Paramount Classics co-heads David Dinerstein and Ruth Vitale areleaving the division after they were told this week their contracts will not berenewed in February 2006.

The duo;s fate had been in the balance ever since Viacom co-president Tom Freston told investors last year thatthe division would bulk up and take on edgier titles catering to a youngercrowd.

Since Freston's remarks several candidates have been approached tohead up the new-look division as part of the Paramount reinvention, includingBob Berney, who eventually landed at Picturehouse, Cinetic Media head JohnSloss, producer Michael London and talent agent John Lesher.

Paramount Classics will remain operational and a replacementdivision head is expected to be unveiled shortly.

Formed in 1998, the specialty unit has espoused a challengingroster of arthouse titles such as The Virgin Suicides, Bloody Sunday, The Machinist and You Can Count On Me. You CanCount On Me and Sunshinewere notable successes.

However, under the cost-conscious Paramount regime at the time ofJonathan Dolgen and Rob Friedman, Classics was given a limited budget and wasunable to compete effectively against big spenders like Miramax and FoxSearchlight.

Ironically Paramount chairman Brad Grey chose to let the pair go -which a studio source called "the humane thing to do" - after the division'smost successful year.

Sundance pick-up Hustle & Flow has grossed more than $21.8m in NorthAmerica and Mad Hot Ballroom - a Slamdance acquisition - became one of the most successful documentariesof all time earlier this year and is poised to cross $8m this weekend.

It is arguable that the recent furore in Toronto over theacquisition of Jason Reitman's satire Thank You For Smoking was the final nail in the coffin forDinerstein and Vitale.

Following a verbal agreementwith WMA Independent's Cassian Elwes, the pair believed they had the picture in the bag for $6.5m.However it was sold from under their feet to Fox Searchlight, which secured asigned deal for worldwide rights for $7m.

When last contacted in Toronto, a combative Dinerstein insisted he would fight for the picture. However several high-placed observers have since suggested to Screendaily that he would have been better off forgetting all about the botched deal.

"We are extremely proud of everything we have accomplished inbuilding Paramount Classics over the past eight years, and we are sad to seethis chapter come to an end," Dinerstein and Vitale said in a joint statement.

"We understand that Paramount is moving in new directions. We caredeeply about our projects and filmmakers and will do everything possible toinsure a smooth transition."

The pair will work to ensure an effective transition for the upcoming slate, which includes theromance Ask The Dust starringColin Farrell and Salma Hayek, psychological horror title Beneath, and the untitled Jonathan Demme/NeilYoung project.

Prior to Paramount Classics Vitale served as president of FineLine from 1995 to 1998, and held senior posts at UBU Productions' feature filmsdivision, UA and Vestron Pictures.

Dinerstein previously served as senior vice president of marketingat Fox Searchlight, as head of marketing at Miramax, and a number ofadvertising and television appointments throughout the 1980s.