Saved by a French connection

The emergence of Canal Plus as a buyer for PolyGram's film unit has given the industry fresh hope. Hilary Clarke reports

TWO BIG clouds marred what should have been a sunny week for the executives of PolyGram's film division who were in Cannes for the world's biggest film fest. The first, all be it figurative, had been gathering since the previous week in the form of the imminent purchase by Canadian distiller Seagram of the 75 per cent stake that Dutch electronics giant Philips holds in the mother company.

Like Godzilla, the monster and star of the latest US blockbuster, Seagram, the owner of Hollywood's Universal studios was about to snatch Europe's only competitor to the American majors. It could not have come at a worse time for PolyGram's film division which, thanks to hits like Trainspotting and Bean, was about to make a profit after five years of heavy investment ($730m) and a lot of hard work.

The second cloud, a thick grey one, crept up over mountains of Provence on Saturday evening and broke on the Cote d'Azur resort as Hugh Grant, star of Polygram's first big movie hit, Four Weddings and a Funeral, and girlfriend Liz Hurley arrived for a special dinner in their honour.

The irony of the monsoon-type weather was not lost on Stewart Till, head of PolyGram's international film division, who made a joke about it at a press lunch in the ritzy Carlton hotel on Monday. He was putting a brave face on the events. He and his Los Angeles-based boss Michael Kuhn appeared to have been as much taken by surprise by the Philips decision to sell as anyone.

Tim Bevan and Eric Fellner, co-chairs of the UK's Working Title film company, a wholly owned subsidiary of PolyGram and the firm behind many of its recent successes, also seemed concerned and upset. The duo also put a brave face on things at the lunch announcing some up and coming projects featuring some very British characters such as the 30-something single girl Bridget Jones, Elizabeth the First and Alfred the Great, but their future was looking very insecure. Director Alan Parker, a recent returnee from Hollywood now in the PolyGram fold with his soon-to-be-released movie Angela's Ashes was freer to speak about the impending demise of PolyGram. "PolyGram is the only European company with deep enough pockets to make any kind of film and for them not to be there is a big problem," he said. Another of PolyGram's future movies, known only as The Notting Hill Film, starring Hugh Grant, was, according to Till, costing "north of $40m".

Parker was full of praise for Till and Kuhn whom he described as two of the best British film executives for years. "You do deals with people not companies, so that's what moves me. PolyGram's film business is irrelevant to Seagram but very relevant to us because its our living."

The Seagram move also soured the visit to Cannes of Chris Smith, the Secretary of State for Culture, Media and Sport, there to trumpet the new found success of the British film industry. PolyGram, whose film division is based in London has played a huge part of the UK film industry's current renaissance. This is both because of its recent successful run of movies and its innovative distribution arm that has stood up against Hollywood's United International Pictures. Perhaps even closer to Smith's heart was the fate of Till. After all Smith had chosen him as the chairman of his British Film Policy Review group, which last month offered a series of recommendations meant to build the country's film industry without antagonising Hollywood. Why had they all bothered if Hollywood could just come in and buy up Britain and Europe's best hope?

By the end of the week, however, the sun was shining again in Cannes and although Seagram bought Polygram for pounds 6.7bn on Thursday, a silver lining began to appear for the entertainment company's film division. A white knight was emerging to save PolyGram for Europe. French pay-television company Canal Plus said it was interested in buying PolyGram's film unit from Seagram. Germany's Kirch and Bertelsmann were also rumoured to be possible European buyers, although media giant CLT, Bertelsmann's Luxembourg- based partner which has recently ventured into film production, said it was not interested. "Anything that can prevent PolyGram films from falling under American control is worth backing," Pierre Lescure, the chief executive of Canal Plus, said with classic Gallic bravado in an interview with the French press. And Seagram said it was interested in selling, using the estimated $1bn that the company is worth to help finance its purchase of the mother company. After all, Edgar Bronfman, Seagram's boss has already had his fingers burnt in Hollywood. Since he bought the Universal studio three years ago, the company's fortunes have fared from bad to worse - illustrated not least by the flop in the US of Primary Colours, which opened in Cannes.

The 42-year-old Bronfman's real passion is for rock music, he is also a songwriter and wanted to be a pop star before he took over the drinks business founded by his father. The rich boy's dream to be master controller of the world music industry could give the European film industry a bigger boost than Philips could ever have dreamed of.

If Canal Plus goes ahead and buy PolyGram's film unit, the result will be a hugely reinforced rival to the Hollywood studios. Canal Plus's current revenues from film production are, compared to PolyGram's, small - around Fr380m (pounds 38m) last year - but it is keen to expand. Perhaps more importantly, last year it also carried out a master stroke for the all-important film distribution business in Europe when it linked up with Pathe, another French production and distribution company. Add Poly- Gram, with its US as well as European distribution network, plus Canal Plus' huge television network across Europe and a true pan-European giant is emerging. And if the Kuhn-Till team remain intact, the UK film industry might even benefit.

It is the stuff the bureaucrats in Brussels could only dream of. They have been struggling to formulate a policy for Europe's film industry since the days of the transatlantic audio-visual wars nearly scuppered the Uruguay Round trade talks back in 1992. In those days, Hollywood seemed as invincible as Jurassic Park. But since then the major studios have been starved of home grown ideas, driving them to buy European talent wholesale as the only way to stay on top.

Now Europe may just be in a position to start grabbing some of the credit, and more importantly box office receipts, back. "The days when the studios were valuable properties are gone," said Louis Ehrenkrantz, an analyst with the New York investment house Ehrenkrantz King Nussbaum. Bronfman might be realising that, too.