London-based United Artists Films, spearheaded by Wendy Palmer and Fiona Mitchell, is being shut down over the next few months as a foreign sales division by its parent studio Metro-Goldwyn-Mayer. In its place will come a new UK-based production operation that may revolve around some of the existing UAF staff.

From November 1st, all specialty films either acquired, produced or co-financed by MGM under the United Artists label will be released overseas through 20th Century Fox as part of MGM's international theatrical and video distribution deal that kicks in on the same day.

By then, MGM hopes to have installed a team to run a new London production arm charged with striking deals with European filmmaking talents on behalf of United Artists. One such deal, a first-look arrangement with Michael Winterbottom and Andrew Eaton's Revolution Films, has just been concluded, confirmed Larry Gleason, president of worldwide distribution for MGM.

Gleason explained that the final decision to eliminate the London sales arm was made just after the Cannes Film Festival, where the division appeared to have enjoyed brisk business with films such as Sundance-winner Girlfight, Winterbottom's Kingdom Come and Songcatcher. But even those sales numbers, said Gleason, paled against some of the aggressive sums now being dangled before the Hollywood studios by overseas television networks.

"Unfortunately, with the high prices that we are now getting from our lucrative international TV output deals, it no longer made economic sense to continue selling these kinds of films to independent distributors on a territory-by-territory basis. Only two territories were able to match the revenues we can now generate by capitalising on our international TV partners and releasing the films through a studio like Fox," Gleason told Screen International.

"When G2 Films [the previous name for UAF] was created as our foreign sales arm, we asked it to cover a large percentage of the slate's budget through pre-sales. That philosophy has not changed for United Artists; but what has changed is that international television rights are now driving the marketplace," continued Gleason. "Of course, three years from now that may all change again."

Gleason insisted that United Artists would not change its production mix or filmmaking focus as a result of the Fox distribution deal, noting that the studio had enjoyed great success overseas with specialty films like The Full Monty and Boys Don't Cry.

Rumours of the UAF shutdown have been circulating ever since last December and many of the London staff-members are known to have been actively seeking jobs elsewhere as the November deadline loomed. However, a formal announcement regarding UAF's closure had not been expected quite so early in the summer. Pointedly perhaps, neither Palmer nor Mitchell were quoted in the official statement that suddenly went out Friday evening confirming UA's imminent restructuring.

The decision to phase out this sales operation immediately puts Palmer, among the most prominent figures on the international industry circuit with established ties to such filmmaking iconoclasts as Pedro Almodovar and David Lynch, on the list of potential candidates to spearhead the new Premiere Production Fund. Armed with $16m in Lottery cash, this Fund is being set up by the British Film Council with the express intention of kick-starting commercially orientated films in the UK.

But while Palmer certainly would be a popular choice among some in the industry it is not clear that a publicly funded body like the Council would be in a position to meet the salary demands of a topflight executive identified with a Hollywood offshoot. In any case, several applicants are understood to be very much in contention as the Council now moves into its final round of interviews this week. Palmer herself could not be contacted by the time this story went to press.

Under Palmer and Mitchell, UA built up a significant presence in London, handling locally produced specialist fare such as Lynne Ramsay's Ratcatcher and Mike Leigh's Topsy-Turvy, alongside larger scale productions including Michael Winterbottom's $14m Kingdom Come. And while UA reduced its risk on Kingdom Come by acquiring the film as negative pick up it is also understood to have given the production strong support including agreeing to a budget increase of $1m during shooting.

The Los Angeles wing of UA, meanwhile, has also been busy striking co-production and co-financing deals of its own, including those with Michael Stipe's Self Timer outfit and Francis Ford Coppola's American Zoetrope. As a possible portent of things to come, UA's deal in May with American Zoetrope effectively by-passed Palmer's London operation that had earlier handled sales on Virgin Suicides, directed by Coppola's daughter Sophia. Instead, as much as 75% of the financing for the Zoetrope slate is being provided by Germany's VCL that then struck its own foreign sales arrangement with another London-based outfit Capitol Films.

Adam Minns IN LONDON contributed to this report.