Creating what have been immediately dubbed "development franchises" after the National Lottery super entities formed in the 1990s, the UK Film Council is to underwrite a handful of film operations allying producers with distributors and financiers from the UK and overseas.

The initiative, which has had producers and executives scrambling to form alliances in recent weeks, is part of an overhaul of development funding at the council, which administers lottery support for film. The Government-backed body has decided that its 20-odd slate deals, through which it channels £50,000 to £250,000 a year into a wide range of companies, are spreading funds too thinly.

Speaking at Wednesday's Business of Development conference run by development and training body Arista, development fund head Jenny Borgars said the council would now award more money to fewer companies. While she added that there are no hard and fast criteria for applications, successful bids will bring in additional financing, sales and distribution from the UK, continental Europe and the US.

"We want distribution and sales to be involved in development from the get go," Borgars said. "We are going to fund far fewer companies - a handful. And we are going to raise the bar in what we want from those companies and what they bring to the table."

Successful applicants will be awarded up to £500,000 a year over three years from Borgars' annual development fund of £4m. The new deals will be put out to tender at the end of April or early May. Companies will be reviewed every year, and Borgars added that deals would quickly be cancelled or reduced if companies are not performing.

The shake-up comes after many of the production companies awarded slate deals over the last three years have failed to live up to the council's aims - or even their own. Out of some 20 slate deals, 17 films have been made, with five of those coming from one company alone, Fragile Films.

"All the companies with slate deals, with the exception perhaps of one or two, predicted double the amount of productions that have actually happened," said Borgars. "We were asking them to define their own goals, and they were completely off kilter to the reality of the film industry."

Combining development, production and distribution was famously at the heart of the creation of the three franchises, DNA Films, Pathe Pictures and The Film Consortium. Seven years later, the franchises are set to expire having been roundly lambasted for a lack of hits - although all three appear to be maintaining some form of ongoing business, a key aim of the franchise experiment.

But Borgars was reluctant to compare the new scheme to the franchises - whereby companies were awarded £30m each in lottery cash, far more than the new deals.

"I am loath to use the 'f' word," she said. "These are development motors - driven by us. We had a motor [in the slate deals], but it was not attached to the other pistons and cogs of distribution."

Companies awarded deals will also have to work with third party producers in an umbrella capacity. Applicants will also be encouraged to team with UK companies or producers from outside London.

Along with creating a selection of funding pools for producers and filmmakers to go to for development cash, Borgars aims for the umbrella deals to allow newer producers to learn from more experienced ones. Part of the reason so few UK scripts make it into production, she argued, is a lack genuine executive producers able to take a project from final script stage into the market and attach cast and finance.

"We have poured a lot of water onto the garden; we sprinkled it all over the place," she said. "Now it is time to consolidate, to cultivate plants and root out the weeds."

Borgars is also overhauling the council's other main form of development finance, single project funding. She is dividing that funding into two main strands: firstly, working more with industry partners; secondly, seed funding projects so that the council will support more alternative ideas as sole financier in the early days of development, before cutting off the tap completely.