After Years of Trying, Canal Plus Set to Be a Player

Canal Plus, Europe’s leading pay-television service, is poised to become the proud owner of one of Hollywood’s legendary studios. That is if, as expected, its parent company, Vivendi, can swing its planned $34-billion acquisition of Universal parent Seagram Co.

After a decade of struggling for acceptance, Canal Plus would have the insider status in the American movie industry it has long wanted.

Since 1990, the French company has tried to gain a foothold in Hollywood beyond being the biggest European pay-TV customer. Instead, it has earned a reputation for spending too much to gain too little, sinking hundreds of millions into high-profile U.S. production companies and movies. Rather than being a player, Canal Plus often has been played.

It’s a painful history that Canal Plus executives would much rather forget as they establish the company as a major international media player in a league with a merged AOL-Time Warner, Viacom (which recently merged with CBS), Walt Disney Co. and News Corp.

“Those days are gone,” said Vincent Grimond, senior executive vice president of Canal Plus and head of the company’s production studio in France. “What Canal Plus did seven years ago was a management mistake.

“It’s important to have a U.S. studio because American movies represent 95% of the revenues in the States, 60% of the revenues in Europe and 75% of the revenues in Asia. Hollywood movies are the most asked-for content in theaters, on video, DVD and on television.”

Many in Hollywood see Canal Plus’ longtime devotion to Hollywood as a positive change from current Seagram chief Edgar Bronfman Jr.’s well-known disdain for the movie business. With Canal Plus Chairman Pierre Lescure expected to control Universal’s American management from Paris, the hope is that the purse strings will loosen.

Still, no one here can forget Canal Plus’ tortured past. “Their long-term history here has been . . . calamitous,” said a prominent industry insider who has done business with Canal Plus.

Canal Plus lost a fortune investing in the now-defunct Carolco Pictures and also took a hit on a much-ballyhooed partnership with Arnon Milchan’s Regency International Pictures and Warner Bros.

“It’s no different than all the other European companies that have come here and had no coherent philosophy,” said Jim Miller, a former Warner Bros. business executive who structured Canal Plus’ 50-50 partnership with Warner to finance Bel-Air Entertainment, where he is now a principal.

Ten years ago, when Canal Plus first came to Los Angeles, it was a much smaller company, Miller noted.

Indeed, over the years Canal Plus has grown way beyond its 1984 roots as a French pay-TV operator. “They are a giant output customer,” said a top Hollywood executive. “They help subsidize the business.”

As a way to assure its access to movies, in the early 1990s Canal Plus started investing in Hollywood movies and companies.

The company spent $30 million for a 5% stake in Carolco. After further cash infusions, the stake grew to 17%. The company also pumped tens of millions into Carolco’s production slate. In retrospect, it appears Canal Plus bought the same assets twice.

By the end of 1992, Canal Plus was pouring additional millions into Carolco, which by then was drowning in red ink. Carolco filed for bankruptcy in 1995.

In the early 1990s, Canal Plus made another ill-fated investment in a slate of movies from Regency International, putting up a substantial percentage of the budget for limited French rights. By 1996, the partnership ended.

“We incurred losses at the time, but we have equity rights in the movies that will still make us money,” Grimond said.

In early 1995, reeling from losses and seeing the stock pummeled by a dramatic fall in 1994 profit, Canal Plus management announced it was pulling out of Hollywood.

Nonetheless, the company remained a Hollywood investor. Over the past five years, it has entered arrangements with such independents as SpyGlass Entertainment, Mandalay Entertainment and Bel-Air Entertainment. It also has a 50-50 partnership with Universal to finance movies made by British outfit Working Title, producer of “Notting Hill.”

Most industry observers say the current strategy is more sane but still flawed. Canal Plus executives admit that the Bel-Air deal is weighted heavily in favor of Warner Bros.

It remains to be seen whether Canal Plus, by buying Seagram, finally will graduate from the school of hard knocks.

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* VIVENDI-SEAGRAM DEAL APPROVED

The firms OKd a $34-billion stock swap despite nervous investors. C18

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A Costly Education for Canal Plus The French television giant learned its Hollywood lessons the hard way; losing tens of millions of dollars on disastrous investments.

Canal Plus at a Glance Pay Cable: Europe’s leading pay-television company with 14 million subscribers in 11 countries.

Cable Television: Offers 25 themed channels in 14 countries Library: Europe’s second-largest television and movie-rights library with 6,000 hours of television shows and 5,500 movie titles -- 1,500 of which are U.S. titles.

Film and television production: They finance movies and television programing in Europe and the U.S. Internet properties: With parent co. Vivendi, half owner of Vizzavi, a European Internet portal. Digital technology: Owns set-top box technology. Hollywood Investments include: Carolco Pictures Regency International Bel Air Entertainment Mandalay Spyglass Entertainment Phoenix Pictures Working Title Films *

Mission to Mars--Canal Plus invested in the Disney movie that went no where at the box office.

Straight Story--The acclaimed but largely ignored story of one man’s journey to make peace with his elderly brother was fully financed by the French company.

Basic Instinct--The pot boiler was one of Carolco Pictures success stories before the string of box office stinkers that sent the company into bankruptcy.