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Polygram Film: boon or burden?

For every analyst who thinks EMI is more attractive for being a pure music play, there's another who likes the fact that the Polygram management had the vision to anticipate a slowdown in the music business and diversify into film.

Polygram Filmed Entertainment has so far swallowed around $1 billion, but the division is currently valued by analysts at around $800 million (comprising $500 million in hard value for the library and a more speculative $300 million for the current production slate).

Clearly that valuation is vulnerable to a succession of flops, but analysts are also predicting that PFE will cease to suck up new investment by mid-1999, leaving Polygram to seek a fresh area of diversification in which to spend the significant amounts of cash generated by its music operations.

The company has more than proved itself as a major force in the international market, both in production and distribution, but there remain significant doubts about its ability to compete effectively in Hollywood.

The launch of its mainstream U.S. distribution arm, Polygram Films, has dramatically shifted the balance of the company's financial risk toward the American market, which means that PFE's U.S. operations really have to start delivering to prevent the company's falling into a financial black hole.

That may have influenced the timing of Philips' decision to explore its exit options. Certainly the domestic risk wouldn't be a problem for any major studio taking over PFE, which might regard PFE's international strength as an asset at a time when the majors are getting more savvy to the importance of the foreign marketplace.

Out in front

PFE has spearheaded the renaissance of the British film industry, and its feisty foreign distribution arm has shown up the often lumbering methods of the Hollywood majors.

Headed by president and chief executive officer Michael Kuhn, PFE has stuck firmly to its own unique strategy in the belief that there is more than one way of doing things in Hollywood. PFE eschews the traditional, centrally controlled system used by most Hollywood studios, under which a string of lot-based producers make a certain number, and type, of pictures each year.

Instead, in an approach common to the record business, PFE has created "label" structure of autonomous production units that are relatively free to develop their own style of filmmaking.

Despite its occasional hits (generally low-budget pies that break out), Hollywood insiders argue that PFE's business plan is flawed. "Unlike the record business the capital investments in the film business are enormous," says one. "You can get a record label going for a couple of million, but a (production company) can cost hundreds of millions."

Other Hollywood execs criticize the studio for the laissez-faire attitude that it adopts toward its production units, resulting in a wide and confusing array of pictures.

Range of offerings

Interscope, one of Polygram's principal units, has forthcoming pies ranging from the $10 million dark comedy "Very Bad Things" (to which Polygram only has U.S. rights) to the $80 million romance "What Dreams May Come."

On the plus side, PFE's international arm, under president Stewart Till, has assembled a formidable foreign distribution network, which outguns the Hollywood majors in several big territories. It has scored international hits with titles such as "Sleepers," "Bean," "Trainspotting," "12 Monkeys" and "Four Weddings and a Funeral," which set the pattern by grossing $50 million stateside and $200 million in the rest of the world.

How would the sale of Polygram affect the British and European film industries?

Breaking H'wood mold

PFE has been the backbone of the recent British film renaissance. It has also been an important influence in bringing a more competitive commercial mentality to European cinema, proving with pies such as "Bean" that Hollywood does not have a monopoly on creative ideas that can attract audiences worldwide.

The prospect of PFE being absorbed into a Hollywood studio is being greeted with horror in British film circles, who fear a return to the days of begging for crumbs from Hollywood's table. "Anything which reduces the number of doors I can knock on is bad," said one leading London talent agent. "If PFE disappears, we should really hope that another European company comes along to do the same thing," said one Polygram producer.

Polygram has also made a big push to break into the U.S. market over the past year, but because the domestic TV arm is barely a year old, TV won't be a major driver of the overall deal.
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Author:Dawtrey, Adam; Carver, Benedict
Article Type:Company Profile
Date:May 11, 1998
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