Paramount takes a bold new global step

Once the most conservative of studios, Paramount's new global distribution entity -- Paramount Pictures International -- marks a new phase in the company's evolution.

In the not-too-distant past, United International Pictures towered like a colossus over the foreign distribution scene. A vast worldwide distribution mechanism for Paramount, Universal and MGM/United Artists, UIP came into being in 1981 (building on the then-10-year-old Cinema International Corp., which handled Paramount and Universal) and distributed all three studios' releases in foreign territories; at one point, the entity had more than 1,000 employees and, at its peak, saw revenue of more than $2 billion a year.

Not anymore. As of this month, UIP as the industry knew it is all but gone. MGM exited the deal years ago, and Paramount and Universal have created their own international distribution organizations that will handle each company's releases separately: Paramount Pictures International and Universal Pictures International. (The old UIP will continue as a much smaller third organization, handling some territories for both studios.)

For Paramount, that means not just the formation of a bold new endeavor but a break with the conservative, risk-free strategy that has dominated its thinking for the past decade. "This is the first time in 35 years that Paramount has had its own branded-distribution entity in the international marketplace," PPI president Andrew Cripps says. "And for Paramount, that is a really important statement about the growth of the international film business."

Since Brad Grey was named Paramount's chairman a year and a half ago, he has made it a priority to forge ahead in the international field, developing not only added sources of revenue but a security blanket for stars like his former client Brad Pitt, whose foreign audiences are substantial and who want guarantees that the studio can properly manage their projects internationally.

"The new management really aggressively pursued getting this done," says Rob Moore, president of worldwide marketing, distribution and home entertainment for Paramount Pictures and the studio's point man for PPI. "There was a real focus on two things: developing the type of motion pictures that would play worldwide -- and therefore being able to participate in the upside when you get a breakout tentpole movie -- and getting the international expertise inside the company to release those films."

All of this, Moore says, was critical if Paramount wanted to act on its belief that the international marketplace is too important to be handled by a nonexclusive company -- a belief that seems justified when one compares last year's $9 billion domestic boxoffice to the towering $16 billion that feature films took in abroad.

But in replacing UIP with PPI, Paramount is facing enormous challenges, especially for the next year to 18 months. For PPI, those challenges range from opening a slew of new offices and hiring fresh executive talent to establishing itself as a brand in countries where it has taken over the operations that were previously run by UIP.

According to the terms of the split, "We are going to be trading in the U.K. (and Ireland), France, Australia, New Zealand, Mexico and Brazil," PPI executive vp finance and administration Michael O'Sullivan says. "We will be distributing Universal product in all those territories except the U.K. and Ireland, where they are on their own.

Universal inherits and rebadges UIP offices in Germany (and Austria), Spain, Italy, the Netherlands and Belgium. (Universal also) recently acquired our interest in UIP for (South) Korea, and they get Russia."

Remaining territories, including Japan, Taiwan and the Scandinavian bloc, will go through the old UIP.

For the next 18 months, by and large Universal and Paramount will trade services in the territories that each now controls, meaning that Universal will handle Paramount's titles in those territories, and Paramount will handle Universal's releases. But a year and a half from now, each expects to have its own operation fully up and running in the countries it did not inherit from UIP.

To help him assemble these operations, Cripps is relying on a key group of deputies including Roger Pollock, executive vp international distribution and operations; Jon Anderson, executive vp international marketing; Philip Solomons, general council and executive vp business affairs and legal; and O'Sullivan.

Cripps assumed the leadership of PPI at the beginning of the month after being UIP's No. 2 man, working under the company's chairman, Stewart Till, who has left to pursue other ventures. He says finding the right staff for his new offices will be a top priority.

"It is difficult to find good people," Cripps acknowledges. "The film business has been contracting in a lot of countries (in terms of the number of distributors). But this does give us an opportunity to go into the finance field or the marketing field and attract the best people. We don't have to be constrained by (only hiring) people who have worked in the film business. I am hoping we can attract bright new talent who are interested in working for a Hollywood studio in what is still a growing business internationally."

If anyone has doubts about how much that is growing, nothing makes it clearer than the boxoffice for 2006's "Mission: Impossible III," which earned $133.4 million domestically and $267 million internationally. "M:I-3" earned $37 million in South Korea alone, even though local product there has gone from representing roughly 32% of the boxoffice in 2000 to more than 55% in 2006. "The overall market is bigger," Cripps explains. "The market has grown tremendously."

So has Paramount's slate. Since buying DreamWorks in late 2005 for $1.6 billion, the studio has considerably expanded its release schedule with product coming from Paramount (including Paramount Vantage, MTV Films and Nickelodeon Films), DreamWorks and DreamWorks Animation. Together, in terms of releases, "They will give us somewhere in the mid-20s range each year," says Moore, who notes that PPI also will release Marvel pictures in certain territories, starting with "Iron Man" in 2008.

As for how this breaks down among the studio's component parts, Moore says he expects that PPI will get some 10-12 pictures each year from Paramount, six to eight from DreamWorks, two from DreamWorks Animation, and another eight to 10 from Vantage. He says PPI's maximum capacity should be about 30 pictures annually.

Releasing these films internationally has become more complicated over the years primarily because of the peculiarities of working in each individual territory. "When I first started in 1980 in Australia, the international marketplace wasn't as mature as it is now," Anderson says. "There wasn't a great deal of thought put into what was happening at a local territory level. Now, there is much more scrutiny that goes into making sure we are maximizing every opportunity we have."

This means crafting very different campaigns for each film based on the territory in question. With "Dreamgirls," for instance, Anderson notes that foreign audiences have little connection to the Broadway musical on which the movie is based. Instead, PPI is focusing on that film's all-star cast, which includes Beyonce Knowles, Jamie Foxx and Eddie Murphy, among others.

With "Charlotte's Web," PPI actually reworked some of the animation in the film for each country: At one point in the movie, a pivotal word is written into the spider's web, and thanks to PPI's intervention, audiences can now see that in their own languages.

But higher-budget, wide-appeal movies such as "Dreamgirls" and "Web" are the exceptions in a slate that is comprised mostly of smaller-scale dramas like the recent Hilary Swank starrer "Freedom Writers," about an inner-city school teacher struggling to make a difference. That puts PPI in the unusual situation of having to rely on local product -- rather than franchise titles along the lines of, say, Warner Bros. Pictures' "Harry Potter" films -- to help bring in the revenue necessary to support a major new distribution entity with about 230 staffers.

PPI now plans to move aggressively into local product, both in terms of acquisitions and productions that it will co-finance. In the past, "Paramount has never been a company that has gone out to the marketplace aggressively and acquired a large number of films," Cripps reflects. "And they certainly never got into the local production business. But it is a good business, and we see it as a very viable business going forward."

Cripps says PPI will emphasize acquisition rather than production and will not move to create an autonomous development unit of its own. "We are not planning on hiring a head of production, but we are going to increase our acquisitions staff," O'Sullivan notes.

Eventually, PPI envisions a significant role in foreign-based production, reminiscent of the 1970s, when many studios opened flourishing European production offices. "In the short term, we are looking at the U.K. and France as the places where we are going to push our efforts," Moore says. "In 2007, we will be looking to make investments in either two or three movies in each place. I am not going to start with 10 movies, but as we go forward, that will become a bigger and bigger initiative."

Just how many of these films will be made is dependent on "their success and the product flow and the offices and the organization," Moore adds. "The volume could be very different in different countries, depending on how long we are in business with Universal and how local product is doing in the marketplace."

Asked how much money will be placed in such productions, Moore says: "We are finalizing that right now. It is certainly in the tens of millions of dollars in 2007 and in the future significantly more."

Moore points to the success of a film like 2006's "Perfume: The Story of a Murderer" in its local market, Germany, but he says PPI is unlikely to sign many pacts with local producers like that movie's Bernd Eichinger. Nor is the company likely to enter into long-term deals akin to Universal's pact with Working Title in England. "More likely than not, the answer is no," Moore says. "But in absolutely the right situation, we would be open to it."

Expanding significantly into indigenous production is only one of the issues Moore and his colleagues will face as PPI gathers steam. They also will need to determine how to best penetrate burgeoning new markets and how to cope with major technological shifts.

As far as new markets are concerned, Asia remains the biggest question mark. "We are trying to crack China, which has remained (relatively closed) over the past 10 years -- nothing has changed for us there," Pollock says. "There is still a revenue-sharing system in place with the authorities, and we can't get films in as regularly as we can in Russia. But it is a very important market."

So is India, which, he says, "has huge potential for growth." PPI is starting to tap into that growth, and Pollock says that the company will release "Transformers" there this year, with 200 prints dubbed into Hindi, Tamil and Telugu.

Prints themselves are at the heart of the most important technological matter confronting PPI -- or any other distributor for that matter. "We are looking carefully at digital projection," Pollock says. "Cinemas in Europe are beginning to equip themselves with digital projectors, and they will be looking to us to supply digital prints."

Deciding who will contribute financially to the new technology is somewhat different than in the U.S., he notes. Here, the studios have acknowledged they will save millions in print costs if theaters go digital -- they'll be saving approximately $1,200-$1,500 per print. But in Europe, where the prints screened are ones that already were made for the U.S. market, the savings are not so great.

"Those deals have not been structured yet, and the issues are very different," Pollock says. "That is one of the biggest challenges we have ahead of us, negotiating how best to make virtual prints work in the international market. I think it will be (resolved) in the next 12 or 18 months."

For now, PPI's main concern is to move forward as a successful distributor of Paramount product. In launching the company, the once-staid studio is sending a loud and clear message about its commitment to the international future. "Paramount was the most conservative studio previously," Moore says. "But we're not that anymore."