From: Reuters
Published April 20, 2008 06:09 PM

Viacom, MGM and Lionsgate to take on HBO, Showtime

By Kenneth Li

NEW YORK (Reuters) - Sumner Redstone's Viacom Inc <VIAb.N> will launch a premium TV and movie channel with Lionsgate <LGF.N> and Metro-Goldwyn-Mayer, aiming a direct volley at Time Warner Inc's <TWX.N> HBO as well as Redstone's own Showtime networks owned by CBS Corp <CBS.N>.

The new channel will have originally produced television series, as well as feature upcoming movies like "Iron Man" and "GI Joe" and classic hits such as MGM's "James Bond" franchise and Lionsgate's "Dirty Dancing." It is expected to launch in autumn 2009, the companies said in a statement on Sunday.

The venture, in which Viacom will take a lead role and own the biggest stake, is viewed as a challenge to CBS, which controls the Showtime Networks Inc premium movie and TV cable channels. Showtime currently holds contracts to show movies from MGM and Lionsgate.

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"I have stated from the beginning that Viacom and CBS have the right to pursue their own strategic objectives in the best interest of their individual shareholders," Redstone said in an e-mailed statement. "Competition between the two companies hones their skills and their productivity."

Viacom, which owns the Paramount film studio and MTV Networks, was split from CBS in 2006 to appeal to different classes of shareholders. Both are controlled by Redstone.

Lionsgate and MGM are not expected to renew their contracts with Showtime when they expire at the end of 2008. Paramount's contract with Showtime ended in 2007 and has not been renewed.

A RARE OPPORTUNITY

"It's my job to create maximum shareholder value for Viacom. It's Leslie's job to create maximum value for his company," Viacom Chief Executive Philippe Dauman told Reuters in a phone interview, referring to CBS CEO Leslie Moonves.

Dauman said contracts between pay TV channels and movie studios are usually very long, and he took the opportunity to negotiate this deal as the Showtime contracts were ending.

"It is rare for a studio product to be available," he said.

Films and shows from Paramount, MGM and Lionsgate will be made available to the new channel and services on an exclusive basis during the pay television period, with some exceptions.

Paramount's contract with director Steven Spielberg for "Indiana Jones and the Kingdom of the Crystal Skull" requires the film to be made available to the highest bidder for television, for instance.

Showtime dismissed the threat of the new competition. As movies now are often sold on Apple's iTunes online store or on video-on-demand months before reaching pay TV, it is original programming such as HBO's popular series "The Sopranos" that attracts the biggest audiences.

Average household ratings for theatrical films have declined 80 percent since 2001 at Showtime, according to Nielsen ratings.

"We've made no secret of the fact that we've felt for some time that the value of these feature films has been declining," Showtime Chairman Matt Blank said in a phone interview.

"We wish them luck," he said, adding that the contracts allow a mix of films from the studios in the joint venture to play on Showtime through 2011.

One source familiar with the matter said Showtime was unwilling to pay higher licensing fees demanded by the studios.

Since CBS's split from Viacom, the two companies have drifted into each other's businesses with Redstone's blessing. CBS, for instance, has launched a small film studio to develop smaller budget films, a move that could help it save on costs to acquire films to air on Showtime.

Financial details or terms of the joint venture were not disclosed, but Viacom said its MTV Networks division will provide promotional as well as other services. The joint venture is a "multi-year" deal, Viacom said.

With more than a year before its launch, details, such as management and what types of new digital services will accompany the channel are being worked out. The parties will announce a new chief executive for the venture shortly.

"It's a unique point in time to reinvent the category," Dauman said. "We can provide a lot more ways to provide what consumers want, whether it's broadband opportunities, maximizing video-on-demand opportunities and HD."

(Editing by Jan Paschal)

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