Montreal: Behaviour Communications has sold its Canadian distribution division to Industry Entertainment principals David Reckziegel and John Hamilton. The target closing date for the $4-million cash deal is Sept. 2. In the past 10 days, Behaviour has sold off its digital production studio for $500,000 (see story, p. 7), and the company is actively looking for an investor, or an outright buyer, for its interactive games division in Quebec City.

For the cash hungry pubco, the divestitures represent short term gains of $4.5 million, against close to $5 million in losses recorded last year.

Behaviour vp finance and cfo Matthew Carson says the restructured company will be a smaller company focused on production through Lux Films and Behaviour Worldwide’s (MDP Worldwide) international movie licensing operations.

The distribution unit has about 30 employees, including seven in Toronto. The digital studio has 15 employees.

Without a sale, it’s likely Behaviour Distribution would have simply come to a stop. The division had been on the selling block since at least May. A deal with Remstar Distribution fell apart in early July.

With the divestitures, Behaviour says it’s no longer pursuing a $30-million revolving credit facility. Chase Manhattan Bank had agreed to advance $12 million in credit, contingent on Behaviour financing the balance.

‘We do not need that kind of financing to run that business,’ says Carson. ‘We need a much smaller operating line, and most of our financing will be required for production.’

‘We have also announced plans to sell or find a strategic partner for our interactive games division,’ he says. Behaviour Interactive (the former Megatoon) lost just under $1 million last year.

Industry has to pay out a significant share of the $4-million buying price by the closing date, and the balance over the next six months.

Carson says Industry ‘made the best offer,’ and the deal was ‘reviewed by the company’s independent governance committee.’ He says the distribution unit has ‘no debt other than regular trade suppliers.’ The unit declared a $3-million write-off in fiscal ’98-99.

New distributors

Reckziegel says the $4 million comes from private sources.

In the deal, Industry picks up an experienced distribution staff, a 500-title library and a credit line with Telefilm Canada’s Feature Film Distribution Fund currently worth up to $2.5 million.

Reckziegel will manage distribution (Behaviour Distribution will be renamed), while Hamilton will key more on production.

‘We have to scale down the company a little bit,’ says Hamilton. ‘The company has changed direction. The video market is pretty much not profitable. Behaviour has 10 or 15 key people, and we’re going to do our best to keep as many as possible.’

Reckziegel has effectively been managing Behaviour’s distribution unit for the past six months.

‘We are definitely going to reduce costs, and we plan to be profitable,’ he says.

Upcoming Canadian releases include Saint-Jude, Four Days, Two Thousand and None, Grizzly Falls and Eye of the Beholder.

The initial plan is to do between six and 10 movie acquisitions a year, and produce at least two features a year, as well as tv series.

The new company will integrate distribution with its own productions, coproductions and third-party pickups, keying on ‘more auteur-type filmmakers,’ says Hamilton. ‘The distribution industry has changed so much I don’t think you can really exist as a Canadian distributor anymore without producing. The way I think we can compete is by being a producer and filling a large part of our pipeline with our own product.’

Low budget interest

‘Instead of simply going out and acquiring rights from producers, as a distributor, we are going to aggressively develop product,’ says Hamilton. ‘We will have three or four different segments in our distribution business, but currently one of the ones I’m most excited about is going back to low- and ultra-low-budget filmmaking.’

Reckziegel says the hope is to continue to work with Pierre Brousseau, senior vp at Behaviour Distribution, at least for the next six to 12 months. Brousseau is tied by a personal service contract to Behaviour chairman Richard Szalwinski.

Reckziegel says Behaviour’s past output deals weren’t profitable. He’s not opposed to new output business, ‘if we felt we could make money,’ but virtually all of the worthwhile franchises are locked up, he says.

‘Despite the ownership change, we certainly hope Telefilm will continue to support us next year at [the same] level,’ says Reckziegel.

Reckziegel says the Behaviour library has some 500 ‘active’ titles, including franchise titles from Trimark and Sony Pictures Classics (Run Lola Run, Tango) and the former Malofilm library. The library includes 50 newer releases, including films from Sony, Filmline International (Free Money, This Is My Father) and from affiliate Lux Films.

Reckziegel is also a director of Behaviour. Szalwinski’s holding company, BHVR Communications, is the majority shareholder of Behaviour, and has a stake in Industry Entertainment.

Expect more losses

Behaviour recently agreed to extend Behaviour Worldwide’s revolving credit facility to US$4.5 million ($6.7 million). ‘The [MDP] pipeline is still intact,’ says Carson.

Behaviour is overdue on a $3-million Canadian bank loan. The company says the bank will not extend the loan.

At the end of this month, Behaviour expects to report ‘a substantial operating loss’ for the quarter ending June 30.