Van Miert rewrites film industry script

Date: 23/09/1999

By Peter Chapman

Like a maverick director bored with the script of his latest film, Karel van Miert veered wildly from the plot half way through the story.

For months, the former Competition Commissioner was telling journalists that he saw "little reason" to allow United International Pictures (UIP) - a film distribution carve-up between three of Hollywood's biggest studios - to continue benefiting from the exemption from EU anti-trust rules it was last granted in 1989 because Europe's own industry was in a shambles and incapable of doing the job itself.

UIP was created by Paramount Pictures Corporation, Universal Studios Inc. and Metro-Goldwyn-Mayer Inc. to save on costs by jointly distributing their films in Europe. It stood accused of coordinating releases of the trio's films across the EU at the expense of competition, while at the same time only agreeing to let cinemas show their top blockbusters if they took the box office flops too.

EU industry critics also claimed that UIP had reneged on its promise to plough some of the profits it made from promoting European-made films back into the industry - a pledge made in return for winning the anti-trust exemption. The result, they said, was that European culture and film talent were being left on the cutting-room floor while US junk flooded cinema screens.

Van Miert's officials launched dawn raids on UIP's offices two years ago to search for evidence to support these claims. But, as they say in tinsel town, 'it ain't over till the fat lady sings' and sure enough, in March, Van Miert admitted he had got it wrong.

Most of the allegations could not be substantiated and, as a result, UIP was told that its exemption would be extended for another five years as long as the partners to the venture changed some of its most troublesome business practices.

"The market has grown substantially, the quality of cinemas has increased dramatically, not least because of UIP's standards, and UIP has a smaller share of the pie," said one Commission official, pointing out that UIP's average EU market share fell from 22% in 1989 to 13% in 1997 before rising again to 17% last year.

Van Miert did, however, demand changes to two key clauses in UIP's shareholder agreement before he would renew the exemption.

Firstly, he insisted that UIP delete a promise to make its 'best effort' to maximise its profit for each and every film it distributed in the EU. "Having the best-efforts clause there was an incentive for the partners to coordinate the releases of their films so that UIP had maximum profits on each and every one of them," said a Van Miert aide.

"UIP would say 'we had better stop the newest Van Damme film for two months so that Stallone's latest reaps maximum box office revenue from the steroids crowd'. There was no incentive at all for Chinese walls of any sort within UIP. On the contrary, the more the partners knew about each others' releases, the easier it was for UIP to make profits."

Secondly, and crucially, Van Miert also removed UIP's monopoly on distributing its three partner companies' films across the EU as a whole. This meant that UIP would still be allowed to make its "best efforts" to maximise profits on a particular film by deciding not to distribute a rival movie from the UIP stable in a member state, but the partner holding the rights to the rival film could go ahead and distribute the film there anyway.

"That means, sticking with the same example, that if UIP turns the Van Damme film down in Germany because they want to maximise their revenues from the Stallone film, then the partner of the Van Damme film can distribute it or get another distributor there," explained an official.

Paul Oneile, UIP's chairman and chief executive officer, described last month's announcement by the Commission that the venture's anti-trust exemption would be renewed for a further five years as "a great decision" which would allow UIP to continue providing "one of the most efficient film distribution networks in the world."

"This decision", he added, "paves the way for us to accelerate the expansion of our involvement in financing and distributing European-based production."

But even as UIP's Oneile was delivering his acceptance speech, the knives were out for Van Miert among his critics in the European film industry.

It was of little importance to rivals that UIP's members were themselves beginning to ponder their future within the venture, with MGM expected to quit next year and Universal - owned by Canadian drinks giant Seagram - planning to begin to increase its use of the European distribution arm it inherited from PolyGram.

Joso Correa, secretary general of the Federation of European Film Directors (known by its French acronym, FERA), accused Van Miert of selling the continent's film industry down the river, bowing to political pressure and glitzy lobbying.

He said Van Miert's U-turn "owed more" to trade tensions between the EU and US over hormone-treated beef and the Union's banana regime than it did to the letter of EU's complex rulebook. The harsh truth, he claimed, was that the Santer Commission did not want to harm relations with Washington still further by forcing UIP to disband.

Moreover, he insisted that UIP had failed to fulfil its promise to invest in the EU market, contesting the validity of the figures which the venture had submitted to Van Miert's staff.

He said UIP had only invested in local products consistently when it had been coerced into doing so by local laws. This was the case in Spain, for example, where a decree forces companies distributing subtitled foreign films to distribute locally-produced Spanish-language films as well.

"It is showing its cooperation with the Spanish to the Commission as an example of how it invests in EU films. But the ironic thing is that its lawyers in the US are trying to get this Spanish rule overturned," Correa added.

Such claims are rejected by Commission officials, who say the decision had more to do with the brilliant performance of UIP's lawyers at special 'behind closed doors' hearings on the case in Brussels last year.

"I, for one, believe it was the best show of the year - supported by good arguments and weak complainants," said Van Miert's former spokesman Stefan Rating.

Commission insiders add that most of UIP's European opponents - FERA excluded - fell disappointingly silent when they were invited to the hearings.

FERA is now calling on the new Prodi Commission to launch an immediate review of its predecessor's decision, without waiting for the latest five-year exemption to expire. Correa believes that President Romano Prodi, new competition chief Mario Monti and Culture Commissioner Viviane Reding will be less vulnerable to pressure from the US trade lobby than the weak Santer Commission.

The question is whether the new Commission would be prepared to change its mind so quickly after its predecessor spent so long dwelling on the decision it finally reached last month. The answer, claim officials, is yes. But, this time, they insist, UIP's critics would have to come up with firm evidence to support their case.

Film earnings

UIP's European box office receipts in millions of euro

Source: European Audiovisual Observatory