UIP launches final bid to keep special status

Date: 21/05/1998

By Peter Chapman

BELEAGUERED US cinema distribution chain United International Pictures is preparing to play out the final scene in its bid to retain its exemption from EU anti-trust rules.

Competition Commissioner Karel van Miert says the exemption is “no longer beneficial” and that there is “no good reason to renew it”. But UIP legal director Brian Reilly has pledged to try to change his mind.

The last anti-trust waiver granted to the alliance between the three Hollywood studios Paramount Pictures, Metro-Goldwyn-Mayer and Universal ran out in 1993. But the distribution venture has been allowed to continue, pending a new decision.

Such a cartel would normally be outlawed under EU competition rules, but past exemptions were granted because it was felt UIP was able to bring more films to Europe's cinemas more efficiently than existing rivals.

Since then, however, the EU's own industry has picked itself up and Van Miert claims there is little justification for allowing the tripartite venture to continue.

Under EU anti-trust rules, UIP has the right to respond to the Commission's dossier of evidence - much of it gathered during a series of dawn raids by officials last year - and has been given until the end of this month to file its final response to a January 'statement of objections' from the institution.

When it does so, it is certain to call for a prolongation of the Commission's probe.

If its request is granted, hearings will be held with industry representatives to give UIP another chance to convince the Commission to maintain the exemption. A consultation committee of member state anti-trust experts would also examine the merits of the venture's case.

UIP claims nothing has changed since the Commission granted past exemptions and argues that pooling the three studios' resources makes large cost savings possible.

The ending of the anti-trust waiver would be the second major set-back to hit UIP since the start of this year.

The first came when the European Court of First Instance ruled that the European Film Distribution Office was right to ban the venture from receiving funding to market two low-budget EU films in the mid-1990s.

The Court said the money sought by UIP could only be used to promote Union films if it encouraged cooperation between separate distribution networks in different EU member states. This requirement was not met.

Reilly has pledged that it will be “business as usual” while UIP awaits the Commission's verdict, and maintains that the probe is having “no impact” on the venture's day-to-day operations.

But industry insiders warn that the future of UIP hangs in the balance, whatever the Commission finally decides after the latest round of appeals.

They point out that the venture's franchise agreement runs out in 2002 and say there are doubts about whether the three partners will keep it going beyond this date, given that they are moving in different directions.

Seagram-owned Universal is seen as the most aggressive of the three companies, with ambitions to become a global entertainment player. MGM and Paramount have tended to be less expansionist.

At the same time, all three have often bypassed UIP through speciality divisions which handle their own distribution.

The venture's grip is further weakened by the trio's tendency to share distribution rights for big films with other studios.

Seagram's bid for PolyGram, the entertainment unit of electronics giant Philips, will also complicate the future shape of UIP.

If Seagram chose to keep PolyGram's Filmed Entertainment business as part of the deal, Universal would own a pan-European distribution network without the need for UIP, said one EU film industry source.

“No one knows whether Seagram would just keep the music arm of PolyGram, and if it would close the film unit,” he said.

“But it is conceivable that it will keep the PolyGram film distribution network and so would not need UIP.”