Bowing to increasing pressure to control their own destinies, Paramount Pictures and Universal Pictures have hammered out an ongoing separation agreement that significantly overhauls United International Pictures, their 24-year-old partnership through which they distribute films internationally.
Starting in January 2007, Paramount and Universal will each release their own films in 15 countries. In the remaining territories around the world, the two studios will extend and restructure their joint venture in UIP as part of a new, long-term agreement.
Under terms of the agreement, Paramount will take over and run UIP's operations in Australia, Brazil, France, Ireland, Mexico, New Zealand and the U.K. Universal will own and operate in Austria, Belgium, Germany, Italy, the Netherlands, Russia, Spain and Switzerland.
Until the two studios take off in the countries that they've divvied up, UIP will continue to operate under its current structure and management, led by chairman and CEO Stewart Till, and president and chief operating officer Andrew Cripps, through Dec. 31, 2006.
With the international boxoffice outstripping domestic -- international represented 51.6% of worldwide theatrical revenue last year -- both studios want to pull the maximum returns out of territories abroad.
"Both organizations recognize the growing importance of the international marketplace," Universal Pictures vice chairman Marc Shmuger said. "This represents a shift of strategy so that we can run our own businesses more effectively. If we directly own and operate our distribution in key territories, we'll ultimately be able to integrate theatrical into our other businesses and be more nimble in our decision-making and generate more revenue. For all of us who worked and will continue to work with UIP, this brings mixed emotions. It marks the end of an era."
"UIP has a long and proud history as the premiere distributor of motion pictures internationally," Till said of the dramatic change in structure. "This success has been driven by our tremendously loyal and dedicated staff around the world. Our immediate objective is to continue to achieve uniquely impressive boxoffice results, while supporting our partners as they pursue their new long-term strategic objectives."
After extended talks that he originally began with former Paramount vice-chairman Rob Friedman, Shmuger stepped up discussions with Rob Moore, recently appointed Paramount Pictures president of worldwide marketing and distribution.
Paramount chairman Brad Grey had put reorganizing UIP at the top of his studio's agenda, said Moore, who has been on the job only four weeks.
The two studios used a draft system for picking the countries that each would take over, and they finalized the joint venture's new franchise agreement this week in London. "We were able to fairly quickly get to a structure that we both felt was fair and advantageous going forward," Moore said. "We came up with two groups of countries, reasonably comparable, that we could each take over."
Once Paramount and Universal begin operating their individual countries, UIP will continue to manage all countries outside of North America that are not run solely by either of the two studios, including Japan and Korea, both big-grossing countries where "both partners felt it was in their mutual interest to jointly manage the venture," Shmuger said. "They are tough countries to set up operations in."
The other 18 countries in which UIP will continue to distribute include Argentina, Chile, Colombia, Denmark, Greece, Hungary, India, Malaysia, Norway, Panama, Peru, Poland, Singapore, South Africa, Sweden, Taiwan, Thailand and Turkey.
In the countries that have been awarded to one of the two studios, the other is expected to build its own distribution organization. "Worldwide had not been a priority for Paramount," Moore said. "We want to be more hands-on and involved." But, he admitted, the new operations "will not happen overnight." In fact, the two studios are hanging on to a safety net: The restructuring agreement allows both studios to subdistribute films through each other's operations for up to two years. Universal, which is in talks to acquire DreamWorks, also will continue to distribute that company's theatrical product internationally.
As of 2007, the restructured UIP will oversee distribution of Paramount and Universal's feature films in 20 countries, down from its current 35, and will continue to manage its licensed countries, including China.
Paramount's new international operation will be headquartered in Los Angeles, and it will set up a European hub as well. Universal will base its foreign shop in London.
UIP was initially set up in 1981 as a global distribution partnership among four studios: Universal, Paramount, MGM and United Artists. MGM and UA left the partnership in 2000. In recent years UIP has been dominated by Universal, partly because Paramount, under the financial stewardship of Viacom Entertainment Group chairman Jonathan Dolgen, liked to sell most of its foreign rights to reduce its risk. Moore has every intention of changing that direction in the future. "We definitely will be more aggressive in retaining and acquiring international rights," he said. "We also believed that the lack of international executives who are Paramount executives was a negative for our company."
The move is also about making it possible for Viacom and Paramount to implement larger corporate strategies abroad. "On a go-forward basis, as we continue to develop the MTV and Nickelodeon brands, having executives in the top countries was very important to us. There were things going forward that we couldn't do in a joint venture," Moore said.
Both executives made it clear that the changes in UIP's charter should not be perceived as a failure on the part of UIP's executives or employees. "We both believe that UIP was doing an effective job releasing movies," Moore said. "We just couldn't implement bigger corporate strategies going forward unless we built our own organizations with international support."