But lately, the slick Hollywood films have been surpassed by local fare. French phenom "Bienvenue les chez Ch'tis" (Welcome to the Sticks) has passed $203 million in only four markets, outpacing the entire international runs of such notable successes as "Ice Age," "The Devil Wears Prada" and "I, Robot."

In Turkey, the comedy "Recep Ivedik" has passed all U.S. blockbusters to become the biggest hit of the year, with $28 million. In Italy, six of the year's top 10 are local productions, led by "Scusa se ti chiamo amore," a romance that grossed $20.1 million. Russia's "Irony of Fate 2" smashed B.O. records this year, and France's "Asterix at the Olympic Games" passed $130 million.

Outwardly, Hollywood execs are offering a positive spin, saying local hits are not cannibalizing their films, but are expanding audiences.

Privately, they're more concerned that international auds are not embracing their product the way they used to. A decade ago, Variety counted the top films in major global territories for the last weekend in April -- and nine out of the top 10 were from Hollywood. This year, for the same weekend, that number had dropped to seven out of 10.

This marks a new phase for the overseas market. From the early days of the studio system through the mid 1990s, international grosses were an afterthought. Then they turned into a bonanza, with international box office surpassing domestic a decade ago; last year, foreign hit $17.1 billion to domestic's $9.6 billion, according to the MPAA.

Now Hollywood stuff is no slam-dunk as foreign countries flock to their own pics in record numbers. That's partly because the locals are more savvy. Local production used to be defined by government-funded, deeply personal films too esoteric to become hits. Now as private funding increases, local filmmakers have more commercial instincts and are increasingly savvy about marketing and distribution. And the building of new plexes in countries like Russia have fueled filmgoing in general.

Hollywood for the past few years has been proudly touting its entry into local production. But they're not saying out loud that their if-you-can't-beat-'em-join-'em moves are sometimes being done surreptitiously. Often the studios are producing or distributing local films under different banners, to avoid a Hollywood backlash and so local pride can embrace these pics as homegrown, not more imported American fare.

U.S. studios also are getting more aggressive about marketing their films. Stars once were reluctant to make appearances overseas, figuring that a big U.S. opening and its attendant hoopla would be enough to drum up interest on foreign shores. But one studio exec points to Will Smith as the template of a star who has long understood international P.R., and he's joined by others like Adam Sandler in beating the drums for their films around the world.

Studios also have populated blockbusters such as "The Da Vinci Code" and "Pirates of the Caribbean" with international casts, and that global approach is spreading to smaller fare. Even "No Country for Old Men," a quintessential American piece with a modest budget, featured Spain's Javier Bardem and Scotland's Kelly Macdonald. It may be no coincidence that the top two international markets for the film were Spain and the U.K.

While few doubt Hollywood studios will have a hard time seeing big returns overseas from the likes of "Indiana Jones and the Kingdom of the Crystal Skull" or the next "Chronicles of Narnia," there is concern about losing market share to upstart homegrown fare in foreign territories.

"I think it goes without saying that we worry about local films taking away grosses from our own movies," says Joe Ortiz, Fox's exec director of international distribution. "You try to schedule around those films, but a lot of time, it's very hard to predict."

In Germany, for example, homegrown fare helped contribute to a 33% jump in box office in the first quarter, with local pics commanding almost one-third of the market.

Sony distribution honcho Jeff Blake adds, "We're always concerned about losing market share but we also see this as an opportunity, because we have been so aggressive at investing in local productions."

Blake believes it can be a win-win situation, since local pics are often slotted outside the summer and holiday periods -- and can boost awareness of upcoming tentpoles.

"The timing can work out fairly well," he says, with local product filling slots during March, April and September that aren't the usual peak times. "Everyone still wants to see the day-and-date movies. It does make for a healthier business in terms of operating on a 12-month basis," Blake adds.

Universal's international prexy David Kosse agrees that the local hits tend to come during the "shoulder seasons" and are helpful rather than hurtful for Hollywood.

"Hit films are good for the business, and France, in particular, has always had an ability to generate local breakouts," Kosse notes. "The great thing with a film like 'Ch'tis' is that you are getting people who don't ordinarily get out to the cinema and they're rediscovering the pleasures of doing that."

Kosse notes several Brit hits -- "The Full Monty," "Billy Eliot," "Calendar Girls" -- had that kind of impact in terms of connecting with the older demo and turning those patrons back into regular attendees.

Certainly local distributors -- both majors and indies -- try to steer clear of the U.S. summer blockbusters. In France, "Asterix at the Olympic Games" had a massive launch (1,078 screens) on Jan. 30), in the off season for U.S. movies. In Spain, "The Orphanage," which was being talked up for months as the Spanish movie of the year, was slotted, like much Spanish fare, in a fall launch.

Says Andrew Cripps, Par. Intl. prexy: "I haven't seen any evidence of our product suffering as a result of these local hits. With a film like 'Ch'tis,' it's getting people back in the cinema, and that includes people who haven't been to the cinema for many years. They're going in and also getting to see the trailers for films like 'Indiana Jones.' Hopefully these local hits are encouraging filmgoing."

Cripps adds, however, that local films are a factor in scheduling a Hollywood launch. "We treat them competitively and try to make sure that two similar films don't go out against each other. In a competitive environment, you have to take everything into account."

While Hollywood has ceded some of its monopoly, it's still doing well.

The Big Six studios saw overseas box office rise 10% last year to $9.4 billion. Stars like Smith are still particularly adept at drawing foreign auds to a range of megapics and dramas. Smith's last four pics -- "I, Robot," "Hitch," "The Pursuit of Happyness" and "I Am Legend" -- have racked up more than $800 million at the foreign box office.

Despite the success of "Ch'tis" and "Asterix," B.O. admissions for U.S. pics in France were up 3% in the first quarter 2008.

It's hard to say what concrete impact this is having on U.S. films in the marketplace. In Italy, for instance, the growth of the Italian share of the moviegoing audience may be biting into the share of other European films more than it does U.S. product.

But "Ch'tis" seems to have overshadowed Hollywood openers in France; "Jumper" opened well, but in its second weekend it fell 58% in France to $1.9 million, compared with the stunning $31 million launch weekend for "Ch'tis."

And in its third weekend, "Ch'tis" grossed $23.9 million, while "10,000 BC" opened with $3.3 million. Both Hollywood films ended up doing fine, but couldn't compete with the "Ch'tis" juggernaut.

The local film has drawn more than 19 million viewers in Gaul and broken the 42-year-old record for a French-made film (set by "La Grande vadrouille"). Only "Titanic" racked up more ticket sales in France, at 20.8 million.

Films like "Ch'tis," as well as other films (see chart, page TK) have been so successful locally that they don't need to make any coin in other countries.

Adding to Hollywood's conundrum are films such as the German "Perfume: The Story of a Murderer" and Britain's "Mr. Bean's Holiday," which were huge hits everywhere around the world except the U.S., further undermining studios' conviction that American audiences are the perfect gauge for global hits. Germany's murder drama "Perfume" delivered an impressive $132 million in Europe, and a meager $2 million in the U.S.

So the studios' immediate solution -- either openly or quietly -- is to embrace local production.

In Mexico, Sony has backed three pics -- "Sin ton ni Sonia," last year's "Charm School" and current release "Casi divas" (aka "The Road to Fame").

Blake credits Peter Schlessel, who heads Sony's worldwide acquisitions group, and Gareth Wigan with keeping Sony on the leading edge this year. "All of our managers around the world are on the lookout so we can take advantage of this growing phenomenon," he says.

Similarly, Warner Bros. is investing in France's "Les Bronzes 3" and Disney financed all of the "Wild Bunch" soccer comedies in Germany, which have grossed more than $60 million in that market alone.

In Spain, "Orphanage" was distribbed by Warner Bros., as was "The Oxford Murders," which made $12.5 million from a January bow.

U.S. financing and investment company Continental Entertainment Capital (CEC), a Citi Group subsid, announced this month it has launched a European operation, CEC Europe, to loan-finance or invest in Euro films, production slates or companies.

John Hopewell and Ali Jaafar contributed to this report.