Studios creating premium TV channel

One part of Sumner M. Redstone's media empire has taken aim at the other as Viacom Inc.'s Paramount Pictures has teamed up with two studios to create a premium television channel that would compete with Showtime Networks, which is owned by Viacom's sister company CBS Corp.

The venture, as yet unnamed, could be risky, because the cable scene is already crowded with contenders airing feature films and developing original programming. What's more, cable companies might resist adding a channel to their lineups, and if they did tack one on, consumers might balk if it meant an extra monthly charge.

But Paramount and its partners, Metro-Goldwyn-Mayer Studios Inc. and Lionsgate Entertainment Corp., have been under pressure to do something. All three have had long-term deals with Showtime, which has been offering to pay far less than before to buy the rights to air their movies, according to people familiar with the negotiations.

Showtime's chairman and chief executive, Matthew Blank, said that he wished the studios well in their undertaking but added that Showtime didn't think the studios' movies were worth "as much as they have been in the past."

"We would rather invest the money in the original productions that have been so successful and to buy movies from other sources," Blank said.

The thinking behind the venture seems clear. Hollywood is struggling to keep up with changes in consumer tastes and the climate for movie financing. With hedge-fund money drying up and DVD sales fading, the studios are looking for ways to keep as much money as possible rolling in from premium cable channels like Showtime and Time Warner Inc.'s HBO.

Meanwhile, the TV channels want to shift more money into original programming and away from films that, by the time they reach cable, have already been screened in theaters and sold via DVD or digital downloads.

CBS fired the first shot when it recently created CBS Films, a studio that will supply Showtime and compete with Paramount, although with movies budgeted at sub-blockbuster levels.

The CBS-Viacom clash would have been unthinkable a few years ago, when the two were together under one corporate roof. Redstone, the 84-year-old executive chairman and controlling shareholder of both companies, split them apart at the end of 2005, saying that Wall Street would value them more highly that way.

"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 a statement, adding, "Competition between the two companies hones their skills and their productivity."

The new channel is slated to launch in September 2009. It will draw on the studios' extensive movie and TV libraries and original programming the partners will develop, the parties involved said, and will avail itself of the work of five studio titles: Paramount and its Paramount Vantage affiliate, MGM and its United Artists affiliate and Lionsgate.

Some of the movies available to the new channel will be those in the Mission: Impossible, James Bond and Saw franchises, plus such coming fare as Iron Man, Love Guru, GI Joe and The Curious Case of Benjamin Button.

"This venture has the potential to be a 'game changer' for the industry," Viacom Chief Executive Philippe P. Dauman said. "We are creating a premium film and television programming brand with unique flexibility to bring consumers the very best blockbuster movies and innovative TV series."

Paramount's deal with Showtime expired Jan. 1, meaning that movies it produces this year, such as the recently released Cloverfield, will be available to the joint venture. MGM and Lionsgate's deals expire at the end of this year. After a nine-month lag for theatrical play and DVD sales, output from those studios will be available in September 2009 - hence the launch date for the new channel.

Dauman said the deal, under discussion for several months, was concluded last week in talks at Viacom and elsewhere in New York.

Blank said he wasn't concerned that cable operators would cut subscriber fees to Showtime to reflect the lost programming from Paramount, MGM and Lionsgate.

Although theatrical films are still important to premium channels, their ratings have been declining in recent years.

Episodes of original series such as Weeds - produced by Lionsgate, incidentally - accounted for most of the top-rated telecasts at Showtime last year. The same has been true at HBO, where such original series as The Sopranos and Sex and the City were a magnet for new subscribers and critical buzz.

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