Stewart Till, president of the company's international film business outside North America, is in no doubt that last year's success can be repeated. He said the focus on marketing and its decision to build its own distribution network, which spans 80 per cent of the world market, have taken Polygram Filmed Entertainment to the point where it can now look the Hollywood studios square in the eye. One of the keystones of that distribution operation was put in place last year in North America, managed by Till's boss, Michael Kuhn, president of Polygram Filmed Entertainment.
"In the past a lot of companies that got this far either went on to crack it properly or failed. The deciding factor is whether they continued to make hit films or not. That's the challenge that faces Polygram now," said David Davis, entertainment adviser at Houlihan Likey Howard & Zukin, an investment bank in Los Angeles.
Till, who previously worked as deputy managing director of British Sky Broadcasting and Fox's video distribution arm, and before that at the former Saatchi & Saatchi advertising agency, is confident. "Even in those territories where we don't have the advantage of shooting in the language that an audience wants, we seem to be making films that people want to watch."
"Polygram has been lucky enough to have a lot of money thrown at them," said Julia Palau, chairman and chief executive of J & M Entertainment, one of the UK's biggest film production, finance and distribution companies. "It's really the only major theatrical entity in Europe."
There's no sign that the money is about to dry up. Till said the film unit, which contributed 16 per cent of Polygram's revenues last year, is set to make bigger-budget films. "One of the exciting things you'll see is that British films will grow in budget and in scope," he said. "Bean was a step in that direction and so was The Borrowers. You'll see bigger budgets and special effects competing on a more equal basis with the Hollywood studios. It's tough to make films for $2m to $4m and compete head-on with $80m American productions."
Polygram has a reputation for being cautious and tying itself to small budgets, which the capital markets have liked. With that modest approach, it has produced worldwide box-office coups - Four Weddings and a Funeral, for example.
The company, which was established in 1992, has also built a significant library of programmes through its own productions and through acquisition, which Till believes will become more important as the number of pay- TV channels explodes, creating a bigger appetite for films.
In the UK alone, the number of free and pay-TV channels will grow to around 250 by next year, up from fewer than 30 now. "Both broadcasters and consumers are turning towards movies," said Till.
He believes television will be an increasingly lucrative money-spinner once 250 TV channels are available, allowing broadcasters to run a film every 15 minutes. For the moment, however, the company's film unit, 75 per cent-controlled by Philips of the Netherlands, faces a few problems its competitors do not have.
Analysts say the company is more dependent on its films being successful than bigger competitors are because it lacks the cushioning effect that large rivals enjoy as units of bigger entertainment groups. "If a Warner Brothers movie doesn't do well, it still just feeds into HBO, Time Warner's cable system," said Davis.
Warner Brothers and HBO are two of many entertainment businesses owned by Time Warner, the biggest media company in the world. In addition, investment in the British film industry, compared with previous years, may be more elusive this year with the pound at an all-time high.
Competition is also hotting up from Hollywood studios which have watched with interest as British films increased their global box-office takings over the past few years. This shift has gone hand-in-hand with a rise in cinema attendances across Europe.
"It's been very competitive here since January," said Till. "Good scripts and good producers are being really aggressively courted."
Polygram has invested $1.2bn in films to date. While analysts say revenues from the company's film hits have been more than offset by its flops, the company is getting a 6 per cent to 12 per cent share of the markets it is in - equal to the US studios. "Market share is not vital, it doesn't pay bills, but it is a kind of touchstone of where you are in the market place," said Till.
"Obviously the most important skill is making hit films, and that's easier said than done," he said. "But I'd challenge you to name three hits that Warner Brothers or Paramount had last year. Fox had Titanic and The Full Monty, which were two spectacular hits, but not much else."
Till said having around three hit films a year is a healthy strike rate, combined with several reasonable hits that do well in TV and video sales and account for half of total sales.
On the plus side, Polygram's home territory in Europe is witnessing a big rise in cinema attendances, driven by nothing more complex than the building of yet more screens. According to research firm Dodona, more than 2,300 new screens are expected to be built in Europe by the turn of the century.
Cinema admissions have grown 215 per cent in the UK in the last 10 years. In the three months to March 1998 they rose a further 23 per cent, their steepest climb in 26 years. In addition, 54 per cent of the $3.2bn earned by the top 10 films worldwide last year came from outside the US, according to Variety magazine. That's a reversal of the way the US has traditionally dominated earnings.
"Hollywood historically has been obsessed with North America," said Till. "I think it's waking up to the importance of the international market. It's impossible to succeed unless you make it in America, but equally it's impossible to succeed if you're only successful in America because you're ignoring 50 to 60 per cent of the market."
Till believes the British film industry's ascendancy is more than a flash in the pan, as does the Motion Picture Association of America (MPAA), which represents Hollywood's seven biggest studios. "The boom in the UK and other European countries will continue for as long as there is a commercial environment in which they can thrive," said Harvey Rouse, director of EU affairs for the MPAA.
"The British film industry is breeding a generation of producers that are touching a nerve with a worldwide audience," said Till. And Polygram's strategy is to sign up as many of them as possible up, on an exclusive basis. Already on the books are Alan Parker, the industry's prodigal son returned from Los Angeles and the maker of Evita, Bugsy and The Commitments; Andrew McDonald who owns DNA, the company that made Trainspotting and Shallow Grave; and Duncan Kenwood, producer of Four Weddings.
Working Title, Polygram's UK production unit, is currently shooting Notting Hill, a follow-up to Four Weddings. It's another work by Richard Curtiss, writer of Four Weddings, and it stars Hugh Grant. Needless to say, Polygram is hoping it will be at least as successful as its predecessor.
"I don't foresee the day when the British film industry will have the same sort of share of the box office as the Americans, but I do see it being comfortably in second place and ahead of the rest of Europe," said Till.
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