Academic journal article Journal of International Affairs

Czech Privatization: The Case of Filmove Studio Barrandov

Academic journal article Journal of International Affairs

Czech Privatization: The Case of Filmove Studio Barrandov

Article excerpt

Introduction

In 1991, when the former Czechoslovakia was carpetbagger heaven, I went to Prague as a privatization advisor under the auspices of the U.S. Agency for International Development.(1) My primary activity during an 18-month period was to lead a team advising the management of Filmove Studio Barrandov, the country's largest film studio, on the studio's privatization, which Barrandov's management hoped to accomplish through the sale of the studio to a group of investors known as Cinepont. Much of my work as an advisor centered around the issue of valuation, since it was in the interest of the Czechoslovak government to sell the studio at a fair price. Although the privatization of Barrandov presented a wide range of issues particular to the rarified backdrop of the European film industry, I believe that most of the problems encountered were common to privatizations across a broad range of industries in Eastern Europe at the time.

The issues raised during Barrandov's privatization fall into three broad, and occasionally, overlapping categories: (1) the information required to value the enterprise subject to privatization; (2) the impact of governmental and legislative initiatives on the value of the enterprise; and (3) the objectives and management of the privatization process. The first category addresses gaps in vital information and the lack of predictability regarding the enterprise. These problems were all too common in centrally planned economies that were thrown into disequilibrium by sweeping changes in policy. The second category addresses the changing legal and regulatory environment in which wide-scale privatization occurs. The third focuses on the tensions that may arise between the privatization advisor, the government that owns the enterprise to be privatized, the existing management of the enterprise and, on occasion, competing advisors.

After a brief discussion of Barrandov and its history, this article will discuss some of the issues in each of these categories as they arose during the film studio's privatization. The article concludes with a brief survey of events at Barrandov since its sale to Cinepont in 1992.

History of the Filmove Studio Barrandov

In 1991, Barrandov was the largest film studio in Czechoslovakia and provided a full range of production services to the Czechoslovak and international motion picture industries, as well as the television programming industries. Among the production services provided by Barrandov were the rental of sound stages and camera equipment and the provision of props, costumes, and sets. The studio also produced feature length films for domestic and international theatrical release, and owned a film library of approximately 350 titles. Through a sister company, Film Laboratories, Barrandov provided its clients with motion picture film processing services. Barrandov's activities can be placed in an appropriate context through a brief primer on the film industry.

The business of films involves three broad functional categories of activity: production, distribution, and exhibition. Production involves the actual making of the film; it encompasses the development of a script, the close of principal photography (the actual shooting), and the editing of a final cut. Film production is a risky business in which even successful producers often have a volatile record of hits and misses. Distribution involves contracting with exhibitors to show the film, producing and delivering prints, and advertising the film. Most U.S. film studios are involved in both production and distribution, although over the years they have found ways to reduce many of their traditional production costs. Major film studios typically have large film libraries that produce enough cash flow through rentals and royalties to cover studio overhead. Exhibition involves the operation of movie theaters, where the film is screened before a paying audience. …

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