A License to Kill (For): U.S. Fees still top the scale

The big news in the U.S. of late has been the huge increase in off-network license fees for fictional programs such as Seinfeld and Ally McBeal, whose re-runs are now some of cable's most valuable assets. In the non-fiction world, however,...
March 1, 1999

The big news in the U.S. of late has been the huge increase in off-network license fees for fictional programs such as Seinfeld and Ally McBeal, whose re-runs are now some of cable’s most valuable assets. In the non-fiction world, however, the game is played differently. Although armed with some of the highest license fees in the world, the U.S. reality market hasn’t experienced the same boom in license fees as their fiction-driven counterparts.

Brian Donegan, executive VP of Washington-based distributor, Devillier Donegan Enterprises, points to the maturity of cable services when explaining the relative stability of the reality market. ‘Five years ago [license fees] weren’t radically different, ten years ago they were. They haven’t made, in my view, such a dramatic move in the last five because I think it’s more of an evolutionary question of channels building up stronger bases – able to pay a little more, but not terrifically different.’

Gary Lico, president and CEO of Connecticut’s Cable Ready, agrees: ‘The increase in [U.S.] license fees, percentage wise, has been flat. By that, I mean that if you have a Learning Channel, or a Bravo!, and they’re picking up, let’s say, 60% of the production cost – which is a fairly accurate percentage – that has pretty much stayed the same over time.’ Lico credits this levelling off, despite ratings and advertising rate increases, in part to the abundance of factual producers in the marketplace. ‘There are still a lot of people who want to produce reality programming, so there is no shortage of supply. Also, I think that a lot of cable networks haven’t had to get into a competitive bidding situation for reality programming, unlike off-network sitcoms or off-network hours.’

Lico compares Medical Detectives, a Cable Ready distributed reality series on TLC, to the popular drama Law & Order, which was airing on A&E before being bought by Ted Turner’s TNT cable network for US$1 million per episode. ‘[Law & Order] ended up going to TNT for ten times what it was sold for originally. If I was to take Medical Detectives from TLC and shop it around… I don’t think I’d get a whole lot of money for it despite the fact that it’s been a stellar performer there. So, for the most part, percentage wise… if it cost me $100,000 five years ago to do an hour and they picked up $60,000, of it, now it’s $120,000 and they are picking up $70,000, that’s just not an increase. We still have to go out and find, percentage wise, the same amount of money.’

For Brian Donegan, mature services equal an increase in original productions and coproductions, a key reason why license fees have remained stable in the short term. He explains, ‘The greatest emphasis today is going to coproduction and original programming, not to increasing the license fees of second run or imported materials… An Animal Planet will start out, for example, at probably 90-95% acquisitions and license deals and each year, if the subscriber base is growing (and therefore their revenue stream is growing), they will try immediately to engage producers in original production and coproduction to make their service distinctive.’

As for the effect of increased competition from cable and digital channels, Tim Smith, president of Docere (a subsidiary of California-based distributor, Unapix Entertainment), says he believes the new channels haven’t caused a marked increase in license fees, mainly due to the inability of new stations to garner high audiences. The only way that broadcasters would move prices up, he believes, is for the acquisition of a landmark doc that only a handful of people could produce. He explains: ‘These new satellite broadcasters and digital streams that have come along have such small audiences that they are not moving [license fees]. They are actually paying less, rather than more, so it hasn’t forced the big boys – the Discoverys and History Channels – to move their fees up.’

Gary Lico agrees that increased competition in cable hasn’t had a huge effect. ‘For the most part, when a new cable network comes on it’s carving out a new niche and it has no subscribers,’ he says. ‘Geraldine Laybourne’s new network, Oxygen, could be an exception. But it’s not like Lifetime is a huge buyer of reality programming right now and we don’t know whether Oxygen will be. If Oxygen launches something like an Intimate Portraits, one would think that would drive up the cost for that sort of thing. But it’s not going to be overnight and it’s not going to be spectacular, because Lifetime is in 70 million homes. The most Oxygen will come out of the gate with is maybe 10 million. So, are they going to be able to pay what Lifetime is able to pay right now? I don’t think so.’

Brian Donegan adds, ‘I think the top is rising and at a reasonable evolutionary rate, and the bottom is a little more padded because there are other services that didn’t exist a few years back that could probably use some of the material that may no longer be competitive at the highest end.’

As for the future of license fees in the U.S., Gary Lico sees the non-fiction market becoming somewhat akin to that of their big brother in fiction. ‘I think there will come a time when certain reality programs will find themselves up for bid in the same way that the off-network programs have been,’ he says. He anticipates the future surge of digital channels and subsequent need for more product as a key trend to watch for. ‘The presence of digital networks is going to cause networks to need more programming. Right now they are talking about re-running, re-purposing, that sort of thing. At some point in time the MSOs [Multiple Service Operators] and the viewers are going to wake up and say, `Why should we pay for a rerun? You better produce new stuff.’ So, that is going to cause a bump in production activity, albeit at the lower end of the license fee spectrum.’

Brian Donegan sees an increase in commissions and coproductions in the future. ‘I think the larger players will partner, and commission and coproduce more and more of their schedule…,’ he says. ‘There is less hunger for shelf material, library material, and internationally produced material then there was before because so many of the slots are filled with inventory that’s been created or coproduced by the channel. So, the most valuable slots in the schedule are not going to be saved for licensed material. They are going to be a little more on the fringe and the heavy money is going to go into the primetime schedule, which is going to be heavily original.’

With cable and digital channels now commanding 70% of the viewers of broadcast networks in the U.S., and over 100 million TV households, it is safe to say the U.S. will continue its strong hold over license fees worldwide for the foreseeable future. As for the future for producers and distributors, Gary Lico is quick to see a solution to a problem he feels has plagued the industry. ‘What we as producers have to do is band together and get ratings information, because for the most part now the networks control that information very tightly… When we can be armed with that just as the major studios are armed with the ratings info [that says] how a sitcom performs on the networks or in syndication, I think we will have a shot of pushing the envelope a little more.’

See also:

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About The Author
Daniele Alcinii is a news reporter at realscreen, the leading international publisher of non-fiction film and television industry news and content. He joins the rs team with journalism experience following a stint out west with Sun Media in Edmonton's Capital Region, and communications work in Melbourne, Australia and Toronto. You can follow him on Twitter at @danielealcinii.