Arch,” said president-chief operating officer John Flock. “Nonetheless, we believe that Berry and the Phase 4 team will be able to expand that business as a standalone operation.”

Peace Arch has recently struck a chord with its production of Showtime’s “The Tudors,” which is distributed by Showtime in home formats. The company has also been involved in straight-to-DVD release “The Deal,” starring Meg Ryan and William H. Macy, and limited theatrical release “JCVD” with Jean-Claude Van Damme, with Peace Arch distributing both on DVD and Blu-ray.