After a well-publicised and contentious struggle, SouthKorean major Cinema Service has reached an agreement to secure its formalseparation from the rival CJ Group.

Nevertheless, it paid a much higher price than originallyhoped for, as CJ is poised to take over 70% of Cinema Service's exhibition armPrimus.

Although Cinema Service will be guaranteed management rightsuntil the end of 2006, many observers predict that CJ will press for fullcontrol of the cinema circuit thereafter.

The confrontation between the two major studios dates backto April, when CJ Entertainment and CJ Corp. bought out Cinema Service's parentcompany, online game firm Plenus Entertainment. Cinema Service, which had been planning to separate from itsparent since late 2003, found itself in a bind when CJ began to covet Primus, ayoung but quickly expanding chain of theatres.

Cinema Service originally hoped to secure enough outsideinvestment to free itself completely of the CJ umbrella, with US-basedNewbridge Capital reportedly willing to stump up all of the necessarycash. However as negotiations draggedon and public opinion failed to rally behind Cinema Service, it reluctantlydecided on a loose partnership with its rival company.

The latest agreement will also see CJ holding 40% of CinemaService's stock, as well as 50% of its studio/post-production arm Art Service.

As a major shareholder, CJ Entertainment will now holdpreferential investment rights to all Cinema Service productions that exceed aset number per year. CJ will alsoassume cable TV, VOD and internet VOD rights to all Cinema Service's films.

CJ Entertainment's stock shot up 10.66% on August 11, a dayafter details of the agreement were announced.

The wider industry has looked on these developments with afair degree of alarm. From the point ofview of many observers, what was once a struggle between two uncomfortablylarge giants has concluded in a new partnership that threatens to destabilisethe industry's balance of power.