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July 28, 2011
- Paramount to close Benelux office and license video distribution to Universal
- Reciprocal deal understood to be pending for Mexico
Paramount is to close its operations in Benelux, handing the distribution of its titles in the region to Universal under a reciprocal deal that IHS Screen Digest understands will also see Paramount take on the distribution of Universal product in Mexico. Under a five-year partnership starting September 2011 Universal will assume full responsibility for the finance, marketing and sales of Paramount's release slate in Benelux. Details of the Mexican deal were not available at the time of writing but, based on the two studios' recent mirror agreements in Spain and Italy, we expect it to follow a similar pattern.
Both sets of reciprocal distribution agreements between the two studios are part of an ongoing effort to reduce costs and drive further economies of scale. Consumer spending on buying video software in the combined Benelux region fell by almost 10% in 2010 to €515m, from a peak of €715m in 2004. Meanwhile rental spending, which generated €231m in 2002, has fallen almost every year since then and in 2010 contributed just €49m (€11m at distributor level). In Mexico, aggressive discounting of DVD product has kept retail spending nearly flat through increased volume though BD has yet to take off at retail due to high unit prices and limited hardware penetration. The rental market there has continued to decline since the DVD rental spending peak a few years ago, with little impact from the introduction of BD.
Universal and Paramount are not alone in seeking to reduce overheads from their international operations. Also from September 2010, Warner is to bring its Benelux business under the control of Warner Home Video France although, for now at least, sales and marketing operations will remain in Benelux. IHS Screen Digest also understands that Warner is close to announcing a substantial cut in its Spanish operations.
As the physical video sector adjusts to the realities of a flat-to-down (and in some territories steeply falling) market, all the Hollywood studios are exploring ways to rationalize their international operations. In addition to the specific strategic changes reported above, Sony, Disney, Warner and Paramount have all recently implemented significant internal restructuring. The Universal/Paramount deals may seem like a natural extension of this process, but it is by no means a foregone conclusion that two major studios would find sufficient common ground to set up a series of reciprocal deals. The only other parallel in recent industry history is the Warner/Universal agreements established in late 2005 to handle each other's product in China and Russia respectively, and on neither side did this involve closing down an existing operation. However, Universal and Paramount are used to working together, not only through UIP, their existing joint theatrical distribution operation, but also through their 18-year video distribution partnership, CIC, which had operating companies in 19 international territories and licensee relationships in a further 40 when it was dissolved as a result of Universal's acquisition of European mini-major Polygram in 1999. More recently, Paramount has been distributing Universal product on video in New Zealand since late 2009.
Although we understand that there are no immediate plans for further consolidation between Paramount and Universal operations, it seems likely that this will not be the last such deal. What is certain is that other US studios will be looking closely at the practicalities of such relationships and trying to decide if, where and with whom they could explore similar arrangements. We don't expect this consolidation to be limited to the US majors either; independent video distributors in key markets are equally keen to rationalize their business models as illustrated by the joint acquisition earlier this year of UK-based Elevation Sales by Lionsgate UK and Optimum Releasing (soon to be re-branded Studiocanal in line with its French parent company), in order to establish a joint video distribution arm.
One way and another, as consumer spending on physical media tips into decline in an increasing number of territories we anticipate that the map of international video distribution strategies will evolve significantly over the next few years.
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