Bid for PolyGram raises questions over EU film policy

Date: 21/05/1998

By Peter Chapman

THE future of EU film policy was plunged into doubt this week as Dutch electronics giant Philips continued to invite bids for its music and film unit PolyGram.

Philips rocked the industry last week by announcing that it was considering a 9-billion-ecu shares-plus-cash take-over offer from Canadian drinks firm Seagram.

The biggest question mark hangs over the future of PolyGram Filmed Entertainment (PFE), the EU-based film outfit which was being groomed to take on the Hollywood majors.

Unlike PolyGram's cash-cow music business, PFE - seen as Europe's only real competitor to the big US studios - is expected to fall victim to changes introduced by new owners.

Industry insiders are concerned a successful Canadian bid would lead to an asset stripping of PFE, with only its choicest European distribution facilities being fed intact to Seagram-owned Universal Studios. Universal fears an EU-mandated break-up of its own distribution joint venture UIP and may welcome a chance to replace this with PFE's network.

PFE has also been a key driver of EU film policy, leading calls for a 'bank securitisation scheme' aimed at leveraging Union and private funds to boost production and distribution of small 'slates' of potential box-office winners.

The European Commission was quick to support the proposals, which would have aided PFE more than its European rivals. A foreign-owned PolyGram would, however, force a rethink, beginning when EU culture ministers meet next week.

"If PolyGram goes into Canadian or other foreign hands that would be a great loss. The company is the biggest distributor of EU films in the US," said a spokesman for Audio-visual Commissioner Marcelino Oreja.

"We don't know what is happening, but we are concerned something still has to be done to create a common market for production and distribution in the EU."

A successful Canadian take-over could also halt a World Trade Organisation dispute PolyGram is fighting, with EU support, against Ottawa. The firm objected to Canadian rules which stopped it distributing films it had not fully funded unless it entered into joint ventures with local firms.

Sources said the Commission still had concerns over Canada's film regime, but added that it would be bizarre for Seagram to support WTO action against its government if its bid for PolyGram succeeded.